<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
REGISTRATION NO. 333-56099
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAXTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3572 77-0123732
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
510 COTTONWOOD DRIVE
MILPITAS, CALIFORNIA 95035
(408) 432-1700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL R. CANNON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAXTOR CORPORATION
510 COTTONWOOD DRIVE
MILPITAS, CALIFORNIA 95035
(408) 432-1700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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GREGORY M. GALLO, ESQ. ALAN L. BELLER, ESQ.
DIANE HOLT FRANKLE, ESQ. RAYMOND B. CHECK, ESQ.
JOSEPH B. HERSHENSON, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON
GRAY CARY WARE & FREIDENRICH LLP ONE LIBERTY PLAZA
400 HAMILTON AVENUE NEW YORK, NEW YORK 10006
PALO ALTO, CALIFORNIA 94301-1825 (212) 225-2000
(650) 328-6561
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 29, 1998
PROSPECTUS
47,500,000 SHARES
LOGO
COMMON STOCK
------------------------
Of the 47,500,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of Maxtor Corporation ("Maxtor" or the "Company") offered
hereby, 38,000,000 shares are being offered by the U.S. Underwriters (as
defined) in the United States and Canada (the "U.S. Offering") and 9,500,000
shares are being offered by the International Underwriters (as defined) in a
concurrent offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings"), subject to
transfers between the U.S. Underwriters and the International Underwriters
(collectively the "Underwriters"). The initial public offering price and the
aggregate underwriting discount per share will be identical for the U.S.
Offering and the International Offering. See "Underwriting." The closing of the
International Offering is conditioned upon the closing of the U.S. Offering and
vice versa. See "Underwriting."
All of the shares of Common Stock offered hereby are being sold by the
Company. Upon completion of the Offerings, Hyundai Electronics America ("HEA"),
which is a majority-owned subsidiary of Hyundai Electronics Industries Co., Ltd.
("HEI"), a corporation organized under the laws of the Republic of Korea, will
own approximately 48% (approximately 45% if the Underwriters' over-allotment
options are exercised in full) of the outstanding shares of Common Stock. See
"Risk Factors -- Control by and Dependence on Hyundai."
Prior to the Offerings, there has not been a public market for the Common
Stock. It currently is estimated that the initial public offering price will be
between $8.50 and $10.50 per share. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the proposed symbol "MXTR."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------------
Per Share $ $ $
- ----------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $1,500,000, payable by the
Company.
(3) The Company has granted the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to 5,700,000 and 1,425,000
additional shares of Common Stock, respectively, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are being offered by the several U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001, or through the facilities of The Depository Trust Company.
------------------------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
<PAGE> 3
Capitalized terms used in the summary on the following pages have the
meanings ascribed to such terms elsewhere in this Prospectus. References in this
Prospectus to "Korea" are to the Republic of Korea. Certain technical terms used
throughout this Prospectus are defined in the Glossary appearing immediately
prior to the Consolidated Financial Statements at the end of this Prospectus.
Maxtor(R) and No Quibble(R)are registered trademarks, and the Maxtor logo,
DiamondMax(TM) and Formula 4(TM) are trademarks, of the Company. All other brand
names and trademarks appearing in this Prospectus are the property of their
respective holders.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING PURCHASES OF SUCH SECURITIES TO STABILIZE THEIR MARKET PRICE,
PURCHASES OF SUCH SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN SUCH
SECURITIES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "Risk Factors." Unless otherwise
indicated herein, all information in this Prospectus: (i) assumes no exercise of
the Underwriters' over-allotment options; (ii) has been adjusted to reflect the
automatic conversion of each outstanding share of preferred stock of the Company
into 0.5 of a share of Common Stock upon the closing of the Offerings; (iii) has
been adjusted to reflect a 1-for-2 reverse stock split (the "Reverse Stock
Split") to be effected prior to the Offerings; and (iv) assumes the
authorization of 95 million shares of undesignated preferred stock upon the
closing of the Offerings.
Maxtor is a leading provider of hard disk drive ("HDD") storage products
for desktop PC systems. The Maxtor DiamondMax product family consists of
3.5-inch form factor HDDs with storage capacities which range from 2.1 GB to
13.6 GB. These products have high speed interfaces for greater data throughput,
a robust mechanical design for improved reliability, MR head technology and a
DSP-based electronic architecture that, when combined, provide industry-leading
benchmark performance. On June 15, 1998, Maxtor announced two new HDD products,
the DiamondMax 3400 and the DiamondMax Plus 2500. The DiamondMax 3400 is
Maxtor's fifth MR head HDD, its sixth HDD utilizing the Company's DSP-based
electronic architecture and its eighth HDD based on the Company's Formula 4
mechanical structure. The DiamondMax Plus 2500, which is designed for the
performance desktop PC market, is the Company's first HDD to feature a 7,200 RPM
spin speed, its sixth MR head HDD, its seventh HDD utilizing the Company's
DSP-based electronic architecture and its ninth HDD based on the Company's
Formula 4 mechanical structure. The Company's customers are leading PC OEMs,
including Compaq, Dell and IBM; distributors, including Ingram; and retailers,
including Best Buy and CompUSA.
During the mid-1980s, the Company was a leading technology innovator in the
HDD industry. Faced with intense competition, the Company pursued all major
product segments in the HDD market, which added significant complexity to the
business and caused the Company to delay or miss a number of key product
introductions. This strategy led to the deterioration of the Company's overall
financial condition which, in turn, led to the sale of a 40% stake in the
Company to HEI and certain of its affiliates in 1994. In early 1996, HEA
acquired all of the Company's outstanding Common Stock. Shortly thereafter, HEA
invested in renewed efforts to revitalize the Company. In July 1996, the Company
hired Michael R. Cannon, its current Chief Executive Officer and President and a
20 year veteran of the HDD industry, to lead Maxtor's turnaround. Mr. Cannon
immediately took a number of steps to position the Company to become a
significant provider of HDDs to leading PC OEMs, including improving product
performance, quality, time-to-market entry and time-to-volume manufacturing, and
refocusing the Company's sales and marketing efforts.
As a result, Maxtor's performance has improved significantly during a
period of severe fluctuations in the overall HDD market. The Company's
restructured manufacturing and product development processes as well as its cost
competitiveness initiatives resulted in the Company achieving one of the fastest
transitions in the industry from HDDs utilizing thin-film head technology to
100% use of MR head technology, while also achieving among the lowest selling,
general and administrative costs as a percentage of revenue in the industry for
1997 and the first quarter of 1998. These manufacturing and development
processes also helped the Company increase its units shipped per quarter from
1.3 million units in the first quarter of 1997 to 3.5 million units in the first
quarter of 1998, which contributed to Maxtor increasing its market share of the
desktop HDD market in terms of quarterly unit shipments from 5.6% to 13.4%,
according to IDC. The Company's refocused efforts on leading PC OEMs, including
Compaq, Dell and IBM, resulted in an increase in the Company's revenues from
these PC OEMs from 6.5% of total revenue in the second quarter of 1996 to 51.8%
in the first quarter of 1998. Cumulatively, these changes have led to
significantly improved financial results. The Company's revenues grew by 122.5%
from $247.0 million to $549.6 million during the first quarters of 1997 and
1998, respectively, while its gross margins improved from (2.9)% to 11.3% during
the same periods.
According to IDC, the desktop PC market is the largest segment of the
worldwide PC market, accounting for approximately 80% of global PC shipments in
1997. As a result, desktop PCs were the leading source of demand for HDDs,
accounting for more than 75% of all HDD units shipped worldwide in 1997. PC OEMs
compete in a consolidating market. The top ten PC OEMs accounted for greater
than 50% of all
3
<PAGE> 5
PC units shipped during 1997 and the first quarter of 1998. IDC forecasted, as
of May 1998, that the desktop HDD market will grow from approximately 100
million units in 1997 to approximately 174 million units in 2001, reflecting a
compound annual growth rate of approximately 15%.
Maxtor seeks to be the dominant provider of HDDs to leading PC OEMs,
distributors and retailers. Maxtor's strategy to achieve this goal includes the
following elements: (i) effectively integrating new technology; (ii) leveraging
design excellence; (iii) capitalizing on flexible manufacturing; (iv) increasing
market share with leading PC OEMs; (v) maintaining customer satisfaction; and
(vi) broadening the Company's product portfolio.
HEA owns all of the Company's Series A Preferred Stock and 99.88% of the
total capital stock outstanding immediately prior to the Offerings. Immediately
following the Offerings HEA will own approximately 48% of the outstanding Common
Stock (approximately 45% if the Underwriters' overallotment options are
exercised in full). As a subsidiary of HEA, Maxtor has received financial
support from HEA and HEI (including credit guarantees and direct advances) and
has received the benefit of various contractual relationships. The Company
intends to use a portion of the proceeds of the Offerings to repay all
outstanding amounts guaranteed by Hyundai entities and all outstanding advances
to the Company from Hyundai entities. Conflicts of interest may arise from time
to time in the future between the Company and HEA or its affiliates in a number
of areas relating to their past and ongoing relationships. In contemplation of
the Offerings, Maxtor, HEA and HEI have entered into certain agreements
governing certain ongoing relationships between them that are intended in part
to address such conflicts. See "Risk Factors -- Control by and Dependence on
Hyundai" and "Relationship Between the Company and Hyundai."
4
<PAGE> 6
THE OFFERINGS
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U.S. Offering............................................... 38,000,000 shares
International Offering...................................... 9,500,000 shares
----------
Total............................................. 47,500,000 shares
Common Stock outstanding after the Offerings(1)(2).......... 91,549,290 shares
Common Stock held by HEA immediately after the Offerings.... 44,029,850 shares
Reserved Nasdaq National Market symbol...................... "MXTR"
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of June 1, 1998. Excludes (i)
7,007,466 shares of Common Stock issuable upon the exercise of options
outstanding under the Company's 1996 Amended and Restated Stock Option Plan
with a weighted average exercise price of $6.04 per share and (ii) 390,000
shares of common stock granted under the 1998 Restricted Stock Plan. See
"Management -- Benefit Plans," "Description of Capital Stock" and Notes 1
and 10 of notes to consolidated financial statements.
(2) Assumes no exercise of the Underwriters' over-allotment options.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $427.2 million (approximately $491.5
million if the Underwriters' over-allotment options are exercised in full),
assuming an initial public offering price of $9.50 per share of Common Stock and
after deducting the estimated underwriting discounts and estimated offering
expenses payable by the Company. Approximately $255.0 million of the net
proceeds from the Offerings will be used to repay certain outstanding
indebtedness of the Company, including accrued interest and monies owed to HEA.
The remaining approximately $172.2 million of such net proceeds (approximately
$236.5 million if the Underwriters' over-allotment options are exercised in
full) will be available for capital expenditures, working capital and general
corporate purposes. Pending such uses, the net proceeds to the Company of the
Offerings will be invested in investment-grade, interest-bearing securities. See
"Use of Proceeds."
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by potential investors.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN MILLIONS)
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<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED ---------------------------
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1996 1996(1) 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 1,269.0 $ 798.9 $ 1,424.3 $ 247.0 $ 549.6
Gross profit (loss)........................ 72.7 (90.0) 71.4 (7.1) 62.3
Total operating expenses................... 182.0 148.5 168.8 41.5 64.0(2)
Loss from operations....................... (109.3) (238.5) (97.4) (48.6) (1.7)(2)
Interest expense........................... (11.8) (18.1) (36.5) (7.9) (8.8)
Net loss................................... (122.8) (256.3) (109.9)(3) (55.0) (10.3)(2)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 27, MARCH 28,
1997 1997 1997 1997 1998
------------ ------------ ------------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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QUARTERLY STATEMENT OF OPERATIONS
DATA:
Revenue.................................... $ 247.0 $ 283.1 $ 392.2 $ 502.0 $ 549.6
Gross profit (loss)........................ (7.1) 2.8 21.5 54.2 62.3
Total operating expenses................... 41.5 40.9 42.2 44.2 64.0(2)
Income (loss) from operations.............. (48.6) (38.1) (20.7) 10.0 (1.7)(2)
Interest expense........................... (7.9) (8.7) (10.9) (9.0) (8.8)
Net loss................................... (55.0) (46.6) (31.4) 23.1(3) (10.3)(2)
</TABLE>
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<CAPTION>
AT MARCH 28, 1998
-------------------------------
ACTUAL AS ADJUSTED(4)
----------- --------------
(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 13.3 $ 185.5
Total assets................................................ 634.6 806.8
Short-term borrowings, including current portion of
long-term debt............................................ 131.2(5) 5.2
Total current liabilities................................... 635.2 509.2
Long-term debt and capital lease obligations due after one
year...................................................... 219.3 90.3
Total stockholders' equity (deficit)........................ (219.9) 207.3
</TABLE>
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(1) The Company changed its fiscal year during the period ended December 28,
1996 to conform its fiscal year to that of its parent, HEA.
(2) Total operating expenses, loss from operations and net loss for the three
months ended March 28, 1998 reflect a $14.7 million compensation charge
related to the variable accounting features of the Company's 1996 Stock
Option Plan (the "Option Plan"). Without such charge, the Company would have
had total operating expenses of $49.3 million, income from operations of
$13.0 million and net income of $4.4 million. The Option Plan has been
amended and restated (referred to herein as the "Amended Plan") to remove
the variable features and provide for fixed award options. See
"Management -- Benefit Plans" and Note 10 of notes to consolidated financial
statements.
(3) Includes recovery of a $20.0 million fully-reserved note from International
Manufacturing Services, Inc. ("IMS"). See "Certain Transactions."
(4) As adjusted to reflect the sale of 47,500,000 shares of Common Stock offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, including repayment of
approximately $255.0 million of the Company's outstanding debt.
(5) Includes $55.0 million of short-term borrowings due to its parent, HEA.
6
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
the U.S. federal securities laws that involve risks and uncertainties. The
statements contained in this Prospectus that are not purely historical,
including, without limitation, statements regarding the Company's expectations,
beliefs, intentions or strategies regarding the future, are forward-looking
statements. In this Prospectus, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions also identify forward-looking
statements. The Company makes these forward-looking statements based upon
information available on the date hereof, and assumes no obligation to update
any such forward-looking statements. The Company's actual results could differ
materially from those anticipated in this Prospectus as a result of certain
factors including, but not limited to, those set forth in the following risk
factors and elsewhere in this Prospectus. In addition to the other information
in this Prospectus, prospective investors should consider carefully the
following risk factors in evaluating the Company and its business before
purchasing shares of Common Stock in the Offerings.
HISTORY OF OPERATING AND NET LOSSES; ACCUMULATED DEFICIT
During each of the 19 consecutive quarters ended September 27, 1997, the
Company incurred significant operating losses ranging from $125.5 million to
$3.1 million per quarter, with net losses ranging from $130.2 million to $4.5
million, primarily as a result of delayed product introductions, product
performance and quality problems, low manufacturing yields and under-utilization
of manufacturing capacity, high operating expenses and overall market conditions
in the HDD industry, including fluctuations in demand and declining average
selling prices ("ASPs"). As of March 28, 1998, the Company had an accumulated
stockholders' deficit of approximately $783.3 million. While the Company
achieved operating profits and positive net income for the quarter ended
December 27, 1997, it recorded operating and net losses for the fiscal year
ended December 27, 1997. The Company also recorded operating and net losses in
the quarter ended March 28, 1998 due to a $14.7 million compensation expense
related to variable features of the Option Plan, and expects that it will either
break even or report a net loss for the second quarter of 1998 on an operating
basis. The Option Plan has been amended and restated to remove the variable
features and provide for fixed award options. There can be no assurance that the
factors that led to the Company's history of operating losses have been overcome
or that the Company will achieve profitability on either an operating or net
income basis in any future quarterly or annual periods. Consequently, recent
operating results should not be considered indicative of future financial
performance. See "-- Expected Volatility of Stock Price; Absence of Current
Trading Market for the Common Stock" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; AVERAGE SELLING PRICE EROSION;
MANAGEMENT OF GROWTH
The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter-to-quarter. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. The Company's operating results
may be subject to significant quarterly fluctuations as a result of a number of
factors, including: (i) the Company's ability to be among the first-to-volume
production with competitive products; (ii) fluctuations in HDD product demand as
a result of the cyclical and seasonal nature of the personal computer ("PC")
industry; (iii) the availability and extent of utilization of manufacturing
capacity; (iv) changes in product or customer mix; (v) entry of new competitors;
(vi) the complex and difficult process of qualifying the Company's products with
its customers; (vii) cancellation or rescheduling of significant orders; (viii)
deferrals of customer orders in anticipation of new products or enhancements;
(ix) the impact of price protection measures and return privileges granted by
the Company to certain distributors and retailers; (x) component and raw
material costs and availability, particularly with respect to components
obtained from sole or limited sources; (xi) the availability of adequate capital
resources; (xii) increases in research and development expenditures to maintain
the Company's competitive position; (xiii) changes in the Company's strategy;
(xiv) personnel changes; and (xv) other general economic and competitive
factors. Moreover, since a large portion of the Company's operating expenses,
including rent, salaries, capital lease and debt payments and equipment
depreciation, are relatively fixed and difficult to reduce or modify, the
adverse effect of any decrease in revenue as a result of fluctuations in product
demand or
7
<PAGE> 9
otherwise will be magnified by the fixed nature of such operating expenses and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, the HDD industry is characterized by rapidly declining ASPs
over the life of a product even for those products which are competitive and
timely-to-market. The Company anticipates that this market characteristic will
continue for the foreseeable future. In general, the ASP for a given product in
the desktop HDD market decreases over time as increases in the supply of
competitive products and cost reductions occur and as technological advancements
are achieved. The rate of ASP decline accelerates when, as is currently the case
in the HDD industry, some competitors lower prices to absorb excess capacity,
liquidate excess inventories, restructure or attempt to gain market share. The
Company expects ASPs to continue to decline for the second quarter of 1998 and
the remainder of the year. This continuing price erosion could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In July 1996, the Company began to modify its management and operational
structures. Since the first quarter of 1997, the Company's timely introduction
and volume production of competitive products has resulted in quarterly revenue
growth. Such restructuring activities and revenue growth have placed and are
expected to continue to place a significant strain on the Company's personnel
and resources. The Company's ability to maintain the advantages of the
restructuring and to manage future growth, if any, will depend on its ability
to: (i) continue to implement and improve its operational, financial and
management information and control systems on a timely basis; (ii) hire, train,
retain and manage an expanding employee base; and (iii) maintain effective cost
controls, all while being among the first-to-volume production with competitive
products. The inability of the Company's management to maintain the advantages
of the restructuring, to manage future growth effectively and to continue to be
among the first-to-volume production with competitive products could have a
material adverse effect on the Company's business, financial condition and
results of operations.
See "-- Risks of Failed Execution; Changing Customer Business Models" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS OF FAILED EXECUTION; CHANGING CUSTOMER BUSINESS MODELS
PC original equipment manufacturers ("OEMs") compete in a market that is
consolidating market share among the top ten PC OEMs, which accounted for
greater than 50% of all PC units shipped during 1997 and the first quarter of
1998. A majority of the Company's HDDs are sold to PC OEMs. The process of
qualifying the Company's products with these PC OEM customers can be complex and
difficult. These PC OEMs use the quality, storage capacity and performance
characteristics of HDDs to select their HDD providers. PC OEMs typically seek to
qualify three or four providers for a given HDD product generation. To qualify
consistently with PC OEMs and thus succeed in the desktop HDD industry, an HDD
provider must consistently execute on its product development and manufacturing
processes in order to be among the first-to-market entry and first-to-volume
production at leading storage capacity per disk with competitive prices. Once a
PC OEM has chosen its qualified HDD vendors for a given PC product, it generally
will purchase HDDs from those vendors for the life of that product. If a
qualification opportunity is missed, the Company may not have another
opportunity to do business with that PC OEM until the next generation of the
Company's products is introduced. The effect of missing a product qualification
opportunity is magnified by the limited number of high volume PC OEMs. Failure
to reach the market on time or to deliver timely volume production usually
results in significantly decreased gross margins due to rapidly declining ASPs
and dramatic losses in market share. Failure to obtain significant PC OEM
customer qualifications for new or existing products in a timely manner would
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition to developing and qualifying new products, the Company must
address the increasingly changing and sophisticated business needs of its
customers. For example, PC OEMs and other PC suppliers are starting to adopt
build-to-order manufacturing models which reduce their component inventories and
related costs and enable them to tailor their products more specifically to the
needs of their customers. Various PC OEM customers also are considering or have
implemented a "channel assembly" model in which the PC OEM ships a minimal
computer system to the dealer or other assembler, and component suppliers
(including
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HDD manufacturers such as the Company) ship parts directly to the dealer or
other assembler for installation at its location. Finally, certain PC suppliers
have adopted just-in-time inventory management processes which require component
suppliers to maintain inventory at or near the PC supplier's production
facility. Together, these changing models increase the Company's capital
requirements and costs, complicate the Company's inventory management
strategies, and make it more difficult to match manufacturing plans with
projected customer demand, thereby increasing the risk of inventory obsolescence
and ASP erosion as a result of later shipments to customers. The Company's
failure to manage its manufacturing output or inventory in response to these new
customer demands and other similar demands that may arise in the future as
customers further change their ordering and assembly models could lead to a
decline in the demand for the Company's products and a loss of existing or
potential new customers and could have a material adverse effect on the
Company's business, financial condition and results of operations.
See "-- Customer Concentration," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Industry
Background -- HDD Market Challenges," "-- Customers and Sales Channels" and
"-- Sales and Marketing."
HIGHLY COMPETITIVE INDUSTRY
Although the Company's share of the desktop HDD market has increased
steadily since the first quarter of 1997, this market segment and the HDD market
in general are intensely competitive and characterized by rapid technological
change, rapid rates of product and technology obsolescence, changing customer
requirements, dramatic shifts in market share and significant erosion of ASPs.
Consequently, there can be no assurance that the Company will be able to improve
on, or prevent the erosion of, the Company's present share of the desktop HDD
market.
The Company competes primarily with manufacturers of 3.5-inch HDDs,
including Fujitsu Limited ("Fujitsu"), Quantum Corporation ("Quantum"), Samsung
Company Limited ("Samsung"), Seagate Technology, Inc. ("Seagate") and Western
Digital Corporation ("Western Digital"), many of which have a larger share of
the desktop HDD market than the Company. Other companies, such as International
Business Machines Corporation ("IBM"), will be significant competitors of the
Company in one or more of the markets into which the Company plans to expand its
product portfolio, and could be significant competitors of the Company in its
current market should they choose to commit significant resources to providing
desktop HDDs.
Most of the Company's competitors offer a broader array of product lines
and have significantly greater financial, technical, manufacturing and marketing
resources than the Company. Unlike the Company, certain of the Company's
competitors manufacture a significant number of the components used in their
HDDs and thus may be able to achieve significant cost advantages over the
Company. Certain competitors have preferred vendor status with many of the
Company's customers, extensive marketing power and name recognition, and other
significant advantages over the Company. In addition, such competitors may
determine, for strategic reasons or otherwise, to consolidate, lower the prices
of their products or bundle their products with other products. The Company's
competitors have established and may in the future establish financial or
strategic relationships among themselves or with existing customers, resellers
or other third parties. New competitors or alliances could emerge and rapidly
acquire significant market share.
The Company believes that important competitive factors in the HDD market
are quality, storage capacity, performance, price, time-to-market entry,
time-to-volume production, PC OEM product qualifications, breadth of product
lines, reliability, and technical service and support. The Company believes it
generally competes favorably with respect to these factors. The failure of the
Company to develop and market products that compete successfully with those of
other suppliers in the HDD market would have a material adverse effect on the
Company's business, financial condition and results of operations.
See "Business -- Competition."
FLUCTUATION IN PRODUCT DEMAND; FOCUS ON SINGLE MARKET
The Company presently offers a single product family which is designed for
the desktop PC segment of the HDD industry. The demand for the Company's HDD
products is therefore dependent to a large extent on
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the overall market for desktop PCs which, in turn, is dependent on PC life
cycles, demand by end-users for increased PC performance and functionality at
lower prices (including increased storage capacity), availability of substitute
products, including laptop PCs, and overall foreign and domestic economic
conditions. The desktop PC and HDD markets are characterized by periods of rapid
growth followed by periods of oversupply, and by rapid price and gross margin
erosion. This environment makes it difficult for the Company and its PC OEM
customers to reliably forecast demand for the Company's products. The Company
does not enter into long-term supply contracts with its PC OEM customers, and
such customers often have the right to defer or cancel orders with limited
notice and without significant penalty. If demand for desktop PCs falls below
the customers' forecasts, or if customers do not manage inventories effectively,
they may cancel or defer shipments previously ordered from the Company.
Moreover, while there has been significant growth in the demand for desktop PCs
over the past several years, according to International Data Corporation
("IDC"), the growth rate in the desktop PC market has slowed in recent quarters.
Because of the Company's reliance on the desktop segment of the PC market, the
Company will be more strongly affected by changes in market conditions for
desktop PCs than would a company with a broader range of products. Any decrease
in the demand for desktop PCs could lead in turn to a decrease in the demand for
the Company's HDD products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Although the desktop PC segment is currently the largest segment of the HDD
market, the Company believes that over time, market demand may shift to other
market segments that may experience significantly faster growth. In addition,
the Company believes that to remain a significant provider of HDDs to major PC
OEMs, the Company will need to offer a broader range of HDD products for the
existing and new product categories of its PC OEM customers. For these reasons,
the Company will need to develop and manufacture new products which address
additional HDD market segments and emerging technologies to remain competitive
in the HDD industry. Examples of potentially important market segments that the
Company's current products are not positioned to address include: (i) the
client-server market, which may continue to grow in part as a result of the
emerging market trend toward "network computers" (which utilize central servers
for data storage and thereby reduce the need for desktop storage); (ii) lower
cost (typically below $1,000), lower performance PC systems principally for the
consumer marketplace; and (iii) laptop PCs. Significant technological innovation
and re-engineering will be required for the Company to produce products that
effectively compete in these and other new or growing segments of the HDD
market, and there can be no assurance that the Company will be able to design or
produce such new products on a timely or cost-effective basis, if at all, while
maintaining the required product quality or that such products or other future
products will attain market acceptance. Certain of the Company's competitors
have significant advantages over the Company in one or more of these and other
potentially significant new or growing market segments.
See "-- Customer Concentration" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Overview."
RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT
The HDD industry is characterized by rapid technological change, rapid
rates of product and technology obsolescence, changing customer requirements,
dramatic shifts in market share and significant erosion of ASPs, any of which
may render the Company's products obsolete. The Company's future results of
operations will depend on its ability to enhance current products and to develop
and introduce volume production of new competitive products on a timely and
cost-effective basis. To succeed, the Company also must keep pace with and
correctly anticipate technological developments and evolving industry standards
and methodologies.
Both in the desktop HDD market for which the Company's current products are
designed and in any other HDD market segments in which the Company may compete
in the future, advances in magnetic, optical or other technologies, or the
development of entirely new technologies, could result in the creation of
competitive products that have better performance and/or lower prices than the
Company's products. Examples of such new technologies include "giant
magneto-resistive" ("GMR") head technology (which already has been introduced by
IBM and which Western Digital reportedly will use in its products pursuant to an
agreement with IBM) and optically-assisted recording technologies (which
currently are being developed by companies such as TeraStor Corporation and
Seagate). Currently, the Company intends to incorporate
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GMR head technology into future products and is evaluating the various
approaches to and timing of such a transition. The Company has decided not to
pursue optically-assisted recording technologies at this time.
There can be no assurance that the Company's existing markets will not be
eroded by technological developments; that the Company will be successful in
developing, manufacturing and marketing product enhancements or new products
that respond to and anticipate technological change, such as the transition to
GMR head technology and changing customer requirements; or that its new products
and product enhancements will be introduced or manufactured in volume on a
timely basis and will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. Inability to introduce or
achieve volume production of competitive products on a timely basis has in the
past and could in the future have a material adverse effect on the Company's
business, financial condition and results of operations.
Unlike some of its competitors, the Company does not manufacture any of the
components used in its HDDs, including key components such as heads, disks and
printed circuit boards ("PCBs"). The Company's product development process
therefore involves incorporating components designed by and purchased from third
party suppliers. As a consequence, the success of the Company's products is in
great part dependent on the Company's ability to gain access to and integrate
components which utilize leading-edge technology. The successful management of
these integration projects depends on the timely availability and quality of key
components, the availability of appropriately skilled personnel, the ability to
integrate different products from a variety of vendors effectively, and the
management of difficult scheduling and delivery problems. There can be no
assurance that the Company will be able to manage successfully the various
complexities encountered in integration projects. The Company's success will
depend in part on its relationships with key component suppliers, and there can
be no assurance that such relationships will develop, that the Company will
identify the most advantageous suppliers with which to establish such
relationships, or that existing or future relationships with component suppliers
will continue for any significant time period.
See "-- Dependence on Suppliers of Components and Sub-Assemblies,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview," "Business -- Product Development/ Technology" and
"-- Products."
TRANSITION TO AND DEPENDENCE ON INFORMATION SYSTEMS; YEAR 2000 PROBLEM
The Company is preparing to implement a new enterprise-wide information
system (the "SAP System") provided by SAP, AG ("SAP"), in the fourth quarter of
1998. The SAP System is designed to automate more fully the Company's business
processes and will affect most of the Company's functional areas including,
without limitation, finance, procurement, inventory control, collections, order
processing and manufacturing, and its implementation will require certain
upgrades in the Company's existing computer hardware systems. Historically,
there have been substantial delays in the implementation of such systems at
other companies. Unlike most companies, which implement new information systems
in stages over time, the Company has chosen to install and activate the SAP
System across most functional areas of the Company simultaneously. The Company
believes it is among the first to undertake such a broad, simultaneous
implementation of the SAP System. This approach may substantially increase the
risk of delay or failure in the SAP System's implementation.
Implementation of the SAP System will be complex, expensive and time
intensive and its successful implementation could be adversely affected by
various factors including: (i) any failure to provide adequate training to
employees; (ii) any failure to retain skilled members of the implementation team
or to find suitable replacements for such personnel; (iii) the scope of the
implementation plan being expanded by unanticipated changes in the Company's
business; (iv) any inability to extract data from the Company's existing
information system and convert that data into a format that can be accepted by
the SAP System; (v) any failure to devise and run appropriate testing procedures
that accurately reflect the demands that will be placed on the SAP System
following its implementation; and (vi) any failure to develop and implement
adequate fall-back procedures in the event that difficulties or delays arise
during the initial start-up phase of the SAP System.
In connection with the implementation of the SAP System, the Company may
experience functional and performance problems, including problems relating to
the SAP System's response time and data integrity. In
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addition, resolution of any such problems could entail additional costs.
Moreover, as a result of the Company's simultaneous implementation approach, the
Company will not have an operational backup information system in the event of a
failure of the SAP System. There can be no assurance that the Company will be
able to implement the SAP System successfully on a timely and cost effective
basis or that the SAP System will not fail or prove to be unsuitable for the
Company's needs. The inability of the Company to implement or resolve problems
with the SAP System in a timely manner could have a material adverse effect on
the Company's business, financial condition and results of operations. No
amounts have been accrued in the Company's consolidated financial statements
included elsewhere in this Prospectus for any probable expenses or lost revenue
that could result from problems in implementing the SAP System.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies,
including Maxtor, will need to be upgraded to comply with such "Year 2000"
requirements. Because of the Company's change in its fiscal year end in 1996,
the Company's current information systems will need to be upgraded by January
1999 to avoid Year 2000 problems. While the SAP System is expected to resolve
this potential problem, there can be no assurance that the SAP System can be
implemented successfully and on a timely basis. Moreover, the Company could be
adversely impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
interacts. Any disruption in the Company's operations as a result of Year 2000
noncompliance, whether by the Company or a third party, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
See "-- Control by and Dependence on Hyundai," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."
DEPENDENCE ON AND INTEGRATION OF KEY PERSONNEL; HIRING ADDITIONAL SKILLED
PERSONNEL
The Company's success depends upon the continued contributions of its key
management, engineering and other technical personnel many of whom, and in
particular Michael R. Cannon, the Company's President and Chief Executive
Officer, would be extremely difficult to replace. The Company does not have
employment contracts with any of its key personnel other than Mr. Cannon; Paul
J. Tufano, its Vice President, Finance and Chief Financial Officer; William F.
Roach, its Senior Vice President, Worldwide Sales and Marketing; Dr. Victor B.
Jipson, its Senior Vice President, Engineering; Phillip C. Duncan, its Vice
President, Human Resources; and K.H. Teh, its Vice President, Worldwide
Manufacturing. Furthermore, the Company does not maintain key person life
insurance on any of its personnel. In addition, the majority of the Company's
senior management and a significant number of its other employees have been with
the Company for less than two years. The Company's inability to retain its
existing personnel and effectively manage the integration of new personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
To maintain its current market position and support future growth, the
Company will need to hire, train, integrate and retain significant numbers of
additional highly skilled managerial, engineering, manufacturing, sales,
marketing, support and administrative personnel. Competition worldwide for such
personnel is extremely intense, and there can be no assurance that the Company
will be able to attract and retain such additional personnel. The Company
believes that certain competitors recently have made targeted efforts to recruit
personnel from the Company, and such efforts have resulted in the Company losing
some skilled managers. There can be no assurance that such personnel losses will
not continue or increase in the future. Delays in hiring or the inability to
hire, train, integrate or retain required personnel, particularly engineers,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, companies in the HDD industry
whose employees accept positions with competitive companies frequently claim
that their competitors have engaged in unfair hiring practices. There can be no
assurance that the Company will not receive such claims in the future as it
seeks to hire qualified personnel or that such claims will not involve the
Company in litigation. Consequently, the Company could incur substantial costs
in defending itself against any such claims, regardless of their merits.
See "Business -- Employees" and "Management -- Directors and Executive
Officers."
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CONTROL BY AND DEPENDENCE ON HYUNDAI
Upon completion of the Offerings, HEA will own approximately 48%
(approximately 45% if the Underwriters' over-allotment options are exercised in
full) of the shares of the outstanding Common Stock. Five out of the seven
members of the Company's Board of Directors (the "Board") are currently
employees of HEA or one of its affiliates. Immediately following the Offerings,
HEA will have the contractual right to designate one person for nomination to
serve as a director in each of the three classes of the Board. Accordingly, HEA
will be able to influence or control major decisions of corporate policy and to
determine the outcome of any major transaction or other matter submitted to the
Company's stockholders or directors, including borrowings, issuances of
additional Common Stock and other securities of the Company, the declaration and
payment of any dividends on Common Stock, potential mergers or acquisitions
involving the Company, amendments to the Company's Amended and Restated
Certificate of Incorporation (the "Amended and Restated Certificate of
Incorporation") and Bylaws (the "Bylaws") and other corporate governance issues.
In particular, the affirmative vote of two-thirds of the outstanding voting
stock is required to approve certain types of amendments to the Amended and
Restated Certificate of Incorporation. Consequently, HEA will be able to block
approval of any such amendments that may be proposed in the future as long as it
owns at least one-third of the Common Stock and may be able to make it difficult
to achieve approval of any such amendment for as long as it owns a significant
amount of Common Stock even if its ownership falls below one-third. The Company
has granted HEA the contractual right to maintain its ownership interest at 30%
through 2000. Stockholders other than HEA therefore are likely to have little or
no influence on decisions regarding such matters. HEA and the Company have
entered into a Stockholder Agreement under which the Company has granted HEA
certain rights to require the Company to register HEA's shares of Common Stock
and the right to designate for nomination up to three members of the Board so
long as ownership by HEA and certain of its affiliates is between 50% and 10% of
the outstanding voting securities of the Company. In the Stockholder Agreement,
HEA has agreed to certain restrictions on its rights to solicit proxies, to
acquire additional shares of Common Stock and to compete with the Company.
Conflicts of interest may arise from time to time between the Company and
HEA or its affiliates in a number of areas relating to their past and ongoing
relationships, including potential competitive business activities, corporate
opportunities, tax matters, intellectual property matters, indemnity agreements,
registration rights, sales or distributions by HEA of all or any portion of its
ownership interest in the Company or HEA's ability to control the management and
affairs of the Company. There can be no assurance that HEA and the Company will
be able to resolve any potential conflict or that, if resolved, the Company
would not receive more favorable resolution if it were dealing with an
unaffiliated party. The Amended and Restated Certificate of Incorporation
specifies certain circumstances in which a transaction between the Company and
HEA or an affiliated entity will be deemed fair to the Company and its
stockholders, and prescribes guidelines under which HEA and its affiliates will
be deemed not to have breached any fiduciary duty or duty of loyalty to the
Company, or to have usurped a corporate opportunity available to the Company, if
specified conditions are met.
HEI served as guarantor for the Company's borrowings under various
revolving bank credit facilities from August 1995 through June 1998. At March
28, 1998, aggregate indebtedness of the Company guaranteed by HEI under such
facilities was $170.0 million. Due to the economic conditions in Korea and
significant recent devaluations of the Korean won versus the U.S. dollar, HEI's
reported financial condition as of year-end 1997 was not in compliance with
certain financial covenants applicable to HEI as guarantor under such revolving
credit facilities, and such non-compliance constituted a default by the Company
under such revolving credit facilities and also a default (through a
cross-default clause) under an uncommitted credit facility of the Company that
is repayable on demand of the lender, is not guaranteed and had an outstanding
principal amount of $30.0 million as of March 28, 1998. The default under the
revolving credit facilities was waived by the lending banks in June 1998 in
exchange for Hyundai Heavy Industries Co., Ltd. ("HHI"), a partial owner of HEA,
becoming the guarantor under such facilities in place of HEI and an increase in
pricing to reflect borrowing rates based on HHI's current credit rating. To
date, the lender under the demand facility has not demanded repayment of the
$30.0 million outstanding under that facility. The Company intends to use a
portion of the proceeds of the Offerings to pay down in full all outstanding
amounts under each of its revolving credit facilities and any amounts then
outstanding under the demand facility as well as the $55.0 million owed
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to HEA, and thereafter to terminate such credit facilities. The Company intends
to obtain replacement revolving credit facilities following the Offerings that
do not depend on any Hyundai entity guarantees. However, the Company believes
that current market conditions for such facilities are not as favorable as they
have been at certain times in the past, that for various reasons the number of
potential lenders actively providing credit facilities to companies in the data
storage industry may have decreased recently, and that the terms on which the
remaining potential lenders are willing to offer such facilities have become
significantly more restrictive and/or costly. Consequently, there can be no
assurance that the Company will be able to obtain any such replacement facility
or as to the terms and amount of any such facility that it is able to obtain.
Any failure to obtain adequate credit facilities on acceptable terms would have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, as a majority-owned subsidiary of HEA, the
Company has the benefit of a letter of support from HEI under which HEI agrees
to provide sufficient financial support to ensure that the Company will continue
as a going concern. Following the Offerings, the Company believes that it will
no longer have the benefit of the support letter.
HEA could decide to sell or otherwise dispose of all or a portion of its
shares of Common Stock at some future date, and there can be no assurance that
HEI or HEA will maintain any past or future relationships or arrangements with
the Company following any transfer by HEA of a controlling or substantial
interest in the Company or that other holders of Common Stock will be allowed to
participate in such transaction. Sales by HEA of substantial amounts of Common
Stock in the public market could adversely affect prevailing market prices for
the Common Stock.
Since 1996, the Company has been a member of the HEA U.S. consolidated tax
group for U.S. federal income tax purposes. Certain material tax consequences
result from such affiliation.
HEI and IBM are parties to a patent cross license agreement (the "IBM
License Agreement"), under which HEI and its subsidiaries, including the
Company, are licensed with respect to certain IBM patents. HEI is required under
the IBM License Agreement to pay IBM a license fee, payable in installments
through 2007. HEI has entered into a sublicense with the Company (the
"Sublicense Agreement") pursuant to which the Company is obligated to pay IBM a
portion of the license fee otherwise due from HEI under the IBM License
Agreement, payable in annual installments, when such amounts are due from HEI to
IBM. Under the IBM License Agreement, if Maxtor ceases to be a majority-owned
subsidiary of HEA, the Company can obtain a royalty-free license under the same
terms from IBM upon the joint request of HEI and the Company and the fulfillment
of certain conditions. Pursuant to the Sublicense Agreement, HEI has agreed to
cooperate to obtain such a license for the Company once the Company ceases to be
a majority-owned subsidiary, and the Company has agreed to continue to pay IBM
the Company's allocated portion of the license fee following the grant of such a
license from IBM. HEI and the Company have indemnified each other for certain
liabilities arising from their acts or omissions relating to the IBM License
Agreement.
As discussed more fully above in "-- Transition to and Dependence on
Information Systems; Year 2000 Problem," the Company is preparing to implement
the SAP System. The Company's rights to the SAP System are governed by a license
agreement between Hyundai Information Technology Co., Ltd. ("HIT"), an affiliate
of HEI, and SAP, which provides that the Company will have the right to use
existing software releases so long as the Company remains an affiliate of HIT.
The Company currently is discussing with SAP the terms under which the Company
could obtain a direct license with SAP. In the event the Company is no longer a
majority-owned subsidiary of HEA and is not able to obtain a direct license with
SAP, the Company will not be entitled to receive new releases of SAP's
information system software or expand the system for other functions. As a
result, the Company would not be able to effectively utilize its new information
system in the future, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
See "-- Transition to and Dependence on Information Systems; Year 2000
Problem," "-- Risks Associated with Leverage," "-- Certain Tax Risks,"
"-- Single Manufacturing Facility; Future Need for Additional Capacity,"
"-- Expected Volatility of Stock Price; Absence of Current Trading Market for
the Common Stock," "-- Shares Eligible for Future Sale," "Relationship Between
the Company and Hyundai," "Business -- Intellectual Property," "Certain
Transactions" and "Shares Eligible for Future Sale."
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CERTAIN TAX RISKS
Due to the Company's operating losses, its net operating loss ("NOL")
carryforwards and its favorable tax status in Singapore, the Company's tax
expense historically has represented only a small percentage of the Company's
expenses. The Company's foreign and U.S. tax liability will increase
substantially in future periods if the Company attains profitability.
In December 1997 the Company's Singapore subsidiary, Maxtor Peripherals (S)
Pte. Ltd ("Maxtor Singapore"), was granted pioneer tax status in Singapore, thus
exempting it from paying Singapore income taxes until June 30, 2003, subject to
the ongoing satisfaction of certain conditions. Maxtor Singapore is eligible for
up to two additional two-year extensions of this pioneer tax status, subject to
the satisfaction of certain additional conditions. There can be no assurance
that Maxtor Singapore will be able to satisfy or, if satisfied, to maintain
compliance with, the required conditions. If Maxtor Singapore is unable to
satisfy and maintain compliance with the required conditions and is unable to
obtain a waiver of any such failure, it would lose its pioneer tax status, or
would be ineligible for such extensions, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Since 1996, the Company has been a member of the HEA U.S. consolidated tax
group for U.S. federal income tax purposes (the "HEA Tax Group"). On December
27, 1997, for federal income tax purposes, the Company had NOL carryforwards of
approximately $616.7 million and tax credit carryforwards of approximately $18.8
million which will expire beginning in fiscal year 1999. Prior to the closing of
the Offerings and the resulting deconsolidation of the Company from the HEA Tax
Group, the Company intends to cause Maxtor Singapore to pay a dividend which
will utilize a substantial portion of the Company's NOL carryforwards. In
addition, a substantial portion of the NOL carryforwards likely will be utilized
by the HEA Tax Group for the 1998 tax year and in connection with amendments to
returns for prior years. As a result, after the Offerings, there will be a
significant reduction in the NOL carryforwards available to the Company for
federal income tax purposes. Utilization and payment for the Company's NOL
carryforwards by the HEA Tax Group is governed by a Tax Allocation Agreement
among the Company, HEA and certain other affiliates of HEA, as amended (the "Tax
Allocation Agreement"). Under the Tax Allocation Agreement, neither HEA nor the
Company shall reimburse the other for any utilization of the other member's NOLs
or other tax attributes in the consolidated or combined income tax returns, as
filed or as later amended by an amended return filed on or before September 15,
1999 or by a taxing authority adjustment on or before September 15, 1999. Each
party shall reimburse the other for any use of the other party's tax attributes
as a result of any amended return filed after September 15, 1999 or by a taxing
authority adjustment after September 15, 1999.
As a result of the Company's acquisition by HEA, utilization of
approximately $253.0 million of the Company's NOL carryforwards and the
deduction equivalent of approximately $18.3 million of tax credit carryforwards
is limited to approximately $22.4 million per year. If, as is expected,
investors acquire more than 50% of the Company's outstanding Common Stock in the
Offerings, then the amount of the Company's U.S. federal taxable income for any
tax year ending after the date of the Offerings which may be offset by the
Company's NOL carryforwards remaining after deconsolidation from the HEA Tax
Group will be limited to an amount equal to the aggregate value of the Common
Stock and the Series A Preferred Stock immediately before the ownership change
multiplied by the long-term tax exempt rate then in effect (e.g., 5.15% for
ownership changes occurring during June 1998).
For periods during which the Company is or was a member of the HEA Tax
Group, the Company and its subsidiaries have filed or will file tax returns as
part of the HEA Tax Group. After the Offerings, the Company will cease to be a
member of the HEA Tax Group. However, the Company will remain liable for its
allocable share of the consolidated or combined tax return liability and for tax
deficiencies of the entire HEA Tax Group which relate to the period during which
the Company was a member of the HEA Tax Group. There can be no assurance that
the HEA Tax Group will satisfy all tax obligations for such periods or that
additional liabilities will not be assessed for such periods. In addition, there
can be no assurance that the Company's share of the consolidated or combined tax
liability will not be increased as a result of subsequent events, such as taxing
authority audit adjustments or the filing of amended returns affecting either
the Company's items of gain, income, loss, deduction or credit or another
member's items of gain, income, loss, deduction or credit. The Company has
agreed to indemnify and reimburse HEA if any member of the HEA Tax Group is
required
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to pay any tax, interest or penalty to any taxing authority related to any
additional Company separate tax return liability and if there is any additional
consolidated or combined tax return liability resulting from revisions to the
Company's taxable income. HEA has agreed to indemnify and reimburse the Company
if the Company or any of its subsidiaries is required to pay any tax, interest
or penalty to any taxing authority related to any separate tax return of any
member of the HEA Tax Group other than the Company or its subsidiaries, and if
the Company or any of its subsidiaries is required to pay to any taxing
authority any amount in excess of the Company's share of the consolidated or
combined tax return liability. HEA has also agreed that the Company shall not be
obligated to pay the Company's share of any increased consolidated or combined
tax liability resulting from any audit, examination or other proceeding
resulting in an adjustment after September 15, 1999 or an amended return filed
after September 15, 1999, to the extent such increased liability relates to
another member's items of gain, income, loss, deduction or credit.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Tax Matters."
RISKS ASSOCIATED WITH LEVERAGE
The Company historically has operated with significant amounts of debt as
compared to its equity. At March 28, 1998, the Company had outstanding
approximately $350.5 million in principal amount of indebtedness. In the first
quarter of 1998 and for the calendar years ended December 31, 1997 and 1996, the
Company's interest payments under long-term debt agreements were $6.3 million,
$26.5 million and $13.4 million, respectively. During the first quarter of 1998,
the Company repaid $5.0 million of principal under long term debt agreements.
Following the expected application of the estimated net proceeds to the Company
of the Offerings to repay a portion of the Company's debt and planned repayments
of debt after March 28, 1998 as well as prior to the Offerings, the Company will
continue to have at least $95.6 million in principal amount of indebtedness
outstanding, including $5.3 million of short-term borrowings and current
portions of long-term debt. The Company also has an asset securitization program
under which the Company sells its accounts receivable on a non-recourse basis.
At March 28, 1998, $100.0 million of accounts receivable was securitized under
the program. Continuance of the program is subject to certain conditions,
including a condition that all of the long-term public senior debt securities of
HHI not fall below a specified rating. The Company has begun negotiations with
respect to a $200 million asset securitization program which does not require
any support from HEA or any of its affiliates and the Company believes it will
be able to close this program and terminate its existing securitization program
by July 31, 1998. However, there can be no assurance that the Company will be
able to obtain commitments to enter into such a program or will be able to
implement successfully the new securitization program. Failure of the Company to
close the replacement asset securitization program or to obtain alternative
financing would have a material adverse effect on the Company's business,
financial condition and results of operations.
Following the Offerings, the Company will continue to be subject to the
risks associated with leverage, which include: (i) principal and interest
repayment obligations which require the expenditure of substantial amounts of
cash, the availability of which will be dependent on the Company's future
performance; (ii) the inability to repay principal or interest when due or
violation of loan covenants, which could result in a default on the debt,
acceleration of its principal amount and legal actions against the Company; and
(iii) adverse effects of interest expense on the Company's business, financial
condition and results of operations.
See "-- Control By and Dependence on Hyundai," "-- Single Manufacturing
Facility; Future Need for Additional Capacity," "-- Need for Additional
Capital," "Relationship Between the Company and Hyundai," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Transactions."
SINGLE MANUFACTURING FACILITY; FUTURE NEED FOR ADDITIONAL CAPACITY
The Company's volume manufacturing operations currently are based in a
single facility in Singapore. A fire, flood, earthquake or other disaster or
condition affecting the Company's facility could disable such facility. Any
damage to, or condition interfering with the operation of, the Company's
manufacturing facility could have a material adverse effect on the Company's
business, financial condition and results of operations.
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The Company anticipates that it may need additional manufacturing capacity
as early as the beginning of the year 2000. In anticipation of that need, in the
summer of 1997, HEI began construction of a 450,000 square foot manufacturing
facility in Dalian, China (the "Dalian Facility") for the purpose of making
additional manufacturing capacity available to Maxtor. The Dalian Facility is
only partially completed and construction is continuing at a reduced pace. HEI
has expended approximately $23.0 million on the construction to date. An
additional estimated $60.0 million investment will be required to complete the
Dalian Facility to the point where manufacturing lines can be installed, and an
estimated additional $25.0 million of machinery and equipment will be required
to make the facility ready for its initial phase of operation. The Company and
HEI have agreed to discuss the terms under which the Dalian Facility will be
completed and by which the Company would either buy or lease the Dalian Facility
from HEI, and the Company intends to utilize the Dalian Facility if acceptable
terms can be agreed upon. There can be no assurance that the Company will be
able to successfully negotiate any such agreement with HEI or that the Dalian
Facility will be completed by the time Maxtor requires additional capacity. The
terms of any agreement with regard to the Dalian Facility are subject to the
approval of the Affiliated Transactions Committee of the Board. Moreover, any
such agreement would be conditioned on the transfer of HEI's business license
for the Dalian Facility and the transfer of HEI's tax holiday status and other
regulatory concessions in Dalian to the Company. If the Company is unable to
reach agreement with HEI on acceptable terms or obtain the tax holiday status
and other regulatory concessions and the applicable business license, the
Company may need to acquire additional manufacturing capacity at other sites. In
addition to the Dalian Facility, the Company currently is investigating other
manufacturing facilities within Asia. Although the Company believes that
alternative manufacturing facilities will be available, a failure by the Company
to obtain, on a timely basis, a facility or facilities which allow the Company
to meet its customers' demands will limit the Company's growth and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is experiencing space constraints at its Longmont, Colorado
facility and is negotiating to obtain a lease on a new facility in the Longmont
area. There can be no assurance that the Company will be able to obtain a lease
for a facility that can accommodate its needs for additional space or that, if
obtained, such lease will have terms at least as favorable as the terms
governing its current lease.
See "-- Need for Additional Capital," "-- Dependance on International
Operation; Risks from International Sales," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Business -- Manufacturing" and "-- Facilities."
NEED FOR ADDITIONAL CAPITAL
The HDD industry is capital intensive. The Company will require substantial
additional working capital to fund its business. The Company's future capital
requirements will depend on many factors, including the rate of sales growth, if
any, the level of profitability, if any, the timing and extent of spending to
support facilities upgrades and product development efforts, the timing and size
of business or technology acquisitions, the timing of introductions of new
products and enhancements to existing products. Any future equity financing will
decrease existing stockholders' percentage equity ownership and may, depending
on the price at which the equity is sold, result in significant economic
dilution to such stockholders. Moreover, in connection with future equity
offerings, the Company may issue preferred stock with rights, preferences or
privileges senior to those of the Common Stock. Pursuant to the Amended and
Restated Certificate of Incorporation, the Board has authority to issue up to 95
million shares of preferred stock and to fix the rights, preferences and
privileges of such shares (including voting rights) without any further action
or vote by the stockholders.
Upon the closing of the Offerings, the Company intends to terminate its
existing lines of credit and to seek a new line of credit which may be used from
time-to-time to fund the Company's working capital requirements. The Company
also plans to replace its existing receivables securitization facility with a
new $200 million facility, and has begun negotiations with respect to such new
facility. There can be no assurance that any required financing of the Company
will be available on acceptable terms, when needed, if at all. The
unavailability of, or delays in obtaining, any necessary financing could prevent
or delay the continued development and marketing of the Company's products and
may require curtailment of various operations of the Company and, if adequate
funds were not available from operating profits, would have a material adverse
effect on the Company's business, financial condition and results of operations.
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<PAGE> 19
See "-- Control by and Dependence on Hyundai," "-- Risks Associated with
Leverage," "-- Single Manufacturing Facility; Future Need for Additional
Capacity," "Relationship Between the Company and Hyundai," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Description of Capital Stock -- Preferred
Stock" and "Certain Transactions."
CUSTOMER CONCENTRATION
The Company focuses its marketing efforts on and sells its HDDs to a
limited number of PC OEMs, distributors and retailers. During the quarter ended
March 28, 1998, two customers, Dell Computer Corporation ("Dell") and IBM,
accounted for approximately 25% and 18%, respectively, of the Company's revenue,
and the Company's top ten customers accounted for approximately 74% of the
Company's revenue. During the fiscal year ended December 27, 1997, two PC OEM
customers, Compaq Computer Corporation ("Compaq") and Dell, accounted for
approximately 21% and 10%, respectively, of the Company's revenue, and the
Company's top ten customers accounted for approximately 60% of the Company's
revenue. During the fiscal year ended December 28, 1996, one customer, SED
International Holdings, Inc. ("SED"), a distributor, accounted for approximately
11% of the Company's revenue and the Company's top ten customers accounted for
approximately 68% of the Company's revenue. During the fiscal year ended March
30, 1996, while no customer accounted for more than 10% of the Company's
revenue, the Company's top ten customers accounted for approximately 51% of the
Company's revenue.
The Company anticipates that a relatively small number of customers will
continue to account for a significant portion of its revenue for the foreseeable
future, and that the proportion of its revenue derived from such customers may
continue to increase in the future. The ability of the Company to maintain
strong relationships with its principal customers, including in particular its
PC OEM customers, is essential to the ongoing success and profitability of the
Company. Although the Company believes its relationships with key customers
generally are good, in order to maintain its customer relationships,
particularly with PC OEMs, the Company must be among the first-to-volume
production with competitive products. The concentration of sales in a relatively
small number of major customers represents a business risk that loss of one or
more accounts, or a decrease in the volume of products sold to such accounts,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Due to the intense competition in the HDD market, customers may choose from
various suppliers and therefore can make substantial demands on their chosen
suppliers. The Company's customers generally are not obligated to purchase any
minimum volume and generally are able to terminate their relationship with the
Company at will. Consequently, major customers have significant leverage over
the Company and may attempt to change the terms, including pricing and delivery
terms, upon which the Company sells its products. Moreover, as the Company's PC
OEM, distributor and retail customers are pressured to reduce prices in response
to competitive factors, the Company may be required to reduce the prices of its
products before it knows how, or if, internal cost reductions can be obtained.
If the Company is forced to change the terms, including pricing, upon which the
Company sells its products or is unable to achieve required cost reductions in
connection with reductions in the prices of its products, the Company's
operating margins could decline and such decline could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Risks of Failed Execution; Changing Customer Business Models,"
"- Fluctuation in Product Demand; Focus on a Single Market," "-- Dependence on
International Operations; Risks from International Sales," "- Expected
Volatility of Stock Price; Absence of Current Trading Market for the Common
Stock," and "Business -- Customers and Sales Channels."
DEPENDENCE ON SUPPLIERS OF COMPONENTS AND SUB-ASSEMBLIES
The Company does not manufacture any of the components used in its HDDs and
therefore is dependent on qualified suppliers for the components that are
essential for manufacturing the Company's products, including heads, head stack
assemblies, media and integrated circuits. A number of the key components used
by the Company in its products are available from only one or a limited number
of outside suppliers. Currently, the Company purchases DSP/controller and
spin/servo integrated circuits only from Texas
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Instruments, Inc. ("TI") and purchases channel integrated circuits only from
Lucent Technologies, Inc. ("Lucent"). Some of the components required by the
Company may periodically be in short supply, and the Company has, on occasion,
experienced temporary delays or increased costs in obtaining components. As a
result, the Company must allow for significant lead times when procuring certain
components. In addition, cancellation by the Company of orders for components
due to cut-backs in production precipitated by market oversupply, reduced
demand, transition to new products or technologies or otherwise can result in
payment by the Company of significant cancellation charges to suppliers. The
Company orders the majority of its components on a purchase order basis and only
has limited long-term volume purchase agreements with certain existing
suppliers. Any inability of the Company to obtain sufficient quantities of
components meeting the Company's specifications, or to develop in a timely
manner alternative sources of component supply if and as required in the future,
could adversely affect the Company's ability to manufacture its products and
deliver them on a timely basis, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Because the Company does not manufacture any of the components used in its
HDDs, the Company's product development process involves incorporating
components designed by and purchased from third party suppliers. As a
consequence, the success of the Company's products is in great part dependent on
the Company's ability to gain access to and integrate components which utilize
leading-edge technology. The successful management of these integration projects
depends on the timely availability and quality of key components, the
availability of appropriately skilled personnel, the ability to integrate
different products from a variety of vendors effectively, and the management of
difficult scheduling and delivery problems. There can be no assurance that the
Company will be able to manage successfully the various complexities encountered
in integration projects. The Company's success will depend in part on its
relationships with key component suppliers, and there can be no assurance that
such relationships will develop, that the Company will identify the most
advantageous suppliers with which to establish such relationships, or that
existing or future relationships with component suppliers will continue for any
significant time period.
See "-- Rapid Technological Change and Product Development,"
"Business -- Product Development/ Technology" and "Business -- Products."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY; RISK OF THIRD PARTY CLAIMS OF
INFRINGEMENT
The Company has patent protection on certain aspects of its technology and
also relies on trade secret, copyright and trademark laws, as well as
contractual provisions to protect its proprietary rights. There can be no
assurance that the Company's protective measures will be adequate to protect the
Company's proprietary rights; that others, including competitors with
substantially greater resources, have not developed or will not independently
develop or otherwise acquire equivalent or superior technology; or that the
Company will not be required to obtain licenses requiring it to pay royalties to
the extent that the Company's products may use the intellectual property of
others, including, without limitation, Company products that may also be subject
to patents licensed by the Company. There can be no assurance that any patents
will be issued pursuant to the Company's current or future patent applications,
or that patents issued pursuant to such applications or any patents the Company
owns or has licenses to use will not be invalidated, circumvented or challenged.
Moreover, there can be no assurance that the rights granted under any such
patents will provide competitive advantages to the Company or be adequate to
safeguard and maintain the Company's proprietary rights. Litigation may be
necessary to enforce patents issued or licensed to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of the Company or others. The
Company could incur substantial costs in seeking enforcement of its issued or
licensed patents against infringement or the unauthorized use of its trade
secrets and proprietary know-how by others or in defending itself against claims
of infringement by others, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the laws of certain countries in which the Company's products are manufactured
and sold, including various countries in Asia, may not protect the Company's
products and intellectual property rights to the same extent as the laws of the
United States, and there can be no assurance that such laws will be enforced in
an effective manner. The failure of the Company to enforce and protect its
intellectual property rights could have a material adverse effect on the
Company's business, financial condition and results of operations.
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As a majority-owned subsidiary of HEA, the Company has had the benefit of
certain third party intellectual property rights on terms that may have been
more favorable than would have been available to the Company if it were not a
majority-owned subsidiary of HEA. There can be no assurance that the Company
will be able to obtain similar rights in the future on terms as favorable as
those currently available to it.
The HDD industry, like many technology-based industries, is characterized
by frequent claims and litigation involving patent and other intellectual
property rights. The Company, its component suppliers and certain users of the
Company's products have from time to time received, and may in the future
receive, communications from third parties asserting patent infringement against
the Company, its component suppliers or its customers which may relate to
certain of the Company's products. If the Company is notified of such a claim,
it may have to obtain appropriate licenses or cross-licenses, modify its
existing technology or design non-infringing technology. There can be no
assurance that the Company can obtain adequate licenses or cross-licenses on
favorable terms or that it could modify its existing technology or design
non-infringing technology and, in either case, the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company to date has not been a party to any
material intellectual property litigation, certain of its competitors have been
sued on patents having claims related to HDDs and there can be no assurance that
third parties will not initiate infringement actions against the Company or that
the Company could defend itself against such claims. If there is an adverse
ruling against the Company in an infringement lawsuit, it could result in the
issuance of an injunction against the Company or its products and/or the payment
of monetary damages equal to a reasonable royalty or recovered lost profits or,
in the case of a finding of a willful infringement, treble damages. Accordingly,
such an adverse ruling could have a material adverse effect on the Company's
business, financial condition and results of operations.
Similar to certain other providers of HDDs, the Company has received
correspondence from Papst-Motoren GmbH and Papst Licensing (collectively
"Papst") claiming infringement of at least 13 HDD motor patents. The patents
relate to motors that the Company purchases from motor vendors and the use of
such motors in HDDs. While the Company believes that it has meritorious defenses
against a lawsuit if filed, the results of litigation are inherently uncertain
and there can be no assurance that Papst will not assert other infringement
claims relating to current patents, pending patent applications and future
patents or patent applications; will not initiate a lawsuit against the Company;
or that the Company will be able to successfully defend itself against such a
lawsuit. A favorable outcome for Papst in such a lawsuit could result in the
issuance of an injunction against the Company or its products and/or the payment
of monetary damages equal to a reasonable royalty or recovered lost profits or,
in the case of a finding of a willful infringement, treble damages and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
See "-- Dependence on International Operations; Risks of International
Sales," "Relationship Between the Company and Hyundai,"
"Business -- Intellectual Property" and "-- Legal Proceedings."
DEPENDENCE ON INTERNATIONAL OPERATIONS; RISKS FROM INTERNATIONAL SALES
The Company conducts all of its volume manufacturing and testing operations
and purchases a substantial portion of its key components outside of the U.S. In
addition, the Company derives a significant portion of its revenue from sales of
its products to foreign distributors and retailers. Dependence on revenue from
international sales and managing international operations each involve a number
of inherent risks, including economic slowdown and/or downturn in the computer
industry in such foreign markets, international currency fluctuations, general
strikes or other disruptions in working conditions, political instability, trade
restrictions, changes in tariffs, the difficulties associated with staffing and
managing international operations, generally longer receivables collection
periods, unexpected changes in or impositions of legislative or regulatory
requirements, reduced protection for intellectual property rights in some
countries, potentially adverse taxes, delays resulting from difficulty in
obtaining export licenses for certain technology and other trade barriers.
International sales also will be impacted by the specific economic conditions in
each country. For example, the Company's international contracts are denominated
primarily in U.S. dollars. Significant fluctuations in currency exchange rates
against the U.S. dollar, particularly the recent significant depreciation in the
currencies of Japan, Korea, Taiwan and Singapore relative to the U.S. dollar,
have caused the Company's products to become relatively more expensive to
distributors and retailers in those countries, and
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thus have caused, and may continue to cause, deferrals, delays and cancellations
of orders. The Company attempts to minimize the impact of foreign currency
exchange rate changes on certain underlying assets, liabilities and anticipated
cash flows for operating expenses denominated in foreign currencies by entering
into short-term, foreign exchange (primarily forward purchase and sale)
contracts. There can be no assurance that all foreign currency exposures will be
adequately covered, and these factors, as well as other unanticipated factors,
could have a material adverse effect on future international sales of the
Company's products and consequently, on the Company's business, financial
condition and results of operations. See "-- Dependence on Suppliers of
Components and Sub-Assemblies," "-- Limited Protection of Intellectual Property;
Risk of Third Party Claims of Infringement," "Relationship Between the Company
and Hyundai," "Business -- Manufacturing/Quality" and "-- Materials and
Supplies."
STORMEDIA; LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia Incorporated
("StorMedia"), which arises out of an agreement among the Company, StorMedia and
HEI which became effective on November 17, 1995 (the "StorMedia Agreement").
Pursuant to the StorMedia Agreement, StorMedia agreed to supply disk media to
the Company. StorMedia's disk media did not meet the Company's specifications
and functional requirements as required by the StorMedia Agreement and the
Company ultimately terminated the StorMedia Agreement. After a class action
securities lawsuit was filed against StorMedia by certain of its shareholders in
September 1996 which alleged, in part, that StorMedia failed to perform under
the StorMedia Agreement, StorMedia sued HEI, Mong Hun Chung (HEI's chairman),
Dr. Chong Sup Park (HEA's President and then President of the Company who signed
the StorMedia Agreement on behalf of the Company) and K.S. Yoo (the individual
who signed the StorMedia Agreement on behalf of HEI) (collectively the "
Original Defendants") in the U.S. District Court for the Northern District of
California (the "Federal Suit"). In the Federal Suit, StorMedia alleged that at
the time HEI entered into the StorMedia Agreement, it knew that it would not and
could not purchase the volume of products which it committed to purchase, and
that failure to do so caused damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the StorMedia Agreement (the "Colorado Suit"). This proceeding was
stayed pending resolution of the Federal Suit. The Federal Suit was permanently
dismissed early in February 1998. On February 24, 1998, StorMedia filed a new
complaint in Santa Clara County Superior Court for the State of California for
$206 million, alleging fraud and deceit against the Original Defendants and
negligent misrepresentation against HEI and the Company (the "California Suit").
On May 18, 1998, the stay on the Colorado Suit was lifted by the Colorado state
court. The Company's motion to dismiss, or in the alternative, stay the
California Suit, is pending.
The Company believes that it has meritorious defenses against the claims
alleged by StorMedia and intends to defend itself vigorously. However, due to
the nature of litigation and because the pending lawsuits are in the very early
pre-trial stages, the Company cannot determine the possible loss, if any, that
may ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. The litigation could result in significant diversion of
time by the Company's technical personnel, as well as substantial expenditures
for future legal fees. After consideration of the nature of the claims and facts
relating to the litigation, including the results of preliminary discovery, the
Company's management believes that the resolution of this matter will not have a
material adverse effect on the Company's business, financial condition or
results of operations. However, the results of these proceedings, including any
potential settlement, are uncertain and there can be no assurance that they will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has been notified of certain other claims, including claims of
patent infringement. While the ultimate outcome of these claims and the claims
described above is not determinable, the Company does not believe that
resolution of these matters will have a material adverse effect on the Company's
business, financial condition or results of operations. No amounts related to
any claims or actions have been reserved in the Company's financial statements.
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See "-- Limited Protection of Intellectual Property; Risk of Third Party
Claims of Infringement" and "Business -- Legal Proceedings."
WARRANTY EXPOSURE
Products offered by the Company may contain defects in hardware, firmware
or workmanship that may remain undetected or that may not become apparent until
after commercial shipment. The Company generally provides a standard three year
warranty on its products. This standard warranty contains a limit on damages and
an exclusion of liability for consequential damages and for negligent or
improper use of the product. The Company establishes a reserve, at the time of
product shipment, in an amount equal to its estimated warranty expenses. The
Company had warranty reserves of $22.7 million and $25.1 million as of December
27, 1997 and March 28, 1998, respectively. While the Company believes that its
warranty reserves will be sufficient to cover its warranty expenses, there can
be no assurance that such reserves will be sufficient or that the limitations on
liability contained in the Company's warranty will be enforceable. The Company's
failure to maintain sufficient warranty reserves or the unenforceability of such
liability limitations could have a material adverse effect on the Company's
business, financial condition and results of operations.
EXPECTED VOLATILITY OF STOCK PRICE; ABSENCE OF CURRENT TRADING MARKET FOR THE
COMMON STOCK
In recent years the stock market in general, and the market for shares of
high technology and HDD companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of the
affected companies. The trading price of the Common Stock may be subject to
extreme fluctuations both in response to business-related issues (e.g.,
quarterly fluctuations in operating results, announcements of new products by
the Company or its competitors, and the gain or loss of significant PC OEM or
other customers) and in response to stock market-related influences (e.g.,
changes in analysts' estimates, the presence or absence of short-selling of the
Common Stock and events affecting other companies that the market deems
comparable to the Company). The trading price of the Common Stock also may be
affected by events relating to HEA and HEI, including sales of Common Stock by
HEA or the perception that such sales may occur (due to the financial condition
of HEA or otherwise). Further, the trading price of the Common Stock may be
subject to extreme fluctuations in response to general economic conditions in
the U.S., Korea, Southeast Asia and elsewhere, such as interest rates, inflation
rates, exchange rates, unemployment rates, and trade surpluses and deficits.
There can be no assurance that the trading price of the Common Stock will not
decline below its initial offering price to the public. Immediately prior to the
Offerings there was no public market for the Common Stock and there can be no
assurance that following the Offerings an active trading market will develop or
be maintained. The public offering price will be determined by negotiations
among the Company and the Representatives and may not be indicative of prices
that will prevail in the trading market following the Offerings.
In addition, due to the factors described above in "-- Potential
Fluctuation in Quarterly Results; Average Selling Price Erosion," as well as
other unanticipated factors, it is likely that in some future quarter or
quarters the Company's operating results will be below the expectations of
public market analysts or investors. In such event, the trading price of the
Common Stock could be materially and adversely affected.
See "-- History of Operating and Net Losses; Accumulated Deficit,"
"-- Control by and Dependence on Hyundai," "-- Customer Concentration,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Underwriting."
ENVIRONMENTAL MATTERS
Although the Company uses only a limited variety of chemicals in its
manufacturing and research operations, the Company is still subject to a wide
range of environmental protection regulations in the U.S. and Singapore. While
the Company has not experienced any material adverse effect on its operations as
a result of such laws, there can be no assurance that future regulations would
not have a material adverse effect on the Company's business, financial
condition and results of operations. The Company believes that its activities
conform to all present environmental regulations in all material aspects. In the
U.S., environmental regulations often require parties to fund remedial action
regardless of fault. As a consequence, it is often difficult to estimate the
future impact of environmental matters, including potential liabilities. There
can be no
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assurance that the amount of capital expenditures and other expenses which might
be required to complete remedial actions and to continue to comply with
applicable environmental laws will not have a material adverse effect on the
Company's business, financial condition and results of operations.
EFFECT OF ANTITAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), which prohibits a publicly held
Delaware corporation from engaging in any "business combination" with an
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the corporation's board of directors approved either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares owned by management directors and
certain employee stock plans); or (iii) on or subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior did own, 15% or more of the corporation's voting stock.
In addition, pursuant to the Amended and Restated Certificate of
Incorporation, the Board has authority to issue up to 95 million shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such preferred stock may have other rights, including
economic rights, senior to the Common Stock, and as a result, the issuance of
such preferred stock could have a material adverse effect on the market price of
the Common Stock. The Company has no present plan to issue shares of preferred
stock.
The Amended and Restated Certificate of Incorporation provides that the
Board will be divided into three classes of directors serving staggered
three-year terms. As a result, only one of the three classes of the Board will
be elected each year. The directors are removable only for cause upon the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of voting stock, voting as a single class. The Board has
the exclusive right to set the authorized number of directors and to fill
vacancies on the Board. The Amended and Restated Certificate of Incorporation
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of the stockholders of the Company may be called only by the
Board, the Chairman of the Board, or the Chief Executive Officer of the Company.
Advance notice is required for stockholder proposals or director nominations by
stockholders. These provisions may be amended only by the affirmative vote of at
least two-thirds of the outstanding voting stock of the Company, voting as a
single class. In addition, the Company has entered into a Stockholder Agreement
with HEA which grants HEA certain rights to designate directors for nomination,
requires HEA to vote in favor of other Board nominees so long as HEA's rights to
designate nominees are honored, and restricts HEA's right to solicit proxies or
acquire additional shares of Common Stock.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a holder of Common Stock to participate in tender
offers, including tender offers at a price above the then current market price
of the Common Stock. Such provisions also may inhibit fluctuations in the market
price of the Common Stock that could result from takeover attempts.
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See "-- Control by and Dependence on Hyundai," "Relationship Between the
Company and Hyundai" and "Description of Capital Stock -- Delaware Anti-Takeover
Law and Certain Charter Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Common Stock in the public market after the Offerings
could adversely affect the market price of the Common Stock. Upon completion of
the Offerings, the Company will have approximately 91,549,290 shares of Common
Stock outstanding, of which 47,500,000 shares (54,625,000 shares if the
Underwriters' over-allotment options are exercised in full) will be freely
transferable without restriction or registration under the Securities Act of
1933, as amended (the "Securities Act"), unless such shares are held by
affiliates of the Company, as that term is defined in Rule 144 under the
Securities Act, and assuming no exercise of options to purchase Common Stock
after June 1, 1998. The Company and its officers, directors and certain
stockholders have agreed that, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of any securities of the Company (other than pursuant to employee stock
option plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) which are
substantially similar to the Common Stock or which are convertible into or
exchangeable for securities which are substantially similar to the shares of the
Common Stock without the prior written consent of Smith Barney Inc., except for
the Common Stock offered in connection with the Offerings.
Smith Barney Inc. may, however, in its sole discretion, at any time without
notice, release all or any portion of the shares of Common Stock subject to such
lock-up agreements. Sales of shares of Common Stock by existing stockholders in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock. HEA, which upon the closing of the
Offerings, will own approximately 44,029,850 shares of Common Stock, has certain
rights with respect to registration of such shares of Common Stock for sale to
the public. As has been publicly reported, many Korean companies have been
affected adversely by recent economic conditions in Korea. The financial
condition of HEA or its affiliates could influence any decision concerning HEA's
disposition of Common Stock after the Offerings. Sales of Common Stock by HEA or
the perception that such sales may occur could adversely affect the trading
price of the Common Stock. In addition, approximately 2,039,429 shares of Common
Stock are issuable upon exercise of outstanding options granted under the
Amended Plan as of the date of this Prospectus. The Company intends to file a
registration statement immediately after the closing of the Offerings to allow
resale of such option shares.
See "-- Control by and Dependence on Hyundai," "Management -- Benefit
Plans," "Description of Capital Stock -- Registration Rights" and "Shares
Eligible for Future Sale."
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THE COMPANY
Maxtor is a leading provider of HDD storage products for desktop PC
systems. The Maxtor DiamondMax product family consists of 3.5-inch form factor
HDDs with storage capacities which range from 2.1 GB to 13.6 GB. These products
have high speed interfaces for greater data throughput, a robust mechanical
design for improved reliability, MR head technology and a DSP-based electronic
architecture that, when combined, provide industry-leading benchmark
performance. On June 15, 1998, Maxtor announced two new HDD products, the
DiamondMax 3400 and the DiamondMax Plus 2500. The DiamondMax 3400 is Maxtor's
fifth MR head HDD, its sixth HDD utilizing the Company's DSP-based electronic
architecture and its eighth HDD based on the Company's Formula 4 mechanical
structure. The DiamondMax Plus 2500, which is designed for the performance
desktop PC market, is the Company's first HDD to feature a 7,200 RPM spin speed,
its sixth MR head HDD, its seventh HDD utilizing the Company's DSP-based
electronic architecture and its ninth HDD based on the Company's Formula 4
mechanical structure. The Company's customers are PC OEMs, including Compaq,
Dell and IBM; distributors, including Ingram; and retailers, including Best Buy
and CompUSA.
The Company was organized in 1982 and completed an initial public offering
of common stock in 1986. In the mid-1980's, the Company was a leading technology
innovator in the HDD industry. As is true today, the HDD industry during the
1980's was characterized by intense competition, rapidly changing technology,
frequent product introductions, short product life cycles and rapid erosion of
ASPs. In an effort to mitigate the risks associated with these factors, the
Company pursued all major product segments in the HDD marketplace utilizing
multiple product families and technology platforms. This costly strategy added
significant complexity to the Company's operations, thereby causing the Company
to delay or miss a number of key product introductions, and ultimately led to
the deterioration of the Company's overall financial condition which, in turn,
led to the sale of a 40% stake in the Company to HEI and certain of its
affiliates in 1994. In early 1996, HEA acquired all of the remaining
publicly-held shares of the Common Stock in a tender offer and merger as well as
the 40% equity stake previously acquired by HEI and its affiliates. Shortly
thereafter, HEA invested in renewed efforts to revitalize the Company.
In July 1996, the Company hired Michael R. Cannon, its current Chief
Executive Officer and President and a 20 year veteran of the HDD industry, to
lead Maxtor's turnaround. Mr. Cannon immediately took a number of steps to
position the Company to become a significant provider of HDDs to leading PC OEMs
by improving product performance, quality, time-to-market entry and
time-to-volume manufacturing and by refocusing the Company's sales and marketing
efforts. These steps included: (i) providing a strong management team; (ii)
reducing Maxtor's overall cost structure; (iii) rationalizing the Company's
product and technology roadmap; and (iv) restructuring the Company's product
development process.
As a result of these actions, Maxtor's performance has improved
significantly during a period of severe fluctuations in the overall HDD market.
The Company's restructured manufacturing and product development processes as
well as its cost competitiveness initiatives resulted in the Company achieving
one of the fastest transitions in the industry from HDDs utilizing thin-film
head technology to 100% use of MR head technology, while also achieving among
the lowest selling, general and administrative costs as a percentage of revenue
in the industry for the 1997 fiscal year and the first quarter of 1998. With its
DiamondMax 2160 and DiamondMax 2880, the Company has demonstrated significantly
improved time-to-volume production results, manufacturing 1.4 million and 1.3
million units during the first full quarters of production, respectively. In the
first quarter of 1998, the Company established itself as a time-to-market entry
leader with a 2.8 GB per disk HDD, the DiamondMax 2880. This trend continued in
the second quarter of 1998 with the Company's introductions of the DiamondMax
3400, a 3.4 GB per disk HDD, and the DiamondMax Plus 2500, the Company's first
7,200 RPM HDD. These improvements helped the Company increase its units shipped
per quarter from 1.3 million units in the first quarter of 1997 to 3.5 million
units in the first quarter of 1998, which contributed to Maxtor increasing its
market share of the desktop HDD market in terms of quarterly units shipped from
5.6% to 13.4% during that same period, according to IDC. The Company's refocused
efforts on leading PC OEMs, including Compaq, Dell and IBM, resulted in an
increase in the Company's revenues from these PC OEMs from 6.5% of total revenue
in the second quarter of 1996 to 51.8% of total revenue in the first quarter of
1998. Cumulatively, these changes have led to significantly improved financial
results. The
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Company's revenue grew by 122.5% from $247.0 million to $549.6 million during
the first fiscal quarters of 1997 and 1998, respectively, while its gross
margins improved from (2.9)% to 11.3% during the same periods.
The Company is incorporated in the state of Delaware. The Company's
principal executive offices are located at 510 Cottonwood Drive, Milpitas,
California 95035 and the telephone number at that address is (408) 432-1700.
RELATIONSHIP BETWEEN THE COMPANY AND HYUNDAI
In 1994, HEI and certain of its affiliates purchased 40% of the Company's
outstanding Common Stock for an aggregate cash purchase price of $150.0 million
pursuant to a Stock Purchase Agreement dated September 10, 1993 (the "Stock
Purchase Agreement"). In early 1996, HEA acquired all of the remaining shares of
the publicly-held Common Stock in a tender offer and merger for an aggregate
purchase price of $215.0 million and also acquired all of the Common Stock held
by HEI and its affiliates. In June 1996 HEA exchanged its Common Stock in the
Company for 58,208,955 shares of Series A Preferred Stock of the Company (the
"Series A Preferred Stock"). From time to time HEA also made advances to the
Company for working capital. In December 1997, HEA purchased an additional
29,850,746 shares of Series A Preferred Stock in exchange for the cancellation
of $200 million of indebtedness owed to HEA by the Company. The Company had
outstanding aggregate principal indebtedness of $55.0 million owing to HEA as of
March 28, 1998. HEA currently owns all of the Company's Series A Preferred
Stock, each share of which is currently entitled to one vote, and 99.88% of the
total capital stock outstanding immediately prior to the Offerings. See
"Principal Stockholders." Pursuant to the Amended and Restated Certificate of
Incorporation, HEA's shares of Series A Preferred Stock will convert
automatically into 44,029,850 shares of Common Stock upon the closing of the
Offerings, and immediately following the Offerings HEA will own approximately
48% of the outstanding Common Stock (approximately 45% if the Underwriters'
overallotment options are exercised in full).
HEI served as guarantor for the Company's borrowings under various
revolving bank credit facilities from August 1995 through June 1998. At March
28, 1998, aggregate indebtedness of the Company guaranteed by HEI under such
facilities was $170.0 million. Due to the economic conditions in Korea and
significant recent devaluations of the Korean won versus the U.S. dollar, HEI's
reported financial condition as of year-end 1997 was not in compliance with
certain financial covenants applicable to HEI as guarantor under such revolving
credit facilities, and such non-compliance constituted a default by the Company
under such revolving credit facilities and also a default (through a
cross-default clause) under an uncommitted credit facility of the Company that
is repayable on demand of the lender, is not guaranteed and had an outstanding
principal amount of $30.0 million as of March 28, 1998. The default under the
revolving credit facilities was waived by the lending banks in June 1998 in
exchange for HHI becoming the guarantor under such facilities in place of HEI
and an increase in pricing to reflect borrowing rates based on HHI's current
credit rating. To date, the lender under the demand facility has not demanded
repayment of the $30.0 million outstanding under that facility. The Company
intends to use a portion of the proceeds of the Offerings to pay down in full
all outstanding amounts under each of its revolving credit facilities and any
amounts then outstanding under the demand facility as well as the $55.0 million
owed to HEA, and thereafter to terminate such credit facilities. In addition, as
a majority-owned subsidiary of HEA, the Company has the benefit of a letter of
support from HEI under which HEI agrees to provide sufficient financial support
to ensure that the Company will continue as a going concern. Following the
Offerings, the Company believes that it will no longer have the benefit of the
support letter.
In contemplation of the Offerings, HEI, HEA and the Company have entered
into certain agreements described below governing certain relationships between
the parties following the Offerings. Because HEA controls the Company, these
agreements did not result from "arms' length" negotiations. In addition, many of
the agreements relate to matters that inherently arise only between a company
and its parent or affiliated companies, and so are not susceptible of comparison
to similar agreements negotiated at arms' length. These agreements resulted from
negotiations between representatives of the Company's management and
representatives of HEA and HEI, with the participation of their respective legal
counsel and other advisors, and were
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intended, when taken together, to reflect reasonable tradeoffs and benefits for
all parties. In negotiating these agreements the parties sought to take into
account, to the extent available, both market-based agreements and similar terms
that were negotiated between HEI and its affiliates and the Company as part of
the Stock Purchase Agreement. There can be no assurance that the Company would
not have received more favorable terms from an unaffiliated party in some or all
of the agreements, although management believes some of the agreements may have
more favorable terms than those available from unaffiliated parties.
Conflicts of interest may arise from time to time in the future between the
Company and HEA or its affiliates in a number of areas relating to their past
and ongoing relationships, including potential competitive business activities,
corporate opportunities, tax matters, intellectual property matters, indemnity
agreements, registration rights, sales or distributions by HEA of all or any
portion of its ownership interest in the Company or HEA's attempt to assert
control over the management and affairs of the Company. There can be no
assurance that HEA and the Company will be able to resolve any potential
conflict or that, if resolved, the Company would not receive more favorable
resolution if it were dealing with an unaffiliated party.
The Board has established an Affiliated Transactions Committee which is
comprised entirely of directors who are not employed by HEA, any affiliate
thereof or the Company. The Board has adopted resolutions requiring this
Affiliated Transactions Committee to review any material transactions between
the Company on the one hand, and HEA or its affiliates on the other, following
the Offerings. The Company also has certain provisions in its Amended and
Restated Certificate of Incorporation concerning the conduct of certain affairs
of the Company as they may involve HEA and its affiliates on the one hand and
the Company on the other.
HEA could decide to sell or otherwise dispose of all or a portion of its
holdings of the Company's Common Stock at some future date following the
Offerings, subject to certain agreements between HEA and the Underwriters. There
can be no assurance that any holders of the Common Stock other than HEA would be
allowed to participate in any transaction involving a transfer of a controlling
interest in the Company by HEA, or that any such transaction would not adversely
affect the trading price of the Common Stock or the interests of the holders of
the Common Stock who do not participate in such transaction.
Certain of the agreements and documents summarized below have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part,
and the summaries of such agreements and documents are qualified in their
entirety by reference to the full text of such agreements and other documents.
See "Risk Factors -- Shares Eligible for Future Sale," "Certain
Transactions," "Management -- Board Committees," "Description of Capital
Stock -- Amended and Restated Certificate of Incorporation Provisions Relating
to Conflicts of Interest and Corporate Opportunities" and "Available
Information."
PURCHASES FROM AFFILIATE
HEA formed a division in May 1996 to provide a supply of hard disk media to
the Company. This division of HEA was incorporated as MMC Technology, Inc.
("MMC") in December 1997 and is currently a wholly-owned subsidiary of HEA.
During the year ended December 27, 1997 and the quarter ended March 28, 1998,
MMC supplied 17.4% and 28.8%, respectively, of media purchased by the Company
for an aggregate purchase price of $15.5 million and $27.6 million,
respectively. During 1997, MMC's media price to the Company was 2% below the
best price for media available to the Company from any of its qualified merchant
vendors. For the quarter ended March 28, 1998, the actual price for media
supplied by MMC for each family of Maxtor products was based on a discount from
weighted average prices of media purchased by the Company from qualified
merchant vendors for such Maxtor products, resulting in an aggregate 3.7%
discount. The Company currently is negotiating an agreement with MMC with
respect to pricing of future purchases and expects that such agreement will be a
multi-year contract providing for pricing discounts in return for a minimum
purchase volume commitment based on a percentage of Maxtor's total media
purchases. See "Risk Factors -- Control by and Dependence on Hyundai,"
"-- Dependence on Suppliers of Components and Sub-Assemblies," "-- Dependence on
International Operations; Risks from International Sales," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Materials and Supplies" and "Certain Transactions."
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DALIAN MANUFACTURING FACILITY
The Company anticipates that it may need additional manufacturing capacity
as early as the beginning of the year 2000. In anticipation of that need, in the
summer of 1997, HEI began construction of the Dalian Facility for the purpose of
making additional manufacturing capacity available to Maxtor. The Dalian
Facility is only partially completed and construction is continuing at a reduced
pace. HEI has expended approximately $23.0 million on the construction to date.
An additional estimated $60.0 million investment will be required to complete
the Dalian Facility to the point where manufacturing lines can be installed, and
an estimated additional $25.0 million of machinery and equipment will be
required to make the facility ready for its initial phase of operation. The
Company and HEI have agreed to discuss the terms under which the Dalian Facility
will be completed and by which the Company would either buy or lease the Dalian
Facility from HEI, and the Company intends to utilize the Dalian Facility if
acceptable terms can be agreed upon. There can be no assurance that the Company
will be able to successfully negotiate any such agreement with HEI or that the
Dalian Facility will be completed by the time Maxtor requires additional
capacity. The terms of any agreement with regard to the Dalian Facility are
subject to the approval of the Affiliated Transactions Committee of the Board.
Moreover, any such agreement would be conditioned on the transfer of HEI's
business license for the Dalian Facility and the transfer of HEI's tax holiday
status and other regulatory concessions in Dalian to the Company. If the Company
is unable to reach agreement with HEI on acceptable terms or obtain the tax
holiday status and other concessions and the applicable business license and
other regulatory concessions, the Company may need to acquire additional
manufacturing capacity at other sites. In addition to the Dalian Facility, the
Company currently is investigating other manufacturing facilities within Asia.
Although the Company believes that alternative manufacturing facilities will be
available, a failure by the Company to obtain, on a timely basis, a facility or
facilities which allow the Company to meet its customers' demands will limit the
Company's growth and could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Need for Additional Capital," "-- Single Manufacturing Facility;
Future Need for Additional Capacity," "-- Dependance on International Operation;
Risks from International Sales," "Management Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Manufacturing."
MAXTOR RIGHTS UNDER IBM LICENSE AGREEMENT
HEI and IBM are parties to the IBM License Agreement, under which HEI and
its subsidiaries, including the Company, are licensed with respect to certain
IBM patents. HEI is required under the IBM License Agreement to pay IBM a
license fee, payable in installments through 2007. HEI has entered into the
Sublicense Agreement with the Company pursuant to which the Company is obligated
to pay IBM a portion of the license fee otherwise due from HEI under the IBM
License Agreement, payable in annual installments, when such amounts are due
from HEI to IBM. Under the IBM License Agreement, if Maxtor ceases to be a
majority-owned subsidiary of HEA, the Company can obtain a royalty-free license
under the same terms from IBM upon the joint request of HEI and the Company and
the fulfillment of certain conditions. Pursuant to the Sublicense Agreement, HEI
has agreed to cooperate to obtain such a license for the Company once the
Company ceases to be a majority-owned subsidiary, and the Company has agreed to
continue to pay IBM the Company's allocated portion of the HEI license fee
following the grant of such a license from IBM. HEI and the Company have agreed
to indemnify each other for certain liabilities arising from their acts or
omissions relating to the IBM License Agreement as described below. See
"-- Certain Intellectual Property Indemnification and Patent Cross License
Between HEI and the Company," "Risk Factors -- Limited Protection of
Intellectual Property; Risk of Third Party Claims of Infringement," "-- Control
by and Dependence on Hyundai" and "Certain Transactions."
CERTAIN INTELLECTUAL PROPERTY INDEMNIFICATION AND PATENT CROSS LICENSE BETWEEN
HEI AND THE COMPANY
HEI has agreed to indemnify the Company for any losses from third party
claims arising after the Company ceases to be a majority-owned subsidiary of HEI
which would have been covered under patent license agreements between HEI or its
affiliates other than Maxtor and such third party, and which were in existence
at the time the Company was a majority-owned subsidiary of HEA. These
indemnifications survive
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for three years after Maxtor ceases to be a majority-owned subsidiary, and the
maximum liability for which HEI is liable under the indemnification provisions
is $25 million. In addition, HEI and the Company have granted each other
royalty-free patent licenses covering patents owned, or licensable without the
payment of royalties or other consideration to third parties, by each party
through August 31, 2003 relating to certain fields of use. The Company and HEI
also have agreed to indemnify each other for any losses or liabilities arising
from any action or failure to take action related to the IBM License Agreement,
including any nonpayment of license fees. The Company's maximum liability under
this indemnity agreement is the total amount of money due to IBM under the
Sublicense Agreement and actual interest costs and/or exchange rate losses
incurred by HEI. See "Risk Factors -- Limited Protection of Intellectual
Property; Risk of Third Party Claims of Infringement;" "Business -- Intellectual
Property" and "Certain Transactions."
TAX ALLOCATION AGREEMENT; TAX INDEMNIFICATION
Since 1996, the Company has been a member of the HEA Tax Group. On December
27, 1997, for federal income tax purposes, the Company had NOL carryforwards of
approximately $616.7 million and tax credit carryforwards of approximately $18.8
million which will expire beginning in fiscal year 1999. Prior to the closing of
the Offerings and the resulting deconsolidation of the Company from the HEA Tax
Group, the Company intends to cause Maxtor Singapore to pay a dividend which
will utilize a substantial portion of the Company's NOL carryforwards. In
addition, a substantial portion of the NOL carryforwards likely will be utilized
by the HEA Tax Group for the 1998 tax year and in connection with amendments to
returns for prior years. As a result, after the Offerings, there will be a
significant reduction in the NOL carryforwards available to the Company for
federal income tax purposes. Utilization and payment for the Company's NOL
carryforwards by the HEA Tax Group is governed by the Tax Allocation Agreement.
Under the Tax Allocation Agreement, the Company is not reimbursed for
utilization of any portion of the Company's NOL carryforwards or other tax
attributes by other members of the HEA Tax Group, unless such utilization occurs
as a result of an amended return filed after September 15, 1999 or as a result
of a taxing authority adjustment after September 15, 1999. Each party shall
reimburse the other for any use of the other party's tax attributes as a result
of any amended return filed after September 15, 1999 or by a taxing authority
adjustment after September 15, 1999.
As a result of the Company's acquisition by HEA, utilization of
approximately $253.0 million of the Company's NOL carryforwards and the
deduction equivalent of approximately $18.3 million of tax credit carryforwards
is limited to approximately $22.4 million per year. If, as is expected,
investors acquire more than 50% of the Company's outstanding Common Stock in the
Offerings, then the amount of the Company's U.S. federal taxable income for any
tax year ending after the date of the Offerings which may be offset by the
Company's NOL carryforwards remaining after deconsolidation from the HEA Tax
Group will be limited to an amount equal to the aggregate value of the Common
Stock and the Series A Preferred Stock immediately before the ownership change
multiplied by the long-term tax exempt rate then in effect (e.g., 5.15% for
ownership changes occurring during June 1998).
For periods during which the Company is or was a member of the HEA Tax
Group, the Company and its subsidiaries have filed or will file tax returns as
part of the HEA Tax Group. After the Offerings, the Company will cease to be a
member of the HEA Tax Group. However, the Company will remain liable for tax
deficiencies of the entire HEA Tax Group which relate to the period during which
the Company was a member of the HEA Tax Group. Although the Company believes
that the HEA Tax Group will satisfy all tax obligations for such periods, there
can be no assurance that all such obligations will be satisfied or that
additional liabilities will not be assessed for such periods. In addition, there
can be no assurance that the Company's share of the consolidated or combined tax
liability will not be increased as a result of subsequent events, such as taxing
authority audit adjustments or the filing of amended returns affecting either
the Company's items of gain, income, loss, deduction or credit or another
member's items of gain, income, loss, deduction or credit. The Company has
agreed to indemnify and reimburse HEA if any member of the HEA Tax Group is
required to pay any tax, interest or penalty to any taxing authority related to
any additional Company separate tax return liability and if there is any
additional consolidated or combined tax return liability resulting from
revisions to the Company's taxable income or revisions to another HEA Tax Group
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member's taxable income, except to the extent such revisions to another HEA Tax
Group member's taxable income are made after September 15, 1999. HEA has also
agreed that the Company shall not be obligated to pay the Company's share of any
increased consolidated or combined tax liability resulting from any audit,
examination or other proceeding resulting in an adjustment after September 15,
1999 or an amended return filed after September 15, 1999, to the extent such
increased liability relates to another member's items of gain, income, loss,
deduction or credit. HEA has agreed to indemnify and reimburse the Company if
the Company or any of its subsidiaries is required to pay any tax, interest or
penalty to any taxing authority related to any separate tax return of any member
of the HEA Tax Group other than the Company or its subsidiaries, and if the
Company or any of its subsidiaries is required to pay to any taxing authority
any amount in excess of the Company's share of the consolidated or combined tax
return liability.
See "Risk Factors -- Certain Tax Risks" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Tax Matters."
STOCKHOLDER AGREEMENT
HEA, HEI and the Company have entered into a Stockholder Agreement which
clarifies and establishes certain rights and obligations of the Hyundai
Affiliates and the Company regarding the Company's capital stock and related
matters. For purposes of the following discussion, "Hyundai Affiliates" means
HEA, HEI, any of their successors, and all corporations, partnerships, joint
ventures, associations and other entities that directly or indirectly through
one or more intermediaries is controlled by HEA or HEI (other than the Company
and its subsidiaries and such other entities controlled by the Company). The
Stockholder Agreement does not bind any other Hyundai entity.
Registration Rights. Pursuant to the Stockholder Agreement, HEA has certain
registration rights regarding shares of Common Stock held by HEA which are
described under "Description of Capital Stock -- Registration Rights."
Rights Regarding Board of Directors. The Stockholder Agreement also
provides that so long as Hyundai Affiliates beneficially own at least a majority
of the Company's outstanding Voting Stock, HEA will maintain at least two
Disinterested Directors on the Board. "Disinterested Directors" are those
directors not employed by, or serving as paid consultants for HEA or its
affiliates (including the Company). "Voting Stock" for purposes of the
Stockholder Agreement means capital stock which votes generally in the election
of directors.
At any time when the Hyundai Affiliates beneficially own less than a
majority but at least 30% of the Company's outstanding Voting Stock, HEA has the
right to designate for Board nomination and stockholder election one director in
each of the three classes of the Board, provided such designee is reasonably
satisfactory to the Nominating Committee of the Board, and the remaining
directors are to be nominated by the Nominating Committee subject to the
approval of a majority of the Disinterested Directors. HEA has the right to
designate for nomination one director in each of two classes at any time when
the Hyundai Affiliates beneficially own less than 30% but at least 20% of the
Company's outstanding Voting Stock, and one director if the Hyundai Affiliates
beneficially own less than 20% but at least 10% of the Company's outstanding
Voting Stock, provided that each such designee must be reasonably satisfactory
to the Nominating Committee. If a vacancy occurs with respect to a director
which HEA had the right to designate initially, and HEA has the right at such
time to designate a director for nomination in such director's class, HEA is
entitled to designate a director to fill the vacancy. If the Company complies
with its obligation to nominate for election those persons designated by HEA in
accordance with the Stockholder Agreement, the Hyundai Affiliates are required
to vote their shares of Common Stock in favor of all directors nominated in
accordance with the Stockholder Agreement. HEA's right to designate directors
for nomination terminates when the Hyundai Affiliates beneficially own less than
10% of the outstanding Voting Stock.
See "Risk Factors -- Control By and Dependence On Hyundai," "-- Effect of
Antitakeover Provisions," "Management -- Directors and Executive Officers,"
"-- Board Committees" and "Principal Stockholders."
Prohibition on Certain Proxy Solicitations. From such time after the
closing of the Offerings as HEA beneficially owns less than a majority of the
Company's outstanding Voting Stock, the Hyundai Affiliates are
30
<PAGE> 32
not permitted to make any solicitation of proxies either with regard to the
election of directors or other proposals, except in response to a solicitation
of proxies by a person other than Company management in an election contest or
otherwise. This prohibition on proxy solicitation terminates when the Hyundai
Affiliates beneficially own less than 20% of the outstanding Voting Stock. See
"Risk Factors -- Control By and Dependence On Hyundai" and "-- Effect of
Antitakeover Provisions."
Standstill and Right to Maintain Ownership. From such time as HEA
beneficially owns less than a majority of the Company's outstanding Voting
Stock, Hyundai Affiliates are not permitted to acquire additional shares of the
Company's Voting Stock except (i) in the event a third party makes a tender
offer or exchange offer for at least 20% of the Company's Voting Stock that has
not been approved by a majority of the Company's Disinterested Directors, unless
the acquisition of Common Stock by such Hyundai Affiliate is approved by a
majority of the Disinterested Directors or (ii) through December 31, 2000, in
the event as a result of an issuance of Common Stock or other equity securities
by the Company, Hyundai Affiliates will own in the aggregate less than 30% of
the outstanding Voting Stock, plus one share (the "Minimum Ownership") following
such issuance, in which case HEA is permitted to purchase shares of Common Stock
in the open market, subject to the Company's trading window policies, only to
the extent necessary to maintain the Minimum Ownership, and unless such
purchases are made or HEA otherwise directs, the Company will automatically sell
HEA the number of shares of Common Stock necessary to allow Hyundai Affiliates
in the aggregate to maintain the Minimum Ownership, at fair market value as
determined under the Stockholder Agreement. The prohibition on Hyundai
Affiliates' acquisition of the Company's Voting Stock terminates on the earlier
of December 31, 2001 and such time as the Hyundai Affiliates beneficially own
less than 20% of the outstanding Voting Stock.
Agreement Not to Compete. The Hyundai Affiliates also have agreed for a
period of five years from the closing of the Offerings not to compete with the
Company by means of the ownership, management, operation, or control of any
business engaged primarily in the design, development, manufacture, marketing or
sale of HDDs, provided that Hyundai Affiliates are permitted to make investments
in publicly traded corporations, regardless of the business such corporations
are engaged in, so long as the aggregate ownership by Hyundai Affiliates does
not exceed 3% of the issued and outstanding capital stock of any such publicly
traded corporation.
CERTIFICATE OF INCORPORATION PROVISIONS
In order to address certain potential conflicts of interest between HEA and
the Company, the Amended and Restated Certificate of Incorporation contains
provisions concerning the conduct of certain affairs of the Company as they may
involve HEA and its affiliates (other than the Company) and their respective
officers and directors, and the powers, rights, duties and liabilities of the
Company and its officers, directors and stockholders in connection therewith. In
general, these provisions recognize that the Company and HEA and their
respective affiliates may engage in the same or similar business activities and
lines of business and may have an interest in the same areas of corporate
opportunities and that the Company and HEA and their respective affiliates will
continue to have contractual and business relations with each other (including
service of officers and directors of HEA as directors of the Company). These
provisions are described below in the section entitled "Description of Capital
Stock -- Certificate of Incorporation Provisions Relating to Conflicts of
Interest and Corporate Opportunities."
The Amended and Restated Certificate of Incorporation provides that any
person purchasing or otherwise acquiring any interest in any shares of capital
stock of the Company shall be deemed to have notice of and to have consented to
these provisions.
See "Risk Factors -- Control By and Dependence on Hyundai," "-- Effect of
Antitakeover Provisions" and "Management -- Directors and Executive Officers."
31
<PAGE> 33
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $427.2 million (approximately $491.5
million if the Underwriters' over-allotment options are exercised in full),
assuming an initial public offering price of $9.50 per share of Common Stock and
after deducting the estimated underwriting discounts and estimated offering
expenses payable by the Company.
Approximately $255.0 million of the net proceeds from the Offerings will be
used to repay certain outstanding indebtedness, including approximately $200.0
million outstanding under certain credit facilities due to various banks and
approximately $55.0 million due to HEA. One of the credit facilities is payable
upon demand and bears interest at variable rates ranging from 6.2% to 7.9%. The
other credit facilities mature in August 1998, October 1998, and August 1999,
respectively, and bear interest annually at variable rates ranging from 6.2% to
7.9%. The intercompany loan due to HEA is due in April 1999 and bears interest
at a variable rate which was 10.3% as of March 28, 1998.
The remaining approximately $172.2 million of such net proceeds
(approximately $236.5 million if the Underwriters' over-allotment options are
exercised in full) will be used for capital expenditures, working capital and
general corporate purposes. Pending such uses, the net proceeds of the Offerings
will be invested in investment grade, interest-bearing securities.
See "Risk Factors -- Risks Associated with Leverage" and "-- Need for
Additional Capital."
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The Company
does not anticipate paying cash dividends on its capital stock, including Common
Stock being offered hereby, in the near future.
32
<PAGE> 34
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 28, 1998, (i) on an actual basis, (ii) on a pro forma basis as of such
date to reflect the conversion upon the closing of the Offerings of all
outstanding shares of the Series A Preferred Stock into 44,029,850 shares of
Common Stock and (iii) on a pro forma basis as adjusted to reflect the sale of
the Common Stock offered hereby at an assumed initial public offering price of
$9.50 per share and the receipt and application of the proceeds therefrom, after
deducting the estimated underwriting discount and offering expenses payable by
the Company. This information should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 28, 1998
------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- -------------- -----------
(UNAUDITED) (UNAUDITED)
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings:
Short-term borrowings, including current portion of
long-term debt...................................... $ 76,159 $ 76,159 $ 5,159
Short-term borrowings due to affiliate................. 55,000 55,000 --
---------- ---------- ----------
Total short-term borrowings......................... $ 131,159 $ 131,159 $ 5,159
========== ========== ==========
Long-term debt........................................... $ 219,320 $ 219,320 $ 90,320
Stockholders' equity (deficit):
Series A Preferred Stock, $0.01 par value, 95,000,000
shares authorized; 88,059,701 shares issued and
outstanding, actual; none issued and outstanding,
pro forma and as adjusted; aggregate liquidation
value $590,000,000 actual, and none pro forma and as
adjusted............................................ 880 -- --
Common Stock, $0.01 par value, 250,000,000 shares
authorized; 7,563 shares issued and outstanding,
actual; 44,037,413 shares issued and outstanding,
pro forma; 91,537,413 shares issued and outstanding,
as adjusted......................................... -- 440 915
Additional paid-in capital............................... 537,090 537,530 964,243
Unrealized gain on investments in equity securities...... 25,386 25,386 25,386
Accumulated deficit...................................... (783,272) (783,272) (783,272)
---------- ---------- ----------
Total stockholders' equity (deficit)................ (219,916) (219,916) 207,272
---------- ---------- ----------
Total capitalization.............................. $ (596) $ (596) $ 297,592
========== ========== ==========
</TABLE>
33
<PAGE> 35
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. The table below sets
forth selected consolidated financial data for the Company for, and as of the
end of, each of the fiscal periods indicated. The selected consolidated
financial data for the fiscal years ended March 26, 1994, March 25, 1995, and
March 30, 1996, have been derived from the consolidated financial statements of
the Company audited by Ernst & Young LLP. The selected consolidated financial
data for the nine month period ended December 28, 1996 and the fiscal year ended
December 27, 1997 have been derived from the consolidated financial statements
of the Company audited by Coopers & Lybrand L.L.P., included elsewhere in this
Prospectus. The selected consolidated financial data for the three-month period
ended March 28, 1998 is derived from unaudited financial statements of the
Company included elsewhere in this Prospectus. In the opinion of the Company's
management, such unaudited financial statements have been prepared on the same
basis as the audited financial statements referred to above and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of operations
for the indicated period. Operating results for the three months ended March 28,
1998 are not necessarily indicative of the results that may be expected for the
full year.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR NINE MONTHS FISCAL YEAR THREE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 26, MARCH 25, MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 28,
1994 1995 1996 1996(1) 1997 1998
----------- ----------- ----------- ------------ ------------ ------------
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................... $1,152.6 $ 906.8 $1,269.0 $ 798.9 $1,424.3 $ 549.6
Cost of revenue........................... 1,205.0 850.7 1,196.3 888.9 1,352.9 487.3
----------- ----------- ----------- ----------- ----------- ------------
Gross profit (loss)................... (52.4) 56.1 72.7 (90.0) 71.4 62.3
----------- ----------- ----------- ----------- ----------- ------------
Operating expenses:
Research and development................ 97.2 60.7 94.7 87.8 106.2 33.4
Selling, general and administrative..... 78.9 81.6 82.8 60.7 62.6 15.9
Stock compensation expense.............. -- -- -- -- -- 14.7 (2)
Other................................... 19.5 (10.2) 4.5 -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Total operating expenses.............. 195.6 132.1 182.0 148.5 168.8 64.0 (2)
----------- ----------- ----------- ----------- ----------- ------------
Loss from operations...................... (248.0) (76.0) (109.3) (238.5) (97.4) (1.7)(2)
Interest expense.......................... (10.0) (8.4) (11.8) (18.1) (36.5) (8.8)
Interest and other income................. 2.3 4.2 1.1 1.0 25.0 (3) 0.3
----------- ----------- ----------- ----------- ----------- ------------
Loss before income taxes.................. (255.7) (80.2) (120.0) (255.6) (108.9) (10.2)
Provision for income taxes................ 1.9 2.0 2.8 0.8 1.0 0.1
----------- ----------- ----------- ----------- ----------- ------------
Net loss.................................. $(257.6) $(82.2) $(122.8) $(256.4) $(109.9)(3) $(10.3)(2)
=========== =========== =========== =========== =========== ============
Net loss per share -- basic and
diluted(4).............................. $ (16.00) $ (3.25) $ (5.94) $ -- $ -- $ --
=========== =========== =========== =========== =========== ============
Shares used in per share calculation (in
thousands).............................. 16,102 25,292 20,677 -- 2 8
=========== =========== =========== =========== =========== ============
Pro forma net loss per share(5)........... $ -- $ -- $ -- $ (17.62) $ (3.62) $ (0.23)
=========== =========== =========== =========== =========== ============
Shares used in pro forma share calculation
(in thousands).......................... -- -- -- 14,552 30,350 44,037
=========== =========== =========== =========== =========== ============
BALANCE SHEET DATA:
Total assets.............................. $ 492.4 $ 381.8 $ 442.5 $ 314.5 $ 555.5 $ 634.6
Total current liabilities................. 265.7 236.0 413.1 412.9 552.2 635.2
Long-term debt and capital lease
obligations due after one year.......... 107.4 102.0 100.2 229.1 224.3 219.3
Total stockholders' equity (deficit)...... 119.2 43.9 (71.1) (327.5) (221.0) (219.9)
</TABLE>
- ---------------
(1) The Company changed its fiscal year during the period ended December 28,
1996 to conform its fiscal year to that of its parent, HEA.
(2) Total operating expenses, loss from operations, loss before income taxes and
net loss for the three months ended March 28, 1998 reflect a $14.7 million
compensation charge related to the variable accounting features of the
Option Plan. Without such charge, the Company would have had total operating
expenses of $49.3 million, income from operations of $13.0 million, income
before income taxes of $4.5 million and net income of $4.4 million. The
Option Plan has been amended and restated to remove the variable features
and provide for fixed award options. See Note 10 of Notes to Consolidated
Financial Statements.
(3) Includes recovery of a $20.0 million fully-reserved note from IMS. See
"Certain Transactions."
(4) Net loss per share information for the fiscal periods ended December 28,
1996 and December 27, 1997 and the three months ended March 28, 1998 have
not been presented since such information is not meaningful due to the
limited number of shares of Common Stock outstanding.
(5) Pro forma net loss per share information assumes conversion of all
outstanding Series A Preferred Stock.
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<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements within the meaning of
the U.S. federal securities laws that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in this
Prospectus as a result of certain factors including, but not limited to, those
set forth in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Prospectus. In
addition to the other information in this Prospectus, prospective investors
should consider carefully the following Management's Discussion and Analysis of
Financial Condition and Results of Operations and the information set forth
under the heading "Risk Factors" in evaluating the Company and its business
before purchasing Common Stock in the Offerings.
OVERVIEW
Maxtor is a leading provider of HDD storage products for desktop PC
systems. The Maxtor DiamondMax product family consists of 3.5-inch form factor
HDDs with storage capacities which range from 2.1 GB to 13.6 GB. These products
have high speed interfaces for greater data throughput, a robust mechanical
design for improved reliability, MR head technology and a DSP-based electronic
architecture that, when combined, provide industry-leading benchmark
performance. On June 15, 1998, Maxtor announced two new HDD products, the
DiamondMax 3400 and the DiamondMax Plus 2500. The DiamondMax 3400 is Maxtor's
fifth MR head HDD, its sixth HDD utilizing the Company's DSP-based electronic
architecture and its eighth HDD based on the Company's Formula 4 mechanical
structure. The DiamondMax Plus 2500, which is designed for the performance
desktop PC market, is the Company's first HDD to feature a 7,200 RPM spin speed,
its sixth MR head HDD, its seventh HDD utilizing the Company's DSP-based
electronic architecture and its ninth HDD based on the Company's Formula 4
mechanical structure. The Company's customers are leading PC OEMs, including
Compaq, Dell and IBM; distributors, including Ingram; and retailers, including
Best Buy and CompUSA.
In 1994, HEI and certain of its affiliates purchased 40% of the Company's
outstanding Common Stock for an aggregate cash purchase price of $150.0 million
pursuant to the Stock Purchase Agreement. In early 1996, HEA acquired all of the
remaining shares of the publicly-held Common Stock in a tender offer and merger
for an aggregate purchase price of $215.0 million and also acquired all of the
Company's Common Stock held by HEI and its affiliates. In June 1996 HEA
exchanged its Common Stock in the Company for 58,208,955 shares of the Series A
Preferred Stock. From time to time HEA also made advances to the Company for
working capital. In December 1997, HEA purchased an additional 29,850,746 shares
of Series A Preferred Stock in exchange for the cancellation of $200.0 million
of indebtedness owed to HEA by the Company. The Company had outstanding
aggregate principal indebtedness of $55.0 million owing to HEA as of March 28,
1998. HEA currently owns all of the Company's Series A Preferred Stock, each
share of which is currently entitled to one vote, and 99.88% of the total
capital stock outstanding immediately prior to the Offerings. Pursuant to the
Amended and Restated Certificate of Incorporation, HEA's shares of Series A
Preferred Stock will convert automatically into 44,029,850 shares of Common
Stock upon the closing of the Offerings, and immediately following the Offerings
HEA will own approximately 48% of the outstanding Common Stock (approximately
45% if the Underwriters' overallotment options are exercised in full). See "Risk
Factors -- Control By and Dependence on Hyundai," "Relationship Between the
Company and Hyundai" and "Principal Stockholders."
The desktop HDD industry is intensely competitive and characterized by
dramatic shifts in market share among a limited number of HDD vendors and
significant erosion of ASPs for new products. PC OEMs compete in a consolidating
market. The top ten PC OEMs, which accounted for greater than 50% of all PC
units shipped during 1997 and the first quarter of 1998. A majority of the
Company's HDDs are sold to PC OEMs. The process of qualifying the Company's
products with these PC OEM customers can be lengthy, complex and difficult.
These PC OEMs use the quality, storage capacity and performance characteristics
of HDDs to select their HDD providers. PC OEMs typically seek to qualify three
or four providers for a given HDD product generation. To qualify consistently
with PC OEMs and thus succeed in the desktop HDD industry, an HDD provider must
consistently execute on its product development and manufacturing process
35
<PAGE> 37
goals in order to be among the first-to-market entry and first-to-volume
production at leading storage capacity per disk with competitive prices. Once a
PC OEM has chosen its qualified HDD vendors for a given PC product, it generally
will purchase HDDs from those vendors for the life of that product. If a
qualification opportunity is missed, the Company may not have another
opportunity to do business with that PC OEM until the next generation of the
Company's products is introduced. The effect of missing a product qualification
opportunity is magnified by the limited number of high volume PC OEMs. Failure
to reach the market on time or to deliver timely volume production usually
results in significantly decreased gross margins due to rapidly declining ASPs
and dramatic losses in market share. Failure to obtain significant PC OEM
customer qualifications for new or existing products in a timely manner would
have a material adverse effect on the Company's business, financial condition
and results of operations. Successful fulfillment of the performance parameters,
however, is only part of the competitive equation. As PC OEMs seek to develop
successful business models, they are requiring that their HDD vendors maintain
high levels of quality to enable low cost of ownership and adapt their inventory
management models to be compatible with the changing business models in the PC
industry.
In July 1996, the Company hired Michael R. Cannon, its current Chief
Executive Officer and President and a 20 year veteran of the HDD industry, to
lead Maxtor's turnaround. Mr. Cannon immediately took a number of steps to
position the Company to become a significant provider of HDDs to leading PC OEMs
by improving product performance and quality, time-to-market entry and
time-to-volume manufacturing, and by refocusing the Company's sales and
marketing efforts. These steps included: (i) providing a strong management team;
(ii) reducing Maxtor's overall cost structure; (iii) rationalizing the Company's
product and technology roadmap; and (iv) restructuring the Company's product
development process.
As a result of these steps, during the five quarter period ended March 28,
1998, the Company's quarterly revenue grew by 122.5%, increasing from $247.0
million in the first quarter of 1997 to $549.6 million in the first quarter of
1998. For the same period, gross margins increased from (2.9)% to 11.3%. The
Company's gains in profitability have been offset partially by the constant,
severe erosion in ASPs in the HDD industry. As indicated above, throughout the
HDD industry, the price points at which new products are introduced rapidly
erode as competitors begin to provide competitive products, costs decline, and
new technologies are introduced. The prices of the Company's products also are
influenced by the cyclical demand for desktop PCs. Consequently, in order to
remain competitive, the Company must be consistently among the first to
introduce new products and must attain volume production of those products in a
timely manner. There can be no assurance that the Company will be able to
introduce products in a timely manner or attain timely production of commercial
volumes. Failure of the Company to consistently achieve timely volume production
will result in lower ASPs which will have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Potential Fluctuations in Quarterly Results; Average Selling Price
Erosion" "-- Fluctuations in Product Demand; Focus on Single Market" and
"-- Rapid Technological Change and Product Development."
During the second half of 1996, the Company introduced a number of measures
to substantially reduce its operating expenses. These measures included the
consolidation of its volume manufacturing operations to a single facility in
Singapore and reductions in the Company's workforce. Additionally, during June
1996, the Company further reduced its expenses by selling its majority ownership
interest in IMS, a company which manufactures PCBs. During the second half of
1996, the Company also reduced its research and development ("R&D") expense by
rationalizing the Company's product and technology roadmap to focus on desktop
HDDs utilizing a single core technology platform and MR head technology. While
substantial expense reductions occurred in 1996, the Company focused on cost
containment in 1997 and the first quarter of 1998. During each of the five
quarters in the five quarter period ended March 28, 1998 and despite continuous
revenue growth, operating expenses on an absolute dollar basis remained at a
relatively constant level and, as a percentage of total revenue, operating
expenses decreased from 16.8% in the first quarter of 1997 to 11.6% in the first
quarter of 1998, the latter of which included 2.7% arising from a stock
compensation expense related to certain variable features of the Option Plan.
The Option Plan subsequently was amended and restated to remove the variable
features, and fixed option awards were issued in replacement. The Company
anticipates that in future periods, operating expenses will grow in absolute
dollars as a consequence of supporting efforts to
36
<PAGE> 38
diversify the Company's product portfolio, expenses related to expected
increased sales activity and expenses related to increased capacity. See
"-- Results of Operations -- Quarterly Results of Operations -- Operating
Expenses -- Stock Compensation Expenses," "Risk Factors -- Dependence on
Suppliers of Components and Sub-Assemblies" and "-- Single Manufacturing
Facility; Future Need for Additional Capacity."
Many of the Company's customers use flexible supply chain management
models. These models, such as the just-in-time inventory model, require
component suppliers, including HDD manufacturers, to be able to supply
components on an as needed basis. To improve overall customer satisfaction and
to respond to this trend, component suppliers, such as the Company, have been
required to adopt supply models whereby they establish warehouses containing
adequate component supplies near their customers' manufacturing sites. These
supply models can result in higher working capital requirements and costs in
order to maintain higher levels of inventory and also may result in a longer
operating cycle. The Company has implemented a just-in-time supply model with
certain of its customers including a significant number of its principal PC OEM
customers. See "Risk Factors -- Risks of Failed Execution; Changing Customer
Business Models."
Expectations for Second Quarter of 1998
The Company currently anticipates that for the quarter ending June 27,
1998, unit volumes sold will increase slightly from first-quarter levels but
revenue will nonetheless decrease as a result of continuing ASP declines. The
Company anticipates that gross margin for the second quarter will be
approximately comparable to the gross margin achieved in the first quarter of
the year. As a result, the Company expects that it will either break even or
report a loss for the second quarter on an operating basis. However, such
expectations are based only on preliminary estimates of results for the second
quarter, and actual reported results for the second quarter could differ
materially from those currently anticipated by the Company.
Intellectual Property
As a majority-owned subsidiary of HEA, the Company has had the benefit of
certain third-party intellectual property rights on terms that may have been
more favorable than would have been available to the Company if it were not a
majority-owned subsidiary of HEA. In connection with the Offerings, the Company
has agreed to pay an allocated share of the license fees associated with certain
third party rights in annual installments ranging from $1.0 million to $2.3
million through 2007. There can be no assurance that the Company will be able to
obtain similar rights in the future on terms as favorable as those currently
available to it. See "Risk Factors -- Control By and Dependence On Hyundai,"
"-- Limited Protection of Intellectual Property; Risks of Third Party Claims of
Infringement," "Relationship Between the Company and Hyundai,"
"Business -- Intellectual Property" and "Certain Transactions."
Revenue Recognition
The Company generally recognizes revenue upon shipment to its customer.
Sales to certain distributors and retailers are governed by agreements providing
limited rights of return, as well as price protection on unsold merchandise.
Accordingly, the Company records reserves upon shipment for estimated returns,
exchanges and credits for price protection. The Company also records reserves
for the estimated cost to repair or replace products under warranty at the time
of sale. The Company warrants its products against defects in parts and labor
for a period of three years from the date of shipment with an additional three
months allowed for distributors to account for "shelf life."
Tax Matters
Due to the Company's operating losses, its NOL carryforwards and its
favorable tax status in Singapore, the Company's tax expense has historically
represented only a small percentage of the Company's expenses. The Company's
foreign and U.S. tax liability will increase substantially in future periods if
the Company attains profitability.
In December 1997, Maxtor Singapore was granted pioneer tax status in
Singapore, thus exempting it from paying Singapore income taxes until June 30,
2003, subject to the satisfaction of certain ongoing conditions. Maxtor
Singapore is eligible for up to two additional two-year extensions of this
pioneer tax status, subject to the satisfaction of certain additional
conditions. There can be no assurance that Maxtor Singapore
37
<PAGE> 39
will be able to satisfy or, if satisfied, to maintain compliance with, the
required conditions. If Maxtor Singapore is unable to satisfy and maintain
compliance with the required conditions and is unable to obtain a waiver of any
such failure, it would lose its pioneer tax status, or would be ineligible for
such extensions, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Since 1996, the Company has been a member of the HEA Tax Group for U.S.
federal income tax purposes. On December 27, 1997, for federal income tax
purposes, the Company had NOL carryforwards of approximately $616.7 million and
tax credit carryforwards of approximately $18.8 million which will expire
beginning in fiscal year 1999. Of the approximately $616.7 million federal
income tax NOL carryforwards, approximately $253.0 million were generated before
the Company became part of the HEA Tax Group (the "Pre-Affiliation NOL") and
approximately $363.7 million were generated after the Company became part of the
HEA Tax Group (the "Post-Affiliation NOL").
Due to the Company's NOL carryforwards and operating losses, the Company
has not incurred any significant federal or state income taxes for any of the
Company's recent fiscal periods. Prior to the closing of the Offerings and the
resulting deconsolidation of the Company from the HEA Tax Group, the Company
intends to cause Maxtor Singapore to pay a dividend which will utilize a
substantial portion of the Company's NOL carryforwards. In addition, a
substantial portion of the NOL carryforwards will be utilized by the HEA Tax
Group for the 1998 tax year. As a result, after the Offerings, there will be a
significant reduction in, and potential elimination of, the NOL carryforwards
available to the Company for federal income tax purposes.
As a result of the Company's acquisition by HEA, utilization of the
Pre-Affiliation NOL carryforwards and the deduction equivalent of approximately
$18.3 million of tax credit carryforwards is limited to approximately $22.4
million per year. If, as is expected, investors acquire more than 50% of the
Company's outstanding Common Stock in the Offerings, then the amount of the
Company's U.S. federal taxable income for any tax year ending after the date of
the Offerings which may be offset by the Company's NOL carryforwards remaining
after deconsolidation from the HEA Tax Group will be limited to an amount equal
to the aggregate value of the Common Stock and the Series A Preferred Stock
immediately before the ownership change multiplied by the long-term tax exempt
rate then in effect (e.g., 5.15% for ownership changes occurring during June
1998).
While, for financial reporting purposes, the Company's tax loss for the
period during which the Company was a member of the HEA Tax Group is computed on
a separate tax return basis, utilization and payment for the Company's NOL
carryforwards by the HEA Tax Group is governed by the Tax Allocation Agreement.
Under the Tax Allocation Agreement, neither HEA nor the Company shall reimburse
the other for any utilization of the other member's NOLs or other tax attributes
in the consolidated or combined income tax returns, as filed or as later amended
by an amended return filed on or before September 15, 1999 or by a taxing
authority adjustment on or before September 15, 1999. Each party shall reimburse
the other for any use of the other party's tax attributes as a result of any
amended return filed after September 15, 1999 or by a taxing authority
adjustment after September 15, 1999.
For periods during which the Company is or was a member of the HEA Tax
Group, the Company and its subsidiaries filed separate tax returns and
consolidated or combined tax returns as part of the HEA Tax Group. After the
Offerings, the Company will cease to be a member of the HEA Tax Group. However,
the Company will remain liable for tax deficiencies of the entire HEA Tax Group
which relate to the period during which the Company was a member of the HEA Tax
Group. There can be no assurance that the HEA Tax Group has satisfied all of its
obligations for such periods or that additional liabilities will not be assessed
for such periods. In addition, there can be no assurance that the Company's
share of the consolidated or combined tax liability will not be increased as a
result of subsequent events, such as taxing authority audit adjustments or the
filing of amended returns affecting either the Company's items of gain, income,
loss, deduction or credit or another member's items of gain, income, loss,
deduction or credit. The Company has agreed to indemnify and reimburse HEA if
any member of the HEA Tax Group is required to pay any tax, interest or penalty
to any taxing authority related to any additional Company separate tax return
liability and if there is any additional consolidated or combined tax return
liability resulting from revisions to the Company's taxable income. HEA has
agreed to indemnify and reimburse the Company if the Company or any of its
subsidiaries is required to pay any tax, interest or penalty to any taxing
authority related to any separate tax
38
<PAGE> 40
return of any member of the HEA Tax Group other than the Company or its
subsidiaries, and if the Company or any of its subsidiaries is required to pay
to any taxing authority any amount in excess of the Company's share of the
consolidated or combined tax return liability. HEA has also agreed that the
Company shall not be obligated to pay the Company's share of any increased
consolidated or combined tax liability resulting from any audit, examination or
other proceeding resulting in an adjustment after September 15, 1999 or an
amended return filed after September 15, 1999, to the extent such increased
liability relates to another member's items of gain, income, loss, deduction or
credit.
Change in Fiscal Year
During 1996, the Company changed its fiscal year end to be consistent with
the fiscal year end of HEA. The fiscal year end changed from the last Saturday
of March, the date used in the Company's preceding filings of its Form 10-K with
the Commission, to the last Saturday of December conforming to HEA's 52/53-week
year methodology. The fiscal year ended on December 27, 1997, which is audited,
comprises twelve months or 52 weeks. For discussion and analysis purposes it is
compared to the unaudited twelve months ended December 28, 1996, also comprising
52 weeks. The audited nine months ended December 28, 1996, comprising 39 weeks,
are compared to the unaudited nine months ended December 30, 1995, comprising 40
weeks.
39
<PAGE> 41
RESULTS OF OPERATIONS
Quarterly Results of Operations.
The following table sets forth certain quarterly financial information for
each of the five quarters in the five quarter period ended March 28, 1998. This
information is derived from the Company's unaudited Consolidated Financial
Statements, prepared on a basis consistent with the Company's audited
Consolidated Financial Statements which appear elsewhere in this Prospectus. In
the opinion of the Company's management, this information includes all
adjustments (consisting only of normal recurring adjustments except for a $14.7
million stock compensation charge recorded in the first quarter of 1998 in
connection with the Option Plan) necessary for the fair presentation of such
information. Past quarterly operating results are not necessarily indicative of
the results that may be expected for future periods. The data should be read in
conjunction with the Consolidated Financial Statements, related Notes and other
financial information of the Company included elsewhere in this Prospectus.
Quarterly results are based on fiscal quarters of thirteen weeks in duration
ending on the last Saturday of each quarter. See "-- Overview."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 27, MARCH 28,
1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
(UNAUDITED) (UNAUDITED) (IN MILLIONS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue................................ $ 247.0 $ 283.1 $ 392.2 $ 502.0 $ 549.6
Cost of revenue........................ 254.1 280.3 370.7 447.8 487.3
------------- ------------- ------------- ------------- -------------
Gross profit (loss)................ (7.1) 2.8 21.5 54.2 62.3
------------- ------------- ------------- ------------- -------------
Operating expenses:
Research and development............. 26.4 25.5 26.7 27.6 33.4
Selling, general and
administrative..................... 15.1 15.4 15.5 16.6 15.9
Stock compensation expense........... -- -- -- -- 14.7 (1)
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 41.5 40.9 42.2 44.2 64.0 (1)
------------- ------------- ------------- ------------- -------------
Income (loss) from operations.......... (48.6) (38.1) (20.7) 10.0 (1.7)(1)
Interest expense....................... (7.9) (8.7) (10.9) (9.0) (8.8)
Interest and other income.............. 1.8 0.4 0.4 22.4 (2) 0.3
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes...... (54.7) (46.4) (31.2) 23.4 (2) (10.2)(1)
Provision for income taxes............. 0.3 0.2 0.2 0.3 0.1
------------- ------------- ------------- ------------- -------------
Net income (loss)...................... $ (55.0) $ (46.6) $ (31.4) $ 23.1 (2) $ (10.3)(1)
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 27, MARCH 28,
1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue........................ 102.9 99.0 94.5 89.2 88.7
------------- ------------- ------------- ------------- -------------
Gross profit (loss)................ (2.9) 1.0 5.5 10.8 11.3
------------- ------------- ------------- ------------- -------------
Operating expenses:
Research and development............. 10.7 9.0 6.8 5.5 6.0
Selling, general and
administrative..................... 6.1 5.5 4.0 3.3 2.9
Stock compensation expense........... -- -- -- -- 2.7 (1)
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 16.8 14.5 10.8 8.8 11.6 (1)
------------- ------------- ------------- ------------- -------------
Income (loss) from operations.......... (19.7) (13.5) (5.3) 2.0 (0.3)(1)
Interest expense....................... (3.2) (3.0) (2.7) (1.8) (1.7)
Interest and other income.............. 0.7 0.1 0.1 4.5 (2) 0.1
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes...... (22.2) (16.4) (7.9) 4.7 (2) (1.9)(1)
Provision for income taxes............. 0.1 0.1 0.1 0.1 --
------------- ------------- ------------- ------------- -------------
Net income (loss)...................... (22.3) (16.5) (8.0) 4.6 (2) (1.9)(1)
============= ============= ============= ============= =============
</TABLE>
- ---------------
(1) Total operating expenses, income (loss) from operations, income (loss)
before income taxes and net income (loss) for the three months ended March
28, 1998 reflect a $14.7 million compensation charge related to the variable
accounting features of the Option Plan. Without such charge, the Company
would have had total operating expenses of $49.3 million, income from
operations of $13.0 million, income before income taxes of $4.5 million and
net income of $4.4 million. The Option Plan has been amended and restated to
remove the variable features and provide for fixed award options. See Note
10 of Notes to Consolidated Financial Statements.
(2) Includes recovery of a $20.0 million fully-reserved note from IMS. See
"Certain Transactions."
40
<PAGE> 42
Revenue. During the five quarter period ended March 28, 1998, the Company's
revenue grew by 122.5%, increasing from $247.0 million in the first quarter of
1997 to $549.6 million in the first quarter of 1998. The quarter-to-quarter
increase in revenue is attributable primarily to an increase in unit shipments
arising from improved time-to-market entry and time-to-volume production and a
shift in the Company's customer base to PC OEMs. Revenue growth from increased
unit shipments was offset partially by continued rapid price erosion in the HDD
market as a whole, which resulted in declining ASPs throughout the period. The
Company believes that the effect of market ASP declines on the Company's ASPs
was contained partially by the Company's improved time-to-market entry and
time-to-volume production and by a Company trend toward shipping higher-capacity
HDDs, which tend to have higher initial ASPs.
From the first quarter of 1997 to the first quarter of 1998, revenue from
sales to PC OEMs increased from 54.5% to 75.8% of the Company's revenue. During
this period, sales to three of the largest PC OEMs, Compaq, Dell and IBM,
increased from 24.0% to 51.8% of the Company's revenue.
Cost of Revenue; Gross Profit (Loss). Cost of revenue consists principally
of the cost of HDD components purchased from outside vendors, labor and
manufacturing overhead. During the five quarter period ended March 28, 1998,
gross profit (loss) improved from a loss of $7.1 million in the first quarter of
1997 to a profit of $62.3 million in the first quarter of 1998. Gross margin
improved, quarter-over-quarter during this period, increasing from (2.9)% in the
first quarter of 1997 to 11.3% in the first quarter of 1998. The
quarter-over-quarter improvement in gross margin is due primarily to the timely
introduction of new, higher margin products which achieved market acceptance and
higher manufacturing yields. Gross margin also was favorably affected by
improved product designs and lower component costs. Growth of the Company's
gross margins, however, was constrained partially by continued rapid price
erosion in the HDD market as a whole, which resulted in declining ASPs
throughout the period. See "Relationship between the Company and
HEA -- Purchases from Affiliates."
Operating Expenses.
Research and Development Expense. During each of the quarters in the
five quarter period ended March 28, 1998, the Company made substantial R&D
investments. R&D expense as a percentage of revenue decreased from 10.7% to 5.5%
during the 1997 fiscal year, while the absolute dollar level of R&D spending
during each quarter of the 1997 fiscal year remained relatively constant. In the
first quarter of 1998, however, R&D spending increased to $33.4 million, or 6.0%
of revenue, from $27.6 million, or 5.5% of revenue, in the fourth quarter of
1997. This increase was due to the Company's efforts to develop new products for
the desktop PC market and future products in other HDD market segments. The
Company anticipates that R&D expenses will continue to increase in absolute
dollars during 1998 due to continuing efforts to diversify the Company's product
portfolio. See "-- Overview."
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses consist mainly of employee-related expenses,
including sales commissions and outside services. During the five quarter period
ended March 28, 1998, the Company's SG&A expenses as a percentage of revenue
declined from a high of 6.1% in the first quarter of 1997 to a low of 2.9%
during the first quarter of 1998. During this five quarter period, SG&A expenses
were relatively flat on an absolute dollar basis, except for the fourth quarter
of 1997, when they increased primarily due to an accrual for company-wide
employee incentive bonuses resulting from above-target performance during 1997
and, to a lesser extent, an increase in sales and marketing personnel. The
decrease in SG&A expenses as a percentage of revenue during this five quarter
period is due to the increase in the Company's revenue combined with the
Company's ongoing cost control efforts. The Company anticipates that SG&A
expenses will increase in absolute dollars during 1998 due to expenses related
to expected increased sales activity.
Stock Compensation Expense. In 1996 the Company adopted the Option Plan,
pursuant to which substantially all of the Company's domestic employees and
certain international employees received options which were required to be
accounted for as variable options. As a consequence, the Company recorded a non-
cash compensation expense of $14.7 million in the first quarter of 1998, related
to the difference between the estimated fair market value of its stock as of
March 28, 1998 and the exercise price of the options granted under the Option
Plan between May 1996 and October 1997. If this expense were not incurred in the
first
41
<PAGE> 43
quarter of 1998, the Company would have realized net income of $4.4 million in
such period. The Company amended and restated the Option Plan to remove the
features which resulted in variable accounting. The Company will incur non-cash
stock compensation expense in connection with the Amended Plan through the end
of fiscal year 2001 in amounts expected to decrease from a high of approximately
$1.2 million in the third quarter of 1998 to a low of approximately $0.1 million
in the second quarter of 2001, assuming all options remain in effect. After that
point, no further stock compensation expenses will be incurred in connection
with the Amended Plan. MMC has agreed to reimburse the Company for any stock
compensation expenses arising from grants made to MMC employees under the Option
Plan.
Interest Expense. During the five quarter period ended March 28, 1998, the
Company's interest expense as a percentage of revenue declined from a high of
3.2% in the first quarter of 1997 to a low of 1.7% in the first quarter of 1998.
During the first three quarters of 1997, the Company's interest expense in
absolute dollars increased due to a growth in short-term borrowings used to fund
the Company's operations. During the fourth quarter of 1997 and first quarter of
1998, the Company's interest expense in absolute dollars declined due to
conversion of $200.0 million of subordinated debt held by HEA into equity in the
Company with an associated reduction in interest payments, and a reduction in
other debt of $53.9 million. The benefits derived from such debt reductions
were, however, partially offset by an increase in the Company's interest expense
due to higher interest rates applied to the Company's intercompany loan from HEA
and bank credit facilities, in each case as a result of the higher cost of
borrowing resulting from changes in the economic environment in Korea.
Interest and Other Income. During the five quarter period ended March 28,
1998, the Company's interest and other income remained relatively constant at
approximately 0.1% of revenue, except for one time events in the first and
fourth quarters of 1997 which related to the recovery of a $1.3 million
fully-reserved note issued to the Company by Storage Dimensions, Inc. ("SDI")
and a $20.0 million fully-reserved note issued to the Company by IMS,
respectively.
Potential Fluctuations in Quarterly Results. The Company has experienced,
and expects to continue to experience, fluctuations in sales and operating
results from quarter-to-quarter. As a result, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful, and that such comparisons cannot be relied upon as indicators of
future performance. The Company's operating results may be subject to
significant quarterly fluctuations as a result of a number of factors,
including: (i) the Company's ability to be among the first-to-volume production
with competitive products in a timely manner; (ii) fluctuations in HDD product
demand as a result of the cyclical and seasonal nature of the PC industry; (iii)
the availability and extent of utilization of manufacturing capacity; (iv)
changes in product or customer mix; (v) entry of new competitors; (vi) the
complex and difficult process of qualifying the Company's products with its
customers; (vii) cancellation or rescheduling of significant orders; (viii)
deferrals of customer orders in anticipation of new products or enhancements;
(ix) the impact of price protection measures and return privileges granted by
the Company to certain distributors and retailers; (x) component and raw
material costs and availability, particularly with respect to components
obtained from sole or limited sources; (xi) the availability of adequate capital
resources; (xii) increases in R&D expenditures to maintain the Company's
competitive position; (xiii) changes in the Company's strategy; (xiv) personnel
changes; and (xv) other general economic and competitive factors. Moreover,
since a large portion of the Company's operating expenses, including rent,
salaries, capital lease and debt payments and equipment depreciation, are
relatively fixed and difficult to reduce or modify, the adverse effect of any
decrease in revenue as a result of fluctuations in product demand or otherwise
will be magnified by the fixed nature of such operating expenses and could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Potential Fluctuations in Quarterly
Results; Average Selling Price Erosion; Management of Growth."
42
<PAGE> 44
Three months ended March 29, 1997 compared to three months ended March 28, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 29, MARCH 28,
1997 1998
------------ -------------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 247.0 $ 549.6
Cost of revenue............................................. 254.1 487.3
------------ -------------
Gross profit (loss).................................... (7.1) 62.3
------------ -------------
Operating expenses:
Research and development.................................. 26.4 33.4
Selling, general and administrative....................... 15.1 15.9
Stock compensation expense................................ -- 14.7 (1)
------------ -------------
Total operating expenses............................... 41.5 64.0 (1)
------------ -------------
Loss from operations........................................ (48.6) (1.7)(1)
Interest expense............................................ (7.9) (8.8)
Interest and other income................................... 1.8 0.3
Loss before income taxes.................................... (54.7) (10.2)(1)
Provision for income taxes.................................. 0.3 0.1
------------ -------------
Net loss.................................................... $ (55.0) $ (10.3)(1)
============ =============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 29, MARCH 28,
1997 1998
------------ -------------
<S> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue..................................................... 100.0% 100.0%
Cost of revenue............................................. 102.9 88.7
------------ -------------
Gross profit (loss).................................... (2.9) 11.3
------------ -------------
Operating expenses:
Research and development.................................. 10.7 6.0
Selling, general and administrative....................... 6.1 2.9
Stock compensation expense................................ -- 2.7 (1)
------------ -------------
Total operating expenses............................... 16.8 11.6 (1)
------------ -------------
Loss from operations........................................ (19.7) (0.3)(1)
Interest expense............................................ (3.2) (1.7)
Interest and other income................................... 0.7 0.1
------------ -------------
Loss before income taxes.................................... (22.2) (1.9)(1)
Provision for income taxes.................................. 0.1 --
------------ -------------
Net loss.................................................... (22.3) (1.9)(1)
============ =============
</TABLE>
- ---------------
(1) Total operating expenses, loss from operations, loss before income taxes and
net loss for the three months ended March 28, 1998 reflect a $14.7 million
compensation charge related to the variable accounting features of the
Option Plan. Without such charge, the Company would have had total operating
expenses of $49.3 million, income from operations of $13.0 million, income
before income taxes of $4.5 million and net income of $4.4 million. The
Option Plan has been amended and restated to remove the variable features
and provide for fixed award options. See Note 10 of Notes to Consolidated
Financial Statements.
Revenue. Between the first quarter of 1997 and the first quarter of 1998,
the Company's revenue grew by 122.5%, increasing from $247.0 million in the
first quarter of 1997 to $549.6 million the first quarter of 1998. This increase
in revenue is attributable primarily to an increase in unit shipments arising
from improved time-to-market entry and time-to-volume production and a shift in
the Company's customer base to PC OEMs. Revenue growth from increased unit
shipments was partially offset by continued rapid price erosion in the
43
<PAGE> 45
HDD market as a whole, which resulted in declining ASPs throughout the period.
The Company believes that the effect of HDD market ASP declines on the Company's
ASPs was contained partially by the Company's improved time-to-market entry and
time-to-volume production and by a Company trend toward shipping higher-capacity
HDDs, which tend to have higher initial ASPs.
From the first quarter of 1997 to the first quarter of 1998, revenue from
sales to PC OEMs increased from 54.5% to 75.8% of the Company's revenue. During
this period, sales to three of the largest PC OEMs, Compaq, Dell and IBM,
increased from 24.0% to 51.8% of the Company's revenue.
Gross Profit (Loss). Gross profit (loss) improved from a loss of $7.1
million in the first quarter of 1997 to a profit of $62.3 million in the first
quarter of 1998. Gross margin increased from (2.9)% in the first quarter of 1997
to 11.3% in the first quarter of 1998. The improvement in gross margin is due to
the timely introduction of new, higher margin products which achieved market
acceptance and higher manufacturing yields. Gross margin also was favorably
affected by improved product designs which led to improved manufacturing yields
and lower component costs. Growth of the Company's gross margin, however, was
constrained partially by continued rapid price erosion in the HDD market as a
whole, which resulted in declining ASPs for the Company's products. See
"Relationship Between the Company and Hyundai -- Purchases from Affiliates."
Operating Expenses.
Research and Development Expense. R&D expense as a percentage of revenue
decreased from 10.7% in the first quarter of 1997 to 6.0% in the first quarter
of 1998, while the absolute dollar level of R&D spending during the same periods
increased from $26.4 million to $33.4 million. This increase was due to the
Company's efforts to develop new products for the desktop PC market and future
products in other HDD market segments.
Selling, General and Administrative Expense. SG&A expense as a
percentage of revenue declined from 6.1% in the first quarter of 1997 to 2.9%
during the first quarter of 1998, while the absolute dollar level of SG&A
expenses was relatively flat at $15.1 million and $15.9 million, respectively.
The decrease in SG&A expenses as a percentage of revenue between these periods
was due to the increase in the Company's revenues combined with the Company's
ongoing cost control efforts.
Stock Compensation Expense. In 1996 the Company adopted the Option Plan,
pursuant to which substantially all of the Company's domestic employees and
certain international employees received options which were required to be
accounted for as variable options. As a consequence, the Company recorded a non-
cash compensation expense of $14.7 million in the first quarter of 1998, related
to the difference between the estimated fair market value of its stock as of
March 28, 1998 and the exercise price of the options granted under the Option
Plan between May 1996 and October 1997. If this expense were not incurred in the
first quarter of 1998, the Company would have realized net income of $4.4
million for the first quarter. In the second quarter of 1998, the Company
amended and restated the Option Plan to remove the features which resulted in
variable accounting.
Interest Expense. Interest expense as a percentage of revenue declined from
3.2% in the first quarter of 1997 to 1.7% in the first quarter of 1998, while
the absolute dollar level of interest expense increased from $7.9 million in the
first quarter of 1997 to $8.8 million in the first quarter of 1998. The increase
in the absolute dollar amount of the Company's interest expense between the
first quarter of 1997 and the first quarter of 1998 was, due, in part, to higher
interest rates applied to the Company's intercompany loan from HEA and bank
credit facilities, in each case as a result of the higher cost of borrowing
resulting from changes in the economic environment in Korea. The Company had
$274.8 million of short-term and $224.1 million of long-term credit borrowings
outstanding at March 29, 1997, as compared to $130.9 million of short-term and
$219.0 million of long-term credit borrowings outstanding at March 28, 1998.
Interest and Other Income. Interest and other income declined from $1.8
million to $0.3 million between the first quarter of 1997 and the first quarter
of 1998. The higher rate of interest income in the first quarter of 1997
resulted from the recovery of a $1.3 million fully-reserved note issued to the
Company by SDI.
44
<PAGE> 46
Twelve months ended December 28, 1996 compared to twelve months ended December
27, 1997. In the following discussion, references to 1996 are to the twelve
months ended December 28, 1996 and references to 1997 are to the fiscal year
ended December 27, 1997.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 1,113.8 $ 1,424.3
Cost of revenue............................................. 1,191.7 1,352.9
------------ ------------
Gross profit (loss).................................... (77.9) 71.4
------------ ------------
Operating expenses:
Research and development.................................. 113.1 106.2
Selling, general and administrative....................... 82.9 62.6
------------ ------------
Total operating expenses............................... 196.0 168.8
------------ ------------
Loss from operations........................................ (273.9) (97.4)
Interest expense............................................ (22.1) (36.5)
Interest and other income................................... 1.3 25.0 (1)
------------ ------------
Loss before income taxes.................................... (294.7) (108.9)
Provision for income taxes.................................. 1.5 1.0
------------ ------------
Net loss.................................................... $ (296.2) $ (109.9)(1)
============ ============
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue..................................................... 100.0% 100.0%
Cost of revenue............................................. 107.0 95.0
------------ ------------
Gross profit (loss).................................... (7.0) 5.0
------------ ------------
Operating expenses:
Research and development.................................. 10.2 7.5
Selling, general and administrative....................... 7.4 4.4
------------ ------------
Total operating expenses............................... 17.6 11.9
------------ ------------
Loss from operations........................................ (24.6) (6.9)
Interest expense............................................ (2.0) (2.6)
Interest and other income................................... 0.1 1.8 (1)
------------ ------------
Loss before income taxes.................................... (26.5) (7.7)
Provision for income taxes.................................. 0.1 0.1
------------ ------------
Net loss.................................................... (26.6) (7.8)(1)
============ ============
</TABLE>
- ---------------
(1) Includes recovery of a $20.0 million fully-reserved note from IMS. See
"Certain Transactions."
Revenue. Between 1996 and 1997, the Company's revenue grew by 27.9%,
increasing from $1,113.8 million in 1996 to $1,424.3 million in 1997. The
increase in revenue is attributable primarily to an increase in unit shipments
arising from improved time-to-market entry and time-to-volume production and a
shift in the Company's customer base to PC OEMs during 1997. Revenue growth from
increased unit shipments was partially offset by continued rapid price erosion
in the HDD market as a whole, which resulted in declining ASPs throughout the
period. The Company believes that during 1997 the effect of HDD market ASP
declines on the Company's ASPs was contained partially by the Company's improved
time-to-market entry and time-to-volume production and by a Company trend toward
shipping higher-capacity HDDs, which tend to have higher initial ASPs.
45
<PAGE> 47
From 1996 to 1997, revenue from sales to PC OEMs increased from 52.7% to
64.4% of the Company's revenue, even though the 1997 results did not include any
revenues from IMS. The Company's 1996 results include $44.0 million in OEM
revenues attributable to IMS (in which the Company held a controlling interest
prior to June 1996). From 1996 to 1997, sales to three of the largest PC OEMs,
Compaq, Dell and IBM, increased from 10.8% to 37.8% of the Company's revenues.
Gross Profit (Loss). Gross profit (loss) improved from a loss of $77.9
million in 1996 to a profit of $71.4 million in 1997. Gross margin increased
from (7.0)% in 1996 to 5.0% in 1997. The improvement in gross margin in 1997 is
due primarily to the timely introduction of new, higher margin products which
achieved market acceptance and higher manufacturing yields. During 1997, gross
margin also was favorably affected by improved product designs and lower
component costs. Growth of the Company's gross margin during 1997, however, was
partially constrained by continued rapid price erosion in the HDD market as a
whole, which resulted in declining ASPs for the Company's products.
Operating Expenses.
Research and Development Expense. R&D expense as a percentage of revenue
decreased from 10.2% in 1996 to 7.5% in 1997, while the absolute dollar level of
R&D spending during 1997 declined only slightly from 1996 levels. During 1997,
R&D expenditures were focused on desktop HDDs as a result of the rationalization
of the Company's product and technology roadmap to focus on desktop HDDs
utilizing a single core technology platform and MR head technology.
Selling, General and Administrative Expense. SG&A expense as a
percentage of revenue declined from 7.4% in 1996 to 4.4% in 1997, while the
absolute dollar level of SG&A expense declined from $82.9 million to $62.6
million over the same period. Starting in the second half of 1996, SG&A expense
was reduced as a result of the Company's cost reduction efforts, as well as the
sale of the majority ownership interest in IMS in June 1996. While substantial
expense reductions occurred in 1996, the Company focused on cost containment in
1997.
Interest Expense. Interest expense increased 65.2% from $22.1 million in
1996 to $36.5 million in 1997. This increase was due to a substantial growth in
short-term and long-term borrowings required to fund the Company's operations.
During the fourth quarter of 1997, the Company's interest expense was offset by
the conversion of $200.0 million of subordinated debt held by HEA into equity in
the Company with an associated reduction in interest payments. The benefit
derived from such debt reduction was, however, partially offset by an increase
in the Company's interest expense due to higher interest rates applied to the
Company's intercompany loan from HEA and bank credit facilities, in each case as
a result of the higher cost of borrowing resulting from changes in the economic
environment in Korea. The Company had $165.1 million of short-term and $224.3
million of long-term indebtedness outstanding at December 27, 1997, as compared
to $149.8 million of short-term and $229.1 million of long-term indebtedness
outstanding at December 28, 1996.
Interest and Other Income. Interest and other income increased from $1.3
million in 1996 to $25.0 million in 1997 due to the recovery of a $1.3 million
fully-reserved note issued to the Company by SDI, and a $20.0 million
fully-reserved note issued to the Company by IMS.
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<PAGE> 48
Nine months ended December 30, 1995 compared to the nine months ended December
28, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 954.0 $ 798.9
Cost of revenue............................................. 893.4 888.9
------------ ------------
Gross profit (loss).................................... 60.6 (90.0)
------------ ------------
Operating expenses:
Research and development.................................. 69.4 87.8
Selling, general and administrative....................... 60.5 60.7
Other..................................................... 4.5 --
------------ ------------
Total operating expenses............................... 134.4 148.5
------------ ------------
Loss from operations........................................ (73.8) (238.5)
Interest expense............................................ (7.8) (18.1)
Interest and other income................................... 0.8 1.0
------------ ------------
Loss before income taxes.................................... (80.8) (255.6)
Provision for income taxes.................................. 2.1 0.8
------------ ------------
Net loss.................................................... $ (82.9) $ (256.4)
============ ============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue..................................................... 100.0% 100.0%
Cost of revenue............................................. 93.6 111.3
------------ ------------
Gross profit (loss).................................... 6.4 (11.3)
------------ ------------
Operating expenses:
Research and development.................................. 7.3 11.0
Selling, general and administrative....................... 6.3 7.6
Other..................................................... 0.5 --
------------ ------------
Total operating expenses............................... 14.1 18.6
------------ ------------
Loss from operations........................................ (7.7) (29.9)
Interest expense............................................ (0.8) (2.3)
Interest and other income................................... 0.1 0.1
------------ ------------
Loss before income taxes.................................... (8.4) (32.1)
Provision for income taxes.................................. 0.2 0.1
------------ ------------
Net loss.................................................... (8.6) (32.2)
============ ============
</TABLE>
Revenue. Between the nine month period ended December 30, 1995 and the nine
month period ended December 28, 1996, the Company's revenue decreased by 16.3%
from $954.0 million to $798.9 million. This decrease was attributable primarily
to an approximately 22.0% decline in unit shipments and continued rapid price
erosion in the HDD market as a whole, which resulted in declining ASPs for the
Company's products throughout the period. During the nine month period ended
December 28, 1996, revenue from the PC OEM customer channel declined from the
comparable 1995 period by 32.0% due to delayed product introductions and product
performance and quality problems. This decline was offset partially by a 17.0%
increase in revenue from sales to distributors. Part of the revenue decrease
during the 1996 period is also attributable to the sale of a majority ownership
interest in IMS in June 1996. Revenue for 1995 also reflects a 40-week period as
compared to a 39-week period for 1996, as the first quarter of 1995 was extended
to realign the Company's fiscal year with HEA's fiscal year.
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<PAGE> 49
Gross Profit (Loss). Gross profit (loss) decreased from a profit of $60.6
million in the nine month period ended December 30, 1995 to a loss of $90.0
million in the nine month period ended December 28, 1996. Gross margins
decreased from 6.4% in the 1995 period to (11.3%) in the 1996 period. The
decrease in gross margins in the 1996 period was due primarily to the decrease
in unit shipments and a substantial decline in ASPs discussed above. In June
1996, the Company incurred a $42.3 million charge for products in inventory and
scheduled to be built over the following six months which had market prices
lower than cost. Furthermore, in the 1996 period, the Company incurred one-time
charges of $6.5 million related to the consolidation of its manufacturing
operations to a single facility in Singapore, including the closure of a head
stack assembly plant in Thailand.
Operating Expenses.
Research and Development Expense. R&D expense as a percentage of revenue
increased from 7.3% for the nine month period ended December 30, 1995 to 11.0%
for the nine month period ended December 28, 1996. This increase was due to the
Company's establishment in 1996 of the Company's advanced technology group in
Milpitas, California and a production engineering group in Singapore. In the
third quarter of 1996, the Company incurred charges of approximately $4.5
million related to obsolete equipment and internally built equipment not
utilized due to rapid changes in product volumes and mix during the latter half
of 1996.
Selling, General and Administrative Expense. SG&A expense as a
percentage of revenue increased from 6.3% for the nine month period ended
December 30, 1995 to 7.6% for the nine month period ended December 28, 1996
primarily due to the decrease in the Company's revenue base, while the absolute
dollar level of SG&A spending increased from $60.5 million to $60.7 million.
Certain SG&A expenses decreased during the 1996 period due to reductions in the
Company's workforce and savings associated with the sale of a majority ownership
interest in IMS in June 1996. This decrease in SG&A expenses was offset by
charges related to severance costs incurred throughout 1996, caused by a
substantial change in executive staff.
Other Expenses. Other expenses in 1995 consisted of $4.5 million of
professional fees related to the acquisition of the Company by HEA.
Interest Expense. Interest expense increased 132.1% from $7.8 million for
the nine month period ended December 30, 1995 to $18.1 million for the nine
month period ended December 28, 1996. This increase was due primarily to a
growth in short-term and long-term borrowings used to fund the Company's
operations. The Company had $149.8 million of short-term and $229.1 million of
long-term indebtedness outstanding at December 28, 1996, compared to $99 million
of short-term indebtedness outstanding at December 30, 1995.
Interest and Other Income. Interest and other income increased from $0.8
million in the nine month period ended December 30, 1995 to $1.0 million in the
nine month period ended December 28, 1996 due to the availability of cash for
investing purposes.
YEAR 2000 COMPLIANCE
The Company is preparing to implement the SAP System in the fourth quarter
of 1998. The SAP System is designed to automate more fully the Company's
business processes and will affect most functional areas, including, without
limitation, finance, procurement, inventory control, collections, order
processing and manufacturing, and its implementation will require certain
upgrades in the Company's existing computer hardware systems. Historically,
there have been substantial delays in the implementation of such systems at
other companies. Unlike most companies, which implement new information systems
in stages over time, the Company has chosen to install and activate the SAP
System across most functional areas of the Company simultaneously. The Company
believes it is among the first to undertake such a broad, simultaneous
implementation of the SAP System. This approach may substantially increase the
risk of delay or failure in the system implementation.
Implementation of the SAP System will be complex, expensive and time
intensive and its successful implementation could be adversely affected by
various factors, including: (i) any failure to provide adequate training to
employees; (ii) any failure to retain skilled members of the implementation team
or find suitable
48
<PAGE> 50
replacements for such personnel; (iii) the scope of the implementation plan
being expanded by unanticipated changes in the Company's business; (iv) any
inability to extract data from the Company's existing information system and
convert that data into a format that can be accepted by the SAP System; (v) any
failure to devise and run appropriate testing procedures that accurately reflect
the demands that will be placed on the new system following its implementation;
and (vi) any failure to develop and implement adequate fall-back procedures in
the event that difficulties or delays arise during the initial start-up phase of
the SAP System.
In connection with the implementation of the SAP System, the Company may
experience functional and performance problems, including problems relating to
the SAP System's response time and data integrity. In addition, resolution of
any such problems could entail additional costs. Moreover, as a result of the
Company's simultaneous implementation approach, the Company will not have an
operational backup information system in the event of a failure of the SAP
System. There can be no assurance that the Company will be able to implement the
SAP System successfully on a timely and cost effective basis or that the SAP
System will not fail or prove to be unsuitable for the Company's needs. The
inability of the Company to implement or resolve problems with the SAP System in
a timely manner could have a material adverse effect on the Company's business,
financial condition and results of operations. No amounts have been accrued in
the Company's consolidated financial statements included elsewhere in this
Prospectus for any probable expenses or lost revenue that could result from
problems in implementing the SAP System. See "Relationship between the Company
and Hyundai" and "Certain Transactions."
LIQUIDITY AND CAPITAL RESOURCES
At March 28, 1998, the Company had $13.3 million in cash and cash
equivalents as compared to $16.9 million at December 27, 1997. Operating
activities provided net cash of $33.6 million for the three month period ended
March 28, 1998 as compared to utilizing net cash of $82.6 million for the three
month period ended March 29, 1997. Cash provided by operating activities for the
quarter ended March 28, 1998 was generated principally by operations and
supplemented by a decrease in working capital. The increase in cash generated
from operations was primarily due to increased sales and improved margins.
Investing activities provided $1.7 million. During the quarter, the Company paid
down debt of $38.9 million.
At December 27, 1997, the Company had $16.9 million in cash and cash
equivalents as compared to $31.3 million at December 28, 1996. Net cash used in
operating activities was $146.7 million during fiscal year 1997. Cash used in
operating activities was utilized to fund a net loss of $109.9 million (other
than $65.6 million of non-cash depreciation and amortization expense included
therein), and increases in accounts receivable and inventories totaling $142.5
million and $74.4 million, respectively, and was offset by an increase in
accounts payable of $102.1 million. The increases in accounts receivable,
inventories and accounts payable resulted from increased unit shipments. Net
cash used in investing activities of $61.3 million consisted primarily of
capital expenditures to add manufacturing capacity in the Singapore facility, to
effect the transition from thin-film to MR head technology and to improve
operating efficiency. Cash used in both operating and investing activities was
provided through approximately $265.0 million in working capital loans from HEA
($200.0 million of which was converted into equity in December 1997). In
addition, the Company paid off $65.0 million of bank debt during 1997.
At March 28, 1998, the Company had $350.5 million of short-term and
long-term unsecured debt comprised of $200.5 million of credit facilities from
various banks, $55.0 million of inter-company debt from HEA and $95.0 million of
publicly-traded convertible debt. The Company will use part of the net proceeds
from the Offerings to repay all of the outstanding indebtedness under the
Company's bank credit facilities and the inter-company loan of $55.0 million.
The remaining amount of the proceeds will be available for capital expenditures,
working capital and general corporate purposes.
The Company's outstanding 5.75% Convertible Subordinated Debentures due
March 1, 2012 are entitled to annual sinking fund payments of $5.0 million
beginning March 1, 1998.
HEI served as guarantor for the Company's borrowings under various
revolving bank credit facilities from August 1995 through June 1998. At March
28, 1998, aggregate indebtedness of the Company guaranteed by HEI under such
facilities was $170.0 million. Due to the economic conditions in Korea and
significant recent
49
<PAGE> 51
devaluations of the Korean won versus the U.S. dollar, HEI's reported financial
condition as of year-end 1997 was not in compliance with certain financial
covenants applicable to HEI as guarantor under such revolving credit facilities,
and such non-compliance constituted a default by the Company under such
revolving credit facilities and also a default (through a cross-default clause)
under an uncommitted credit facility of the Company that is repayable on demand
of the lender, is not guaranteed and had an outstanding principal amount of
$30.0 million as of March 28, 1998. The default under the revolving credit
facilities was waived by the lending banks in June 1998 in exchange for HHI
becoming the guarantor under such facilities in place of HEI and an increase in
pricing to reflect borrowing rates based on HHI's current credit rating. To
date, the lender under the demand facility has not demanded repayment of the
$30.0 million outstanding under that facility. The Company intends to use a
portion of the proceeds of the Offerings to pay down in full all outstanding
amounts under each of its revolving credit facilities and any amounts then
outstanding under the demand facility as well as the $55.0 million owed to HEA,
and thereafter to terminate such credit facilities. The Company intends to
obtain replacement revolving credit facilities following the Offerings that do
not depend on any Hyundai entity guarantees. However, the Company believes that
current market conditions for such facilities are not as favorable as they have
been at certain times in the past, and that for various reasons the number of
potential lenders actively providing credit facilities to companies in the data
storage industry may have decreased recently, and that the terms on which the
remaining potential lenders are willing to offer such facilities have become
significantly more restrictive and/or costly. Consequently, there can be no
assurance that the Company will be able to obtain any such replacement facility
or as to the terms and amount of any such facility that it is able to obtain.
Any failure to obtain adequate credit facilities on acceptable terms would have
a material and adverse effect on the Company's business, financial condition and
results of operations. In addition, as a majority-owned subsidiary of HEA, the
Company has the benefit of a letter of support from HEI under which HEI agrees
to provide sufficient financial support to ensure that the Company will continue
as a going concern. Following the Offerings, the Company believes that it will
no longer have the benefit of the support letter.
The Company also has an asset securitization program under which the
Company sells its accounts receivable on a non-recourse basis. At March 28,
1998, $100.0 million of accounts receivable was securitized under the program.
Continuance of the program is subject to certain conditions, including a
condition that all of the long-term public senior debt securities of HHI not
fall below a specified rating. The Company has begun negotiations with respect
to a $200 million asset securitization program which does not require any
support from HEA or any of its affiliates. The Company believes it will be able
to close this program and terminate its existing program by July 31, 1998. In
addition, the Company is exploring alternatives to establish a replacement
revolving credit facility which does not require any support from HEA or any of
its affiliates. Failure of the Company to close the replacement asset
securitization program or obtain alternative financing would have a material
adverse impact on the Company's business, financial condition and results of
operations.
The Company has been investing significant amounts of capital to increase
the capacity and enhance the productivity of its Singapore manufacturing
facility. In the twelve month period ended December 27, 1997, the nine month
period ended December 28, 1996 and the twelve month period ended March 30, 1996,
the Company made capital expenditures, net of disposals, of $81.9 million, $53.4
million and $72.3 million, respectively. During 1998, capital expenditures are
expected to be approximately $100.0 million, to be used principally for adding
manufacturing capacity and implementing the SAP System and other related
information technology systems. The Company anticipates that it may need
additional manufacturing capacity as early as the beginning of the year 2000. In
anticipation of that need, in the summer of 1997, HEI began construction of the
Dalian Facility. The Dalian Facility is only partially completed and
construction is continuing at a reduced pace. HEI has expended approximately
$23.0 million on the construction to date. An estimated additional $60.0 million
investment will be required to complete the Dalian Facility to the point where
manufacturing lines can be installed, and an estimated additional $25.0 million
of machinery and equipment will be required to make the facility ready for its
initial phase of operations. The Company and HEI have agreed to discuss the
terms under which the Dalian Facility will be completed and by which the Company
would either buy or lease the Dalian Facility from HEI, and the Company intends
to utilize the Dalian Facility if acceptable terms can be agreed upon. There can
be no assurance that the Company will be able to successfully negotiate any such
agreement with HEI or that the Dalian Facility will be completed by
50
<PAGE> 52
the time Maxtor requires additional capacity. The terms of any agreement with
regard to the Dalian Facility are subject to the approval of the Affiliated
Transactions Committee of the Board. Moreover, any such agreement would be
conditioned on the transfer of HEI's business license for the Dalian Facility
and the transfer of HEI's tax holiday status and other regulatory concessions in
Dalian to the Company. If the Company is unable to reach agreement with HEI on
acceptable terms or obtain the tax holiday status and other regulatory
concessions and the applicable business license, the Company may need to acquire
additional manufacturing capacity at other sites. In addition to the Dalian
Facility, the Company currently is investigating other manufacturing facilities
within Asia. Although the Company believes that alternative manufacturing
facilities will be available, a failure by the Company to obtain, on a timely
basis, a facility or facilities which allow the Company to meet its customers'
demands will limit the Company's growth and could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company believes that the proceeds of the Offerings, together with cash
generated from operations and borrowing capacity, will be sufficient to fund its
operations through at least the next 12 months. The Company requires substantial
working capital to fund its business, particularly to finance accounts
receivables and inventory, and to invest in property and equipment. The Company
may seek long-term financing arrangements, including a line of credit to fund
its future capacity expansion plans, as necessary. However, the Company's cash
needs will depend on, among other things, demand in the desktop HDD market and
pricing conditions. There can be no assurance that lower than expected revenue,
increased expenses, decisions to increase capacity or other events, including
the acquisition of technology, products or businesses, will not cause the
Company to seek more capital, or to seek capital sooner than currently expected.
If the Company needs additional capital, there can be no assurance that such
additional financing can be obtained, or, if obtained, that it will be available
on satisfactory terms. The failure to obtain additional financing on
satisfactory terms would also hinder the Company's ability to invest in capital
expenditures or in R&D and would have a material adverse effect on the Company's
business, financial condition and results of operations.
See "Risk Factors -- Risks Associated with Leverage," "Need for Additional
Capital," "-- Single Manufacturing Facility; Future Need for Additional
Capacity." "-- Dependance on International Operation; Risks from International
Sales," "Relationship Between the Company and Hyundai,"
"Business -- Manufacturing" and "Certain Transactions."
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
issued SFAS No 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for disclosure about
operating segments in annual financial statements and selected information in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
statement supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." The new standard becomes effective for fiscal years
beginning after December 15, 1997, and requires that comparative information
from earlier years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the effects, if any,
on the Company's current reporting and disclosures.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on when
costs related to software developed or obtained for internal use should be
capitalized or expensed. The SOP is effective for transactions entered into for
fiscal years beginning after December 15, 1998. The Company has reviewed the
provisions of the SOP and does not believe adoption of this standard will have a
material effect upon its results of operations, financial position or cash
flows.
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<PAGE> 53
BUSINESS
The following discussion contains forward-looking statements within the
meaning of the U.S. federal securities laws, including statements regarding the
anticipated growth in the market for the Company's products, the Company's
expected manufacturing capacity, the belief of the Company as to its future
operating performance and other statements that are not historical facts.
Because such statements include risks and uncertainties, actual results may
differ materially from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Maxtor is a leading provider of HDD storage products for desktop PC
systems. The Maxtor DiamondMax product family consists of 3.5-inch form factor
HDDs with storage capacities which range from 2.1 GB to 13.6 GB. These products
have high speed interfaces for greater data throughput, a robust mechanical
design for improved reliability, MR head technology and a DSP-based electronic
architecture that, when combined, provide industry-leading benchmark
performance. On June 15, 1998, Maxtor announced two new HDD products, the
DiamondMax 3400 and the DiamondMax Plus 2500. The DiamondMax 3400 is Maxtor's
fifth MR head HDD, its sixth HDD utilizing the Company's DSP-based electronic
architecture and its eighth HDD based on the Company's Formula 4 mechanical
structure. The DiamondMax Plus 2500, which is designed for the performance
desktop PC market, is the Company's first HDD to feature a 7,200 RPM spin speed,
its sixth MR head HDD, its seventh HDD utilizing the Company's DSP-based
electronic architecture and its ninth HDD based on the Company's Formula 4
mechanical structure. The Company's customers are PC OEMs, including Compaq,
Dell and IBM; distributors, including Ingram; and retailers, including Best Buy
and CompUSA.
COMPANY BACKGROUND
The Company was founded in 1982 and completed an initial public offering of
common stock in 1986. In the mid-1980's, the Company was a leading technology
innovator in the HDD industry. As is true today, the HDD industry during the
1980's was intensely competitive, and characterized by rapid technological
change, rapid rates of product and technology obsolescence, changing customer
requirements, dramatic shifts in market share and significant erosion of ASPs.
In an effort to mitigate the risks associated with these factors, the Company
pursued all major product segments in the HDD market, utilizing multiple product
families and technology platforms. This costly strategy added significant
complexity to the business which caused the Company to delay or miss a number of
key product introductions and ultimately led to the deterioration of the
Company's overall financial condition. As a result of this deterioration, the
Company sold a 40% stake to HEI and its affiliates in 1994.
THE MAXTOR TURNAROUND
In early 1996, HEA acquired all of the remaining publicly-held shares of
the Common Stock as well as all of the Common Stock then held by HEI and its
affiliates. Shortly thereafter, HEA invested in renewed efforts to revitalize
the Company. In July 1996, the Company hired Michael R. Cannon, its current
Chief Executive Officer and President and a 20 year veteran of the HDD industry,
who had previously served in senior management positions in the systems storage
division at IBM, SyQuest Technology ("SyQuest") and Control Data Corporation.
With a view toward capturing business at leading PC OEMs, Mr. Cannon identified
four key areas requiring improvement:
Corporate Leadership. To provide strong leadership and the required focus
on execution, the Company recruited seasoned, industry veterans for key senior
management positions. In addition to Mr. Cannon, these management additions
included Paul J. Tufano, the Company's Vice President, Finance, and Chief
Financial Officer, who previously had spent more than 17 years in a variety of
management positions at IBM; William F. Roach, the Company's Senior Vice
President, Worldwide Sales and Marketing, who previously had spent 20 years in a
variety of sales and marketing management positions at Quantum and Intel
Corporation; and K.H. Teh, the Company's Vice President, Worldwide
Manufacturing, who previously had spent 20 years in a variety of manufacturing
management positions at Iomega Corp. ("Iomega"), Quantum and SyQuest. These
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<PAGE> 54
new senior managers joined Dr. Victor B. Jipson, the Company's Senior Vice
President, Engineering, who had been at Maxtor since December 1995 and had
previously spent 16 years at IBM in a variety of research, technical strategy,
product strategy, research and development, and general management positions. In
addition, the Company added personnel with significant industry experience to
its engineering, manufacturing, procurement, human resources and sales and
marketing departments.
Cost Competitiveness. In the third quarter of 1996, Maxtor aggressively
moved to reduce its cost structure. The Company ceased utilizing an HDD
manufacturing facility owned and operated by HEI in Korea and consolidated its
volume HDD manufacturing facilities in Singapore. Maxtor also closed its sub-
assembly manufacturing facility in Thailand and sold its majority interest in
IMS, its former PCB division, to certain members of IMS management and
institutional investors. These actions helped reduce the Company's workforce by
approximately 54%. The Company also removed layers of management and implemented
strict discretionary expense controls. In addition, the Company improved the
productivity of its research and development expenditures by rationalizing its
technology and product roadmap to focus on desktop PC HDDs using a single core
technology platform.
Timely Introduction of New Products. Maxtor's new management team took a
number of steps designed to improve time-to-market entry, time-to-volume
manufacturing, quality, performance and manufacturability of its products, and
the effectiveness and efficiency of the Company's research and development
expenditures. In particular, the Company: (i) simplified its product and
technology roadmap by canceling its 5.25-inch and 2.5-inch programs; (ii)
focused its research and development efforts on a single core technology
platform that includes MR head technology and a DSP-based electronic
architecture, which the Company believes are capable of supporting rapid
extension of the Company's product and technology roadmap; and (iii)
restructured its product development process by creating an advanced technology
group, which is responsible for assessing new technology viability, developing
early prototypes and exploiting common design architectures, and by
strengthening its existing product design teams, which are responsible for
taking the building blocks provided by the advanced technology group and
designing high performance, highly manufacturable, cost-effective products which
meet customer specifications.
Customer/Channel Mix. Recognizing that the vast majority of the growth in
the desktop PC market was being captured by a limited number of leading PC OEMs,
the new management team rationalized Maxtor's sales channels and focused its
sales and marketing resources on establishing the Company as a preferred
supplier to leading PC OEMs and a limited number of leading distributors and
retailers. To improve overall customer satisfaction and capture accounts with
leading PC OEMs, the Company took a number of steps to improve product quality
and created dedicated account support teams for its major PC OEM clients
emphasizing senior management involvement in developing and maintaining customer
relationships.
TURNAROUND RESULTS
As a result of the changes described above, Maxtor's performance has
improved significantly during a period of severe fluctuations in the overall HDD
market.
Cost Competitiveness. The Company's cost competitiveness initiatives led to
a significant reduction of operating expenses. Maxtor's SG&A expense as a
percentage of revenue were among the lowest in the industry for the 1997 fiscal
year and the first quarter of 1998.
Timely Introduction of New Products. Maxtor's restructured manufacturing
and product development processes, as well as its rationalized product and
technology roadmap, enabled the Company to complete one of the fastest
transitions in the industry from HDDs utilizing thin-film head technology to
100% use of MR head technology by the end of the fourth quarter of 1997. With
its DiamondMax 2160 and DiamondMax 2880, the Company demonstrated significantly
improved time-to-volume manufacturing in the fourth quarter of 1997 and the
first quarter of 1998, by producing 1.4 million and 1.3 million units of these
products, respectively, during their first full quarters of production. In the
first quarter of 1998, the Company established itself as a time-to-market entry
leader with a 2.8 GB per disk HDD, the DiamondMax 2880. This trend continued in
the second quarter of 1998 with the Company's introductions of the DiamondMax
3400, a 3.4 GB per disk HDD, and the DiamondMax Plus 2500, the Company's first
7,200 RPM HDD. These
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<PAGE> 55
improvements, in turn, enabled the Company to increase its units shipped per
quarter from 1.3 million units during the first quarter of 1997 to 3.5 million
units in first quarter of 1998, and increase its share of the desktop HDD market
in terms of units shipped from 5.6% to 13.4% for the same periods.
Customer/Channel Mix. Maxtor's new focus on leading PC OEMs led to
significant improvements in its customer/channel mix. For example, Maxtor's
revenue from shipments to Compaq, Dell, and IBM have increased from
approximately 6.5% to 51.8% of the Company's total revenue over the 24 month
period ended March 28, 1998. Maxtor also became a leading supplier of desktop
HDDs to Dell in less than 6 months from May 1997 and was a leading provider in
terms of desktop HDDs shipped to the domestic retail channel during 1997.
Cumulatively, these changes have resulted in significantly improved financial
results. The Company increased revenues by 122.5%, from $247.0 million to $549.6
million for the first fiscal quarters of 1997 and 1998, respectively, and
improved gross margins from (2.9)% to 11.3% for the same periods.
INDUSTRY BACKGROUND
The Desktop HDD Market. According to IDC, the desktop PC market is the
largest segment of the worldwide PC market, accounting for approximately 80% of
global PC shipments in 1997. As a result, desktop PCs were the leading source of
demand for HDDs, accounting for more than 75% of all HDD units shipped worldwide
in 1997, according to IDC. The demand for desktop PCs and, therefore, desktop PC
HDDs, continues to grow in part due to: (i) continued improvements in personal
computing price/performance tradeoffs, including the emergence of the sub-$1000
PC; (ii) the rapid accumulation of data resulting from the digitization of
information previously stored in paper form; (iii) larger file sizes created by
multimedia-intensive applications associated with Windows-based user interfaces;
(iv) the exchange of increasing volumes of data among users across the Internet
and intranets with the proliferation of collaborative computing; and (v)
increased demand for PC upgrades as a result of Year 2000 compliance efforts.
Future demand growth for HDDs also may be driven by new and emerging HDD
markets. In May 1998, IDC forecasted that the worldwide desktop PC segment of
the HDD market would grow from approximately 100 million units in 1997 to 174
million units in 2001, reflecting a compound annual growth rate of approximately
15%.
Hard Drive Technology. The basic operation of an HDD has not changed
materially since its introduction in the 1950s. To improve the performance of
HDDs, HDD manufacturers have concentrated their efforts on optimizing the
performance of the various components of the HDD.
The main components of the HDD are the head disk assembly ("HDA") and the
PCB. The HDA includes the head, media (disks), head positioning mechanism
(actuator) and spin motor. These components are contained in a hard base plate
protective package in a contamination-free environment. The PCB includes custom
integrated circuits, an interface connector to the host computer and a power
connector.
The HDA is comprised of one or more disks positioned around a spindle hub
that rotates the disks by a spin motor. Disks are made of a smooth substrate to
which a thin coating of magnetic materials is applied. Each disk has a head
suspended directly above it, which can read data from or write data to the
spinning disk. The sensor element of the head, also known as the slider, is
getting progressively smaller, resulting in reduced material costs.
The integrated circuits on the PCB typically include a drive interface and
a controller. The drive interface receives instructions from the computer, while
the controller directs the flow of data to or from the disks, and controls the
heads. The location of data on each disk is logically maintained in tracks,
divided into sectors. The computer sends instructions to read data from or write
data to the disks based on track and sector locations. Industry standard
interfaces are utilized to allow the disk drive to communicate with the
computer.
A key performance metric in the HDD industry is "areal density," which is
the measure of stored bits per square inch on the recording surface of a disk.
An increase in areal density allows an HDD provider to decrease the price per
megabyte stored by increasing overall storage capacity per disk, thus reducing
product costs through reduced component requirements. During 1996 and 1997,
certain HDD providers began transitioning to MR heads. Prior to this transition,
most HDDs utilized thin-film inductive recording heads. MR heads have discrete
read and write structures which provide more signal than the older thin-film
inductive
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heads. This results in significantly higher areal densities, which thus
increases storage capacity per disk, and improves manufacturing margin and
product reliability. HDD providers are evaluating or implementing a number of
technological innovations designed to further increase HDD performance and
reduce product costs, including attempting to simplify the electronic
architecture by combining the traditional servo-control functions of the
DSP-based electronic architecture and the error recovery and interface
management functions of traditional HDD microprocessors on a single integrated
circuit. Moreover, to consistently achieve timely introduction and rapid volume
production of new products, some HDD providers are striving to simplify their
product design processes by focusing on creating extendible core technology
platforms which utilize common firmware and mechanical designs and re-use of
manufacturing tooling and ASICs across various product generations and product
lines.
HDD Market Challenges. PC OEMs compete in a consolidating market. The top
ten PC OEMs accounted for greater than 50% of all PC units shipped during 1997
and the first quarter of 1998. These PC OEMs use the quality, storage capacity
and performance characteristics of HDDs to select their HDD providers. PC OEMs
typically seek to qualify three or four providers for a given HDD product
generation. To qualify consistently with PC OEMs and thus succeed in the desktop
HDD industry, an HDD provider must consistently execute on its product
development and manufacturing processes in order to be among the first-
to-market entry and first-to-volume production at leading storage capacity per
disk with competitive prices. Failure to reach the market on time or to deliver
timely volume production usually results in significantly decreased gross
margins due to rapidly declining ASPs and dramatic losses in market share.
Successful achievement on the performance parameters, however, is only part of
the competitive equation. As PC OEMs seek to develop successful business models,
they also are requiring their HDD vendors to maintain high levels of quality to
enable low cost of ownership and adapt their inventory management models to be
compatible with the emerging build-to-order business model in the PC industry.
See "Risk Factors -- Risks of Failed Execution; Changing Customer Business
Models."
MAXTOR'S SOLUTION
Maxtor has established itself as a leading provider of high quality, high
performance HDDs to major desktop PC OEMs, distributors and retailers. The
Company's management team has extensive HDD industry experience across all
functional areas. As a consequence, Maxtor has been able to define and implement
the key business processes necessary to fulfill the needs of its customers.
These processes focus on the efficient, timely and cost-effective integration of
leading-edge technology to create highly manufacturable HDDs. Moreover, the
Company's senior management team rigorously monitors these processes in an
effort to ensure consistent execution and prompt response to customer demands.
Maxtor intends to strengthen its leadership position in the desktop HDD industry
by consistently executing these fundamental business processes.
MAXTOR'S STRATEGY
Maxtor seeks to be the dominant provider of HDDs to leading PC OEMs,
distributors and retailers. Maxtor's strategy to achieve this goal includes the
following elements:
Effectively Integrate New Technology. In 1996, Maxtor overhauled its
research and development process by augmenting its traditional product
development teams with a new advanced technology group. The advanced technology
group's purpose is to monitor and evaluate advancements in HDD technology for
possible integration into the Company's future products. It also works closely
with Maxtor's product development teams and strategic component vendors to: (i)
obtain early access to the latest HDD component technology; (ii) allow for
flexibility in choosing state-of-the-art components; and (iii) ensure viability
of new product technologies and components prior to product design. Through this
process, the Company intends to continue to integrate new technologies into its
existing core technology platform and to strengthen its ability to introduce
high quality, highly manufacturable, high performance HDD products with industry
leading time-to-volume production on a consistent basis. As a result of this
process, Maxtor was able to complete one of the fastest transitions to 100% MR
head HDDs in the industry by the end of 1997.
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<PAGE> 57
Leverage Design Excellence. Maxtor's product development methodology
reduces risks associated with design changes by focusing on common firmware and
mechanical designs, and re-use of manufacturing tooling and ASICs. Through this
process, the Company has created a technology platform which is used as the
common core of each of its current HDD products and which the Company believes
is extendible into products for new and emerging HDD market opportunities. To
reduce the overall cost of ownership of its HDD products, Maxtor utilizes a
robust mechanical architecture designed to reduce defects that result from
customer mishandling during installation. The Company also works closely with
leading component suppliers in an effort to ensure that adequate tolerances are
designed into its products to achieve high manufacturing yields and product
quality. By utilizing this product development methodology, Maxtor has
successfully introduced and achieved timely volume production of six generations
of MR HDDs in less than 18 months.
Capitalize on Flexible Manufacturing. The Company's Singapore manufacturing
facility utilizes a flexible cell-based process that enables the Company to: (i)
dedicate manufacturing cells to particular customers, thereby allowing the
Company to identify, isolate and remedy manufacturing defects quickly, resulting
in improved product quality, faster time-to-volume production and improved
overall customer satisfaction; (ii) simultaneously manufacture multiple product
configurations; (iii) quickly reconfigure the facility to respond to customer
change requests and changes in product and customer mix; (iv) effectively adapt
its inventory management model to the emerging build-to-order business model
employed by certain of its PC OEM customers; and (v) add incremental capacity as
needed at a relatively low cost. This flexible cell-based process, when coupled
with the Company's product design methodology, has enabled Maxtor to
significantly improve time-to-volume production. For example, during the first
full quarters of production the Company manufactured 1.4 million and 1.3 million
units of its DiamondMax 2160 and DiamondMax 2880 HDDs, respectively.
Increase Market Share With Leading PC OEMs. Maxtor intends to continue to
achieve leading time-to-volume production of high quality, high performance HDDs
to capture additional market share with leading PC OEMs. Maxtor's quarterly
share of the desktop HDD market in terms of units shipped increased from 5.6% in
the first quarter of 1997 to 13.4% in the first quarter of 1998. Shipments to
Compaq, Dell and IBM accounted for 6.5% of the Company's total revenue in the
quarter ended June 29, 1996 and increased to 51.8% in the quarter ended March
28, 1998.
Maintain Customer Satisfaction. Maxtor believes it distinguishes itself
from its competitors by focusing on ease of doing business and overall customer
satisfaction. For example, the Company's "No Quibble" service program has been
well received by its customers. Maxtor also has begun to place significant
attention on total supply chain management to align its business model with the
evolving build-to-order manufacturing business model of certain PC OEMs. The
Company utilizes its flexible, cell-based manufacturing process coupled with a
just-in-time inventory model to rapidly respond to the changing needs of its key
desktop PC OEM customers. To further automate and improve the efficiency of its
total supply chain management, the Company is in the process of installing new
enterprise resource planning and related software.
Broaden Product Portfolio. To capture higher margin opportunities and meet
the needs of its PC OEM customers, the Company intends to leverage its existing
technology platform and product development methodology to develop HDD products
for the low end of the enterprise data storage market, and the high performance
desktop and sub-$1000 desktop PC market segments. To this end, on June 15, 1998,
the Company introduced the DiamondMax Plus 2500, its first 7,200 RPM HDD, which
is designed for the performance desktop PC market. Maxtor also intends to
explore opportunities in a number of other emerging HDD markets.
PRODUCT DEVELOPMENT/TECHNOLOGY
One of the most important changes undertaken as part of the Maxtor
turnaround was the restructuring of the Company's product development process to
separate the enabling technology development phase from the product design
phase. In early 1996, Maxtor suffered from poor product quality and performance
and products that were late to market. This contrasts sharply with 1998 where
Maxtor now enjoys strong customer
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relationships based on excellent product quality, time-to-volume production
leadership and industry-leading performance.
Enabling Technology Development Phase. The advanced technology group is
responsible for the enabling technology development phase, including: (i)
working closely with the Company's product design teams and strategic component
suppliers to create a menu of state-of-the-art technologies to be used in the
Company's future products; (ii) developing early prototypes to ascertain the
stability and manufacturability of the Company's planned products; and (iii)
analyzing the latest head, disk, channel, motor and ASIC technologies and
designs to broaden and strengthen the Company's technology platform. This group
also focuses on leveraging the Company's current proven technology platform by
re-using as much electronic and mechanical technology as possible in each
successive product generation. In an effort to deliver the highest product
quality possible, the advanced technology group begins its review of emerging
technologies as early as possible, normally 18 months before such technologies
might be included in the Company's products. For example, Maxtor's advanced
technology group currently is evaluating GMR technology and pico sliders from a
variety of head suppliers for inclusion in future Maxtor products. GMR
technology is designed to significantly improve amplitude sensitivity and
provide the basis for significant future increases in areal density and improved
manufacturing margin, which in turn will result in increased drive capacity and
reliability. Pico sliders are smaller than nano sliders and are designed to
provide improved mechanical compliance and tribological performance at lower
costs.
Product Design Phase. The creation of the advanced technology group as part
of the Maxtor turnaround freed the Company's existing product design group from
the responsibility of assessing the viability of new and emerging technologies
and allowed it to concentrate on improving product performance, robustness,
manufacturability, quality and materials costs. The product design group also is
responsible, in part, for executing Maxtor's new product introduction process.
This process is a highly disciplined review procedure designed to ensure that
new product designs meet clearly specified criteria in terms of yield, scrap,
quality, productivity, and production ramp rates prior to release into volume
production. This process has enabled the Company to improve time-to-volume
manufacturing dramatically, yielding 1.4 million and 1.3 million units of the
DiamondMax 2160 and the DiamondMax 2880, respectively, during the first full
quarters of production. See "Risk Factors -- Rapid Technological Change and
Product Development."
PRODUCTS
Maxtor currently provides HDDs exclusively for the desktop PC market. The
Maxtor DiamondMax product family consists of 3.5-inch form factor HDDs with
storage capacities ranging from approximately 2.1 GB to 13.6 GB. These products
have a number of features including high speed interfaces for greater data
throughput, a robust mechanical design for improved reliability, MR head
technology and a DSP-based electronic architecture that, when combined, provides
industry-leading benchmark performance. On June 15, 1998, Maxtor announced two
new HDD products, the DiamondMax 3400 and the DiamondMax Plus 2500. The
DiamondMax 3400 is Maxtor's fifth MR head HDD, its sixth HDD utilizing the
Company's DSP-based electronic architecture and its eighth HDD based on the
Company's Formula 4 mechanical structure. The DiamondMax Plus 2500, which is
designed for the performance desktop PC market, is the Company's first HDD to
feature a 7,200 RPM spin speed, its sixth MR head HDD, its seventh HDD utilizing
the Company's DSP-based electronic architecture and its ninth HDD based on the
Company's Formula 4 mechanical structure.
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The table below sets forth key performance metrics and key customers for
the Company's six generations of MR products introduced since December of 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIAMONDMAX DIAMONDMAX DIAMONDMAX DIAMONDMAX DIAMONDMAX DIAMONDMAX
1280 1750 2160* 2880* 3400* PLUS 2500*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Capacity (GB)... 5.12 7.00 8.40 11.52 13.6 10.0
Capacity per Disk 1.28 1.75 2.16 2.88 3.40 2.50
(GB)..................
Rotational Speed (RPM).. 5400 5400 5400 5400 5400 7200
First Shipment Date..... Dec. 1996 June 1997 Sept. 1997 March 1998 June 1998 June 1998
Key Customers........... IBM Compaq, Dell Compaq, Dell Dell In Dell and in
and IBM and IBM qualification qualification
with others
</TABLE>
------------------
* Currently in volume production.
- --------------------------------------------------------------------------------
Maxtor's DiamondMax product family has won a number of recent editorial and
industry awards including:
<TABLE>
<S> <C>
WINDOWS Magazine Win 100 for DiamondMax 2160 -- June 1998
WINDOWS Magazine Win 100 for DiamondMax 1750 -- June 1998
VARBusiness 1998 Product Report Award -- May 1998
Computer Reseller News CRN Test Center Recommended for DiamondMax 2880 -- April
1998
BYTE Magazine Best Overall: Server Class Drive - DiamondMax
2160 -- February 1998
BYTE Magazine Best Overall: Desktop Drive -- DiamondMax 1280 -- February
1998
CompUSA 1997 Accessories Vendor of the Year
WINDOWS Magazine Win 100 for DiamondMax 1280 -- July 1997
Home PC Reviewer's Choice DiamondMax 1280 -- May 1997
WINDOWS Magazine Recommended List DiamondMax 1280 -- April 1997
</TABLE>
See "Risk Factors -- Rapid Technological Change and Product Development."
MANUFACTURING/QUALITY
To be competitive, Maxtor must manufacture high quality, highly
manufacturable, high performance HDDs with industry leading time-to-volume
production at competitive costs. The Company's HDD manufacturing operations
consist primarily of the final assembly of high-level subassemblies built to
Company specifications and testing of completed products.
Manufacturing. Pilot production of the Company's products, as well as cost
reduction, quality and product improvement engineering on current products, are
conducted at the Company's Longmont, Colorado facility. The Company manufactures
its HDDs in volume at a single facility in Singapore which utilizes a flexible,
cell-based process. Currently, the Singapore facility consists of four modular
production units ("MPUs"), each of which has 18 modular work cells ("MWCs").
Each MWC essentially is a mini-serial production line consisting of all of the
tooling and test equipment necessary to build and test an HDD. Each MPU is
responsible for managing the supply of the components and other parts required
by its MWCs. The Company is in the process of adding a fifth MPU which will
increase overall manufacturing capacity at the facility from approximately 16
million to approximately 20 million units per year. There is sufficient
additional space at the Singapore facility for a sixth MPU which would increase
overall capacity at that facility to approximately 25 million units per year.
Maxtor has coupled its cell-based manufacturing approach with a sophisticated
factory information system that collects data from each MWC on various
productivity and quality metrics.
The Company has been investing significant amounts of capital to increase
the capacity and enhance the productivity of its Singapore manufacturing
facility. In the twelve month period ended March 30, 1996, the nine month period
ended December 28, 1996 and the twelve month period ended December 27, 1997, the
Company made capital expenditures, net of disposals, of $72.3 million, $53.4
million and $81.9 million,
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respectively. During 1998, capital expenditures are expected to be approximately
$100.0 million, to be used principally for adding manufacturing capacity and
implementing the SAP System and other related information technology systems.
The Company anticipates that it may need additional manufacturing capacity
as early as the beginning of the year 2000. In anticipation of that need, in the
summer of 1997, HEI began construction of the Dalian Facility. The Dalian
Facility is only partially completed and construction is continuing at a reduced
pace. HEI has expended approximately $23.0 million on the construction to date.
An additional estimated $60.0 million investment will be required to complete
the Dalian Facility to the point where manufacturing lines can be installed, and
an estimated additional $25.0 million of machinery and equipment will be
required to make the facility ready for its initial phase of operations. The
Company and HEI have agreed to discuss the terms under which the Dalian Facility
will be completed and by which the Company would either buy or lease the Dalian
Facility from HEI, and the Company intends to utilize the Dalian Facility if
acceptable terms can be agreed upon. There can be no assurance that the Company
will be able to successfully negotiate any such agreement with HEI or that the
Dalian Facility will be completed by the time Maxtor requires additional
capacity. The terms of any agreement with regard to the Dalian Facility are
subject to the approval of the Affiliated Transactions Committee of the Board.
Moreover, any such agreement would be conditioned on the transfer of HEI's
business license for the Dalian Facility and the transfer of HEI's tax holiday
status and other regulatory concessions in Dalian to the Company. If the Company
is unable to reach agreement with HEI on acceptable terms or obtain the tax
holiday status and other regulatory concessions and the applicable business
license, the Company may need to acquire additional manufacturing capacity at
other sites. In addition to the Dalian Facility, the Company currently is
investigating other manufacturing facilities within Asia. Although the Company
believes that alternative manufacturing facilities will be available, a failure
by the Company to obtain, on a timely basis, a facility or facilities which
allow the Company to meet its customers' demands will limit the Company's growth
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition to risks typically associated with the concentration of vital
operations, foreign manufacturing is subject to additional risks, including
changes in governmental policies, currency fluctuations, political instability,
transportation delays and interruptions, and the imposition of tariffs and
export controls. Any disruption of the Company's manufacturing operations could
have a material adverse effect on its business, financial condition, results of
operations and customer relations.
See "Risk Factors -- Need for Additional Capital," "-- Single Manufacturing
Facility; Future Need for Additional Capacity," "-- Dependance on International
Operation; Risks from International Sales," "Relationship between the Company
and Hyundai" and "Management Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Quality. Consistent with its goal to establish Maxtor as a leader in
product quality and overall customer satisfaction, Maxtor has implemented a
corporate-wide quality program which focuses on (i) robustness of design and
improved design tolerances; (ii) quality of incoming components and factory
process control; and (iii) customer feedback, failure analysis and timely
response. In addition, Maxtor's quality, materials, enabling technology and
product development groups work closely with leading component vendors in an
effort to ensure sufficient tolerances are designed into the Company's HDDs to
achieve high manufacturing yields and product quality. Maxtor's Singapore
facility also is ISO 9002 certified. Finally, Company executives meet regularly
with customers to exchange product quality information to facilitate rapid
analysis of customer failures and timely implementation of corrective actions.
The Company currently warrants its products against defects in parts or
labor for a period of three years from the date of shipment. Products are
generally repaired or refurbished by Company subcontractors. The Company
operates a European drive exchange center in Ireland, a domestic drive exchange
center in San Jose, California, and an Asian drive exchange center in Singapore.
Additionally, the Company provides customer service and technical support for
end-users, as well as access to important information and software, via its Web
site.
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MATERIALS AND SUPPLIES
The Company has developed and continues to develop close, strategic
relationships with leading suppliers of many of the key components of its HDD
products. These relationships enable the Company to actively manage its supply
chain to improve flexibility in choosing state-of-the-art components and to
reduce component, inventory and overall product costs. In addition, Maxtor's
strategic component suppliers work closely with the Company's advanced
technology group, enabling the Company to gain early access to leading-edge HDD
technology and to improve the overall efficiency of the Company's product design
process.
The Company relies on a limited number of leading suppliers for the
components used in the manufacturing of its products, including MR heads and
head stack assemblies, media, custom integrated circuits ("IC"), read channel
ICs, PCBs and motor/baseplate assemblies. In general, the Company seeks to have
at least two or three suppliers for each of its component requirements. For
example, the Company currently purchases MR heads from Alps Electric Co., Ltd,
Headway Technologies, Inc., IBM, Read-Rite Corporation and TDK Corporation, and
media from HMT Technology Corporation, Komag, Incorporated and MMC. Custom
ASICs, including the Company's DSP controller chips, and channels, however,
currently are sole-sourced from TI and Lucent, respectively. Because of their
custom nature, these products require significant design-in periods and long
lead times. There can be no assurance that, in the event of any disruption or
delay in the supply of these custom ASICs or any other components, the Company
could locate an alternative source of supply on a timely basis on acceptable
terms, if at all. The Company outsources a majority of its PCB assembly to IMS,
an affiliate of the Company.
Some of the components required by the Company may periodically be in short
supply, and the Company has, on occasion, experienced temporary delays or
increased costs in obtaining components. As a result, the Company must allow for
significant lead times when procuring certain components. In addition,
cancellation by the Company of orders for components due to cut-backs in
production precipitated by market oversupply, reduced demand, transition to new
products or technologies or otherwise can result in payment by the Company of
significant cancellation charges to suppliers. The Company orders the majority
of its components on a purchase order basis and only has limited long-term
volume purchase agreements with certain existing suppliers. Any inability of the
Company to obtain sufficient quantities of components, or to develop in a timely
manner alternative sources of component supply if and as required in the future,
could adversely affect the Company's ability to manufacture its products and
deliver them on a timely basis, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
See "Risk Factors -- Control by and Dependence on Hyundai," "-- Dependence
on Suppliers of Components and Sub-Assemblies," "-- Dependence on International
Operations; Risks from International Sales," "Relationship Between the Company
and Hyundai" and "Certain Transactions."
CUSTOMERS AND SALES CHANNELS
From 1986 to 1997, chronic performance and quality issues, as well as being
late to the market, had adversely impacted Maxtor's ability to win business with
leading PC OEMs. As a result, the Company was heavily dependent on sales to a
large number of regional distributors which limited the Company's ability to
forecast periodic shipments and shifted the Company's product mix toward lower
performance, lower margin products. Recognizing that the majority of the growth
in shipments in the PC market was being captured by a limited number of PC OEMs,
the Company rationalized its sales channels and focused its sales and marketing
efforts on becoming a significant provider of HDDs to leading PC OEMs, including
Compaq, Dell and IBM, and a limited number of leading distributors and
retailers. By emphasizing overall customer satisfaction, product quality and
performance and time-to-volume production, the Company believes that it has
established a strong customer base.
The Company anticipates that a relatively small number of customers will
continue to account for a significant portion of its revenue for the foreseeable
future, and that the proportion of its revenue derived from such customers may
continue to increase in the future. The ability of the Company to maintain
strong relationships with its principal customers, including in particular its
PC OEM customers, is essential to the ongoing success and profitability of the
Company. Although the Company believes its relationships with key
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customers generally are good, in order to maintain its customer relationships,
particularly with PC OEMs, the Company must be among the first-to-volume
production with competitive products. The concentration of sales in a relatively
small number of major customers represents a business risk that loss of one or
more accounts, or a decrease in the volume of products sold to such accounts,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Original Equipment Manufacturers. Shipments to Compaq, Dell and IBM
accounted for 6.5% of the Company's total revenue in the quarter ended June 29,
1996 and increased to 51.8% in the quarter ended March 28, 1998. The Company
believes that its success depends on its ability to maintain and further develop
strong PC OEM customer relationships and to provide products that fit the needs
of the PC OEM channel. These PC OEMs use the quality, storage capacity and
performance characteristics of HDDs to select their HDD providers. PC OEMs
typically seek to qualify three or four providers for a given HDD product
generation. To qualify consistently with PC OEMs and thus succeed in the desktop
HDD industry, an HDD provider must consistently execute on its product
development and manufacturing processes in order to be among the first-to-
market entry and first-to-volume production at leading storage capacity per disk
with competitive prices. Once a PC OEM has chosen its qualified HDD vendors for
a given HDD product, it generally will purchase HDDs from those vendors for the
life of that HDD product. If a qualification opportunity is missed, the Company
may not have another opportunity to do business with that PC OEM until the next
generation of the Company's products is introduced. The effect of missing a
product qualification opportunity is magnified by the limited number of high
volume PC OEMs, most of which continue to consolidate their share of the PC
market. The Company generally negotiates pricing, volume discounts, order lead
times, product support requirements and other terms and conditions prior to
receiving a PC OEM's first purchase order. Shipments are not scheduled until
purchase orders are received and cancellation of purchase orders may occur
without significant penalty. The Company's major PC OEM customers include
Compaq, Dell and IBM. See "Risk Factors -- Risks of Failed Execution; Changing
Customer Business Models" and "Customer Concentration."
Distributors. Maxtor uses a select group of distributors to sell its
products cost-effectively to the large number of geographically dispersed
customers which tend to hold market shares of less than 1% of the overall
desktop PC market, including value-added resellers, dealers, system integrators
and small PC OEMs. Distributors accounted for 39% of revenue for the fiscal year
ended March 30, 1996; 48% of revenue for the nine month period ended December
28, 1996; 36% of revenue for the year ended December 27, 1997; and 24% of
revenue for the quarter ended March 28, 1998. Distributors generally enter into
non-exclusive agreements with the Company for purchase and redistribution of
product on a quick turnover basis. Purchase orders are placed and revised on a
weekly basis. Maxtor grants certain of its distributors price protection and
limited rights to return product on a rotation basis. The Company's major
distributors include Ingram Micro, Inc., Karma International SA, and SED.
Retailers. To increase awareness of the Maxtor brand name and benefit from
the typically higher gross margins of the retail sales channel, the Company
sells its retail-packaged products directly to major retailers such as computer
superstores, warehouse clubs and computer electronics stores and authorized
sales through distributors to smaller retailers. Retailers accounted for 5% of
revenue for the fiscal year ended March 30, 1996; 8% of revenue for the nine
month period ended December 28, 1996; 9% of revenue for the year ended December
27, 1997; and 10% of revenue for the quarter ended March 28, 1998. Maxtor's
current retail customer base is in the United States and Canada, however, the
Company has begun efforts to establish a retail channel presence in the emerging
retail markets in Europe and Asia. The Company believes the retail channel
complements its other sales channels. Retailers supply to the aftermarket
"upgrade" sector in which end-users purchase and install products to upgrade
their computers. Maxtor grants certain of its retailers price protection and
limited rights to return product on a rotation basis. The Company's major retail
customers include Best Buy Co., Inc., CompUSA Inc., and Staples, Inc. See "Risk
Factors -- Customer Concentration."
SALES AND MARKETING
The Company employs approximately 206 individuals who market and sell the
Company's products to leading PC OEMs, distributors and retailers. Sales offices
are located throughout the U.S. and in Australia, France, Germany, Great
Britain, Hong Kong, Japan, Korea, Singapore, and Taiwan. Maxtor has formed
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multi-disciplined, dedicated account and channel teams focused on each of its
current and target strategic PC OEM, distributor and retail accounts. These
teams generally are comprised of representatives from the Company's sales,
marketing, engineering and quality organizations. The Company's senior
management also takes an active role in the Company's sales efforts. Dedicated
field sales and technical support personnel are located in close proximity to
the manufacturing facilities of each of the Company's PC OEM customers.
The Company's marketing and public relations functions are performed both
internally and through outside firms. Public relations, direct marketing,
worldwide packaging and marketing materials are targeted to various end-user
segments. Maxtor utilizes both consumer media and trade publications. The
Company has programs under which qualifying resellers are reimbursed for certain
advertising expenditures. Maxtor also has invested in direct marketing and
customer satisfaction programs. The Company maintains ongoing contact with
end-users through primary and secondary market research, focus groups, product
registrations and technical support databases.
See "Risk Factors -- Risks of Failed Execution; Changing Customer Business
Models."
BACKLOG
The Company generally sells standard products according to standard
agreements or purchase order terms. Delivery dates are specified by purchase
orders. Such orders may be subject to change, cancellation or rescheduling by
the customer without significant penalties. The quantity actually purchased and
shipment schedules are frequently revised to reflect changes in the customer's
needs. In addition, orders for the Company's products are filled for several
large customers from just-in-time inventory warehouses, whereby orders are not
placed ahead of time on the Company's order entry backlog system. Instead, the
Company receives a periodic forecast of requirements from the customer. Upon
shipment from the just-in-time warehouse, the customer is invoiced. In light of
these factors, backlog reporting as of any particular date may not be indicative
of the Company's actual revenue for any succeeding period, and, therefore, is
not necessarily an accurate predictor of the Company's future revenue.
COMPETITION
Although the Company's share of the desktop PC segment of the HDD market
has increased steadily since the first quarter of 1997, this market segment and
the HDD market in general are intensely competitive and characterized by rapid
technological change and rates of product and technology obsolescence, dramatic
shifts in market share and significant erosion of ASPs, and as such there can be
no assurance that the Company will be able to improve on, or prevent the erosion
of, the Company's present share of the desktop PC HDD market.
The Company competes primarily with manufacturers of 3.5-inch HDDs,
including Fujitsu, Quantum, Samsung, Seagate and Western Digital, many of which
have a larger share of the desktop HDD market than the Company. Other companies,
such as IBM, will be significant competitors in one or more of the markets into
which the Company plans to expand its product portfolio, and could be
significant competitors of the Company in its current market should they choose
to commit substantial resources to providing desktop HDDs.
Many of the Company's competitors offer a broader array of product lines
and have significantly greater financial, technical, manufacturing and marketing
resources than the Company. Unlike the Company, certain of the Company's
competitors manufacture a significant number of the components used in their
HDDs and thus may be able to achieve significant cost advantages over the
Company. Certain competitors have preferred vendor status with many of the
Company's customers, extensive marketing power and name recognition, and other
significant advantages over the Company. In addition, such competitors may
determine, for strategic reasons or otherwise, to consolidate, lower the prices
of their products or bundle their products with other products. The Company's
competitors have established and may in the future establish financial or
strategic relationships among themselves or with existing or potential
customers, resellers or other third parties. New competitors or alliances could
emerge and rapidly acquire significant market share.
The Company believes that important competitive factors in the HDD market
are quality, storage capacity, performance, price, time-to-market entry,
time-to-volume production, PC OEM product qualifications, breadth of product
lines, reliability, and technical service and support. The Company believes it
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generally competes favorably with respect to these factors. The failure of the
Company to develop and market products that compete successfully with those of
other suppliers in the HDD market would have a material adverse effect on the
Company's business, financial condition and results of operations.
See "Risk Factors -- Highly Competitive Industry."
INTELLECTUAL PROPERTY
The Company has been granted approximately 180 U.S. and foreign patents
related to disk drive products and technologies, and has additional patent
applications pending in the United States and certain foreign countries. The
Company has patent protection on certain aspects of its technology and also
relies on trade secret, copyright and trademark laws, as well as contractual
provisions to protect its proprietary rights. There can be no assurance that the
Company's protective measures will be adequate to protect the Company's
proprietary rights; that others, including competitors with substantially
greater resources, have not developed or will not independently develop or
otherwise acquire equivalent or superior technology; or that the Company will
not be required to obtain licenses requiring it to pay royalties to the extent
that the Company's products may use the intellectual property of others,
including, without limitation, Company products that may also be subject to
patents owned or licensed by the Company. There can be no assurance that any
patents will be issued pursuant to the Company's current or future patent
applications, or that patents issued pursuant to such applications or any
patents the Company owns or has licenses to use will not be invalidated,
circumvented or challenged. Moreover, there can be no assurance that the rights
granted under any such patents will provide competitive advantages to the
Company or be adequate to safeguard and maintain the Company's proprietary
rights. Litigation may be necessary to enforce patents issued or licensed to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
the Company or others. The Company could incur substantial costs in seeking
enforcement of its issued or licensed patents against infringement or the
unauthorized use of its trade secrets and proprietary know-how by others or in
defending itself against claims of infringement by others, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the laws of certain countries in which the
Company's products are manufactured and sold, including various countries in
Asia, may not protect the Company's products and intellectual property rights to
the same extent as the laws of the United States, and there can be no assurance
that such laws will be enforced in an effective manner. The failure of the
Company to enforce and protect its intellectual property rights could have a
material adverse effect on the Company's business, financial condition and
results of operations.
As a majority-owned subsidiary of HEA, the Company has the benefit of
certain third party intellectual property rights on terms that may have been
more favorable than would have been available to the Company if it were not a
majority-owned subsidiary of HEA. There can be no assurance that the Company
will be able to obtain similar rights in the future on terms as favorable as
those currently available to it.
The HDD industry, like many technology-based industries, is characterized
by frequent claims and litigation involving patent and other intellectual
property rights. The Company, its component suppliers and certain users of the
Company's products have from time to time received, and may in the future
receive, communications from third parties asserting patent infringement against
the Company, its component suppliers or its customers which may relate to
certain of the Company's products. If the Company is notified of such a claim,
it may have to obtain appropriate licenses or cross-licenses, modify its
existing technology or design non-infringing technology. There can be no
assurance that the Company can obtain adequate licenses or cross-licenses on
favorable terms or that it could modify its existing technology or design
non-infringing technology and, in either case, the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company to date has not been a party to any
material intellectual property litigation, certain of its competitors have been
sued on patents having claims related to HDDs and there can be no assurance that
third parties will not initiate infringement actions against the Company. There
can be no assurance that the Company could defend itself against such claims. If
there is an adverse ruling against the Company in an infringement lawsuit, it
could result in the issuance of an injunction against the Company or its
products and/or the payment of monetary damages equal to a reasonable royalty or
recovered lost profits or, in the case of a finding of a willful infringement,
treble damages.
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Accordingly, such an adverse ruling could have a material adverse effect on the
Company's business, financial condition or results of operations.
Similar to certain other providers of HDDs, the Company has received
correspondence from Papst claiming infringement of at least 13 HDD motor
patents. The patents relate to motors that the Company purchases from motor
vendors and the use of such motors in HDDs. While the Company believes that it
has meritorious defenses against a lawsuit if filed, the results of litigation
are inherently uncertain and there can be no assurance that Papst will not
assert other infringement claims relating to current patents, pending patent
applications and future patents or patent applications, will not initiate a
lawsuit against the Company or that the Company will be able to successfully
defend itself against such a lawsuit. A favorable outcome for Papst in such a
lawsuit could result in the issuance of an injunction against the Company or its
products and/or the payment of monetary damages equal to a reasonable royalty or
recovered lost profits or, in the case of a finding of a willful infringement,
treble damages and could have a material adverse effect on the Company's
business, financial condition and results of operations.
See "Risk Factors -- Limited Protection of Intellectual Property; Risk of
Third Party Claims of Infringement," "-- Dependence on International Operations;
Risks of International Sales" and "Relationship Between the Company and
Hyundai -- Certain Intellectual Property Indemnification and Patent Cross
License between HEI and the Company."
EMPLOYEES
As part of the Maxtor turnaround, the Company reduced its personnel from
9,330 in March 1996 to 4,330 in October 1996. Since October 1996, the Company
has added significant personnel to its research and development, sales and
marketing and production staffs. As of March 28, 1998, the Company had 5,660
employees worldwide, of which 714 were engaged in engineering, research and
development; 206 in marketing, sales and customer support; 4,389 in
manufacturing; and 351 in general management and administration. The Company has
4,389 employees at its manufacturing facilities in Singapore and 89 employees at
its foreign sales offices. The Company believes that its future success will
depend on its ability to continue to attract and retain a team of highly
motivated and skilled individuals. None of the Company's employees currently are
represented by a labor organization; however, in May 1997, Maxtor Singapore
recognized a labor union, the United Workers of Electronic and Electrical
Industries, and in May 1998 began negotiating the terms of a collective
bargaining agreement with such union. The Company believes that its employee
relations are positive. See "Risk Factors -- Dependence on and Integration of
Key Personnel; Hiring Additional Skilled Personnel."
FACILITIES
The Company's administrative offices and advanced technology operations are
located at a 180,087 square foot facility in Milpitas, California. The Company
also maintains 332,507 square feet of engineering and pilot production
facilities in Longmont, Colorado. All the Company's domestic facilities are
leased.
The Company's volume manufacturing facilities are located in Singapore. The
Company owns a 384,000 square-foot building in Singapore, situated on land
leased through the year 2016 (subject to an option to renew for an additional 30
years). The Company anticipates that it may need additional manufacturing
capacity as early as the beginning of the year 2000; however, a sustained
increase or decline in the demand for the Company's products may affect such
timing. The Company is currently investigating additional and alternative sites
for its manufacturing operations, including the Dalian Facility. There is no
assurance that the Company will be able to locate geographically desirable
facilities, which are situated near an available pool of skilled labor, on a
cost effective basis, if at all. A failure by the Company to obtain, on a timely
basis, a facility or facilities which allow the Company to meet its customers'
demands will limit the Company's growth and could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company leases a 34,604 square foot facility in San Jose, California to house
its U.S. drive exchange facility and finished goods warehouse, and a 28,500
square foot facility in Ireland to house its European drive exchange facility.
All the Company's sales offices, located in the United States, Europe and Asia
Pacific, are
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leased. The Company intends to review constantly its facilities requirements as
part of its growth strategy and will add additional facility space as the need
arises.
The Company is experiencing space constraints at its Longmont, Colorado
facility and is negotiating to obtain a lease on a new facility in the Longmont
area. There can be no assurance that the Company will be able to obtain a lease
for a facility that can accommodate its needs for additional space or that, if
obtained, such lease will have terms at least as favorable as the terms
governing its current lease.
See "-- Manufacturing Quality" and "Risk Factors -- Single Manufacturing
Facility; Future Need for Additional Capacity."
LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia, which arises
out of an agreement among the Company, StorMedia and HEI which became effective
on November 17, 1995. Pursuant to the StorMedia Agreement, StorMedia agreed to
supply disk media to the Company. StorMedia's disk media did not meet the
Company's specifications and functional requirements as required by the
StorMedia Agreement and the Company ultimately terminated the StorMedia
Agreement. After a class action securities lawsuit was filed against StorMedia
by certain of its shareholders in September 1996 which alleged, in part, that
StorMedia failed to perform under the StorMedia Agreement, StorMedia sued the
Original Defendants in the U.S. District Court for the Northern District of
California. In the Federal Suit, StorMedia alleged that at the time HEI entered
into the StorMedia Agreement, it knew that it would not and could not purchase
the volume of products which it committed to purchase, and that failure to do so
caused damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the StorMedia Agreement. This proceeding was stayed pending
resolution of the Federal Suit. The Federal Suit was permanently dismissed early
in February 1998. On February 24, 1998, StorMedia filed a new complaint in Santa
Clara County Superior Court for the State of California for $206 million,
alleging fraud and deceit against the Original Defendants and negligent
misrepresentation against HEI and the Company. On May 18, 1998, the stay on the
Colorado Suit was lifted by the Colorado state court. The Company's motion to
dismiss, or in the alternative, stay the California Suit, is pending.
The Company believes that it has meritorious defenses against the claims
alleged by StorMedia and intends to defend itself vigorously. However, due to
the nature of litigation and because the pending lawsuits are in the very early
pre-trial stages, the Company cannot determine the possible loss, if any, that
may ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. The litigation could result in significant diversion of
time by the Company's technical personnel, as well as substantial expenditures
for future legal fees. After consideration of the nature of the claims and facts
relating to the litigation, including the results of preliminary discovery, the
Company's management believes that the resolution of this matter will not have a
material adverse effect on the Company's business, financial condition or
results of operations. However, the results of these proceedings, including any
potential settlement, are uncertain and there can be no assurance that they will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has been notified of certain other claims, including claims of
patent infringement. While the ultimate outcome of these claims and the claims
described above is not determinable, the Company does not believe that
resolution of these matters will have a material adverse effect on the Company's
business, financial condition and results of operations. No amounts related to
any claims or actions have been reserved in the Company's financial statements.
See "Risk Factors -- StorMedia; Legal Proceedings" and "-- Limited
Protection of Intellectual Property; Risk of Third Party Claims of
Infringement."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of June 1, 1998 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Dr. Chong Sup Park(1)..... 50 Chairman of the Board
Michael R. Cannon(1)...... 45 President, Chief Executive Officer and Director
Charles F. Christ(2)(3)... 59 Director
Chang See Chung(2)........ 45 Director
Charles Hill(1)(3)(4)..... 62 Director
Y. H. Kim................. 55 Director
Philip S. Paul(2)(3)(4)... 59 Director
Dr. Victor B. Jipson...... 45 Senior Vice President, Engineering
William F. Roach.......... 54 Senior Vice President, Worldwide Sales and Marketing
Paul J. Tufano............ 44 Vice President, Finance, and Chief Financial Officer
Glenn H. Stevens.......... 47 Vice President, General Counsel and Secretary
Phillip C. Duncan......... 47 Vice President, Human Resources
John T. Hagerman.......... 43 Vice President, Strategic Initiatives
K. K. Kim................. 46 Vice President, Business Development
Misha Rozenberg........... 36 Vice President, Quality
K. H. Teh................. 44 Vice President, Worldwide Manufacturing
David L. Beaver........... 44 Vice President, Materials
</TABLE>
- ---------------
(1) Member of the Nominating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
(4) Member of the Affiliated Transactions Committee.
Dr. Chong Sup Park has been Chairman of the Board since May 1998 and
assumed the position of Chairman, President and Chief Executive Officer of HEA
in September 1996. Dr. Park also has been Chairman of MMC's board of directors
since January 1998. From September 1996 to May 1998, Dr. Park served as Vice
Chairman of the Board. Dr. Park previously served as the Company's President and
Chief Executive Officer from February 1995 until his appointment as Vice
Chairman. From 1993 until joining Maxtor in 1995, he was Chairman, President and
Chief Executive Officer of Axil Computer, Inc., a workstation computer
manufacturer and a Hyundai Business Group company, in Santa Clara, California.
Dr. Park is also Corporate Executive Vice President of HEI and formerly held
various other management positions with HEI, including the position of Senior
Vice President, Semiconductor Sales and Marketing, which he held from 1990 to
1992. From 1985 to 1989, Dr. Park was President and Chief Executive Officer of
HEA. He is also a director of Symbios, Inc., an affiliate of the Company which
manufactures semiconductor and information storage products ("Symbios").
Michael R. Cannon has been President, Chief Executive Officer and Director
of the Company since July 1996. From 1993 until he joined Maxtor, Mr. Cannon
held several senior management positions with IBM's Storage Systems division,
including Vice President, Mobile and Desktop Business Unit; Vice President,
Product Design; and Vice President, Worldwide Operations. From 1991 to 1993, he
served as Senior Vice President of SyQuest, a removable disk drive company, and
prior to joining SyQuest, he held the position of Vice President, Southeast Asia
Operations, with Imprimis Technology. He is also a director of MMC, a wholly
owned subsidiary of HEA.
Charles F. Christ has been a member of the Board since August 1995. He has
been President, Chief Executive Officer and a director of Symbios since 1997.
From 1994 to 1997, Mr. Christ was Vice President
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and General Manager of the Components Division of Digital Equipment Corporation.
From 1989 to 1990, Mr. Christ was a Senior Partner with the management
consulting group of Coopers & Lybrand L.L.P. From 1986 to 1988, he was President
and Chief Executive Officer of Digital Sound Corporation, a telecommunications
voice processing company.
Chang See Chung has been a member of the Board since May 1998. Mr. Chung
has also served as Senior Vice President of HEA since May 1998. From 1995 to
1998 he served as Vice President, Strategic Planning and Corporate Coordination
of Symbios. From 1976 to 1995, Mr. Chung held various management positions with
HEA, Hyundai Electronics Europe, HEI and HHI. Mr. Chung was previously the Chief
Financial Officer and Treasurer of HEA.
Charles Hill has been a member of the Board since March 1992. He has been a
Senior Research Fellow at the Hoover Institution since 1989. From 1983 to 1984
he served as Chief of Staff of the U.S. State Department and from 1982 to 1989
as Executive Assistant to former U.S. Secretary of State George P. Shultz. From
1992 to 1996, Mr. Hill was Special Consultant to the Secretary General of the
United Nations. Presently, he is Diplomat-in-Residence and Lecturer in
International Studies at Yale University.
Y. H. Kim has been a member of the Board since January 1996. He has been
President and representative Director of HEI since September 1996. From 1989 to
1996, Mr. Kim was President and Chief Executive Officer of HEA. Mr. Kim has been
employed by the Hyundai group since 1971. He also is a Director of Symbios.
Philip S. Paul has been a member of the Board since March 1998. Since 1991,
he has managed Paul Capital Partners, L.P., a private equity firm. From 1985 to
1991, Mr. Paul was Chairman and Chief Executive Officer of Hillman Ventures,
Inc., a venture capital firm specializing in technology investments. From 1982
to 1985, Mr. Paul was President and Chief Executive Officer of Machine
Intelligence Corp., a robotics company. He is also a Director of Symbios.
Dr. Victor B. Jipson has been the Company's Senior Vice President,
Engineering since December 1995. From 1991 to 1995, he was General Manager of
IBM's Optical Storage Solutions business unit. From 1975 to 1991, Dr. Jipson
held key management positions in research, technical strategy, product strategy
and research and development with IBM.
William F. Roach has been the Company's Senior Vice President, Worldwide
Sales and Marketing since January 1997. From 1989 to 1996, he held various sales
and marketing positions with Quantum, an information storage products company,
including Executive Vice President, Worldwide Sales, from 1994 to 1996. From
1977 to 1989 Mr. Roach held sales and marketing positions with Intel
Corporation, a semiconductor company.
Paul J. Tufano has been the Company's Vice President, Finance and Chief
Financial Officer since July 1996. From 1979 to 1996, Mr. Tufano held a variety
of management positions at IBM. From 1995 to 1996, Mr. Tufano was Manager of
Worldwide Logistics for IBM's Storage Systems division. Other management
positions included Manager of Plans and Controls for its Desktop and Mobile
Storage products business unit, and Controller for IBM's San Jose, California
facility. He is currently a Director of IMS, an electronic manufacturing service
company.
Glenn H. Stevens has been the Company's Vice President, General Counsel and
Secretary since June 1994. From 1992 to 1994, Mr. Stevens had a private law
practice. From 1979 to 1992, he held various positions within the legal
department at U S WEST, Inc., a telecommunications products and services
provider, including Chief Counsel and Secretary for its research and development
organization and Chief Intellectual Property Counsel for the family of U S WEST,
Inc. companies.
Phillip C. Duncan has been the Company's Vice President, Human Resources
since August 1996. From 1994 to 1996, he was Vice President, International Sales
and Marketing and Human Resources of Berkeley Systems, a software company. From
May 1992 to June 1994 he held senior human resources management positions at
SyQuest and from March 1990 to May 1992 he held similar positions at Cirrus
Logic, a semiconductor company.
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John T. Hagerman has been the Company's Vice President, Strategic
Initiatives since October 1997. From June 1996 to October 1997 he was the
Company's Vice President, Marketing and Strategic Planning. From February 1996
to June 1996, he was the Company's Vice President, Strategic Planning and from
1993 to February 1996 he was the Company's Vice President, Mobile Products.
K. K. Kim has been the Company's Vice President, Business Development since
May 1994. From 1991 to 1994, Mr. Kim was Director of Corporate Planning Office
for HEI. Prior to 1991, he held various management positions with other
companies affiliated with HEA.
Misha Rozenberg has been the Company's Vice President, Quality since March
1998. From April 1996 to March 1998, he was Vice President, Supplier
Engineering. From 1994 to 1996, Mr. Rozenberg was a Senior Director of Supplier
Engineering with Conner Peripherals, Inc., a disk drive company. From 1990 to
1994 he was a Manager with Apple Computer.
K. H. Teh has been the Company's Vice President, Worldwide Manufacturing
since May 1997. From 1996 to 1997 he was with Iomega Corp., a removable disk
drive company, where he had been Managing Director of its Malaysia manufacturing
facility. From 1994 to 1996, he was a Managing Director, Malaysia Manufacturing,
with Quantum, and was a Senior Director with SyQuest from 1993 to 1994.
David L. Beaver has been the Company's Vice President, Materials since May
1998. From 1994 to 1997, he was Director of Operations-Materials at EMASS, a
data storage company, and from 1991 to 1994 he was Director of Corporate
Materials Procurement at SyQuest.
BOARD COMMITTEES
Following the Offerings, the Board will have four standing committees: an
Audit Committee, a Compensation Committee, an Affiliated Transactions Committee
and a Nominating Committee. The Audit Committee currently consists of Mr.
Christ, Mr. Hill and Mr. Paul. The Audit Committee selects and engages, on
behalf of the Company, the independent public accountants to audit the Company's
annual financial statements, and reviews and approves the planned scope of the
annual audit. The Compensation Committee currently consists of Mr. Christ, Mr.
Chung and Mr. Paul. The Compensation Committee establishes compensation policies
governing the Company's executive officers, sets bonuses and salaries for
certain officers of the Company including the Chief Executive Officer and
administers or supervises the administration of the Company's employee benefit
programs and executive compensation programs. The Affiliate Transactions
Committee currently consists of Mr. Hill and Mr. Paul. The Affiliate
Transactions Committee is responsible for reviewing all material transactions
regarding contractual, corporate or business relations by and between the
Company and any related or affiliated entity of HEI or HEA following the
Offerings. The Nominating Committee currently consists of Dr. Park, Mr. Cannon
and Mr. Hill. The Nominating Committee recommends from time to time candidates
for nomination for election as directors of the Company. See "Relationship
Between the Company and Hyundai -- Stockholder Agreement -- Rights Regarding
Board of Directors," and "Certain Transactions -- Other Related Party
Transactions."
COMPENSATION OF DIRECTORS
Since 1996 and prior to May 13, 1998, non-employee members of the Board
received the following compensation: (i) an annual retainer of $22,000; (ii)
$1,000 per year for service as a committee chairperson; (iii) $1,500 for
attendance at each quarterly meeting of the Board; (iv) reimbursement of travel
and expenses for such meetings; and (v) a one-time initial grant of a
nonqualified stock option to purchase 20,000 shares of Common Stock pursuant to
the Option Plan or the Amended Plan. In April 1998, in connection with the
adoption of the Amended Plan, each director holding an option to purchase Common
Stock was granted a new option to purchase a number of shares of Common Stock
equal to 10% of the option shares previously held in exchange for such
amendment. Effective May 13, 1998, non-employee members of the Board will
receive: (i) an annual retainer of $22,000; (ii) $1,000 per year for service as
a committee chairperson; (iii) $1,500 for attendance at each quarterly meeting
of the Board; (iv) $1,000 for attendance at each, if any, special meeting of the
Board; (v) $1,000 for attendance at each meeting of a committee of the Board
which are not held on the same day as a scheduled board meeting; (vi)
reimbursement of travel and expenses for such meetings;
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(vii) a one-time initial grant of a nonqualified stock option to purchase 20,000
shares of Common Stock pursuant to the Option Plan or the Amended Plan (the
"Initial Grant"); and (viii) for so long as a director remains a member of the
Board an additional grant of a non-qualified stock option to purchase 5,000
shares of Common Stock each time that he or she is reelected to the Board. Board
members who participate telephonically in any of the meetings described in
subsections (iii), (iv) and (v) above will receive only 50% of the above-noted
compensation for such meeting. See "-- Option Amendment Program."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee is composed of Mr. Paul, Mr. Chung and Mr.
Christ. No interlocking relationship exists between any member of the Company's
Compensation Committee and any member of any other company's board of directors
or compensation committee.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid
by the Company during the fiscal years ended March 30, 1996, December 28, 1996
and December 27, 1997 to the Company's Chief Executive Officer and the four
other most highly compensated executive officers whose total compensation for
services in all capacities to the Company exceeded $100,000 during the fiscal
year ended December 27, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES ALL OTHER
NAME AND FISCAL YEAR SALARY BONUS OTHER ANNUAL UNDERLYING COMPENSATION($)
PRINCIPAL POSITION ENDED(1) ($) ($) COMPENSATION($) OPTIONS(#) (2)
------------------ ------------- ------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Cannon(3)... Dec. 27, 1997 500,000 750,000(4) -- -- --
President, and Chief Dec. 28, 1996 240,387 250,000(2) -- 450,000 --
Executive Officer Mar. 30, 1996 -- -- -- -- --
William F. Roach(5).... Dec. 27, 1997 339,242 -- 116,667(6) 125,000 --
Senior VP, Worldwide Dec. 28, 1996 -- -- -- -- --
Sales and Marketing Mar. 30, 1996 -- -- -- -- --
Dr. Victor B. Jipson... Dec. 27, 1997 258,846 50,000(7) -- -- 4,800
Senior VP, Dec. 28, 1996 176,924 107,500(7) -- 50,000 3,173
Engineering Mar. 30, 1996 70,768 50,000(7) 116,490(8) -- 1,326
Paul J. Tufano(9)...... Dec. 27, 1997 229,986 50,000(10) -- -- 4,800
VP, Finance and Dec. 28, 1996 92,879 50,000(10) -- 50,000 2,322
Chief Financial Mar. 30, 1996 -- -- -- -- --
Officer
Phillip C. Dec. 27, 1997 220,000 -- -- -- 4,800
Duncan(11)...........
VP, Human Dec. 28, 1996 84,615 80,000(12) -- 40,000 2,094
Resources Mar. 30, 1996 -- -- -- -- --
</TABLE>
- ---------------
(1) As a result of the Company's change in fiscal year end, the fiscal period
ended December 28, 1996 comprises nine months.
(2) The amounts shown in this column, unless otherwise indicated, represent the
Company's annual contribution to the Maxtor Savings Retirement Plan, a
401(k) plan. All U.S. employees are eligible to participate in this plan.
(3) Mr. Cannon joined the Company as President and Chief Executive Officer in
July 1996.
(4) Represents bonuses paid in accordance with the Company's offer letter to
Mr. Cannon. See "-- Employment Agreements."
(5) Mr. Roach joined the Company as Senior Vice President, Worldwide Sales and
Marketing in January 1997.
(6) Represents a portion of a $350,000 loan to be forgiven over a three year
period in accordance with the Company's offer letter to Mr. Roach. See
"-- Employment Agreements."
(7) Represents bonus paid in connection with the Company's hiring of Dr.
Jipson.
(8) Represents relocation expenses reimbursed in connection with the Company's
hiring of Dr. Jipson.
(9) Mr. Tufano joined the Company as Vice President, Finance and Chief
Financial Officer in August 1996.
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(10) Represents bonus paid in accordance with the Company's offer letter to Mr.
Tufano. See "-- Employment Agreements."
(11) Mr. Duncan joined the Company as Vice President, Human Resources in August
1996.
(12) Represents bonus paid in accordance with the Company's offer letter to Mr.
Duncan. See "-- Employment Agreements."
The following table sets forth information with respect to stock options
granted during the fiscal year ended December 27, 1997 to each of the Named
Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
NUMBER OF GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Cannon(3)........ -- -- -- -- -- --
William F. Roach(3)......... 125,000 7.70% $ 6.00 01/02/07 $471,671 $1,195,307
Dr. Victor B. Jipson(3)..... -- -- -- -- -- --
Paul J. Tufano(3)........... -- -- -- -- -- --
Phillip C. Duncan(3)........ -- -- -- -- -- --
</TABLE>
- ---------------
(1) All options were granted under the Amended Plan. Options granted under the
Amended Plan vest over a four-year period with 25% vesting at the first
anniversary date of the vest date and 6.25% each quarter thereafter. The
vesting schedule for new participants begins February 1, 1996 or on the
hiring date, whichever is later. The Board retains discretion to modify the
terms, including the price of outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% annual rates of stock price appreciation from the date of grant
to the end of the option term are provided in accordance with rules of the
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock, overall market
conditions and the option holders' continued employment through the vesting
period. This table does not take into account any actual appreciation in the
price of the Common Stock from the date of grant to the present.
(3) On January 25, 1998, the Compensation Committee of the Board approved grants
to purchase Common Stock under the Amended Plan to the following Named
Executive Officers at an exercise price of $6.00: Mr. Cannon received an
option for 100,000 shares, Dr. Jipson received an option for 37,500 shares,
Mr. Tufano received an option for 37,500 shares, and Mr. Duncan received an
option for 15,000 shares. On February 25, 1998, in connection with the
Option Amendment Program the following Named Executive Officers received
options to purchase Common Stock under the Amended Plan at an exercise price
of $6.00: Mr. Cannon received an option for 45,000 shares, Mr. Roach
received an option for 12,500 shares, Dr. Jipson received an option for
5,000 shares, Mr. Tufano received an option for 5,000 shares, and Mr. Duncan
received an option for 4,000 shares. On June 26, 1998, the Compensation
Committee of the Board approved grants to purchase Common Stock under the
Amended Plan to the following Named Executive Officers at an exercise price
of $9.50: Mr. Roach received an option for 35,000 shares, Dr. Jipson
received an option for 35,000 shares, Mr. Tufano received an option for
35,000 shares, and Mr. Duncan received an option for 15,000 shares. See
"-- Option Amendment Program."
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There were no options exercised during the twelve months ended December 27,
1997. The following table provides the specified information concerning
unexercised options held as of December 27, 1997 by the Named Executive
Officers:
FISCAL YEAR-END VALUES OF UNEXERCISED OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 27, 1997(1) AT DECEMBER 27, 1997(2)
------------------------ ------------------------
NAME VESTED(#) UNVESTED(#) VESTED($) UNVESTED($)
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Michael R. Cannon............................. 140,625 309,375 -- --
William F. Roach.............................. -- 125,000 -- --
Dr. Victor B. Jipson.......................... 18,750 31,250 -- --
Paul J. Tufano................................ 15,625 34,375 -- --
Phillip C. Duncan............................. 12,500 27,500 -- --
</TABLE>
- ---------------
(1) All options were granted under the Amended Plan. Options granted under the
Amended Plan vest over a four-year period with 25% vesting at the first
anniversary date of the vest date and 6.25% each quarter thereafter. The
vesting schedule for new participants begins February 1, 1996 or on the
hiring date, whichever is later.
(2) As of December 27, 1997, there were no unexercised in-the-money options
because the exercise price per share was equal to the fair market value per
share, as determined by the Board.
EMPLOYMENT AGREEMENTS
In July 1996, the Company entered into a letter agreement with Mr. Cannon,
its current President and Chief Executive Officer, relating to the terms of his
employment, his initial level of compensation and payment of certain
compensation in the event of his termination from the Company under certain
circumstances. The agreement provides for base compensation of $500,000 per
year; payment of a sign-on bonus of $1,000,000, payable in four equal quarterly
installments beginning on the last day of December 1996; an annual bonus
opportunity of approximately $250,000; and the grant of options to purchase
450,000 shares of Common Stock vesting over a four year period. The letter
agreement further provides that in the event Mr. Cannon is terminated by the
Company without cause, the Company shall pay Mr. Cannon the equivalent of one
year's base salary plus any portion of the sign-on bonus remaining unpaid as of
the date of such termination.
In July 1996, the Company entered into a letter agreement with Mr. Tufano,
its current Vice President, Finance and Chief Financial Officer, relating to the
terms of his employment, his initial level of compensation and payment of
certain compensation in the event of his termination from the Company under
certain circumstances. The agreement provides for base compensation of $230,000
per year; payment of a sign-on bonus of $100,000, payable in two equal
installments in July 1996 and January 1997; an annual bonus opportunity of
approximately $115,000; and the grant of options to purchase 50,000 shares of
Common Stock vesting over a four year period. The letter agreement further
provides that in the event Mr. Tufano is terminated by the Company without
cause, the Company shall pay Mr. Tufano the equivalent of nine months' base
salary plus any portion of the sign-on bonus remaining unpaid as of the date of
such termination.
In January 1997, the Company entered into a letter agreement with Mr.
Roach, its Senior Vice President, Worldwide Sales and Marketing, relating to the
terms of his employment, his initial level of compensation, and a loan and
associated repayment terms. The agreement provides for base compensation of
$350,000 per year; a $350,000 loan, forgivable on a prorated basis over a
three-year term; a one-time annual bonus between approximately $175,000 and
$350,000; and the grant of options to purchase 125,000 shares of Common Stock
vesting over a four year period. In accordance with the foregoing agreement, on
January 10, 1997, Mr. Roach delivered to the Company a promissory note in the
principal amount of $350,000 in exchange for payment to him by the Company of
the loan amount. The note provides for forgiveness of one-third of the
outstanding principal balance on each of the first three anniversary dates of
his employment, provided that Mr. Roach is an employee of the Company on each
such date. In addition, the promissory note shall be forgiven in full in the
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event of his termination by the Company for any reason other than willful
misconduct of a culpable nature. In the event Mr. Roach voluntarily terminates
his employment with the Company, the balance then due shall become immediately
due and payable.
In August 1996, the Company entered into a letter agreement with Mr.
Duncan, its current Vice President, Human Resources, relating to the terms of
his employment, his initial level of compensation and payment of certain
compensation in the event of his termination from the Company under certain
circumstances. The agreement provides for base compensation of $220,000 per
year; payment of a sign-on bonus of $80,000, payable during the first week of
employment; an annual bonus opportunity of approximately $110,000; and the grant
of options to purchase 40,000 shares of Common Stock vesting over a four year
period. The letter agreement further provides that in the event Mr. Duncan is
terminated by the Company without cause, the Company shall pay Mr. Duncan the
equivalent of nine months' base salary.
In March 1997, the Company entered into a letter agreement with Mr. Teh,
its current Vice President, Worldwide Manufacturing, relating to terms of his
employment, his initial level of compensation and payment of certain
compensation in the event of his termination from the Company under certain
circumstances. The agreement provides for base compensation of S$396,000
(Singapore dollars) per year; a sign-on bonus of $100,000 (U.S. dollars),
payable in two installments in March 1997 and March 1998; an annual wage
supplement of one month's base salary payable in December so long as Mr. Teh has
completed twelve months of continued employment; an annual bonus opportunity of
approximately S$198,000 (Singapore dollars), and the grant of options to
purchase 100,000 shares of Common Stock vesting over a four year period. The
Company will provide Mr. Teh with a car and pay for certain operating expenses.
The letter agreement further provides that in the event Mr. Teh is terminated by
the Company without cause, the Company shall pay Mr. Teh the equivalent of nine
months' base salary.
In June 1998, the Company entered into a letter agreement with Dr. Jipson,
its current Senior Vice President, Engineering, which provides that in the event
Dr. Jipson is terminated by the Company without cause, the Company shall pay Dr.
Jipson the equivalent of nine months' base salary.
BENEFIT PLANS
Amended and Restated 1996 Stock Option Plan. The Amended Plan provides for
the grant of incentive stock options ("ISOs") within the meaning of section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), to employees, and
for grants of nonstatutory stock options to employees, non-employee directors
and consultants. The Amended Plan provides that all options must be granted, if
at all, before May 1, 2006. The Board has the authority to amend or terminate
the Amended Plan, provided that no such action may adversely affect the rights
of any person granted an option under the Amended Plan without such person's
consent unless such action is required to enable an option designated as an ISO
to qualify as an ISO or is necessary to comply with any applicable law or
regulation.
The Amended Plan's maximum share reserve is 10,000,000 shares of Common
Stock and as of June 26, 1998, options to purchase of a total of 7,007,466
shares at a weighted average exercise price of $6.04 per share were outstanding
and 2,973,094 shares were available for future grants under the Amended Plan. As
of the closing of the Offerings, the share reserve of the Amended Plan will be
increased to a number of shares equal to 15% of the number of shares of Common
Stock which are outstanding on such date.
The Amended Plan is administered by the Board or a committee of the Board.
The Board has the power to select the persons to whom options will be granted
and to determine the terms of the options (except as described below with
respect to the automatic outside director grants), including the exercise price,
the number of shares subject to each option and the exercisability thereof, and
the form of consideration payable upon exercise. However, after the closing of
the Offerings, no employee may be granted options for more than 600,000 shares
during any fiscal year of the Company.
The Amended Plan provides for the automatic grant of nonstatutory stock
options to directors of the Company who are not employees of the Company or a
parent or subsidiary corporation of the Company (an "Outside Director"). The
Plan provides that each Outside Director (other than a director who became an
Outside Director as a result of his or her termination of employment), who was
serving as an Outside Director on May 1, 1996 (the "Effective Date") or first
became an Outside Director after the Effective Date, will be
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<PAGE> 74
granted an option to purchase 20,000 shares of Common Stock on the Effective
Date or the date he or she became an Outside Director. In addition, for so long
as an Outside Director remains a member of the Board, he or she shall receive an
additional grant of a nonstatutory stock option to purchase 5,000 shares of
Common Stock on each date that he or she is reelected to the Board, provided
that he or she has served on the Board for 2 years.
Options granted under the Amended Plan are not generally transferable by
the optionee, other than by will or the laws of descent and distribution. In
general, options granted under the Amended Plan must be exercised within 90 days
after the end of optionee's status as an employee, director or consultant of the
Company or a parent or subsidiary corporation of the Company, or within twelve
months after a termination due to death or disability, but in no event later
than the expiration of the option's expiration date. The exercise price of all
incentive stock options granted under the Amended Plan must be at least equal to
the fair market value of the Common Stock on the date of grant, and the exercise
price of all nonstatutory stock options granted under the Amended Plan must be
at least equal to 85% of the fair market value of the Common Stock on the date
of grant. With respect to any person who owns stock possessing more than 10% of
the voting power of all classes of the outstanding capital stock of the Company
or a parent or a subsidiary corporation of the Company, the exercise price of
any ISO must equal at least 110% of the fair market value on the grant date and
if the option is an ISO, the term of the option must not exceed five years. The
term of all other ISOs granted under the Amended Plan may not exceed ten years.
The Amended Plan provides that in the event of certain "transfer of
control" transactions involving the Company, each option may be assumed or an
equivalent option substituted for by the acquiring corporation. If the
outstanding options are not assumed or substituted for as described in the
preceding sentence, shares subject to the outstanding options will become fully
vested and exercisable prior to the date of the closing of such transfer of
control.
See "Risk Factors -- Shares Eligible for Future Sale" and "Dilution."
Option Amendment Program. In the second quarter of 1998, the Company
implemented a stock option amendment program (the "Option Amendment Program")
pursuant to which it amended certain options granted under the Option Plan prior
to October 1, 1997. The Option Amendment Program was implemented because the
agreements evidencing such options provided for a "Pseudo-IPO Repurchase Right"
in favor of the optionee, as well as certain repurchase rights in favor of the
Company, which required the Company to recognize a quarterly compensation
expense for financial statement purposes. The "Pseudo-IPO Repurchase Right"
provided that if the Company did not complete an initial public offering (an
"IPO") within six months after an "IPO Trigger Date," the optionee could tender
his shares to the Company and require the Company to repurchase such shares at
fair market value. An "IPO Trigger Date" is a date, on or before February 1,
2001, on which all of the following have occurred: (a) the Company has positive
net income for four consecutive quarters, (b) the Company's value, as determined
by an independent appraisal, equals or exceeds $700 million, and (c) the Company
receives the written opinion of a nationally-recognized investment banking firm
indicating that the Company may undertake an underwritten IPO of its Common
Stock.
The agreement evidencing each option which was amended pursuant to the
Option Amendment Program was modified to: (i) remove the Company's right of
first refusal and vested share repurchase option; (ii) remove the Pseudo-IPO
Repurchase Right; and (iii) provide that in the event of a transfer of control
of the Company, the shares subject to the option will become fully vested and
exercisable in the event that the option is not assumed or substituted for by
the acquiring corporation. In addition, each holder of an amended option was
granted a new option to purchase a number of shares of the Common Stock equal to
10% of the shares subject to the old option (the "New Option"). The shares
subject to the New Option will vest at the same rate as the shares subject to
the old option and the New Option will be evidenced by an agreement with the
same terms and conditions of the old option, as amended. The Pseudo-IPO
Repurchase Right was implemented shortly after HEA had acquired the Company in
order to award and retain employees. Most of the options having this feature
were granted in 1996. As a result of the amendment, the Company's options are no
longer subject to variable accounting treatment.
1998 Employee Stock Purchase Plan. A total of 1.7 million shares of Common
Stock have been reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan"), none of which
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have yet been issued. The Purchase Plan permits eligible employees to purchase
Common Stock at a discount, but only through accumulated payroll deductions,
during sequential 6-month offering periods. Participants will purchase shares on
the last day of each offering period. In general, the price at which shares are
purchased under the Purchase Plan is equal to 85% of the lower of the fair
market value of a share of Common Stock on (a) the first day of the offering
period, or (b) the purchase date. The initial offering period under the Purchase
Plan will commence on the closing of the Offerings.
1998 Restricted Stock Plan. The Company's 1998 Restricted Stock Plan (the
"Restricted Stock Plan") provides for awards of shares of Common Stock to
employees. The Board has the authority to amend or terminate the Restricted
Stock Plan. The Restricted Stock Plan's maximum share reserve is 390,000 shares
of Common Stock. In June 1998, the Compensation Committee of the Board awarded
the Named Executive Officers restricted stock grants as follows: Mr. Cannon
received 100,000 shares; Dr. Jipson received 35,000 shares; Mr. Roach received
35,000 shares; Mr. Tufano received 35,000 shares; and Mr. Duncan received 15,000
shares. The remaining 170,000 shares under the Restricted Stock Plan also were
awarded in June 1998 by the Compensation Committee of the Board to certain other
officers of the Company. As of the date of grant, the fair market value of such
shares was determined by the Compensation Committee to be $9.50. All shares
reserved under the Restricted Stock Plan have been awarded. All unvested shares
of restricted stock are forfeited in the event of termination of employment with
the Company. The restricted stock shares vest and are released from the
forfeiture provision three years from the date of the restricted stock award.
Under the terms of a change of control agreement, vesting of these shares is
subject to acceleration upon the occurrence of a change of control. See
"-- Change of Control Agreements."
Change of Control Agreements. Effective May 29, 1998, the Compensation
Committee of the Board approved Change of Control Agreements pursuant to which
certain executives of the Company may receive severance benefits in the event of
a termination of employment under certain circumstances involving a Change of
Control of the Company. For this purpose, a "Change of Control" is defined
generally as acquisition by any person of a beneficial ownership of 50% or more
of the voting stock of the Company, certain mergers or other business
combinations involving the Company, the sale of more than 50% of the assets of
the Company, liquidation of the Company or change in the majority of the
incumbent members of the Board (except for changes in Board composition approved
by a majority of the directors), or the sale by HEA of more than 50% of its
stock in the Company to an HDD manufacturer, provided the number of shares sold
represents at least 10% of the outstanding stock in a single transaction at the
time of such sale. Initial public offerings are excluded from the definition of
Change of Control. Subject to the terms and conditions set forth in the Change
of Control Agreements, severance benefits become payable in the event that,
within 12 months following a Change of Control, the executive is terminated by
the Company without cause, or resigns following a reduction in such employee's
compensation, responsibility level, or relocation of more than 100 miles.
In such event, the Eligible Employee is entitled to receive a lump sum cash
payment equal to his or her annual salary plus target incentive for the
severance period. The severance period is 24 months for the Chief Executive
Officer and 12 months for other executives. In addition, the Change of Control
Agreements provide for accelerated vesting of the executive's unvested stock
options and/or restricted stock. For the Chief Executive Officer, all unvested
stock options and restricted stock shall become 100% vested and other executives
will have their option vesting accelerated by an additional two years, and their
restricted stock shall be vested 50% or pro rata based upon the number of months
from the restricted award date, whichever is greater. The executive also will be
entitled to continued coverage under the Company's medical plan for the
severance period. If any part of the benefits under the Change of Control
Agreement is determined by the Company's accountants to be an excess parachute
payment under Section 280G of the Internal Revenue Code, at the executive's
option, the payment will be reduced to the minimum extent necessary to have no
excess parachute payment.
401(k) Plan. The Company maintains a retirement and deferred savings plan
for its employees (the "401(k) Plan") that is intended to qualify as a
tax-qualified plan under the Code. The 401(k) Plan provides that each
participant may contribute up to 15% of his or her pre-tax gross compensation
(up to a statutory limit, which was $10,000 in calendar year 1998). Under the
401(k) Plan, the Company may make discretionary matching contributions. The
Company's contributions to the 401(k) Plan for the fiscal periods ended March
30, 1996, December 28, 1996 and December 27, 1997 were $600,000, $1.2 million
and
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$1.6 million, respectively. All amounts contributed by participants and earnings
on such contributions are fully vested at all times.
HEA Executive Deferred Compensation Plan. Under the HEA Executive Deferred
Compensation Plan (the "Deferred Compensation Plan"), eligible executives of the
Company who are at the "director" level or above may irrevocably elect each year
to defer on a pre-tax basis up to 100% of their compensation for such year. Each
participant's account will be credited with an amount based on the "deemed
investment experience" of the investment models chosen by the executive under
the terms of the Deferred Compensation Plan. The executives' deferrals, adjusted
for the deemed investment experience, are referred to as the "deferral amounts."
The deferral amounts are distributed to the executive upon the executive's
termination of employment or as of a date certain elected by the executive.
Generally, the deferral amounts will be distributed in a single lump sum, but if
the executive has at least 10 years of service with the Company, the deferral
amount may be distributed in up to 10 annual installments. Deferral amounts may
be withdrawn in the event of a financial hardship, and also may be withdrawn by
the executive for any reason, subject to the forfeiture of 25% of the
executive's deferral amounts. All payments under the Deferred Compensation Plan
will be paid in cash from the general funds of the Company.
The Deferred Compensation Plan is administered by the Deferred Compensation
Committee of the HEA board of directors. Corporate officers of the Company who
are designated by the Deferred Compensation Committee are eligible to
participate in the Deferred Compensation Plan.
Following the Offerings, eligible Company executives will be able to
continue to participate in the Deferred Compensation Plan unless such
eligibility is terminated by HEA. The Deferred Compensation Plan may be amended,
including to terminate the participation of Company executives, or terminated at
any time by HEA. Upon termination of the Deferred Compensation Plan, all
deferral amounts will be distributed in a cash lump sum payment.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Amended and Restated Certificate of
Incorporation which provide that directors of the Company shall not be
personally liable for monetary damages to the Company or its stockholders for a
breach of fiduciary duty as a director, except for liability as a result of: (i)
a breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) an act related to the unlawful stock
repurchase or payment of a dividend under Section 174 of the Delaware General
Corporation Law; and (iv) transactions from which the director derived an
improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Amended and Restated Certificate of Incorporation also authorizes the
Company to indemnify its officers, directors and other agents, by bylaws,
agreements or otherwise, to the full extent permitted under Delaware law. The
Company has and intends to continue to enter into separate indemnification
agreements with each of its directors and officers which may, in some cases, be
broader than the specific indemnification provisions contained in the Delaware
General Corporation Law. The indemnification agreements may require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified and to obtain directors' and
officers' insurance if available on reasonable terms.
At present, except for the StorMedia litigation, there is no pending
litigation or proceeding involving a director, officer, employee or agent of the
Company where indemnification will be required or permitted. The Company is not
aware of any threatened litigation or proceeding which may result in a claim for
such indemnification.
See "Risk Factors -- Limited Protection of Intellectual Property; Risk of
Third Party Claims of Infringement" and "-- StorMedia; Legal Proceedings."
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH HEA
In 1994, HEI and certain of its affiliates purchased 40% of the Company's
outstanding Common Stock for an aggregate cash purchase price of $150.0 million
pursuant to the Stock Purchase Agreement. In early 1996, HEA acquired all of the
remaining shares of the publicly-held Common Stock in a tender offer and merger
for an aggregate purchase price of $215.0 million and also acquired all of the
Company's Common Stock held by HEI and its affiliates. In June 1996 HEA
exchanged its Common Stock in the Company for 58,208,955 shares of Series A
Preferred Stock.
In December 1995 HEA loaned the Company $100 million which was due on April
10, 1996 and accrued interest at LIBOR plus 0.65%, with interest payable at
maturity. This $100 million loan was replaced in April 1996 with a one year $100
million revolving line of credit bearing interest at HEA's cost of funds plus
0.10%, with interest payable quarterly. In July 1996, the Company borrowed an
additional $35 million from HEA due in August 1996, bearing interest at LIBOR
plus 0.70% with interest payable at maturity; this loan was repaid at maturity.
In April 1997 HEA renewed the $100 million revolving line of credit and
increased the borrowing limit to $150 million. HEA increased the borrowing limit
on this line of credit to $185 million in June 1997, and to $270 million in
August 1997. The Company had utilized all available credit under this facility
as of August 1997. In December 1997, $200 million of this outstanding
indebtedness was cancelled in exchange for 29,859,766 shares of Series A
Preferred Stock, the borrowing limit was reduced to $150 million and the Company
repaid an additional $5 million in principal. In January 1998, the Company
repaid an additional $10 million in principal. In April 1998 this revolving line
of credit was renewed with a borrowing limit of $100 million. A total of $55
million remains outstanding under this revolving line of credit.
HEA currently is an unconditional guarantor of the Company's Milpitas,
California facilities lease. The aggregate monthly rent under the lease is
currently $558,270 per month.
In contemplation of the Offerings, HEA, HEI and Maxtor have entered into
certain agreements governing certain relationships between the parties.
See "Relationship Between the Company and Hyundai."
RELATIONSHIP WITH HEI
In August 1995, HEI guaranteed a $100 million 364-day revolving credit
facility of the Company which expired in August 1996. In January 1996, HEI
guaranteed a $13.8 million one year loan to Maxtor Singapore, which was renewed
in January 1997 for an additional year and repaid at maturity on January 1998.
In August 1996, HEI guaranteed an $86 million 364-day revolving credit facility
and a $129 million three year revolving credit facility. In October 1996, the
$86 million 364-day revolving credit facility was increased by $10 million and
HEI guaranteed the additional amount. In addition, in October 1996, HEI
guaranteed a separate $10 million one year revolving credit facility which was
repaid by the Company in January 1998. In December 1996, HEI guaranteed two
additional credit facilities, one of which was a three month $20 million
uncommitted line which the Company repaid at maturity in March 1997 and the
other of which was a $10 million one year facility which was repaid at maturity
in December 1997. In August 1997, the Company repaid $65 million of the $96
million 364-day revolving credit facility and extended the balance of $31
million for an additional 364 days, continuing HEI's guarantee. In October 1997,
HEI guaranteed an additional $10 million one year revolving credit facility.
HEI served as guarantor for the Company's borrowings under various
revolving bank credit facilities from August 1995 through June 1998. At March
28, 1998, aggregate indebtedness of the Company guaranteed by HEI under such
facilities was $170.0 million. Due to the economic conditions in Korea and
significant recent devaluations of the Korean won versus the U.S. dollar, HEI's
reported financial condition as of year-end 1997 was not in compliance with
certain financial covenants applicable to HEI as guarantor under such revolving
credit facilities, and such non-compliance constituted a default by the Company
under such revolving credit facilities and also a default (through a
cross-default clause) under an uncommitted credit facility of the
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Company that is repayable on demand of the lender, is not guaranteed and had an
outstanding principal amount of $30.0 million as of March 28, 1998. The default
under the revolving credit facilities was waived by the lending banks in June
1998 in exchange for HHI becoming the guarantor under such facilities in place
of HEI and an increase in pricing to reflect borrowing rates based on HHI's
current credit rating. The Company intends to use a portion of the proceeds of
the Offerings to pay down in full all outstanding amounts under each of its
revolving credit facilities and any amounts then outstanding under the demand
facility as well as the $55.0 million owed to HEA, and thereafter to terminate
such credit facilities. The Company intends to obtain replacement revolving
credit facilities following the Offerings that do not depend on any Hyundai
entity guarantees. However, the Company believes that current market conditions
for such facilities are not as favorable as they have been at certain times in
the past, and that for various reasons the number of potential lenders actively
providing credit facilities to companies in the data storage industry may have
decreased recently, and that the terms on which the remaining potential lenders
are willing to offer such facilities have become significantly more restrictive
and/or costly. Consequently, there can be no assurance that the Company will be
able to obtain any such replacement facility or as to the terms and amount of
any such facility that it is able to obtain. Any failure to obtain adequate
credit facilities on acceptable terms would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, as a majority-owned subsidiary of HEA, the Company has the benefit of
a letter of support from HEI under which HEI agrees to provide sufficient
financial support to ensure that the Company will continue as a going concern.
Following the Offerings, the Company believes that it will no longer have the
benefit of the support letter.
On March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. ("Citicorp"). Under this
program the Company could sell its qualified trade accounts receivable up to
$100 million on a non-recourse basis. As of December 27, 1997, $79.8 million of
advances related to sales of accounts receivable were included in accrued and
other liabilities. As of March 28, 1998, this amount was $86.6 million. In
connection with this agreement, HEI entered into a performance undertaking under
which HEI agreed to cause the Company to collect receivables and to perform
obligations of the Company in the event of the Company's failure to perform. HEI
also indemnified the purchasers from any expenses incurred in enforcing their
rights under the agreement. The Company's asset securitization program was
subject to certain conditions, among which was a condition that all of HEI's
long-term public senior debt securities achieve a specified rating. This
condition was not met in February 1998, and the Company obtained waivers of this
condition through April 8, 1998.
The Company completed a new asset securitization program dated as of April
8, 1998 (the "New Program") arranged by Citicorp to replace the existing
program. Under the New Program, the Company sells all of its trade accounts
receivable through a special purpose vehicle with a purchase limit of $100
million on a non-recourse basis, subject to increase to $150 million, upon the
fulfillment of the conditions subsequent described below. On April 8, 1998, the
receivables then securitized under the existing program, in the amount of
approximately $100 million, were transferred to Citicorp's Corporate Receivables
Corporation ("CRC") under the New Program. HHI entered into a new performance
undertaking similar to that under the former program. Continuance of the New
Program is subject to certain conditions, including a condition that all of the
long-term public senior debt securities of HHI achieve a specified rating. In
addition, the New Program remains subject to certain conditions subsequent
related to obtaining appropriate waivers as may be necessary from lenders of the
Company's credit facilities, or effecting a cure of any outstanding defaults
under such credit facilities of the Company and obtaining a performance
guarantee from HHI of the obligations of the Company under the New Program. The
Company has begun negotiations with respect to a $200 million asset
securitization program which does not require any support from HEA or any of its
affiliates and the Company believes it will be able to close this program and
terminate its existing securitization program by July 31, 1998. However, there
can be no assurance that the Company will be able to obtain commitments to enter
into such a program or will be able to implement successfully the new
securitization program.
In May 1995, the Company entered into a definitive manufacturing agreement
with HEI. Under the terms of the agreement, HEI manufactured Company-designed
HDDs for the Company at a site in Korea and the Company purchased approximately
$24.1 million of HDDs. In October 1996, the manufacturing
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agreement was canceled and production at the Korean manufacturing site was
transferred to the Company's manufacturing facilities in Singapore. As part of
the transfer, the Company purchased $4.3 million in inventories and
approximately $14 million of HEI's manufacturing equipment, with the purchase
price payable one year from the invoice date. The equipment was invoiced over
the period from November 1996 through February 1997. HEI bore all other costs
associated with the shut down of production in Korea.
HEI and IBM are parties to the IBM License Agreement, under which HEI and
its subsidiaries, including the Company, are licensed with respect to certain
IBM patents. HEI is required under the IBM License Agreement to pay IBM a
license fee, payable in installments through 2007. HEI has entered into a
Sublicense Agreement with the Company pursuant to which Maxtor is obligated to
pay IBM a portion of the license fee otherwise due from HEI under the IBM
License Agreement, payable in annual installments ranging from $1.0 million to
$2.3 million, when such amounts are due IBM from HEI. Under the IBM License
Agreement, if Maxtor ceases to be a majority-owned subsidiary of HEA, Maxtor can
obtain a royalty-free license under the same terms from IBM upon the joint
request of HEI and Maxtor, and the fulfillment of certain conditions. Pursuant
to the Sublicense Agreement, HEI has agreed to cooperate to obtain such a
license for the Company once the Company ceases to be a majority-owned
subsidiary, and the Company has agreed to continue to pay IBM the Company's
allocated license fee following the grant of such a license from IBM. HEI and
the Company have indemnified each other for certain liabilities arising from
their acts or omissions relating to the IBM License Agreement.
The Company currently is involved in a dispute with StorMedia, which arises
out of the StorMedia Agreement. Pursuant to the StorMedia Agreement, StorMedia
agreed to supply disk media to the Company. StorMedia sued HEI, Mong Hun Chung
(HEI's chairman), Dr. Chong Sup Park (HEA's President and the individual who
signed the StorMedia Agreement on behalf of the Company) and K.S. Yoo (the
individual who signed the StorMedia Agreement on behalf of HEI) alleging that at
the time HEI entered into the StorMedia Agreement, it knew that it would not and
could not purchase the volume of products which it committed to purchase, and
that failure to do so caused damages to StorMedia in excess of $206 million. The
Company believes that it has meritorious defenses against the claims alleged by
StorMedia.
See "Risk Factors -- Control by and Dependence on Hyundai," "-- Limited
Protection of Intellectual Property; Risk of Third Party Claims of
Infringement," "-- StorMedia; Legal Proceedings" and "Relationship between the
Company and Hyundai."
RELATIONSHIP WITH IMS
In 1996, the Company sold a majority interest in IMS to certain members of
IMS management and other investors for $25 million in cash and $20 million in
notes and retained a 23.5% ownership interest in IMS. In October 1997, IMS
completed an initial public offering and repaid in full the note and its related
interest, which aggregated $21.8 million. As of March 28, 1998 the Company's
equity interest in IMS was 16.0%. The Company has agreed to indemnify the
investors and IMS up to $17.5 million for certain breaches of representations,
provided that tax and environmental representations are not subject to the
liability limit.
The Company outsources most of its PCB assembly to IMS; IMS supplies the
Company with PCBs, sub-assemblies and fully integrated products under a
manufacturing services agreement. The Company made purchases from IMS in the
years ended December 28, 1996 and December 27, 1997 of $191.9 million and $115.3
million, respectively. Two former officers of the Company, Robert Behlman
(formerly Vice President of Manufacturing of the Company) and Nathan Kawaye
(formerly Vice President and Chief Financial Officer of the Company), hold
positions as President and Chief Executive Officer and Vice President and Chief
Financial Officer, respectively, at IMS. Mr. Paul J. Tufano is a current
director of IMS.
See "Risk Factors -- Dependence on Suppliers of Components and
Sub-Assemblies" "Relationship between the Company and Hyundai,"
"Business -- Materials and Supplies" and "Certain Transactions."
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RELATIONSHIP WITH HIT
The Company is preparing to implement the SAP System. The Company's rights
to this new information system are governed by a license agreement between HIT
and SAP. The Company currently is discussing with SAP the terms on which the
Company could obtain a direct license with SAP. See "Risk Factors -- Transition
to and Dependence on Information Systems; Year 2000 Problem," "Relationship
between the Company and Hyundai" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELATIONSHIP WITH MMC
HEA formed a division in May 1996 to provide a supply of hard disk media to
the Company. This division of HEA was incorporated as MMC in December 1997 and
is currently a wholly-owned subsidiary of HEA. Mr. Michael R. Cannon is
currently a director of MMC. During the year ended December 27, 1997 and the
three month period ended March 28, 1998, MMC supplied 17.4% and 28.8%,
respectively, of media purchased by the Company for an aggregate purchase price
of $15.5 million and $27.6 million, respectively. During 1997, MMC's media price
to the Company was 2% below the best price for media available to the Company
from any of its qualified merchant vendors. For the quarter ended March 28,
1998, the actual price for media supplied by MMC for each family of Maxtor
products was based on a discount from weighted average prices of media purchased
by the Company from qualified merchant vendors for such Maxtor products,
resulting in an aggregate 3.7% discount. The Company currently is negotiating an
agreement with MMC with respect to pricing of future purchases and expects that
such agreement will be a multi-year contract providing for pricing discounts in
return for a minimum purchase volume commitment based on a percentage of
Maxtor's total media purchases. See "Risk Factors -- Control by and Dependence
on Hyundai," "-- Dependence on Suppliers of Components and Sub-Assemblies,"
"-- Dependence on International Operations; Risks from International Sales,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Materials and Supplies" and "Certain Transactions."
OTHER RELATED PARTY TRANSACTIONS
The Company has entered into employment agreements and change of control
agreements with certain of its officers and has made a loan to one officer. The
Company has entered into indemnification agreements with each of its directors
and executive officers. Such indemnification agreements require the Company to
indemnify such individuals to the fullest extent permitted by law.
All material transactions between the Company and its executive officers,
directors, principal stockholders and other affiliates occurring after the
Offerings will be subject to approval by the Affiliated Transaction Committee or
by a majority of the Company's independent and disinterested directors.
See "Risk Factors -- Control by and Dependence on Hyundai," "Relationship
between the Company and Hyundai" and "Management -- Board Committees" and
"-- Employment Agreements."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 1, 1998 (assuming conversion
of all outstanding shares of Series A Preferred Stock into Common Stock upon the
closing of the Offerings and as adjusted to reflect the sale of the shares
offered hereby, and assuming no exercise of the Underwriters' over-allotment
options): (i) by each person who is known by the Company to beneficially own
more than 5% of Common Stock; (ii) by each of the Named Executive Officers and
by each of the Company's directors; and (iii) by all of the Company's officers
and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE BENEFICIALLY
OWNED PRIOR TO OFFERINGS OWNED AFTER OFFERINGS
------------------------- --------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
------------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
5% STOCKHOLDER:
Hyundai Electronics America(2)............... 44,029,850 99.9% 44,029,850 48.1%
3101 North First Street
San Jose, CA 95134
EXECUTIVE OFFICERS AND DIRECTORS:
Dr. Chong Sup Park(3)(4)..................... 12,375 * 12,375 *
Michael R. Cannon(3)(5)...................... 247,500 * 247,500 *
Charles F. Christ(3)......................... 12,375 * 12,375 *
Chang See Chung(4)........................... -- -- -- --
Charles Hill(3).............................. 12,375 * 12,375 *
Y.H. Kim(3)(4)............................... 12,375 * 12,375 *
Dr. Victor B. Jipson(3)(6)................... 30,930 * 30,930 *
William F. Roach(3)(7)....................... 51,563 * 51,563 *
Paul J. Tufano(3)(8)......................... 27,500 * 27,500 *
Phillip C. Duncan(3)(9)...................... 19,250 * 19,250 *
All executives officers and directors as a
group (17 persons)(3)(4)(10)............... 512,324 1.1 512,324 *
</TABLE>
- ---------------
* Less than one percent (1%)
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on: (i) 44,049,290 shares outstanding as of
June 1, 1998 and (ii) 91,549,290 shares outstanding after the Offerings
assuming no exercise of the Underwriters' over-allotment options. If such
options are exercised in full, the number of shares outstanding after the
Offerings will be 98,674,290 (44.6% of which will be owned by HEA).
Beneficial ownership is determined in accordance with the rules of the
Commission. All shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after June 1, 1998 are deemed to
be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the number of shares beneficially
owned and the percentage of ownership of such person, but are not deemed to
be outstanding and to be beneficially owned for the purpose of computing
the percentage of ownership of any other person. Except as indicated in the
footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, such
persons have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) HEA has certain nomination rights and rights to maintain at least a 30%
ownership interest in the Company through the year 2000, and has agreed to
certain limitations on the acquisition of the Company's Common Stock and
proxy solicitations. See "Relationship Between the Company and
Hyundai -- Stockholder Agreement."
(3) All shares subject to an option granted under the Amended Plan which are
exercisable within 60 days after March 28, 1998.
(4) Excludes 44,029,850 shares of Common Stock beneficially owned by HEA. Each
such individual disclaims beneficial ownership of such shares.
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(5) Excludes 100,000 shares of Common Stock granted to Mr. Cannon on May 29,
1998 pursuant to the Restricted Stock Plan. See "Management -- 1998
Restricted Stock Plan."
(6) Excludes 35,000 shares of Common Stock granted to Dr. Jipson on May 29,
1998 pursuant to the Restricted Stock Plan. See "Management -- 1998
Restricted Stock Plan."
(7) Excludes 35,000 shares of Common Stock granted to Mr. Roach on May 29, 1998
pursuant to the Restricted Stock Plan. See "Management -- 1998 Restricted
Stock Plan."
(8) Excludes 35,000 shares of Common Stock granted to Mr. Tufano on May 29,
1998 pursuant to the Restricted Stock Plan. See "Management -- 1998
Restricted Stock Plan."
(9) Excludes 15,000 shares of Common Stock granted to Mr. Duncan on May 29,
1998 pursuant to the Restricted Stock Plan. See "Management -- 1998
Restricted Stock Plan."
(10) Excludes 305,000 shares of Common Stock granted to certain officers on May
29, 1998, pursuant to the Restricted Stock Plan. See "Management -- 1998
Restricted Stock Plan."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250 million shares
of Common Stock and 95 million shares of preferred stock, par value $0.01 per
share, all of which have been designated Series A Preferred Stock. Each
outstanding share of Series A Preferred Stock will be converted into 0.5 of a
share of Common Stock upon the closing of the Offerings. Upon such conversion,
such Series A Preferred Stock will be canceled, retired and eliminated from the
shares that the Company is authorized to issue. The following summary of certain
provisions of the Common Stock and the Series A Preferred Stock of the Company
does not purport to be complete and is subject to, and qualified in its entirety
by, the Amended and Restated Certificate of Incorporation and Bylaws of the
Company that are included as exhibits to the Registration Statement of which
this Prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
As of March 28, 1998, there were approximately 7,563 shares of Common Stock
outstanding held of record by three stockholders. In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock and
preferred stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any preferred stock.
Holders of Common Stock have no preemptive or subscription rights, and there are
no redemption or conversion rights with respect to such shares. All outstanding
shares of Common Stock are fully paid and non-assessable, and the shares of
Common Stock offered hereby will be fully paid and non-assessable.
PREFERRED STOCK
The Board has the authority, without action by the stockholders, to
designate and issue preferred stock in one or more series and to designate the
dividend rate, voting rights and other rights, preferences and restrictions of
each series, any or all of which may be greater than the rights of the Common
Stock. It is not possible to state the actual effect of the issuance of any
shares of preferred stock upon the rights of holders of the Common Stock until
the Board determines the specific rights of the holders of such preferred stock.
However, the effects might include, among other things, restricting dividends on
the Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. The Company
has no present plans to issue any shares of preferred stock. See "-- Delaware
Anti-Takeover Law and Certain Charter Provisions."
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After the Offerings, HEA, which will hold approximately 44,029,850 shares
of Common Stock, or certain transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of the Stockholder Agreement between the Company and HEA, if the Company
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proposes to register any of its securities under the Securities Act, either for
its own account or the account of other stockholders exercising registration
rights, HEA and its transferees are entitled to notice of such registration and
are entitled to include shares of such Common Stock therein; provided, among
other conditions, that the underwriters of any offering have the right to limit
the number of such shares included in such registration. In addition, HEA and
certain transferees may require the Company, beginning six months after the date
of this Prospectus, on not more than five occasions to file a registration
statement under the Securities Act with respect to minimum specified amounts and
value of shares held by HEA or such transferees, and the Company is required to
use its reasonable commercial efforts to effect such registration, subject to
certain conditions and limitations. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable and could
have an adverse effect on the market price for the Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale" and "Relationship between the
Company and Hyundai -- Stockholder Agreement."
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), which prohibits a publicly held
Delaware corporation form engaging in any "business combination" with an
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the corporation's board of directors approved either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares owned by management directors and
certain employee stock plans); or (iii) on or subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior did own) 15% or
more of the corporation's voting stock.
In addition, pursuant to the Amended and Restated Certificate of
Incorporation, the Board has authority to issue up to 95 million shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such preferred stock may have other rights, including
economic rights, senior to the Common Stock, and as a result, the issuance of
such preferred stock could have a material adverse effect on the market price of
the Common Stock. The Company has no present plan to issue shares of preferred
stock.
The Amended and Restated Certificate of Incorporation provides that the
Board will be divided into three classes of directors serving staggered
three-year terms. As a result, only one of the three classes of the Board will
be elected each year. The directors are removable only for cause upon the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of voting stock, voting as a single class. The Board has
the exclusive right to set the authorized number of directors and to fill
vacancies on the Board. The Amended and Restated Certificate of Incorporation
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of the stockholders of the Company may be called only by the
Board, the Chairman of the Board, or the Chief Executive Officer. Advance notice
is required for stockholder proposals or director nominations by stockholders.
These provisions
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may be amended only by the affirmative vote of at least two-thirds of the
outstanding voting stock, voting as a single class. The Company has entered into
a Stockholders Agreement with HEA which grants HEA certain rights to designate
directors for nomination, requires HEA to vote in favor of other Board nominees
so long as HEA's rights to designate for nomination are honored, and restricts
HEA's right to solicit proxies and acquire additional shares of Common Stock.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market price of the
Common Stock. Such provisions also may inhibit fluctuations in the market price
of the Common Stock that could result from takeover attempts.
See "Risk Factors -- Effect of Antitakeover Provisions," and "-- Control By
and Dependence on Hyundai" and "Relationship Between the Company and Hyundai."
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION PROVISIONS RELATING TO
CONFLICTS OF INTEREST AND CORPORATE OPPORTUNITIES
In order to address certain potential conflicts of interest between HEA and
the Company, the Company's Amended and Restated Certificate of Incorporation
contains provisions concerning the conduct of certain affairs of the Company as
they may involve HEA and its affiliates (other than the Company) and their
respective officers and directors, and the powers, rights, duties and
liabilities of the Company and its officers, directors, stockholders in
connection therewith. In general, these provisions recognize that the Company
and HEA and their respective affiliates may engage in the same or similar
business activities and lines of business and may have an interest in the same
areas of corporate opportunities and that the Company and HEA and their
respective affiliates will continue to have contractual and business relations
with each other (including service of officers and directors of HEA as directors
of the Company).
The Amended and Restated Certificate of Incorporation provides that any
person purchasing or otherwise acquiring any interest in any shares of capital
stock of the Company shall be deemed to have notice of and to have consented to
these provisions.
For purposes of these provisions the term "Company" includes its
subsidiaries and other entities in which it beneficially owns directly or
indirectly one-third or more of the outstanding voting securities or interests.
For purposes of the following discussion, "Hyundai Affiliates" means HEA, HEI,
any of their successors, and all corporations, partnerships, joint ventures,
associations and other entities that directly or indirectly through one or more
intermediaries is controlled by HEA or HEI (other than the Company and its
subsidiaries and such other entities controlled by the Company). See
"Management -- Directors and Executive Officers."
Conflict of Interest Policy. Article Tenth of the Amended and Restated
Certificate of Incorporation sets forth provisions to regulate and guide certain
contractual relations and other business relations of the Company as they may
involve Hyundai Affiliates, or their officers or directors, or other
corporations, partnerships, associations or other organizations in which one or
more the Company's directors have a financial interest ("Related Entities").
Pursuant to Article Tenth, no contract, agreement, arrangement or transaction
between the Company and any Hyundai Affiliate or any Related Entity, or between
the Company and one of the directors or officers of the Company, any Hyundai
Affiliate or any Related Entity or any amendment, modification or termination
thereof (each a "Transaction"), shall be void or voidable solely for the reason
that such parties are parties thereto or that such directors or officers are
present in or participate in the meeting of the Board or committee which
authorizes such Transaction or solely because his or their votes are counted for
such purpose. Pursuant to Article Tenth, any Hyundai Affiliate, any Related
Entity and such officers and directors shall have fully satisfied and fulfilled
any fiduciary duties they may have to the Company and its stockholders, shall
not be liable to the Company or its stockholders for any breach of any fiduciary
duty they may have by reason of the entering into, performance or consummation
of such Transaction and shall be deemed to have acted in good faith and in a
manner such persons believed to be in or not opposed to the best interest of the
Company to the extent such standard is applicable to such person's conduct, and
shall be
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deemed not to have breached any duty of loyalty to the Company or its
stockholders and not to have derived any improper personal benefit therefrom if:
(i) the material facts as to the Transaction are disclosed to or known
by the Board or the committee that authorized the Transaction and the Board
or such committee in good faith authorizes or approves the Transaction by
the affirmative vote of a majority of the Disinterested Directors on the
Board or such committee (even if less than a quorum);
(ii) the material facts as to the Transaction are disclosed or known
to the holders of voting stock entitled to vote thereon and the Transaction
is specifically approved in good faith by vote of the holders of a majority
of the then outstanding voting stock not owned by any Hyundai Affiliate or
Related Entity, voting as a single class; or
(iii) such Transaction is fair as to the Company at the time it is
authorized, approved or ratified by the Board, a committee thereof or the
stockholders of the Company.
Any Transaction authorized, approved or effected as described in (i) or
(ii) above shall be deemed entirely fair to the Company and its stockholders,
provided however that if such authorization or approval is not obtained or such
Transaction is not effected, no presumption shall arise that such Transaction is
not fair to the Company or its stockholders. Directors of the Company who are
also directors or officers of any Hyundai Affiliate or any Related Entity may be
counted in determining the presence of a quorum at a meeting of the Board of a
committee that authorizes or approves any such Transaction and may vote at such
meeting. Equity securities with voting rights owned by any Hyundai Affiliate or
any Related Entities may be counted in determining the presence of a quorum at a
meeting of stockholders that authorizes or approves any such transaction and may
be voted at such meeting. No Hyundai Affiliate shall be liable to the Company or
its stockholders for breach of any fiduciary duty it may have by reason of the
fact that any Hyundai Affiliate takes any action or exercise any rights or gives
or withholds any consent in connection with any Transaction between any Hyundai
Affiliate and the Company. Any Transaction with any corporation, partnership,
joint venture, association or other entity in which the Company beneficially
owns, directly or indirectly 50% or more of the outstanding voting stock, voting
power or similar interest or with any officer or director thereof shall be
deemed to be a Transaction with the Company.
The affirmative vote of the holders of more than two-thirds of the voting
power of the Company's equity securities then outstanding, voting together as a
single class, is required to alter, amend or repeal Article Tenth of the Amended
and Restated Certificate of Incorporation in a manner adverse to the interests
of any Hyundai Affiliate or to adopt any provision of the Amended and Restated
Certificate of Incorporation adverse to the interests of any Hyundai Affiliate
and inconsistent with any provision of Article Tenth. Article Tenth further
provides that neither the alteration, amendment or repeal of Article Tenth nor
the adoption of any provision inconsistent with Article Tenth will eliminate or
reduce the effect of Article Tenth in respect of any matter occurring or cause
of action, suit or claim that, but for Article Tenth, would accrue or arise,
prior to such alteration, amendment repeal or adoption.
Corporate Opportunity Policy. Article Eleventh of the Amended and Restated
Certificate of Incorporation sets forth provisions to regulate, define and guide
the conduct of certain affairs of the Company as they may involve Hyundai
Affiliates and their officers and directors, and the powers, rights, duties and
liabilities of the Company and its officers, directors and stockholders,
regarding corporate opportunities.
Article Eleventh provides that in the event that any Hyundai Affiliate
acquires knowledge of a potential transaction or matter that may be a corporate
opportunity for both a Hyundai Affiliate and the Company, the Hyundai Affiliate
shall have no duty to communicate or present such corporate opportunity to the
Company and shall not be liable to the Company or its stockholders for breach of
any fiduciary duty as a stockholder of the Company by reason of the fact that
the Hyundai Affiliate pursues or acquires such corporate opportunity for itself
or another Hyundai Affiliate, directs such corporate opportunity to another
person, or does not present such corporate opportunity to the Company, except to
the extent required by Article Eleventh.
Article Eleventh provides further that if a director or officer of the
Company who is also a director or officer of a Hyundai Affiliate acquires
knowledge of a potential transaction or matter that may be a corporate
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opportunity for both the Company and any Hyundai Affiliate, such director or
officer of the Company: (i) shall have fully satisfied and fulfilled the
fiduciary duties to the Company and its stockholders with respect to such
corporate opportunity; (ii) shall not be liable to the Company or its
stockholders for breach of any fiduciary duty by reason of the fact that any
Hyundai Affiliate pursues or acquires such corporate opportunity for itself or
directs such corporate opportunity to another person (including, without
limitation, another Hyundai Affiliate) or does not communicate information
regarding such corporate opportunity to the Company; (iii) shall be deemed to
have acted in good faith and in a manner he or she reasonably believes to be in
or not opposed to the best interests of the Company; and (iv) shall be deemed
not to have breached his or her duty of loyalty to the Company or its
stockholders and not to have derived an improper benefit therefrom, if such
director or officer acts in a manner consistent with the following policy:
(x) a corporate opportunity offered to any person who is a director
but not an officer of the Company and who is also an officer (whether or
not a director) of any Hyundai Affiliate shall belong to such Hyundai
Affiliate, unless such opportunity is expressly offered, in writing, to
such person primarily in his or her capacity as a director of the Company,
in which case such opportunity shall belong to the Company;
(y) a corporate opportunity offered to any person who is an officer
(whether or not a director) of the Company and who is also a director but
not an officer of any Hyundai Affiliate shall belong to the Company, unless
such opportunity is expressly offered, in writing, to such person primarily
in his or her capacity as a director of a Hyundai Affiliate, in which case
such opportunity shall belong to such Hyundai Affiliate; and
(z) a corporate opportunity offered to any other person who is either
(i) an officer of both the Company and a Hyundai Affiliate or (ii) a
director of both the Company and a Hyundai Affiliate and not an officer of
either entity, shall belong to such Hyundai Affiliate or to the Company, as
the case may be, if such opportunity is expressly offered, in writing, to
such person primarily in his or her capacity as an officer or director of
the Company or of such Hyundai Affiliate, respectively; otherwise, such
opportunity shall belong to the Company.
Article Eleventh further provides that any corporate opportunity that
belongs to a Hyundai Affiliate or to the Company pursuant to the foregoing
policy shall not be pursued by the other, or directed by the other to another
person, unless and until the Hyundai Affiliate or the Company, as the case may
be, determines not to pursue the opportunity. However, if the party to whom the
corporate opportunity belongs does not within a reasonable period of time begin
to pursue, or thereafter continue to pursue, such opportunity diligently and in
good faith, the other party may then pursue such opportunity or direct it to
another person.
For purposes of Article Eleventh, "corporate opportunities" shall consist
of business opportunities which: (i) the Company is financially able to
undertake; (ii) are, from their nature, in the line or lines of the Company's
business and are of practical advantage to it; and (iii) are ones in which the
Company has an interest or reasonable expectancy. In addition, "corporate
opportunities" shall not include any transaction in which the Company or any
Hyundai Affiliate is permitted to participate pursuant to (a) any agreement
between the Company and any Hyundai Affiliate which was entered into prior to
the closing of this Offering or (b) any subsequent agreement between the Company
and any Hyundai Affiliate approved pursuant to Article Tenth of the Amended and
Restated Certificate of Incorporation. The rights of the Company under any such
agreement are deemed to be contractual rights and shall not be corporate
opportunities of the Company for any purpose.
Article Eleventh further provides that if any contract, agreement,
arrangement or transaction between the Company and any Hyundai Affiliate
involves a corporate opportunity and is approved in accordance with the
procedures set forth in Article Tenth of the Amended and Restated Certificate of
Incorporation, a Hyundai Affiliate and its officers and directors shall also,
for the purposes of Article Eleventh and the other provisions of the Amended and
Restated Certificate of Incorporation, be deemed to have fully satisfied and
fulfilled any fiduciary duties they may have to the Company and its
stockholders. Article Eleventh provides that any such contract, agreement,
arrangement or transaction involving a corporate opportunity not so approved
will not by
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reason thereof result in any such breach of any fiduciary duty, but shall be
governed by the other provisions of Article Eleventh, the Amended and Restated
Certificate of Incorporation, the Bylaws, and applicable law.
For purposes of Article Eleventh, a director of the Company who is Chairman
of the Board or a committee of the Board shall not be deemed to be an officer of
the Company by reason of holding such position (regardless of whether such
position is deemed an office of the Company under the Bylaws), unless such
person is a full-time employee of the Company.
The affirmative vote of the holders of more than two-thirds of the voting
power of the Company's equity securities then outstanding, voting together as a
single class, is required to alter, amend or repeal Article Eleventh in a manner
adverse to the interests of the Hyundai Affiliates, or adopt any provision of
the Amended and Restated Certificate of Incorporation adverse to the interests
of any Hyundai Affiliate and inconsistent with any provision of Article
Eleventh. Neither the alteration, amendment or repeal of Article Eleventh, nor
the adoption of any provision inconsistent with Article Eleventh, shall
eliminate or reduce the effect of Article Eleventh in respect of any matter
occurring, or any cause of action, suit or claim that, but for Article Eleventh,
would accrue or arise, prior to such alteration, amendment, repeal or adoption.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to the Offerings, there was no public market for the
Common Stock. Future sales of substantial amounts of the Common Stock in the
public market could adversely affect the market price of the Common Stock.
Upon completion of the Offerings, the Company will have outstanding an
aggregate of 91,549,290 shares of Common Stock, assuming (i) the issuance of
47,500,000 shares of Common Stock offered hereby and (ii) no exercise of options
to purchase Common Stock after June 1, 1998. Of these shares, the 47,500,000
shares sold in the Offerings will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
by "Affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (whose sales would be subject to certain limitations and
restrictions described below).
The remaining 44,049,290 shares of Common Stock held by existing
stockholders were issued and sold by the Company in reliance on exemptions from
the registration requirements of the Securities Act. All of these shares will be
subject to "lock-up" agreements described below on the effective date of the
Offerings. On the effective date of the Offerings, no shares not subject to the
lock-up agreements described below will be eligible for sale pursuant to Rule
144(k). Beginning 90 days after the effective date of the Offerings, no shares
not subject to the lock-up agreements described below will become eligible for
sale, subject in most cases to the limitations of Rule 144. Upon expiration of
the lock-up agreements 180 days after the effective date of the Offerings,
44,049,290 additional shares will become eligible for sale, subject in most
cases to the limitations of Rule 144. In addition, holders of stock options
could exercise such options and sell certain of the shares issued upon exercise
as described below.
As of June 1, 1998 there were a total of 7,007,466 shares of Common Stock
subject to outstanding options under the Amended Plan, 1,960,468 of which were
vested and exercisable. All of these shares are subject to lock-up agreements.
All options held by officers and directors of the Company are subject to 180 day
lock-up agreements. Beginning 90 days after the effective date of the Offerings,
2,210,126 shares of Common Stock which are subject to outstanding options and
not subject to the lock-up agreements will after exercise become eligible for
sale in accordance with Rule 701 under the Securities Act ("Rule 701").
Immediately after the completion of the Offerings, the Company intends to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of Common Stock issued or reserved for future issuance under the
Amended Plan. On the date 180 days after the effective date of the Offerings, a
total of 2,572,767 shares of Common Stock subject to outstanding options will be
vested and exercisable. After the effective dates of the registration statements
on Form S-8, shares purchased upon exercise of options granted pursuant to the
Amended Plan generally would be available for resale in the public market.
The officers and directors and all existing stockholders of the Company
have agreed not to sell or otherwise dispose of any of their shares for a period
of 180 days after the date of the Offerings. Smith Barney Inc., however, may in
its sole discretion, at any time without notice, release all or any portion of
the shares subject to lock-up agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 915,492 shares
immediately after the Offerings) or (ii) generally, the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about the
Company. Pursuant to Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice filing provisions of
Rule 144. Pursuant to Rule 701, persons who purchase shares upon exercise of
options granted prior to the effective date of the Offerings are entitled to
sell such shares
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90 days after the effective date of the Offerings in reliance on Rule 144,
without having to comply with the holding period and notice filing requirements
of Rule 144 and, in the case of non-affiliates, without having to comply with
the public information, volume limitation or notice filing provisions of Rule
144.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the Company
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit
plans or written contracts relating the compensation of such persons. In
addition, the Commission had indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this Prospectus, may be sold by persons other than Affiliates (as
defined in Rule 144 under the Securities Act) subject only to the manner of sale
provisions of Rule 144 and by Affiliates under Rule 144 without compliance with
its one year minimum holding period requirements.
See "Risk Factors -- Shares Eligible for Future Sale," "Description of
Capital Stock -- Registration Rights of Certain Holders."
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of certain United States federal
income and estate tax considerations relating to the ownership and disposition
of Common Stock by a holder who acquires and owns such Common Stock as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code"). This discussion does not consider specific facts and
requirements that may be relevant to a particular holder's tax position, does
not address all aspects of United States federal income and estate taxes and
does not deal with foreign, state, and local tax consequences and United States
federal gift taxes that may be relevant to such holders in light of their
personal circumstances. Further, it does not discuss the rules applicable to
holders subject to special tax treatment under the federal income tax laws
(including but not limited to, banks, insurance companies, tax-exempt
organizations, dealers in securities or currencies, holders of securities held
as part of a "straddle," "hedge," or "conversion transaction," traders in
securities electing to mark to market their securities positions and persons who
undertake a constructive sale of Common Stock). This discussion is based on
current provisions of the Code, existing and proposed regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly on a retroactive basis. Accordingly, each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding
and disposing of Common Stock.
U.S. HOLDERS
The following discussion is limited to a holder of Common Stock that for
United States federal income tax purposes is (i) a citizen or resident (within
the meaning of Section 7701(b) of the Code) of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States, or any state or any political subdivision thereof,
(iii) an estate whose income is includible in gross income for United States
federal income tax purposes, regardless of its source, or (iv) in general, a
trust subject to the primary supervision of a court within the United States and
the control of a United States person as described in Section 7701(a)(30) of the
Code (a "U.S. Holder").
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Dividends and Gain on Disposition of Common Stock
In general, dividends paid from current or accumulated earnings and profits
of the Company, as determined for U.S. federal income tax purposes, will be
included in a U.S. Holder's income as ordinary income (subject to a possible
dividends received deduction in the case of corporate holders) as they are paid.
Gain or loss realized on the sale or exchange of Common Stock will equal the
difference between the amount realized on such sale or exchange and the U.S.
Holder's adjusted tax basis in such Common Stock. Gain on the Common Stock held
by an individual for more than 18 months is subject to tax at a maximum rate of
20% and gain on the Common Stock held by an individual for more than one year
and up to 18 months is subject to tax at a maximum rate of 28%. Legislation
currently pending in Congress generally would, if enacted in its current form,
subject long-term capital gain recognized by an individual holder to a maximum
rate of 20 percent in respect of property held for more than 12 months,
effective for amounts properly taken into account on or after January 1, 1998.
Information Reporting and Backup Withholding
A U.S. Holder of Common Stock may be subject to "backup withholding" at a
rate of 31% with respect to certain "reportable payments," including dividend
payments. These backup withholding rules apply if the holder, among other
things, (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report properly interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to backup withholding. A holder who does not provide the Company
with its correct TIN also may be subject to penalties imposed by the United
States Internal Revenue Service ("IRS"). Any amount withheld from a payment to a
U.S. Holder under the backup withholding rules is creditable against the
holder's federal income tax liability, provided that the required information is
furnished to the IRS. Backup withholding will not apply, however, with respect
to payments made to certain U.S. Holders, including corporations and tax-exempt
organizations, provided their exemptions from backup withholding are properly
established.
The Company will report to the U.S. Holders of Common Stock and to the IRS
the amount of any "reportable payments" for each calendar year and the amount of
tax withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. Holder. As used herein, the term "Non-U.S.
Holder" means any holder other than a U.S. Holder. For purposes of withholding
tax on dividends discussed below, dividends and gain on the sale, exchange or
other disposition of Common Stock will generally be considered to be "U.S. trade
or business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of treaty residents,
attributable to a permanent establishment (or, in the case of an individual, a
fixed base) in the United States.
Dividends
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty, unless the
dividends are U.S. trade or business income. If the dividend is U.S. trade or
business income, the dividend would be subject to United States federal income
tax on a net income basis at applicable graduated individual or corporate rates
and would be exempt from the 30% withholding tax described above. Any such
dividends that are U.S. trade or business income received by a foreign
corporation may, under certain circumstances, be subject to the additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Certain certification and disclosure requirements
must be
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complied with in order to be exempt from withholding under the U.S. trade or
business income exemption discussed above.
Under current United States Treasury regulations, dividends paid to a
stockholder at an address in a foreign country are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary), including for purposes of determining
the applicability of a tax treaty rate. Under Treasury regulations effective for
payments after December 31, 1999 (the "New Regulations"), to obtain a reduced
rate of withholding under a treaty, a Non-U.S. Holder would generally be
required to provide an Internal Revenue Service Form W-8 (or suitable substitute
form) certifying such Non-U.S. Holder's entitlement to benefits under a treaty.
These certification requirements may be relaxed somewhat in the case of a
Non-U.S. Holder who holds Common Stock through an account maintained at a
non-U.S. office of a financial institution. Certain other special rules may be
applicable to a Non-U.S. Holder under the New Regulations.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty or whose dividends have
otherwise been subjected to withholding in an amount that exceeds such holders'
United States federal income tax liability, may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the IRS.
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain realized on a sale or other disposition of
Common Stock unless (i) the gain is U.S. trade or business income, (ii) in the
case of a Non-U.S. Holder who is a nonresident alien individual and holds Common
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale or other disposition and certain other
conditions are met or (iii) the Non-U.S. Holder is subject to tax pursuant to
provisions of United States tax law that apply to certain expatriates.
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of any dividends paid to, and the tax withheld with respect to, such
Non-U.S. Holder, regardless of whether any tax was actually withheld. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides.
The payment of proceeds on the disposition of shares of Common Stock to or
through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding at a rate of 31% unless
the owner provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. Holder of shares of
Common Stock to or through a foreign office of a broker will not be subject to
backup withholding or information reporting. However, if such broker is a U.S.
person, a controlled foreign corporation for United States tax purposes, or a
foreign person, 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a U.S. trade or
business, information reporting requirements will apply unless such broker has
documentary evidence in its files of the holder's Non-U.S. status and has no
actual knowledge to the contrary or unless the holder otherwise establishes an
exemption. Any amount withheld under the backup withholding rules is allowable
as a credit against the Non-U.S. Holder's federal income tax, provided that the
required information is provided to the IRS. The New Regulations would modify
the application of the information reporting requirements and back-up
withholding tax to Non-U.S. Holders effective January 1, 2000.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "U.S. Underwriting Agreement") among the Company, HEA and each of the
underwriters named below (the "U.S. Underwriters"), for whom Smith Barney Inc.,
Hambrecht & Quist LLC, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and NationsBanc Montgomery Securities LLC are acting as
representatives (the "U.S. Representatives"), the Company has agreed to sell to
each of the U.S. Underwriters and each of the U.S. Underwriters has severally
agreed to purchase from the Company the number of shares of Common Stock set
forth opposite its name in the table below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
UNDERWRITER COMMON STOCK
----------- -------------------
<S> <C>
Smith Barney Inc...........................................
Hambrecht & Quist LLC......................................
Lehman Brothers Inc........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
NationsBanc Montgomery Securities LLC......................
----------------
Total.................................................
================
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions set forth therein. The U.S. Underwriters are committed to
purchase all of the shares of Common Stock agreed to be purchased by the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement (other than those
covered by the over-allotment options described below), if any shares of Common
Stock are purchased. In the event of default by any U.S. Underwriter, the U.S.
Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer such shares of Common Stock to the
public at the initial public offering price thereof set forth on the cover page
of this Prospectus, and to certain dealers at such price less a discount not in
excess of $ per share. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share on sales to certain other
dealers. After the initial public offering of the shares of Common Stock, the
public offering price and such discounts may be changed.
The Company and HEA also have entered into an underwriting agreement (the
"International Underwriting Agreement") with the International Underwriters
named therein, for whom Smith Barney Inc., Hambrecht & Quist LLC, Lehman
Brothers International (Europe), Merrill Lynch International and NationsBanc
Montgomery Securities LLC are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"), providing for the concurrent offer and sale of 9,500,000 of
the shares of Common Stock outside the United States and Canada.
The closing with respect to the sale of the shares of Common Stock pursuant
to the U.S. Underwriting Agreement is a condition to the closing with respect to
the sale of the shares of Common Stock pursuant to the International
Underwriting Agreement, and the closing with respect to the sale of the shares
of Common Stock pursuant to the International Underwriting Agreement is a
condition to the closing with respect to the sale of the shares of Common Stock
pursuant to the U.S. Underwriting Agreement. The initial public offering price
and underwriting discounts per share of Common Stock for the U.S. Offering and
the International Offering will be identical.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of the 38,000,000 shares of Common Stock by the U.S. Underwriters,
(i) it is not purchasing any shares of Common Stock for the account of anyone
other than a United States or Canadian Person; (ii) it has not offered or sold,
and will not offer or sell, directly or indirectly, any shares of Common Stock
or distribute any prospectus relating to the
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U.S. Offering to any person outside of the United States or Canada, or to anyone
other than a United States or Canadian Person; and (iii) any dealer to whom it
may sell any shares of Common Stock will represent that it is not purchasing for
the account of anyone other than a United States or Canadian Person and agree
that it will not offer or resell, directly or indirectly, any shares of Common
Stock outside of the United States or Canada, or to anyone other than a United
States or Canadian Person or to any other dealer who does not so represent and
agree.
Each International Underwriter has severally agreed that, as part of the
distribution of the 9,500,000 shares of Common Stock by the International
Underwriters, (i) it is not purchasing any shares of Common Stock for the
account of any United States or Canadian Person; (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock or distribute any prospectus to any person in the United States or Canada,
or to any United States or Canadian Person; and (iii) any dealer to whom it may
sell any shares of Common Stock will represent that it is not purchasing for the
account of any United States or Canadian Person and agree that it will not offer
or resell, directly or indirectly, any shares of Common Stock in the United
States or Canada, or to any United States or Canadian Person or to any other
dealer who does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and Managers dated , 1998. "United States or Canadian Persons"
means any person who is a national or resident of the United States or Canada,
any corporation, partnership or other entity created or organized in or under
the laws of the United States or Canada or of any political subdivision thereof,
and any estate or trust the income of which is subject to United States or
Canadian federal income taxation, regardless of its source (other than a foreign
branch of such entity) and includes any United States or Canadian branch of a
person other than a United States or Canadian Person.
Each U.S. Underwriter that will offer or sell shares of Common Stock in
Canada as part of the distribution has severally agreed that such offers and
sales will be made only pursuant to an exemption from the prospectus
requirements in each jurisdiction in Canada in which such offers and sales are
made.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the International Underwriters of such
number of shares of Common Stock as may be mutually agreed. The price of any
shares of Common Stock so sold shall be the initial public offering price
thereof set forth on the cover page of this Prospectus, less an amount not
greater than the concession to securities dealers set forth above. To the extent
that there are sales between the International Underwriters and the U.S.
Underwriters pursuant to the Agreement Between U.S. Underwriters and Managers,
the number of shares of Common Stock initially available for sale by the U.S.
Underwriters or by the International Underwriters may be more or less than the
amount specified on the cover page of this Prospectus.
Each International Underwriter has severally represented and agreed that,
(i) it has not offered or sold and, prior to the expiration of six months from
the closing of the International Offering, will not offer or sell any shares of
Common Stock in the United Kingdom other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (whether as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted in and will not result in
an offer to the public within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue of the shares of Common Stock to a person who is of a kind described in
Article II(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
The Company has granted to the U.S. Underwriters and the International
Underwriters options to purchase up to an additional 5,700,000 and 1,425,000
shares of Common Stock, respectively, in each case at the applicable price to
the public less the applicable underwriting discount set forth on the cover page
of this Prospectus, solely to cover over-allotments, if any. Such options may be
exercised at any time up to 30 days
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<PAGE> 94
after the date of this Prospectus. To the extent such options are exercised,
each of the U.S. Underwriters and the International Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the percentage it was
obligated to purchase pursuant to the U.S. Underwriting Agreement or the
International Underwriting Agreement, as applicable.
The Company has agreed with the Underwriters not to offer, pledge, sell,
contract to sell, or otherwise dispose of (or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company), directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities or options convertible into, or exchangeable or exercisable for,
shares of Common Stock for a period of 180 days following the date hereof
without the prior written consent of Smith Barney Inc. subject to certain
limited exceptions. In addition, each of the Company's officers, directors and
stockholders has agreed with the Underwriters not to offer, sell, contract to
sell, pledge or otherwise dispose of, or file a registration statement with the
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of Common
Stock, or publicly announce an intention to effect any such transaction, for a
period of 180 days after the date hereof unless with the prior written consent
of Smith Barney Inc., subject to certain limited exceptions. Smith Barney Inc.
currently does not intend to release any securities subject to such lock-up
agreements, but may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to such lock-up agreements.
The U.S. Underwriting Agreement and the International Underwriting
Agreement provide that the Company and HEA will indemnify the several U.S.
Underwriters and International Underwriters against certain liabilities under
the Securities Act, or contribute to payments the U.S. Underwriters and the
International Underwriters may be required to make in respect thereof.
In connection with the Offerings, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offerings than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offerings to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 7,125,000 shares of Common Stock, by
exercising the Underwriters' over-allotment options referred to above. In
addition, the Representatives, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offerings), for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offerings but subsequently purchased for
the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The Underwriters do not intend to confirm sales in the Offerings to any
accounts over which they exercise discretionary authority.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") currently is
acting as financial advisor to HEI and its subsidiaries and affiliates in
connection with their strategic assessment of their assets, financial
liabilities and overall capital structure, and in connection therewith receives
certain fees from HEI. Merrill will receive no separate or additional fee from
HEI in connection with the Offerings.
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<PAGE> 95
Affiliates of Lehman Brothers Inc. acted as arranger and syndication agent
for a subsidiary of HEA with respect to a one year $300 million credit facility
that matures in February 1999 and is guaranteed by HEA, and an affiliate of
Lehman Brothers Inc. is currently a lender under such facility. In connection
therewith, such affiliates of Lehman Brothers Inc. receive certain fees and
interest from such subsidiary of HEA.
Immediately prior to the Offerings, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the shares of
Common Stock will be determined by negotiation among the Company and the
Representatives. Among the factors considered in determining the initial public
offering price will be the Company's record of operations, its current financial
condition, its future prospects, the market for its services, the experience of
management, the economic conditions of the Company's industry in general, the
general condition of the equity securities market and the demand for similar
securities of companies considered comparable to the Company and other relevant
factors. There can be no assurance, however, that the prices at which the Common
Stock will sell in the public market after the Offerings will not be lower than
the price at which the shares of Common Stock are sold by the Underwriters.
See "Risk Factors -- Expected Volatility of Stock Price; Absence of Current
Trading Market for the Common Stock."
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Gray Cary Ware &
Freidenrich LLP, Palo Alto, California and for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated balance sheets of Maxtor Corporation as of December 28,
1996 and December 27, 1997 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the nine months
ended December 28, 1996 and for the year ended December 27, 1997 included in
this Prospectus and registration statement, have been included herein in
reliance on the report, which include an emphasis of a matter related to the
Company's ultimate parent, Hyundai Electronics Industries Co., Ltd., of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing. The consolidated statements of
operations, stockholders' equity (deficit) and cash flows of the Company for the
year ended March 30, 1996 included in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report, given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement, including the exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such reports
and other information filed with the Commission, may be inspected without charge
at the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of all or any part thereof may be obtained from the Public
94
<PAGE> 96
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at 7 World Trade Center,
New York, New York 10048 upon payment of certain fees prescribed by the
Commission. The Commission also maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. The reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W. Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports and
other information concerning the Company can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N.W. Washington, D.C. 20006.
95
<PAGE> 97
GLOSSARY
Application Specific Integrated Circuit (ASIC) -- a custom designed
integrated circuit that performs a specific application rather than
general-purpose chips such as conventional logic chips with discrete gates. The
use of an ASIC in place of a conventional logic chip reduces product size and
cost.
Actuator -- the mechanism that moves the head assembly across a disk to the
proper track. This mechanical assembly positions the read/write heads over the
circumferential line which describes the target cylinder.
Areal density -- the maximum number of bits per linear inch of storage
surface times the number of tracks per radial inch yields the areal density of
bits per square inch.
Build-to-Order (BTO) -- supply chain management methodology where personal
computers are built to the unique requirements of a specific end-user customer
order.
Controller -- a portion of the IC circuit that manages the flow of data to
and from the disk media including the error correction coding, media defect
management, actuator positioning and system host interface interaction.
Digital Signal Processor (DSP) -- a compact integrated circuit that
provides an ultra-fast simplified instruction set processor commonly used in
actuator control applications.
Firmware -- the permanent instructions and data programmed directly into
the circuitry of read only memory, written either in high-level language or in
assembly or machine language, which, when combined with the mechanical
mechanisms and ASICs within the drive, controls the functions of the hard drive.
Gigabyte (GB) -- one billion bytes.
Hard Disk Drive (HDD) -- An electro-mechanical device composed of an HSA,
PCBA and magnetic disks that records data onto spinning rigid media in discrete
data blocks each of which can be randomly accessed. The primary mass storage
device of a computer.
Head Disk Assembly (HDA) -- the mechanical components of a disk drive
(minus the electronics), which includes the actuators, read/write heads and
platters.
Head Stack Assembly (HSA) -- the sub-assembly that contains the read/write
heads and actuator assembly.
Interface -- the all-inclusive definition of the connection and interaction
between the hard drive and the host system.
Just-in-Time (JIT) -- inventory management system where components are
stored near a manufacturing facility so they can be released as they are needed
to support the flow of material on the assembly line.
Magnetic Disk -- are disks made of a smooth substrate to which a thin
coating of magnetic materials is applied. Each disk has a slider suspended
directly above it, holding the head, which can read from or write data to the
spinning disk.
Magneto-resistive (MR) -- a technology used for the read element of a
read/write head used with a high-density magnetic disk. HDDs use a
magneto-resistive read head for reading and an inductive element for writing. As
storage capacity increases and the bit gets smaller, the magnetic field of the
bit becomes weaker. The magneto-resistive head is more sensitive to magnetic
fields than inductive read heads.
Media -- materials that hold data in any form or that allow data to pass
through them, including paper, transparencies, multipart forms, hard, floppy and
optical disks, magnetic tape, wire, cable and fiber.
Megabyte (MB) -- one million bytes.
Printed Circuit Board (PCB) -- a flat board that holds chips and other
electronic components. The board is made of reinforced fiberglass or plastic and
interconnects components via copper pathways. The main
96
<PAGE> 98
printed circuit board in a system is called a system board or motherboard, while
smaller PCBs that plug into the slots in the motherboard are called boards or
cards.
Read Channel -- a circuit in a disk drive that translates the signal read
from or recorded to the read/write head into a single serial stream of data.
Read/Write Head -- a device that reads (senses) and writes (records) data
on a magnetic disk or tape. For writing, the surface of the disk or tape is
moved past the read/write head. By discharging electrical impulses at the
appropriate times, bits are recorded as tiny, magnetized spots of positive or
negative polarity. For reading, the surface is moved past the read/write head,
and the bits that are present induce an electrical current within the head.
Sector -- the smallest unit of storage read or written on a disk.
Sliders -- aerodynamically designed objects that keep the read/write head
at a proper distance from the disk platter. The read/write head is embedded
within the slider.
Spindle -- a rotating shaft in a disk drive.
Thin-film -- a microscopically thin layer of semiconductor or magnetic
material that is deposited onto a metal or ceramic disk.
Thin-film Head -- a read/write head for high-density disks that is made
from thin layers of a conducting film deposited onto a nickel-iron core.
97
<PAGE> 99
MAXTOR CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF MAXTOR CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets December 28, 1996, December 27,
1997 and March 28, 1998 (unaudited)....................... F-2
Consolidated Statements of Operations Fiscal year ended
March 30, 1996, nine months ended December 28, 1996,
fiscal year ended December 28, 1997, and for each of the
three month periods ended March 29, 1997 and March 28,
1998 (unaudited).......................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal year ended March 30, 1996, nine months ended
December 28, 1996, fiscal year ended December 28, 1997 and
for the three month period ended March 28, 1998
(unaudited)............................................... F-4
Consolidated Statements of Cash Flows Fiscal year ended
March 30, 1996, nine months ended December 28, 1996,
fiscal year ended December 28, 1997 and for each of the
three month periods ended March 29, 1997 and March 28,
1998 (unaudited).......................................... F-5
Notes to Consolidated Financial Statements.................. F-6
Report of Coopers & Lybrand L.L.P., Independent
Accountants............................................... F-23
Report of Ernst & Young LLP, Independent Auditors........... F-24
</TABLE>
F-1
<PAGE> 100
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 31,313 $ 16,925 $ 13,305
Accounts receivable, net of allowance for doubtful
accounts of $5,255 at December 28, 1996, $3,573 at
December 27, 1997 and $3,238 at March 28, 1998......... 82,876 241,777 312,978
Accounts receivable from affiliates....................... 6,248 5,870 5,417
Inventories............................................... 80,878 155,312 163,974
Prepaid expenses and other................................ 5,239 20,814 34,466
--------- --------- ---------
Total current assets.............................. 206,554 440,698 530,140
Net property, plant and equipment........................... 92,073 99,336 96,547
Other assets................................................ 15,912 15,438 7,881
--------- --------- ---------
$ 314,539 $ 555,472 $ 634,568
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings, including current portion of
long-term debt......................................... $ 149,800 $ 100,057 $ 76,159
Short-term borrowings due to affiliates................... -- 65,000 55,000
Accounts payable.......................................... 109,956 206,563 291,393
Accounts payable to affiliates............................ 13,459 25,022 39,110
Accrued and other liabilities............................. 139,678 155,563 173,502
--------- --------- ---------
Total current liabilities......................... 412,893 552,205 635,164
Long-term debt and capital lease obligations due after one
year...................................................... 229,109 224,313 219,320
Commitments and contingencies (Note 8)
--------- --------- ---------
Total liabilities........................................... 642,002 776,518 854,484
Stockholders' deficit:
Series A Preferred Stock, $0.01 par value, 95,000,000
shares authorized; 58,208,955 shares issued and
outstanding at December 28, 1996; 88,059,701 issued and
outstanding at December 27, 1997 and March 28, 1998;
aggregate liquidation value $390,000 at December 28,
1996, $590,000 at December 27, 1997, and March 28,
1998................................................... 582 880 880
Common Stock, $0.01 par value, 250,000,000 shares
authorized; no shares issued and outstanding at
December 28, 1996; 7,563 shares issued and outstanding
at December 27, 1997 and March 28, 1998................ -- -- --
Additional paid-in capital.................................. 335,017 534,765 537,090
Cumulative other comprehensive income -- unrealized gain on
investments in equity securities.......................... -- 16,262 25,386
Accumulated deficit......................................... (663,062) (772,953) (783,272)
--------- --------- ---------
Total stockholders' deficit....................... (327,463) (221,046) (219,916)
--------- --------- ---------
$ 314,539 $ 555,472 $ 634,568
========= ========= =========
</TABLE>
See accompanying notes.
F-2
<PAGE> 101
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED ENDED
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1996 1996 1997 1997 1998
---------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................... $1,264,627 $ 771,655 $ 1,384,799 $238,042 $ 545,231
Revenue from affiliates........... 4,371 27,229 39,521 8,966 4,386
---------- --------- ----------- -------- ----------
Total revenue................ 1,268,998 798,884 1,424,320 247,008 549,617
Cost of revenue................... 1,192,403 861,551 1,316,774 245,862 483,798
Cost of revenue from affiliates... 3,902 27,307 36,162 8,254 3,564
---------- --------- ----------- -------- ----------
Total cost of revenue........ 1,196,305 888,858 1,352,936 254,116 487,362
Gross profit (loss)............... 72,693 (89,974) 71,384 (7,108) 62,255
---------- --------- ----------- -------- ----------
Operating expenses:
Research and development........ 94,717 87,752 106,249 26,394 33,372
Selling, general and
administrative............... 82,775 60,701 62,520 15,061 15,923
Stock compensation expense...... -- -- -- -- 14,696
Other........................... 4,460 -- -- -- --
---------- --------- ----------- -------- ----------
Total operating expenses..... 181,952 148,453 168,769 41,455 63,991
---------- --------- ----------- -------- ----------
Loss from operations.............. (109,259) (238,427) (97,385) (48,563) (1,736)
Interest expense.................. (11,849) (18,075) (36,502) (7,927) (8,768)
Interest and other income......... 1,169 1,000 25,031 1,781 274
---------- --------- ----------- -------- ----------
Loss before income taxes.......... (119,939) (255,502) (108,856) (54,709) (10,230)
Provision for income taxes........ 2,826 824 1,035 277 89
---------- --------- ----------- -------- ----------
Net loss.......................... (122,765) (256,326) (109,891) (54,986) (10,319)
---------- --------- ----------- -------- ----------
Other comprehensive income:
Unrealized gain on investments in
equity securities............... -- -- 16,262 -- 9,124
---------- --------- ----------- -------- ----------
Comprehensive loss................ $ (122,765) $(256,326) $ (93,629) $(54,986) $ (1,195)
========== ========= =========== ======== ==========
Net loss per share -- basic and
diluted (Note 1)................ $ (5.94) $ -- $(58,112.64) $ -- $(1,364.41)
Shares used in per share
calculation -- basic and
diluted......................... 20,677,000 -- 1,891 -- 7,563
</TABLE>
See accompanying notes.
F-3
<PAGE> 102
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
PREFERRED STOCK COMMON STOCK ADDITIONAL INVESTMENTS IN TOTAL
------------------- -------------------- PAID-IN EQUITY ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES DEFICIT (DEFICIT)
---------- ------ ----------- ------ ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 25, 1995...... -- -- 25,848,642 $258 $327,616 -- $(283,971) $ 43,903
Issuance of common stock
under stock option plans... -- -- 567,403 6 4,739 -- -- 4,745
Issuance of common stock
under stock purchase
plan....................... -- -- 400,213 4 2,976 -- -- 2,980
Shares canceled resulting
from acquisition by HEA.... -- -- (26,815,958) (268) 268 -- -- --
Net loss..................... -- -- -- -- -- -- (122,765) (122,765)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, March 30, 1996...... -- -- 300 -- 335,599 -- (406,736) (71,137)
Exchange of common shares for
Series A Preferred......... 58,208,955 $582 (300) -- (582) -- -- --
Net loss..................... -- -- -- -- -- -- (256,326) (256,326)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, December 28, 1996... 58,208,955 582 -- -- 335,017 -- (663,062) (327,463)
Issuance of additional Series
A Preferred to parent in
exchange for debt.......... 29,850,746 298 -- -- 199,702 -- -- 200,000
Issuance of stock under stock
option plan and related
benefits................... -- -- 7,563 -- 46 -- -- 46
Change in unrealized gain on
equity securities.......... $16,262 16,262
Net loss..................... -- -- -- -- -- (109,891) (109,891)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, December 27, 1997... 88,059,701 880 7,563 -- 534,765 16,262 (772,953) (221,046)
Stock compensation
reimbursement due from an
affiliate (unaudited)...... -- -- -- -- 2,325 -- -- 2,325
Change in unrealized gain on
equity investments
(unaudited)................ -- -- -- -- -- 9,124 -- 9,124
Net loss (unaudited)......... -- -- -- -- -- -- (10,319) (10,319)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, March 28, 1998
(unaudited)................ 88,059,701 $880 7,563 $ -- $537,090 $25,386 $(783,272) $(219,916)
========== ==== =========== ==== ======== ======= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 103
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE THREE THREE
YEAR MONTHS YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1996 1996 1997 1997 1998
--------- ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(122,765) $(256,326) $(109,891) $(54,986) $(10,319)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 45,200 47,064 65,642 11,736 15,756
Stock compensation expense................................ -- -- -- -- 14,696
Reserves for lower of cost or market...................... -- 15,194 -- -- --
Change in deferred taxes.................................. 300 -- -- -- --
Loss (gain) on disposal of property, plant and
equipment............................................... 669 700 4,366 (492) 1,312
Gain on sale of subsidiary................................ -- (2,385) -- -- --
Gain on fully reserved note receivable from affiliate..... -- -- (20,000) -- --
Other..................................................... -- (589) (157) (215) --
Changes in assets and liabilities:
Accounts receivable..................................... (12,485) 62,786 (142,860) (43,873) (64,909)
Accounts receivable from affiliates..................... (2,229) (1,822) 378 2,687 2,778
Inventories............................................. (66,255) 45,955 (74,434) (6,926) (8,662)
Prepaid expenses and other assets....................... (2,947) 3,839 687 950 (4,528)
Accounts payable........................................ 18,407 (37,297) 102,108 7,525 75,911
Accounts payable to affiliates.......................... 8,656 4,803 11,563 2,968 14,088
Accrued and other liabilities........................... 637 13,015 15,885 (1,968) (2,482)
--------- --------- --------- -------- --------
Total adjustments........................................... (10,047) 151,263 (36,822) (27,608) 43,960
--------- --------- --------- -------- --------
Net cash provided by (used in) operating activities......... (132,812) (105,063) (146,713) (82,594) 33,641
--------- --------- --------- -------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiary.......................... -- 25,000 -- -- --
Cash received on a note receivable from affiliate......... -- -- 20,000 -- --
Proceeds from maturities of available-for-sale
investments............................................. 11,998 -- -- -- --
Purchase of property, plant and equipment................. (72,655) (53,780) (82,489) (8,789) (8,332)
Proceeds from disposals of property, plant and
equipment............................................... 353 363 609 -- 2,972
Other assets.............................................. (928) (7,599) 621 (2,729) 7,038
--------- --------- --------- -------- --------
Net cash provided by (used) in investing activities....... (61,232) (36,016) (61,259) (11,518) 1,678
--------- --------- --------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of debt, including short-term
borrowings.............................................. 145,595 410,715 319,363 120,000 29,904
Principal payments on debt, including short-term debt..... (3,000) (307,444) (309,784) (34) (68,795)
Proceeds from issuance of common stock, net of issuance of
notes receivable and stock repurchase................... 7,725 -- 46 -- --
Proceeds from intercompany notes issued to parent......... -- -- 200,000 -- --
Net payments under accounts receivable securitization..... -- 16,327 (16,041) (37,804) (48)
--------- --------- --------- -------- --------
Net cash provided by (used in) financing activities....... 150,320 119,598 193,584 82,162 (38,939)
--------- --------- --------- -------- --------
Net decrease in cash and cash equivalents................. (43,724) (21,481) (14,388) (11,950) (3,620)
Cash and cash equivalents at beginning of period.......... 96,518 52,794 31,313 31,313 16,925
--------- --------- --------- -------- --------
Cash and cash equivalents at end of period................ $ 52,794 $ 31,313 $ 16,925 $ 19,363 $ 13,305
========= ========= ========= ======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest.................................................. $ 9,362 $ 13,444 $ 26,540 $ 5,512 $ 6,272
Income taxes.............................................. 1,801 2,009 1,025 153 298
Income tax refunds........................................ (3,173) -- -- -- --
Supplemental information on noncash investing and financing
activities:
Purchase of property, plant and equipment financed by
accounts payable.......................................... 4,949 8,171 2,670 17,275 8,919
Purchase of property, plant and equipment financed by
capital leases............................................ -- -- 881 142 13
Exchange of Common Stock for Series A Preferred Stock....... -- 582 -- -- --
Exchange of notes payable for Series A Preferred Stock...... -- -- 200,000 -- --
Unrealized gain on equity securities........................ -- -- 16,262 -- 9,124
Stock compensation reimbursement due from an affiliate...... -- -- -- -- 2,325
</TABLE>
See accompanying notes.
F-5
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Maxtor
Corporation and its wholly-owned subsidiaries ("Maxtor" or the "Company"). All
significant intercompany accounts and transactions have been eliminated. Maxtor
Corporation operates as a majority-owned subsidiary of Hyundai Electronics
America ("HEA").
FISCAL YEAR
During 1996, the Company changed its fiscal year end to be consistent with
the fiscal year end of HEA. The fiscal year end changed from the last Saturday
of March, the date used in the Company's preceding filing of its Form 10-K with
the Securities and Exchange Commission, to the last Saturday of December
conforming to a 52/53-week year methodology. The fiscal year ended March 30,
1996 comprised 53 weeks. The fiscal year ended December 28, 1996 comprised 39
weeks. The current year ended December 27, 1997 comprised 52 weeks. The three
month periods ended March 29, 1997 and March 28, 1998 both comprised 13 weeks.
NATURE OF BUSINESS
The Company develops, manufactures and markets hard disk drive products to
customers who sell their products in the personal computer industry. Products
are designed for desktop applications to meet both value and high-performance
needs of customers. Customers include original equipment manufacturers ("OEMs"),
distributors, and retailers. The Company relies on suppliers for components
including heads, disks and custom integrated circuits. Although printed circuit
board assemblies and head stack assemblies are outsourced, head disk assemblies
are completed by the Company. All the Company's products are manufactured by
Maxtor at its manufacturing facility in Singapore and sold worldwide.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying interim consolidated balance sheet of March 28, 1998 and
the consolidated statements of operations and cash flows for the three month
periods ended March 29, 1997 and March 28, 1998 and the statement of
stockholders' equity (deficit) for the three months ended March 28, 1998,
together with the related notes are unaudited but include all adjustments,
consisting of only normal recurring adjustments, which the Company considers
necessary for a fair presentation of the consolidated financial position at
March 28, 1998, and the consolidated results of its operations and cash flows
for the periods ended March 29, 1997 and March 28, 1998. Results for the three
months ended March 28, 1998 are not necessarily indicative of results that may
be expected for the full year.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The actual results with regard to warranty expenditures could have a
material unfavorable impact on the Company if the actual rate of unit failure or
the cost to repair a unit is greater than what the Company has used in
estimating its warranty expense accrual.
Given the volatility of the market for disk drives and for the Company's
products, the Company makes adjustments to the value of inventories based on
estimates of potentially excess and obsolete inventories and negative margin
products after considering forecasted demand and forecasted average selling
prices. However, forecasts are always subject to revisions, cancellations, and
rescheduling. Actual demand will inevitably differ from such anticipated demand
and such differences may have a material impact on the financial statements.
F-6
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RISKS AND UNCERTAINTIES
The Company's business entails a number of risks. As is typical in the disk
drive industry, the Company must utilize leading edge components for its new
generation of products which may only be available from a limited number of
suppliers. While the Company has qualified and continues to qualify multiple
sources for many components, it is reliant on, and will continue to be reliant
on, the availability of supply from its vendors for many semi-custom and custom
integrated circuits, heads, media and other key components. Any de-commitments
from customers for product or delays of components from vendors could have an
adverse impact on the Company's ability to ship products as scheduled to its
customers.
The Company's ultimate parent is Hyundai Electronics Industries Co. Ltd.
("HEI"), a Korean corporation. The Korean economy has recently suffered a period
of economic turmoil, which has resulted in the devaluation of the Korean
currency and large volatility in interest rates. A significant portion of the
Company's debt was guaranteed by HEI, and the Company has relied upon the HEI
guarantees. As of June 1, 1998, the Company substituted Hyundai Heavy Industries
Co., Ltd. ("HHI") as the guarantor of substantially all of the debt previously
guaranteed by HEI (Note 14). The Company's parent, HEA, also has a written
letter of support from HEI to support operations for it and all of its
subsidiaries through May 31, 2000.
As further described in Note 7, it is reasonably possible that further
deteriorations in the Korean economy and the value of the Korean currency could
have an adverse effect on the ability of the ultimate parent or HHI to continue
to guarantee the debt of the Company. While the Company believes that other
sources of credit would be available, there is no assurance that such other
credit would be available, either in the amount or at the rates currently
available to the Company.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, which are purchased
with an original maturity of three months or less, to be cash equivalents.
EQUITY SECURITIES
All equity securities are classified as available-for-sale.
Available-for-sale securities are carried at market value. Unrealized gains and
losses on securities classified as available-for-sale, when material, are
reported as a separate component of stockholders' deficit. Realized gains and
losses on sales of all such investments are included in the results of
operations computed using the specific identification cost method.
INVENTORIES
Inventories are stated at the lower of cost (computed on a first-in,
first-out basis) or market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated on the
straight-line basis over the estimated useful lives of the assets, which
generally range from three to five years, except for buildings which are
depreciated over thirty years. Assets under capital leases and leasehold
improvements are amortized over the shorter of the asset life or the remaining
lease term. Capital lease amortization is included with depreciation expense.
Upon disposal, the Company removes the asset and accumulated depreciation from
its records and recognizes the related gain or loss in results of operations.
REVENUE RECOGNITION AND PRODUCT WARRANTY
Revenue is recognized upon product shipment. Revenue from sales to certain
distributors and retailers is subject to agreements providing limited rights of
return, as well as price protection on unsold merchandise. Accordingly, the
Company records reserves upon shipment for estimated returns, exchanges and
credits for
F-7
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
price protection. The Company also provides for the estimated cost to repair or
replace products under warranty at the time of sale. The Company currently
warrants its products against defects in parts and labor from the date of
shipment with an additional three months allowed for distributors to account for
"shelf life." All products currently in production are warranted for a period of
three years after shipment.
ADVERTISING EXPENSE
Cooperative advertising costs are charged as the related revenue is earned
and other advertising costs are expensed as incurred. Advertising costs were not
significant for the fiscal year ended March 30, 1996, the nine months ended
December 28, 1996, the fiscal year ended December 27, 1997 or the three months
ended March 29, 1997 and March 28, 1998, respectively.
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The Company is required to adjust
its deferred tax liabilities in the period when tax rates or the provisions of
the income tax laws change. Valuation allowances are established to reduce
deferred tax assets to the amounts expected to be realized.
FOREIGN CURRENCY TRANSLATION
The functional currency for all foreign operations is the U.S. dollar. As
such, all material foreign exchange gains or losses are included in the
determination of net loss. Net foreign exchange losses included net income
(loss) for the fiscal year ended March 30, 1996, the nine months ended December
28, 1996, the fiscal year ended December 27, 1997 and the three months ended
March 29, 1997 and March 28, 1998 (unaudited) were immaterial.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable and cash
equivalents. The Company has cash equivalent and short-term investment policies
that limit the amount of credit exposure to any one financial institution and
restrict placement of these funds to financial institutions evaluated as highly
credit-worthy. The Company's products are sold worldwide to OEMs, distributors,
and retailers. Concentration of credit risk with respect to the Company's trade
receivables is limited by the Company's ongoing credit evaluation process and
the geographical dispersion of sales transactions. Therefore, the Company
generally requires no collateral from its customers. The allowance for doubtful
accounts is based upon the expected collectibility of all accounts receivable.
One customer accounted for more than 10% of outstanding trade receivables at
March 30, 1996. As of December 27, 1997, the Company had one customer who
accounted for more than 10% of the outstanding trade receivables. As of March
28, 1998 (unaudited) two customers represented more than 20% of outstanding
trade receivables. If the customers fail to perform their obligations to the
Company, such failures would have adverse effects upon the Company's financial
position, results of operations, cash flows, and liquidity.
LONG-LIVED ASSETS
The Company reviews property, plant and equipment and other long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability is
measured by comparison of its carrying amount to future net cash flows the
assets are expected to generate. If such assets are considered to be impaired,
the impairment to be recognized
F-8
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is measured as the amount by which the carrying amount of the asset exceeds the
present value of the future net cash flows.
STOCK-BASED COMPENSATION
The Company has elected to continue to follow the provisions of APB No. 25,
"Accounting for Stock Issued to Employees," for financial reporting purposes and
has adopted the disclosure only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123. "Accounting for Stock-Based Compensation."
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES
The Company accounts for its accounts receivable securitization program in
accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities."
NET LOSS PER SHARE
Net loss per share has been computed in accordance with SFAS 128. Basic net
loss per share is computed using the weighted average common shares outstanding
during the period. Diluted net loss per share is computed using the weighted
average common shares and potentially dilutive securities outstanding during the
period. Potentially dilutive securities are excluded from the computation of net
diluted loss per share for all periods presented since their effect would be
anti-dilutive due to the Company's net losses. Net loss per share information
presented for the year ended December 27, 1997 and three months ended March 28,
1998 (unaudited) is not meaningful due to the very limited number of common
shares outstanding during such periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for disclosure about
operating segments in annual financial statements and selected information in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
statement supercedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." The new standard becomes effective for fiscal years
beginning after December 15, 1997, and requires that comparative information
from earlier years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the effects, if any,
on the Company's current reporting and disclosures.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
when costs related to software developed or obtained for internal use should be
capitalized or expensed. The SOP is effective for transactions entered into for
fiscal years beginning after December 15, 1998. The Company has reviewed the
provisions of the SOP and does not believe adoption of this standard will have a
material effect upon its results or operations, financial position or cash
flows.
F-9
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUPPLEMENTAL FINANCIAL STATEMENT DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 27, 1997 MARCH 28, 1998
----------------- ----------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials.............................. $ 33,012 $ 48,834 $ 45,323
Work-in-process............................ 15,674 15,177 15,064
Finished goods............................. 32,192 91,301 103,587
--------- --------- ---------
$ 80,878 $ 155,312 $ 163,974
========= ========= =========
Prepaid expenses and other:
Investments in equity securities, at fair
value................................... $ -- $ 16,262 $ 25,386
Prepaid expenses and other................. 5,239 4,552 9,080
--------- --------- ---------
$ 5,239 $ 20,814 $ 34,466
========= ========= =========
Property, plant and equipment, at cost:
Buildings.................................. $ 29,512 $ 32,453 $ 33,945
Machinery and equipment.................... 194,644 220,213 222,790
Furniture and fixtures..................... 13,300 11,374 11,535
Leasehold improvements..................... 12,695 9,012 9,076
--------- --------- ---------
250,151 273,052 277,346
Less accumulated depreciation and
amortization............................... (158,078) (173,716) (180,799)
--------- --------- ---------
Net property, plant and equipment.......... $ 92,073 $ 99,336 $ 96,547
========= ========= =========
Accrued and other liabilities:
Income taxes payable....................... $ 5,088 $ 2,416 $ 2,292
Accrued payroll and payroll-related
expenses................................ 17,159 29,116 23,281
Accrued warranty........................... 20,194 22,716 25,116
Accrued expenses........................... 42,851 21,561 21,555
Advances under securitization.............. 54,386 79,754 86,562
Stock compensation expense................. -- -- 14,696
--------- --------- ---------
$ 139,678 $ 155,563 $ 173,502
========= ========= =========
</TABLE>
3. RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial statements
to conform to current classifications. These reclassifications had no impact on
any prior years or the Company's net assets or results of operations.
4. FINANCIAL INSTRUMENTS
FAIR VALUE DISCLOSURES
The fair values of cash and cash equivalents approximate carrying values
due to the short period of time to maturity. The carrying values of notes
receivable, which are classified in other assets, approximate fair values. The
fair values of the Company's fixed rate debt are estimated based on the current
rates offered to the Company for similar debt instruments having the same
remaining maturities. The fair values of the Company's variable rate debt
approximate carrying values as these instruments are adjusted periodically
during the course of the year at market prices. The fair values of the Company's
convertible subordinated debentures are based on the bid price of the last trade
for the fiscal period ended December 28, 1996 and fiscal year ended December 27,
1997, respectively.
F-10
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying values and fair values of the Company's financial instruments
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 27, 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 31,313 $ 31,313 $ 16,925 $ 16,925
Notes receivable................................ 11,492 11,492 11,492 11,492
Short and long-term debt:
fixed rates................................... 13,800 13,800 13,800 13,800
variable rates................................ 265,000 265,000 210,570 210,570
debt from parent -- fixed rates............... -- -- 65,000 65,000
Convertible subordinated debentures............. 100,000 68,000 100,000 70,000
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company attempts to minimize the impact of foreign currency exchange
rate changes on certain underlying assets, liabilities and anticipated cash
flows for operating expenses denominated in foreign currencies by entering into
short-term foreign exchange (primarily forward purchase and sale) contracts. The
Company's policy is to hedge all material transaction exposures on a quarterly
basis. Contracts are generally entered into at the end of each fiscal quarter to
reduce foreign currency exposures for the following fiscal quarter. Contracts
generally have maturities of three months or less. Any gains or losses on these
instruments are accounted for in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation," and are generally
included in cost of revenue. Unrealized gains or losses on foreign currency
forward contracts that are designated and effective as hedges of firm
commitments, are deferred and recorded in the same period as the underlying
transaction. Notional amounts of outstanding currency forward contracts were
$17.3 million, $0 and $0, as of December 28, 1996, December 27, 1997 and March
28, 1998 (unaudited), respectively.
5. INTERNATIONAL MANUFACTURING SERVICES
In May 1996, the Company entered into an agreement to sell a majority
interest in International Manufacturing Services, Inc. ("IMS"), previously a
wholly-owned subsidiary, to certain members of IMS management and other
investors. At completion of the transaction in June 1996, the Company received
$25.0 million in cash and $20.0 million in notes from IMS, and retained a 24%
ownership interest in IMS. The note receivable, which was fully reserved at the
time of sale, was recovered in the fourth quarter of 1997 resulting in a gain of
$20.0 million. As of December 27, 1997, the Company's ownership interest was
16%. The Company's share of IMS results of operations for the fiscal year ended
December 28, 1996 and the fiscal period ended December 27, 1997 were not
material to the Company's results of operations for either period presented.
The Company outsources most of its PCB assembly to IMS; IMS supplies the
Company with PCBs, sub-assemblies and fully integrated products under a
manufacturing services agreement. The Company made purchases from IMS in the
years ended December 28, 1996 and December 27, 1997 of $191.9 million and $115.3
million, respectively.
6. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design, manufacture
and sale of data storage products for desktop computer systems. It has a
world-wide sales, service and distribution network. The Company markets and
sells its products through a direct sales force to OEMs, distributors and
retailers.
During the year ended March 30, 1996, no customer accounted for more than
10% of the Company's revenue. During the nine months ended December 28, 1996,
one customer, SED International accounted for
F-11
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11% of the Company's revenue. During the year ended December 27, 1997, two
customers, Compaq and Dell, accounted for more than 21% and 10%, respectively,
of the Company's revenue.
The Company's export sales represented 41%, 48% and 40% of total revenue
for the year ended March 30, 1996, the nine months ended December 28, 1996 and
the year ended December 27, 1997, respectively. Approximately 60%, 38% and 57%,
of export sales were to Europe, while 35%, 55%, and 36% of export sales were to
Asia Pacific for the year ended March 30, 1996, the nine months ended December
28, 1996 and year ended December 27, 1997, respectively.
Operations outside the United States primarily consist of the manufacturing
plant in Singapore that produces subassemblies and final assemblies for the
Company's disk drive products. The geographic breakdown of the Company's
activities for each of the three fiscal periods is presented in the following
table:
<TABLE>
<CAPTION>
U.S. ASIA PACIFIC ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year Ended March 30, 1996
Revenue from unaffiliated customers............ $1,196,105 $ 68,522 $ -- $1,264,627
Revenue from affiliated customers.............. 3,417 954 -- 4,371
Transfers between geographic locations......... 14,600 1,585,545 (1,600,145) --
---------- ---------- ----------- ----------
Total Revenue.................................. $1,214,122 $1,655,021 $(1,600,145) $1,268,998
========== ========== =========== ==========
Income (loss) from operations.................. $ (204,376) $ 95,035 $ 82 $ (109,259)
========== ========== =========== ==========
Identifiable assets............................ $ 326,106 $ 397,837 $ (281,456) $ 442,487
========== ========== =========== ==========
Nine Months Ended December 28, 1996
Revenue from unaffiliated customers............ $ 751,597 $ 20,058 $ -- $ 771,655
Revenue from affiliated customers.............. 25,712 1,517 -- 27,229
Transfers between geographic locations......... 14,150 918,488 (932,638) --
---------- ---------- ----------- ----------
Total Revenue.................................. $ 791,459 $ 940,063 $ (932,638) $ 798,884
========== ========== =========== ==========
Income (loss) from operations.................. $ (323,061) $ 79,926 $ 4,708 $ (238,427)
========== ========== =========== ==========
Identifiable assets............................ $ 286,084 $ 369,631 $ (341,176) $ 314,539
========== ========== =========== ==========
Year Ended December 27, 1997
Revenue from unaffiliated customers............ $1,384,703 $ 96 $ -- $1,384,799
Revenue from affiliated customers.............. 39,521 -- -- 39,521
Transfers between geographic locations......... 21,886 1,595,189 (1,617,075) --
---------- ---------- ----------- ----------
Total Revenue.................................. $1,446,110 $1,595,285 $(1,617,075) $1,424,320
========== ========== =========== ==========
Income (loss) from operations.................. $ (284,915) $ 187,496 $ 34 $ (97,385)
========== ========== =========== ==========
Identifiable assets............................ $ 498,778 $ 569,207 $ (512,513) $ 555,472
========== ========== =========== ==========
</TABLE>
Revenue from unaffiliated and affiliated customers is based on the origin
of the sale. Transfers between geographic locations are accounted for at amounts
that are above cost. Such transfers are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly associated
with a particular geographic location through acquisition and/or utilization. In
determining each of the geographic locations' income (loss) from operations and
identifiable assets, the expenses and assets relating to general corporate or
headquarter activities are included in the amounts for the geographic locations
where they were incurred, acquired or utilized.
F-12
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
5.75% Convertible Subordinated Debentures due March 1,
2012...................................................... $100,000 $100,000 $ 95,000
Short-term borrowings; interest payable at variable rates
ranging from 6.24% to 7.88% per annum..................... 136,000 80,967 70,871
Short-term borrowings from parent; interest payable at rate
of 10.29%................................................. -- 65,000 55,000
Short-term borrowing; interest payable at a rate of 6.52%;
collateralized by equipment............................... 13,800 13,800 --
Long-term borrowing, interest payable at variable rates
ranging from 6.18% to 6.24% per annum..................... 129,000 129,000 129,000
Other obligations........................................... 109 603 608
-------- -------- --------
378,909 389,370 350,479
Less amounts due within one year............................ 149,800 165,057 131,159
-------- -------- --------
Due after one year.......................................... $229,109 $224,313 $219,320
======== ======== ========
</TABLE>
Future aggregate maturities as of December 27, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
------------------ --------------
<S> <C>
1998............................................. $165,057
1999............................................. 134,313
2000............................................. 5,000
2001............................................. 5,000
2002............................................. 5,000
Later years...................................... 75,000
--------
Total....................................... $389,370
========
</TABLE>
The 5.75% Convertible Subordinated Debentures ("Debentures") originally
were convertible at any time prior to maturity, unless previously redeemed, into
shares of common stock of the Company at a conversion rate of 12.5 shares per
each $1,000 principal amount of debentures (equivalent to a conversion price of
$80 per common share), subject to adjustment in certain events. Pursuant to the
terms of the Indenture governing the Debentures, dated March 1, 1987, upon the
closing of the acquisition by HEA under the Agreement and Plan of Merger, dated
November 2, 1995, between HEA and the Company, Debenture holders were entitled
to receive in lieu of shares of common stock of the Company the same
consideration per share received by holders of common stock at the closing of
the merger. A First Supplemental Indenture, dated January 11, 1996, provides
that each $1,000 principal amount of Debentures may be convertible to 12.5
shares of common stock of the Company (equivalent to a conversion price of $80
per share), which is immediately converted into a cash payment of $167.50.
Interest on the Debentures is payable on March 1 and September 1 of each year.
The Debentures, at the option of the Company, are redeemable at 100.575% of
principal amount as of March 30, 1996 and thereafter at prices adjusting to the
principal amount on or after March 1, 1997, plus accrued interest. The
Debentures are entitled to a sinking fund of $5.0 million principal amount of
Debentures, payable annually beginning March 1, 1998, which is calculated to
retire at least 70% of the Debentures prior to maturity. The Debentures are
subordinated in right to payment to all senior indebtedness.
On March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. Under this program the
Company could sell its qualified trade accounts receivable up to $100.0 million
on a non-recourse basis. The face amount of the eligible receivables are
discounted based on the Corporate Receivables Corporation commercial paper rate,
5.85% as of December 27, 1997 and 5.60% as of March 28, 1998 (unaudited) plus
commission and is subject to a 10% retention. As of December 27, 1997,
F-13
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$79.8 million of advances related to sales of accounts receivable were included
in accrued and other liabilities. As of March 28, 1998, this amount was $86.6
million (unaudited). The Company's asset securitization program was subject to
certain conditions, among which was a condition that all of HEI's long-term
public senior debt securities achieve a specified rating. This condition was not
met in February 1998, and the Company obtained waivers of this condition through
April 8, 1998.
The Company completed a new asset securitization program dated as of April
8, 1998 (the "New Program") arranged by Citicorp to replace the existing
program. Under the New Program, the Company sells all of its trade accounts
receivable through a special purpose vehicle with a purchase limit of $100.0
million on a non-recourse basis, subject to increase to $150.0 million, upon the
fulfillment of the conditions subsequent described below. On April 8, 1998, the
uncollected purchase price under the existing program, in the amount of
approximately $100.0 million, was transferred to represent the purchased
interest of Citicorp's Corporate Receivables Corporation ("CRC") under the New
Program. Continuance of the New Program is subject to certain conditions,
including a condition that all of the long-term public senior debt securities of
HHI, an affiliated company, achieve a specified rating. In addition, the New
Program remains subject to certain conditions subsequent related to obtaining
appropriate waivers as may be necessary from lenders of the Company's credit
facilities, or effecting a cure of any outstanding defaults under such credit
facilities of the Company and obtaining a performance guarantee from HHI of the
obligations of the Company under the New Program. The Company must satisfy these
conditions subsequent within 30 days of receiving undertaking documents from
Citicorp and presently believes that it will be able to successfully satisfy
these conditions.
On January 31, 1996 the Company signed a one year credit facility in the
amount of $13.8 million to be used for capital equipment requirements at the
Singapore facility, which was fully utilized as of December 27, 1997. This
credit facility was guaranteed by HEI and all outstanding amounts of principal
and accrued interest were paid in January 1998.
On April 10, 1997, the Company obtained a $150.0 million intercompany line
of credit from HEA. This line of credit allows for draw downs up to $150.0
million and interest is payable quarterly. As of December 27, 1997, $65.0
million was outstanding under this facility. In March 1998, this line was
reduced to $100.0 million and as of March 28, 1998, $55.0 million was
outstanding under this facility (unaudited).
On August 29, 1996, the Company established two uncollateralized, revolving
lines of credit totaling $215.0 million (the "Facilities") through Citibank,
N.A. and syndicated among fifteen banks. In September 1996, the Facilities were
increased $10.0 million to a total of $225.0 million. The Facilities are
guaranteed by HEI and a total of $129.0 million of the Facilities is a three
year committed Facility that is used primarily for general operating purposes
and bears interest at a rate based on LIBOR plus 0.53%. As of March 28, 1998,
$129.0 million of borrowings under this line were outstanding. A total of $96.0
million of the Facility is a 364-day committed facility, renewable annually at
the option of the syndicate banks. On August 28, 1997, this Facility was amended
and reduced to $31.0 million. The Facility is primarily for general operating
purposes and bears interest at a rate based on LIBOR plus 0.53%. As of March 28,
1998, $31.0 million of borrowings under this line of credit were outstanding
(unaudited).
The Company had credit facilities amounting to $50.8 million in the
aggregate from three banks as of December 27, 1997. The facilities, which are
guaranteed by HEI, are used primarily for general operating purposes and bear
interest at rates ranging from 6.27% to 7.88%. In January 1998, one $10.0
million facility was retired and all principal, owing has been paid. As of March
28, 1998, $40.0 million of borrowings under this line of credit were outstanding
(unaudited).
HEI was the guarantor of an aggregate $170.0 million outstanding under the
Company's credit facilities as of December 27, 1997 and March 28, 1998
(unaudited). HEI has various obligations as guarantor, including the
satisfaction of certain financial covenants. Due to the economic conditions in
the Republic of Korea and a significant recent devaluation of the Korean won
versus the U.S. dollar, the Company received notice on April 9, 1998 from the
administrative agent for the Facilities that HEI is not in compliance with
certain financial covenants. Due to HEI's inability, as guarantor, to comply
with such financial covenants,
F-14
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
there is currently a technical default under the terms of the guaranty which
constitutes a default under the Company's credit facilities guaranteed by HEI
and due to certain cross-default provisions a default under a credit facility
with $30 million outstanding as of December 27, 1997 and March 28, 1998
(unaudited) not guaranteed by HEI. The Company had requested waivers of the
non-compliance for the year ended December 27, 1997, and had obtained a
commitment from an affiliated company to provide an equivalent long-term
facility in the event the waivers were not successfully obtained. Consequently,
the Company did not reclassify the debt outstanding under the credit facilities
as a current liability. As of June 1, 1998, the Company obtained waivers for
$160.0 million of $170.0 million of the debt which was in default and
substituted HHI as the guarantor.
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its principal facilities and certain
machinery and equipment under operating lease arrangements. The future minimum
annual rental commitments as of December 27, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
------------------ --------------
<S> <C>
1998........................................... $10,602
1999........................................... 8,401
2000........................................... 5,261
2001........................................... 4,610
2002........................................... 1,735
Later years.................................... 8,556
-------
Total........................................ $39,165
=======
</TABLE>
The above commitments extend through fiscal year 2016. Rental expense was
approximately $12.0 million for the year ended March 30, 1996, $8.9 million for
the nine months ended December 28, 1996 and $10.7 million for the year ended
December 27, 1997.
LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia Incorporated
("StorMedia"), which arises out of an agreement among the Company, StorMedia and
HEI which became effective on November 17, 1995 (the "StorMedia Agreement").
Pursuant to the StorMedia Agreement, StorMedia agreed to supply disk media to
the Company. StorMedia's disk media did not meet the Company's specifications
and functional requirements as required by the StorMedia Agreement and the
Company ultimately terminated the StorMedia Agreement. After a class action
securities lawsuit was filed against StorMedia by certain of its shareholders in
September 1996 which alleged, in part, that StorMedia failed to perform under
the StorMedia Agreement, StorMedia sued HEI, Mong Hun Chung (HEI's chairman),
Dr. Chong Sup Park (HEA's President and the individual who signed the StorMedia
Agreement on behalf of the Company) and K.S. Yoo (the individual who signed the
StorMedia Agreement on behalf of HEI) (collectively the " Original Defendants")
in the U.S. District Court for the Northern District of California (the "Federal
Suit"). In the Federal Suit, StorMedia alleged that at the time HEI entered into
the StorMedia Agreement, it knew that it would not and could not purchase the
volume of products which it committed to purchase, and that failure to do so
caused damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the StorMedia Agreement (the "Colorado Suit"). This proceeding was
stayed pending resolution of the Federal Suit. The Federal Suit was permanently
dismissed early in February 1998. On February 24, 1998, StorMedia filed a new
complaint in Santa Clara County Superior Court for the State of California for
F-15
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$206 million, alleging fraud and deceit against the Original Defendants and
negligent misrepresentation against HEI and the Company (the "California Suit").
The Company believes that it has meritorious defenses against the claims
alleged by StorMedia and intends to defend itself vigorously. However, due to
the nature of the litigation and because the pending lawsuits are in the very
early pre-trial stages, the Company cannot determine the possible loss, if any,
that may ultimately be incurred either in the context of a trial or as a result
of a negotiated settlement. The litigation could result in significant diversion
of time by the Company's technical personnel, as well as substantial
expenditures for future legal fees. After consideration of the nature of the
claims and facts relating to the litigation, including the results of
preliminary discovery, the Company's management believes that the resolution of
this matter will not have a material adverse effect on the Company's business,
financial condition or results of operations. However, the results of these
proceedings, including any potential settlement, are uncertain and there can be
no assurance that they will not have a material adverse effect on the Company's
business, financial position and results of operations.
The Company has been notified of certain other claims, including claims of
patent infringement. While the ultimate outcome of these claims and the claims
described above is not determinable, the Company does not believe that
resolution of these matters will have a material impact on the Company's
business, financial condition or results of operations. No amounts related to
any action or actions have been reserved in the accompanying financial
statements.
9. RELATED PARTY TRANSACTIONS
In January 1996, the Company became a wholly-owned subsidiary of HEA.
Subsequently, trading of Maxtor common stock on the NASDAQ National Market was
suspended. Currently, there is no public market for the Company's equity
securities. The Company's 5.75% convertible subordinated Debentures, due March
1, 2012, remain publicly traded.
HEI has guaranteed certain debts of the Company (Note 7) and has committed
to provide the financial support necessary for the Company to continue
operations on an ongoing basis.
Revenue and related cost of revenue from affiliates consists principally of
product sales to HEI.
The cost of revenue includes certain component parts purchased from MMC
Technology, Inc., an affiliated company, amounting to $15.5 million during the
year ended December 31, 1997 and $27.6 million during the three months ended
March 28, 1998(unaudited).
HEA currently is an unconditional guarantor of the Company's Milpitas,
California facilities lease. The aggregate monthly rent under the lease is
currently $558,270 per month.
10. STOCKHOLDERS' DEFICIT
PREFERRED STOCK
The Company has one class of $0.01 par value preferred stock with
95,000,000 shares authorized, designated as Series A Preferred Stock. Each share
of preferred stock is convertible, at the option of the holder, to shares of the
Company's common stock on a two for one basis, subject to adjustment under
certain circumstances pursuant to anti-dilution provisions. The preferred stock
automatically converts to common stock upon the earlier of the time the consent
of at least a majority of the outstanding Series A Preferred Stock subject to
such conversion is obtained, or the closing of the sale of the Corporation's
securities pursuant to a firm commitment, underwritten public offering. The
holders of preferred shares are entitled to one vote for each share of common
stock into which the preferred stock is convertible.
F-16
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Holders of Series A Preferred Stock are entitled to dividends, when and as
declared by the board of directors of the Company (the "Board"), at an annual
rate of $0.40 per share. Dividends are noncumulative, and to date, no dividends
have been declared or paid by the Company.
The Series A Preferred Stock has a liquidation preference of $6.70 per
share, plus any declared but unpaid dividends on such shares.
In June 1996, the Company entered into an exchange agreement with HEA
whereby HEA exchanged 300 shares of Common Stock for 58,208,955 shares of Series
A Preferred Stock. As of December 27, 1997, 88,059,701 shares of Series A
Preferred Stock and 7,563 shares of Common Stock, were issued and outstanding.
As of December 27, 1997 all outstanding shares of Series A Preferred Stock were
held by HEA and all outstanding Common Stock, issued pursuant to the Corporation
1996 Stock Option Plan, were held by three individuals.
At the time of the acquisition by HEA, the Company canceled its employee
stock purchase plan and stockholder rights plan.
On December 12, 1997 the Company entered into an exchange with HEA where
HEA exchanged $200.0 million of debt for 29,850,746 shares of Series A Preferred
Stock.
STOCK OPTIONS
Effective as of the acquisition by HEA, the Company's 1988, 1992, 1995
Stock Option Plans and the 1986 and 1996 Outside Directors Stock Option Plans
were terminated and were subsequently replaced by the 1996 Stock Option Plan
(the "Plan"). The Plan was approved by the Board in May 1996 and provides for a
maximum of 5,136,084 shares to be reserved for grants. Options under the Plan
expire ten years from the date of grant. On February 25, 1998, the Board
approved an additional one million common shares for issuance under the Plan.
The Plan generally provides for non-qualified stock options and incentive
stock options to be granted to eligible employees, consultants, and directors of
the Company (or any parent or subsidiary of the Company) at a price not less
than 85% of the fair market value at the date of grant, as determined by the
Board. The Board or an executive committee appointed by the Board also approves
other terms such as number of shares granted and exercisability thereof. Any
person who is not an employee may be granted only a non-qualified stock option.
Options granted under the Plan generally vest over a four-year period with 25%
vesting of the first anniversary date of the vest date and 6.25% each quarter
thereafter. The vesting schedule for new participants begins February 1, 1996 or
the participant's hire date, whichever is later.
Until there is a "public market" for the Company's Common Stock, the
Company has (i) the right to repurchase any vested shares at the greater of the
exercise price or fair market value upon termination of service by the holder,
and (ii) a 90-day right of first refusal whereby the Company may repurchase all
shares held by the holder on the same terms and at the same price as offered by
a third party (collectively, the "Repurchase Rights"). While the Company is
privately-held, the holder must give the Company written notice prior to any
proposed transfer.
In the event that the Company has not completed an initial public offering
("IPO") within six months of the date it reaches an "IPO Trigger Date", the
Company is required to purchase all the Common Stock acquired by participants
under the Plan, if tendered, at fair market value (the "Pseudo-IPO Purchase").
The IPO Trigger Date is the date, on or before February 1, 2001, on which all of
the following have occurred: (a) the Company has a positive net income for four
consecutive quarters, (b) the fair market value of the Company as determined by
an independent appraisal equals or exceeds $700.0 million, and (c) the Company
receives the written opinion of a nationally recognized investment banking firm
stating that the Company may undertake an underwritten IPO of its common stock.
F-17
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company amended and restated the Plan in February 1998 to remove the
Pseudo-IPO Purchase, the Repurchase Rights and rights of first refusal, which
had given rise to variable accounting, and offered and modified employee option
agreements in the second quarter of 1998 for the majority of employees which had
previously held variable options to achieve fixed-award accounting. To comply
with variable plan accounting, the Company recorded compensation expense related
to the difference between the estimated fair market value of its stock as of
March 28, 1998 (unaudited) and the stated value of the Company's options.
Compensation cost was reflected in accordance with Financial Accounting
Standards Board Interpretation No. 28, "Accounting for Stock Appreciation Rights
and Other Variable Stock Option or Award Plans."
The following table summarizes option activity through March 28, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------
PRICE PER SHARE
SHARES AND
AVAILABLE WEIGHTED AVERAGE AGGREGATE
FOR GRANT SHARES PRICE PER SHARE VALUE
---------- ---------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at March 25, 1995........... 1,590,256 3,076,483 $11.98 $36,833
Options granted..................... (970,274) 970,273 9.50 9,226
Options exercised................... -- (567,403) 8.36 (4,745)
Options canceled.................... 496,431 (496,431) 11.12 (5,519)
Plan shares expired................. (75,943) -- -- --
Options canceled due to
acquisitions...................... (1,040,470) (2,982,922) 12.00 (35,795)
---------- ---------- ------ -------
Balance at March 30, 1996........... -- -- -- --
Shares reserved..................... 5,136,084 -- -- --
Options granted..................... (4,661,099) 4,661,099 6.00 27,966
Option canceled..................... 1,108,349 (1,108,349) 6.00 (6,650)
---------- ---------- ------ -------
Balance at December 28, 1996........ 1,583,334 3,552,750 6.00 21,316
Options granted..................... (1,622,375) 1,622,375 6.00 9,735
Options exercised................... -- (7,563) 6.00 (46)
Option canceled..................... 759,645 (759,645) 6.00 (4,558)
---------- ---------- ------ -------
Balance at December 27, 1997........ 720,604 4,407,917 6.00 26,447
Shares reserved (unaudited)......... 1,000,000 -- -- --
Options granted (unaudited)......... (302,340) 302,340 6.00 1,814
Options cancelled (unaudited)....... 63,439 (63,439) 6.00 (381)
---------- ---------- ------ -------
Balance at March 28, 1998
(unaudited)....................... 1,481,703 4,646,818 $ 6.00 $27,880
========== ========== ====== =======
</TABLE>
There were no shares vested as of March 30, 1996 and December 28, 1996 and
1,229,081 shares vested as of December 27, 1997 at a weighted average exercise
price of $6.00. There were 7,563 shares outstanding subject to repurchase as of
December 27, 1997 and no shares outstanding subject to repurchase as of March
30, 1996 and December 28, 1996. As of March 28, 1998, 1,669,871 shares were
vested and there were 7,563 shares outstanding subject to repurchase
(unaudited).
Under SFAS No. 123, the Company is required to calculate the pro forma fair
market value of options granted and report the impact that would result from
recording the compensation expense. Pro forma net loss for the nine months ended
December 28, 1996 and the year ended December 27, 1997 is set forth in the table
below. Comparable information for the year ended March 30, 1996 is not presented
due to the termination of all formerly existing options pursuant to the January
1996 acquisition by HEA.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 28, 1996
------------------------
AS REPORTED PRO FORMA
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net Loss....................................... $256,326 $257,488
</TABLE>
F-18
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 27, 1997
------------------------
AS REPORTED PRO FORMA
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net Loss....................................... $109,891 $111,613
</TABLE>
The pro forma net loss disclosures made above are not necessarily
representative of the effects on pro forma net income (loss) for future years as
options granted typically vest over several years and additional option grants
are expected to be made in future years.
Pro forma compensation expense resulting from stock options is to be based
upon fair value at the date of grant. To calculate this fair value, the Company
has elected to apply the Black-Scholes pricing model which is one of the
currently accepted models recognized by SFAS 123.
To compute the estimated grant date fair market value of the Company's
stock option grants for 1996 and 1997, the following weighted-average
assumptions were used:
<TABLE>
<CAPTION>
GROUP A GROUP A GROUP B GROUP B
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Risk-free interest rate................................ 6.14% 5.69% 6.21% 6.02%
Weighted average expected life......................... 4 years 4 years 5 years 5 years
</TABLE>
No dividend yield and price volatility are assumed because the Company's
equity securities are not traded publicly.
The weighted average expected life was calculated based on the vesting
period and the exercise behavior of each subgroup. Group A represents higher
paid participants who tend to exercise prior to the vesting period to take
advantage of tax laws, and Group B represents all other participants. The
risk-free interest rate was calculated in accordance with the grant date and
expected life calculated for each subgroup.
The following table summarizes information for stock options outstanding at
December 27, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$6.00 4,407,917 8.81 $6.00 1,229,081 $6.00
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
-----------------------------------------
MARCH 30, DECEMBER 28, DECEMBER 27,
1996 1996 1997
--------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Foreign................................................. $2,526 $1,124 $1,035
Deferred:
Foreign................................................. 300 (300) --
------ ------ ------
Total................................................... $2,826 $ 824 $1,035
====== ====== ======
</TABLE>
F-19
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the U.S. statutory rate of 35% to the loss before income taxes for the twelve
months ended March 30, 1996, the nine months ended December 28, 1996, and the
twelve months ended December 27, 1997. The principal reasons for this difference
are as follows:
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
-----------------------------------------
MARCH 30, DECEMBER 28, DECEMBER 27,
1996 1996 1997
--------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate...................... $(41,982) $(89,442) $(38,100)
Tax savings from foreign operations..................... (30,757) (27,104) (63,487)
Repatriated foreign earnings absorbed by current year
losses................................................ 11,624 -- --
U.S. loss providing current tax benefit................. 27,325 52,722 100,748
Valuation of temporary differences...................... 36,550 64,492 2,361
Other................................................... 66 156 (487)
-------- -------- --------
Total................................................... $ 2,826 $ 824 $ 1,035
======== ======== ========
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves and accruals.................... $ 16,211 $ 8,975
Depreciation....................................... 5,423 6,149
Sales related reserves............................. 10,836 11,006
Net operating loss carryforwards................... 152,519 218,718
Tax credit carryforwards........................... 18,252 19,335
Capitalized research and development............... 77,466 102,049
Notes receivable reserve........................... 7,561 1,220
Other.............................................. 2,496 10,965
------------ ---------
Total deferred tax assets.......................... 290,764 378,417
Valuation allowance for deferred tax assets........ (251,464) (289,832)
------------ ---------
Net deferred tax assets............................ $ 39,300 $ 88,585
============ =========
Deferred tax liabilities:
Unremitted earnings of certain foreign entities.... $ 39,300 $ 88,585
------------ ---------
Total deferred tax liabilities..................... $ 39,300 $ 88,585
============ =========
</TABLE>
Pre-tax income from foreign operations was approximately $95.9 million,
$79.0 million and $86.0 million for the twelve months ended March 30, 1996, nine
months ended December 28, 1996 and twelve months ended December 27, 1997,
respectively. Subject to its continued compliance with certain legal
requirements, the Company currently enjoys a tax holiday for its operations in
Singapore that has been extended until June 30, 2003.
During the year ended December 27, 1997, the valuation allowance for
deferred tax assets increased by $38.4 million.
At December 27, 1997, for federal income tax purposes, the Company had net
operating loss carryforwards of $616.7 million and tax credit carryforwards of
approximately $18.8 million which will expire beginning in fiscal year 1999.
Certain changes in stock ownership can result in a limitation on the amount of
net operating loss and tax credit carryovers that can be utilized each year. The
Company determined it had
F-20
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
undergone such an ownership change. Consequently, utilization of approximately
$253.0 million of net operating loss carryforwards and the deduction equivalent
of approximately $18.3 million of tax credit carryforwards will be limited to
approximately $22.4 million per year.
The acquisition of the Company by HEA resulted in the Company becoming part
of the HEA consolidated group for federal income tax purposes during January
1996. As a member of the HEA consolidated group, the Company is subject to a tax
allocation agreement. For financial reporting purposes, however, Company's tax
loss has been computed on a separate tax return basis, and, as such, Company has
not recorded any tax benefit in its financial statements for the amount of the
net operating loss included in the HEA consolidated income tax return.
12. NET LOSS PER SHARE:
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted net (loss)
per share calculations is provided as follows (in thousands, except share and
per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED THREE MONTHS
MARCH 30, DECEMBER 28, DECEMBER 27, ENDED
1996 1996 1997 MARCH 28, 1998
------------- ----------------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR -- BASIC AND DILUTED
Net loss...................... $ (122,765) $(256,326) $ (109,891) $ (10,319)
============= ========= =========== ==========
Net loss available to common
stockholders................ $ (122,765) $(256,326) $ (109,891) $ (10,319)
============= ========= =========== ==========
DENOMINATOR
Basic weighted average common
shares outstanding.......... 20,677,000 -- 1,891 7,563
Effect of dilutive
securities.................. -- -- -- --
------------- --------- ----------- ----------
Diluted weighted average
common shares............... 20,677,000 -- 1,891 7,563
============= ========= =========== ==========
Basic and diluted net loss per
share (See Note 1).......... $ (5.94) $ -- $(58,112.64) $(1,364.41)
============= ========= =========== ==========
</TABLE>
The following contingently issuable shares are excluded in the calculation
of diluted shares outstanding as their effects would be antidilutive:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1996 1997 1998
---------- ----------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Stock options.................. -- 3,552,000 4,408,000 4,647,000
Convertible subordinated
debentures................... 1,250,000 1,250,000 1,250,000 1,188,000
Convertible preferred stock.... -- 29,104,000 60,697,000 88,060,000
</TABLE>
13. EMPLOYEE BENEFIT PLAN:
The Company maintains a retirement and deferred savings plan for its
employees (the "401(k) Plan") that is intended to qualify as a tax-qualified
plan under the Code. The 401(k) Plan provides that each participant may
contribute up to 15% of his or her pre-tax gross compensation (up to a statutory
limit). Under the 401(k) Plan, the Company may make discretionary contributions.
The Company's contributions to the 401(k) Plan for the fiscal periods ended
March 30, 1996 and December 28, 1996 and December 27, 1997 were $600,000, $1.2
million, and $1.6 million, respectively. All amounts contributed by participants
and earnings on such contributions are fully vested at all times.
F-21
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS:
Reverse Stock Split
On May 29, 1998, the Board approved a one-for-two reverse split of the
Company's outstanding common stock, which will be made effective upon the
Company's filing of an amended and restated certificate of incorporation in
Delaware. All references in the financial statements to the number of the
Company's common shares and price per share amounts, as well as the conversion
ratio of preferred shares, have been retroactively restated to reflect the
reverse split. The Board of Directors also approved the increase of the
Company's authorized common stock to 250,000,000 shares.
Debt Waivers
On June 1, 1998, the Company received waivers of default from various
lenders regarding an aggregate of $160.0 million of $170.0 million in borrowings
subject to guarantees by HEI (Note 7). In exchange for the waivers, the Company
substituted Hyundai Heavy Industries, Inc. (HHI) for HEI as the guarantor.
1998 Restricted Stock Plan (unaudited)
On May 29, 1998, the Company adopted the 1998 Restricted Stock Plan which
provides for awards of shares of common stock to employees. Restricted stock
awarded under this plan vests three years from the date of grant and are subject
to forfeiture in the event of termination of employment with the Company. The
Company has granted 390,000 shares of common stock under this plan.
F-22
<PAGE> 121
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Maxtor Corporation:
We have audited the consolidated financial statements of Maxtor Corporation
(a subsidiary of Hyundai Electronics America) listed in the index on page F-1 of
this Form S-1 as of December 28, 1996 and December 27, 1997, and for the nine
month period ended December 28, 1996 and the year ended December 27, 1997. We
have also audited the financial statement schedule listed in Item 16(b) of this
Form S-1. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maxtor
Corporation as of December 28, 1996 and December 27, 1997, and the consolidated
results of its operations and its cash flows for the nine month period ended
December 28, 1996 and the year ended December 27, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 1 to the financial statements, the Company's ultimate
parent, Hyundai Electronics Industries, Co., LTD., (HEI) is located in the
Republic of Korea. The Republic of Korea has recently experienced volatility in
its currency and interest rates which have affected the operations of most
Korean companies, including HEI. HEI has provided certain financial support to
the Company in the past and is a guarantor of the Company's debt.
COOPERS & LYBRAND L.L.P.
San Jose, California
February 3, 1998, except for
Notes 7 and 10 for which
the date is April 9, 1998
Note 14, and the ninth
paragraphs of Notes 1 and 7,
for which date is June 3, 1998.
The accompanying consolidated financial statements give effect to a reverse
stock split on a one-for-two basis of the Company's common stock which will
occur upon filing of an amended and restated certificate of incorporation in
Delaware. The above opinion is in the form which will be signed by Coopers &
Lybrand L.L.P. upon completion of such reverse stock split described in Note 14
of notes to consolidated financial statements and assuming that from the date of
June 3, 1998 to the date of such completion of such filing, no other material
events have occurred that would affect the accompanying consolidated financial
statements or required disclosure therein.
F-23
<PAGE> 122
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxtor Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Maxtor Corporation (a
wholly-owned subsidiary of Hyundai Electronics America) for the year ended March
30, 1996. Our audit also included the financial statement schedule for the year
ended March 30, 1996 listed in the Index at Item 16(b). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Maxtor Corporation for the year ended March 30, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule for the year ended March 30, 1996, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
April 25, 1996
except for the first paragraph of the
"Subsequent Event" note
as to which this date is June 3, 1998
The foregoing report is in the form that will be signed upon effectiveness of
the 1 for 2 reverse stock split described in Note 14 to the consolidated
financial statements.
/s/ ERNST & YOUNG LLP
San Jose, California
June 26, 1998
F-24
<PAGE> 123
Description of Graphics
Inside Front Cover:
Quality, Capacity
and Performance.
The DiamondMax Difference
[Picture of HDD] DiamondMax Plus 2500
[Picture of HDD] DiamondMax 3400
[Picture of HDD] DiamondMax 2880
[Picture of HDD] DiamondMax 2160
[Picture of HDD] DiamondMax 1750
[Picture of HDD] DiamondMax 1280
Inside Back Cover:
[Picture of HDD]
<PAGE> 124
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 25
Relationship Between the Company and
Hyundai............................. 26
Use of Proceeds....................... 32
Dividend Policy....................... 32
Capitalization........................ 33
Selected Consolidated Financial
Data................................ 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 52
Management............................ 66
Certain Transactions.................. 76
Principal Stockholders................ 80
Description of Capital Stock.......... 81
Shares Eligible for Future Sale....... 87
Certain United States Federal Tax
Consequences to Holders of Common
Stock............................... 88
Underwriting.......................... 91
Legal Matters......................... 94
Experts............................... 94
Additional Information................ 94
Glossary.............................. 96
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
======================================================
- ------------------------------------------------------
47,500,000 SHARES
MAXTOR CORPORATION
COMMON STOCK
[MAXTOR LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 125
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 29, 1998
PROSPECTUS 47,500,000 SHARES
LOGO
COMMON STOCK
Of the 47,500,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of Maxtor Corporation ("Maxtor" or the "Company") offered
hereby, 38,000,000 shares are being offered by the U.S. Underwriters (as
defined) in the United States and Canada (the "U.S. Offering") and 9,500,000
shares are being offered by the International Underwriters (as defined) in a
concurrent offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings"), subject to
transfers between the U.S. Underwriters and the International Underwriters
(collectively the "Underwriters"). The initial public offering price and the
aggregate underwriting discount per share will be identical for the U.S.
Offering and the International Offering. The closing of the International
Offering is conditioned upon the closing of the U.S. Offering and vice versa.
See "Underwriting."
All of the shares of Common Stock offered hereby are being sold by the
Company. Upon completion of the Offerings, Hyundai Electronics America ("HEA"),
which is a majority-owned subsidiary of Hyundai Electronics Industries Co., Ltd.
("HEI"), a corporation organized under the laws of the Republic of Korea, will
own approximately 48% (approximately 45% if the Underwriters' over-allotment
options are fully exercised) of the outstanding shares of Common Stock. See
"Risk Factors -- Control by and Dependence on Hyundai."
Prior to the Offerings, there has not been a public market for the Common
Stock. It currently is estimated that the initial public offering price will be
between $8.50 and $10.50 per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering
price. The Company has applied to have the Common Stock approved for quotation
on the Nasdaq National Market under the proposed symbol "MXTR."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
=================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------
Per Share $ $ $
- -----------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
=================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $1,500,000, payable by the Company.
(3) The Company has granted the U.S. Underwriters and the International
Underwriter, 30-day options to purchase up to 5,700,000 and 1,425,000
additional shares of Common Stock, respectively, solely to cover
over-allotment, if any. If such options are exercised in full, the total
Price to Public, Underwriting, Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
------------------------
The shares of Common Stock are being offered by the several International
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001, or through the facilities of The Depository
Trust Company.
------------------------
SALOMON SMITH BARNEY INTERNATIONAL
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
<PAGE> 126
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "International Underwriting Agreement") among the Company, HEA and each of
the underwriters named below (the "International Underwriters"), for whom Smith
Barney Inc., Hambrecht & Quist LLC, Lehman Brothers International (Europe),
Merrill Lynch International and NationsBanc Montgomery Securities LLC are acting
as representatives (the "International Representatives"), the Company has agreed
to sell to each of the International Underwriters and each of the International
Underwriters has severally agreed to purchase from the Company the number of
shares of Common Stock set forth opposite its name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
COMMON
INTERNATIONAL UNDERWRITERS STOCK
-------------------------- ------------
<S> <C>
Smith Barney Inc.......................................
Hambrecht & Quist LLC..................................
Lehman Brothers International (Europe).................
Merrill Lynch International............................
NationsBanc Montgomery Securities LLC..................
---------
Total........................................
=========
</TABLE>
The International Underwriting Agreement provides that the obligations of
the International Underwriters to purchase the shares of Common Stock listed
above are subject to certain conditions set forth therein. The International
Underwriters are committed to purchase all of the shares of Common Stock agreed
to be purchased by the International Underwriters pursuant to the International
Underwriting Agreement (other than those covered by the over-allotment options
described below), if any shares of Common Stock are purchased. In the event of
default by any International Underwriter, the International Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting International Underwriters may be increased or the
International Underwriting Agreement may be terminated.
The International Representatives have advised the Company that the
International Underwriters propose initially to offer such shares of Common
Stock to the public at the initial public offering price thereof set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
discount not in excess of $. per share. The International Underwriters may
allow, and such dealers may reallow, a discount not in excess of $. per share
on sales to certain other dealers. After the initial public offering of the
shares of Common Stock, the public offering price and such discounts may be
changed.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the initial public offering price set
forth on the cover page hereof.
The Company and HEA also have entered into an underwriting agreement (the
"U.S. Underwriting Agreement") with the U.S. Underwriters named therein, for
whom Smith Barney Inc., Hambrecht & Quist LLC, Lehman Brothers Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery Securities
LLC are acting as representatives (the "U.S. Representatives" and, together with
the International Representatives, the "Representatives"), providing for the
concurrent offer and sale of 38,000,000 of the shares of Common Stock in the
United States and Canada.
The closing with respect to the sale of the shares of Common Stock pursuant
to the International Underwriting Agreement is a condition to the closing with
respect to the sale of the shares of Common Stock pursuant to the U.S.
Underwriting Agreement, and the closing with respect to the sale of the shares
of Common Stock pursuant to the U.S. Underwriting Agreement is a condition to
the closing with respect to the sale of the shares of Common Stock pursuant to
the International Underwriting Agreement. The initial public offering price and
underwriting discount per share of Common Stock for the International Offering
and the U.S. Offering will be identical.
Each International Underwriter has severally agreed that, as part of the
distribution of the shares of Common Stock by the International Underwriters,
(i) it is not purchasing any shares of Common Stock for
91
<PAGE> 127
the account of any United States or Canadian Person, (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock or distribute any prospectus to any person in the United States or Canada,
or to any United States or Canadian Person and (iii) any dealer to whom it may
sell any shares of Common Stock will represent that it is not purchasing for the
account of any United States or Canadian Person and agree that it will not offer
or resell, directly or indirectly, any shares of Common Stock in the United
States or Canada, or to any United States or Canadian Person or to any other
dealer who does not so represent and agree.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of the 38,000,000 shares of Common Stock by the U.S. Underwriters,
(i) it is not purchasing any shares of Common Stock for the account of anyone
other than a United States or Canadian Person, (ii) it has not offered or sold,
and will not offer or sell, directly or indirectly, any shares of Common Stock
or distribute any prospectus relating to the U.S. Offering to any person outside
of the United States or Canada, or to anyone other than a United States or
Canadian Person and (iii) any dealer to whom it may sell any shares of Common
Stock will represent that it is not purchasing for the account of anyone other
than a United States or Canadian Person and agree that it will not offer or
resell, directly or indirectly, any shares of Common Stock outside of the United
States or Canada, or to anyone other than a United States or Canadian Person or
to any other dealer who does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and Managers. "United States or Canadian Persons" means any person who is a
national or resident of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or of any political subdivision thereof, and any estate
or trust the income of which is subject to United States or Canadian federal
income taxation, regardless of its source (other than a foreign branch of such
entity) and includes any United States or Canadian branch of a person other than
a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the International Underwriters and the U.S. Underwriters of such
number of shares of Common Stock as may be mutually agreed. The price of any
shares of Common Stock so sold shall be the initial public offering price
thereof set forth on the cover page of this Prospectus, less an amount not
greater than the concession to securities dealers set forth above. To the extent
that there are sales between the International Underwriters and the U.S.
Underwriters pursuant to the Agreement Between U.S. Underwriters and Managers,
the number of shares of Common Stock initially available for sale by the
International Underwriters or by the U.S. Underwriters may be more or less than
the amount specified on the cover page of this Prospectus.
Each International Underwriter has severally represented and agreed that
(i) it has not offered or sold and, prior to the expiration of six months from
the closing of the International Offering, will not offer or sell any shares of
Common Stock in the United Kingdom other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (whether as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted in and will not result in
an offer to the public within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue of the shares of Common Stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
The Company has granted to the International Underwriters and the U.S.
Underwriters options to purchase up to an additional 1,425,000 and 5,700,000
shares of Common Stock, respectively, at the applicable price to the public less
the applicable underwriting discount set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such options may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent such options are exercised, each of the International Underwriters and
the U.S. Underwriters will become obligated, subject to certain conditions, to
purchase approximately the same
92
<PAGE> 128
percentage of such additional shares of Common Stock as the percentage it was
obligated to purchase pursuant to the International Underwriting Agreement or
the U.S. Underwriting Agreement, as applicable.
The Company has agreed with the Underwriters not to offer, pledge, sell,
contract to sell, or otherwise dispose of (or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company), directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities or options convertible into, or exchangeable or exercisable for,
shares of Common Stock for a period of 180 days following the date hereof
without the prior written consent of Smith Barney Inc., subject to certain
limited exceptions. In addition, each of the Company's officers, directors and
stockholders has agreed with the Underwriters not to offer, sell, contract to
sell, pledge or otherwise dispose of, or file a registration statement with the
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of Common
Stock, or publicly announce an intention to effect any such transaction, for a
period of 180 days after the date hereof unless with the prior written consent
of Smith Barney Inc., subject to certain limited exceptions. Smith Barney Inc.
currently does not intend to release any securities subject to such lock-up
agreements, but may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to such lock-up agreements.
The International Underwriting Agreement and the U.S. Underwriting
Agreement provide that the Company and HEA will indemnify the several
International Underwriters and U.S. Underwriters against certain liabilities
under the Securities Act, or contribute to payments the International
Underwriters and the U.S. Underwriters may be required to make in respect
thereof.
In connection with the Offerings, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offerings than
they are committed to purchase from the Company, and in such case may purchase
Common Stock following completion of the Offerings to cover all or a portion of
such short position. The Underwriters may also cover all or a portion of such
short position, up to 7,125,000 shares of Common Stock, by exercising the
Underwriters' over-allotment options referred to above. In addition, the
Representatives, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the Offerings), for the account of the
other Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offerings but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Underwriters do not intend to confirm sales in the Offerings to any
accounts over which they exercise discretionary authority.
Merrill Lynch, Pierce, Fenner & Smith Incorporated is currently acting as
financial advisor to HEI and its subsidiaries and affiliates in connection with
their strategic assessment of their assets, financial liabilities and overall
capital structure, and in connection therewith receives certain fees from HEI.
Merrill will receive no separate or additional fee from HEI in connection with
the Offerings.
Affiliates of Lehman Brothers Inc. acted as arranger and syndication agent
for a subsidiary of HEA with respect to a one year $300 million credit facility
that matures in February 1999 and is guaranteed by HEA, and an affiliate of
Lehman Brothers Inc. is currently a lender under such facility. In connection
therewith, such affiliates of Lehman Brothers Inc. receive certain fees and
interest from such subsidiary of HEA.
93
<PAGE> 129
Immediately prior to the Offerings, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the shares of
Common Stock was determined by negotiation among the Company and the
Representatives. Among the factors considered in determining the initial public
offering price were the Company's record of operations, its current financial
condition, its future prospects, the market for its services, the experience of
management, the economic conditions of the Company's industry in general, the
general condition of the equity securities market and the demand for similar
securities of companies considered comparable to the Company and other relevant
factors. There can be no assurance, however, that the prices at which the Common
Stock will sell in the public market after the Offerings will not be lower than
the price at which the shares of Common Stock are sold by the Underwriters. See
"Risk Factors -- Expected Volatility of Stock Price; Absence of Current Trading
Market for the Common Stock."
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Gray Cary Ware &
Freidenrich LLP, Palo Alto, California and for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated balance sheets of Maxtor Corporation as of December 28,
1996 and December 27, 1997 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the nine months
ended December 28, 1996 and for the year ended December 27, 1997 included in
this Prospectus and registration statement, have been included herein in
reliance on the report, which include an emphasis of a matter related to the
Company's ultimate parent, Hyundai Electronics Industries, Co. Ltd., of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing. The consolidated statements of
operations, stockholders' equity (deficit) and cash flows of the Company for the
year ended March 30, 1996 included in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report, given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement, including the exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such reports
and other information filed with the Commission, may be inspected without charge
at the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at 7 World Trade Center,
New York, New York 10048 upon payment of certain fees prescribed by the
Commission. The Commission also maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov.
94
<PAGE> 130
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. The reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W. Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports and
other information concerning the Company can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N.W. Washington, D.C. 20006.
95
<PAGE> 131
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 25
Relationship Between the Company and
Hyundai............................. 26
Use of Proceeds....................... 32
Dividend Policy....................... 32
Capitalization........................ 33
Selected Consolidated Financial
Data................................ 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 52
Management............................ 66
Certain Transactions.................. 76
Principal Stockholders................ 80
Description of Capital Stock.......... 81
Shares Eligible for Future Sale....... 87
Certain United States Federal Tax
Consequences to Holders of Common
Stock............................... 88
Underwriting.......................... 91
Legal Matters......................... 94
Experts............................... 94
Additional Information................ 94
Glossary.............................. 96
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
======================================================
- ------------------------------------------------------
47,500,000 SHARES
MAXTOR CORPORATION
COMMON STOCK
[MAXTOR LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
INTERNATIONAL
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
NATIONSBANC MONTGOMERY
SECURITIES LLC
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions payable by the Registrant in connection with the sale
of the Common Stock being registered. All amounts shown are estimates except for
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
Registration fee............................................ $ 198,276
NASD filing fee............................................. 30,500
Nasdaq National Market application fee...................... 90,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 170,000
Legal fees and expenses..................................... 650,000
Accounting fees and expenses................................ 250,000
Transfer agent and registrar fees........................... 8,000
Miscellaneous expenses...................................... 98,224
----------
Total....................................................... $1,500,000
==========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Amended and Restated
Certificate of Incorporation and Bylaws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the Registrant intends to enter into separate indemnification
agreements with its directors, officers and certain employees which would
require the Registrant, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from willful misconduct of a culpable nature). The
Registrant also intends to maintain director and officer liability insurance, if
available on reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreements filed as Exhibits 1.1 and 1.2 to this
Registration Statement provide for indemnification by the Underwriters of the
Registrant and its officers and directors for certain liabilities arising under
the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1994, the Company has sold and issued the following
unregistered securities:
(a) In February 1994, the Company sold an aggregate of 19,480,000
shares of the Company's Series A Common Stock to four Hyundai affiliated
entities. The purchase price in this transaction was $7.70 per share of
Series A Common Stock, resulting in aggregate proceeds of approximately
$150 million.
II-1
<PAGE> 133
(b) In January 1996, upon the merger of HEA with Maxtor, all
pre-merger issued and outstanding shares of Maxtor were canceled and the
Company issued 300 shares of Common Stock to HEA pursuant to the Agreement
and Plan of Reorganization.
(c) In June 1996, the Company entered into an exchange agreement with
HEA whereby HEA exchanged 300 shares of Common Stock for 58,208,955 shares
of Series A Preferred Stock, $.001 par value.
(d) In December 1997, the Company and HEA entered into a Debt Payment
and Stock Purchase Agreement pursuant to which the Company issued
29,850,746 shares of the Company's Series A Preferred Stock to HEA as
payment for the cancellation of $200 million owed to HEA by the Company.
The price in this transaction was $6.70 per share of Series A Preferred
Stock.
(e) From December 1997 through March 1998, pursuant to the Plan, the
Company issued an aggregate of 7,563 shares of the Common Stock to four
stockholders for an aggregate of $45,375 and issued options to purchase an
aggregate of 1,699,132 shares of Common Stock with an exercise price equal
to the fair market value on the date of grant as determined by the Board to
1,639 optionholders.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of Prospectus included herein.
The issuances described in Items 15(a) through 15(d) were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving a public offering.
Certain issuances described in Item 15(e) were deemed exempt from registration
under the Securities Act in reliance on Section 4(2) or Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about the Company or had access, through employment or other relationships, to
such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.++
1.2 Form of International Underwriting Agreement.++
3.1 Amended and Restated Certificate of Incorporation of
Registrant dated June 6, 1996.+
3.2 Amended and Restated Certificate of Incorporation of
Registrant dated , 1998.++
3.3 Amended and Restated Bylaws of Registrant dated June 6,
1996.+
3.4 Amended and Restated Bylaws of Registrant dated ,
1998.++
4.1 Stockholder Agreement dated June 25, 1998.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.++
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.+
10.2 Indenture dated as of March 1, 1987 between Registrant and
Security Pacific National Bank, as Trustee.+
10.3 (2) Lease Agreement for Premises Located at 1821 Lefthand
Circle, Suite D, between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994.
</TABLE>
II-2
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.4 (2) Lease Agreement for Premises Located at 1841 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.5 (2) Lease Agreement for Premises Located at 1851 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.6 (2) Lease Agreement for Premises Located at 2121 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.7 (2) Lease Agreement for Premises Located at 2190 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.8 (3) Lease Agreement by and between 345 Partnership and
Registrant, dated February 24, 1995.
10.9 (3) Lease Agreement for Premises Located at 1900 Pike Road,
Suite A Longmont, CO, between Registrant as Tenant and Pratt
Land Limited Liability Company as Landlord, dated February
24, 1995.
10.10 (3) Lease Agreement for Premises Located at 2040 Miller Drive
Suite A, B, & C between Registrant as Tenant and Pratt Land
Limited Liability Company as Landlord, dated February 24,
1995.
10.11 (3) Manufacturing and Purchase Agreement by and Between
Registrant and Hyundai Electronics Industries Co., Ltd.,
dated April 27, 1995.
10.12 (3) Lease Agreement for Premises Located at 2040 Miller Drive,
Suites D, E, & F, Longmont, CO, between Registrant as Tenant
and Pratt Management Company, LLC as Landlord.
10.13 (5) Credit Agreement among Registrant and The Initial Lenders
and the Issuing Bank and Citibank, N.A., dated August 31,
1995.
10.14 (5) The Guaranty and Recourse Agreement among Registrant and
Hyundai Electronics Industries Co., Ltd., dated August 31,
1995.
10.15 (5) Amendment to the Financing Agreement among Registrant and
the CIT Group/ Business Credit, Inc., dated October 17,
1995.
10.16 (6) First Supplemental Indenture, dated as of January 11, 1996,
between Registrant and State Street Bank and Trust Company.
10.17 (6) Credit Agreement, dated as of December 29, 1995 between
Registrant and Hyundai Electronics America.
10.18 (12) Maxtor Corporation 1996 Stock Option Plan.**
10.19 (12) Intercompany Loan Agreement, dated as of April 10, 1996,
between Registrant and Hyundai Electronics America.
10.20 (12) Receivables Purchase and Sale Agreement, dated as of March
30, 1996, among Registrant and Corporate Receivables
Corporation and Citicorp North America, Incorporated.
10.21 (7) Recapitalization Agreement among the Registrant,
International Manufacturing Services, Incorporated and
certain investors, dated as of May 21, 1996.
10.22 (7) Redemption Agreement between Registrant and International
Manufacturing Services, Incorporated, dated as of May 21,
1996.
10.23 (7) Manufacturing Services Agreement between Registrant and
International Manufacturing Services, Incorporated, dated
June 13, 1996.*
10.24 (8) Credit Facility, dated as of July 31, 1996, between
Registrant and Hyundai Electronics America.
10.25 (9) Exchange Agreement effective June 18, 1996, between Maxtor
Corporation and Hyundai Electronics America.
10.26 (10) 364-Day Credit Agreement, dated August 29, 1996, among
Registrant, Citibank, N.A., and Syndicate Banks.
</TABLE>
II-3
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.27 (10) Credit Agreement, dated August 29, 1996, among Registrant,
Citibank, N.A., and Syndicate Banks.
10.28 (11) Employment Agreement between Michael R. Cannon and
Registrant, dated June 17, 1996.**
10.29 (11) Employment Agreement between Paul J. Tufano and Registrant,
dated July 12, 1996.**
10.30 (11) Employment Agreement between William Roach and Registrant,
dated December 13, 1996.**
10.31 (12) Intercompany Loan Agreement, dated as of April 10, 1997,
between Registrant and Hyundai Electronics America.
10.32 364-Day Credit Agreement dated as of October 31, 1997
between Registrant and Nomura Bank International.
10.33 (13) Debt Payment and Stock Purchase Agreement, dated as of
December 12, 1997, between Registrant and Hyundai
Electronics America.
10.34 (13) Amendment to August 29, 1996 364-Day Credit Agreement, dated
August 27, 1997, among Registrant, Citibank, N.A. and
Syndicate Banks.
10.35 (14) Employment Agreement between Philip Duncan and Registrant
dated July 15, 1996.**+
10.36 (15) Receivables Purchase and Sale Agreement dated as of April 8,
1998, among Maxtor Receivables Corporation, Registrant,
Corporate Receivables Corporation, Citicorp North America
and Bankers Trust Company.+
10.37 (16) Intercompany Loan Agreement dated as of April 10, 1998,
between Hyundai Electronics America and Registrant.+
10.38 (17) Credit Agreement between Bank of America and Registrant
dated December 26, 1996.+
10.39 (18) Employment Agreement between K.H. Teh and Registrant, dated
March 23, 1997.**+
10.40 (19) Lease Agreement between Milpitas Oak Creek Delaware, Inc.
and Registrant dated as of February 23, 1998.+
10.41 (20) Business Agreement dated as of April 30, 1998, between
Registrant and Texas Instruments Incorporated.*+
10.42 (21) Volume Purchase Agreement dated as of January 1, 1998,
between Registrant and Lucent Technologies, Inc.*+
10.43 (22) Land Lease between Housing Development Board and Maxtor
Singapore Limited dated as of March 28, 1991.+
10.44 (23) R/3 Software End-User Value License Agreement between SAP
Korea Ltd. and Hyundai Information Technology Co. Ltd. dated
as of June 30, 1996.+
10.45 (24) Sublicense Agreement between Hyundai Electronics Industries
Co., Ltd., and Maxtor Corporation dated as of January 1,
1996.+
10.46 (25) Tax Allocation Agreement dated as of July 21, 1995 among
Hyundai Electronics America, registrant and certain other
subsidiaries.+
10.47 (4) Agreement and Plan of Merger dated November 2, 1995 between
Registrant, Hyundai Electronics America and Hyundai
Acquisition, Inc.
10.48 Tax Indemnification Agreement and Amendment to Tax
Allocation Agreement dated June 26, 1998.
10.49 Indemnity Agreement between HEI and Registrant dated June
25, 1998.
10.50 License Agreement between Registrant and HEI dated June 25,
1998.
10.51 (1) Stock Purchase Agreement between Registrant and Hyundai
Electronics Industries Co., Ltd., Hyundai Heavy Industries
Co., Ltd., Hyundai Corporation, and Hyundai Merchant Marine
Co., Ltd., dated September 10, 1993.
</TABLE>
II-4
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.52 Purchase Agreement between Registrant and MMC.++
10.53 1998 Restricted Stock Plan.**
10.54 Form of Restricted Stock Grant Agreement.**
10.55 Second Amended and Restated 1996 Stock Option Plan.**
10.56 Chief Executive Officer Retention Agreement dated as of May
29, 1998 between Registrant and Michael Cannon.**
10.57 Retention Agreement dated as of May 29, 1998 between
Registrant and Paul Tufano.**
10.58 Form of Retention Agreement between Registrant and Executive
Officers.**
10.59 Letter Agreement between Victor B. Jipson and Registrant
dated as of June 12, 1998.**
10.60 Loan Agreement among Registrant, Banque Paribas and Hyundai
Electronics Industries Co., Ltd. as guarantor dated as of
September 1996.
10.61 Loan Agreement among Registrant, Banque Nationale de Paris
and Hyundai Electronics Industries Co., Ltd. as guarantor
dated as of December 20, 1996.
10.62 Letter Agreement setting forth terms and conditions of Loan
Agreement between Registrant and the Bank of New York dated
as of December 27, 1997.
10.63 Waiver and Amendment dated as of May 22, 1998 to 364-Day
Credit Agreement dated as of August 29, 1996 among
Registrant, certain lenders and Citibank, N.A.
10.64 Waiver and Amendment dated as of May 22, 1998 to 364-Day
Credit Agreement dated as of October 31, 1997 between
Registrant and Nomura Bank International plc.
10.65 Waiver and Amendment dated as of May 22, 1998 to Three-Year
Credit Agreement dated as of August 29, 1996 among
Registrant, certain lenders and Citibank, N.A.
21.1 Subsidiaries of Registrant.+
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.+
23.2 Consent of Ernst & Young LLP, Independent Auditors.+
23.3 Consent of Gray Cary Ware & Freidenrich, LLP.+
24.1 Power of Attorney (included on signature page).+
27.1 Financial Data Schedule (EDGAR filed version only).+
</TABLE>
- ---------------
* This Exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of this
Exhibit have been omitted and are marked by an asterisk.
** Management contract, or compensatory plan or arrangement.
+ Previously filed.
++ To be filed by amendment.
(1) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective May 27, 1993.
(2) Incorporated by reference to exhibits of Form 10-Q filed February 7, 1995.
(3) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 23, 1995.
(4) Incorporated by reference to exhibit III of Schedule 14D-9 filed November
9, 1995.
(5) Incorporated by reference to exhibits of Form 10-Q filed November 14, 1996.
(6) Incorporated by reference to exhibits of Form 10-Q filed February 14, 1996.
(7) Incorporated by reference to exhibits of Form 8-K filed June 28, 1996.
(8) Incorporated by reference to exhibits of Form 10-K filed July 1, 1996.
(9) Incorporated by reference to exhibits of Form 10-Q filed August 13, 1996.
(10) Incorporated by reference to exhibits of Form 8-K filed September 13, 1996.
(11) Incorporated by reference to exhibits of Form 10-K filed March 26, 1997.
(12) Incorporated by reference to exhibits of Form 10-Q filed May 12, 1997.
(13) Incorporated by reference to exhibits of Form 10-K filed April 10, 1998.
II-5
<PAGE> 137
(14) Previously filed with this Registration Statement as Exhibit 10.44.
(15) Previously filed with this Registration Statement as Exhibit 10.45.
(16) Previously filed with this Registration Statement as Exhibit 10.46.
(17) Previously filed with this Registration Statement as Exhibit 10.47.
(18) Previously filed with this Registration Statement as Exhibit 10.48.
II-6
<PAGE> 138
(19) Previously filed with this Registration Statement as Exhibit 10.49.
(20) Previously filed with this Registration Statement as Exhibit 10.51.
(21) Previously filed with this Registration Statement as Exhibit 10.52.
(22) Previously filed with this Registration Statement as Exhibit 10.53.
(23) Previously filed with this Registration Statement as Exhibit 10.54.
(24) Previously filed with this Registration Statement as Exhibit 10.55.
(25) Previously filed with this Registration Statement as Exhibit 10.56.
(b) FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of the Company is
filed as part of this Registration Statement and should be read in conjunction
with the consolidated financial statements of the Company.
SCHEDULE II
<TABLE>
<S> <C>
Valuation and Qualifying Accounts -- Allowance for Doubtful
Accounts.................................................. S-1
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Milpitas, County of Santa Clara, State of California, on the 26th day of June
1998.
MAXTOR CORPORATION
By: /s/ MICHAEL R. CANNON
------------------------------------
Michael R. Cannon
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DR. CHONG SUP PARK* Chairman of the Board June 26, 1998
- -----------------------------------------------------
Dr. Chong Sup Park
/s/ MICHAEL R. CANNON President, Chief Executive June 26, 1998
- ----------------------------------------------------- Officer and Director
Michael R. Cannon
/s/ PAUL J. TUFANO* Vice President, Finance, Chief June 26, 1998
- ----------------------------------------------------- Financial Officer and Principal
Paul J. Tufano Accounting Officer
/s/ CHANG SEE CHUNG* Director June 26, 1998
- -----------------------------------------------------
Chang See Chung
/s/ CHARLES HILL* Director June 26, 1998
- -----------------------------------------------------
Charles Hill
/s/ CHARLES F. CHRIST* Director June 26, 1998
- -----------------------------------------------------
Charles F. Christ
/s/ Y.H. KIM* Director June 26, 1998
- -----------------------------------------------------
Y.H. Kim
/s/ PHILIP S. PAUL* Director June 26, 1998
- -----------------------------------------------------
Philip S. Paul
*By: /s/ MICHAEL R. CANNON June 26, 1998
------------------------------------------------
Michael R. Cannon
(Attorney-in-fact)
</TABLE>
II-8
<PAGE> 140
MAXTOR CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS CHARGED
BALANCE AT TO COST DEDUCTIONS/ BALANCE AT
PERIOD ENDED BEGINNING OF PERIOD AND EXPENSES (RECOVERIES(1)) END OF PERIOD
------------ ------------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
March 30, 1996....................... $3,850 $1,232 $ (114) $5,196
December 28, 1996.................... $5,196 $1,355 $1,296 $5,255
December 27, 1997.................... $5,255 $1,000 $2,682 $3,573
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 141
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.++
1.2 Form of International Underwriting Agreement.++
3.1 Amended and Restated Certificate of Incorporation of
Registrant dated June 6, 1996.+
3.2 Amended and Restated Certificate of Incorporation of
Registrant dated , 1998.++
3.3 Amended and Restated Bylaws of Registrant dated June 6,
1996.+
3.4 Amended and Restated Bylaws of Registrant dated ,
1998.++
4.1 Stockholder Agreement dated June 25, 1998.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.++
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.+
10.2 Indenture dated as of March 1, 1987 between Registrant and
Security Pacific National Bank, as Trustee.+
10.3 (2) Lease Agreement for Premises Located at 1821 Lefthand
Circle, Suite D, between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994.
10.4 (2) Lease Agreement for Premises Located at 1841 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.5 (2) Lease Agreement for Premises Located at 1851 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.6 (2) Lease Agreement for Premises Located at 2121 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.7 (2) Lease Agreement for Premises Located at 2190 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.8 (3) Lease Agreement by and between 345 Partnership and
Registrant, dated February 24, 1995.
10.9 (3) Lease Agreement for Premises Located at 1900 Pike Road,
Suite A Longmont, CO, between Registrant as Tenant and Pratt
Land Limited Liability Company as Landlord, dated February
24, 1995.
10.10 (3) Lease Agreement for Premises Located at 2040 Miller Drive
Suite A, B, & C between Registrant as Tenant and Pratt Land
Limited Liability Company as Landlord, dated February 24,
1995.
10.11 (3) Manufacturing and Purchase Agreement by and Between
Registrant and Hyundai Electronics Industries Co., Ltd.,
dated April 27, 1995.
10.12 (3) Lease Agreement for Premises Located at 2040 Miller Drive,
Suites D, E, & F, Longmont, CO, between Registrant as Tenant
and Pratt Management Company, LLC as Landlord.
10.13 (5) Credit Agreement among Registrant and The Initial Lenders
and the Issuing Bank and Citibank, N.A., dated August 31,
1995.
10.14 (5) The Guaranty and Recourse Agreement among Registrant and
Hyundai Electronics Industries Co., Ltd., dated August 31,
1995.
10.15 (5) Amendment to the Financing Agreement among Registrant and
the CIT Group/ Business Credit, Inc., dated October 17,
1995.
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.16 (6) First Supplemental Indenture, dated as of January 11, 1996,
between Registrant and State Street Bank and Trust Company.
10.17 (6) Credit Agreement, dated as of December 29, 1995 between
Registrant and Hyundai Electronics America.
10.18 (12) Maxtor Corporation 1996 Stock Option Plan.**
10.19 (12) Intercompany Loan Agreement, dated as of April 10, 1996,
between Registrant and Hyundai Electronics America.
10.20 (12) Receivables Purchase and Sale Agreement, dated as of March
30, 1996, among Registrant and Corporate Receivables
Corporation and Citicorp North America, Incorporated.
10.21 (7) Recapitalization Agreement among the Registrant,
International Manufacturing Services, Incorporated and
certain investors, dated as of May 21, 1996.
10.22 (7) Redemption Agreement between Registrant and International
Manufacturing Services, Incorporated, dated as of May 21,
1996.
10.23 (7) Manufacturing Services Agreement between Registrant and
International Manufacturing Services, Incorporated, dated
June 13, 1996.*
10.24 (8) Credit Facility, dated as of July 31, 1996, between
Registrant and Hyundai Electronics America.
10.25 (9) Exchange Agreement effective June 18, 1996, between Maxtor
Corporation and Hyundai Electronics America.
10.26 (10) 364-Day Credit Agreement, dated August 29, 1996, among
Registrant, Citibank, N.A., and Syndicate Banks.
10.27 (10) Credit Agreement, dated August 29, 1996, among Registrant,
Citibank, N.A., and Syndicate Banks.
10.28 (11) Employment Agreement between Michael R. Cannon and
Registrant, dated June 17, 1996.**
10.29 (11) Employment Agreement between Paul J. Tufano and Registrant,
dated July 12, 1996.**
10.30 (11) Employment Agreement between William Roach and Registrant,
dated December 13, 1996.**
10.31 (12) Intercompany Loan Agreement, dated as of April 10, 1997,
between Registrant and Hyundai Electronics America.
10.32 364-Day Credit Agreement dated as of October 31, 1997
between Registrant and Nomura Bank International.
10.33 (13) Debt Payment and Stock Purchase Agreement, dated as of
December 12, 1997, between Registrant and Hyundai
Electronics America.
10.34 (13) Amendment to August 29, 1996 364-Day Credit Agreement, dated
August 27, 1997, among Registrant, Citibank, N.A. and
Syndicate Banks.
10.35 (14) Employment Agreement between Philip Duncan and Registrant
dated July 15, 1996.**+
10.36 (15) Receivables Purchase and Sale Agreement dated as of April 8,
1998, among Maxtor Receivables Corporation, Registrant,
Corporate Receivables Corporation, Citicorp North America
and Bankers Trust Company.+
10.37 (16) Intercompany Loan Agreement dated as of April 10, 1998,
between Hyundai Electronics America and Registrant.+
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.38 (17) Credit Agreement between Bank of America and Registrant
dated December 26, 1996.+
10.39 (18) Employment Agreement between K.H. Teh and Registrant, dated
March 23, 1997.**+
10.40 (19) Lease Agreement between Milpitas Oak Creek Delaware, Inc.
and Registrant dated as of February 23, 1998.+
10.41 (20) Business Agreement dated as of April 30, 1998, between
Registrant and Texas Instruments Incorporated.*+
10.42 (21) Volume Purchase Agreement dated as of January 1, 1998,
between Registrant and Lucent Technologies, Inc.*+
10.43 (22) Land Lease between Housing Development Board and Maxtor
Singapore Limited dated as of March 28, 1991.+
10.44 (23) R/3 Software End-User Value License Agreement between SAP
Korea Ltd. and Hyundai Information Technology Co. Ltd. dated
as of June 30, 1996.+
10.45 (24) Sublicense Agreement between Hyundai Electronics Industries
Co., Ltd., and Maxtor Corporation dated as of January 1,
1996.+
10.46 (25) Tax Allocation Agreement dated as of July 21, 1995 among
Hyundai Electronics America, registrant and certain other
subsidiaries.+
10.47 (4) Agreement and Plan of Merger dated November 2, 1995 between
Registrant, Hyundai Electronics America and Hyundai
Acquisition, Inc.
10.48 Tax Indemnification Agreement and Amendment to Tax
Allocation Agreement dated June 26, 1998.
10.49 Indemnity Agreement between HEI and Registrant dated June
25, 1998.
10.50 License Agreement between Registrant and HEI dated June 25,
1998.
10.51 (1) Stock Purchase Agreement between Registrant and Hyundai
Electronics Industries Co., Ltd., Hyundai Heavy Industries
Co., Ltd., Hyundai Corporation, and Hyundai Merchant Marine
Co., Ltd., dated September 10, 1993.
10.52 Purchase Agreement between Registrant and MMC.++
10.53 1998 Restricted Stock Plan.**
10.54 Form of Restricted Stock Grant Agreement.**
10.55 Second Amended and Restated 1996 Stock Option Plan.**
10.56 Chief Executive Officer Retention Agreement dated as of May
29, 1998 between Registrant and Michael Cannon.**
10.57 Retention Agreement dated as of May 29, 1998 between
Registrant and Paul Tufano.**
10.58 Form of Retention Agreement between Registrant and Executive
Officers.**
10.59 Letter Agreement between Victor B. Jipson and Registrant
dated as of June 12, 1998.**
10.60 Loan Agreement among Registrant, Banque Paribas and Hyundai
Electronics Industries Co., Ltd. as guarantor dated as of
September 1996.
10.61 Loan Agreement among Registrant, Banque Nationale de Paris
and Hyundai Electronics Industries Co., Ltd. as guarantor
dated as of December 20, 1996.
10.62 Letter Agreement setting forth terms and conditions of Loan
Agreement between Registrant and the Bank of New York dated
as of December 27, 1997.
10.63 Waiver and Amendment dated as of May 22, 1998 to 364-Day
Credit Agreement dated as of August 29, 1996 among
Registrant, certain lenders and Citibank, N.A.
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.64 Waiver and Amendment dated as of May 22, 1998 to 364-Day
Credit Agreement dated as of October 31, 1997 between
Registrant and Nomura Bank International plc.
10.65 Waiver and Amendment dated as of May 22, 1998 to Three-Year
Credit Agreement dated as of August 29, 1996 among
Registrant, certain lenders and Citibank, N.A.
21.1 Subsidiaries of Registrant.+
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.+
23.2 Consent of Ernst & Young LLP, Independent Auditors.+
23.3 Consent of Gray Cary Ware & Freidenrich, LLP.+
24.1 Power of Attorney (included on signature page).+
27.1 Financial Data Schedule (EDGAR filed version only).+
</TABLE>
- ---------------
* This Exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of this
Exhibit have been omitted and are marked by an asterisk.
** Management contract, or compensatory plan or arrangement.
+ Previously filed.
++ To be filed by amendment.
(1) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective May 27, 1993.
(2) Incorporated by reference to exhibits of Form 10-Q filed February 7, 1995.
(3) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 23, 1995.
(4) Incorporated by reference to exhibit III of Schedule 14D-9 filed November
9, 1995.
(5) Incorporated by reference to exhibits of Form 10-Q filed November 14, 1996.
(6) Incorporated by reference to exhibits of Form 10-Q filed February 14, 1996.
(7) Incorporated by reference to exhibits of Form 8-K filed June 28, 1996.
(8) Incorporated by reference to exhibits of Form 10-K filed July 1, 1996.
(9) Incorporated by reference to exhibits of Form 10-Q filed August 13, 1996.
(10) Incorporated by reference to exhibits of Form 8-K filed September 13, 1996.
(11) Incorporated by reference to exhibits of Form 10-K filed March 26, 1997.
(12) Incorporated by reference to exhibits of Form 10-Q filed May 12, 1997.
(13) Incorporated by reference to exhibits of Form 10-K filed April 10, 1998.
(14) Previously filed with this Registration Statement as Exhibit 10.44.
(15) Previously filed with this Registration Statement as Exhibit 10.45.
(16) Previously filed with this Registration Statement as Exhibit 10.46.
(17) Previously filed with this Registration Statement as Exhibit 10.47.
(18) Previously filed with this Registration Statement as Exhibit 10.48.
(19) Previously filed with this Registration Statement as Exhibit 10.49.
(20) Previously filed with this Registration Statement as Exhibit 10.51.
(21) Previously filed with this Registration Statement as Exhibit 10.52.
(22) Previously filed with this Registration Statement as Exhibit 10.53.
(23) Previously filed with this Registration Statement as Exhibit 10.54.
(24) Previously filed with this Registration Statement as Exhibit 10.55.
(25) Previously filed with this Registration Statement as Exhibit 10.56.
<PAGE> 1
EXHIBIT 4.1
STOCKHOLDER AGREEMENT
This Stockholder Agreement (the "Agreement") between Hyundai Electronics
America ("HEA"), Hyundai Electronics Industries Co., Ltd. ("HEI") and Maxtor
Corporation, a Delaware corporation (the "Company") is made this 25th day of
June, 1998.
WHEREAS, the Company is a majority-owned subsidiary of HEA;
WHEREAS, HEA currently owns 100% of the Company's Series A Preferred
Stock;
WHEREAS, the Company is contemplating a firm commitment, underwritten
public offering of its Common Stock (the "Public Offering") pursuant to which
HEA's Series A Preferred Stock would be converted into Common Stock;
WHEREAS, the Company, HEI and certain affiliates of HEI (the
"Purchasers") entered into a Stock Purchase Agreement dated September 10, 1994
(the "Prior Agreement") which set forth certain rights and obligations of the
Purchasers with regard to the Company and its capital stock;
WHEREAS, the Purchasers have transferred all of their shares in the
Company to HEA by a letter agreement dated January 6, 1996 and assigned all of
their rights and obligations under the Purchase Agreement by an Assignment
Agreement dated May 28, 1998;
WHEREAS, the parties believe that it is in the best interests of HEA,
the other Hyundai Affiliates, the Company and their respective stockholders to
clarify the rights and obligations of the parties with respect to various
corporate matters;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
EXCHANGE OF INFORMATION; CONFIDENTIALITY
1.1. Agreement for Exchange of Information; Archives.
(a) Each of HEA and the Company, agrees to provide, or cause
to be provided, to each other, at any time before or after the date of the
closing of the Public Offering (the "Closing Date"), as soon as reasonably
practicable after written request therefor, any information in the possession or
under the control of such Person which the requesting party reasonably needs (i)
to comply with reporting, disclosure, filing or other requirements imposed on
the requesting party (including under applicable securities or tax laws) by a
Governmental Authority having jurisdiction over the requesting party, (ii) for
use in any other judicial, regulatory, administrative, tax or other proceeding
or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or
other similar requirements, or (iii) to comply with its obligations under this
Agreement; provided, however, that in the event that any party determines that
any
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such provision of information could be commercially detrimental, violate any
law or agreement, or waive any attorney/client privilege, the parties shall take
all reasonable measures to permit the compliance with such obligations in a
manner that avoids any such harm or consequences.
(b) Each of the Company and HEA shall have access during
regular business hours (as in effect from time to time) to the documents and
objects of historic significance that related to the Company located on the
premises of the other party and may obtain copies of documents for bona fide
business purposes and may obtain objects for exhibition purposes for
commercially reasonable periods of time if required for bona fide business
purposes, provided that the receiving party shall cause any such objects to be
returned promptly in the same condition in which they were delivered to such
party and shall comply with any rules, procedures or other requirements, and
shall be subject to any restrictions (including prohibitions on removal of
specified objects), that are then applicable to the disclosing party. Nothing
herein shall be deemed to restrict the access of either HEA or the Company to
any such documents or objects or to impose any liability on either HEA or the
Company if any such documents or objects are not maintained or preserved.
1.2. Ownership of Information. Any information owned by HEA or the
Company that is provided to a requesting party pursuant to Section 1.1 shall be
deemed to remain the property of the providing party. Unless specifically set
forth herein, nothing contained in this Agreement shall be construed as granting
or conferring rights of licenses or otherwise in any such information.
1.3. Compensation for Proving Information. The party requesting such
information agrees to reimburse the other party for the reasonable costs, if
any, or creating, gathering and copying such information, to the extent that
such costs are incurred for the benefit of the requesting party. Except as may
be otherwise specifically provided elsewhere in this Agreement or in any other
agreement between the parties, such costs shall be computed in accordance with
the providing party's standard methodology and procedures.
1.4. Record Retention. To facilitate the possible exchange of
information pursuant to this Article I and other provisions of this Agreement
after the Closing Date, the parties agree to use their reasonable best efforts
to retain all information in their respective possession or control on the
Closing Date in accordance with the policies of such party as in effect on such
Closing Date. No party will destroy, or permit any of its subsidiaries to
destroy, any information which the other party may have the right to obtain
pursuant to this Agreement prior to the third anniversary of the date hereof
without first using its reasonable best efforts to notify the other party of the
proposed destruction and giving the other party the opportunity to take
possession of such information prior to such destruction; provided, however,
that in the case of any information relating to taxes or to environmental
liabilities, such period shall be extended to the expiration of the applicable
statute of limitations (giving effect to any extensions thereof).
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1.5. Production of Witnesses; Records; Cooperation. After the Closing
Date, except in the case of an adversarial action by one party against another
party (which shall be governed by such discovery rules as may be applicable),
each party hereto shall use its reasonable efforts to make available to each
other party, upon written request, the former, current and future directors,
officers, employees, other personnel and agents of such party as witnesses and
any books, records or other documents within its control or which it otherwise
has the ability to make available, to the extent that any such person (giving
consideration to business demands of such directors, officers, employees, other
personnel and agents) or books, records or other documents may reasonably be
required in connection with any action in which the requesting party may from
time to time be involved. The requesting party shall bear all costs and expenses
(including allocated costs of in-house counsel and other personnel) in
connection therewith.
1.6. Confidentiality.
(a) Subject to Section 1.7, each of HEA and the Company agrees
to hold, and to cause its respective directors, officers, employees, agents,
accountants, counsel and other advisors and representatives to hold, in strict
confidence, with at least the same degree of care that applies to the Company's
confidential and proprietary information pursuant to policies in effect as of
the Closing Date, all information concerning each such other party that is
either in its possession (including information in its possession prior to any
of the date hereof or the Closing Date) or furnished by any such party or its
respective directors, officers, employees, agents, accountants, counsel and
other advisors and representatives at any time pursuant to this Agreement, or
otherwise, and shall not use any such information other than for such purposes
as shall be expressly permitted hereunder or thereunder, except, in each case,
to the extent that such information has been (i) in the public domain through no
fault of such party or any of their respective directors, officers, employees,
agents, accountants, counsel or other advisors and representatives, (ii) later
lawfully acquired from other sources by such party which sources are not
themselves bound by a confidentiality obligation, or (iii) independently
generated without reference to any proprietary or confidential information of
the other party.
(b) Each party agrees not to release or disclose, or permit to
be released or disclosed, any such information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such information (who shall be advised of
their obligations hereunder with respect to such information), except in
compliance with Section 1.7. Without limiting the foregoing, when any
information is no longer needed for the purposed contemplated by this Agreement,
each party will promptly after request of the other party either return to the
other party all information in a tangible form (including all copies thereof and
all notes, extracts or summaries based thereon) or certify to the other party
that it has destroyed such information (and such copies thereof and such notes,
extracts or summaries based thereon).
1.7. Protective Arrangements. In the event that any party either
determines on the advice of its counsel that it is required to disclose any
information pursuant to applicable law or receives any demand under lawful
process or from any Governmental Authority to disclose or provide information of
any other party that is subject to the confidentiality provisions hereof,
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such party shall notify the other party prior to disclosing or providing such
information and shall cooperate at the expense of the requesting party in
seeking any reasonable protective arrangements requested by such other party.
Subject to the foregoing, the Person that received such request may thereafter
disclose or provide information to the extent required by such law (as so
advised by counsel) or by lawful process or such Governmental Authority.
ARTICLE II
PROVISIONS RELATING TO CERTAIN CORPORATE MATTERS
2.1. Standstill and HEA Right to Maintain Minimum Ownership.
(a) From such time on or after closing of the Public Offering
as HEA Beneficially Owns in the aggregate, less than a majority of the Company's
outstanding capital stock entitled to vote generally in the election of
directors ("Voting Stock"), Hyundai Affiliates may only purchase additional
shares of the Company's Voting Stock
(i) in the open market if a third party or group of
third parties (other than any Hyundai Affiliate or any Person with whom any
Hyundai Affiliate acts (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) as a partnership, limited partnership,
syndicate or other group for the purpose of acquiring, holding or disposing of
securities issued by the Company) makes a tender or exchange offer for 40% or
more of the Company outstanding shares of Voting Stock, or accumulates more than
20% of the Company's Voting Stock common stock, provided that neither HEA nor
its Affiliates shall have any right to purchase Voting Stock hereunder if such
actions by any third parties are approved by a majority of the Company's
Disinterested Directors; or
(ii) at any time prior to December 31, 2000, from the
Company or in the open market as provided below to the extent required to
maintain the Hyundai Affiliates' aggregate Beneficial Ownership of the Company's
outstanding Voting Stock at 30% plus one share of Voting Stock (the "Minimum
Ownership"), to the extent the Hyundai Affiliates' Beneficial Ownership is
reduced by any issuance of shares of Voting Stock by the Company (the
"Issuance") as a result of exercise of stock options, issuance of shares of
Voting Stock under the Company's employee benefit plans or otherwise, on terms
set forth below. If the Company has prior notice of the Issuance, the Company
shall to the extent legally permissible give HEA notice of the Issuance and HEA
shall have the right, subject to compliance with the Company's trading window
policy, to purchase Common Stock on the open market prior to the Issuance only
to the extent required to maintain the Minimum Ownership immediately following
the Issuance. If the Company is unable for any reason to give notice to HEA, HEA
is prohibited from purchasing Common Stock as a result of the Company's trading
window policy, or HEA otherwise fails to purchase sufficient shares in the open
market to maintain its Minimum Ownership as of the date of the Issuance, unless
HEA otherwise instructs the Company in writing, the Company will issue to HEA
that number of shares of Voting Stock required to maintain the Minimum Ownership
no later than the date on which the Hyundai Affiliates' Beneficial Ownership
would otherwise be reduced below the Minimum Ownership (the "Closing Date"), at
a price equal to the average of
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the closing sales prices for the twenty (20) trading days immediately prior to
such Closing Date and HEA will, upon notice from the Company, wire transfer fund
equal to the aggregate purchase price to the Company no later than the day
immediately following the Closing Date. In the event the purchase by HEA under
this Section 2.1(a)(ii) results in short-swing profit liability to any Hyundai
Affiliate under Section 16(b) of the Securities Exchange Act of 1934, as amended
("Section 16(b)"), HEA agrees to cooperate with the Company to pay immediately
to the Company any profits as required under Section 16(b).
(b) Approval by the Company will be required in all other
cases for the purchase of additional shares of the Company's Voting Stock by
Hyundai Affiliates until the earlier of December 31, 2001 or such time as the
Hyundai Affiliates Beneficially Own less than 20% of the Company's Voting Stock
(the "Termination Date"). The Company will notify HEA as promptly as reasonably
feasible after it becomes aware of a tender offer, accumulation or Issuance as
described in Section 2.1. Approval by the Company hereunder shall require
approval of the Company's Board of Directors and approval by a resolution
adopted by a majority of the Company's Disinterested Directors.
2.2. No Proxy Solicitation. From such time on or after closing of the
Public Offering as HEA Beneficially Owns, less than a majority of the Company's
outstanding Voting Stock, until such time as Hyundai Affiliates Beneficially Own
in the aggregate less than 20% of the Company's outstanding shares of Voting
Stock, Hyundai Affiliates will not engage in any proxy solicitation directed to
holders of shares of the Company's Voting Stock, except in response to a proxy
contest initiated by any third party. For purposes of this Section 2.2, "proxy
solicitation" shall mean the making of any stockholder proposal or director
nomination other than as provided in Section 2.3, or any solicitation of proxies
for or against any proposal of management or regarding the election of
directors.
2.3. Nomination of Directors.
(a) So long as Hyundai Affiliates Beneficially Own at least a
majority of the Company's Voting Stock, HEA shall take such actions as are
necessary to maintain on the Company's Board of Directors at least two (2)
directors who qualify as Disinterested Directors.
(b) So long as Hyundai Affiliates Beneficially Own in the
aggregate less than a majority and at least 30% of the Company's outstanding
Voting Stock, HEA shall be entitled to designate in writing to the Nominating
Committee of the Company's Board of Directors (the "Nominating Committee") one
(1) director for nomination by the Nominating Committee for election in each of
three classes of the Company's Board of Directors and, provided that such
designee shall be reasonably satisfactory to the Nominating Committee, the
Company will use its best efforts to cause the Nominating Committee to nominate
such designee for election by the holders of record of the Company's Voting
Stock at each annual meeting of stockholders.
(c) So long as Hyundai Affiliates Beneficially Own in the
aggregate less than 30% and at least 20% of the Company's outstanding Voting
Stock, HEA shall be entitled to designate in writing to the Nominating Committee
one (1) director for nomination by the Company's Nominating Committee for
election in each of two (2) of the three (3) classes of the
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Company's Board of Directors, provided that the two classes as to which HEA
shall have the right to designate a director for nomination shall be the last
two classes to be elected following the reduction in HEA's Beneficial Ownership
below 30% of the Company's outstanding Voting Stock, and provided that such
designee shall be reasonably satisfactory to the Nominating Committee, the
Company will use its best efforts to cause the Nominating Committee to nominate
such designee for election by the holders of record of the Company's Voting
Stock at each such annual meeting. Thereafter, so long as HEA has the right to
designate under this Section 2.3(c), HEA's right hereunder shall apply solely to
the classes determined as set forth above in this Section 2.3(c).
(d) So long as Hyundai Affiliates Beneficially Own in the
aggregate less than 20% and at least 10% of the Company's outstanding Voting
Stock, HEA shall be entitled to designate in writing to the Nominating Committee
one (1) director for nomination by the Nominating Committee as provided below,
and provided such designee is reasonably satisfactory to the Nominating
Committee, the Company will use its best efforts to cause the Nominating
Committee to nominate such designee for election by the holders of record of the
Company's Voting Stock at the annual meeting specified below. If at the time the
aggregate outstanding Voting Stock of the Company Beneficially Owned by Hyundai
Affiliates is reduced to less than 20% (i) HEA has designated more than one
director serving on the Board of Directors at such time, HEA's right to
designate shall apply to the last class to be elected among the classes in which
any such designee(s) serves; (ii) if HEA has designated one director serving on
the Board of Directors at such time, HEA's right will apply to the annual
meeting in which such director previously designated by HEA serves; or (iii) if
no such director designated by HEA for nomination is currently serving, HEA's
right to designate a director for nomination shall apply to the class to be
elected at the annual meeting immediately following the reduction of Hyundai
Affiliates' Beneficial Ownership below 20%. Thereafter, so long as HEA has the
right to designate under this Section 2.3(c), HEA's right shall apply solely to
the class determined as set forth above.
(e) If any director designated by HEA (or serving in lieu of a
director designated by HEA because of HEA's failure to designate such director)
ceases to be a director of the Company, whether as a result of death,
resignation, retirement, disqualification, removal from office or other cause,
and HEA continues to have the right to nominate a director in the class in which
such director served, the vacancy so created shall be filled by the Board of
Directors, provided that the Company shall give HEA notice of such vacancy and
HEA shall have the right to designate in writing to the Nominating Committee a
person to be appointed to fill such vacancy, and provided such designee is
reasonably satisfactory to the Nomination Committee, the Company will use its
best efforts to cause the Board of Directors to appoint such person to fill the
vacancy.
(f) If HEA has the right to designate a person for nomination
as director and fails to designate such a person in writing within ninety (90)
days prior to the annual meeting at which the class of directors in which such
person would serve is being elected, the Board of Directors of the Company shall
be entitled to nominate a person selected by the Nominating Committee without
regard to the designation by HEA. If HEA is notified of a vacancy pursuant
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to Section 2.3(e) and fails to designate a person for appointment to fill such
vacancy within thirty (30) days after such notice, the Board of Directors shall
have the right to appoint a person selected by the Nominating Committee or the
Board of Directors to fill the vacancy without regard to the designation by HEA.
In the event HEA fails to timely designate a director for nomination or
appointment hereunder, HEA shall continue to have the rights set forth above in
Sections 2.3(b) through (e). If HEA designates a person for nomination or
appointment, HEA shall confirm in writing to the Company that such person is
willing to serve as a director of the Company.
(g) While the foregoing rights are in effect, the balance of
the nominees for directors submitted by the Corporation to its stockholders at
any annual meeting of stockholders shall be selected by the Nominating Committee
or the Board of Directors, provided that the vote in favor of such other
nominees shall include the vote of at least a majority of the Disinterested
Directors. The right of HEA to designate directors for nomination shall cease
and have no further effect at such time as Hyundai Affiliates no longer
Beneficially Own in the aggregate at least 10% of the Company's Voting Stock.
(h) At any time when HEA has the right to designate directors
for nomination pursuant to Section 2.3(a) and the Board of Directors complies
with such provision, HEA will vote, and cause Hyundai Affiliates to vote, the
Voting Stock held by them in favor of the slate of directors nominated pursuant
to Section 2.3. So long as HEA has rights under this Section 2.3 or under
Section 2.1(a) to purchase shares of the Company's Common Stock, HEA will hold,
and cause other Hyundai Affiliates to hold, the Voting Stock in its own name or
in the name of a nominee or other holder as to which any of them give advance
notice to the Company and who does not hold securities in such name for the
account of persons who are not Hyundai Affiliates.
2.4. Injunction. The parties acknowledge that irreparable damage would
occur in the event that any of the provisions of this Article II were not
performed in accordance with their specific terms or were otherwise breached.
The parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court having jurisdiction, such remedy being in addition to any
other remedy to which they may be entitled at law or equity.
ARTICLE III
REGISTRATION RIGHTS
3.1. Definitions.
(a) "Holder" shall mean HEA and any transferee permitted under
Section 3.9 hereof.
(b) "Registrable Securities" means the Common Stock of the
Company held by Holder or any transferee permitted under Section 3.9 hereof.
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3.2. Requested Registration. If at any time Holder shall request that
the Company effect the registration of shares of Common Stock held by Holder,
and the requested registration relates to an offering (i) of at least 10% of the
aggregate shares of Common Stock of the Company Beneficially Owned by HEA at the
closing of the Public Offering, and (ii) with reasonably anticipated aggregate
proceeds (net of any underwriters discount or any expenses of the offering) of
$50,000,000 or more, the Company shall use its reasonable commercial efforts to
effect the requested registration, provided that the Company shall not be
obligated to take any action to effect any such registration pursuant to this
Section 3.2 after the Company has effected five (5) such registrations pursuant
to this Section 3.2 and such registrations have been declared effective. Any
registration effected pursuant to Section 3.3 shall not reduce the number of
registrations which the Company is required to effect under this Section 3.2.
The rights granted by this Section 3.2 may be exercised from time to
time, but the Company shall not be required to make any registration effective
under this Section 3.2 more than once in any calendar year, provided that HEA,
but not any other Holder, may request additional registrations during any
calendar year which may be effected by the Company in its sole discretion.
The Company may include in the registration under this Section 3.2 any
other shares of Common Stock (including issued and outstanding shares of Common
Stock as to which the holders thereof have contracted with the Company for
"piggyback" registration rights) so long as the inclusion in such registration
of such shares will not, in the opinion of the managing underwriter, if any, or
if there is no managing underwriter, a nationally recognized investment banking
firm selected by Holder and reasonably acceptable to the Company, interfere with
the successful marketing in accordance with the intended method of sale or other
disposition of all the shares sought to be registered by Holder pursuant to this
Section 3.2. If it is determined as provided above that there will be such
interference, the other shares of Common Stock sought to be included by the
Company shall be excluded to the extent deemed appropriate by the managing
underwriter or, if there is no managing underwriter, Holder, provided that if
less than all shares proposed to be included by the Company are excluded, and
the Company is seeking to register shares of Common Stock for persons other than
the Company, the Company shall have the right to determine in its sole
discretion which such shares other than those offered by Holder(s) will be
excluded from the registration.
If the requested registration is an underwriting, the managing and other
underwriters will be selected by Holder, provided such underwriters shall be
reasonably satisfactory to the Company. If the requested registration is not a
firm commitment, underwritten offering and the Company requests that it be made
in such an offering of the same size and during the same period, Holder will
change the form of the offering to a firm commitment, underwritten offering,
provided that the managing and other underwriters and the terms of the
underwriting, including without limitation the underwriters discount, are
reasonably satisfactory to Holder.
3.3. "Piggyback" Registration. If at any time the Company proposes to
register any of its securities under the Securities Act either for its own
account or for the account of a security holder or security holders (except with
respect to registration statements filed on Form S-4 or on
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a Form S-8 relating to employee stock benefit programs or such other similar
forms then in effect under the Securities Act), it will at each such time give
written notice to Holder and, upon the written request of Holder, given within
20 days after its receipt of the Company's notice, the Company will use its
reasonable commercial efforts to cause such shares of Common Stock as to which
registration shall have been so requested, to be included in the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by Holder.
Notwithstanding any other provision of this Section 3.3, in the case of a firm
commitment, underwritten offering of shares to be issued by the Company, if the
managing underwriter determines that the marketing factors require a limitation
of the number of shares to be sold, the underwriter may exclude shares held by
Holder from such registration and underwriting to the extent deems appropriate
by the managing underwriter. In the case of a firm commitment, underwritten
offering, any request by Holder pursuant to this Section 3.3 to register shares
of Common Stock must specify that such shares are to be included in the
underwriting on the same terms and conditions as the shares of Common Stock
otherwise being sold through underwriters under such registration.
HEA and the Company acknowledge that registration of shares of Common
Stock owned by HEA, if any, pursuant to the registration statement filed with
the SEC to effect the Public Offering is pursuant to this Section 3.3 and HEA
waives notice under this Agreement. If HEA elects not to participate as Selling
Stockholder in the Public Offering and the registration statement covering
shares sold in the Public Offering is declared effective, HEA shall be deemed to
have waived its rights relating to the Public Offering under this Agreement.
3.4. Registration Procedures and Expenses. If and whenever the Company
is required by the provisions contained herein to use its reasonable commercial
efforts to effect the registration of any of the Shares under the Securities
Act, Holder will furnish in writing such information as is reasonably requested
by the Company for inclusion in the registration statement relating to such
offering and such other information and documentation as the Company shall
reasonably request, and the Company will, as expeditiously as possible:
(a) Prepare and file with the SEC a registration statement
(including a prospectus therein) with respect to such securities and use its
reasonable commercial efforts to cause such registration statement to become and
remain effective for such period as may be necessary to permit the successful
marketing of such securities but not exceeding 90 days for an offering pursuant
to Section 3.2 hereof; or, with regard to an offering pursuant to Section 3.3
hereof, for the period associated with the offering which gave rise to rights
under Section 3.3; provided that (i) if, upon receipt of a registration request
pursuant to Section 3.2, the Company is advised in writing setting forth
specific reasons (with a copy to the person requesting registration pursuant to
this Section 3.2), by a nationally recognized, independent investment banking
firm selected by the Company that, in such firm's opinion, a registration at the
time and on the terms requested would materially and adversely affect any
immediately planned underwritten public equity financing by the Company that had
been contemplated by the Company prior to receipt of notice requesting
registration pursuant to Section 3.2 (a "Transaction Blackout"), the Company
shall not be required to effect a registration pursuant to Section 3.2 until the
earliest to occur of (A) the abandonment of such financing, (B) 90 days after
the completion of such financing,
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(C) the termination of any "hold back" or "lock up" period obtained by the
underwriter(s) selected by the Company in connection with such financing from
any person requesting registration pursuant to Section 3.2 or (D) 90 days after
receipt by the Holder requesting registration of written notice of such
Transaction Blackout (together with the copy of the investment banking firm
opinion referred to above in this subsection); and (ii) if, while a registration
request is pending pursuant to Section 3.2, the Company has determined in good
faith that (A) the filing of a registration statement would require the
disclosure of material information that the Company has a bona fide business
purpose for preserving as confidential or (B) the Company then is unable to
comply with SEC requirements, the Company shall not be required to effect a
registration pursuant to Section 3.2 until the earliest to occur of (1) the date
upon which such material information is disclosed to the public or ceases to be
material or the Company is able to so comply with SEC requirements, as the case
may be, or (2) 90 days after the Company makes such good faith determination.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Securities
Act; and to keep such registration statement effective for that period of time
specified in Section 3.3(a);
(c) Furnish to Holder such number of prospectuses and
preliminary prospectuses in conformity with the requirements of the Securities
Act, and such other documents as Holder may reasonably request in order to
facilitate the public sale or other disposition of the shares being sold by
Holder;
(d) If requested by any underwriter of the offering and
permitted by applicable rules and guidelines, furnish Holder a letter from the
independent certified public accountants of the Company in the form customarily
furnished to underwriters in firm commitment, underwritten offerings, addressed
to Holder, providing substantially that such accountants are independent
certified public accountants within the meaning of the Securities Act and that
in the opinion of such accountants, the financial statements and other financial
data of the Company included in the registration statement and the prospectus,
and any amendment or supplement thereto, comply as to form in all material
respects with the applicable accounting requirements of the Securities Act. Such
letter shall additionally cover such other financial matters (including
information as of the date of such letter) with respect to the registration in
respect of which such letter is being given as Holder may reasonably request;
and
(e) Use its reasonable commercial efforts to register or
qualify the shares covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the selling Holder shall
reasonably request and do any and all other acts and things which may be
necessary or desirable to enable Holder to consummate the public sale or other
disposition in such jurisdiction of the shares owned by Holder.
All expenses incurred by the Company in complying with Sections
3.2, 3.3 and 3.4 hereof, including without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and
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expenses, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company) are herein called
"Registration Expenses" and all underwriting discounts and selling commissions
applicable to the sales are herein called "Selling Expenses." The Company will
pay all Registration Expenses in connection with up to five (5) registrations
pursuant to Section 3.2. All Selling Expenses in connection with each
registration pursuant to Section 3.2 or 3.3 shall be borne by the seller of the
securities on which they are imposed. All Registration Expenses other than those
payable by the Company shall be borne by the Company, Holder and any other
selling stockholders pro rata in proportion to the securities covered thereby
being sold by them. Each Holder shall bear the fees and costs of its own
counsel.
3.5. Indemnification. In the event of a registration of any shares of
Common Stock under the Securities Act pursuant to the provisions contained
herein, the Company will hold harmless Holder and each underwriter of such
shares and each other Person, if any, who controls Holder or such underwriter
within the meaning of Section 15 of the Securities Act, and each officer,
director, employee and advisor of each of the foregoing, against any expenses,
losses, claims, damages or liabilities, joint or several ("Losses"), to which
Holder or such underwriter or controlling Person may become subject under the
Securities Act, any state securities law or otherwise, including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
insofar as such expenses, losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which such shares are registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of any rule or regulation promulgated under the
Securities Act or any state securities law applicable to the Company and
relating to action or inaction required of the Company in connection with any
registration, qualification or compliance; and will reimburse Holder and each
such underwriter and each such controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such Loss or action; provided, however, that the Company will not
be liable in any such case to the extent that any such Loss arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, said preliminary
prospectus or said prospectus or said amendment or supplement in reliance upon
and in conformity with written information furnished to the Company through an
instrument duly executed by Holder or such underwriter specifically for use in
the preparation thereof; and provided, further, that if any Losses arise out of
or are based upon an untrue statement, alleged untrue statement, omission or
alleged omission contained in any preliminary prospectus which did not appear in
the final prospectus, the Company shall not have any liability with respect
thereto to (i) Holder or any Person who controls such seller within the meaning
of Section 15 of the Securities Act, if Holder delivered a copy of the
preliminary prospectus to the Person alleging such Losses and failed to deliver
a copy of the final prospectus, as amended or supplemented if it has been
amended or supplemented, to such Person at or prior to the written confirmation
of the sale to such Person or (ii) any underwriter or any Person who controls
such underwriter within the meaning of
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<PAGE> 12
Section 15 of the Securities Act, if such underwriter delivered a copy of the
preliminary prospectus to the Person alleging such Losses and failed to deliver
a copy of the final prospectus, as amended or supplemented if it has been
amended or supplemented, to such Person at or prior to the written confirmation
of the sale to such Person.
In the event of any registration of any shares of Common Stock
under the Securities Act pursuant to the provisions contained herein, Holder
will indemnify and hold harmless the Company and each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
each officer of the Company who signs the registration statement, each director
of the Company and each underwriter and each Person who controls any underwriter
within the meaning of Section 15 of the Securities Act, against any and all
Losses to which the Company or such other Person may become subject under the
Securities Act, any state securities law or otherwise, including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
insofar as such Losses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which such shares are registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if the statement, alleged statement,
omission or alleged omission in respect of which such Loss is asserted was made
in reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of Holder specifically for use in connection with the
preparation of such registration statement, preliminary prospectus, prospectus,
amendment or supplement; provided, however, that if any Losses arise out of or
are based upon an untrue statement, alleged untrue statement, omission or
alleged omission contained in any preliminary prospectus which did not appear in
the final prospectus, Holder shall not have any such liability with respect
thereto to (i) the Company, any Person who controls the Company within the
meaning of Section 15 of the Securities Act, any officer of the Company who
signed the registration statement or any director of the Company, if the Company
delivered a copy of the preliminary prospectus to the Person alleging such
Losses and failed to deliver a copy of the final prospectus, as amended or
supplemented if it has been amended or supplemented, to such Person at or prior
to the written confirmation of the sale to such Person or (ii) any underwriter
or any Person controlling such underwriter within the meaning of Section 15 of
the Securities Act, if such underwriter delivered a copy of the preliminary
prospectus to the Person alleging such Losses and failed to deliver a copy of
the final prospectus, as amended or supplemented, if it has been amended or
supplemented, to such Person at or prior to the written confirmation of the sale
to such Person.
Each party entitled to indemnification under this Section 3.5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting thereon, provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be withheld), and
the Indemnified Party may
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participate in such defense at its own expense, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 3.5 except
to the extent such failure resulted in actual detriment to the Indemnifying
Party. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
3.6. Registration Not Required. Notwithstanding anything in this Article
III, the Company shall have no obligation to register shares of Common Stock
requested to be registered hereunder if, in the opinion of counsel to the
Company, reasonably satisfactory in form and substance to counsel for Holder,
all of the shares of Common Stock requested to be registered can be sold within
a given three-month period without compliance with the registration requirements
of the Securities Act pursuant to Rule 144.
3.7. Reporting Requirements. The Company shall comply with the
reporting requirements of Section 15(d) of the Securities Exchange Act of 1934,
as amended (whether or not it shall be required to do so pursuant to the
provisions of said Section 15(d)), and shall comply with all other public
information reporting requirements required by the SEC as a condition to the
availability of an exemption, presently existing or hereafter adopted, from the
Securities Act for the sale of shares of Common Stock.
3.8. Trading Restrictions.
(a) Notwithstanding the foregoing provisions, so long as HEA
has the right to designate for nomination directors pursuant to Section 2.3 or
any employee of any Hyundai Affiliate serves on the Company's Board of
Directors, HEA and other Hyundai Affiliates shall sell shares under any
registration effected pursuant to this Article III only during the periods when
the "trading window" for Company insiders is open, which is generally a period
commencing on the third trading day after the public release by the Company of
its financial results for the prior period and ending on the last day of the
next succeeding calendar month, and HEA shall not sell any shares under such
registration when HEA has been advised by the Company that the Company's
"trading window" for corporate insiders has been closed. The Company agrees to
(i) advise HEA of the exact period comprising, and of any changes to, its
"trading window" for corporate insiders, and (ii) administrate its "trading
window" policy in a consistent manner vis-a-vis its corporate insiders and HEA.
In the event trading is suspended pursuant to this provision, the Company shall,
if requested by HEA, cause the registration statement to remain effective for an
additional number of days equal to the total number of trading days during which
trading was suspended, notwithstanding the limitation on the period the Company
is required to maintain effectiveness pursuant to Section 3.3(a).
(b) In the event that, at any time after any registration
pursuant to Sections 3.2 or 3.3 is declared effective, the Company determines in
good faith that the sale of Registrable Securities in such offering would
require disclosure of material information that the Company
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<PAGE> 14
has a bona fide business purpose for preserving as confidential or that the
Company is unable to comply with SEC requirements, Holders selling Registrable
Securities in such offering shall, upon written notice of such good faith
determination, suspend sales of such Registrable Securities for a period
beginning on the date of receipt of such notice and expiring on the earlier of
(i) the date upon which such material information is disclosed to the public or
ceases to be material or the Company is able to comply with SEC requirements, as
the case may be, and (ii) 45 days after the Company initially makes such good
faith determination. In the event trading is suspended pursuant to this
provision, the Company shall, if requested by Holder, cause the registration
statement to remain effective for an additional number of days equal to the
total number of trading days during which trading was suspended, notwithstanding
the limitation on the period the Company is required to maintain effectiveness
of such registration statement pursuant to Section 3.3(a).
3.9. Transfer of Registration Rights.
(a) HEA may transfer all or any portion of its rights under
this Article III to any transferee (each, a "transferee") of an amount of
Registrable Securities owned by HEA equal to or exceeding ten percent (10%) of
the Registrable Securities owned by HEA immediately after the closing of the
Public Offering. The rights under this Article III are not otherwise
transferable. Any transfer of registration rights pursuant to this Section 3.9
shall be effective upon receipt by the Company of written notice from HEA
stating the name and address of any such transferee and identifying the amount
of Registrable Securities with respect to which the rights under this Agreement
are being transferred and the nature of the rights so transferred, and an
agreement in writing by the transferee to be bound by the provisions of Article
III and Article V of this Agreement.
(b) After any such transfer, HEA shall retain its rights under
this Agreement with respect to all other Registrable Securities owned by Holder,
provided that any rights to request registration under Section 3.2 granted to
such transferee(s) by HEA shall reduce the then remaining number of
registrations to which HEA would otherwise be entitled under Section 3.2 hereof,
and provided further that in no event shall the Company be required to effect
more than a total of five (5) registrations taken as a whole pursuant to Section
3.2 of this Agreement.
ARTICLE IV
COVENANT NOT TO COMPETE
Neither HEA nor any other Hyundai Affiliate will compete for a period of
five (5) years anywhere in the world from the closing of the Public Offering
with the Company by means of the ownership, management, operation or control of
any business engaged primarily in the design, development, manufacture,
marketing or sale of hard disk drives, provided that nothing herein shall
prohibit Hyundai Affiliates from making investments in publicly traded
corporations, regardless of the business such corporations are engaged in,
provided the aggregate ownership by Hyundai Affiliated does not exceed 3% of the
issued and outstanding capital stock of any such publicly traded corporation.
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<PAGE> 15
ARTICLE V
MISCELLANEOUS
5.1 Other Agreements Superseded. This Agreement supersedes all prior
agreements or understandings written or oral (including, without limitation the
Prior Agreement), between the Company and HEA and all Hyundai Affiliates,
relating to the subject matter hereof, and incorporates the entire understanding
of the parties with respect thereto.
5.2. Amendment or Modification. This Agreement may be amended or
supplemented only by a written instrument signed by the party against whom the
amendment or supplement is sought to be enforced. The party benefited by any
condition or obligation may waive the same, but such waiver shall not be
enforceable by another party unless made by written instrument signed by the
waiving party.
5.3. Notices. Any notice or other communication under or relating to
this Agreement shall be given in writing and shall be deemed sufficiently given
and served for all purposes when personally delivered or given by telecopy with
receipt verified by printout of the transmitting machine (or otherwise confirmed
in writing, in which case the notice shall be deemed given when such written
confirmation is received):
(a) If to HEA or HEI:
Hyundai Electronics America
3101 North First Street
San Jose, CA 95134
Attn: President and Chief Executive Officer
with a copy to:
Halfred Hofherr, Esq.
Senior Vice President, Corporate Counsel and Secretary
(b) If to Maxtor:
510 Cottonwood Drive
Milpitas, CA 95035
Attn: Glenn H. Stevens, General Counsel
Fax: (303) 678-3111
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Diane Holt Frankle, Esq.
Fax: (415) 327-3699
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5.4. Law Governing; Federal Forum; Remedies.
(a) This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware, as such laws are applied to
agreements entered into and to be performed entirely within Delaware between
Delaware residents.
(b) Binding Arbitration. Any controversy, claim, or action,
whether in law or at equity, whether in tort, contract, warranty, or otherwise,
arising out of, relating to, or involving this Agreement and any agreement,
undertaking, or performance that may be promised, performed, or executed to
implement this Agreement will be settled by arbitration as follows:
(i) Any arbitration proceeding shall be conducted under
the laws of the state of Delaware and the Federal Arbitration Act, and pursuant
to the Commercial Arbitration Rules of the American Arbitration Association
insofar as such Commercial Arbitration Rules do not conflict with the provisions
of this Section.
(ii) Either party may initiate arbitration by giving
notice to the other stating an intention to arbitrate, the issue to be
arbitrated, and the relief sought. The site for any arbitration proceeding and
the source of all arbitrators shall be JAMS Endispute located in San Jose,
California, if there is such, and otherwise the nearest location of JAMS
Endispute to San Jose, California.
(iii) The arbitrators shall promptly, by majority vote,
make such award and determination as is appropriate and in accordance with the
terms of this Agreement. The parties will faithfully abide by and perform any
award rendered by the arbitrators. Further, any such award and determination
shall be final and binding upon the parties and enforceable in any court of
competent jurisdiction. The arbitration proceedings and all pleadings and
written evidence shall be in the English language. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or a true copy. Notwithstanding the
above, the parties may apply to any court of competent jurisdiction for
injunctive relief without breach of this arbitration provision.
(c) If any provisions of this Agreement are breached, the
nonbreaching party shall be entitled without limiting any other remedy available
at law or equity, to an injunction, specific performance or other forms of
equitable relief. The nonbreaching party shall be entitled to recover the cost
(including attorneys' fees) of enforcing its rights and the breaching party's
obligations pursuant to this Agreement. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege.
5.5. Successors; Assignability. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any right, remedy,
obligation or liability hereunder may be assigned by either of the parties
hereto without the prior written consent of the other parties hereto, subject to
the provisions of Section 3.9 hereof.
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5.6. Counterparts. This Agreement may be executed in any number of
counterparts, and each such executed counterpart shall be deemed to be an
original instrument, but all such executed counterparts together shall
constitute one and the same instrument.
5.7. Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any Person other than the parties hereto and their respective
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge any obligation of any third Person to any party hereto or
give any third Person any right of subrogation or action over against any party
hereto.
5.8. Headings. The headings used in this Agreement are provided for
convenience only and this Agreement shall be interpreted as though they did not
appear herein.
5.9. Transactional Expenses. Each party shall pay its own fees and
expenses incident to the negotiation, preparation, execution, delivery and
performance of this Agreement and thereof, including, without limitation, the
fees and expenses of its counsel, accountants and other advisors.
5.10. Severability. Should any provisions of this Agreement be held by
a court of law to be illegal, invalid or unenforceable, the legality, validity
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired thereby.
5.11. Certain Definitions. As used in this Agreement, the following
terms have the respective meanings set forth below or in the location indicated:
(a) Affiliate shall mean any Person which controls, is
controlled by or is under common control with, another Person. For purposes of
this definition, "control" means the ability, directly or indirectly, to elect
or designate (in the absence of particular events or circumstances) a majority
of the directors (or Persons performing a similar function) of a Person.
(b) Beneficial Owner, Beneficially Own, Beneficial Ownership
and words of similar import shall have the meaning ascribed to such terms in
Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or any successor rule.
(c) Disinterested Director shall mean a director of the
Company who is not and has never been an officer, employee or paid consultant of
any Hyundai Affiliate or the Company.
(d) Governmental Agency shall mean any federal, state, local
or foreign government or any political subdivision thereof (including without
limitation the executive and legislative branches thereof) or any department,
commission, board, bureau, agency, court, panel or other instrumentality of any
kind of any of the foregoing.
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<PAGE> 18
(e) Hyundai Affiliate shall mean Hyundai Electronics America,
a California corporation ("HEA"), Hyundai Electronics Industries Co., Ltd.
("HEI"), all successors to HEA or HEI by way of merger, consolidation or sale of
all or substantially all its assets, and all corporations, partnerships, joint
ventures, associations and other entities that directly or indirectly, through
one or more intermediaries, are controlled by HEA or HEI, other than the Company
and all corporations, partnerships, joint ventures, associations and other
entities directly or indirectly controlled by the Company. The term "control,"
as used in the immediately preceding sentence, shall mean with respect to a
corporation or limited liability company the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the controlled corporation or limited liability company, and, with respect to
any individual, partnership, trust, other entity or association, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of the controlled entity.
(f) Person shall mean an individual, partnership, corporation,
trust or unincorporated organization or a Governmental Agency.
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<PAGE> 19
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
MAXTOR CORPORATION
By: /s/ GLENN H. STEVENS
-------------------------------------
Glenn H. Stevens, Vice President,
General Counsel and Secretary
HYUNDAI ELECTRONICS AMERICA
By: /s/ C.S. PARK
-------------------------------------
C.S. Park, President and Chief
Executive Officer
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD.
By: /s/ C.S. PARK
-------------------------------------
C.S. Park, Executive Vice President
19
<PAGE> 1
364-DAY CREDIT AGREEMENT
Dated as of October 31, 1997
MAXTOR CORPORATION, a Delaware corporation (the "Borrower"), and Nomura BANK
INTERNATIONAL plc (the "Lender"), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling," "controlled
by" and "under common control with") of a Person means the possession, direct
or indirect, of the power to vote 5% or more of the Voting Stock of such Person
or to direct or cause the direction of the management and policies of such
Person, whether through the ownership of Voting Stock, by contract or
otherwise.
"Applicable Lending Office" means Nomura House, 1 St. Martin's-Le-Grand, London
EC1A 4NP, England.
"Assigning Lender" has the meaning specified in Section 7.07(b).
"Assignment and Acceptance" means an assignment and acceptance entered into by
a Lender and an Eligible Assignee in substantially the form of Exhibit C
hereto.
"Assuming Lender" means an Eligible Assignee not previously a Lender that
becomes a Lender hereunder.
"Assumption" means an agreement in substantially the form of Exhibit I hereto
by which an Eligible Assignee agrees to become a Lender, in each case agreeing
to be bound by all obligations of a Lender hereunder.
"Borrowing" means the loan of ten million dollars from the Lender to the
Borrower hereunder.
"Business Day" means a day of the year on which banks are not required or
authorized by law to close in New York City or San Francisco, USA or London,
England.
"Capitalized Leases" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"Commitment" means, with respect to any Lender at any time, (a) the amount set
forth opposite such Lender's name on the signature pages hereof under the
caption "Commitment" or (b) if such Lender has entered into any Assignment and
Acceptance, the amount set forth for such Lender as such Lender's "Commitment."
"Commitment Termination Date" means the first to occur of (i) the funding of
the Loan or (ii) the day which is 30 days after the signing of this Agreement.
"Confidential Information" means information that the Borrower furnishes to the
Lender in a writing designated as confidential, but does not include any such
information that is or becomes generally available to the public or that is or
becomes available to the Lender from a source other than the Borrower.
"Consolidated" refers to the consolidation of accounts in accordance with GAAP.
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<PAGE> 2
"Debt" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all obligations of such Person for the
deferred purchase price of property or services, (c) all obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (d)
all obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person in respect of acceptances,
letters of credit or similar extensions of credit, (g) all Debt of others
referred to in clauses (a) through (f) above or clause (h) below guaranteed
directly or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (1) to pay or
purchase such Debt or to advance or supply funds for the payment or purchase of
such Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the debtor to
make payment of such Debt or to assure the holder of such Debt against loss,
(3) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (4) otherwise to assure
a creditor against loss, and (h) all Debt referred to in clauses (a) through
(g) above secured by (or for which the holder of such Debt has an existing
right, contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Debt.
"Default" means any Event of Default or any event that would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both.
"Domestic Lending Office" means, with respect to any Lender, the office of such
Lender specified as its "Domestic Lending Office" opposite its name on Schedule
I hereto or in the Assumption Agreement or the Assignment and Acceptance
pursuant to which it became a Lender, or such other office of such Lender as
such Lender may from time to time specify to the Borrower.
"Drawing" means the single drawing of the facility made pursuant to this
Agreement (as from time to time reduced by repayment).
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender, (ii) an Affiliate of a Lender, (iii) a
commercial bank organized under the laws of the United States, or any State
thereof, and having a combined capital and surplus of at least $250,000,000;
(iv) a commercial bank organized under the laws of any other country that is a
member of the Organization for Economic Cooperation and Development or has
concluded special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow, or a political subdivision
of any such country, and having a combined capital and surplus of at least
$250,000,000, so long as such bank is acting through a branch or agency located
in the country in which it is organized or another country that is described in
this clause (iv); and (v) any other Person approved by the Lender and the
Borrower, such approval not to be unreasonably withheld or delayed; provided,
however, that neither the Loan Parties nor an Affiliate or either of the Loan
Parties shall qualify as an Eligible Assignee.
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<PAGE> 3
"Environmental Action" means any action, suit, demand, demand letter, claim,
notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, Environmental Permit or Hazardous
Materials or arising from alleged injury or threat of injury to health, safety
or the environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory authority or
any third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign statute, law,
ordinance, rule, regulation, code, order, judgment, decree or judicial or
agency interpretation, policy or guidance relating to pollution or protection
of the environment, health, safety or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification number,
license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a
member of either Loan Party's controlled group; or under common control with
either Loan Party, within the meaning of Section 414 of the Internal Revenue
Code.
"ERISA Event" means (a)(i) the occurrence of a reportable event, within the
meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day
notice requirement with respect to such event has been waived by the PBGC, or
(ii) the requirements of subsection (i) of Section 4043(b) of ERISA (without
regard to subsection (2) of such Section) are met with a contributing sponsor,
as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described
in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is
reasonably expected to occur with respect to such Plan within the following 30
days; (b) the application for a minimum funding waiver with respect to a Plan;
(c) the provision by the administrator of any Plan of a notice of intent to
terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such
notice with respect to a plan amendment referred to in Section 4041(e) of
ERISA); (d) the cessation of operations at a facility of either Loan Party or
any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA;
(e) the withdrawal by either Loan Party or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition
of a lien under Section 302(f) of ERISA shall have been met with respect to any
Plan; (g) the adoption of an amendment to a Plan requiring the provision of
security to such Plan pursuant to Section 307 of ERISA; or (h) the institution
by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of
ERISA, or the occurrence of any event or condition described in Section 4042 of
ERISA that constitutes grounds for the termination of, or the appointment of a
trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation
D of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"Eurodollar Rate" means, for any Interest Period, an interest rate per annum
equal to the rate per annum obtained by dividing (a) the average (rounded
upward to the nearest whole multiple of 1/16 of 1% per annum, if such average
is not such a multiple) of the rate per annum at which
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deposits in U.S. dollars are offered by the principal office of each of the
Reference Banks in London, England to prime banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before the first day of
such Interest Period by (b) a percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage for such Interest Period. The Eurodollar Rate for any
Interest Period shall be determined by the Lender on the basis of applicable
rates furnished to and received by the Lender from the Reference Banks two
Business Days before the first day of such Interest Period.
"Eurodollar Rate Reserve Percentage" means, for any Interest Period, the
reserve percentage applicable two Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities having a term equal to such
Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Facility" means, at any time, the aggregate amount of the Lenders' Commitments
at such time.
"GAAP" has the meaning specified in Section 1.03.
"Guarantor" means Hyundai Electronics Industries Co., Ltd., a company
incorporated with limited liability in the Republic of Korea.
"Guaranty" has the meaning specified in Section 3.01(h)(iii).
"Hazardous Materials" means (a) petroleum and petroleum products, byproducts or
breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas and (b) any other chemicals, materials
or substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.
"Hyundai Group" means, collectively, the Guarantor, Hyundai Merchant Marine
Co., Ltd., Hyundai Corporation and Hyundai Heavy Industries Co., Ltd.
"Indemnified Party" has the meaning specified in Section 7.04(b).
"Insufficiency" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Interest Period" means the date on which the Loan is made and ending six
months thereafter and then each subsequent period commencing on the last day of
the immediately preceding Interest Period and ending six months thereafter;
provided, however, that:
(a) whenever the last day of any Interest Period would otherwise occur on
a day other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, provided, however, that,
if such extension would cause the last day of such Interest Period to occur in
the next following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day;
(b) whenever the first day of any Interest Period occurs on a day of an
initial calendar month for which there is no numerically corresponding day in
the calendar month that succeeds such initial calendar month by the number of
months equal to the number of months in such Interest Period, such Interest
Period shall end on the last Business Day of such succeeding calendar month;
and
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(c) whenever, if at or about 11:00 a.m. on the Quotation Date for any
Interest Period relating to the Drawing, the Lender is not offering to leading
banks in the London Interbank Market deposits in Dollars for the proposed
duration of such Interest Period:
(i) the duration of that Interest Period shall be one
month or, if less, such that it will end on the Repayment Date; and
(ii) Margin plus the rate determined by the Lender to be
that which represents the cost to the Bank, expressed as a percentage rate per
annum of funding the Loan from whatever sources it may select.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.
"Lenders" means the Lender and each Person that shall become a Lender hereto
pursuant to Section 7.07.
"Lender's Account" means the account of the Lender maintained by the Lender at
Bank of America NTSA, New York, New York (account number 65506- 61166).
"LIBO Rate" means, in relation to an Interest Period or any unpaid sum under
the Facility the rate determined by the Lender to be the rate at which it
offers deposits in Dollars to leading banks in the London Interbank Market, for
the specified period at or about 11:00 a.m. on the Quotation Date for such
period in an amount approximately equal to the amount of the Drawing or unpaid
sum concerned and, for the purposes of this definition, "SPECIFIED PERIOD"
means the Interest Period or, as the case may be, the period in respect of
which LIBO Rate falls to be determined in relation to such unpaid sum.
"Lien" means any lien, security interest or other charge or encumbrance of any
kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title or a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan" means the $10,000,000 loan made by the Lender to the Borrower as
evidenced by this Agreement.
"Loan Documents" means this Agreement, the Note and the Guaranty, in each case
as amended or otherwise modified from time to time.
"Loan Parties" means the Borrower, the Guarantor and each of their
Subsidiaries.
"Margin" means, as of any date, a percentage per annum equal to 0.73% for the
Loan.
"Material Adverse Change" means any material adverse change in the business,
financial condition, operations, performance, properties or prospects of either
Loan Party or either Loan Party and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the business,
financial condition, operations, performance, properties or prospects of a Loan
Party or any Loan Party and its Subsidiaries taken as a whole, (b) the rights
and remedies of the Lender under this Agreement or any other Loan Document or
(c) the ability of a Loan Party to perform its obligations under this Agreement
or any other Loan Document.
"Multiemployer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, to which either Loan Party or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of
the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of either Loan Party
or any ERISA Affiliate and at
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least one Person other than the Loan Parties and the ERISA Affiliates or (b)
was so maintained and in respect of which either Loan Party or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in the event
such plan has been or were to be terminated.
"Note" means a promissory note of the Borrower payable to the Lender, in the
form of Exhibit A hereto (as such promissory note may be amended, endorsed or
otherwise modified from time to time), evidencing the aggregate indebtedness of
the Borrower to the Lender resulting from outstanding Loans, and also means all
other promissory notes accepted from time to time in substitution therefor or
renewal thereof.
"Obligations" means all obligations (monetary or otherwise) of the Borrower and
each other Obligor arising under or in connection with this Agreement, or the
Note.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor).
"Permitted Liens" means such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been
commenced: (a) Liens for taxes, assessments and governmental charges or levies
to the extent not required to be paid under Section 5.01(b) hereof; (b) Liens
imposed by law, such as materialmen's, mechanics', carriers', workmen's and
repairmen's Liens and other similar Liens arising in the ordinary course of
business securing obligations that are not overdue for a period of more than 30
days; (c) pledges or deposits to secure obligations under workers' compensation
laws or similar legislation or to secure public or statutory obligations; (d)
easements, rights of way and other encumbrances on title to real property that
do not render title to the property encumbered thereby unmarketable or
materially adversely affect the use of such property for its present purposes;
(e) Liens consisting of judgment or judicial attachment liens, provided that
the enforcement of such Liens is effectively stayed; (f) Liens on assets of
corporations that become Subsidiaries after the date of this Agreement,
provided, however, that such Liens existed at the time the respective
corporations became Subsidiaries and were not created in anticipation thereof
or in connection with the creation of such Subsidiaries; (g) Liens securing
Capitalized Lease obligations on assets subject to such Capitalized Leases,
provided that such Capitalized Leases are permitted under subsection
5.02(b)(iii)(B); (h) Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Borrower in excess of those set forth by regulations promulgated
by the Federal Reserve Board, and (ii) such deposit account is not intended by
the Borrower or any of its Subsidiaries to provide collateral to the depository
institution.
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, trust, unincorporated association, joint venture,
limited liability company of other entity, or a government or any political
subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Quotation Date" means, in relation to any period for which an interest rate is
to be determined under this Agreement, the day on which quotations would
normally be given by leading banks in London Interbank Market for deposits in
Dollars for delivery on the first day of such period; provided that, if, for
any such period, quotations would ordinarily be given on more than one date,
the Quotation Date for that period shall be the last of those dates.
"Reference Banks" means Citibank Royal Bank of Canada and the Sumitomo Bank,
Ltd.
"Register" has the meaning specified in Section 7.07(d).
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<PAGE> 7
"Responsible Officer" means any officer of the Borrower.
"Securitization" means the non-recourse trade receivable programme with
Citibank Securities, Inc., to be increased by US $50,000,000 as extended in
accordance with its terms.
"Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of either Loan Party
or any ERISA Affiliate or no Person other than the Loan Parties and the ERISA
Affiliates or (b) was so maintained and in respect of which either Loan Party
or any ERISA Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"Stated Maturity Date" means the day falling 364 days after the date on which
the Loan is initially advanced by the Lender to the Borrower.
"Subordinated Debt" means any Debt of the Borrower that is subordinated to the
obligations of the Borrower under the Loan Documents on, and that otherwise
contains, terms and conditions reasonably satisfactory to the Lenders.
"Subsidiary" of any Person means any corporation, partnership, joint venture,
limited liability company, trust or estate of which (or in which) more than 50%
of (a) the issued and outstanding capital stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Surviving Debt" means Debt of the Borrower identified on Schedule
5.2(b)(iii)(C) hereto.
"Voting Stock" means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle
E of Title IV of ERISA.
SECTION 1.02 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.03 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with, in the case of the
Borrower, generally accepted accounting principles, and, in the case of the
Guarantor, generally accepted financial accounting standards in the Republic of
Korea consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e) ("GAAP").
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ARTICLE II
COMMITMENT, BORROWING PROCEDURES AND NOTE
SECTION 2.01 Commitment. On the terms and subject to the conditions
of this Agreement (including Article III), the Lenders agree to make the Loan
pursuant to the Commitment described in Section 2.02.
SECTION 2.02 Commitment To Make Loans. From time to time on any Business Day
occurring prior to the Commitment Termination Date, the Lenders will make a
loan (the "Loan") to the Borrower equal to the aggregate amount of the
Borrowing requested by the Borrower to be made on such day. No amounts paid or
prepaid with respect to any Loan may be reborrowed.
SECTION 2.03 Borrowing Procedure. By delivering a Borrowing Request in
substantially the form of Exhibit B hereto to the Lender on or before 10:00
a.m. (London time), on a Business Day, the Borrower may irrevocably request, on
not less than three nor more than five Business Days' notice, that the
Borrowing be made in an amount of $10,000,000. On the terms and subject to the
conditions of this Agreement, on or before 11:00 a.m. (London time) on such
Business Day, the Lender shall make funds in an amount equal to the requested
Borrowing available to the Borrower by wire transfer to the accounts the
Borrower shall have specified in its Borrowing Request.
SECTION 2.04 Note. The Loan shall be evidenced by the Note payable to the
order of the Lender in a maximum principal amount equal to the original
Commitment. The Borrower hereby irrevocably authorizes the Lender to make (or
cause to be made) appropriate notations on the grid attached to the Lender's
Note (or on any continuation of such grid), which notations, if made, shall
evidence, inter alia, the date of, the outstanding principal of, and the
interest rate and Interest Period applicable to the Loans evidenced thereby.
Such notations shall be conclusive and binding on the Borrower absent manifest
error; provided, however, that the failure of the Lender to make any such
notation shall not limit or otherwise affect any Obligations of the Borrower.
SECTION 2.05 Repayments and Prepayments. The Borrower shall repay in full the
unpaid principal amount of each Loan upon the Stated Maturity Date therefor.
Prior thereto, the Borrower:
(a) may, on any Business Day, make a voluntary prepayment, in whole or in
part, of the outstanding principal amount of the Loan; provided, however, that
(i) no such prepayment of the Loan may be made on any day
other than the last day of the Interest Period for the Loan;
(ii) all such voluntary prepayments shall require at least
three but no more than five Business Days' prior written notice to the Lender;
and
(iii) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $5,000,000; and
(b) shall, immediately upon any acceleration of the Stated Maturity Date
of the Loan pursuant to Article VI, repay the Loan.
Each prepayment of the Loan made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 7.04.
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SECTION 2.06 Interest Provisions. Interest on the outstanding principal
amount of the Loan shall accrue and be payable as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve
Adjusted) for such Interest Period plus the Margin.
SECTION 2.07 Market Disruption Rates. Notwithstanding anything to the
contrary herein contained, if at or about 11:00 A.M. on the Quotation Date for
any Interest Period relating to the Drawing, the Lender is not offering to
leading banks in the London Interbank Market Deposits in Dollars for the
proposed duration of such Interest Period:
(a) the duration of that Interest Period shall be one month or, if less,
such that it will end on the Repayment Date; and
(b) during that Interest Period the rate of interest shall be the Margin
plus the rate determined by the Lender to be that which represents the costs to
the Lender, expressed as a percentage rate per annum of funding the Loan from
whatever sources it may select.
SECTION 2.08 Post-Maturity Rates. If default is made in the payment of any
sum due under this Agreement or, if any sum due and payable by any Obligor
under any judgment of any court is not paid on the due date, interest shall
accrue on the amount in respect of which such default has been made from the
date of default until payment, calculated (both before and after judgment) at
the rate per annum which is the sum from time to time of the LIBO Rate plus the
Margin plus two percent plus the cost to the Lender of obtaining such funds
from such sources and for such periods as the Lender may in its absolute
discretion and from time to time select, and will be due and payable at the end
of each such period. Interest on overdue amounts shall be compounded at such
intervals and the Lender may select. Interest payable pursuant to this Section
2.08 shall be without prejudice to any additional claim by the Lender for costs
and damages.
SECTION 2.09 Payment Dates. Interest accrued on the Loan shall be payable,
without duplication:
(a) on the last day of an Interest Period;
(b) on the Stated Maturity Date therefor;
(c) on the date of any payment or prepayment, in whole or in part, of
principal outstanding on the Loan; and
(d) on that portion of any Loans the Stated Maturity Date of which is
accelerated pursuant to Article VI, immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 2.10 Fees. The Borrower agrees to pay to the Lender for the Lender's
Account a facility fee in an amount equal to the total of all legal fees, any
value added tax, and other out of pocket expenses incurred in connection with
the preparation, negotiation and documentation of this Facility whether or not
the Facility is signed payable.
SECTION 2.11 Increased Costs. If, due to either (i) the introduction of or
any change in or in theinterpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to the Lender of agreeing to make or making, or
funding the Loan (excluding for purposes of this Section 2.11 any such
increased costs resulting from (i) Taxes or Other Taxes (as to which Section
2.14 shall govern) and (ii) changes in the basis of taxation of overall net
income or overall gross income by the United States or by the foreign
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jurisdiction or state under the laws of which the Lender is organized or has
its Applicable Lending Office or any political subdivision thereof), then the
Borrower shall from time to time, upon demand by the Lender pay to the Lender
additional amounts sufficient to compensate the Lender for such increased cost.
A certificate as to the amount of such increased cost, setting forth the
calculation of the increased cost in reasonable detail, submitted to the
Borrower, shall be conclusive and binding for all purposes, absent manifest
error; provided that the Borrower shall have no obligation to the Lender under
this Section 2.11(a) if the Lender shall not have delivered such certificate to
the Borrower within sixty days following the later of (1) the date of the
occurrence of event that forms the basis for such demand and (2) the date the
Lender shall have or should reasonably have become aware of such event.
(b) If the Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by the Lender or any corporation
controlling the Lender and that the amount of such capital is increased by or
based upon the existence of the Lender's commitment to lend hereunder (and
other commitments of this type), then, upon demand by the Lender, the Borrower
shall pay to the Lender, from time to time as specified by the Lender,
additional amounts sufficient to compensate the Lender or such corporation in
the light of such circumstances, to the extent that the Lender reasonably
determines such increase in capital to be allocable to the existence of the
Lender's commitment to lend hereunder. A certificate as to such amounts
setting forth the calculation of the increased cost in reasonable detail,
submitted to the Borrower, shall be conclusive and binding for all purposes,
absent manifest error; provided that the Borrower shall have no obligation to
the Lender under this Section 2.11(b) if the Lender shall not have delivered
such certificate to the Borrower within sixty days following the later of (1)
the date of the occurrence of the event that forms the basis for such demand
and (2) the date the Lender shall have or should reasonably have become aware
of such event.
SECTION 2.12 Illegality. If, at any time, it is unlawful for the Lender to
make, fund or allow to remain outstanding the Drawing made or to be made by it
hereunder, then the Lender shall, promptly after becoming aware of the same,
deliver to the Borrower a certificate to that effect and:
(a) the available amount of the Facility shall be immediately reduced to
zero; and
(b) if the Lender so requires, the Borrower shall on such date as the
Lender shall have specified, repay the outstanding Drawing together with
accrued interest thereon, discharge its obligations under Section 2.14 (whether
or not such obligations would otherwise be then due for performance) and pay
all other amounts owing to the Lender hereunder.
SECTION 2.13 Payments and Computations. (a) The Borrower shall make each
payment hereunder and under the Notes not later than 1:00 P.M. (New York City
time) on the day when due in U.S. dollars to the Lender at the Lender's Account
in same day funds. Upon its acceptance of an Assignment and Acceptance, from
and after the effective date specified in such Assignment and Acceptance, the
Lender shall make all payments hereunder and under the Notes in respect of the
interest assigned thereby to the Lender assignee thereunder, and shall make all
appropriate adjustments in such payments for periods prior to such effective
date.
(b) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder or under the Note
held by the Lender, to charge from time to time against any or all of the
Borrower's accounts with the Lender any amount so due.
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(c) All computations of interest based on the LIBO Rate and of facility
fees shall be made by the Lender on the basis of a year of 360 days, in each
case for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest or facility fees are
payable. Each determination by the Lender of an interest rate or facility fee
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(d) Whenever any payment hereunder or under the Note shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extensions of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, that, if such extension would cause payment of
interest on or principal of the Loan to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
SECTION 2.14 Taxes. (a) Any and all payments by the Borrower hereunder or
under the Notes shall be made, in accordance with Section 2.13, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of the Lender, taxes imposed on its overall net
income, and franchise taxes imposed on it in lieu of net income taxes, by the
jurisdiction under the laws of which the Lender is organized or any political
subdivision thereof and taxes imposed on its overall net income, and franchise
taxes imposed on it in lieu of net income taxes, by the jurisdiction of the
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or under the Notes being
hereinafter referred to as "Taxes"). If the borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under
any Note to the Lender, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.14) the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamped
or documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under the Notes or from
the execution, delivery or registration of, performing under, or otherwise with
respect to, this Agreement or the Notes (hereinafter referred to as "Other
Taxes").
(c) The Borrower shall indemnify the Lender for the full amount of Taxes
or Other Taxes (including, without limitation, any taxes imposed by any
jurisdiction on amounts payable under this Section 2.14) imposed on or paid by
the Lender and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date the Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
shall furnish to the Lender, as its address referred to in Section 7.02, the
original or a certified copy of a receipt evidencing payment thereof. In the
case of any payment hereunder or under the Notes by or on behalf of the
Borrower through an account or branch outside the United States or by or on
behalf of the Borrower by a payor that is not a United States person, if the
Borrower determines that no Taxes are payable in respect thereof, the Borrower
shall furnish, or shall cause such payor to furnish, to the Lender, at such
address, an opinion of counsel acceptable to the Lender stating
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that such payment is exempt from Taxes. For purposes of this subsection (d)
and subsection (e), the terms "United States" and "United States Person" shall
have the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of the Lender and on the date of the Assignment and
Acceptance or Assumption Agreement pursuant to which it becomes a Lender in the
case of each Assuming Lender, and from time to time thereafter as requested in
writing by the Borrower (but only so long as such Lender remains lawfully able
to do so), shall provide the Borrower with two original Internal Revenue
Service forms 1001 or 4224, as appropriate, or any successor or other form
prescribed by the Internal Revenue Service, certifying that such Lender is
exempt from or entitled to a reduced rate of United States withholding tax on
payments pursuant to this Agreement or the Notes. If the forms provided by a
Lender at the time such Lender first becomes a party to this Agreement
indicates a United States interest withholding tax rate in excess of zero,
withholding tax at such rate shall be considered excluded from Taxes unless and
until such Lender provides the appropriate forms certifying that a lesser rate
applies, whereupon withholding tax at such lesser rate only shall be considered
excluded from Taxes for periods governed by such form; provided, however, that,
if at the date of the Assignment and Acceptance or Assumption Agreement
pursuant to which a Lender assignee becomes a party to this Agreement, the
Lender assignor was entitled to payments under subsection (a) in respect of
United States withholding tax with respect to interest paid at such date, then,
to such extent, the term Taxes shall include (in addition to withholding taxes
that may be imposed in the future or other amounts otherwise includable in
Taxes) United States withholding tax, if any, applicable with respect to the
Lender assignee on such date. If any form or document referred to in this
subsection (e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required by Internal
Revenue Service form 1001 or 4224 or any successor form thereof, that the
Lender reasonably considers to be confidential, the Lender shall give notice
thereof to the Borrower and shall not be obligated to include in such form or
document such confidential information.
(f) For any period with respect to which a Lender has failed to provide
the Borrower with the appropriate form described in Section 2.14(e) (other than
if such failure is due to a change in law occurring subsequent to the date on
which a form originally was required to be provided, or if such form otherwise
is not required under the first sentence of subsection (e) above), such Lender
shall not be entitled to indemnification under Section 2.14(a) or (c) with
respect to Taxes imposed by the United States by reason of such failure;
provided, however, that should a Lender become subject to Taxes because of its
failure to deliver a form required hereunder, the Borrower shall take such
steps as the Lender shall reasonably request to assist the Lender to recover
such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.14 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
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SECTION 2.15 Use of Proceeds. The proceeds of the Loan shall be available
(and the Borrower agrees that it shall use such proceeds) solely for working
capital purposes of the Borrower and its Subsidiaries.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01 Conditions Precedent to Effectiveness of Sections 2.01 and 2.03.
Sections 2.01 and 2.03 of this Agreement shall become effective on and as of
the first date (the "Effective Date") on which the following conditions
precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change with respect to
the Borrower since December 28, 1996, except for those listed on Schedule
4.01(e) hereto, and there shall have occurred no Material Adverse Change with
respect to the Guarantor since December 31, 1996.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting either Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i) could
be reasonably likely to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of this Agreement or any other
Loan Document or the consummation of the transactions contemplated hereby.
(c) Nothing shall have come to the attention of the Lenders during the
course of their due diligence investigation to lead them to believe that the
information provided by the Borrower and the Guarantor regarding their
financial results for the year ended December 31, 1996, and the financial
condition on December 31, 1996, was or has become misleading, incorrect or in
complete in any material respect; without limiting the generality of the
foregoing, the Lenders shall have been given such access to the management,
records, books of account, contracts and properties of each Loan Party and its
Subsidiaries as they shall have reasonably requested.
(d) All governmental and third-party consents and approvals necessary in
connection with the transactions contemplated hereby shall have been obtained
(without the imposition of any conditions that are not acceptable to the
Lenders) and shall remain in effect, and no law or regulation shall be
applicable in the reasonable judgment of the Lenders that restrains, prevents
or imposes materially adverse conditions upon the transactions contemplated
hereby.
(e) The Borrower shall have notified the Lender in writing as to the
proposed Effective Date.
(f) The Borrower shall have paid all accrued fees and expenses of the
Lender (including the accrued fees and expenses of counsel to the Lender).
(g) On the Effective Date, the following statements shall be true and the
Lender shall have received a certificate signed by a duly authorized officer of
the Borrower, dated the Effective Date, stating that:
(i) The representations and warranties contained in each
Loan Document are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that
constitutes a Default.
(h) The Lender shall have received on or before the Effective Date the
following, each dated such day, in form and substance satisfactory to the
Lender:
(i) the Note.
(ii) Certified copies of the resolutions of the Board of
Directors of each Loan Party approving this Agreement, the Note, each other
Loan Document to which it is or is to be a party, and of all documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to this Agreement, the Note and each other Loan Document.
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<PAGE> 14
(iii) A certificate of the Secretary or an Assistant Secretary or other
authorized officer of each Loan Party certifying the names and true signatures
of the officers of such Loan Party authorized to sign this Agreement, the Note,
each other Loan Document to which it is or is to be a party and the other
documents to be delivered hereunder and thereunder.
(iv) A guaranty in substantially the form of Exhibit D (as amended, supplemented
or modified from time to time in accordance with its terms, the "Guaranty"),
duly executed by the Guarantor.
(v) Favorable opinions of Morrison & Foerster, New York counsel for the
Borrower, and the General Counsel of the Borrower, substantially in the form of
Exhibits E and F hereto, respectively, and as to such other matters as the
Lender may reasonably request.
(vi) Favorable opinions of Bae, Kim & Lee, counsel for the Guarantor, or other
Korean counsel to the Guarantor acceptable to the Lender, and the Corporate
Counsel of the Guarantor, substantially in the form of Exhibits G and H hereto,
respectively, and as to such other matters as the Lender may reasonably
request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly existing and,
where applicable, in good standing under the laws of the jurisdiction of its
incorporation.
(b) The execution, delivery and performance by each Loan Party of this
Agreement, the Note, and each other Loan Document to which it is or is to be a
party, and the consummation of the transactions contemplated hereby, are within
such Loan Party's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) such Loan Party's charter or
by-laws or (ii) any law, regulation (including, without limitation, Regulations
U and X of the Board of Governors of the Federal Reserve System) or contractual
restriction binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery and performance by either
Loan Party of this Agreement, the Notes or any other Loan Document to which it
is or is to be a party, except for those authorizations, approvals, actions,
notices and filings listed on Schedule 4.01(c) hereto, all of which have been
duly obtained, taken, given or made are in full force and effect except that
the Guarantor is required to report to its designated foreign exchange trading
bank any payment to be made under any Guaranty at the time of making each such
payment.
(d) This Agreement has been, and each of the Notes and each other Loan
Document when delivered hereunder will have been, duly executed and delivered
by each Loan Party thereto. This Agreement is, and each of the Notes and each
other Loan Document when delivered hereunder will be, the legal, valid and
binding obligation of each Loan Party thereto enforceable against each such
Loan Party in accordance with their respective terms.
(e) The Consolidated balance sheet of the Borrower and its Subsidiaries as
at December 28, 1996, and the related Consolidation statements of income and
cash flows of the Borrower and its Subsidiaries for the fiscal year then ended,
accompanied by an opinion of Coopers and Lybrand, independent public
accountants, and the Consolidated balance sheet of the Borrower and its
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<PAGE> 15
Subsidiaries as at December 28, 1996, and the related Consolidated statements
of income and cash flows of the Borrower and its Subsidiaries for the three
months then ended, duly certified by the chief financial officer of the
Borrower, copies of which have been furnished to each Lender, fairly present,
subject, in the case of said balance sheet as at December 28, 1996, and said
statements of income and cash flows for the three months then ended, to
year-end audit adjustments, the Consolidated financial condition of the
Borrower and its Subsidiaries as at such dates and the Consolidated results of
the operations of the Borrower and its Subsidiaries for the periods ended on
such dates, all in accordance with generally accepted accounting principles
consistently applied. Since December 28, 1996, there has been no Material
Adverse Change, except for those listed on Schedule 4.01(e) hereto.
(f) The balance sheet of the Guarantor and its Subsidiaries as at December
31, 1996, and the related statements of income and cash flows of the Guarantor
and its Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Samil Accounting Corporation, a member firm of Price Waterhouse, independent
public accountants, copies of which have been furnished to each Lender, fairly
present the financial condition of the Guarantor and its Subsidiaries as at
such date and the results of the operations of the Guarantor and its
Subsidiaries for the periods ended on such date, all in accordance with
generally accepted financial accounting standards in the Republic of Korea
consistently applied. Since December 31, 1996, there has been no Material
Adverse Change.
(g) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting either Loan Party or any of its Subsidiaries before any
court, governmental agency or arbitrator that (i) could be reasonably likely to
have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Agreement, any Note or any other Loan
Document or the consummation of the transactions contemplated hereby.
(h) The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of the Loan will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
(i) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan.
(j) As of the last annual actuarial valuation date, the funded current
liability percentage, as defined in Section 302(d)(8) of ERISA, of each Plan
exceeds 90% and there has been no Material Adverse Change in the funding status
of any such Plan since such date.
(k) Neither Loan Party nor any ERISA Affiliate has incurred or is
reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan
that has had or is reasonably likely to have a Material Adverse Effect.
(l) Neither Loan Party nor any ERISA Affiliate has been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of ERISA,
and no such Multiemployer Plan is reasonably expected to be in reorganization
or to be terminated, within the meaning of Title IV of ERISA.
(m) Except as set forth in the financial statements referred to in this
Section 4.01 and in Section 5.01(i), the Loan Parties and their respective
Subsidiaries have no material liability with
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<PAGE> 16
respect to "expected post retirement benefit obligations" within the meaning of
Statement of Financial Accounting Standards No. 106.
(n) The operations and properties of the Borrower and each of its
Subsidiaries comply with all applicable Environmental Laws and Environmental
Permits, except such non-compliance that would not have a Material Adverse
Effect, all past non-compliance with such Environmental Laws and Environmental
Permits has been resolved without ongoing obligations or costs, and no
circumstances exist that could be reasonably likely to (i) form the basis of an
Environmental Action against the Borrower or any of its Subsidiaries or any of
their properties that could have a Material Adverse Effect or (ii) cause any
such property to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law that could have a Material Adverse
Effect.
(o) None of the properties currently or, to the best of its knowledge,
formerly owned or operated by the Borrower or any of its Subsidiaries is listed
or proposed for listing on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("NPL") or on
the Comprehensive Environmental Response, Compensation and Liability
Information System maintained by the U.S. Environmental Protection Agency
("CERCLIS") or any analogous foreign, state or local list or, to the best
knowledge of the Borrower, is adjacent to any such property; there are no and
never have been any underground or aboveground storage tanks or any surface
impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials
are being or have been treated, stored or disposed of by the Borrower or any of
its Subsidiaries or, to the best of its knowledge ,by any Person, on any
property currently or, to the best of its knowledge, formerly owned or operated
by the Borrower or any of its Subsidiaries; there is no friable asbestos or,
other than as is being maintained in accordance with applicable Environmental
Laws, other asbestos or asbestos-containing material on any property currently
owned or operated by the Borrower or any of its Subsidiaries; and Hazardous
Materials have not been released, discharged or disposed of by the Borrower or
any of its Subsidiaries or, to the best of its knowledge, by any other Person,
on any property currently or, to the best of its knowledge, formerly owned or
operated by the Borrower or any of its Subsidiaries or any adjoining property.
(p) Neither the Borrower nor any of its Subsidiaries is undertaking, and
has not completed, either individually or together with other potentially
responsible parties, any investigation or assessment or remedial or response
action relating to any actual or threatened release, discharge or disposal of
Hazardous Materials at any site, location or operation, either voluntarily or
pursuant to the order of any governmental or regulatory authority or the
requirements of any Environmental Law; and all Hazardous Materials generated,
used, treated, handled or stored at or transported to or from any property
currently or formerly owned or operated by the Borrower or any of its
Subsidiaries have been disposed of in a manner not reasonably expected to
result in material liability to the Borrower or any of its Subsidiaries.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01 Affirmative Covenants. So long as the Loan shall remain unpaid
or any Lender shall have any Commitment hereunder, the Borrower will:
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<PAGE> 17
(a) Compliance with Laws, etc. Comply, and cause each of its Subsidiaries
to comply, in all material respects, with all applicable laws, rules,
regulations and orders, such compliance to include, without limitation,
compliance with ERISA and Environmental Laws as provided in Section 5.01(j).
(b) Payment of Taxes, etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its property and (ii) all lawful claims that, if unpaid, might by law
become a Lien upon its property; provided, however, that neither the Borrower
nor any of its Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being maintained, unless
and until any Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors.
(c) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as are
usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower or such Subsidiary
operates; provided, however, that the Borrower and its Subsidiaries may
self-insure to the same extent as other companies engaged in similar businesses
and owing similar properties in the same general areas in which the Borrower or
such Subsidiary operates and to the extent consistent with prudent business
practice.
(d) Preservation of Corporate Existence, etc. Preserve and maintain, and
cause each of its Subsidiaries to preserve and maintain, its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Borrower and its Subsidiaries may consummate any merger or
consolidation permitted under Section 5.02(c) and provided further that neither
the Borrower nor any of its Subsidiaries shall be required to preserve any
right or franchise if the Board of Directors of the Borrower of such Subsidiary
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Borrower or such Subsidiary, as the case may be,
and that the loss thereof is not disadvantageous in any material respect to the
Borrower, such Subsidiary or the Lenders.
(e) Visitation Rights. Upon advance request, at any reasonable time and
from time to time, but no more than four times in any calendar year, permit the
Lender or any agents or preservatives thereof, to examine and make copies of
and abstracts from the records and books of account of, and visit the
properties of, the Borrower and any of its Subsidiaries, and to discuss the
affairs, finances and accounts of the Borrower and any of its Subsidiaries with
any of their officers or directors and with their independent certified public
accountants.
(f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep,
proper books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of the Borrower
and each such Subsidiary in accordance with generally accepted accounting
principles in effect from time to time.
(g) Maintenance of Properties, etc. Maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, all of its properties that are
used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the Loan
Documents with any of their Affiliates on terms
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<PAGE> 18
that are fair and reasonable and o less favorable to the Borrower or such
Subsidiary that it would obtain in a comparable arm's-length transaction with a
Person not an Affiliate.
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 45 days
after the end of each of the first three quarters of each fiscal year of the
Borrower, Consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such quarter and Consolidated and consolidating
statements of income and cash flows of the Borrower and its Subsidiaries for
the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, duly certified (subject to year-end audit adjustments)
by the chief financial officer of the Borrower as having been prepared in
accordance with generally accepted accounting principles, provided that in the
event of any change in GAAP used in the preparation of such financial
statements, the Borrower shall also provide a statement of reconciliation
conforming such financial statements to GAAP;
(ii) as soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the annual audit
report for such year for the Borrower and its Subsidiaries, containing balance
sheets of the Borrower and its Subsidiaries as of the end of such fiscal year
and statements of income and cash flows of the Borrower and its Subsidiaries
for such fiscal year, in each case accompanied by an opinion acceptable to the
Lender by Coopers and Lybrand or other independent public accountants
acceptable to the Lender, provided that in the event of any change in GAAP used
in the preparation of such financial statements, the Borrower shall also
provide a statement of reconciliation conforming such financial statements to
GAAP;
(iii) as soon as available and in any event within 45 days
after the end of each of the first three quarters of each fiscal year of the
Guarantor, letters from the chief financial officer, treasurer or controller of
the Guarantor that the Guarantor is, to the best knowledge of such chief
financial officer, treasurer or controller, in compliance with the terms of
Paragraph XII of the Guaranty; provided, however, that should the Guarantor be
required to prepare and submit balance sheets of the Guarantor and its
Subsidiaries as of the end of such quarter and statements of income and cash
flows of the Guarantor and its Subsidiaries for the period commencing at the
end of the previous fiscal year and ending with the end of such quarter as a
member of the stock exchange of the Republic of Korea, will provide such
balance sheets as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Guarantor,
duly certified subject to year-end audit adjustments) by the chief financial
officer of the Guarantor as having been prepared in accordance with generally
accepted accounting principles, provided that in the event of any change in
GAAP used in the preparation of such financial statements, the Guarantor shall
also provide a statement of reconciliation conforming such financial statements
to GAAP;
(iv) as soon as available and in any event within 90 days
after the end of the first half of each fiscal year of the Guarantor, balance
sheets of the Guarantor and its Subsidiaries as of the end of such half and
statements of income and cash flows of the Guarantor and its Subsidiaries for
the period commencing at the end of the previous fiscal year and ending with
the end of such half, duly certified (subject to year-end audit adjustment) by
the chief financial officer of the Guarantor as having been prepared in
accordance with generally accepted accounting principles, and certificates of
the chief financial officer, treasurer or controller of the Guarantor as to
compliance with the terms of Paragraph XII of the Guaranty and setting forth in
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reasonable detail the calculations necessary to demonstrate compliance with
such Paragraph, provided that in the event of any change in GAAP used in the
preparation of such financial statements, the Guarantor shall also provide a
statement of reconciliation conforming such financial statements to GAAP;
(v) as soon as available and in any event within 120 days
after the end of each fiscal year of the Guarantor, a copy of the annual audit
report for such year for the Guarantor and its Subsidiaries, containing balance
sheets of the Guarantor and its Subsidiaries as of the end of such fiscal year
and statements of income and cash flows of the Guarantor and its Subsidiaries
for such fiscal year, in each case accompanied by an opinion acceptable to the
Lender by Samil Accounting Corporation, a member firm of Price Waterhouse, or
other independent public accountants acceptable to the Lender; provided,
however, that the Guarantor, should it become a member of the stock exchange of
the Republic of Korea, will provide the balance sheets and the statements of
income and cash flows required by this Section 5.01(i)(v) in Consolidated form;
provided that in the event of any change in GAAP used in the preparation of
such financial statements, the Guarantor shall also provide a statement of
reconciliation conforming such financial statements to GAAP;
(vi) as soon as possible and in any event within five days
after a Responsible Officer of the Borrower has knowledge of the occurrence of
a Default continuing on the date of such statement, a statement of the chief
financial officer of the Borrower setting forth details of such Default and the
action that the Borrower has taken and proposes to take with respect thereto;
(vii) promptly after the sending or filing thereof, copies
of all reports and registration statements that the Borrower or any Subsidiary
files with the Securities and Exchange Commission or any national securities
exchange;
(viii) promptly after the commencement thereof, notice of
all actions and proceedings before any court, governmental agency or arbitrator
affecting either Loan Party or any of its Subsidiaries of the type described in
Section 4.01(g);
(ix) (A) promptly and in any event within 10 days after
either Loan Party or any ERISA Affiliate knows or has reason to know that any
ERISA Event has occurred, a statement of the chief financial officer of the
Borrower describing such ERISA Event and the action, if any, that such Loan
Party or such ERISA Affiliate has taken and proposes to take with respect
thereto and (B) on the date any records, documents or other information must be
furnished to the PBGC with respect to any Plan pursuant to Section 4010 of
ERISA, a copy of such records, documents and information;
(x) promptly and in any event within two Business Days
after receipt thereof by either Loan Party or any ERISA Affiliate, copies of
each notice from the PBGC stating its intention to terminate any Plan or to
have a trustee appointed to administer any Plan;
(xi) promptly and in any event within 30 days after the
receipt thereof by either Loan Party or any ERISA Affiliate, a copy of the
annual actuarial report for each Plan the funded currently liability percentage
(as defined in Section 302(d)(8) of ERISA) of which is less than 90% of the
unfunded current liability of which exceeds $1,000,000;
(xii) promptly and in any event within five Business Days
after receipt thereof by either Loan Party or any ERISA Affiliate from the
sponsor of a Multiemployer Plan, copies of each notice concerning (A) the
imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the
reorganization or termination, within the meaning of Title IV of ERISA, of any
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such Multiemployer Plan or (C) the amount of liability incurred or that may be
incurred, by such Loan Party or any ERISA Affiliate in connection with any
event described in clause (A) or (B);
(xiii) promptly after the assertion or occurrence thereof,
notice of any Environmental Action against or of any noncompliance by the
Borrower or any of its Subsidiaries with any Environmental Law or Environmental
Permit that could reasonably be expected to have a Material Adverse Effect; and
(xiv) promptly such other information respecting a Loan
Party as any Lender may from time to time reasonably request.
(j) Compliance with Environmental Laws. Comply, and cause each of its
Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew and cause each
of its Subsidiaries to obtain and renew all Environmental Permits necessary for
its operations and properties; and conduct, and cause each of its Subsidiaries
to conduct, any investigation, study, sampling and testing, and undertake any
cleanup, removal, remedial or other action necessary to remove and clean up
all Hazardous Materials from any of its properties, in accordance with the
requirements of all Environmental Laws; provided, however, that neither the
Borrower nor any of its Subsidiaries shall be required to undertake any such
cleanup, removal, remedial or other action to the extent that such action is
not required by Environmental Laws or to the extent that its obligation to do
so is being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
SECTION 5.02 Negative Covenants. So long as the Loan shall remain unpaid or
any Lender shall have any Commitment hereunder, the Borrower will not:
(a) Liens, etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien on or with respect to any
of its properties, whether now owned or hereafter acquired, or assign, or
permit any of its Subsidiaries to assign, any right to receive income, other
than:
(i) Permitted Liens;
(ii) purchase money Liens upon or in any real property or
equipment acquired or held by the Borrower or any Subsidiary in the ordinary
course of business to secure the purchase price of such property or equipment
or to secure Debt incurred solely for the purposes of financing the acquisition
of such property or equipment, or Liens existing on such property or equipment
at the time of its acquisition (other than any such Liens created in
contemplation of such acquisition that were not incurred to finance the
acquisition of such property) or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount, or Liens of a lessor under an
operating lease, provided, however, that no such Lien shall extend to or cover
any properties of any character other than the real property or equipment being
acquired, and no such extension, renewal or replacement shall extend to or
cover any properties not theretofore subject to the Lien being extended,
renewed or replaced, provided further that the aggregate principal amount of
the indebtedness secured by the Liens referred to in this clause (ii) and the
Debt incurred in connection with Section 5.02(b)(iii)(E) shall not exceed
$35,000,000 in the aggregate at any time outstanding;
(iii) the Liens existing on the Effective Date and
described on Schedule 5.02(a) hereto;
(iv) Liens in favor of the Guarantor to secure the
Borrower's obligation to the Guarantor under a guaranty and recourse agreement
to be entered into by the Borrower and the
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<PAGE> 21
Guarantor, to the extent such Liens become operative only after the Commitments
shall have been terminated and the Lenders shall have been paid in full for all
obligations of the Borrower hereunder and under the Note; and
(v) Liens to secure Debt permitted under Section
5.02(b)(iii)(A).
(b) Debt. Create, incur, assume or suffer to exist, or permit any of its
Subsidiaries to create, incur, assume or suffer to exist, any Debt other than:
(i) in the case of the Borrower:
(A) Subordinated Debt, and
(B) Debt under the Loan Documents.
(ii) in the case of any of its Subsidiaries, Debt owed to
the Borrower or to a wholly-owned Subsidiary of the Borrower; and
(iii) in the case of the Borrower and any of its
Subsidiaries:
(A) Debt incurred in connection with the
Securitization, or the replacement thereof, to the extent each item of such
Debt does not exceed U.S. $150,000,000 in the aggregate,
(B) Capitalized Leases not to exceed in the
aggregate $10,000,000 at any time outstanding,
(C) the Surviving Debt and any Debt extending the
maturity of, or refunding or refinancing, in whole or in part, any Surviving
Debt, provided that the terms of any such extending, refunding or refinancing
Debt, and of any agreement entered into and of any instrument issued in
connection therewith, are otherwise permitted by the Loan Documents, and
provided further that the principal amount of such Surviving Debt shall not be
increased above the principal amount thereof outstanding immediately prior to
such extension, refunding or refinancing, and the direct and contingent
obligors therefor shall not be changed, as a result of or in connection with
such extension, refunding or refinancing.
(D) endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business,
(E) other Debt the aggregate principal amount of
which, together with the aggregate indebtedness secured by the Liens referred
to in 5.02(a), shall not exceed $35,000,000 in the aggregate at any time
outstanding, and
(F) additional Debt, unsecured and pari passu
with the Debt under the Loan Documents, including a guarantee of the Debt under
the Loan Documents by a Subsidiary obligor of such Debt, not otherwise
permitted by this Section 5.2(b)(iii) aggregating not more than $140,000,000 in
principal amount at any one time outstanding.
(c) Mergers, etc. Merge or consolidate with or into, or convey, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to any Person, or permit any of its Subsidiaries to do so,
except that (i) any Subsidiary of the Borrower may merge or consolidate with or
into, or dispose of assets to, any other Subsidiary of the Borrower, and except
that any Subsidiary of the Borrower may merge into or dispose of assets to the
Borrower, provided, in each case, that no Default shall have occurred and be
continuing at the time of such proposed transaction or would result therefrom
and (ii) the Borrower may sell one or more manufacturing Subsidiaries, provided
that each such sale is for fair value.
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(d) Accounting Changes. Make or permit, or permit any of its Subsidiaries
to make or permit, any change in accounting policies or reporting practices,
except as required or permitted by generally accepted accounting principles.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of the Loan when the same
becomes due and payable, or the Borrower shall fail to pay any interest on the
Loan or any other amount payable hereunder, or either Loan Party shall fail to
make any other payment of fees or other amounts payable under any Loan
Document, within three Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by either Loan Party under or in
connection with any Loan Document shall prove to have been incorrect in any
material respect when made; or
(c) (i) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 5.1(d), (e), (h) or (i) or 5.2 or (ii) either
Loan Party shall fail to perform or observe any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 15 days after written
notice thereof shall have been given to such Loan Party by the Lender; or
(d) Either Loan Party or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in a
principal or notional amount of at least $5,000,000 in the aggregate in the
case of the Borrower and $25,000,000 in the aggregate in the case of the
Guarantor (but excluding Debt outstanding hereunder) of such Loan Party of such
Subsidiary (as the case may be), when the same becomes due and payable (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise),
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; or any other
event shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable grace period,
if any, specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the maturity
of such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid or redeemed (other than by a regularly scheduled
required prepayment or redemption), purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be required to be made, in
each case prior to the stated maturity thereof; or
(e) Either Loan Party or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against either Loan
Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such
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proceeding shall remain undismissed or unstayed for a period of 45 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any substantial
part of its property) shall occur; or either Loan Party or any of its
Subsidiaries shall take any corporate action to authorize any of the actions
set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of $5,000,000
in the case of the Borrower and $15,000,000 in the case of the Guarantor shall
be rendered against such Loan Party or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 15 consecutive days
during which such judgment remains unsatisfied and a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; or
(g) Any non-monetary judgment or order shall be rendered against either
Loan Party or any of its Subsidiaries that could be reasonably expected to have
a Material Adverse Effect, and there shall be any period of 10 consecutive days
during which such judgment remains unsatisfied and a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; or
(h) (i)(A) The Hyundai Group and its Affiliates shall cease to retain
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of Voting Stock of the Borrower (or other securities convertible
into such Voting Stock) representing 51% or more of the combined voting power
of all Voting Stock of the Borrower; or (B) any Person or two or more Persons
acting in concert other than the Hyundai Group and its Affiliates shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934),
directly or indirectly, of Voting Stock of the Borrower (or other securities
convertible into such Voting Stock) representing 51% or more of the combined
voting power of all Voting Stock of the Borrower; or (C) any Person or two or
more Persons acting in concert other than the Hyundai Group and its Affiliates
shall have acquired by contract or otherwise, or shall have entered into a
contract or arrangement that, upon consummation, will result in its or their
acquisition of the power to exercise, directly or indirectly, a controlling
influence over the management or policies of the Borrower; or
(ii) Any Person or two or more Persons other than
the owners of the Guarantor on the date hereof or their Affiliates acting in
concert shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement, upon consummation, will result in its or their
acquisition of the power to exercise, directly or indirectly, a controlling
influence over the management or policies of the Guarantor; or
(i) Any ERISA Event shall have occurred with respect to a Plan and the sum
(determined as of the date of occurrence of such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans
with respect to which an ERISA Event shall have occurred and then exist (or the
liability of the Borrower and the ERISA Affiliates related to such ERISA Event)
exceeds $5,000,000; or
(j) Either Loan Party or an ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability
to such Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by such Loan Party and the
ERISA Affiliates as Withdrawal Liability (determined as of the date
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of such notification), exceeds $5,000,000 or requires payments exceeding
$1,250,000 per annum; or
(k) Either Loan Party or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
and as a result of such reorganization or termination, the aggregate annual
contributions of such Loan Party and the ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years of such Multiemployer Plans immediately preceding the plan year in which
such reorganization or termination occurs by an amount exceeding $1,250,000; or
(l) Any provision of the Guaranty shall for any reason cease to be valid
and binding on or enforceable against the Guarantor, or the Guarantor shall
revoke the Guaranty; or
(m) A Material Adverse Change has occurred;
then, and in any such event, the Lender, by notice by the Borrower, may declare
the Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate, and (ii) shall at the request, or may with the consent,
of the Lender, by notice to the Borrower, declare the Notes, all interest
thereon and all other amounts payable under this Agreement and the other Loan
Documents to be forthwith due and payable, whereupon the Note, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Borrower, provided, however, that in
the event of an actual or deemed entry of an order for relief with respect to
either Loan Party under the Federal Bankruptcy Code, (A) the obligation of the
Lender to make the loan shall automatically be terminated and (B) the Notes,
all such interest and all such amounts shall automatically become and be due
and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Amendments, etc. No amendment or waiver of any provision of any
Loan Document, nor consent to any departure by any Loan Party therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Borrower and the Lender.
SECTION 7.02 Notices, etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic or telex
communication) and mailed, telecopied, telegraphed, telexed or delivered, if to
the Borrower, at its address at 510 Cottonwood Drive, Milpitas, California
95035, telecopy no. (408) 432-4480, Attention: Meryl Rains, Vice President -
Finance & Treasurer, with a copy to Glenn H. Stevens, Esq., General Counsel,
at 2190 Miller Drive, Longmount, Colorado 80501, telecopy no. (303) 678-3111;
if to the Lender, at its address at Nomura House, 1, St. Martin's-Le-Grand,
London EC1A, 4NP, England, telecopy no. 171-626-0851, Attention: Joseph Chia;
and if to any other Lender, at its Domestic Lending Office specified in the
Assumption Agreement or the Assignment and Acceptance pursuant to which it
became a Lender, or at such other address as shall be designated by such party
in a written notice to the other parties. All such notices and communications
shall, when mailed, telecopied, telegraphed or telexed, be effective when
deposited in the mails, telecopied, delivered to the
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telegraph company or confirmed by telex answerback, respectively, except that
notices and communications to the Lender pursuant to Article II or III shall
not be effective until received by the Lender. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or the Note or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.
SECTION 7.03 No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under any Note
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 7.04 Costs and Expenses. (a) The Borrower agrees to pay on demand
all costs and expenses of the Lender in connection with the preparation,
execution, delivery, administration, modification and amendment of the Loan
Documents and the other documents to be delivered hereunder, including, without
limitation, (A) all due diligence, transportation, computer, duplication,
appraisal, consultant, and audit expenses and (B) the reasonable fees and
expenses of counsel for the Lender with respect thereto and with respect to
advising the Lender as to its rights and responsibilities under the Loan
Documents. After an Event of Default, the Borrower further agrees to pay on
demand all costs and expenses of the Lender, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
the Loan Documents and the other documents to be delivered hereunder,
including, without limitation, reasonable fees expenses of counsel for the
Lender in connection with the enforcement of rights under this Section 7.04(a).
(b) The Borrower agrees to indemnify and hold harmless the Lender and each
of its Affiliates and its officers, directors, employees, agents and advisors
(each, "Indemnified Party") from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation, reasonable
fees and expenses of counsel) that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in connection
with or by reason of, or in connection with the preparation for or defense of,
any investigation, litigation or proceeding arising out of, related to or in
connection with (i) the Facility, Loan Documents, any of the transactions
contemplated herein or therein or the actual or proposed use of the proceeds of
the Loan or (ii) the actual or alleged presence of Hazardous Materials on any
property of either Loan Party or any of its Subsidiaries or any Environmental
Action relating in any way to either Loan Party or any of its Subsidiaries, in
each case whether or not such investigation, litigation or proceeding is
brought by either Loan Party, its directors, shareholders, or creditors or an
Indemnified Party or any other Person or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. The Borrower also agrees not to assert any claim against
the Lender, any of its Affiliates, or any of its respective directors,
officers, employees, attorneys and agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or
otherwise relating to the Facility, this Agreement, the other Loan Documents,
any of the transactions contemplated herein or therein or the actual or
proposed use of the proceeds of the Loan.
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(c) If any payment of principal of LIBO Rate Loan is made by the Borrower
to or for the account of the Lender other than on the last day of the Interest
Period for such Loan, acceleration of the maturity of the Note pursuant to
Section 6.01 or for any other reason, or by an Eligible Assignee to the Lender
other than on the last day of the Interest Period for such Loan upon assignment
of rights and obligations under this Agreement pursuant to Section 7.07 as a
result of demand by the Borrower pursuant to Section 7.07(a), the Borrower
shall, upon demand by the Lender, pay to the Lender any amounts required to
compensate the Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by the Lender to fund or maintain such Loan.
(d) Without prejudice to the survival of any other agreement of either
Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Section 2.11, 2.14 and 7.04 shall
survive the payment in full of principal, interest and all other amounts
payable hereunder and under any of the other Loan Documents.
SECTION 7.05 Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Lender to
declare the Note due and payable pursuant to the provisions of Section 6.01,
the Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set-off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by the Lender to such
Affiliate to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Note held by the Lender, whether or not the Lender shall have
made any demand under this Agreement or such Note and although such obligations
may be unmatured. The Lender agrees promptly to notify within one Business Day
the Borrower after any such set-off and application. The rights of the Lender
and its Affiliates under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that the
Lender and its Affiliates may have.
SECTION 7.06 Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the Lender and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Lender and their
permitted respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Lender.
SECTION 7.07 Assignments and Participations. (a) The Lender may, with the
consent (except as provided below), not to be unreasonably withheld of the
Borrower, and the Lender if demanded by the Borrower (following a demand by the
Lender pursuant to Section 2.11 or 2.14) upon at least 5 Business Days' notice
to the Lender will, only if no Default has occurred and is continuing, assign
to one or more Persons all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, Note or Notes held by it); provided, however, that (i) each such
assignment shall be of a constant, and not a varying, percentage of all rights
and obligations under and in respect of the Facility, (ii) the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $3,000,000 or an
integral multiple of $500,000 in excess thereof,
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(iii) each such assignment shall be to an Eligible Assignee, and (iv) each such
assignment made as a result of a demand by the Borrower pursuant to this
Section 7.07(a) shall be arranged by the Lender after consultation with the
Borrower and shall be either an assignment of all of the rights and obligations
of the assigning Lender under this Agreement or an assignment of a portion of
such rights and obligations made concurrently with another such assignment or
other such assignments that together cover all of the rights and obligations of
the assigning Lender under this Agreement, (vi) the Lender shall not be
obligated to make any such assignment as a result of a demand by the Borrower
pursuant to this Section 7.07(a) unless and until the Lender shall have
received one or more payments from either the Borrower or one or more Eligible
Assignees in an aggregate amount at least equal to the aggregate outstanding
principal amount of the Loans owing to the Lender, together with accrued
interest thereon to the date of payment of such principal amount and all other
amounts payable to the Lender under this Agreement and (vii) the parties to
each such assignment shall execute and deliver to the Lender, for its
acceptance and recording in the Register, an Assignment and Acceptance, and a
processing and recordation fee of $3,000. The Lender may, without consent of,
but upon notice to the Borrower, assign all or a portion of its rights and
obligations under this Agreement to any of its Affiliates.
(b) By executing and delivering this Assignment and Acceptance, the Lender
assignor thereunder (the "Assigning Lender") and the assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such Assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or any other Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other Loan Document or any other instrument or document
furnished pursuant hereto; (ii) such Assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of either Loan Party or the performance or observance by either Loan
Party of any of its respective obligations under any Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 4.01 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Lender to take such
action as agent on its behalf and to exercise such powers and discretion under
the Loan Documents as are delegated to the Lender by the terms thereof,
together with such powers and discretion as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations that by the terms of this Agreement are required
to be performed by it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Notes subject to such assignment, the Lender shall, if such
Assignment and Acceptance has been completed and is in substantially the form
of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to
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the Borrower. Within five Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Lender in
exchange for the surrendered Note a new Note to the order of such Eligible
Assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the Assigning Lender has retained a
Commitment hereunder, Assigning Lender in an amount equal to the Commitment
retained by it hereunder.
(d) The Lender shall maintain at its address referred to in Section 7.2 a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower and
Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and Lender at any reasonable time and
from time to time upon reasonable prior notice.
(e) Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Assigning Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such lender shall cease to be a party hereto).
(f) Each Lender may sell participants to one or more banks or other
entities (other than either Loan Party or any of its Affiliates) in or to all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment and the Note held by
it); provided; however, that (i) such Lender's obligations under this Agreement
(including, without limitation, its Commitment to the Borrower hereunder) shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Lender shall
remain the holder of any such Note for all purposes of this Agreement, (iv) the
Borrower and the Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under the Loan
Documents, and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of any Loan Document,
or any consent to any departure by either Loan Party therefrom, except to the
extent that such amendment, waiver or consent would reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, or postpone any date fixed
for any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation.
(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 7.7, disclose to
the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf
of the Borrower; provided that prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information relating to the Borrower
received by it from such Lender.
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(h) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Loans owing to
it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 7.08 Confidentiality. No Lender shall use or disclose any
Confidential Information to any other Person without the consent of the
Borrower, other than (a) to the Lender's, such Lender's Affiliates and their
officers, directors, employees, agents and advisors and, as contemplated by
Section 7.7(h), to actual or prospective assignees and participants, and then
only on a confidential basis, (b) as required by any law, rule or regulation or
judicial process, (c) to any rating agency when required by it, provided that
prior to any such disclosure, such rating agency shall undertake to preserve
the confidentiality of any Confidential Information relating to the Borrower
received by it from such Lender and (d) as requested or required by any state,
federal or foreign authority or examiner regulating banks or banking.
SECTION 7.09 Governing Law. This Agreement and the Note shall be governed by,
and construed in accordance with, the laws o the State of New York.
SECTION 7.10 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 7.11 Jurisdiction, etc. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect to any
such action or proceeding may be heard and determined in any such New York
State court or, to the extent permitted by law, in such federal court. Each of
the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Loan Documents to which it is a party in any New York State or federal court.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
SECTION 7.12 Waiver of Jury Trial. Each of the Borrower and the Lenders
hereby irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of
or relating to this Agreement, any of the other Loan Documents or the actions
of any Lender in the negotiation, administration, performance or
enforcement thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
MAXTOR CORPORATION
By:/s/ Raja Venkatesh
----------------------------------
Title: Corporate Treasurer
NOMURA BANK INTERNATIONAL plc
as Lender
By:/s/ Authorized Signature
----------------------------------
Title: Senior Manager/Director
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EXHIBIT A - FORM OF
PROMISSORY NOTE
U.S. $10,000,000 Dated: ____________ ______, 199___
FOR VALUE RECEIVED, the undersigned, MAXTOR CORPORATION, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
NOMURA BANK INTERNATIONAL plc (the "Lender") for the account of its Applicable
Lending Office on the Stated Maturity Date (each as defined in the Credit
Agreement referred to below) the principal sum of U.S. $10,000,000 pursuant to
the Credit Agreement dated as of October 31, 1997 among the Borrower and the
Lender (as amended or modified from time to time, the "Credit Agreement"; the
terms defined therein being used herein as therein defined) outstanding on the
Stated Maturity Date.
The Borrower promises to pay interest on the unpaid principal
amount of the Loan from the date of such Loan until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to the Lender at Bank of America NTSA, New York, New
York (account number 65506-61166), in same day funds.
This Promissory Note is the Note referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of a Loan by the Lender to the
Borrower in an amount not to exceed the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from such Loan being
evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
MAXTOR CORPORATION
By
-----------------------------------
Title:
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<PAGE> 32
EXHIBIT B - FORM OF NOTICE
OF DRAWING
Nomura Bank International plc
Nomura House
1, St. Martin's-Le Grand
London EC1A 4NP
England
11-5-97
Attention:
Ladies and Gentlemen:
The undersigned, Maxtor Corporation, refers to the Credit Agreement
dated as of October 31, 1997 (as amended or modified from time to time, the
"Credit Agreement", the terms defined therein being used herein as therein
defined), among the undersigned and Nomura Bank International plc (the
"Lender"), and hereby gives you notice, irrevocably, pursuant to Section 2.03 of
the Credit Agreement that the undersigned hereby requests a Borrowing under the
Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
2.03 of the Credit Agreement.
(i) The Business Day of the Proposed Borrowing is Nov. 7, 1997.
(ii) The funds equal to the amount of the Proposed Borrowing
should be made available by wire transfer to the following account(s):
121000358 B of A, 1484004218 Maxtor Corp.
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in each Loan
Document are correct in all material respects, before and after giving effect to
the Proposed Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date; and
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(B) no event has occurred and is continuing, or would result from
such Proposed Borrowing or from the application of the proceeds therefrom, that
constitutes a Default.
Very truly yours,
MAXTOR CORPORATION
By /s/ AUTHORIZED SIGNATURE
-----------------------------------
Title: Assistant Treasurer
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EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of October
31, 1997 (as amended or modified from time to time, the "Credit Agreement")
among Maxtor Corporation, a Delaware corporation (the "Borrower"), and Nomura
Bank International plc (the "Lender"). Terms defined in the Credit Agreement
are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1
hereto agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement as of the date hereof equal to the percentage interest specified on
Schedule 1 hereto of all outstanding rights and obligations under the Credit
Agreement. After giving effect to such sale and assignment, the Assignee's
Commitment and the amount of the Loan owing to the Assignee will be as set
forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is
the legal and beneficial owner of the interest being assigned by it hereunder
and that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other Loan Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other Loan Document or any other instrument or document
furnished pursuant thereto; and (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of either
Loan Party or the performance or observance by either Loan Party of any of its
respective obligations under any Loan Document or any other instrument or
document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy
of the Credit Agreement, together with copies of the financial statements
referred to in Section 4.01 thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Agreement and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Assignor or any Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under the Credit Agreement;
(iii) confirms that it is an Eligible Assignee; (iv) appoints and authorized
the Lender to take such action as agent on its behalf and to exercise such
powers and discretion under the Loan Documents as are delegated to the Lender y
the terms thereof, together with such powers and discretion as are reasonably
incidental thereto; and (v) agrees that it will perform in accordance with
their terms all of the obligations that by the terms of the Credit Agreement
are required to be performed by it as a Lender.
4. Following the execution of this Agreement and
Acceptance, it will be delivered to the Lender for acceptance and recording by
the Lender. The effective date for this
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Agreement and Acceptance (the "Effective Date") shall be the date of acceptance
hereof by the Lender, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Lender, as
of the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and (ii) the Assignor shall,
to the extent provided in this Agreement and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Lender,
from and after the Effective Date, the Lender shall make all payments under the
Credit Agreement and the Promissory Note in respect of the interest assigned
hereby (including, without limitation, all payments of principal, interest and
facility fees with respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
and the Promissory Note for periods prior to the Effective Date directly
between themselves.
7. This Agreement and Acceptance shall be governed by,
and construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of Schedule 1 to this Assignment and
Acceptance by telecopier shall be effective as delivery of a manually executed
counterpart of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
duly authorized as of the date specified thereon.
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EXHIBIT D - FORM OF
GUARANTY
October 31, 1997
Nomura Bank International plc
Nomura House
1 St. Martin's-Le-Grand
London EC1A 4NP
England
Dear Sirs:
Credit agreement between Maxtor Corporation (the "Borrower") and Nomura Bank
International plc (the "Lender") dated October 31, 1997 (the "Credit
Agreement").
I. For and in consideration of any indebtedness to you under the
Credit Agreement and the Note (as defined in the Credit Agreement), for the
payment of which the undersigned is now obligated to you, either as guarantor
or otherwise, and/or in order to induce you, in your discretion, at any time(s)
hereafter, to make any loan(s) or advance(s) or to extend credit in any other
manner to, or at the request of or for the account of, the Borrower, either
with or without security, under the Credit Agreement (all liabilities and
obligations of the Borrower to you under the Credit Agreement and the Note
being hereinafter referred to as "Obligations"), the undersigned does hereby
unconditionally GUARANTEE and INDEMNIFY the punctual payment when due to you of
each and all of the Obligations, together with interest thereon and any and all
expenses which may be incurred by you in collecting all or any of the
Obligations and/or in enforcing any rights under the Credit Agreement and/or
hereunder.
II. It is understood and agreed that (i) the undersigned guarantees
that the Obligations will be paid to you strictly in accordance with the terms
and provisions of the Credit Agreement. In reference thereto, regardless of any
law, regulation or decree, now or hereafter in effect, which might in any
manner alter any of the terms or provisions of the Credit Agreement or your
rights with respect thereto as against the Borrower, or cause or permit to be
invoked any alteration in the time, amount or manner of payment by the Borrower
of any of the Obligations, and (ii) in each instance when the Borrower shall
have agreed, relative to any one or more of the Obligations, to pay or provide
you or any of your correspondents with any amount of money that is other than
that which is
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locally in common circulation at the time as currency in the place where such
agreement is made, and such amount is not actually paid or provided at and when
agreed or within such time as you may deem reasonable, the undersigned will,
upon request and as you may elect, either pay or provide the amount in the
exact currency and place as agreed by the Borrower or pay or provide you in the
City of New York with the equivalent of the amount in U.S. dollars at your then
prevailing rate for sales of the kind of currency agreed to be paid or provided
for transfer by cable to a place where it is current on condition that the
undersigned obtains necessary permission from the Korean Government in case
such permission is required under the Korean laws and regulations concerning
foreign exchange control then in force.
III. As security for any and all liabilities of the undersigned to you,
now existing or hereafter arising hereunder, or otherwise, you are hereby given
the right to retain, and you are hereby given a lien upon any and all moneys or
other property (i.e., goods and merchandise, as well as any and all documents
relative thereto; also funds, securities, choses in action and any and all
other forms of property whether real, personal or mixed, and any right, title
or interest of the undersigned therein or thereto), and/or the proceeds
thereof, which have/has been or may hereafter be, deposited or left with you
(or with any third party acting on your behalf) by or for the account or credit
of the undersigned, including (without limitation of the foregoing) that in
safekeeping or in which the undersigned may have any interest. All remittances
and property shall be deemed left with you as soon as put in transit to you by
mail or carrier. In the event of the happening of any one or more of the
following, to wit: (a) the non-payment of any of the Obligations after any
applicable grace period; (b) the dissolution or termination of existence of the
Borrower or the undersigned; (c) any petition in bankruptcy being filed by or
against the Borrower or the undersigned, or any proceedings in bankruptcy, or
under any laws or regulations of any jurisdiction relating to the relief of
debtors, being commenced for the relief or readjustment or any indebtedness of
the Borrower or the undersigned, either through reorganization, composition,
extension or otherwise; (d) the making by the Borrower or the undersigned of an
assignment for the benefit of creditors or the commencement of any proceedings
by either of the same of any insolvency law; (e) the appointment of a receiver
of any property of the Borrower or the undersigned undismissed after 45 days;
(f) any seizure, vesting or intervention by or under authority of a government,
by which the management of either the Borrower or the undersigned is displaced
or its authority in the conduct of its business is curtailed; (g) the
attachment or distraint of any funds or other
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property of the Borrower or the undersigned which may be in, or come into, your
possession or under your control, or that of any third party acting for you,
or of the same becoming subject at any time to any mandatory order of court or
other legal process -- then, or at any time(s) any such event exists, any or
all of the Obligations shall, at your option, become (for the purposes of this
guaranty) immediately due and payable by the undersigned, without demand or
notice. Furthermore, in any such event, full power and authority are hereby
given you to sell, assign, and deliver the whole or any of the property upon
which you have hereinbefore been given a lien, at any broker's board, or at
public or private sale, at your option, either for cash or on credit or for
future delivery, without assumption of any credit risk, and without either
demand, advertisement or notice of any kind, all of which are hereby expressly
waived, and no delay on your part in exercising any power of sale or any other
rights or options hereunder, and no notice or demand, which may be given to or
made upon the undersigned by you with respect to any power of sale or other
right or option hereunder, shall constitute a waiver thereof, or limit or
impair your right to take any action or to exercise any power of sale or any
other rights hereunder, without notice or demand, or prejudice your rights as
against the undersigned in any respect. At any sale hereunder, you may purchase
the whole or any part of the property sold, free from any right of redemption
on the part of the undersigned, all such rights being also hereby waived and
released. In the event of any sale or other disposition of any of the property
aforesaid, after deducting all costs or expenses of every kind for care,
safekeeping, collection, sale, delivery or otherwise, you shall, after applying
the residue of the proceeds of the sale, or other disposition thereof, to the
payment or reduction (in whole or in part) of the principal and/or interest (as
you may elect) then owing on the Obligations, and after making proper allowance
for interest on Obligations not then due, return any excess to the undersigned,
all without prejudice to your rights as against the undersigned with respect to
any and all amounts which may then be or remain unpaid on any Obligations.
IV. The undersigned hereby consents and agrees that you may at any time,
or from time to time, in your discretion; (1) extend or change the time of
payment, and/or the manner, place or terms of payment of all or any of the
Obligations; (2) exchange, release, fail to perfect, and/or surrender all or
any of the collateral security, or any part(s) thereof, by whomsoever
deposited, which is now or may hereafter be held by you in connection with all
or any of the Obligations; (3) sell and/or purchase all or any such collateral
at public or private sale, or at any broker's board, and after deducting all
costs and expenses of
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every kind for collection, sale or delivery, the net proceeds of any such
sale(s) may be applied by you upon all or any of the Obligations; and (4)
settle or compromise with the Borrower, and/or any other person(s) liable
thereon, any and all of the Obligations, and/or subordinate the payment of
same, or any part(s) thereof, to the payment of any other debts or claims,
which may at any time(s) be due or owing to you and/or any other person(s) or
corporation(s); all in such manner and upon such terms as you may deem proper,
and without notice to or further assent from the undersigned, it being hereby
agreed that the undersigned shall be and remain bound upon this guaranty,
irrespective of the existence, value or condition of any collateral, and
notwithstanding any such change, exchange, settlement compromise, surrender,
release, sale, application, renewal or extension, and notwithstanding also that
the Obligations may at any time(s) exceed the aggregate principal sum
hereinabove prescribed. The liability of the undersigned under this guaranty
shall be unconditional irrespective of (i) any amendment or waiver or consent
to departure from the terms of any Obligation provided that any such amendment
does not relate to an increase in the amount of the Obligation or an extension
of the maturity of such Obligation which has not been consented to by the
undersigned, (ii) any change in the corporate existence, structure or ownership
of the Borrower, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Borrower or its assets or any resulting release or
discharge of any of the Obligations, (iii) the existence of any claim, set-off
or other rights which the undersigned may have at any time against the Borrower,
you, or any other corporation or person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim, and
(iv) any other circumstance which might otherwise constitute a defense
available to, or a legal or equitable discharge of, the Borrower or a guarantor.
V. The undersigned hereby waives notice of acceptance of this
guaranty, and also presentment, demand, protest and notice of dishonor of any
and all of the Obligations, and promptness in commencing suit against any party
thereto or liable thereon, and/or in giving any notice to or of making any
claim or demand hereunder upon the undersigned, and any requirement that you
exhaust any right or take any action against the Borrower or any collateral
security. This guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any Obligation is rescinded or must
otherwise be returned by you upon the insolvency, bankruptcy or reorganization
of the Borrower or otherwise, all as though such payment had not been made.
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No act or omission of any kind on your part in the premises shall in any event
affect or impair this guaranty.
VI. This is a continuing guaranty and shall (i) remain in full force and
effect until written notice shall have been received by you from the
undersigned (or the successor or legal representative of the undersigned) that
it has been revoked, but any such notice shall not release the undersigned from
any liability as to any Obligations which may be held by you, or in which you
may have any interest, at the time of the receipt of such notice; (ii) be
binding upon the undersigned, the heirs, executors, administrators, successors
and assigns of the undersigned, and shall inure to the benefit of, and be
enforceable by you, your successors, transferees and assigns; and (iii) be
deemed to have been made under and shall be governed by the laws of Korea in
all respects, including matters of construction, validity and performance, and
it is understood and agreed that none of its terms or provisions may be waived,
altered, modified or amended except in writing duly signed for and on your
behalf.
VII. Any and all payments by the undersigned hereunder shall be made free
and clear of and without deduction for any and all present of future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding (i) taxes imposed on your overall net income,
(ii) franchise taxes imposed on you in lieu of net income taxes by the
jurisdiction under the laws of which you are organized or any political
subdivision thereof, and (iii) if applicable, taxes imposed on your overall net
income, and franchise taxes imposed on you in lieu of net income taxes, by the
jurisdiction of your lending office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the undersigned shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this paragraph) you will receive an amount equal
to the sum you would have received had no such deductions been made, (ii) the
undersigned shall make such deductions and (iii) the undersigned shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law. In addition, the undersigned agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, performing under or otherwise
with respect to, this guaranty or the Obligations
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(hereinafter referred to as "Other Taxes"). Within 30 days of any payment of
Taxes, the undersigned will furnish to you the original or a certified copy of a
receipt evidencing payment thereof. The undersigned will indemnify you for the
full amount of Taxes or Other Taxes (including, without limitation, any taxes
imposed by any jurisdiction on amounts payable under this paragraph) paid by you
or any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted, within 30 days of your request therefor. Without prejudice
to the survival of any other agreement contained herein, the agreements and
obligations of the undersigned contained in this paragraph shall survive the
payment in full of the Obligations and principal and interest hereunder and any
termination or revocation of this guaranty. In the case of any payment hereunder
by or on behalf of the Guarantor through an account or branch outside the United
States or on behalf of the Guarantor by a payer that is not a United States
person, if the Guarantor determines that no Taxes are payable in respect
thereof, the Guarantor shall furnish, or shall cause such payer to furnish, to
the Lender, at such address, an opinion of counsel acceptable to the Lender
stating that such payment is exempt from Taxes. For purpose of the preceding
sentence, the terms "United States" and "United States person" shall have the
meanings specified in Section 7701 of the Internal Revenue Code.
VIII. Notwithstanding any other provision of this guaranty, until payment
in full of the Obligations after termination of any of your commitments with
respect thereto, (i) the undersigned hereby irrevocably waives any right to
assert, enforce, or otherwise exercise any right of subrogation to any of the
rights, security interests, claims, or liens which you have against the
Borrower in respect to the Obligations, (ii) the undersigned shall have no
right of recourse, reimbursement, contribution, indemnification, or similar
right that the undersigned may have (by contract or otherwise) against the
Borrower in respect of the Obligations, and (iii) the undersigned hereby
irrevocably waives any and all of the foregoing rights and also irrevocably
waives the benefit of, and any right to participate in, any collateral or other
security given to you to secure payment of the Obligations.
IX. If the undersigned shall fail to pay any of its obligations hereunder
when the same shall become due and payable, you are hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by you to or
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for the credit or account of the undersigned against any and all of the
Obligations, whether or not you shall have made any demand under this guaranty.
You agree promptly to notify the undersigned after any such set-off and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. Your rights under this paragraph are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) which you may have.
X. The undersigned hereby represents and warrants as follows: (i) the
execution, delivery and performance by the undersigned of this guaranty are
within its corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (x) its articles of incorporation or
by-laws or (y) law or any contractual restriction binding on or affecting it or
any entity that controls it; (ii) all authorizations, approvals, consents,
licenses, exemptions, filings, registrations and other requirements of
governmental, judicial and public bodies and authorities of or in Korea
required of the Guarantor in connection with the entry into and performance of
this Guaranty have been obtained and are in full force and effect, except that
the undersigned is required to report to its designated foreign exchange
trading bank any payment to be made under this Guaranty at the time of making
each such payment; and (iii) this guaranty has been duly executed and delivered
by the undersigned, and is the legal, valid and binding obligation of the
undersigned, enforceable against it in accordance with its terms.
XI. The undersigned covenants and agrees that, so long as any part of the
Obligations shall remain unpaid or any Lender shall have any commitment to lend
under either Credit Agreement, (a) the Tangible Net Worth of the undersigned on
the last day of any fiscal quarter shall be not less than the sum of (i) 70% of
the Tangible Net Worth as of December 31, 1995 plus (ii) 50% of positive Net
Income of the undersigned for each fiscal year of the undersigned beginning
with the fiscal year ending December 31, 1996 and (b) the undersigned shall
maintain a ratio of current assets to current liabilities greater than or equal
to 0.8. "Tangible Net Worth" shall mean the excess of (x) total tangible assets
over (y) total liabilities, and "Net Income" shall mean the difference, after
taxes, between total revenues and total costs and expenses.
XII. Delivery of an executed counterpart of a signature page to this
guaranty by telecopier shall be effective as delivery of a manually executed
counterpart of this guaranty.
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD.
By /s/ YOUNG HWAN KIM
-------------------------------------
Name: Young Hwan Kim
Title: Representative Director
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<PAGE> 44
EXHIBIT F
[Form of General Counsel Opinion]
October ___, 1997
To Nomura Bank International plc, as Lender
Nomura House
1, St. Martin's-Le-Grand
London EC1A 4NP
England
Re: MAXTOR CORPORATION
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(h)(v) of the
U.S. $10,000,000 364-Day Credit Agreement (the "Credit Agreement"), dated as of
October 31, 1997, between Maxtor Corporation (the "Borrower") and Nomura Bank
International plc, as Lender. Terms defined in the Credit Agreement are used
herein as therein defined.
In connection herewith, I have examined:
(1) The Credit Agreement;
(2) The Note;
(3) The documents furnished by the Borrower pursuant to Article
III of the Credit Agreement;
(4) The Certificate of Incorporation of the Borrower and all
amendments thereto;
(5) The bylaws of the Borrower and all amendments thereto; and
(6) Such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide
this opinion.
My opinions expressed below are limited to the General Corporation Law
of the State of Delaware, the law of the State of California and the federal
law of the United States.
Based upon the foregoing and upon such investigation as I have deemed
necessary, I am of the following opinion:
1. The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, possessing perpetual
existence and the capacity to sue or
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be sued in its own name. The Borrower has the power to own its property and
assets and carry on its business as it is now being conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement, the Note, and the consummation of the transactions
contemplated thereby are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene or
constitute a default under (i) the Borrower's charter or bylaws, or (ii) any
law, rule or regulation applicable to the Borrower (including, without
limitation, Regulations U and X of the Board of Governors of the Federal
Reserve System), (iii) any contractual or legal restriction applicable to the
Borrower, or (iv) any agreement or instrument to which the Borrower is a part
or which is binding upon it or any of its assets, nor result in the creation or
imposition of any Lien on any of the Borrower's assets pursuant to the
provisions of the Credit Agreement or any other Loan Document. The Credit
Agreement and the Notes have been duly executed and delivered on behalf of the
Borrower.
3. No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery and performance by the
Borrower of the Credit Agreement and the Note, or for the validity,
enforceability an admissibility in evidence of the Credit Agreement and the
Note, except for the authorizations, approvals, actions, notices and filings
listed on Schedule 4.01(c) to the Credit Agreement, all of which have been duly
obtained, taken, given or made and are in fully force and effect.
4. The indebtedness of the Borrower under the Credit Agreement and
the Note is its direct, unconditional and general indebtedness and ranks at
least pari passu with all its other unsecured and unsubordinated indebtedness.
5. The Borrower is not subject to regulation under the Investment
Company Act of 1940, as amended. The Borrower is not a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
6. To my knowledge, there is no action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting the Borrower or any of its Subsidiaries pending or threatened
before any court, governmental agency or arbitrator that (i) could be
reasonably likely to have a Material Adverse Effect or (ii) purports to affect
the legality, validity or enforceability of the Credit Agreement or any other
Loan Document or the consummation of the transactions contemplated thereby.
Sincerely,
Glenn H. Stevens
Vice President, General Counsel
and Secretary
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<PAGE> 46
Exhibit G
October ___, 1997
To: Nomura Bank International plc
Nomura House
1, St. Martin's-Le-Grand
London EC1A 4NP
(the "Lender")
Re:Guaranty dated as of October , 1977
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Electronics
Industries Co., Ltd. (the "Guarantor") in connection with a guaranty (the
"Guaranty") dated October ___, 1997 issued and delivered by the Guarantor in
favor of the Lender for the purpose of guaranteeing the obligations of Maxtor
Corporation (the "Borrower") under a US$10,000,000 364-day credit agreement
(the "Credit Agreement") dated October ___, 1997 and made between the Lender
and the Borrower. Terms defined in the Credit Agreement are used herein as
therein defined and the term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 3.01(h)(vi) of
the Credit Agreement. For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Guaranty;
(c) the Articles of Incorporation of the Guarantor;
(d) Commercial Registry extracts regarding the Guarantor;
(e) Minutes of a meeting of the Guarantor's Board of Directors
held regarding the Guaranty;
(f) a Seal Certificate for the Guarantor's Representative Director
who participated in the Guarantor's Board Meeting mentioned in
(e) above;
(g) a certificate issued by the Guarantor's same Representative
Director certifying the genuineness of the seal impression of
each member of the Guarantor's Board of Directors who
participated in the Guarantor's Board Meeting mentioned in (e)
above;
(h) the report to, and acceptance thereof by, Korea Exchange Bank,
Kye-dong Branch in respect of the Guaranty; and
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<PAGE> 47
(i) such other documents as we have considered necessary or
relevant in order for us to provide this opinion.
In giving this opinion we have assumed:
(i) the authenticity of all signatures, seals, stamps and
markings;
(ii) that all documents submitted to us as originals are authentic,
complete and up-to-date, all documents submitted to us as
copies conform to the originals, and that all factual
statements made in such documents are correct and we have
relied on them without further inquiry;
(iii) that the Credit Agreement and any other agreement or
instrument thereunder have been validly authorized, signed and
delivered by the parties thereto (other than the Guarantor) in
accordance with applicable laws;
(iv) that the Credit Agreement and any other agreements or
instruments thereunder constitute or will constitute legal,
valid and binding obligations of each of the parties thereto
enforceable in accordance with its terms respectively under
the laws of the State of New York by which the Credit
Agreement and any other agreement or instrument are expressed
to be governed;
(v) that the copies of the Articles of Incorporation of, and the
Commercial Registry extracts relating to, the Guarantor
referred to in paragraphs (c) and (d) above are true,
complete, accurate and up-to-date; and
(vi) the resolutions of the Board of Directors of the Guarantor
passed at the meeting referred to in paragraph (e) above were
duly passed at properly constituted meeting and that such
resolutions have not been amended or rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the law
of Korea are concerned:
(1) The Guarantor is a limited liability company, duly organized
and validly existing under the law of Korea, with full power
and authority to enter into and perform the Guaranty.
(2) The Guarantor has taken all necessary corporate action to
authorize the entry into and performance of the Guaranty and
the transactions contemplated thereby.
(3) The Guaranty constitutes a legal, valid and binding obligation
of the Guarantor enforceable in accordance with its terms and
is in proper form for its enforcement.
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<PAGE> 48
(4) The entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate (i) any
law or regulation of Korea or any judicial order in Korea or
(ii) the constitutional documents of the Guarantor.
(5) All authorizations, approvals, consents, licenses, exemptions,
filings, registrations and other requirements of governmental,
judicial and public bodies and authorities of or in Korea
required of the Guarantor in connection with the entry into
and performance of the Guaranty have been obtained and are in
full force and effect, except that the Guarantor is required
to report any payment to be made under the Guaranty at the
time of making each such payment to its designated foreign
exchange trading bank.
(6) The obligations of the Guarantor under the Guaranty rank at
least pari passu with all its other present or future
unsecured and unsubordinated obligations of the Guarantor
except for those preferred by operation of law applicable to
companies generally.
(7) All amounts payable by the Guarantor under the Guaranty may be
made free and clear of and without deduction for or on account
of any taxes imposed, assessed or levied in Korea or by any
authority thereof or therein except, however, that although
the tax laws of Korea are not entirely clear as to whether
payment of any interest by the Guarantor under the Guaranty
may be made without withholding of Korean taxes, the Korean
tax authorities may require the Guarantor to withhold Korean
taxes from such interest payment. In the event of Korean
taxes being imposed on interest payments, the guarantor's
obligation to bear the cost of such tax under the Guaranty
would become operative.
(8) Neither the Guarantor nor any of its property (except such
property specifically protected by law) has any immunity from
jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment,
attachment in aid of execution or otherwise) under the laws of
Korea.
(9) To ensure the enforceability or admissibility in evidence of
this Guaranty in Korea, it is not necessary that this Guaranty
or any other document or instrument be filed or recorded with
any court or other authority in Korea.
(10) The Lender will not be deemed to be resident, domiciled,
carrying on business or subject to taxation in Korea by reason
only of the execution, delivery or enforcement of the
Guaranty.
Our opinion is subject to the following general qualifications:
(i) the obligations of the Guarantor under the Guaranty may be
limited or affected by the bankruptcy law, the corporate
reorganization law, the compulsory composition law or other
similar laws with generally affect the rights of creditors;
and
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<PAGE> 49
(ii) the remedies of specific performance or injunction might not
necessarily be available in Korea with respect to any
particular provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by you
and your counsel.
Yours faithfully,
Bae, Kim & Lee
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<PAGE> 50
Exhibit H
October __, 1997
To: Nomura Bank International plc (lender)
Re: Hyundai Electronics Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Electronics Industries
Co., Ltd. (the "Guarantor") in connection with the Guaranty (the "Guaranty")
dated as of October __, 1997 issued by the Guarantor in favor of the Lender for
the purpose of guaranteeing the obligations of Maxtor Corporation as the
Borrower under a Credit Agreement (the "Credit Agreement") dated October __,
1997 and entered into by and among Maxtor Corporation as borrower and Nomura
Bank International plc as lender. Terms defined in the Credit Agreement are
used herein as therein defined and the term "Korea" refers to the Republic of
Korea.
This opinion is furnished to you pursuant to Section 3.01(h)(vi) of
the Credit Agreement. For the purpose of this opinion, I have examined:
(a) The Credit Agreement
(b) The Guaranty; and
(c) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide this opinion.
Based on the foregoing, I am of the opinion that, so far as the laws
of Korea are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
- -------------------------------------------------
M.J. Yoon
Corporate Counsel
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<PAGE> 51
EXHIBIT I - FORM OF
ASSUMPTION AGREEMENT
Dated: _______________
Maxtor Corporation
510 Cottonwood Drive
Milpitas, California 95035
Attention: Vice President - Finance & Treasurer
Normura Bank International plc
Nomura House
1, St. Martin's-Le-Grand
London EC1A 4NP
England
Attention:
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of October 31, 1997
(as amended or modified from time to time, the "Credit Agreement"; terms
defined therein being used herein as therein defined) among Maxtor Corporation,
(the "Borrower") and Nomura Bank International plc (the "Lender").
The undersigned (the "Assuming Lender") proposes to become an Assuming
Lender pursuant to Section 7.07 of the Credit Agreement and, in that
connection, hereby agrees that it shall become a Lender for purposes of the
Credit Agreement on [_______________] and that its Commitment shall as of such
date be $________________.
The undersigned (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01(e) thereof, the most recent financial statements referred to in
Section 5.01(i) thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assumption Agreement; (ii) agrees that it will, independently and without
reliance upon the Lender and based on such documents and information as it
shall deem appropriate at the time continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) appoints and
authorizes the Lender to take such action as agent on its behalf and to
exercise such powers under the Credit Agreement as are delegated to the Lender
by the terms thereof, together with such powers as are reasonably incidental
thereto; (iv) agrees that it will perform in accordance with their terms all of
the obligations which by the terms of the Credit Agreement are required to be
performed by it as a Lender; (v) confirms that it is an Eligible Assignee; (vi)
specifies as its Applicable Lending Office (and address for notices) the
offices set forth beneath its name on the signature pages hereof; and (vii)
attaches the forms prescribed by
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<PAGE> 52
the Internal Revenue Service of the United States required under Section 2.14
of the Credit Agreement.
The Assuming Lender requests that the Borrower deliver to the Lender
(to be promptly delivered to the Assuming Lender) a Promissory Note payable to
the order of the Assuming Lender, dated as of [_______________] substantially
in the form of Exhibit A to the Credit Agreement.
The effective date for this Assumption Agreement shall be
[_______________]. Upon delivery of this Assumption Agreement to the Borrower
and the Administrative Agent, and satisfaction of all conditions imposed under
Section 7.07 as of [date specified above], the undersigned shall be a party to
the Credit Agreement and have the rights and obligations of a Lender
thereunder. As of [date specified above], the Lender shall make all payments
under the Credit Agreement in respect of the interest assumed hereby
(including, without limitation, all payments of principal, interest and
commitment fees) to the Assuming Lender.
The Assumption Agreement may be executed in counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. Delivery of an executed
counterpart by telecopier shall be effective as delivery of a manually executed
counterpart of this Assumption Agreement.
This Assumption Agreement shall be governed by, and construed in
accordance with the laws of the State of New York.
Very truly yours,
[NAME OF ASSUMING LENDER]
By:
---------------------------------
Name:
Title
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<PAGE> 53
Domestic Lending Office
and address for notices):
[Address]
Eurodollar Lending Office
Address]
NAME OF ASSIGNOR]
By:
---------------------------------
Name:
Title
[Address]
ABOVE ACKNOWLEDGED AND AGREED TO:
MAXTOR CORPORATION
By:
---------------------------------
Name:
Title
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<PAGE> 54
PROMISSORY NOTE
U.S. $10,000,000 Dated: October 31, 1997
FOR VALUE RECEIVED, the undersigned, MAXTOR CORPORATION, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
NOMURA BANK INTERNATIONAL plc (the "Lender") for the account of its Applicable
Lending Office on the Stated Maturity Date (each as defined in the Credit
Agreement referred to below) the principal sum of U.S. $10,000,000 pursuant to
the Credit Agreement dated as of October 30, 1997 among the Borrower and the
Lender (as amended or modified from time to time, the "Credit Agreement;" the
terms defined therein being used herein as therein defined) outstanding on the
Stated Maturity Date.
The Borrower promises to pay interest on the unpaid principal
amount of the Loan from the date of such Loan until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement,
Both principal and interest are payable in lawful money of the
United States of America to the Lender at Bank of America NTSA, New York, New
York (account number 65506-61166), in same day funds.
This Promissory Note is the Note referred to in, and is entitled
to the benefits of, the Credit Agreement. The Credit Agreement, among other
things, (i) provides for the making of a loan by the Lender to the Borrower in
an amount not to exceed the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from such Loan being evidenced Promissory
Note, and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
MAXTOR CORPORATION
By:/s/ RAJA VENKATESH
--------------------------------------
Title:
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<PAGE> 55
MAXTOR CORPORATION
Certificate of Borrower
Pursuant to Article III, Section 3.01(g) of the U.S. $10,000,000 364-Day
Credit Agreement Dated as of October 31, 1997, among Maxtor Corporation, as
Borrower, and Nomura Bank International plc, as Lender, Borrower hereby
certifies to Lender that:
(i) The representations and warranties contained in each Loan Document
are correct, and
(ii) No event has occurred and is continuing that constitutes a Default.
All capitalized terms not otherwise defined herein shall have the
meaning set forth in the Agreement
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
31st day of October, 1997.
MAXTOR CORPORATION
By:
------------------------------------
Paul J. Tufano
Vice President Finance and
Chief Financial Officer
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<PAGE> 56
CERTIFIED RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
MAXTOR CORPORATION
I, Carlotta Barr-Smith, hereby certify that I am the duly elected and
acting Assistant Secretary of Maxtor Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"). I further
certify that the following is a full, true and correct copy of resolutions of
the Board of Directors of the Corporation, duly and regularly adopted by the
Board of Directors of the Corporation in all respects as required by law and the
Bylaws of the Corporation on January 11, 1996, and that said resolutions are in
full force and effect and have not been amended or revoked.
Approval of Borrowing Authorization Levels
WHEREAS, it is also deemed to be in the best interests of the
Corporation to establish borrowing relationships from time to time with
various financial institutions, subject to the following limitations of
authority with respect to such borrowings:
<TABLE>
<CAPTION>
Title Authority
----- ---------
<S> <C> <C>
Chief Financial Officer to $10,000,000
Chief Executive Officer to $20,000,000
Board of Directors over $20,000,000
</TABLE>
IT IS THEREFORE RESOLVED, that the officers of the Corporation
are hereby authorized in the name and on behalf of this Corporation to
enter into borrowing agreements with such financial institutions and on
such terms as its officers may deem in the Corporation's best interests,
provided, however, that the aggregate principal amount of each such
borrowing is approved by the appropriate officer, and within the
borrowing limits, as set forth above;
RESOLVED FURTHER, that the signatures of the President or Chief
Financial Officer, together with either the Secretary or Treasurer,
appearing on any form of agreement not inconsistent with the foregoing
shall be presumptive evidence of the officers' authority to execute such
agreement on behalf of Maxtor Corporation; and
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RESOLVED FURTHER, that the proper officers of the Corporation be,
and each of them hereby is, authorized, directed and empowered, for and
on behalf of the Corporation, to make all such arrangements, to do and
perform all such acts and things, to execute and deliver all such other
instruments and documents, and to certify any further resolutions in
connection therewith, which resolutions shall be deemed to be approved
by the Board as if adopted at this meeting.
Dated: October 31, 1997
- SEAL -
----------------------------------------
Carlotta Barr-Smith
Assistant Secretary
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<PAGE> 58
Certificate of Assistant Secretary
I, Carlotta Barr-Smith, hereby certify that I am the duly elected and
acting Assistant Secretary of Maxtor Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"). I further
certify hereby that the following signatures are the true signatures of the
persons duly authorized to sing the Agreement, the Note, each other Loan
Document to which the Corporation is a party and such other documents as may be
required to be delivered thereunder.
<TABLE>
<CAPTION>
Officer Name Signature
------- ---- ---------
<S> <C> <C>
Vice President and
Chief Financial Officer Paul J. Tufano /s/ PAUL J. TUFANO
-----------------------------------
Vice President, General
Counsel and Secretary Glenn H. Stevens /s/ GLENN H. STEVENS
-----------------------------------
Corporate Treasurer Raja Venkatesh /s/ RAJA VENKATESH
-----------------------------------
Assistant Treasurer Glen Haubl /s/ GLEN HAUBL
-----------------------------------
Dated: October 31, 1997
/s/ CARLOTTA BARR-SMITH
-----------------------------------
Carlotta Barr-Smith
Assistant Secretary
</TABLE>
- - SEAL -
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<PAGE> 59
HYUNDAI ELECTRONICS INDUSTRIES, Co., LTD.
Certificate
I, Young Hwan Kim, Representative Director of Hyundai Electronics
Industries, Co., Ltd., a company incorporated with limited liability in the
Republic of Korea (the "Corporation"), DO HEREBY CERTIFY, in connection with a
Borrowing on this date under the Credit Agreements each dated as of October 31,
1997 between Maxtor Corporation, a Delaware corporation, as borrower and Nomura
Bank International plc as lender (the "Credit Agreement," the terms defined
therein being used herein as therein defined), that:
1. Attached hereto as Exhibit A is a true, complete and up-to-date copy
of the Articles of Incorporation of the Corporation, together with an accurate
English translation thereof.
2. Attached hereto as Exhibit B is a true, complete and up-to-date copy
of the Commercial Registry extracts regarding the Corporation, together with an
accurate English translation thereof.
3. Attached hereto as Exhibit C is a true and correct copy of
resolutions duly adopted by the Board of Directors of the Corporation at a
meeting thereof duly called and held on October 15, 1997, at which meeting a
quorum was present and acting throughout. Such resolutions have not been
amended, modified or revoked and are in full force and effect on the date
hereof.
4. The Guaranty (the "Guaranty") dated October 31, 1997, made by the
Corporation to the Lender, as executed and delivered on behalf of the
Corporation, is substantially in the form thereof approved at the meeting of the
Board of Directors referred to in paragraph 3 hereof.
5. Attached hereto as Exhibit D is a genuine Seal Certificate for the
Corporation's Representative Director who participated in the Corporation's
Board Meeting mentioned in paragraph 3 above, together with an accurate English
translation thereof.
6. The seal impression of each member of the Corporation's Board of
Directors who participated in the Corporation's Board Meeting mentioned in
paragraph 3 above is genuine and authentic.
7. Attached hereto as Exhibit E is a true and correct copy of the report
filed by the corporation with its designated foreign exchange trading bank in
respect of the Guaranty, together with an accurate English translation thereof.
8. The below named persons, who include all persons who, as officers of
the Corporation, executed and delivered the Guaranty and each other document,
certificate and instrument being delivered on the date hereof pursuant to or as
contemplated by the Credit
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<PAGE> 60
Agreement, were duly elected (or appointed), qualified and acting as such
officers holding their respective offices below set opposite their names, and
the signatures below set opposite their names are their genuine signatures:
<TABLE>
<CAPTION>
Name Office Signature
<S> <C> <C>
Young Hwan Kim Representative Director /s/ YOUNG HWAN KIM
-------------------------
Il Sun Kim Director /s/ IL SUN KIM
-------------------------
Kang Ho Lee General Manager /s/ KANG HO LEE
-------------------------
</TABLE>
IN WITNESS WHEREOF, I have signed this certificate this 31st day of
October, 1997.
/s/ YOUNG HWAN KIM
-----------------------------------
Name: Young Hwan Kim
Title: Representative Director
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<PAGE> 61
ARTICLES OF INCORPORATION
OF
HYUNDAI ELECTRONICS INDUSTRIES COMPANY LIMITED
CHAPTER I. GENERAL PROVISIONS
ARTICLE 1. COMPANY NAME
The name of the Company is, in Korean, Hyundai Jeon-Ja San-up Choo-Sik Hoe-Sa
and in English, Hyundai Electronics Industries Co., Ltd. (in abbreviated form,
HEI).
ARTICLE 2. OBJECT
The object of the Company is to engage in the following business activities:
(1) Manufacture or sale of semiconductor devices
(2) Manufacture, fabrication or sale of machinery, tools, parts, materials
to be used therefor by applying the features of electronic movements and
by utilizing semiconductor devices and other similar parts
(3) Development or lease of application software for computers
(4) Manufacture, sale or lease of electronic, electrical or communicative
machinery, tools and their parts, and services related thereto
(5) Manufacture of mechanical components and tooling
(6) Technical research or consulting services
(7) Lease of electronic or electrical machinery or tools
(8) Manufacture, sale or lease of communicative equipment for specific
purposes (satellite communication, etc.) or broadcasting, or services
related thereto
(9) Manufacture or sale of photographic supplies or optical supplies
(10) Information services
(11) Publication
(12) Foreign trading
(13) Forestation
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(14) Sale or lease of real estate
(15) Importation, sale or distribution of the foreign movies
(16) Production, sale or distribution of the movies
(17) Any other businesses or investment related to or incidental to any of
the aforementioned activities
(18) Manufacture of storage battery
(19) Power generation
(20) Construction
(21) Manufacture or sale of disk or video products
(22) Any other businesses and investment related to or incidental to any of
the aforementioned activities
(23) Manufacture of electronic tubes
(24) Amusement business
(25) Manufacture or sale of spacecrafts and their components
ARTICLE 3. LOCATION OF THE HEAD OFFICE AND ESTABLISHMENT OF BRANCH AND OTHER
OFFICES
(1) The head office of the Company shall be located at Ichon-Si,
Kyoungki-Do, the Republic of Korea.
(2) The Company may establish branches, branch offices, offices and
subsidiaries in Korea, as well as abroad as required by resolution of
the Board of Directors.
ARTICLE 4. METHOD OF GIVEN PUBLIC NOTICE
Public notices by the Company shall be given by publication in The Korea
Economic Daily, a daily newspaper of general circulation published in Seoul, the
Republic of Korea.
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CHAPTER II. SHARES
ARTICLE 5. TOTAL NUMBER OF SHARES TO BE ISSUED
The total number of shares to be issued by the Company is one hundred
twenty-eight million (128,000,000) shares.
ARTICLE 6. PAR VALUE PER SHARE
The par value of shares issued by the Company shall be five thousand Won
(Won 5,000) per share.
ARTICLE 7. TOTAL NUMBER OF SHARES TO BE ISSUED AT THE TIME OF INCORPORATION
The total number of the shares to be issued by the Company at the time of
incorporation shall be fifty thousand (50,000) shares.
ARTICLE 8. CLASSES OF SHARES
The classes of shares to be issued by the Company shall be common shares in
non-bearer form and preferred shares in non-bearer form.
ARTICLE 8-2. NUMBER AND CHARACTERISTICS OF PREFERRED SHARES
(1) The number of non-voting preferred shares to be issued by the Company
shall be twenty million (20,000,000) shares.
(2) The dividend of a non-voting preferred share shall be one percent (1%)
of the par value of the share per annum above the amount of the dividend
on a common share. Such additional one percent (1%) shall be paid in
cash.
(3) Dividends on preferred shares, as set forth in Paragraph (2), may be not
declared if no dividend is declared on the common shares.
(4) If any dividend on non-voting preferred shares cannot be paid from the
profits of the fiscal year concerned, the non-voting preferred shares
shall be deemed to have voting
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rights, from the time of the general meeting of shareholders following
the general meeting at which the resolution not to pay dividends on
preferred shares is adopted, to the time of the end of the general
meeting of shareholders at which a resolution to pay dividends for such
preferred shares is adopted.
ARTICLE 9. TYPES OF SHARE CERTIFICATES
Share certificates to be issued by the Company shall be in eight denominations,
of one (1), five (5), ten (10), fifty (50), one hundred (100), five hundred
(100), one thousand (1,000) and ten thousand (10,000) shares.
ARTICLE 10. PREEMPTIVE RIGHTS
(1) The Company's shareholders shall have the preemptive right to subscribe
to new shares in proportion to their respective shareholding ratios.
However, if any unsubscribed shares result from a shareholder waiving or
losing his preemptive right, or if fractional shares result from the
allocation of the new shares, such shares shall be disposed of in
accordance with a resolution of the Board of Directors.
(2) Notwithstanding the provision of Paragraph (1), the Company may allocate
new shares to persons other than shareholders by resolution of the Board
of Directors in the following cases:
(i) If the Company issues new shares by a public offering or cause
underwriters to underwrite new shares in accordance with the
relevant provisions of the Securities and Exchange Act.
(ii) If the Company issues new shares to the Employee Stock Ownership
Association in accordance with the relevant provisions of the
Law on Fostering the Capital Market.
(iii) If the Company issues new shares for the issuance of depository
receipts (DR) in accordance with the Regulation on the Issuance
of Overseas Securities.
ARTICLE 10-2. RECORD DATE OF THE DIVIDEND PAY-OUT OF NEW SHARES
In case the Company issues new shares by increase of capital stock with
consideration, increase
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of capital stock without consideration and share dividend, for the purpose of
the dividend for new shares, such new shares shall be deemed to have been issued
at the end of the fiscal year immediately preceding the fiscal year in which
such new shares have been issued.
ARTICLE 11. ISSUANCE OF NEW SHARES AT MARKET PRICE
(1) The Company may, in issuing new shares, issue any or all of new shares
at a market price and such market price shall be determined by the
resolution of the Board of Directors.
(2) In the case of Paragraph 1 above, the Company may, notwithstanding the
provisions described in Article 10, issue new shares by a public
offering or cause underwriters to underwrite new shares issued at a
market price in accordance with the relevant provisions of Securities
and Exchange Act.
ARTICLE 12. TRANSFER AGENT
(1) The Company shall retain a transfer agent to make entries in the
Register of Shareholders.
(2) The nomination of transfer agent, the location where its services are to
be rendered and the scope of its duties shall be determined by the Board
of Directors of the Company and shall be publicly announced.
(3) The Company shall keep the Register of Shareholders, or a duplicate
thereof, at the location where the transfer agent performs its duties.
The transfer agent shall handle the activities of making entries in the
Register of Shareholders, registering the creation and cancellation of
pledges over shares, indication of trust assets and cancellation thereof
with respect to shares, issuing share certificates, receiving reports,
and other related businesses.
(4) Those activities by the transfer agent described in Paragraph (3) shall
be performed in accordance with the Regulations for Securities Agency
Business of the Transfer Agent.
ARTICLE 13. REPORT OF NAME, ADDRESS AND SEAL OF SIGNATURE OF SHAREHOLDERS AND
OTHERS
(1) Shareholders and registered pledgees shall report their names, addresses
and seals of signature to the transfer agent referred to in Article 12.
(2) Shareholders and registered pledgees who reside in a foreign country
shall report their appointed agent and the addresses in Korea to which
notices are to be sent.
(3) The above provisions shall also apply to changes in any item mentioned
in Paragraphs (1) and (2).
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ARTICLE 14. CLOSING OF REGISTER OF SHAREHOLDERS AND RECORD DATE
(1) The Company shall suspend the making of entries in the Register of
Shareholders, registration or cancellation of pledges and indication of
trust assets and cancellation thereof during the period from the date
following the last day of each fiscal year to the last date of the month
for the year.
(2) The Company shall allow the shareholders who are registered in the
Register of Shareholders as of the closing date of each fiscal year to
exercise their rights.
(3) The Company may, by resolution of the Board of Directors, and with
advance public notice of two (2) weeks, when calling an extraordinary
general meeting of shareholders or when necessary, close the Register of
Shareholders for a period not exceeding three (3) months, or set a
record date; provided, that if the Board of Directors deems it
necessary, the Company may close the Register of Shareholders and set
the record date at the same time.
CHAPTER III. BONDS
ARTICLE 15. ISSUANCE OF CONVERTIBLE BONDS
(1) The Company may issue convertible bonds to persons other than
shareholders, provided that the aggregate face value of the convertible
bonds so issued shall not exceed five hundred billion Won
(Won 500,000,000,000).
(2) The convertible bonds mentioned in Paragraph (1) may be issued with a
partial conversion right in accordance with the resolution of the Board
of Directors.
(3) The type of shares to be issued upon conversion of convertible bonds
shall be common shares or preferred shares. The conversion price shall
be not less than the par value of the shares, as determined by the Board
of Directors at the time of issuance of the relevant convertible bonds.
(4) The period during which conversion may be requested shall commence one
(1) month after the date of issuance of the relevant convertible bonds
and end on the date one day prior to the redemption date of the bonds;
provided, that the Board of Directors may, by its resolution, adjust the
conversion period within the above period.
(5) With respect to the distribution of dividends or interest for shares
issued upon conversion of the convertible bonds described in Paragraph
(1), the conversion into new shares shall be deemed to have taken place
at the end of the fiscal year immediately preceding the fiscal year in
which such conversion is requested.
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ARTICLE 16. ISSUANCE OF BONDS WITH WARRANTS
(1) The Company may issue bonds with warrants to persons other than
Shareholders, provided that the aggregate face value of the bonds with
warrants so issued shall not exceed five hundred billion Won
(Won 500,000,000,000).
(2) The aggregate value of new shares which may be subscribed to by warrant
holders shall be determined by the Board of Directors, but shall not
exceed the aggregate face value of the bonds with warrants.
(3) The Article 15, Paragraph (3) shall apply mutatis mutandis to bonds with
warrants.
(4) The Article 15, Paragraph (4) shall apply mutatis mutandis to bonds with
warrants.
(5) With respect to the distribution of dividends or interest for shares
issued upon exercise of warrants in the case of the bonds with warrants
described in Paragraph (a), the Article 10-2 shall mutatis mutandis
apply.
ARTICLE 17. APPLICABLE PROVISIONS REGARDING ISSUANCE OF BONDS
The provisions of Articles 12 and 13 shall apply mutatis mutandis to the
issuance of bonds.
CHAPTER IV. GENERAL MEETING OF SHAREHOLDERS
ARTICLE 18. TIME FOR CONVENING OF GENERAL MEETING
(1) General meetings of the shareholders of the Company shall be of two
types: ordinary and extraordinary.
(2) The ordinary general meeting of shareholders shall be convened within
three (3) months after the end of each fiscal year and the extraordinary
general meeting of shareholders may be convened at any time if
necessary.
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ARTICLE 19. PERSON AUTHORIZED TO CONVENE GENERAL MEETING
(1) Except as otherwise provided by law, general meetings of shareholders
shall be convened by the Representative Director-President in accordance
with a resolution of the Board of Directors.
(2) In the absence of the Representative Director-President, the provision
of Article 35, Paragraph (2) shall apply mutatis mutandis.
ARTICLE 20. NOTICE AND PUBLIC NOTICE OF CONVENING OF GENERAL MEETING
(1) In convening a general meeting of shareholders, a written notice
thereof, which sets forth the time, date, place and agenda of the
meeting, shall be sent to each shareholder at least two (2) weeks prior
to the date of the meeting.
(2) The written notice to shareholders holding not more than one percent
(1%) of the total number of shares outstanding may be replaced by public
notices made at least twice in a daily newspaper set forth in Article 4
and Maeil Business Newspaper two (2) weeks prior to the meeting. The
public notice of a meeting shall include the statement that the general
meeting will be held and the agenda of the meeting.
ARTICLE 21. PLACE OF GENERAL MEETING
General meetings of shareholders shall be held at the place where the head
office of the Company is located by may be held at a nearby place if necessary
or in Seoul.
ARTICLE 22. CHAIRMAN OF MEETING
(1) The Representative Director-President shall be the chairman of the
general meeting of shareholders.
(2) In the absence of the Representative Director-President, the provision
of Article 35, Paragraph (2) shall apply mutatis mutandis.
ARTICLE 23. MAINTENANCE OF ORDER BY CHAIRMAN
(1) The chairman of a general meeting of shareholders may order persons who
intentionally speak or behave obstructively or who disturb the
proceedings of the meeting to stop or retract a speech or to leave the
place of meeting and such persons shall comply with his order.
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(2) The chairman of the general meeting of shareholders may restrict the
time and frequency of shareholder's speech when deemed necessary to
proceed with the meeting.
ARTICLE 24. VOTING RIGHTS OF SHAREHOLDERS
Every shareholder shall have one (1) vote for each share he owns.
ARTICLE 25. LIMITATION TO VOTING RIGHTS OF CROSS-HELD SHARES
If the Company or any of its subsidiaries holds, individually or jointly, shares
exceeding ten percent (10%) of the total number of shares issued and outstanding
of another company, the shares in the Company held by such other company shall
not have voting rights.
ARTICLE 26. SPLIT EXERCISE OF VOTING RIGHTS
(1) If a shareholder who holds two (2) or more votes wishes to split his
votes, he shall give at least three (3) days' prior written notice to
the Company of such intention and reason therefor.
(2) The Company may refuse to permit a shareholder to vote each shares
separately rather than as a block, except in the case where such
shareholder holds shares belonging to others in trust or on behalf of
others.
ARTICLE 27. EXERCISE OF VOTING RIGHTS BY PROXY
(1) A shareholder may exercise his or her voting right by proxy.
(2) The proxyholder in Paragraph (1) shall submit documents evidencing his
power of representation, prior to the opening of the general meeting of
shareholders.
ARTICLE 28. METHOD OF RESOLUTION OF GENERAL MEETING OF SHAREHOLDERS
At all general meetings of shareholders, except as otherwise prescribed by law,
the quorum of all general meetings of shareholders shall be more than fifty
percent (50%) of the votes of the shareholders present and all resolutions of
the general meeting of shareholders shall be passed by not less than twenty-five
percent (25%) of the total shares issued and outstanding.
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ARTICLE 29. MINUTES OF GENERAL MEETING OF SHAREHOLDERS
The substance of the course and proceedings of a general meeting of shareholders
and the results thereof shall be recorded in minutes which shall bear the names
and seals or signatures of the chairman and the directors present at the
meeting, and shall be kept at the head office and branches of the Company.
CHAPTER V. DIRECTORS, BOARD OF DIRECTORS AND AUDITORS
ARTICLE 30. NUMBER OF DIRECTORS AND AUDITORS
The Company shall have at least three (3) directors and at least one (1)
Auditor.
ARTICLE 31. ELECTION OF DIRECTORS AND AUDITORS
(1) The directors and auditors shall be elected at a general meeting of
shareholders.
(2) The directors and auditor(s) shall be elected by majority of votes of
the shareholders present at the general meeting of shareholders and not
less than twenty-five percent (25%) of the total shares issued and
outstanding. A shareholder holding shares exceeding three-hundredths
(3/100) of the total number of voting shares issued and outstanding, may
not exercise his vote in electing the auditor in respect of shares in
excess of three percent (3%).
ARTICLE 32. TERM OF OFFICE OF DIRECTORS AND AUDITORS
(1) The term of office of directors shall be two (2) years; provided,
however, that if the term of office expires before the ordinary general
meeting of shareholders convened in respect of the last fiscal year of
such term of office, the term of office shall be extended until the
close of such ordinary general meeting of shareholders.
(2) The term of office of the auditor(s) shall expire at the close of the
ordinary general meeting of shareholders convened with respect to the
last fiscal year which ends on or before three (3) years from the date
of acceptance of office.
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ARTICLE 33. FILLING OF VACANCY IN THE OFFICE OF DIRECTOR AND AUDITOR
(1) Any vacancy in the office of a director or auditor shall be filled by
resolution of a general meeting of shareholders; provided, however, that
if the number of directors required by Article 30 of these Articles of
Incorporation is met and there is no difficulty in the administration of
business, the vacancy may be left unfilled.
(2) The term of office of a director or auditor elected to fill a vacancy
shall be the remaining term of his predecessor.
ARTICLE 34. ELECTION OF REPRESENTATIVE DIRECTOR AND OTHERS
The Company may elect the Representative Director-President, and a number of
Executive Vice Presidents, Senior Vice Presidents and Vice Presidents in
accordance with a resolution of the Board of Directors.
ARTICLE 35. DUTIES OF DIRECTORS
(1) The Representative Director-President shall represent the Company, and
manage all the affairs of the Company.
(2) Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and
directors shall assist the Representative Director and shall carry out
their respective responsibilities as determined by the Board of
Directors. In the absence of the Representative Director, they shall
perform his duty in the above order.
ARTICLE 35-2. REPORT DUTY OF DIRECTORS
In case any director comes to know the fact that seems to damage seriously to
the Company, such director shall inform the auditor thereof immediately.
ARTICLE 36. DUTIES OF AUDITOR(S)
(1) The auditor shall examine the accounts and business of the Company.
(2) The auditor may attend meetings of the Board of Directors and express
his opinions thereat.
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(3) The auditor may request to convene the extraordinary general meeting of
shareholders by filing with the Board of Directors a statement
specifying the agenda and the reason of convention thereof.
(4) The auditor may request any subsidiary of the Company to report its
business affairs, when deemed necessary to exercise his duties. In this
event, the auditor may investigate the business affairs and financial
status of such subsidiary when such subsidiary does not report
immediately or it is necessary to ascertain the content of such report.
ARTICLE 37. AUDITORS' RECORDS
The auditor shall record the substance and results of an audit in auditors'
records, on which shall be affixed the names and seals or signatures of the
auditors who have performed such audit.
ARTICLE 38. CONSTITUTION OF THE BOARD OF DIRECTORS AND CONVENING OF THE BOARD OF
DIRECTOR'S MEETING
(1) The Board of Directors of the Company shall consist of directors. The
Board of Directors shall resolve all important matters relating to the
execution of businesses.
(2) Meetings of the Board of Directors shall be convened by the
Representative Director-President or another director designated by the
Board of Directors. In convening a meeting of the Board of Directors, a
written notice thereof shall be given to each director and auditor seven
(7) days prior to the date of the meeting; provided, however, that such
notice may be dispensed with upon the consent of all directors and
auditors.
ARTICLE 39. RESOLUTIONS OF THE BOARD OF DIRECTORS
(1) Resolution of the Board of Directors shall be adopted in the presence of
a majority of the directors in office and by the affirmative vote of a
majority of the directors present.
(2) The chairman of the Board of Directors shall be the person with the
right to convene a meeting of the Board of Directors in accordance with
Article 38, Paragraph (2).
(3) No director who has an interest in a manner for resolution can exercise
his vote upon such matter.
ARTICLE 40. MINUTES OF MEETING OF THE BOARD OF DIRECTORS
The substance of the proceedings of the Board of Directors shall be recorded in
the minutes,
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which, after having been given names and seals or signatures by the chairman and
all the directors and auditors present, shall be kept at the head office.
ARTICLE 41. COMPENSATION AND SEVERANCE PAY OF DIRECTORS AND AUDITORS
(1) The amount of compensation for the directors and auditors shall be
determined by a resolution of the general meeting of shareholders.
(2) Severance payments for directors and auditors shall be paid in
accordance with the Regulation on Severance Payment for Officers as
adopted by a resolution of the general meeting of shareholders.
ARTICLE 42. CONSULTANTS AND ADVISORS
The Company may have a number of consultants or advisors in accordance with the
resolution of the Board of Directors.
CHAPTER VI. ACCOUNTING
ARTICLE 43. FISCAL YEAR
The fiscal year of the Company shall commence on the first day of January and
end of the 31st day of December of each year.
ARTICLE 44. PREPARATION AND PRESERVATION OF FINANCIAL STATEMENTS AND BUSINESS
REPORT
(1) The Representative Director-President of the Company shall prepare the
following documents, supplementary documents thereto and the business
report, six weeks before the day set for the ordinary general meeting of
shareholders, for audit by the auditors, and the Representative
Director-President shall submit the following documents and the business
report to the ordinary general meeting of shareholders.
(i) Balance sheet;
(ii) Profit and loss statement; and
(iii) Statement of appropriation of retained earnings or statement of
disposition of deficit.
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(2) The auditors shall submit the auditors' report on the documents
described in Paragraph (1) above to the Representative
Director-President, within four (4) weeks of receipt thereof.
(3) The Representative Director-President shall keep on file copies of the
documents described in Paragraph (1) above, supplementary documents
thereto, the business report, and the auditors' report at the head
office of the Company for five (5) years and certified copies of all
such documents at the branches of the Company for three (3) years
beginning from one (1) week before the day set for the ordinary general
meeting of shareholders.
(4) The Representative Director-President shall give public notice of the
balance sheet and the independent auditors' opinion immediately after
the documents referred to in each item of Paragraph (1) above have been
approved by the general meeting of shareholders.
ARTICLE 45. DISPOSITION OF PROFIT
This Company shall dispose of the unappropriated retained earnings as of the end
of each fiscal year as follows:
(i) making up the deficit carried forward from previous fiscal
years;
(ii) legal reserve (required by Commercial Law);
(iii) other statutory reserves;
(iv) dividends;
(v) discretionary reserve;
(vi) other appropriation of retained earnings; and
(vii) carrying forward to subsequent fiscal years.
ARTICLE 46. DIVIDENDS
(1) Dividends may be paid in cash or in shares.
(2) Dividends under Paragraph (1) shall be paid to the shareholders or
pledgees who are registered in the Register of Shareholders as of the
end of each fiscal year.
(3) In the event of paying the dividend in shares, when the Company has
issued several kinds of shares, the Company may pay different kinds of
shares in accordance with the resolution of the general meeting of
shareholders.
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ARTICLE 47. PRESCRIPTION PERIOD FOR CLAIM FOR PAYMENT OF DIVIDENDS
(1) The right to dividends shall be extinguished by prescription if the
right is not exercised for five (5) years.
(2) After the expiration of the prescription period set out in Paragraph
(1), unclaimed dividends shall revert to the Company.
ADDENDUM
These Articles of Incorporation shall take effect as of February 28, 1997;
provided that the Article 13, Article 28, Article 29, Article 31, Article 32,
Article 35-2, Article 36, Article 37, Article 40, and Paragraph 3 of Article 46
shall take effect as of October 1, 1996, and the Article 10-2 shall take effect
as of the first fiscal year starting after the date of amendment of this
Articles of Incorporation.
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CERTIFIED COPY
OF
CORPORATE REGISTRATION
Registration No. : 182
Corporation Record No. : 134411 - 0001387
SECTION I. COMPANY NAME AND CAPITAL
- - NAME OF COMPANY:
Hyundai Jeon-Ja San-up Choo-Sik Hoe-Sa
(Hyundai Electronics Industries Co., LTD. in English)
- - PRINCIPAL OFFICE:
San 136-1, Ami-ri, Bubal-eub, Ichon-shi, Kyongki-do, the Republic of
Korea (ROK)
- - METHOD OF PUBLIC NOTICE:
Public notice of the Company shall be given by publication in Hankook
Kyungje Shinmun (The Korea Economic Daily) of general circulation in
Seoul. [Amended March 31, 1993 and Registered April 13, 1993.]
- - PAR VALUE OF SHARE:
Five thousand (5,000) Won
- - TOTAL NUMBER OF SHARES TO BE ISSUED:
One hundred and twenty eight million (128,000,000) shares
- - TOTAL NUMBER AND CLASSES OF SHARES ISSUED:
Fifty six million (56,000,000) shares, common stock
- - TOTAL AMOUNTS OF PAID-IN CAPITAL:
Two hundred and thirty billion (230,000,000,000) Won
- - DATE OF FOUNDATION:
October 15, 1949
[Reasons for and date of new registration: Transcribed from the old
registration book pursuant to Article 895-2 of Registration Rule (Reg.
No 1333, June 24, 1991) ] [Registered January 21, 1992]
SECTION II. OBJECTIVES
- - OBJECTIVES OF CORPORATION:
1. Manufacture and sale of semiconductor devices
2. Manufacture, fabrication and sale of mechanical devices and
parts/materials to be used therefor by applying the features of
electronic movements and by utilizing semiconductor devices and
other parts
3. Development, sale and lease of software for computers
4. Manufacture, sale and lease of electronics and electrical
communication machinery, devices and their parts and services
related thereto
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5. Manufacture of mechanical parts and tooling
6. Technical research and consulting services
7. Lease of electronic and electrical machinery and devices
8. Manufacture, sale and lease of equipment related to special kinds
of communication (satellite communication etc.) and broadcasting,
and services related thereto
10. Manufacture and sale of photograph supplies and optical supplies
11. Information services
12. Publication
13. Foreign Trading
14. Forestation
15. Sale and lease of real estates
16. Importation, sale and distribution of foreign movie
17. Production, sale and distribution of movie
18. Any other businesses and investment related to or incidental to
any of the aforementioned objectives
19. Manufacture of a storage battery
20. Power generation
21. Construction [Amended March 31, 1994, Registered April 8, 1994]
22. Manufacture and sale of disk and video products
23. Any other businesses related to or incidental to any of the
aforementioned objectives [Amended March 30, 1995, Registered
April 7, 1995]
24. Manufacture of TFT liquid crystal display
25. Amusement business [Amended October 14, 1995, Registered October
20, 1995]
26. Manufacture and Sale of spaceship and its parts [Amended March
27, 1996, Registered April 9, 1996]
SECTION III. OFFICERS
Registration No.: 182 Corporate Record No.: 134411-001387
Company Name: Hyundai Electronics Industries Co., Ltd
Principal Office: San 136-1, Ami-ri, Bubal-eub, Ichon-shi, Kyongki-do, ROK
REGISTRATION OF OFFICERS
Director Chung, Mong Hun Inaugurated February 28, 1997
ID No. 480914-1000114 Registered March 14, 1997
Director Chung, Ju Young ditto
ID No. 151125-1000119
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Director Kim, Young Hwan ditto
ID No. 420808-1055620
Director Chang, Dong Kook ditto
ID No. 440910-1025621
Director Kim, Dong Sik ditto
ID No. 420701-1042021
Director Oh, Kye Hwan ditto
ID No. 700232188
Director Rha, Young Yull ditto
ID No. 410201-1024318
Director Yoon, Jang Jin ditto
ID No. 420118-1052811
Director Byun, Tae Sung ditto
ID No. 461118-1023638
Director Kim, Byung Hoon ditto
ID No. 500117-1024630
Director Song, Hae Chung ditto
ID No. 510620-1380415
Statutory Auditor Lee, Dong Woo ditto
ID No. 530706-1682813
Representative Director Chung, Mong Hun ditto
330-176, Sungbuk-dong, Sungbuk-ku, Seoul
Representative Director Kim, Young Hwan ditto
A-203, Kangbyun Hyundi Villa, Samsung-dong,
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Kangnam-Ku, Seoul
SECTION IV. OTHER REGISTRATIONS
ER INFORMATION Branch office: 66, Jeokseon-dong, Jongro-ku, Seoul
1. Branch Office 37-21, Bongmyung-dong, Cheongju City, Chungchungbuk-do,
ROK Established August 26, 1994, Registered August 26, 1994
2. Name, Address and (Resident) ID No. of Manager
Kim, Dong Chul (570217-1674511) 17-304, Bulgwang-dong, Eunpyung-ku,
Seoul
Place where the Manager is posted : San 136-1, Ami-ri, Bubal-eub,
Ichon-kun,
Kyongki-do, ROK Registered August 26, 1994
3. Name, Address and (Resident) ID No. of Manager
Lee, Young Woo (650115-1780918) : 443-34, Bulgwang-dong,
Eunpyung-ku, Seoul
Place where the Manager is posted : San 136-1, Ami-ri, Bubal-eub,
Ichon-kun,
Kyongki-do, ROK Registered August 26, 1994
4. Branch Office: 254-1, Maegok-ri, Hobup-myun, Ichon-kun, Kyongki-do,
ROK
Established May 31, 1995 and Registered June 2, 1995.
THIS IS A CERTIFIED COPY OF CORPORATE REGISTRATION,
/ STAMP / ISSUED ON THIS 10 DAY OF SEPTEMBER, 1997
REGISTRAR Park, Boo Hyong / SEAL /
ICHON REGISTER OFFICE OF SOOWON DISTRICT COURT
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MINUTES OF THE BOARD OF DIRECTORS' MEETING
Date and Time: October 15, 1997 10:00 a.m.
Place: Main Conference Room located in the Head Office Building
Number of Directors Present: 6 out of the total of 11 Directors in office
Mr. Young Hwan Kim, the Representative Director of Hyundai Electronics
Industries Co., Ltd. (the "Company"), declared that the meeting was duly
convened and then asked for the deliberation of the following agendum.
Agendum: Guarantee Issuance
The Representative Director explained the details of the borrowing of
USD10,000,000.00 by Maxtor Corporation, and the necessity of a guarantee for
such borrowing, and asked for opinions of the Directors present. After an
exchange of opinions and deliberation, all Directors present unanimously voted
in favor of following resolutions:
RESOLUTIONS
1. Creditor: Nomura Bank International plc
2. Borrower: Maxtor Corporation
3. Guarantor: Hyundai Electronics Industries Co., Ltd.
4. Limit of the Credit: USD10,000,000.00 in total
5. Interest: Libor + 73 Basis Points p.a.
6. Maturity: 364 days from the date of the Guaranty
7. Details of Guarantee:op
1) Principal of the Credit within the amount of USD10,000,000.00
2) Any and all fees in connection with the borrowing
3) Incidental costs and expenses
4) Default interest accrued on the principal or interest of the credit,
fees or incidental costs and expenses.
8. The Representative of Director or persons designated by him may negotiate,
execute and deliver the Guaranty or any other documents required thereby.
After the adoption of above resolutions, the Representative Director declared
that the meeting was adjourned at 11:00 a.m.
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IN WITNESS WHEREOF, these minutes have been prepared and all Directors present
have affixed their names and seals hereinbelow.
Representative Director: Young Hwan Kim
Director: Kye Hwan Oh
Director: Dong Kook Chang
Director: Jang Jin Yoon
Director: Byung Hun Kim
Director: Hae Chung Song
Auditor: Dong Woo Lee
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- --------------------------------------------------------------------------------
SEAL CERTIFICATE
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
(Seal) Company: Hyundai Electronics Industries Co., Ltd.
Head Office: San 136-1, Ami-ri, Bubal-eub, Ichon-Si
Kyongki-do, Korea
Representative Director
Young Hwan Kim
(Korean ID No.: 420808-1055620)
-------------------------------------------------------------------------
Please certify that the seal above shown which is being used by Young Kwan Kim,
the representative director of the company, is identical with the seal
registered with your court.
Date:
Applier: Hyundai Electronics Industries Co., Ltd.
Representative Director Young Hwan Kim
To: Suwon District Court, Ichon Registration Office
- --------------------------------------------------------------------------------
Purpose to sell real estate Buyer Address
------------------------------------
Name (of the Company)
------------------------------------
Korean ID (Company
Registration) No.
- --------------------------------------------------------------------------------
I Certify that the seal above shown is identical with the seal in the Seal
Registration Book in our custody.
Dated as of September 8, 1997
Suwon District Court, Ichon Registration Office, officer Park, Duk Kon
- --------------------------------------------------------------------------------
Requested No. of the copies Charges
- --------------------------------------------------------------------------------
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<PAGE> 83
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
HANDLING PERIOD
---------------
APPLICATION FOR THE VALIDATION OF GUARANTY
- ----------------------------------------------------------------------------------------------------
Tradename Hyundai Electronics Industries Co., Ltd.
--------------------------------------------------------------------------------------
APPLICANT Address 140-2, Kye-dong, Chongro-gu, Seoul, Korea
--------------------------------------------------------------------------------------
Name of CEO Young Hwan Kim
--------------------------------------------------------------------------------------
Business area Manufacturing
- ----------------------------------------------------------------------------------------------------
Obligee (Lender) Nomura Bank International plc
--------------------------------------------------------------------------------------
DETAILS OF Obligor (Guarantor) Hyundai Electronics Industries Co., Ltd.
--------------------------------------------------------------------------------------
APPLICATION Beneficiary (Borrower) Maxtor Corporation
--------------------------------------------------------------------------------------
Amount USD10,000,000.-
--------------------------------------------------------------------------------------
Effective period 364 days from the signing of the Facility Agreement
--------------------------------------------------------------------------------------
Purpose General corporate purposes
--------------------------------------------------------------------------------------
Repayment Lump Sum Repayment at maturity
--------------------------------------------------------------------------------------
We hereby apply for the validation of Guaranty in accordance with the Article 21 of Korea
Foreign Exchange Control Regulation.
1997
- ----------------------------------------------------------------------------------------------------
To: Applicant No. of Validation Singosuri0696-Keumyung12-254
-------------------------------------------------------
Your application for the Validation of Validated amount USD10,000,000.-
-------------------------------------------------------
Guaranty is approved. Effective period 364 days from the signing of
Condition: N/A The Facility Agreement
-------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
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October 31, 1997
To Nomura Bank International plc, as Lender
Nomura House
1, St. Martin's-Le-Grand
London ECIA4NP
England
Re: Maxtor Corporation
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(h)(v) of the
U.S. $10,000,000 364-Day Credit Agreement (the "Credit Agreement"), dated as of
October 30, 1997, between Maxtor Corporation (the "Borrower") and Nomura Bank
International plc, as Lender. Terms defined in the Credit Agreement are used
herein as therein defined.
In connection herewith, I have examined:
(1) The Credit Agreement;
(2) The Note;
(3) The documents furnished by the Borrower pursuant to Article III
of the Credit Agreement;
(4) The Certificate of Incorporation of the Borrower and all
amendments thereto;
(5) The bylaws of the Borrower and all amendments thereto; and
(6) Such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide
this opinion.
My opinions expressed below are limited to the General Corporation Law
of the State of Delaware, the law of the State of California and the federal
law of the United States.
Based upon the foregoing and upon such investigation as I have deemed
necessary, I am of the following opinion:
1. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, possessing
perpetual existence and the capacity to sue or be sued in its own name. The
Borrower has the power to own its property and assets and carry on its business
as it is now being conducted.
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2. The execution, delivery and performance by the Borrower of the
Credit Agreement, the Note, and the consummation of the transactions
contemplated thereby are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene or
constitute a default under (i) the Borrower's charter or bylaws, or (ii) any
law, rule or regulation applicable to the Borrower (including, without
limitation, Regulations U and X of the Board of Governors of the Federal
Reserve System), (iii) any contractual or legal restriction applicable to the
Borrower, or (iv) any agreement or instrument to which the Borrower is a party
or which is binding upon it or any of its assets, nor result in the creation or
imposition of any Lien on any of the Borrower's assets pursuant to the
provisions of the Credit Agreement or any other Loan Document. The Credit
Agreement and the Notes have been duly executed and delivered on behalf of the
Borrower.
3. No authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by the
Borrower of the Credit Agreement and the Note, or for the validity,
enforceability and admissibility in evidence of the Credit Agreement and the
Note, except for the authorizations, approvals, actions, notices and filings
listed on Schedule 4.01(c) to the Credit Agreement, all of which have been duly
obtained, taken, given or made and are in full force and effect.
4. The indebtedness of the Borrower under the Credit Agreement
and the Note is its direct, unconditional and general indebtedness and ranks at
least pari passu with all its other unsecured and unsubordinated indebtedness.
5. The Borrower is not subject to regulation under the Investment
Company Act of 1940, as amended. The Borrower is not a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
6. To my knowledge, there is no action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting the Borrower or any of its Subsidiaries pending or threatened
before any court, governmental agency or arbitrator that (i) could be
reasonably likely to have a Material Adverse Effect or (ii) purports to affect
the legality, validity or enforceability of the Credit Agreement or any other
Loan Document or the consummation of the transactions contemplated thereby.
Sincerely,
/s/ GLENN H. STEVENS
- ---------------------------------------
Glenn H. Stevens
Vice President, General Counsel and Secretary
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November 5, 1997
To: Nomura Bank International plc
Nomura House
1, St Martin's-Le-Grand
London EC1A 4NP
(the "LENDER")
Re: Guaranty dated as of October 31, 1977
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Electronics
Industries Co., Ltd. (the "GUARANTOR") in connection with a guaranty (the
"GUARANTY") dated October 31, 1997 issued and delivered by the Guarantor in
favor of the Lender for the purpose of guaranteeing the obligations of Maxtor
Corporation (the "BORROWER") under a US$10,000,000 364-day credit agreement
(the "CREDIT AGREEMENT") dated October 31, 1997 and made between the Lender and
the Borrower. Terms defined in the Credit Agreement are used herein as therein
defined and the term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 3.01(h)(vi) of
the Credit Agreement. For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Guaranty;
(c) the Articles of Incorporation of the Guarantor;
(d) Commercial Registry extracts regarding the Guarantor;
(e) Minutes of a meeting of the Guarantor's Board of Directors
held regarding the Guaranty;
(f) a Seal Certificate for the Guarantor's Representative Director
who participated in the Guarantor's Board Meeting mentioned in
(e) above;
(g) a certificate issued by the Guarantor's same Representative
Director certifying the genuineness of the seal impression of
each member of the Guarantor's Board of Directors who
participated in the Guarantor's Board Meeting mentioned in (e)
above;
(h) the report to, and acceptance thereof by, Korea Exchange Bank,
Kye-dong Branch in respect of the Guaranty; and
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(i) such other documents as we have considered necessary or
relevant in order for us to provide this opinion.
In giving this opinion we have assumed:
(i) the authenticity of all signatures, seals, stamps and
markings;
(ii) that all documents submitted to us as originals are authentic,
complete and up-to-date, all documents submitted to us as
copies conform to the originals, and that all factual
statements made in such documents are correct and we have
relied on them without further inquiry;
(iii) that the Credit Agreement and any other agreement or
instrument thereunder have been validly authorized, signed and
delivered by the parties thereto (other than the Guarantor) in
accordance with applicable laws;
(iv) that the Credit Agreement and any other agreements or
instruments thereunder constitute or will constitute legal,
valid and binding obligations of each of the parties thereto
enforceable in accordance with its terms respectively under
the laws of the State of New York by which the Credit
Agreement and any other agreement or instrument are expressed
to be governed;
(v) that the copies of the Articles of Incorporation of, and the
Commercial Registry extracts relating to, the Guarantor
referred to in paragraphs (c) and (d) above are true,
complete, accurate and up-to-date; and
(vi) that the resolutions of the Board of Directors of the
Guarantor passed at the meeting referred to in paragraph (e)
above were duly passed at properly constituted meeting and
that such resolutions have not been amended or rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the laws
of Korea are concerned:
(1) The Guarantor is a limited liability company, duly organized
and validly existing under the laws of Korea, with full power
and authority to enter into and perform the Guaranty.
(2) The Guarantor has taken all necessary corporate action to
authorize the entry into and performance of the Guaranty and
the transactions contemplated thereby.
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(3) The Guaranty constitutes a legal, valid and binding obligation
of the Guarantor enforceable in accordance with its terms and
is in proper form for its enforcement in the courts of Korea.
(4) The entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate (i) any
law or regulation of Korea or any judicial order in Korea or
(ii) the constitutional documents of the Guarantor.
(5) All authorizations, approvals, consents, licenses, exemptions,
filings, registrations and other requirements of governmental,
judicial and public bodies and authorities of or in Korea
required of the Guarantor in connection with the entry into
and performance of the Guaranty have been obtained and are in
full force and effect, except that the Guarantor is required
to report any payment to be made under the Guaranty at the
time of making each such payment to its designated foreign
exchange trading bank.
(6) The obligations of the Guarantor under the Guaranty rank at
least pari passu with all its other present or future
unsecured and unsubordinated obligations of the Guarantor
except for those preferred by operation of law applicable to
companies generally.
(7) All amounts payable by the Guarantor under the Guaranty may be
made free and clear of and without deduction for or on account
of any taxes imposed, assessed or levied in Korea or by any
authority thereof or therein except, however, that although
the tax laws of Korea are not entirely clear as to whether
payment of any interest by the Guarantor under the Guaranty
may be made without withholding of Korean taxes, the Korean
tax authorities may require the Guarantor to withhold Korean
taxes from such interest payment. In the event of Korean
taxes being imposed on interest payments, the Guarantor's
obligation to bear the cost of such tax under the Guaranty
would become operative.
(8) Neither the Guarantor nor any of its property (except such
property specifically protected by law) has any immunity from
jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment,
attachment in aid of execution or otherwise) under the laws of
Korea.
(9) To ensure the enforceability or admissibility in evidence of
this Guaranty in Korea, it is not necessary that this Guaranty
or any other document or instrument be filed or recorded with
any court or other authority in Korea.
(10) The Lender will not be deemed to be resident, domiciled,
carrying on business or subject to taxation in Korea by reason
only of the execution, delivery or enforcement of the
Guaranty.
Our opinion is subject to the following general qualifications:
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(i) the obligations of the Guarantor under the Guaranty may be
limited or affected by the bankruptcy law, the corporate
reorganization law, the compulsory composition law and other
similar laws which generally affect the rights of creditors;
and
(ii) the remedies of specific performance or injunction might not
necessarily be available in Korea with respect to any
particular provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by you
and your counsel.
Yours faithfully,
Bae, Kim & Lee
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<PAGE> 90
October 31 , 1997
To: Nomura Bank International plc (Lender)
Re: Hyundai Electronics Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Electronics Industries
Co., Ltd. (the "GUARANTOR") in connection with the Guaranty (the "GUARANTY")
dated as of October ___, 1997 issued by the Guarantor in favor of the Lender
for the purpose of guaranteeing the obligations of Maxtor Corporation as the
Borrower under a Credit Agreement (the "CREDIT AGREEMENT") dated October 31,
1997 and entered into by and among Maxtor Corporation as borrower and Nomura
Bank International plc as lender. Terms defined in the Credit Agreement are
used herein as therein defined and the term "KOREA" refers to the Republic of
Korea.
This opinion is furnished to you pursuant to SECTION 3.01(h)(vi) of the Credit
Agreement. For the purpose of this opinion, I have examined:
(a) the Credit Agreement;
(b) the Guaranty; and
(c) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide
this opinion.
Based on the foregoing, I am of the opinion that, so far as the laws of Korea
are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
- ------------------------------
M. J. Yoon
Corporate Counsel
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<PAGE> 1
TAX INDEMNITY AGREEMENT
AND
AMENDMENT TO TAX ALLOCATION AGREEMENT
This Tax Indemnity Agreement ("Agreement") is dated as of June 26, 1998,
by and between Maxtor Corporation, a Delaware corporation ("Maxtor"), and
Hyundai Electronics America, a California corporation ("HEA").
RECITALS
A. Affiliation. Maxtor became a wholly-owned subsidiary of HEA when
HEA acquired all of the issued and outstanding shares of Maxtor's stock (the
"Stock") during January 1996. Based on HEA's ownership of the Stock (i) Maxtor
has been a member of an affiliated group (within the meaning of section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code")) of which
HEA is the common parent corporation (the "Group"), and (ii) HEA has included
and, prior to a Deconsolidation Date, will continue to include, Maxtor in its
consolidated federal income tax returns for the period commencing during
January 1996 and ending on the Deconsolidation Date (the "Affiliation Period").
For purposes of this Agreement, a "Deconsolidation Date" shall mean such date
on which HEA owns less than eighty percent (80%) of the outstanding Stock, and
Maxtor ceases to be a member of the Group. Maxtor anticipates that a
Deconsolidation will result from a public offering of its securities.
B. Indemnification. Maxtor and HEA deem it equitable that HEA should
indemnify and hold Maxtor harmless for any Taxes attributable to members of the
Group other than Maxtor and Maxtor's subsidiaries (the "HEA Subgroup") and
that Maxtor should indemnify and hold HEA harmless for any Taxes attributable to
Maxtor and Maxtor's subsidiaries (the "Maxtor Subgroup") with respect to each
taxable period during which Maxtor was a member of the Group, as further
described in this Agreement.
C. Share of Consolidated Tax Liability. Upon Maxtor's becoming a member
of the Group, Maxtor became a party to a Tax Allocation Agreement dated July
21, 1995, as amended (the "Tax Allocation Agreement"). Under the Tax Allocation
Agreement, each member of the Group computes its share of the consolidated
income tax liability on the basis of a hypothetical separate tax return
computation (the "Consolidated Return Allocated Amounts") pursuant to Treasury
Regulation section 1.1502-33(d)(3). HEA and Maxtor desire to amend the terms of
the Tax Allocation Agreement, as set forth herein. It is the intent of the
parties that by this Agreement: (i) Each party shall not be obligated to
reimburse the other for such party's utilization of the other party's tax
attributes with respect to an original Return or an amended Return filed on or
before September 15, 1999 (the "Cut-off Date"); (ii) Maxtor shall reimburse HEA
with respect to its Consolidated Return Allocated Amount, except as otherwise
set forth herein; and (iii) tax attributes remaining available to each party as
of the Cut-off Date shall belong to the respective party, and any future use by
another party in the Group of such party's tax attributes shall be reimbursed.
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<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. SEPARATE TAX RETURNS. If any Maxtor Subgroup member is required to pay
any Taxes related to a separate Tax Return of any HEA Subgroup member, then HEA
shall reimburse Maxtor for such Taxes paid. If any HEA Subgroup member is
required to pay any Taxes related to a separate Tax Return of any Maxtor
Subgroup member, then Maxtor shall reimburse HEA for any such Taxes paid. For
purposes of this Agreement:
a. A "separate Tax Return" means any Return including items
relevant for the computation of Taxes, such as income, sales or property, with
respect to only members of either the Maxtor Subgroup or the HEA Subgroup;
b. A "Tax" or, collectively, "Taxes" means all federal, state,
local and foreign taxes, assessments and other charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts. For purposes of this Agreement; and
c. A "Return" means any federal, state, local and foreign return,
estimate, information statement and report relating to any and all Taxes.
2. CONSOLIDATED OR COMBINED TAX RETURNS. Sections 8 and 9 of the Tax
Allocation Agreement is amended as set forth herein. Except as otherwise set
forth herein, all provisions of the Tax Allocation Agreement shall remain in
full force and effect with respect to each Affiliation Period.
3. MAXTOR CONSOLIDATED RETURN ALLOCATED AMOUNT. Maxtor shall reimburse
HEA for any Maxtor Consolidated Return Allocated Amount; provided, however,
that if Maxtor's Consolidated Return Allocated Amount is increased as a result
of any audit; examination or other proceeding (a "Proceeding") or any amended
Return filed after the Cut-Off Date, Maxtor shall reimburse HEA only if such
increase relates to Maxtor's items of income, gain, loss, deduction or credit.
HEA agrees to take reasonable action and to act in good faith with respect to
utilization of Maxtor's NOLs prior to the Cut-off Date, taking into account
Maxtor's interest in having sufficient NOLs available to reduce the effect of
the additional income resulting from the 1998 dividend from Maxtor's Singapore
subsidiary.
4. REIMBURSEMENT FOR USE OF ANOTHER GROUP MEMBER'S TAX ATTRIBUTES PRIOR
TO THE CUT-OFF DATE. Maxtor shall not be reimbursed upon Deconsolidation by the
members of the Group who utilize any of the Maxtor Subgroup's tax attributes on
an original filed Return or any amended Return filed on or before the Cut-Off
Date. HEA shall not be reimbursed by Maxtor for
2
<PAGE> 3
any utilization by the Maxtor Subgroup of any of the HEA Subgroup's tax
attributes on an original filed Return or any amended Return filed on or before
the Cut-off Date.
5. INDEMNIFICATION.
a. USE OF ANOTHER PARTY'S TAX ATTRIBUTES AFTER THE CUT-OFF DATE.
Each party will reimburse the other party if, as a result of any Proceeding or
an amended Return filed after the Cut-off Date, the party utilizes more of the
other party's tax attributes than utilized as of the Cut-off Date. Such
reimbursement shall be calculated based on the amount of the additional tax
attributes utilized multiplied by the highest statutory tax rate applicable to
such Tax Return. For purposes of this Section 5.a, a "party" refers to each of
the Maxtor Subgroup and the HEA Subgroup.
b. ASSESSMENTS RELATED TO JOINT AND SEVERAL LIABILITY OR RELATED
PARTY OBLIGATIONS. HEA will reimburse Maxtor if any Maxtor Subgroup member is
required to pay any Taxes related to any consolidated or combined U.S. federal,
state or local income Tax Return for the Affiliation Period, other than its
share of such Taxes as set forth herein.
c. PAYMENT OF INDEMNITY AND REIMBURSEMENT AMOUNTS. All amounts due
under this Agreement shall be paid within 30 days of receipt of notice of
payment of such amount by the indemnified or paying party. Any payment required
to be made hereunder and not made when due shall bear interest at the rate per
annum determined, from time to time, by the prevailing average borrowing rate of
the party required to make payment.
6. PROCEEDINGS.
a. NOTICE OF CLAIMS AND MEETINGS AND CONFERENCES. If any party
receives notice of a tax examination, audit, challenge, claim or other proposed
change or adjustment by any taxing authority involving amounts subject to this
Agreement, such party shall timely notify the other party of such information
and shall provide the other party a written copy of any relevant letters, forms
or schedules received from the taxing authority or otherwise in its possession
and shall provide notice and information relating to all Proceedings which
could have more than an insignificant effect on the other party's tax liability
or tax attributes.
b. DEFENSE OF CLAIMS. HEA shall control the strategy, defense and
settlement of any Proceeding, including but not limited to extension of the
applicable statute(s) of limitations, and Maxtor agrees to fully cooperate with
HEA, including, but not limited to, providing powers of attorney authorizing
HEA (or their designees) to control and take action in connection with any such
Proceeding; provided, however, that if the results of any such Proceeding could
reasonably be expected to be material to Maxtor, then Maxtor may, at its
expense, participate in any such Proceeding and HEA may not, without the prior
written consent of Maxtor, which consent shall not be unreasonably withheld,
execute final settlement agreements concerning any such taxes if such
settlement would have a material adverse effect on Maxtor taken as a whole or
would result in material Taxes for which Maxtor is responsible under this
Agreement. Each party agrees to fully cooperate with the other party in
preparing to
3
<PAGE> 4
defend against the imposition of Taxes by any taxing authority. HEA shall keep
Maxtor duly and reasonably informed on a regular and periodic basic of the
progress of any and all Proceedings which could have more than an insignificant
effect on Maxtor's tax liability or tax attributes. In the event of a failure
of HEA to provide notice to Maxtor or to provide cooperation as contemplated by
this Agreement, Maxtor's obligation to indemnify HEA under this Agreement shall
be reduced to the extent of the indemnifiable amounts with respect to which
Maxtor's ability to defend against the claim underlying such indemnity
obligation has been prejudiced by such failure.
7. FILING OF RETURNS FOR PERIODS OTHER THAN THE AFFILIATION PERIOD.
Maxtor shall file all federal, state, local and foreign tax returns with
respect to all periods for which Maxtor is not includable on a consolidated or
combined return with HEA or is otherwise obligated by law to file a separate
tax return, and Maxtor shall be responsible for the payment of all taxes in
connection therewith. Maxtor shall file any such tax returns in a manner
consistent with the manner in which HEA filed its returns for Affiliation
Period (except as required by law or to the extent any inconsistency would not
adversely affect the tax returns of the Group).
8. BOOKS AND RECORDS; CONFIDENTIALITY. Obligations of the parties hereto
with respect to maintenance of books and records, provision of books and
records and confidentiality are governed by Article I of the Stockholder
Agreement dated June 25, 1998 by and between HEA, the Company and Hyundai
Electronics Industries Co., Ltd.
9. MISCELLANEOUS.
a. INJUNCTION. The parties acknowledge that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. The
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof in any court having jurisdiction, such remedy being
in addition to any other remedy to which they may be entitled at law or equity.
b. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such which may be hereafter declared invalid, void or unenforceable. In the
event that any such term, provision, covenant or restriction is held to be
invalid, void or unenforceable, the parties hereto shall use their best efforts
to find and employ an alternate means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction.
c. FURTHER ASSURANCES. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be
reasonably required in order to effectuate the purposes of this
4
<PAGE> 5
Agreement and to consummate the transactions contemplated hereby, including
causing any of its subsidiaries to execute this Agreement, if required. Subject
to the provisions hereof, each of the parties shall, in connection with
entering into this Agreement, performing its obligations hereunder and taking
any and all actions relating hereto, comply with all applicable laws,
regulations, orders and decrees, obtain all required consents and approvals and
make all required filings with any governmental agency, other regulatory or
administrative agency, commission or similar authority and promptly provide the
parties with all such information as they may reasonably request in order to be
able to comply with the provisions of this sentence.
d. PARTIES IN INTEREST. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon any person, firm or corporation other than the
parties and their respective successors and assigns.
e. WAIVERS. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
f. SETOFF. All payments to be made by any party under this
Agreement shall be made without setoff, counterclaim or withholding, all of
which are expressly waived.
g. CHANGE OF LAW. If, due to any change in applicable law or
regulations or the interpretation thereof by any court of law or other
governing body having jurisdiction subsequent to the effective date of this
Agreement, performance of any provision of this Agreement or any transaction
contemplated thereby shall become impracticable or impossible, the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
provision.
h. HEADINGS. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provision of
this Agreement.
i. COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument.
j. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without regard to its
conflict of law provisions.
k. ASSIGNMENT. The rights and obligations hereunder of the parties
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
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<PAGE> 6
Except as herein otherwise specifically provided, nothing in this Agreement
shall confer any right or benefit upon any person or entity other than the
parties hereto and their respective successors and permitted assigns.
l. TERM OF AGREEMENT. The Agreement shall become effective as of
the date hereof and shall continue, unless earlier terminated by mutual
agreement of the parties, until expiration of the statute of limitations for
all periods during the Affiliation Period.
m. MODIFICATIONS. This Agreement may be modified or amended only
pursuant to an instrument in writing executed by all the parties hereto.
n. ENTIRE AGREEMENT. This Agreement and the Tax Allocation
Agreement, as modified by this Agreement, constitute the entire agreement among
the parties relating to the allocation of the Tax liabilities of the Group and
the members of the Group between or among the parties.
o. NOTICES. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be validly given,
made or served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid to:
If to HEA: Hyundai Electronics America
3101 North First Street
San Jose, CA 95134
Attn: General Counsel
If to Maxtor: Maxtor, Inc.
510 Cottonwood Drive
Milpitas, CA 95035
Attn: General Counsel
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section 9(o).
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be executed by their duly authorized officers effective as of June 26, 1998.
Maxtor Corporation Hyundai Electronics America,
a Delaware corporation a California corporation
By: __________________ By ______________________
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<PAGE> 1
EXHIBIT 10.49
INDEMNITY AGREEMENT
This Indemnity Agreement ("the Agreement") between Hyundai Electronics
Industries Co., Ltd. ("HEI") and Maxtor Corporation, a Delaware corporation and
its Subsidiaries (collectively the "Company") is made this 25th day of June,
1998.
WHEREAS, Maxtor Corporation is a majority-owned subsidiary of Hyundai
Electronics America ("HEA");
WHEREAS, HEA currently owns 100% of Maxtor Corporation's Series A
Preferred Stock;
WHEREAS, Maxtor Corporation is contemplating a firm commitment,
underwritten public offering of its Common Stock (the "Public Offering")
pursuant to which HEA's Series A Preferred Stock would be converted into Common
Stock and Maxtor Corporation would no longer be a Subsidiary of HEA;
WHEREAS, HEI is licensed under certain patent rights owned by
International Business Machines Corporation ("IBM") by an agreement (the "IBM
Agreement") effective January 1, 1996 as amended and Maxtor Corporation has
acquired a sublicense under the patent rights granted to HEI pursuant to a
sublicense agreement effective January 1, 1996 (the "Sublicense Agreement") and
desires to keep the sublicense;
WHEREAS, Company as a Subsidiary of HEI may have enjoyed the benefit of
cross license agreements between HEI and various third parties and Company now
desires to be protected from certain claims of infringement of such third
parties when Company is no longer a subsidiary of HEI.
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
1.1. "Subsidiary" of a party means a corporation or other business
entity, 50% or more of whose outstanding shares or securities,
representing the right to vote for the election of directors or other
managing authority, are now or hereafter, owned or controlled, directly
or indirectly, by that party. Each such corporation or other entity
shall be deemed to be a Subsidiary only so long as such ownership or
control exists and provided that each such corporation or entity
undertakes all obligations contained herein.
INDEMNITY AGREEMENT
June 25, 1998
PAGE 1
<PAGE> 2
2. INDEMNITIES
2.1 Indemnity for IBM Agreement
2.1.1 Notwithstanding anything to the contrary in the Sublicense
Agreement: HEI agrees, at its sole expense, to defend, indemnify
and hold harmless Company for and against any and all claims,
demands, damages, losses, and expenses of any nature (including
attorneys' fees and other litigation expenses) which arise out
of, are based on or relate to HEI's actions or omissions which
constitute a breach of the IBM Agreement (and excluding any
actions or omissions that are expressly permitted or required by
the IBM Agreement), including, but not limited to a breach of its
payment obligations to IBM, which result in a loss, damage or
expense to Company. In the event of notice of termination of the
IBM Agreement, HEI agrees to notify Company of such notice upon
receipt by HEI. After receipt of such notice, Company shall have
the option but not the obligation of curing any alleged breach by
HEI on HEI's behalf and recovering any additional amounts
actually paid to IBM, plus actual interest costs and/or exchange
rate losses, from HEI. In the event of termination by IBM of the
IBM Agreement pursuant to the provisions thereof, HEI shall not
be obligated to negotiate, reinstate or otherwise obtain any
license from IBM which grants licenses for Rotating Memory
Products, as defined in the IBM Agreement.
2.1.2 Notwithstanding anything to the contrary in the Sublicense
Agreement Company agrees, at its sole expense, to defend,
indemnify and hold harmless HEI for and against any and all
claims, demands, damages, losses, and expenses of any nature
(including attorneys' fees and other litigation expenses) which
arise out of, are based on or relate to Company's actions or
omissions which constitute a breach of either the IBM Agreement
or the Sublicense Agreement, including, but not limited to a
breach of its payment obligations to IBM, which result in a loss,
damage or expense to HEI. Company's total liability under this
Section is the total amount of money due to be paid by Company to
IBM under the Sublicense Agreement, plus actual interest costs
and/or exchange rate losses incurred by HEI. In the event of a
breach by Company of any of its payment obligations to IBM, if
Company pays to HEI the amount of money then due to IBM under the
IBM Agreement plus actual interest costs and/or exchange rate
losses, then HEI agrees to reinstate the sublicense rights
originally granted to Company in the Sublicense Agreement if such
rights have been terminated by HEI pursuant to Section 5 of the
Sublicense Agreement for failure to make any payments required in
the Sublicense Agreement.
INDEMNITY AGREEMENT
June 25, 1998
PAGE 2
<PAGE> 3
2.2 Third Party Rights Indemnity
2.2.1 During the period from the date that Company ceases to be a
Subsidiary of HEA and for three years thereafter, in the event
that
(a) a third party sues or brings any arbitration, claims
proceedings or other action which arises out of, is
based on, or relates to an allegation that Company has
violated or infringed the patent rights of the third
party relating to Rotating Memory Products, as defined
in the IBM Agreement, and
(b) HEI had a license, contract or right with such third
party at any time Company was a Subsidiary of HEI such
that if Company had been a Subsidiary of HEI, the acts
by Company claimed to violate or infringe such third
party patent rights would have been licensed under such
third party patent rights,
HEI agrees, at its sole expense, to indemnify, defend, and hold
harmless Company against any such arbitration, claims,
proceedings, actions or demands which arises out of, is based on,
or relates to an allegation that Company has violated or
infringed the patent rights of such third party, but only to the
extent that the acts by Company claimed to violate or infringe
such third party patent rights would have been licensed under
such third party patent rights if Company had been a Subsidiary
of HEI at the time(s) such acts occurred.
HEI's obligations pursuant to this Section 2.2.1 are contingent
upon: (i) Company giving prompt written notice to HEI of any such
claim, action or demand, and (ii) Company reasonably assisting in
the defense, provided however that the failure of Company to give
notice as provided herein shall not relieve HEI of its
obligations pursuant to this Section 2.2.1 except to the extent
such failure resulted in actual detriment to HEI.
In addition, in the event that any such arbitration, claims,
proceedings, actions or demands includes any claim, allegation,
or demand which does not relate to alleged violation or
infringement by Company of patent rights belonging to such third
party, HEI's obligations pursuant to this Section 2.2.1 shall be
limited to indemnification, defense, and/or hold harmless of such
third party's claims, allegations, or demands that arise out of
such third party's claims of patent violation or infringement.
The obligations under this section 2.2.1 shall not apply to any
action, claim, or proceeding by or on behalf of IBM.
2.2.2 Company reserves the right, at its own expense, to
participate in, but not control, the defense of the arbitration,
claim, proceeding, action or demand with
INDEMNITY AGREEMENT
June 25, 1998
PAGE 3
<PAGE> 4
separate counsel of its own choosing, but not to control the
settlement thereof. If Company chooses to participate in the
defense of the arbitration, claim, proceeding, action or demand,
Company agrees to cooperate reasonably and in good faith with
HEI. No settlement that provides for any loss or adverse
consequence to Company shall be entered without Company's
consent, which consent shall not be unreasonably withheld.
2.2.3 HEI's obligations under Section 2.2.1 are limited to a
cumulative amount of twenty five million dollars
($25,000,000.00), including all expenses incurred by HEI in
investigating, settling, defending, or resolving claims by third
parties pursuant to Section 2.2.1.
3. ASSIGNMENT
This Agreement shall not be transferable or assignable by either party
hereto.
4. MISCELLANEOUS
4.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restriction set forth herein shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. It
is hereby stipulated and declared to be the intention of the parties
that they would have executed the remaining terms, provisions, covenants
restrictions without including any of such which may be hereafter
declared invalid, void or unenforceable. In the event that any such
term, provision, covenant or restriction is held to be invalid, void or
unenforceable, the parties hereto shall use their commercially
reasonable efforts to find and employ an alternate means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.
4.2 Further Assurances. Subject to the provisions hereof, the parties
hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be
reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
Subject to the provisions hereof, each of the parties shall, in
connection with entering into this Agreement, performing its obligations
hereunder and taking any and all actions relating hereto, comply with
all applicable laws, regulations, orders and decrees, obtain all
required consents and approvals and make all required filings with any
governmental agency, other regulatory or administrative agency,
commission or similar authority and promptly provide the parties with
all such information as they may reasonably request in order to be able
to comply with the provisions of this sentence.
INDEMNITY AGREEMENT
June 25, 1998
PAGE 4
<PAGE> 5
4.3 Parties in Interest. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended to
confer any right or benefit upon any person, firm or corporation other
than the parties and their respective successors and permitted assigns.
4.4 Waivers. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such
right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No modification or waiver of any
provision of this Agreement nor consent to any departure by the parties
therefrom shall in any event be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
4.5 Change of Law. If, due to any change in applicable law or
regulations or the interpretation thereof by any court of law or other
governing body having jurisdiction subsequent to the effective date of
this Agreement, performance of any provision of this Agreement or any
transaction contemplated thereby shall become impracticable or
impossible, the parties hereto shall use commercially reasonable efforts
to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
4.6 Headings. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of
this Agreement.
4.7 Counterparts. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be,
an original instrument.
4.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of California, without regard to
its conflict of law provisions.
4.09 Modifications. This Agreement may be modified or amended only
pursuant to an instrument in writing executed by all the parties hereto.
4.10 Entire Agreement. This Agreement and the Sublicense Agreement, as
and to the extent modified by this Agreement, constitute the entire
agreement among the parties relating to the subject matter hereof.
INDEMNITY AGREEMENT
June 25, 1998
PAGE 5
<PAGE> 6
4.11 Notices. All notices, consents, requests, instructions, approvals
and to her communications provided for herein shall be validly given,
made or served, if in writing and delivered personally, by telegram or
sent by registered mail, postage prepaid to:
HEI: Hyundai Electronics Industries Co., Ltd.
12th Floor Hyundai Jeonja Building
66 Cheokseon-dong, Chongro-ku
Seoul, Korea
Attention: Senior Manager, Patent Department
Facsimile: 011-82-2733-2145
Company: Maxtor Corporation
2190 Miller Drive
Longmont, Colorado 80501 U.S.A.
Attention: Mr. Glenn H. Stevens
Vice President and General Counsel
Facsimile: (303) 678-3111
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 4.11.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first written above.
MAXTOR CORPORATION
By: /s/ GLENN H. STEVENS
----------------------------------------------
Glenn H. Stevens, Vice President,
General Counsel and Secretary
INDEMNITY AGREEMENT
June 25, 1998
PAGE 6
<PAGE> 7
HYUNDAI ELECTRONICS
INDUSTRIES CO., LTD.
By: /s/ D.S. Chung
---------------------------------------------
Name: D.S. Chung
--------------------------------------------
Title: Director
-------------------------------------------
INDEMNITY AGREEMENT
June 25, 1998
Page 7
<PAGE> 1
EXHIBIT 10.50
LICENSE AGREEMENT
This License Agreement ("Agreement") dated as of June 1, 1998
("Effective Date"), is by and between MAXTOR CORPORATION ("Maxtor"), a Delaware
corporation, having principal places of business at 510 Cottonwood Avenue,
Milpitas, California 95035 and 2190 Miller Drive, Longmont, Colorado 80501, and
Hyundai Electronics Industries, Co. Ltd. ("HEI"), a Korean corporation, having
its principal place of business at San 136-1, Ami-ri, Bubal-eub, Ichon-kun,
Kyougki-do, 467-860 Korea.
RECITALS
WHEREAS, Maxtor Corporation is a majority-owned subsidiary of Hyundai
Electronics America ("HEA");
WHEREAS, HEA currently owns 100% of Maxtor Corporation's Series A
Preferred Stock;
WHEREAS, Maxtor Corporation is contemplating a firm commitment,
underwritten public offering of its Common Stock (the "Public Offering")
pursuant to which HEA's Series A Preferred Stock would be converted into Common
Stock and Maxtor Corporation would no longer be a Subsidiary of HEA;
Whereas, HEI desires to acquire, when and in the event that Maxtor is no
longer a subsidiary of HEI, a license from Maxtor to use certain Maxtor patents
and Maxtor desires to acquire, when and in the event that Maxtor is no longer a
subsidiary of HEI, a license from HEI to use certain HEI patents, in each case
for the manufacture, use, and sale of Licensed Products as defined below. Maxtor
and HEI desire to grant such licenses to each other in exchange for certain
valuable consideration as recited herein; and
Whereas, if problems should be encountered with respect to any aspect of
this Agreement or if the parties should encounter any problems not covered by
this Agreement, Maxtor and HEI shall discuss them in a cooperative and sincere
spirit and attempt to arrive at a mutually acceptable solution;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Licensed Products" shall mean Information Handling Systems or any
instrumentality or aggregate of instrumentalities (including, without
limitation, any component, subassembly, computer program or supply) designed for
incorporation in an Information Handling System.
LICENSE AGREEMENT
June 25, 1998
PAGE 1
<PAGE> 2
1.2 "Licensed Patents" shall mean any utility patents, utility models,
and design patents, including without limit any reissues, divisions,
continuations, continuations in part, extensions, reexaminations, or foreign
counterparts thereof whether in whole or in part, and any applications for such
patents, wherever filed, which (a) is entitled to an effective first filing or
priority date on or before the end of the Capture Period and (b) under which
patents or the applications therefor a party hereto or any of its Subsidiaries
now owns or controls or has or may hereafter during the term of this Agreement
own or control or have and under which and to the extent to which such party has
the right to grant license of the scope granted herein without payment of
royalties or other consideration to third parties, except for payments to third
parties for inventions made by such third parties while employed by such party.
1.3 "Subsidiary" of a party hereto shall mean a corporation, company or
other entity more than fifty percent (50%) of whose outstanding shares or
securities are, now or hereafter, owned or controlled, directly or indirectly,
by a party hereto, but such corporation, company or other entity shall be deemed
to be a Subsidiary only so long as such ownership or control exists.
1.4 "Capture Period" shall mean the period of time from and including
the Effective Date to and including August 31, 2003.
1.5 "Information Handling System" shall mean any instrumentality or
aggregate of instrumentalities primarily designed to compute, classify, process,
transmit, receive, retrieve, originate, switch, store, display, manifest,
measure, detect, record, reproduce, handle or utilize any form of information,
intelligence or data for business, scientific, control or other purposes.
2. RELEASE/LICENSES
2.1. Effective as of the date Maxtor ceases to be a Subsidiary of HEI,
Maxtor, on behalf of itself and its Subsidiaries, hereby releases HEI and its
Subsidiaries from all claims of infringement accruing prior to the Effective
Date of this Agreement based on the Licensed Patents. In addition, Maxtor, on
behalf of itself and its Subsidiaries, agrees not to make any claim, demand or
request against HEI or any of its Subsidiaries arising under any patent other
than Licensed Patents for any infringement or declaratory relief accruing, and
to the extent of accrual, prior to the Effective Date of this Agreement.
2.2. Effective as of the date Maxtor ceases to be a Subsidiary of HEI,
Maxtor, on behalf of itself and its Subsidiaries, hereby grants to HEI a
non-exclusive, world-wide, royalty-free license under the Licensed Patents to
make, have made, have developed, use, lease, sell, offer for sale, import,
export or otherwise dispose of Licensed Products, including the rights to have
assembled and tested such Licensed Products.
LICENSE AGREEMENT
June 25, 1998
PAGE 2
<PAGE> 3
2.3 Effective as of the date Maxtor ceases to be a Subsidiary of HEI,
HEI, on behalf of itself and its Subsidiaries, hereby releases Maxtor and its
Subsidiaries from all claims of infringement accruing prior to the Effective
Date of this Agreement based on the Licensed Patents. In addition, HEI, on
behalf of itself and its Subsidiaries, agrees not to make any claim, demand or
request against Maxtor or its Subsidiaries arising under any patent other than
Licensed Patents for any infringement or declaratory relief accruing, and to the
extent of accrual, prior to the Effective Date of this Agreement.
2.4 Effective as of the date Maxtor ceases to be a Subsidiary of HEI,
HEI, on behalf of itself and its Subsidiaries, hereby grants to Maxtor during
the term of this Agreement, a non-exclusive, world-wide, royalty-free under the
Licenses Patents to make, have made, have developed, use, lease, sell, offer for
sale, import, export or otherwise dispose of Licensed Products, including the
right to have assembled and tested such Licensed Products.
2.5 Subject to Section 2.6, the licenses and other rights granted herein
shall include the right of each party to grant sublicenses to its Subsidiaries,
which sublicenses may include the right of sublicensed Subsidiaries to
sublicense other Subsidiaries of said party. No sublicense shall be broader in
any respect at any time during the life of this Agreement than the license or
sublicense held at that time by the party or Subsidiary that granted the
sublicense.
2.6 A sublicense granted to a Subsidiary shall terminate on the earlier
of:
(a) the date such Subsidiary ceases to be a Subsidiary; and
(b) the date of termination or expiration of the license or
sublicense of the party or Subsidiary that granted the
sublicense.
If a Subsidiary ceases to be a Subsidiary and holds any patents and/or patent
applications which are Licensed Patents, such patents and patent applications
will continue to be Licensed Patents for the term defined herein.
2.7 HEI shall have the right to grant, at such time and in the event
that MaxMedia Corporation (MMC) ceases to be a Subsidiary of HEI, a
non-assignable, non-exclusive sublicense limited to the manufacture and sale of
hard disk drive media to MMC under the Licensed Patents owned, filed, or
controlled by Maxtor at or prior to the date MMC ceases to be a Subsidiary of
HEI, for the lives of such Licensed Patents.
2.8 Notwithstanding anything in this Agreement to the contrary, no
release or license is granted by either party hereunder either directly, by
implication, estoppel or otherwise, under any patent, copyright, trade secret or
maskwork except as expressly provided herein. In particular, neither party
grants the other any license or immunity to make, have made, have developed,
use, lease, sell, offer for sale, import, export or otherwise dispose of any
products other than Licensed Products.
LICENSE AGREEMENT
June 25, 1998
PAGE 3
<PAGE> 4
2.9 Except as expressly provided herein, no license or immunity is
granted under this Agreement by either party, either directly or by implication,
estoppel or otherwise to any third parties acquiring items from either party for
the combination of such acquired items with other items (including items
acquired from either party hereto) or for the use of such combination.
2.10 Except as otherwise provided herein, no license granted hereunder
includes the right to sublicense any third party.
2.11 In the event that neither a party nor any of its Subsidiaries has
the right to grant a license under any particular Licensed Patent of the scope
set forth in Section 2, then the license granted herein under said Licensed
Patent shall be of the broadest scope which said party or any of its
Subsidiaries has the right to grant within the scope set forth above.
2.12 Except as provided in Section 5.3, below, the licenses granted
hereunder are irrevocable and do not terminate as to any Licensed Patent
notwithstanding any sale, assignment, or other disposition by a party of any
such Licenses Patent.
3. NO PAYMENTS
There shall be no payments of royalties or any similar amounts under
this Agreement.
4. NON-ASSIGNMENT
No party may assign this Agreement or any interest or rights granted
hereunder to any third party without the prior written consent of the other
party and any such purported assignment shall be null and void. However, in the
event that either party or substantially all the business or assets of such
party relating to Licensed Products is acquired by a third party (the
"acquiror") by merger or acquisition and such acquired party, business, or
assets continues to be operated substantially independently as a legal entity
separate from such third party, such separate legal entity shall succeed to all
rights and obligations under this Agreement for so long as such separate legal
entity continues to operate substantially independently from the acquiror. In
such event, the acquiror will have no license hereunder under any patents or
patent applications, whether or not Licensed Patents, owned, acquired, or filed
by the non-acquired party. In the event that such acquired party ceases to be
substantially independently operated as a separate legal entity,
(1) the scope of the license held by the acquired party shall,
retroactive to the date of such merger or acquisition, be limited
to Licensed Products that represented a continuation of a product
line of the assigning party and that were derived from Licensed
Products of such party that exist as of the time of the
assignment; and
LICENSE AGREEMENT
June 25, 1998
PAGE 4
<PAGE> 5
(2) unless the acquiror grants the non-acquired party a license of
similar scope under all patents owned or filed by such party or
its Subsidiaries during the Capture Period, all licenses granted
to the acquired party shall terminate, retroactive to the date of
the merger or acquisition by the acquiror.
5. TERM AND TERMINATION
5.1 Unless earlier terminated under the provisions of this Agreement,
the term of the licenses granted under this Agreement shall be from the
Effective Date until the last to expire of the Licensed Patents.
5.2 At any time during the last six (6) months of the Capture Period,
either party may request negotiations to consider the possible extension of the
Capture Period. In that case, both parties will enter into good faith
negotiations to determine whether they can agree upon an acceptable extension.
5.3 Either party may terminate this Agreement upon written notice if the
other:
(a) becomes insolvent;
(b) files a petition in bankruptcy or such a petition is filed
for such party; (unless the petition in bankruptcy is filed pursuant to Chapter
11 of the U.S. Bankruptcy Code or similar provision of foreign law); and
(c) materially breaches this Agreement, and such violation
continues for thirty (30) days after one party gives notice to the other party
of such violation.
5.4 In the event of termination of this Agreement by one party
("terminating party") pursuant to section 5.3 above, the releases and licenses
granted hereunder to the terminating party and its Subsidiaries shall survive
the termination to the extent already granted to them hereunder as of the date
of such termination.
6. MISCELLANEOUS PROVISIONS
6.1 Nothing contained in this Agreement shall be construed as:
(a) a warranty or representation by either party as to the
validity or scope of any patent; or
(b) a warranty or representation by either party that any
manufacture, sale, lease, use or other disposition of any Licensed Product would
be free from infringement of patents other than those under which and to the
extent to which licenses are granted by Maxtor or HEI hereunder; or
(c) an agreement by either party to bring or prosecute actions or
suit against third parties for infringement or conferring any right to bring or
prosecute actions or suit against third parties for infringement; or
LICENSE AGREEMENT
June 25, 1998
PAGE 5
<PAGE> 6
(d) conferring to either party by the other any license or right
to use in advertising, publicity or otherwise any trademark, trade or brand name
or names, or corporate name; or
(e) an obligation by either party to furnish any technical
information or know-how, or
(f) an admission by either party concerning the validity of any
patent or responsibility for infringement of any patent.
6.2 This Agreement will be governed by and construed in accordance with
the laws of the United States and its State of California, as such law applies
to contracts signed and fully performed in California.
6.3 The parties shall meet in good faith to resolve by mutual agreement
any disputes arising under this Agreement. In the event that such negotiations
do not result in the resolution within 90 days of the first notification of a
dispute, the parties are free to pursue such other avenues of relief as may be
available at law or equity.
6.4 All notices required to be sent by either party under this Agreement
will be sent to the following addresses or such other address as may
subsequently be designated in writing.
Maxtor: Maxtor Corporation
2190 Miller Drive
Longmont, Colorado 80501 U.S.A.
Attention: Mr. Glenn H. Stevens
Vice President, General Counsel and Secretary
Facsimile: (303) 678-3111
HEI: Hyundai Electronics Industries Co. Ltd.
12th Floor Hyundai Jeonja Building
66 Cheokseon-dong, Chongro-ku
Seoul, Korea
Attention: Senior Manager, Patent Department
Facsimile: 011-82-2733-2145
LICENSE AGREEMENT
June 25, 1998
PAGE 6
<PAGE> 7
6.5 This Agreement constitutes the full and complete understanding and
agreement between the parties hereto and supersedes all prior understandings and
agreements relating to the subject matter hereof. No modifications, alterations
or amendments shall be effective unless in writing and signed by both parties to
this Agreement. No waiver of a breach in a particular situation shall be held to
be a waiver of any other or subsequent breach.
6.6 Maxtor and HEI agree to cooperate to obtain any necessary approval
of the United States or the Korean government.
AGREED TO:
MAXTOR CORPORATION HYUNDAI ELECTRONICS
INDUSTRIES, CO., LTD.
By: /s/ Glenn H. Stevens By: /s/ D.S. Chung
-------------------------------------- --------------------------------
Name: Glenn H. Stevens Name: D.S. Chung
------------------------------------ -------------------------------
Title: VP, General Counsel and Secretary Title: Director
----------------------------------- -------------------------------
Date: June 25, 1998 Date: June 25, 1998
------------------------------------ -------------------------------
<PAGE> 1
EXHIBIT 10.53
MAXTOR CORPORATION
1998 RESTRICTED STOCK PLAN
1. Purpose. This 1998 Restricted Stock Plan (the "Plan") was adopted
by the Board of Directors (the "Board") to create additional incentive for key
employees of Maxtor Corporation and any successor corporation thereto
(collectively referred to as the "Company"), and any present or future parent
and/or subsidiary corporations of such corporation (an "Affiliate") to promote
the financial success and progress of the Company. For purposes of the Plan, a
parent corporation and a subsidiary corporation shall be as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration. The Plan shall be administered by the Board and/or
by a duly appointed committee of the Board having such powers as shall be
specified by the Board. Any subsequent references herein to the Board shall also
mean the committee if such committee has been appointed and, unless the powers
of the committee have been specifically limited, the committee shall have all of
the powers of the Board granted herein, including, without limitation, the power
to terminate or amend the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law. All questions of interpretation of
the Plan or of the provisions of the grant of shares of the common stock of the
Company under the Plan shall be determined by the Board, and such determinations
shall be final and binding upon all persons having an interest in the Plan. Any
officer of the Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
3. Eligibility. Key employees of the Company or any Affiliate are
eligible to participate in the Plan. The Board shall, in its sole discretion,
determine which individuals shall have the right to acquire shares of the common
stock of the Company under the Plan (the "Participants").
1
<PAGE> 2
4. Share Reserve. The Plan shall have a share reserve of seven
hundred eighty thousand (780,000) shares of the authorized but unissued common
stock of the Company (the "Stock"), without regard to any stock split or reverse
stock split effected by the Company in connection with an underwritten public
offering. Such share reserve shall be reduced by the number of shares of Stock
granted pursuant to the Plan. In the event that any shares of Stock granted
pursuant to the Plan are reacquired under the terms of the Plan by the Company,
the shares so reacquired shall be returned to the share reserve. Appropriate
adjustments shall be made in the number and class of shares of Stock in such
share reserve in the event of a stock dividend, stock split, reverse stock
split, combination, reclassification, or like change in the capital structure of
the Company.
5. Compliance with Securities Laws. Inability of the Company to
obtain from any regulatory body having jurisdiction authority deemed by the
Company's legal counsel to be necessary to the lawful issuance of any shares of
Stock under the Plan shall relieve the Company of any liability in respect of
the non-issuance of such shares of Stock as to which such requisite authority
shall not have been obtained.
6. Stock Grant. The Board shall have the sole authority to grant
shares of Stock from time to time to Participants. After the Board has granted a
Participant shares of Stock pursuant to the Plan, the Company shall advise such
Participant in writing of the terms, conditions and restrictions of the grant,
including, but not limited to, the number of shares of Stock which the
Participant has been granted and any vesting requirements associated with such
shares. Subject to the provisions of Section 7 below, the grant shall be made in
the form attached hereto as Exhibit A (the "Stock Grant Agreement").
7. Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of the standard form of Stock Grant Agreement
either in connection with an individual grant or in connection with the
authorization of a new standard form; provided, however, that the terms and
conditions of such revised or amended standard form of stock grant agreement
shall be in accordance with the terms of the Plan.
8. Provision of Information. Each Participant who receives a grant of
shares of Stock pursuant to the Plan shall be given access to information
concerning the Company equivalent to that information generally made available
to the common shareholders of the Company so long as the Participant retains
ownership of such shares.
9. Termination or Amendment of Plan. The Board may terminate or amend
the Plan at any time and from time to time. In any event, no amendment may
adversely affect any outstanding grant of shares of Stock without the consent of
the Participant.
ADOPTED BY THE BOARD OF DIRECTORS: May 29, 1998
2
<PAGE> 1
EXHIBIT 10.54
MAXTOR CORPORATION
1998 RESTRICTED STOCK PLAN
STOCK GRANT AGREEMENT
THIS AGREEMENT is made and entered into as of the 29th day of May, 1998
(the "Grant Date"), by and between Maxtor Corporation, a Delaware corporation
(the "Company"), and _________________________ (the "Participant").
The Company desires to issue and the Participant desires to acquire
shares of the common stock of the Company (the "Stock"), pursuant to the
Company's 1998 Restricted Stock Plan (the "Plan"), on the terms and conditions
set forth in this Agreement. Unless otherwise provided in this Agreement,
defined terms shall have the meaning given to such terms in the Plan.
IT IS AGREED between the parties as follows:
1. Issuance of Shares. On the Grant Date Participant shall acquire and
the Company shall issue, subject to the provisions hereof, ________ shares of
Stock, without regard to any stock split or reverse stock split effected by the
Company in connection with that underwritten public offering contemplated by the
Company as of the Grant Date.
No shares of Stock shall be issued pursuant to this Agreement if the
issuance and delivery of such shares of Stock would constitute a violation of
any applicable federal or state securities law or other law or regulation, or
would fail to satisfy the requirements of any stock exchange upon which any
shares of the Company stock may then be listed. As a condition to the issuance
and delivery of any shares of Stock pursuant to this Agreement, the Company may
require the Participant to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
Notwithstanding the foregoing, any shares of Stock which are granted
prior to approval of the Plan, or any amendment thereto, by the shareholders of
the Company shall be contingent upon such shareholder approval and the
Participant shall have no right to sell or transfer the shares of Stock prior to
such approval. In the event such shareholder approval is not obtained within
twelve (12) months of the Grant Date, the issuance of the shares of Stock shall
be null and void and the certificates representing the shares shall be returned
to the Company for cancellation.
1
<PAGE> 2
2. Vesting and Unvested Share Reacquisition Right.
(a) Vesting.
(i) Subject to the provisions of subparagraph (b) below,
the shares of Stock subject to this Agreement shall vest on the third
anniversary of the Grant Date provided Participant has continuously rendered
services to the Company or any Affiliate during such three-year period.
Notwithstanding the foregoing, in the event Participant dies or becomes
permanently disabled (as determined by the Board in its sole discretion),
Participant shall be vested in a fraction of the Stock, the numerator of which
shall equal the number of whole months following the Grant Date that Participant
continuously rendered services to the Company and the denominator of which is
thirty-six (36).
(ii) In the event (A) Participant's continuous service
with the Company or any Affiliate is terminated for any reason, with or without
cause, or (B) Participant (or Participant's legal representative) attempts to
sell, exchange, transfer, pledge, or otherwise dispose of any shares of Stock
which are not then vested, including, without limitation, any transfer to a
nominee or agent of the Participant (except pursuant to a Change of Control, as
defined below, or other similar corporate transaction), then the Company shall
automatically reacquire such unvested shares (or, in the case of termination of
continuous service, all of the Participant's unvested shares) and the
Participant shall not be entitled to any payment therefor (the "Unvested Share
Reacquisition Right").
(b) Vesting Delay. Notwithstanding the general vesting provisions
of Subsection 2(a)(i) or the acceleration of vesting provisions of Subsection
2(b), in the event some or all of the shares under this Agreement are not freely
tradable in an open market transaction on the date in which the shares would
otherwise vest (e.g., and without limitation, the Company's trading window is
closed or the short-swing rules under Section 16 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") would require the Participant to
disgorge any profit), then the time at which the shares shall vest (and shall be
deemed "transferable" and not subject to "a substantial risk of forfeiture," as
such terms are defined in Section 83 of the Internal Revenue Code of 1986, as
amended (the "Code") and the regulations thereunder) shall be the first business
day in which Participant may freely trade such shares in an open market
transaction without violating any securities law, Company-imposed trading
window, or any other restriction or limitation (including, without limitation,
the disgorgement of profits under Section 16). This subsection will not apply if
the Company's stock is not publicly traded at the time the shares vest.
(c) Prior Service Credit. In the event that, upon a Change of
Control, a successor corporation substitutes shares in accordance with
Subsection 2(b)(A) above, the Unvested Share Reacquisition Right shall continue
in full force and effect; provided, however, that "continuous service with the
Company or any Affiliate" for purposes of this Section 2 shall include all
service with any corporation which was a Company or Affiliate at the time
services were rendered.
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(d) Change of Control. A "Change of Control" shall be deemed to
have occurred in the event any of the following occurs:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act, other than a trustee or other fiduciary holding
securities of the Company under an employee benefit plan of the Company, or
Hyundai Electronics America (including any parent subsidiary or affiliate
thereto) ("HEA"), becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of (A) the outstanding
shares of common stock of the Company or (B) the combined voting power of the
Company's then-outstanding securities;
(ii) the Company is party to a merger or consolidation
which results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation;
(iii) there occurs a change in the Board of Directors of
the Company (the "Board") within a two-year period, as a result of which fewer
than a majority of the members of the Board are Incumbent Directors. For
purposes of this Agreement, an Incumbent Director is any director who is either:
(A) a director of the Company as of the Effective
Date of this Agreement; or
(B) a director who is elected or nominated for
election to the Board with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company).
(C) changes in the composition of the Board
resulting from a reduction in the percentage of the Company's outstanding stock
owned by HEA which occur pursuant to a written agreement between HEA and the
Company shall not be deemed a change in the Incumbent Directors for purposes of
this subparagraph 2(d)(iii).
(iv) the sale or disposition of all or substantially all
of the Company's assets (or any transaction having similar effect is
consummated);
(v) the dissolution or liquidation of the Company; or
(vi) the sale or disposition by HEA of shares of the
Company representing at least fifty percent (50%) of the number of shares owned
by HEA at the time of
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such sale and at least ten percent (10%) of the Company's then outstanding stock
to a manufacturer of hard disk drives.
Notwithstanding any other provision herein to the contrary, for purposes
of this Agreement, no Change of Control shall be deemed to have occurred as a
result of any ownership change which may occur as a result of an underwritten
public offering of the Company's stock.
3. Legends. The Company may at any time place legends referencing the
Unvested Share Reacquisition Right and any applicable federal and/or state
securities law restrictions on all certificates representing shares of Stock
subject to the provisions of this Agreement. The Participant shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares of Stock acquired under this Agreement in the possession of
the Participant in order to carry out the provisions of this Section 3. Unless
otherwise specified by the Company, legends placed on such certificates may
include, but shall not be limited to, the following:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."
4. Escrow.
(a) Establishment of Escrow. To insure that shares of Stock
subject to the Unvested Share Reacquisition Right will be available for
reacquisition, the Company may require the Participant to deposit the
certificate or certificates evidencing the shares with an escrow agent
designated by the Company under the terms and conditions of an escrow agreement
approved by the Company. If the Company does not require such deposit as a
condition of the issuance of shares of Stock to the Participant, the Company
reserves the right at any time to require the Participant to so deposit the
certificate or certificates in escrow. The Company shall bear all expenses
related to escrow.
(b) Delivery of Shares to Participant. As soon as practicable
after the expiration of the Unvested Share Reacquisition Right, the escrow agent
shall deliver to the Participant the shares of Stock no longer subject to such
restriction.
(c) Escrow of Cash or Other Property Received in Substitution. In
the event Participant receives cash or other property in whole or partial
substitution of outstanding shares of Stock by a successor corporation, such
cash or other property shall be subject to escrow in the same manner and to the
same extent (excluding shares which are accelerated as a result of such Change
of Control) that the shares of Stock were subject to escrow immediately prior to
the Change of Control.
5. Transfers in Violation of Agreement. The Company shall not be
required (a) to transfer on its books any shares of Stock which are sold or
transferred in violation of any of the
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provisions set forth in this Agreement, or (b) to treat as the owner of such
shares or to accord the right to vote as such owner or to pay dividends to any
transferee to whom any such shares shall have been so transferred.
6. Effect of Change in Company's Capital Structure. Appropriate
adjustments shall be made in the number and class of shares of Stock in the
event of a stock dividend, stock split, reverse stock split, combination,
reclassification, or like change in the capital structure of the Company. If,
from time to time, there is any stock dividend, stock split, or other change in
the character or amount of any of the outstanding stock of the Company, then in
such event any and all new substituted or additional securities to which the
Participant is entitled by reason of the Participant's ownership of the shares
of Stock shall be immediately subject to the Unvested Share Reacquisition Right
with the same force and effect as the shares of Stock subject to the Unvested
Share Reacquisition Right immediately before such event.
7. Rights as a Shareholder or Employee or Consultant. The Participant
shall have no rights as a shareholder with respect to the shares of Stock until
the date of issuance of a certificate or certificates for the shares. Except as
provided in Section 6 above, no adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued. Nothing in the Plan or in this
Agreement shall confer upon the Participant any right to continue in the employ
of or service with the Company or any Affiliate or interfere in any way with any
right of the Company or any Affiliate to terminate the Participant's employment
or service at any time, for any reason or no reason.
8. Further Instruments. The parties hereto agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
9. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, or upon
delivery by certified mail, addressed to the other party hereto at the address
shown below such party's signature or at such other address as such party may
designate by ten (10) days advance written notice to all other parties hereto.
10. Binding Effect. This Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Participant and the Participant's
heirs, executors, administrators, successors and assigns.
11. Section 83(b) Election. Participant understands that the shares of
Stock acquired pursuant to this Agreement are subject to a "substantial risk of
forfeiture," as such term is defined by Section 83(b) of the Code. Accordingly,
Participant should consult with a tax advisor regarding the advisability of
filing an election under Section 83(b) of the Code. Such election must be filed
with the Internal Revenue Service no later than thirty (30) days after the Grant
Date. Failure to file an election under Section 83(b), if appropriate, may
result in adverse tax consequences to the Participant. Participant acknowledges
that Participant has been advised to consult with a tax advisor. PARTICIPANT
ACKNOWLEDGES THAT TIMELY FILING OF
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A SECTION 83(b) ELECTION IS PARTICIPANT'S SOLE RESPONSIBILITY, EVEN IF
PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON
HIS OR HER BEHALF.
12. Withholding. At the time that this Agreement is executed, or at any
time thereafter as requested by the Company, the Participant shall make adequate
provision for any federal, state, local and foreign tax withholding obligations,
which arise in connection with the acquisition of shares of Stock pursuant to
the Plan, including, without limitation, obligations arising upon (i) the
transfer, in whole or in part, of any shares of Stock, (ii) the lapse of any
restriction with respect to any shares of Stock acquired pursuant to the Plan,
or (iii) the filing of an election to recognize a tax liability. The Company
shall have no obligation to issue a certificate as to such share of Stock and/or
to release such shares of Stock from escrow until the Participant has satisfied
all withholding obligations.
13. Certificate Registration. The certificate or certificates for the
shares of Stock acquired pursuant to this Agreement shall be registered in the
name of the Participant.
14. Integrated Agreement. This Agreement and the Plan constitute the
entire understanding and agreement of the Participant and the Company with
respect to the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations, or warranties among the
Participant and the Company other than those set forth or provided for herein or
therein.
15. Applicable Law. This Agreement shall be governed by the laws of the
State of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within the State of
California.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MAXTOR CORPORATION: PARTICIPANT:
By: _______________________________ By: ___________________________________
(Signature)
Title: ____________________________ Title: ________________________________
(Print Name)
Date: _____________________________ Date: _________________________________
Address: _______________________ Address: _____________________________
_______________________ _____________________________
_______________________ _____________________________
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EXHIBIT 10.55
MAXTOR CORPORATION
SECOND AMENDED AND RESTATED 1996 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN
(a) ESTABLISHMENT. The Maxtor Corporation 1996 Stock Option Plan was
initially established effective as of May 1, 1996 (the "EFFECTIVE DATE"), and
was amended and restated in its entirety as the Maxtor Corporation Amended and
Restated 1996 Stock Option Plan (the "INITIAL PLAN"). The Initial Plan is hereby
amended and restated in its entirety as the Maxtor Corporation Second Amended
and Restated 1996 Stock Option Plan, effective as of the effective date of the
initial registration by the Company of its Stock under Section 12 of the
Exchange Act which occurs after May 29, 1998 (the "PLAN").
(b) PURPOSE. The purpose of the Plan is to promote the long-term
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by providing such persons with an additional
incentive to promote the financial success of the Participating Company Group.
(c) TERM OF PLAN. The Plan shall continue in effect until the earlier of
its termination by the Board of Directors or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the Agreements
evidencing Awards granted under the Plan have lapsed. However, all ISOs shall be
granted, if at all, within ten (10) years from the Effective Date.
2. DEFINITIONS
Unless otherwise required by the context, the following terms when used in
the Plan shall have the meanings set forth in this Section 2:
(a) "AGREEMENT": A written option agreement between the Company and the
Participant evidencing an Award in such form as approved by the Board of
Directors pursuant to the Plan.
(b) "AWARD": An award of an Option under the Plan.
(c) "BOARD OF DIRECTORS": The Board of Directors of the Company. If one
or more Committees have been appointed by the Board of Directors to administer
the Plan, "Board of Directors" also means such Committee(s).
(d) "CODE": The Internal Revenue Code of 1986, as amended from time to
time.
(e) "COMMITTEE": The Compensation Committee or other committee of the
Board of Directors duly appointed to administer the Plan and having such powers
as shall be specified by the Board of Directors. Unless the powers of the
Committee have been specifically limited, the
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Committee shall have all of the powers of the Board of Directors granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
(f) "COMPANY": Maxtor Corporation, a Delaware corporation, or any
successor thereto.
(g) "CONSULTANT": Any person, including an advisor, engaged by a
Participating Company to render services other than as an Employee or a
Director.
(h) "DIRECTOR": A member of the Board of Directors or of the board of
directors of any other Participating Company.
(i) "EMPLOYEE": Any person treated as an employee (including an officer
or a Director who is also treated as an employee) in the records of a
Participating Company; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Plan.
(j) "EXCHANGE ACT": The Securities Exchange Act of 1934, as amended.
(k) "EXERCISE PRICE": The price per share at which the shares of Stock
subject to an Option may be purchased upon exercise of such Option.
(l) "FAIR MARKET VALUE": As applied to a specific date, the fair market
value of a share of Stock on such date as determined in good faith by the Board
of Directors in the following manner:
(i) The average of the high and low prices of the Stock (or the
mean of the closing bid and asked prices of the Stock if the Stock is so
reported instead) as reported on the New York Stock Exchange or such other
national or regional securities exchange or market system constituting the
primary market for the Stock, on the most recent trading day to the date in
question, or if there are no reported sales on such date, on the last preceding
date on which sales were reported; or
(ii) In the absence of the foregoing, the Fair Market Value shall
be determined by the Board of Directors in its absolute discretion based on an
appraisal of the Stock and after giving consideration to the book value, the
revenues, and the earnings prospects of the Company in light of market
conditions generally.
The Fair Market Value determined under one of the preceding paragraphs shall be
final, binding and conclusive on all parties for the purposes of this Plan.
(m) "ISO": An Option intended to be and which qualifies as an "incentive
stock option", as defined in Section 422 of the Code or any statutory provision
that may replace such Section.
(n) "NQSO": An Option not intended or qualified to be an ISO.
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(o) "OPTION": Any ISO or NQSO granted under the Plan.
(p) "OUTSIDE DIRECTOR": Any Director of the Company who is not an
Employee.
(q) "PARENT CORPORATION": Any present or future "parent corporation" of
the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPANT": A person who has been granted one or more Awards
under the Plan which remain outstanding or who owns shares of Stock as a result
of the exercise of an Option.
(s) "PARTICIPATING COMPANY": The Company or any Parent Corporation or
Subsidiary Corporation.
(t) "PARTICIPATING COMPANY GROUP": At any point in time, all
corporations collectively which are then Participating Companies.
(u) "RULE 16B-3": Rule 16b-3 under the Exchange Act, as amended from
time to time, or any successor rule or regulation.
(v) "SEC": Securities and Exchange Commission.
(w) "SECURITIES ACT": The Securities Act of 1933, as amended.
(x) "STOCK": The common stock of the Company, as adjusted from time to
time under Section 4(b).
(y) "SUBSIDIARY CORPORATION": Any present or future "subsidiary
corporation" of the Company or the Parent Corporation, as defined in Section
424(f) of the Code.
(z) "TEN PERCENT OWNER": A Participant who, at the time an Award is
granted to the Participant, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of a Participating
Company within the meaning of Section 422(b)(6) of the Code.
3. PARTICIPATION
(a) PERSONS ELIGIBLE FOR AWARDS. Awards may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees" shall include prospective Employees to whom Awards are granted in
connection with written offers of employment with the Participating Company
Group, and "Consultants" shall include prospective Consultants to whom Awards
are granted in connection with written offers of engagement with the
Participating Company Group. Eligible persons may be granted more than one (1)
Award.
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(b) OUTSIDE DIRECTORS.
(i) INITIAL GRANT. Each person who is (A) an Outside Director on
the Effective Date, or (B) first becomes an Outside Director after the Effective
Date, shall be granted an Award for forty thousand (40,000) shares on the
Effective Date or the date he or she first becomes an Outside Director;
provided, however, that any Director of the Company who previously did not
qualify as an Outside Director shall not receive an Award pursuant to this
Section 3(b)(i) in the event that such Director subsequently becomes an Outside
Director as a result of the termination of his or her status as an Employee.
(ii) RE-ELECTION GRANT. On and after May ___, 1998, each Outside
Director shall be granted an Award for 10,000 shares on each date on which the
Outside Director is re-elected to the Board of Directors, provided that the
Outside Director has served on the Board of Directors for three (3) consecutive
years prior to his or her re-election. Awards shall only be made pursuant to
this Section to a person who, at the time of grant, is an Outside Director.
(iii) DISCRETIONARY GRANTS. Notwithstanding the foregoing, an
Outside Director may also receive additional grants under the Plan in addition
to the grants described in this Section 3(b).
(c) GRANT RESTRICTIONS. Any person who is not an Employee of the Company
or a Parent Corporation or Subsidiary Corporation of the Company on the
effective date of the grant of an Award to such person may be granted only an
NQSO. An ISO granted to a prospective Employee upon the condition that such
person become an Employee shall be deemed granted on the date such person
commences service with a Participating Company, with an Exercise Price
determined as of such date in accordance with Section 5(a).
(d) FAIR MARKET VALUE LIMITATION. To the extent that the aggregate Fair
Market Value of stock with respect to which options designated as ISOs are
exercisable by a Participant for the first time during any calendar year (under
all stock option plans of the Participating Company Group, including the Plan)
exceeds One Hundred Thousand Dollars ($100,000), the portion of such options
which exceeds such amount shall be treated as NQSOs. For purposes of this
Section, options designated as ISOs shall be taken into account in the order in
which they were granted, and the Fair Market Value of stock shall be determined
as of the time the option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section, such different limitation shall be deemed incorporated herein effective
as of the date and with respect to such Options as required or permitted by such
amendment to the Code. If an Option is treated as an ISO in part and as an NQSO
in part by reason of the limitation set forth in this Section, the Participant
may designate which portion of such Option the Participant is exercising and may
request that separate certificates representing each such portion be issued upon
the exercise of the Option. In the absence of such designation, the Participant
shall be deemed to have exercised the ISO portion of the Option first.
(e) SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in
Section 4(b), at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m) of the Code, no Employee shall
be granted one or more Awards within any
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fiscal year of the Company which in the aggregate are for the purchase of more
than one million two hundred thousand (1,200,000) shares (the "SECTION 162(M)
GRANT LIMIT").
4. SHARES SUBJECT TO PLAN
(a) MAXIMUM SHARES. Subject to adjustment by the operation of Section
4(b) hereof, the maximum aggregate number of shares of Stock that may be issued
under the Plan shall be Twenty Million (20,000,000), provided, however, that
such amount shall be increased on the effective date of the initial registration
by the Company of its Stock under Section 12 of the Exchange Act which occurs
after May 29, 1998 to a number of shares equal to fifteen percent (15%) of the
number of shares of Stock issued and outstanding on such date, and shall consist
of authorized but unissued or reacquired shares of Stock or any combination
thereof. Notwithstanding the foregoing, except as adjusted pursuant to Section
4.2, in no event shall more than Twenty Million (20,000,000) shares of Stock be
cumulatively available for issuance pursuant to the exercise of ISOs (the "ISO
SHARE ISSUANCE LIMIT"). If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired upon the exercise of an
Option are repurchased by the Company, the shares of Stock allocable to the
unexercised portion of such Option, or such repurchased shares of Stock, shall
again be available for issuance under the Plan.
(b) ADJUSTMENT OF SHARES AND PRICE. In the event of any stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate equitable adjustments shall be made in the number and class of
shares subject to the Plan, in the number and class of shares subject to future
Awards granted to Outside Directors pursuant to Section 3(b), in the Section
162(m) Grant Limit and the ISO Share Issuance Limit and to any outstanding
Options and in the Exercise Price per share of any outstanding Options.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4(b) shall be rounded up or down to the nearest whole
number, as determined by the Board of Directors, and in no event may the
Exercise Price of any Option be decreased to an amount less than the par value,
if any, of the stock subject to the Option. The adjustments determined by the
Board of Directors pursuant to this Section 4(b) shall be final, binding and
conclusive.
5. GENERAL TERMS AND CONDITIONS OF OPTIONS
(a) GENERAL. Subject to Section 3(b), the Board of Directors shall have
full and complete authority and discretion, except as expressly limited by the
Plan, to grant Options and to provide the terms and conditions (which need not
be identical among Participants) thereof. The terms and conditions governing any
Award, as determined by the Board of Directors, shall be set forth in an
Agreement consistent with this Plan. In particular, the Board of Directors shall
prescribe the following terms and conditions:
(i) The number of shares of Stock subject to, and the expiration
date(s) of, any Option;
(ii) The vesting schedule of any Option;
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(iii) The manner, time and rate (cumulative or otherwise) of
exercise of such Option;
(iv) Whether such Option is to be issued as an ISO or NQSO; and
(v) The restrictions, if any, to be placed upon such Option or
upon shares which may be issued upon exercise of such Option.
(b) EXERCISE PRICE. The Exercise Price for each Option shall be
established in the sole discretion of the Board of Directors; provided, however,
that (a) the Exercise Price for an ISO shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option, (b) the
Exercise Price for an NQSO shall be not less than eighty-five percent (85%) of
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, and (c) no ISO granted to a Ten Percent Owner shall have an Exercise
Price less than one hundred ten percent (110%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option. Notwithstanding the
foregoing, an Option (whether an ISO or an NQSO) may be granted with an Exercise
Price lower than the minimum exercise price set forth above if such Option is
granted pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.
(c) EXERCISE PERIOD. Options shall be exercisable at such time or times,
or upon such event or events, and subject to such terms, conditions, performance
criteria, and restrictions as shall be determined by the Board of Directors and
set forth in the Agreement evidencing such Option; provided, however, that (i)
no ISO shall be exercisable after the expiration of ten (10) years after the
effective date of grant of such Option, (ii) no ISO granted to a Ten Percent
Owner shall be exercisable after the expiration of five (5) years after the
effective date of grant of such Option, and (iii) no Option granted to a
prospective Employee or prospective Consultant may become exercisable prior to
the date on which such person commences service with a Participating Company.
6. EXERCISE OF OPTIONS
(a) PAYMENT OF OPTION EXERCISE PRICE. Except as otherwise provided
below, payment of the Exercise Price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Participant having a Fair Market Value not less than the Exercise Price, (iii)
by the assignment of the proceeds of a sale or loan with respect to some or all
of the shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "CASHLESS EXERCISE"), (iv) by such other consideration as may be
approved by the Board of Directors from time to time to the extent permitted by
applicable law, or (v) by any combination thereof. The Board of Directors may at
any time or from time to time, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the Exercise Price or
which otherwise restrict one or more forms of consideration.
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(i) TENDER OF STOCK. Notwithstanding the foregoing, an Option may
not be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board of Directors, an Option may not be
exercised by tender to the Company of shares of Stock unless such shares either
have been owned by the Participant for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company reserves, at any and all times,
the right, in the Company's sole and absolute discretion, to establish, decline
to approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise.
(b) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a
stockholder with respect to any shares of Stock issuable on exercise of any
Option until the date of the issuance of a stock certificate to the Participant
for shares of Stock. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 4(b) hereof.
7. TRANSFER OF CONTROL OF THE COMPANY
(a) DEFINITIONS.
(i) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(a) the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company; or
(d) a liquidation or dissolution of the Company.
(ii) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without
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limitation, an interest resulting from ownership of the voting stock of one or
more corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board of Directors shall have the right to
determine whether multiple sales or exchanges of the voting stock of the Company
or multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
(b) EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a Transfer
of Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. In the event the Acquiring Corporation elects not
to assume or substitute for outstanding Options in connection with a Transfer of
Control, any unexercisable or unvested portion of the outstanding Options shall
be immediately exercisable and vested in full as of the date ten (10) days prior
to the date of the Transfer of Control. The exercise or vesting of any Option
that was permissible solely by reason of this Section shall be conditioned upon
the consummation of the Transfer of Control. Except as otherwise provided
herein, any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control.
8. REPURCHASE OPTIONS
Shares issued under the Plan may be subject to a right of first refusal,
one or more repurchase options, or other conditions and restrictions as
determined by the Board of Directors in its sole discretion at the time the
Option is granted. The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to
one or more persons as may be selected by the Company. Upon request by the
Company, each Participant shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
9. RESTRICTIONS ON TRANSFERS; GOVERNMENT REGULATIONS
(a) OPTIONS NOT TRANSFERABLE. During the lifetime of the Participant, an
Option shall be exercisable only by the Participant or the Participant's
guardian or legal representative. No Option may be assigned, encumbered, or
transferred, except, in the event of the death of a Participant, by will or the
laws of descent and distribution.
(b) GOVERNMENT REGULATIONS. This Plan, the granting of Awards under this
Plan and the issuance or transfer of Stock (and/or the payment of money)
pursuant thereto are subject to all applicable foreign, federal and state laws,
rules and regulations and to such approvals by any regulatory or governmental
agency (including without limitation "no action" positions of the SEC) which
may, in the opinion of counsel for the Company, be necessary or advisable in
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connection therewith. Without limiting the generality of the foregoing, no
Awards may be granted under this Plan, and no Stock shall be issued by the
Company, nor cash payments made by the Company, pursuant to or in connection
with any such Award, unless and until, in each such case, all legal requirements
applicable to the issuance or payment have, in the opinion of counsel to the
Company, been complied with. In connection with any stock issuance or transfer,
the person acquiring the shares shall, if requested by the Company, give
assurances satisfactory to counsel to the Company in respect of such matters as
the Company may deem desirable to assure compliance with all applicable legal
requirements. The granting of Awards under this Plan and the issuance of Stock
pursuant thereto are subject to compliance with all applicable foreign, federal,
and/or state laws or regulations with respect to such securities. No Option may
be exercised by a Participant if the issuance of Stock pursuant to such Option
upon such exercise would constitute a violation of any applicable foreign,
federal, or state securities law, rule or regulation or other applicable law or
regulation. The inability of the Company to obtain from any regulatory body
having the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained.
10. TAX WITHHOLDING
The Company shall have the right to withhold from amounts due
Participants, or to collect from Participants directly, the amount which the
Company deems necessary to satisfy any taxes required by law to be withheld at
any time by reason of participation in the Plan, and the obligations of the
Company under the Plan shall be conditional on payment of such taxes. The
Participant may, prior to the due date of any taxes, pay such amounts to the
Company in cash, or with the consent of the Board of Directors, in Stock (which
shall be valued at its Fair Market Value on the date of payment). The Company
shall have no obligation to any Participant to determine either (i) the
existence of any tax or (ii) the correct amount of any tax. Without limiting the
generality of the foregoing, in any case where it determines that a tax is or
will be required to be withheld in connection with the issuance, transfer or
vesting of Stock issued under this Plan, the Company may, pursuant to such rules
as the Board of Directors may establish, reduce the number of shares of Stock so
issued or transferred by such number of Stock as the Company may deem
appropriate in its sole discretion to accomplish such withholding or make such
other arrangements as it deems satisfactory. Notwithstanding any other provision
of this Plan, the Board of Directors may impose such conditions on the payment
of any withholding obligation as may be required to satisfy applicable
regulatory requirements, including, without limitation, Rule 16b-3. The Company
shall have no obligation to deliver shares of Stock, release shares of Stock
from an escrow established pursuant to an Agreement or make any payment pursuant
to the Plan until the Participating Company Group's tax withholding obligations
have been satisfied by the Participant.
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11. ADMINISTRATION OF PLAN
(a) ADMINISTRATION BY THE BOARD OF DIRECTORS. The Plan shall be
administered by the Board of Directors. All decisions and determinations of the
Board of Directors shall be final, conclusive and binding upon all Participants
and upon all other persons claiming any rights under the Plan with respect to
any Options.
(b) BOARD OF DIRECTORS AUTHORITY. In amplification of the Board of
Directors' powers and duties, but not by way of limitation, the Board of
Directors shall have full authority and power to:
(i) Construe and interpret the provisions of the Plan and make
rules and regulations for the administration of the Plan not inconsistent with
the Plan;
(ii) Decide all questions of eligibility for Plan participation and
for the grant of Awards;
(iii) Adopt forms of Agreements and other documents consistent with
the Plan;
(iv) Engage agents to perform legal, accounting and other such
professional services as it may deem proper for administering the Plan; and
(v) Take such other actions as may be reasonably required or
appropriate to administer the Plan or to carry out the Board of Directors
activities contemplated by other sections of this Plan.
(c) ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to any person
whose transactions in Stock are subject to Section 16 of the Exchange Act, at
any time that any class of equity security of the Company is registered pursuant
to Section 12 of the Exchange Act, the Plan shall be administered in compliance
with the requirements of Rule 16b-3, if any.
(d) COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating Company
is a "publicly held corporation" within the meaning of Section 162(m) of the
Code, the Board of Directors may establish a Committee of "outside directors"
within the meaning of Section 162(m) of the Code to approve the grant of any
Award which might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m) of the Code.
(e) INDEMNIFICATION. In addition to such other rights of indemnification
as they may have, members of the Board of Directors and any officers or
employees of the Participating Company Group to whom authority to act on behalf
of the Board of Directors is delegated shall be indemnified by the Company
against the reasonable expenses, including court costs and reasonable attorneys'
fees, actually incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any
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Award granted hereunder, and against all amounts paid by them in settlement
thereof or paid by them in satisfaction of a judgment in any such action, suit
or proceeding, except where such indemnification is expressly prohibited by
applicable law.
12. STOCKHOLDER APPROVAL
The Plan or any increase in the maximum number of shares of Stock issuable
thereunder as provided in Section 4(a) (the "MAXIMUM SHARES") shall be approved
by the stockholders of the Company within twelve (12) months of the date of
adoption thereof by the Board of Directors. Options granted prior to stockholder
approval of the Plan or in excess of the Maximum Shares previously approved by
the stockholders shall become exercisable no earlier than the date of
stockholder approval of the Plan or such increase in the Maximum Shares, as the
case may be.
13. AMENDMENT AND TERMINATION
The Board of Directors may terminate or amend the Plan at any time.
However, subject to changes in the law or other legal requirements that would
permit otherwise, without the approval of the Company's stockholders, there
shall be (a) no increase in the maximum aggregate number of shares of Stock that
may be issued under the Plan (except by operation of the provisions of Section
4(b)), (b) no change in the class of persons eligible to receive ISOs, and (c)
no other amendment of the Plan which would require approval of the Company's
stockholders under any applicable law, regulation or rule. In any event, no
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the
Participant, unless such termination or amendment is required to enable an
Option designated as an ISO to qualify as an ISO or is necessary to comply with
any applicable law or government regulation.
14. MISCELLANEOUS
(a) EMPLOYMENT OR SERVICE. Neither the establishment of the Plan nor any
amendments thereto, nor the granting of any Award under the Plan, shall be
construed as in any way modifying or affecting, or evidencing any intention or
understanding with respect to, the terms of the employment or service of any
Participant with the Participating Company Group. Nothing in the Plan or any
Agreement shall confer upon a Participant any right to continued employment or
service with the Participating Company Group or interfere in any way with any
right of the Participating Company Group to terminate the Participant's
employment or service at any time. No person shall have a right to be granted
Awards or, having been selected as a Participant for one Award, to be so
selected again.
(b) PROVISION OF INFORMATION. Each Participant shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
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(c) NO ADVICE. The Company shall not be responsible for providing any
Participant with legal, business or tax advice. Any legal or tax liabilities
incurred by a Participant as a result of Participant's participation in the Plan
shall be the sole responsibility of the Participant. Participants should consult
their own attorneys and tax advisors with respect to any questions regarding
participation in the Plan.
(d) WRITTEN NOTICE. As used herein, any notices required hereunder shall
be in writing and shall be given on the forms, if any, provided or specified by
the Board of Directors. Written notice shall be effective upon actual receipt by
the person to whom such notice is to be given; provided, however, that in the
case of notices to Participants and their heirs, legatees and legal
representatives, notice shall be effective upon delivery if delivered personally
or three (3) business days after mailing, registered first class postage prepaid
to the last known address of the person to whom notice is given. Written notice
shall be given to the Board of Directors and the Company at the following
address or such other address as may be specified from time to time:
Maxtor Corporation
510 Cottonwood Drive
Milpitas, California 95035
Attn: Secretary
(e) APPLICABLE LAW, SEVERABILITY. The Plan shall be governed by and
construed in all respects in accordance with the laws of the State of
California. If any provisions of the Plan shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
The undersigned Secretary of the Company hereby certifies that the
foregoing is the Maxtor Corporation Second Amended and Restated 1996 Stock
Option Plan as duly approved by the Board of Directors.
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EXHIBIT 10.56
CHIEF EXECUTIVE OFFICER
RETENTION AGREEMENT
This Chief Executive Officer Retention Agreement (the "Agreement") is
made and entered into as of May 29, 1998 (the "Effective Date"), by and between
Maxtor Corporation, a Delaware corporation (the "Company") and Michael Cannon
("Executive").
RECITALS
The Company recognizes that the possibility of a change of control or
other event which may change the nature and structure of the Company and that
uncertainty regarding the consequences of such events may adversely affect the
Company's ability to retain its key employees. The Company also recognizes that
the Executive possesses an intimate and essential knowledge of the Company upon
which the Company may need to draw for objective advice and continued services
in connection with any acquisition of the Company or other change of control
that is potentially advantageous to the Company's stockholders. The Company
believes that the existence of this Agreement will serve as an incentive to
Executive to remain in the employ of the Company and will enhance its ability to
call on and rely upon the Executive in connection with a change of control.
The Company and the Executive desire to enter into this Agreement in
order to provide additional compensation and benefits to the Executive and to
encourage Executive to continue to devote his full attention and dedication to
the Company and to continue his employment with the Company.
1. Definitions. As used in this Agreement, unless the context requires a
different meaning, the following terms shall have the meanings set forth herein:
(a) "Cause" means:
(i) theft, a material act of dishonesty, fraud, the
intentional falsification of any employment or Company records or the commission
of any criminal act which impairs Executive's ability to perform his/her duties
under this Agreement;
(ii) improper disclosure of the Company's confidential,
business or proprietary information by Executive; or
(iii) the Executive's conviction (including any plea of
guilty or nolo contendere) for a felony causing material harm to the reputation
and standing of the Company, as determined by the Company in good faith.
(b) "Change of Control" means:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding securities of the
Company under an employee benefit plan of the Company, or HEA, becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more
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of (A) the outstanding shares of common stock of the Company or (B) the combined
voting power of the Company's then-outstanding securities;
(ii) the Company is party to a merger or consolidation
which results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation;
(iii) There occurs a change in the Board of Directors of
the Company within a two-year period, as a result of which fewer than a majority
of the Directors are Incumbent Directors. For purposes of this Agreement, an
Incumbent Director is any director who is either:
(A) a director of the Company as of the Effective
Date of this Agreement; or
(B) a director who is elected or nominated for
election to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(C) changes in the composition of the Board resulting
from a reduction in the percentage of the Company's outstanding stock owned by
HEA which occur pursuant to a written agreement between HEA and the Company
shall not be deemed a change in the Incumbent Directors for purposes of this
subparagraph 1(b)(iii).
(iv) The sale or disposition of all or substantially all
of the Company's assets (or any transaction having similar effect is
consummated);
(v) The dissolution or liquidation of the Company; or
(vi) The sale or disposition by HEA of shares of the
Company representing at least 50% of the number of shares owned by HEA at the
time of such sale, and at least 10% of the Company's then outstanding stock to a
manufacturer of hard disk drives.
Notwithstanding any other provision herein to the contrary, for purposes of this
Agreement no Change of Control shall be deemed to have occurred as a result of
any ownership change which may occur as a result of an underwritten public
offering of the Company's stock.
(c) "Good Reason" means the occurrence of any of the following
conditions, without Executive's written consent, which condition(s) remain(s) in
effect 20 days after written notice to the Board from Executive of such
condition(s):
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(i) a material decrease in Executive's Total Annual
Earnings or employee benefits following a Change of Control;
(ii) a demotion, a material reduction in Executive's
position, responsibilities or duties or a material, adverse change in
Executive's substantive functional responsibilities or duties, and such a
material adverse change shall be deemed to occur if Executive no longer serves
as the Chief Executive Officer reporting to the Board of Directors. In the event
the Company completes an underwritten public offering of Company stock, then
such a material adverse change shall be deemed to occur if Executive no longer
serves as the Chief Executive Officer of a public company reporting to the Board
of Directors;
(iii) the relocation of Executive's work place for the
Company to a location more than one hundred (100) miles from the location of
Executive's work place following a Change of Control; or
(iv) any material breach of this Agreement by the Company.
(d) "Effective Date" means the day and year first set forth
above.
(e) "HEA" means Hyundai Electronics America, and any parent,
subsidiary or affiliate thereof or successor thereto.
(f) "Permanent Disability" means that:
(i) the Employee has been incapacitated by bodily injury
or disease so as to be prevented thereby from engaging in the performance of the
Employee's duties;
(ii) such total incapacity shall have continued for a
period of six consecutive months; and
(iii) such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of the Employee's
life.
(g) "Termination Upon Change of Control" means:
(i) any termination of the employment of the Executive by
the Company without Cause within thirty (30) days before or within twelve (12)
months after the date of the Company's first public announcement that the
Company has entered into a definitive agreement that would result in a Change of
Control (even though still subject to approval by the Company's stockholders and
other conditions and contingencies); or
(ii) any resignation by the Executive for Good Reason
within twelve (12) months after the occurrence of any Change of Control.
"Termination Upon Change of Control" shall not include any termination
of the employment of the Executive (a) by the Company for Cause; (b) by the
Company as a result of the Permanent Disability of the Executive; (c) as a
result of the death of the Executive; or (d) as a
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result of the voluntary termination of employment by the Executive for reasons
other than Good Reason.
(g) "Total Annual Earnings" means the sum of the Executive's
annual salary and targeted annual incentive bonus.
2. Position and Duties. Executive shall continue to be an at-will
employee of the Company employed in his current position at his then current
salary rate. Executive shall also be entitled to continue to participate in and
to receive benefits on the same basis as other executive or senior staff members
under any of the Company's employee benefit plans as in effect from time to
time. In addition, Executive shall be entitled to the benefits afforded to other
employees similarly situated under the Company's vacation, holiday and business
expense reimbursement policies. Executive agrees to devote his full business
time, energy and skill to his duties at the Company. These duties shall include,
but not be limited to, any duties consistent with his/her position which may be
assigned to Executive from time to time.
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event of the Executive's
Termination Upon Change of Control, Executive shall be entitled to the following
separation benefits:
(i) all salary, accrued but unused vacation earned through
the date of Executive's termination and Executive's target bonus for the year in
which termination occurs, prorated through the date of Executive's termination;
(ii) twenty four (24) months of Executive's Total Annual
Earnings as in effect as of the date of such termination, all less applicable
withholding, paid in a lump sum within thirty (30) days of termination of
employment;
(iii) all stock options and restricted stock granted by
the Company to the Executive prior to the Change of Control shall become fully
vested and immediately exercisable in full to the extent such stock options and
restricted stock remain outstanding and unvested and/or unexercised at the time
of such Termination Upon Change of Control. All stock options and restricted
stock granted by the Company to the Executive prior to the Change of Control
shall also become fully vested and, in the case of stock options, immediately
exercisable in full if the acquiring company does not assume the stock options
or restricted stock or does not substitute equivalent stock options or
restricted stock upon a Change of Control;
(iv) within fourteen (14) days of submission of proper
expense reports by the Executive, the Company shall reimburse the Executive for
all expenses reasonably and necessarily incurred by the Executive in connection
with the business of the Company prior to his/her termination of employment;
(v) if Executive elects continued medical insurance
coverage in accordance with the applicable provisions of federal law (commonly
referred to as "COBRA"), the Company shall pay Executive's COBRA premiums for
the duration of such COBRA coverage, or twenty-four (24) months, whichever is
less; If Executive's medical coverage immediately prior to the date of
termination included the Executive's dependents , the company paid COBRA
premiums shall include such dependents. Notwithstanding the above, in the event
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Executive becomes covered under another employer's group health plan (other than
a plan which imposes a preexisting condition exclusion unless the preexisting
condition exclusion does not apply) during the period provided for herein, the
Company shall cease payment of the COBRA premiums; and
(vi) Executive shall receive the benefits, if any, under
the Company's 401(k) Plan and other Company benefit plans to which he may be
entitled pursuant to the terms of such plans.
4. Payment of Taxes. All payments made to Executive under this Agreement
shall be subject to all applicable federal and state income, employment and
payroll taxes.
5. Parachute Payment. If due to the benefits provided under this
Agreement, Executive is subject to any excise tax due to characterization of any
amounts payable hereunder as excess parachute payments pursuant to Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), the Company
agrees to offer the Executive the option of (i) receiving the full parachute
payment subject to the excise tax, or (ii) receiving a reduced parachute payment
that would not be subject to the excise tax (which in some circumstances may
maximize the net benefit to Executive). Unless the Company and Executive
otherwise agree in writing, any calculation required under this Section 5 shall
be made in writing by independent public accountants agreed to by the Company
and Executive (the "Accountants"), whose calculation shall be conclusive and
binding upon Executive and the Company for all purposes. For purposes of
calculating the Executive's options under this Section 5, the Accountants may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and Executive shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.
6. Exclusive Remedy. The payments and benefits provided for in Section 3
shall constitute the Executive's sole and exclusive remedy for any alleged
injury or other damages arising out of the cessation of the employment
relationship between the Executive and the Company in connection with a Change
of Control. To the extent Executive is entitled to severance or other benefits
upon termination of employment under this Agreement and any other agreement, the
benefits payable under this Agreement shall be reduced by the amounts paid to
Executive under any other such agreement.
7. Proprietary and Confidential Information. The Executive agrees to
continue to abide by the terms and conditions of any Company's confidentiality
and/or proprietary rights agreement between the Executive and the Company.
8. Arbitration. Any claim, dispute or controversy arising out of this
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in Santa Clara County,
California or elsewhere by mutual agreement. The selection of the arbitrator and
the arbitration procedure shall be governed by the Commercial Arbitration Rules
of the American Arbitration Association. All costs and expenses of arbitration
or litigation, including
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but not limited to attorneys fees and other costs reasonably incurred by the
Executive, shall be paid by the Company. Judgment may be entered on the award of
the arbitration in any court having jurisdiction.
9. Interpretation. Executive and the Company agree that this Agreement
shall be interpreted in accordance with and governed by the laws of the State of
California, without regard to such state's conflict of laws rules.
10. Conflict in Benefits. This Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement. To the extent Executive is entitled to severance or
other benefits upon termination of employment under this Agreement and any other
agreement, the benefits payable under this Agreement shall be reduced by the
amounts paid to Executive under any other such agreement. However, this
Agreement is not intended to and shall not affect, limit or terminate (i) any
plans, programs, or arrangements of the Company that are regularly made
available to a significant number of employees of the Company, (ii) the
Company's 1998 Restricted Stock Plan, (iii)any agreement or arrangement with the
Executive that has been reduced to writing and which does not relate to the
subject matter hereof, or (iv) any agreements or arrangements hereafter entered
into by the parties in writing, except as otherwise expressly provided herein.
11. Release of Claims. No severance benefits shall be paid to Executive
under this Agreement unless and until the Executive shall, in consideration of
the payment of such severance benefit, execute a release of claims in a form
reasonably satisfactory to the Company; provided, however, that such release
shall not apply to any right of Executive may have to be indemnified by the
Company.
12. Successors and Assigns.
(a) Successors of the Company. The Company will require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession transaction shall be a breach of this
Agreement and shall entitle the Executive to terminate his or her employment
with the Company within three months thereafter and to receive the benefits
provided under Section 3 of this Agreement in the event of Termination Upon
Change of Control. As used in this Agreement, "Company" shall mean the Company
as defined above and any successor or assign to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
12 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) Heirs of Executive. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
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13. Notices. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
if to the Company: Maxtor Corporation
510 Cottonwood Drive
Milpitas, CA 95035
Attn: General Counsel
and if to the Executive at the address specified at the end of this Agreement.
Notice may also be given at such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
15. Validity. If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby.
16. Modification. This Agreement may only be modified or amended by a
supplemental written agreement signed by Executive and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
MAXTOR CORPORATION
5/29/98 /s/ AUTHORIZED SIGNATURE
Date:________________________ By:__________________________________________
/s/ Authorized Officer
Title:_______________________________________
EXECUTIVE: Michael R. Cannon
5/29/98 /s/ MICHAEL R. CANNON
Date:________________________ _____________________________________________
Executive's Signature
Address for Notice:
___________________________
___________________________
___________________________
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EXHIBIT 10.57
RETENTION AGREEMENT
This Retention Agreement (the "Agreement") is made and entered into as
of May 29, 1998 (the "Effective Date"), by and between Maxtor Corporation, a
Delaware corporation (the "Company") and Paul Tufano ("Executive").
RECITALS
The Company recognizes that the possibility of a change of control or
other event which may change the nature and structure of the Company and that
uncertainty regarding the consequences of such events may adversely affect the
Company's ability to retain its key employees. The Company also recognizes that
the Executive possesses an intimate and essential knowledge of the Company upon
which the Company may need to draw for objective advice and continued services
in connection with any acquisition of the Company or other change of control
that is potentially advantageous to the Company's stockholders. The Company
believes that the existence of this Agreement will serve as an incentive to
Executive to remain in the employ of the Company and will enhance its ability to
call on and rely upon the Executive in connection with a change of control.
The Company and the Executive desire to enter into this Agreement in
order to provide additional compensation and benefits to the Executive and to
encourage Executive to continue to devote his full attention and dedication to
the Company and to continue his employment with the Company.
1. Definitions. As used in this Agreement, unless the context requires a
different meaning, the following terms shall have the meanings set forth herein:
(a) "Cause" means:
(i) theft, a material act of dishonesty, fraud, the
intentional falsification of any employment or Company records or the commission
of any criminal act which impairs Executive's ability to perform his/her duties
under this Agreement;
(ii) improper disclosure of the Company's confidential,
business or proprietary information by Executive; or
(iii) the Executive's conviction (including any plea of
guilty or nolo contendere) for a felony causing material harm to the reputation
and standing of the Company, as determined by the Company in good faith.
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(b) "Change of Control" means:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding securities of the
Company under an employee benefit plan of the Company, or HEA, becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of (A) the outstanding shares of common stock of the Company or (B) the
combined voting power of the Company's then-outstanding securities;
(ii) the Company is party to a merger or consolidation
which results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation;
(iii) There occurs a change in the Board of Directors of
the Company within a two-year period, as a result of which fewer than a majority
of the Directors are Incumbent Directors. For purposes of this Agreement, an
Incumbent Director is any director who is either:
(A) a director of the Company as of the Effective
Date of this Agreement; or
(B) a director who is elected or nominated for
election to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(C) changes in the composition of the Board
resulting from a reduction in the percentage of the Company's outstanding stock
owned by HEA which occur pursuant to a written agreement between HEA and the
Company shall not be deemed a change in the Incumbent Directors for purposes of
this subparagraph 1(b)(iii).
(iv) The sale or disposition of all or substantially all
of the Company's assets (or any transaction having similar effect is
consummated);
(v) The dissolution or liquidation of the Company; or
(vi) The sale or disposition by HEA of shares of the
Company representing at least 50% of the number of shares owned by HEA at the
time of such sale, and at least 10% of the Company's then outstanding stock to a
manufacturer of hard disk drives.
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Notwithstanding any other provision herein to the contrary, for purposes of this
Agreement no Change of Control shall be deemed to have occurred as a result of
any ownership change which may occur as a result of an underwritten public
offering of the Company's stock.
(c) "Good Reason" means the occurrence of any of the following
conditions, without Executive's written consent, which condition(s) remain(s) in
effect 20 days after written notice to the Board from Executive of such
condition(s):
(i) a material decrease in Executive's Total Annual
Earnings or employee benefits following a Change of Control;
(ii) a demotion, a material reduction in Executive's
position, responsibilities or duties or a material, adverse change in
Executive's substantive functional responsibilities or duties, and such a
material adverse change shall be deemed to occur if Executive no longer serves
as the Chief Financial Officer reporting to the President. In the event the
Company completes an underwritten public offering of Company stock, then such a
material adverse change shall be deemed to occur if Executive no longer serves
as the Chief Financial Officerof a public company reporting to the President;
(iii) the relocation of Executive's work place for the
Company to a location more than one hundred (100) miles from the location of
Executive's work place following a Change of Control; or
(iv) any material breach of this Agreement by the Company.
(d) "Effective Date" means the day and year first set forth
above.
(e) "HEA" means Hyundai Electronics America, and any parent,
subsidiary or affiliate thereof or successor thereto.
(f) "Permanent Disability" means that:
(i) the Employee has been incapacitated by bodily injury
or disease so as to be prevented thereby from engaging in the performance of the
Employee's duties;
(ii) such total incapacity shall have continued for a
period of six consecutive months; and
(iii) such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of the Employee's
life.
(g) "Termination Upon Change of Control" means:
(i) any termination of the employment of the Executive by
the Company without Cause within thirty (30) days before or within twelve (12)
months after the date of the Company's first public announcement that the
Company has entered into a definitive agreement that would result in a Change of
Control (even though still subject to approval by the Company's stockholders and
other conditions and contingencies); or
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<PAGE> 4
(ii) any resignation by the Executive for Good Reason
within twelve (12) months after the occurrence of any Change of Control.
"Termination Upon Change of Control" shall not include any termination
of the employment of the Executive (a) by the Company for Cause; (b) by the
Company as a result of the Permanent Disability of the Executive; (c) as a
result of the death of the Executive; or (d) as a result of the voluntary
termination of employment by the Executive for reasons other than Good Reason.
(g) "Total Annual Earnings" means the sum of the Executive's
annual salary and targeted annual incentive bonus.
2. Position and Duties. Executive shall continue to be an at-will
employee of the Company employed in his/her current position at his/her then
current salary rate. Executive shall also be entitled to continue to participate
in and to receive benefits on the same basis as other executive or senior staff
members under any of the Company's employee benefit plans as in effect from time
to time. In addition, Executive shall be entitled to the benefits afforded to
other employees similarly situated under the Company's vacation, holiday and
business expense reimbursement policies. Executive agrees to devote his/her full
business time, energy and skill to his/her duties at the Company. These duties
shall include, but not be limited to, any duties consistent with his/her
position which may be assigned to Executive from time to time.
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event of the Executive's
Termination Upon Change of Control, Executive shall be entitled to the following
separation benefits:
(i) all salary, accrued but unused vacation earned through
the date of Executive's termination and Executive's target bonus for the year in
which termination occurs, prorated through the date of Executive's termination;
(ii) twelve (12) months of Executive's Total Annual
Earnings as in effect as of the date of such termination, all less applicable
withholding, paid in a lump sum within thirty (30) days of termination of
employment;
(iii) the vesting of all stock options granted by the
Company to the Executive prior to the Change of Control and outstanding
immediately prior to such Termination Upon Change of Control shall partially
accelerate so that Executive shall be credited with an additional two years of
continuous service for vesting purposes. In addition, the vesting of all stock
options outstanding immediately prior to the Change of Control shall accelerate
to the extent provided above (i.e., two additional years of vesting credit) if
the acquiring company does not assume the stock options or does not substitute
equivalent stock options upon a Change of Control;
(iv) the vesting of all unvested shares of restricted
stock shall accelerate and be the greater of: (I) fifty percent (50%) of
Executive's shares of restricted stock, or (II) that number of shares of
restricted stock determined by multiplying Executive's total shares of
restricted stock by a fraction, the numerator of which is the total number of
months which have
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<PAGE> 5
elapsed from the restricted stock grant date to the date of Executive's
Termination Upon Change of Control and the numerator of which is thirty-six
(36).
(v) within fourteen (14) days of submission of proper
expense reports by the Executive, the Company shall reimburse the Executive for
all expenses reasonably and necessarily incurred by the Executive in connection
with the business of the Company prior to his/her termination of employment;
(vi) if Executive elects continued medical insurance
coverage in accordance with the applicable provisions of federal law (commonly
referred to as "COBRA"), the Company shall pay Executive's COBRA premiums for
the duratin of such COBRA coverage, or twelve (12) months, whichever is less. If
Executive's medical coverage immediately prior to the date of termination
included the Executive's dependents, the Company paid COBRA premiums shall
include such dependents. Notwithstanding the above, in the event Executive
becomes covered under another employer's group health plan (other than a plan
which imposes a preexisting condition exclusion unless the preexisting condition
exclusion does not apply) during the period provided for herein, the Company
shall cease payment of the COBRA premiums; and
(vii) Executive shall receive the benefits, if any, under
the Company's 401(k) Plan and other Company benefit plans to which he may be
entitled pursuant to the terms of such plans.
4. Payment of Taxes. All payments made to Executive under this Agreement
shall be subject to all applicable federal and state income, employment and
payroll taxes.
5. Parachute Payment. If due to the benefits provided under this
Agreement, Executive is subject to any excise tax due to characterization of any
amounts payable hereunder as excess parachute payments pursuant to Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), the Company
agrees to offer the Executive the option of (i) receiving the full parachute
payment subject to the excise tax, or (ii) receiving a reduced parachute payment
that would not be subject to the excise tax (which in some circumstances may
maximize the net benefit to Executive). Unless the Company and Executive
otherwise agree in writing, any calculation required under this Section 5 shall
be made in writing by independent public accountants agreed to by the Company
and Executive (the "Accountants"), whose calculation shall be conclusive and
binding upon Executive and the Company for all purposes. For purposes of
calculating the Executive's options under this Section 5, the Accountants may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and Executive shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.
6. Exclusive Remedy. The payments and benefits provided for in Section 3
shall constitute the Executive's sole and exclusive remedy for any alleged
injury or other damages arising out of the cessation of the employment
relationship between the Executive and the Company in connection with a Change
of Control. To the extent Executive is entitled to severance or other benefits
upon termination of employment under this Agreement and any other
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<PAGE> 6
agreement, the benefits payable under this Agreement shall be reduced by the
amounts paid to Executive under any other such agreement.
7. Proprietary and Confidential Information. The Executive agrees to
continue to abide by the terms and conditions of any Company's confidentiality
and/or proprietary rights agreement between the Executive and the Company.
8. Arbitration. Any claim, dispute or controversy arising out of this
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in Santa Clara County,
California or elsewhere by mutual agreement. The selection of the arbitrator and
the arbitration procedure shall be governed by the Commercial Arbitration Rules
of the American Arbitration Association. All costs and expenses of arbitration
or litigation, including but not limited to attorneys fees and other costs
reasonably incurred by the Executive, shall be paid by the Company. Judgment may
be entered on the award of the arbitration in any court having jurisdiction.
9. Interpretation. Executive and the Company agree that this Agreement
shall be interpreted in accordance with and governed by the laws of the State of
California, without regard to such state's conflict of laws rules.
10. Conflict in Benefits. This Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement. To the extent Executive is entitled to severance or
other benefits upon termination of employment under this Agreement and any other
agreement, the benefits payable under this Agreement shall be reduced by the
amounts paid to Executive under any other such agreement. However, this
Agreement is not intended to and shall not affect, limit or terminate (i) any
plans, programs, or arrangements of the Company that are regularly made
available to a significant number of employees of the Company, (ii) the
Company's 1998 Restricted Stock Plan, (iii) any agreement or arrangement with
the Executive that has been reduced to writing and which does not relate to the
subject matter hereof, or (iv) any agreements or arrangements hereafter entered
into by the parties in writing, except as otherwise expressly provided herein.
11. Release of Claims. No severance benefits shall be paid to Executive
under this Agreement unless and until the Executive shall, in consideration of
the payment of such severance benefit, execute a release of claims in a form
reasonably satisfactory to the Company; provided, however, that such release
shall not apply to any right of Executive may have to be indemnified by the
Company.
12. Successors and Assigns.
(a) Successors of the Company. The Company will require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Failure of the Company to obtain such agreement prior to the
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<PAGE> 7
effectiveness of any such succession transaction shall be a breach of this
Agreement and shall entitle the Executive to terminate his or her employment
with the Company within three months thereafter and to receive the benefits
provided under Section 3 of this Agreement in the event of Termination Upon
Change of Control. As used in this Agreement, "Company" shall mean the Company
as defined above and any successor or assign to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
12 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) Heirs of Executive. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
13. Notices. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
if to the Company: Maxtor Corporation
510 Cottonwood Drive
Milpitas, CA 95035
Attn: General Counsel
and if to the Executive at the address specified at the end of this Agreement.
Notice may also be given at such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
15. Validity. If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby.
16. Modification. This Agreement may only be modified or amended by a
supplemental written agreement signed by Executive and the Company.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
MAXTOR CORPORATION
5/29/98 AUTHORIZED SIGNATURE
Date:_______________ By:_____________________________________
Authorized Officer
Title:__________________________________
EXECUTIVE: Paul J. Tufano
5/29/98 /s/ PAUL J. TUFANO
Date:_______________ ________________________________________
Executive's Signature
Address for Notice:
____________________________
____________________________
____________________________
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<PAGE> 1
EXHIBIT 10.58
RETENTION AGREEMENT
This Retention Agreement (the "Agreement") is made and entered into as
of May 29, 1998 (the "Effective Date"), by and between Maxtor Corporation, a
Delaware corporation (the "Company") and _________________________________
("Executive").
RECITALS
The Company recognizes that the possibility of a change of control or
other event which may change the nature and structure of the Company and that
uncertainty regarding the consequences of such events may adversely affect the
Company's ability to retain its key employees. The Company also recognizes that
the Executive possesses an intimate and essential knowledge of the Company upon
which the Company may need to draw for objective advice and continued services
in connection with any acquisition of the Company or other change of control
that is potentially advantageous to the Company's stockholders. The Company
believes that the existence of this Agreement will serve as an incentive to
Executive to remain in the employ of the Company and will enhance its ability to
call on and rely upon the Executive in connection with a change of control.
The Company and the Executive desire to enter into this Agreement in
order to provide additional compensation and benefits to the Executive and to
encourage Executive to continue to devote his full attention and dedication to
the Company and to continue his employment with the Company.
1. Definitions. As used in this Agreement, unless the context
requires a different meaning, the following terms shall have the meanings set
forth herein:
(a) "Cause" means:
(i) theft, a material act of dishonesty, fraud,
the intentional falsification of any employment or Company records or the
commission of any criminal act which impairs Executive's ability to perform
his/her duties under this Agreement;
(ii) improper disclosure of the Company's
confidential, business or proprietary information by Executive; or
(iii) the Executive's conviction (including any
plea of guilty or nolo contendere) for a felony causing material harm to the
reputation and standing of the Company, as determined by the Company in good
faith.
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(b) "Change of Control" means:
(i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than a trustee or other fiduciary holding securities of
the Company under an employee benefit plan of the Company, or HEA, becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of (A) the outstanding shares of common stock of the Company or (B) the
combined voting power of the Company's then-outstanding securities;
(ii) the Company is party to a merger or
consolidation which results in the holders of voting securities of the Company
outstanding immediately prior thereto failing to continue to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation;
(iii) There occurs a change in the Board of
Directors of the Company within a two-year period, as a result of which fewer
than a majority of the Directors are Incumbent Directors. For purposes of this
Agreement, an Incumbent Director is any director who is either:
(A) a director of the Company as of
the Effective Date of this Agreement; or
(B) a director who is elected or
nominated for election to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company).
(C) changes in the composition of the
Board resulting from a reduction in the percentage of the Company's outstanding
stock owned by HEA which occur pursuant to a written agreement between HEA and
the Company shall not be deemed a change in the Incumbent Directors for purposes
of this subparagraph 1(b)(iii).
(iv) The sale or disposition of all or
substantially all of the Company's assets (or any transaction having similar
effect is consummated);
(v) The dissolution or liquidation of the
Company; or
(vi) The sale or disposition by HEA of shares of
the Company representing at least 50% of the number of shares owned by HEA at
the time of such sale, and at least 10% of the Company's then outstanding stock
to a manufacturer of hard disk drives.
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<PAGE> 3
Notwithstanding any other provision herein to the contrary, for purposes of this
Agreement no Change of Control shall be deemed to have occurred as a result of
any ownership change which may occur as a result of an underwritten public
offering of the Company's stock.
(c) "Good Reason" means the occurrence of any of the
following conditions, without Executive's written consent, which condition(s)
remain(s) in effect 20 days after written notice to the Board from Executive of
such condition(s):
(i) a material decrease in Executive's Total
Annual Earnings or employee benefits following a Change of Control;
(ii) a demotion, a material reduction in
Executive's position, responsibilities or duties or a material, adverse change
in Executive's substantive functional responsibilities or duties;
(iii) the relocation of Executive's work place
for the Company to a location more than one hundred (100) miles from the
location of Executive's work place following a Change of Control; or
(iv) any material breach of this Agreement by the
Company.
(d) "Effective Date" means the day and year first set forth
above.
(e) "HEA" means Hyundai Electronics America, and any
parent, subsidiary or affiliate thereof or successor thereto.
(f) "Permanent Disability" means that:
(i) the Employee has been incapacitated by bodily
injury or disease so as to be prevented thereby from engaging in the performance
of the Employee's duties;
(ii) such total incapacity shall have continued
for a period of six consecutive months; and
(iii) such incapacity will, in the opinion of a
qualified physician, be permanent and continuous during the remainder of the
Employee's life.
(g) "Termination Upon Change of Control" means:
(i) any termination of the employment of the
Executive by the Company without Cause within thirty (30) days before or within
twelve (12) months after the date of the Company's first public announcement
that the Company has entered into a definitive agreement that would result in a
Change of Control (even though still subject to approval by the Company's
stockholders and other conditions and contingencies); or
(ii) any resignation by the Executive for Good
Reason within twelve (12) months after the occurrence of any Change of Control.
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<PAGE> 4
"Termination Upon Change of Control" shall not include any
termination of the employment of the Executive (a) by the Company for Cause; (b)
by the Company as a result of the Permanent Disability of the Executive; (c) as
a result of the death of the Executive; or (d) as a result of the voluntary
termination of employment by the Executive for reasons other than Good Reason.
(g) "Total Annual Earnings" means the sum of the
Executive's annual salary and targeted annual incentive bonus.
2. Position and Duties. Executive shall continue to be an at-will
employee of the Company employed in his/her current position at his/her then
current salary rate. Executive shall also be entitled to continue to participate
in and to receive benefits on the same basis as other executive or senior staff
members under any of the Company's employee benefit plans as in effect from time
to time. In addition, Executive shall be entitled to the benefits afforded to
other employees similarly situated under the Company's vacation, holiday and
business expense reimbursement policies. Executive agrees to devote his/her full
business time, energy and skill to his/her duties at the Company. These duties
shall include, but not be limited to, any duties consistent with his/her
position which may be assigned to Executive from time to time.
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event of the Executive's
Termination Upon Change of Control, Executive shall be entitled to the following
separation benefits:
(i) all salary, accrued but unused vacation
earned through the date of Executive's termination and Executive's target bonus
for the year in which termination occurs, prorated through the date of
Executive's termination;
(ii) twelve (12) months of Executive's Total
Annual Earnings as in effect as of the date of such termination, all less
applicable withholding, paid in a lump sum within thirty (30) days of
termination of employment;
(iii) the vesting of all stock options granted by
the Company to the Executive prior to the Change of Control and outstanding
immediately prior to such Termination Upon Change of Control shall partially
accelerate so that Executive shall be credited with an additional two years of
continuous service for vesting purposes. In addition, the vesting of all stock
options outstanding immediately prior to the Change of Control shall accelerate
to the extent provided above (i.e., two additional years of vesting credit) if
the acquiring company does not assume the stock options or does not substitute
equivalent stock options upon a Change of Control;
(iv) the vesting of all unvested shares of
restricted stock shall accelerate and be the greater of: (I) fifty percent (50%)
of Executive's shares of restricted stock, or (II) that number of shares of
restricted stock determined by multiplying Executive's total shares of
restricted stock by a fraction, the numerator of which is the total number of
months which have elapsed from the restricted stock grant date to the date of
Executive's Termination Upon Change of Control and the numerator of which is
thirty-six (36).
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(v) within fourteen (14) days of submission of
proper expense reports by the Executive, the Company shall reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
in connection with the business of the Company prior to his/her termination of
employment;
(vi) if Executive elects continued medical
insurance coverage in accordance with the applicable provisions of federal law
(commonly referred to as "COBRA"), the Company shall pay Executive's COBRA
premiums for the duratin of such COBRA coverage, or twelve (12) months,
whichever is less. If Executive's medical coverage immediately prior to the date
of termination included the Executive's dependents, the Company paid COBRA
premiums shall include such dependents. Notwithstanding the above, in the event
Executive becomes covered under another employer's group health plan (other than
a plan which imposes a preexisting condition exclusion unless the preexisting
condition exclusion does not apply) during the period provided for herein, the
Company shall cease payment of the COBRA premiums; and
(vii) Executive shall receive the benefits, if
any, under the Company's 401(k) Plan and other Company benefit plans to which he
may be entitled pursuant to the terms of such plans.
4. Payment of Taxes. All payments made to Executive under this
Agreement shall be subject to all applicable federal and state income,
employment and payroll taxes.
5. Parachute Payment. If due to the benefits provided under this
Agreement, Executive is subject to any excise tax due to characterization of any
amounts payable hereunder as excess parachute payments pursuant to Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), the Company
agrees to offer the Executive the option of (i) receiving the full parachute
payment subject to the excise tax, or (ii) receiving a reduced parachute payment
that would not be subject to the excise tax (which in some circumstances may
maximize the net benefit to Executive). Unless the Company and Executive
otherwise agree in writing, any calculation required under this Section 5 shall
be made in writing by independent public accountants agreed to by the Company
and Executive (the "Accountants"), whose calculation shall be conclusive and
binding upon Executive and the Company for all purposes. For purposes of
calculating the Executive's options under this Section 5, the Accountants may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and Executive shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.
6. Exclusive Remedy. The payments and benefits provided for in
Section 3 shall constitute the Executive's sole and exclusive remedy for any
alleged injury or other damages arising out of the cessation of the employment
relationship between the Executive and the Company in connection with a Change
of Control. To the extent Executive is entitled to severance or other benefits
upon termination of employment under this Agreement and any other agreement, the
benefits payable under this Agreement shall be reduced by the amounts paid to
Executive under any other such agreement.
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7. Proprietary and Confidential Information. The Executive agrees to
continue to abide by the terms and conditions of any Company's confidentiality
and/or proprietary rights agreement between the Executive and the Company.
8. Arbitration. Any claim, dispute or controversy arising out of this
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in Santa Clara County,
California or elsewhere by mutual agreement. The selection of the arbitrator and
the arbitration procedure shall be governed by the Commercial Arbitration Rules
of the American Arbitration Association. All costs and expenses of arbitration
or litigation, including but not limited to attorneys fees and other costs
reasonably incurred by the Executive, shall be paid by the Company. Judgment may
be entered on the award of the arbitration in any court having jurisdiction.
9. Interpretation. Executive and the Company agree that this
Agreement shall be interpreted in accordance with and governed by the laws of
the State of California, without regard to such state's conflict of laws rules.
10. Conflict in Benefits. This Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement. To the extent Executive is entitled to severance or
other benefits upon termination of employment under this Agreement and any other
agreement, the benefits payable under this Agreement shall be reduced by the
amounts paid to Executive under any other such agreement. However, this
Agreement is not intended to and shall not affect, limit or terminate (i) any
plans, programs, or arrangements of the Company that are regularly made
available to a significant number of employees of the Company, (ii) the
Company's 1998 Restricted Stock Plan, (iii) any agreement or arrangement with
the Executive that has been reduced to writing and which does not relate to the
subject matter hereof, or (iv) any agreements or arrangements hereafter entered
into by the parties in writing, except as otherwise expressly provided herein.
11. Release of Claims. No severance benefits shall be paid to
Executive under this Agreement unless and until the Executive shall, in
consideration of the payment of such severance benefit, execute a release of
claims in a form reasonably satisfactory to the Company; provided, however, that
such release shall not apply to any right of Executive may have to be
indemnified by the Company.
12. Successors and Assigns.
(a) Successors of the Company. The Company will require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession transaction shall be a breach of this
Agreement and shall entitle the Executive to terminate his or her employment
with the Company within three months thereafter and to receive the benefits
provided under Section 3 of this Agreement in the event of
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<PAGE> 7
Termination Upon Change of Control. As used in this Agreement, "Company" shall
mean the Company as defined above and any successor or assign to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this Section 12 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) Heirs of Executive. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
13. Notices. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
if to the Company: Maxtor Corporation
510 Cottonwood Drive
Milpitas, CA 95035
Attn: General Counsel
and if to the Executive at the address specified at the end of this Agreement.
Notice may also be given at such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
15. Validity. If any one or more of the provisions (or any part
thereof) of this Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
16. Modification. This Agreement may only be modified or amended by a
supplemental written agreement signed by Executive and the Company.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year written below.
MAXTOR CORPORATION
Date:__________________________ By:_____________________________
Title:__________________________
EXECUTIVE:
Date:__________________________ ________________________________
Executive's Signature
Address for Notice:
_________________________
_________________________
_________________________
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<PAGE> 1
EXHIBIT 10.59
June 10, 1998
Victor B. Jipson
3185 Nelson Road
Longmont, Colorado
Dear Vic,
In consideration of your employment and continued employment with Maxtor
Corporation, it is hereby agreed that if such employment is involuntarily
terminated without cause, you will receive a severance package equivalent to
nine months base salary.
MAXTOR CORPORATION
- --------------------------------------
By:/s/ Phil Duncan
-----------------------------------
Its: VP Human Resources
----------------------------------
ACCEPTED AND AGREED:
/s/ Victor B. Jipson
-----------------------------------
Victor B. Jipson
Date:6/12/98
------------------------------
<PAGE> 1
EXHIBIT 10.60
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is entered into as of this __th day of
September, 1996 by and between
Maxtor Corporation, an U.S.A. subsidiary of Hyundai Electronics Industries
Co., Ltd. of the Republic of Korea, organized and existing under the laws
of the United States of America with its registered head office at 510
Cottonwood Drive, Milpitas, CA 95035, U.S.A. (the "Borrower"); and
Banque Paribas, Seoul Branch of 21st Floor, Kyobo Building, 1, 1-k,
Chongro, Chongro-ku, Seoul, Korea ("Paribas" which expression includes its
successors in title).
WHEREBY IT IS AGREED:
Clause 1. Interpretation
1.1 Definitions: In addition to those terms defined above, as used herein the
following terms shall have the meanings set forth below, which shall
include both the singular and plural thereof:
"Approved Institution": any bank or other financial institution notified
to the Borrower by the Lender in writing to be a Participant Assignee
under this Agreement;
"Assignee": in relation to any Transferable Loan Certificate, the Approved
Institution named therein as assignee of the Participation represented
thereby;
"Assignor": in relation to any Transferable Loan Certificate, the Lender
named therein as holder of the Participation represented thereby;
"Assignment Date": in relation to any assignment of a Participation, the
date of countersignature of the Transferable Loan Certificate representing
that Participation by Paribas pursuant to clause 17.2(C);
"Business Day": a day (other than a Saturday) on which banks are open in
Seoul and New York for the transaction of business of the nature required
by this Agreement and also, in relation to a day on which a payment is
required, in the place where such payment is to be made in accordance with
this Agreement;
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"Drawing": the amount of the drawing made or to be made following the
delivery of the Drawing Notice under clause 4.1;
"Drawing Notice": a notice of drawing substantially in the form set out in
Schedule 1, duly completed and signed by the Borrower;
"Drawing Period": the period commencing on the date of this Agreement and
ending on the close of business in Seoul on October 31, 1996;
"Event of Default": any of the events mentioned in clause 12.1 or any
event which with the giving of notice and/or the lapse of time and/or a
determination being made under the relevant paragraph, would constitute
any of the events mentioned in clause 12.1;
"Facility": the transferable loan facility the terms and conditions of
which are set out in this Agreement;
"Guarantor": Hyundai Electronics Industries Co., Ltd., a juridical entity
(chusik hoesa), organized and existing under the laws of the Republic of
Korea with its registered office at 140-2 Kye-dong, Chongro-ku, Seoul,
Korea;
"Guarantee": the irrevocable and unconditional guarantee by the Guarantor
of the payment of all obligations of the Borrower due to the Lender
arising under or in connection with this Agreement, which guarantee shall
be substantially in the form of Exhibit A hereto and in any event in form
and substance satisfactory to the Lender;
"Interest Payment Date": the last day of an Interest Period;
"Interest Period": a period of six months but so that:
(a) the first Interest Period shall commence on the date of the Drawing;
(b) each subsequent Interest Period shall commence on the last day of the
previous one;
(c) an interest Period which would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day or, if
that Business Day falls in the following month of the year, the
preceding Business Day;
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<PAGE> 3
(d) if an Interest Period is extended or shortened by the application of
(c) above, the following Interest Period shall (without prejudice to
the application of (c) above) end on the day on which it would have
ended if the preceding Interest Period had not been so extended or
shortened; and
(e) the final Interest Period shall end on the Repayment Date;
"Lender": Paribas and the Participant Assignees which are for the time
being participating in the Facility or the Loan and, where the context so
requires or admits, references to the Lender shall be construed as
references to any one or more of Paribas and the Participant Assignees,
save that references to the Lender in clauses 10.3(b), 12.1, 14.3, 14.11
and 19.5 shall be construed as references to Paribas (if the Drawing has
not been made) and to those of Paribas and the Participant Assignee for
the time being participating in excess of 50 per cent of the Loan (if the
Drawing has been made);
"Loan": the principal amount of the Drawing made and for the time being
outstanding;
"Margin": 0.5 per cent;
"Participant Assignee": at any time, an Approved Institution registered in
the Register at that time as the holder of a Participation and its
successor in title;
"Participation": all rights, title, benefit and interest in and to an
amount equal to US$1,000,000 or an integral multiple thereof of the Loan;
"Register": the register of Participant Assignees and Participations
maintained by Paribas pursuant to clause 18.1;
"Repayment Date": the date which is twelve (12) months after the date of
the Drawing;
"Security Interest": any mortgage, charge, pledge, lien, right of set off
or any other security interest whatsoever, howsoever created or arising;
"Transferable Loan Certificate": a certificate substantially in the form
set out in Schedule 3 representing a Participation which, when delivered
to Paribas in accordance with clause 17.2(a), evidences the assignment of
that Participation;
"US$ and dollars": the lawful currency of the United States of America
and, in relation to all payments to be
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<PAGE> 4
made under this Agreement, same day funds settled through the New York
Clearing House Interbank Payment System or such other funds as may for the
time being be customary for the settlement in New York City of
international payments in dollars.
1.2 Construction: Except where the context otherwise requires, any reference
in this agreement to:
(a) an "agreement" includes a concession, contract, deed, franchise,
license, private treaty or undertaking (in each case, whether oral or
written);
(b) the "assets" of the Borrower or the Guarantor shall be construed as a
reference to the whole or any part of its undertaking, property,
assets, revenues and rights;
(c) a "guarantee" includes any other obligation (whatsoever called)
of any person to pay, purchase, provide funds (whether by way of the
advance of money, the purchase of or subscription for shares or other
securities, the purchase of assets or services, or otherwise) for the
payment of, indemnify against the consequences of default in the
payment of, or otherwise be responsible for, any indebtedness of any
other person;
(d) "indebtedness" includes any obligation (whether present or future,
actual or contingent, secured or unsecured, as principal or surety or
otherwise) for the payment or repayment of money; and
(e) a "law" includes common or customary law and any constitution,
decree, judgment, legislation, order, ordinance, regulation, statute,
treaty or other legislative measure in any jurisdiction or any
present or future directive, regulation, request or requirement (in
each case, whether or not having the force of law but, if not having
the force of law, the compliance with which is in accordance with the
general practice of persons to whom the directive, regulation,
request or requirement is addressed).
1.3 Headings: Headings and the table of contents are for ease of reference
only.
Clause 2. The Facility
2. Paribas agrees, subject to the provisions of this Agreement, to advance to
the Borrower a loan in the principal amount of US$10,000,000 for the
financing of the Borrower's working capital requirements.
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<PAGE> 5
Clause 3. Conditions Precedent
3. The Facility shall become available to the Borrower on the date two
Business Days after Paribas has received the following documents dated not
more than ten days before the date of the Drawing or such earlier date as
Paribas may in its discretion accept and in each case in form and content
satisfactory to Paribas:
(a) a certificate signed by a representative director of the Borrower
or a director of the Borrower authorized by the resolutions
referred to in such certificate for the purpose of this Agreement,
substantially in the form set out in Schedule 2-1, and the
documents therein referred to;
(b) a certificate signed by a representative director of the Guarantor
or a director of the Guarantor authorized by the resolutions
referred to in such certificate for the purposes of the Guarantee,
substantially in the form set out in Schedule 2-2, and the documents
therein referred to.
Clause 4. Drawing
4.1 Conditions: If:
(a) no Event of Default has occurred or would occur as a result of the
making of the Drawing;
(b) Paribas has received the Drawing Notice by the third Business Day
before the proposed date of the Drawing;
(c) there has been no material adverse change in the financial
condition of each of the Borrower and the Guarantor since the date
referred to in clause 8.1(h);
(d) each of the warranties mentioned in clause 8.1 remains accurate at
the proposed date of the Drawing as if given on that date by
reference to the facts and circumstances then existing, then,
subject to the provisions of this Agreement, the Borrower may on
any Business Day during the Drawing Period, but not thereafter,
make one single Drawing of US$10,000,000 under the Facility.
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<PAGE> 6
4.2 Drawing: Subject to the provisions of this Agreement, Paribas shall make
available to the Borrower the Drawing on the proposed date of the Drawing.
4.3 Irrevocability: The Drawing Notice shall be irrevocable and, subject to
clause 10, the Borrower shall borrow the stated amount on the stated date.
Clause 5. Interest
5.1 Rate:
(a) The rate of interest payable on the loan of any part of it for each
Interest Period shall be, subject to clause 5.1 (b), the rate per
annum determined by Paribas at its discretion to be the aggregate of
the Margin and the rate quoted as the average of the rates quoted on
the "LIBO" page of the Reuter financial information service as the
rate at which dollar deposits are offered to Paribas for the same
period as that Interest Period in the London Inter-bank market at or
about 11:00 a.m. (London time) on the second Business Day before the
commencement of that Interest Period or, if there is no "LIBO" page
at that time, the equivalent page (if any) of that service on which
such offered rates are quoted.
(b) If, in relation to any Interest Period, there is no page available
within that service or that service is not for any reason available
in London for the purpose of determining the rate of interest under
clause 5.1(a), the rate of interest for that Interest Period shall
be the rate per annum determined by Paribas at its discretion to be
the aggregate of the Margin and the rate at which dollar deposits
are offered for the same period as that Interest Period to Paribas
by prime banks in the London Inter-bank market, at or about 11:00
a.m. (London time) on the second Business Day before the
commencement of the Interest Period.
5.2 Payment: Interest under this Agreement shall be calculated on the basis of
actual days elapsed (not counting within an Interest Period the last day
of that Interest Period) and a year of 360 days and shall be paid by the
Borrower to Paribas for the account of the Lender in arrear on each
Interest Payment Date.
5.3 Certificate: Paribas shall notify the Borrower and the Lender of each rate
of interest as soon as it is determined under this Agreement. The
certificate of Paribas as to a rate of interest shall, in the absence of
manifest error, be conclusive.
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Clause 6. Repayment
6. Subject to the provisions of this Agreement, the Loan shall be repaid in
full on the Repayment Date.
Clause 7. Prepayment
7.1 Prepayment: The Borrower may, without premium, prepay the Loan in whole or
in part (being US$1,000,000 or an integral multiple thereof) on any
Interest Payment Date provided that it has given Paribas not less than ten
Business Days' notice and evidence satisfactory to Paribas that all
authorizations necessary for the prepayment have been unconditionally
obtained.
7.2 Irrevocability: A notice under clause 7.1 shall be irrevocable and the
Loan shall become due and payable on that Interest Payment Date.
7.3 Limitation: The Borrower shall not be entitled to prepay the Loan or any
part of it or cancel the Facility in whole or in part otherwise than as
specifically provided in this Agreement.
Clause 8. Representations and Warranties
A.1 By the Borrower: the Borrower acknowledges that Paribas has entered into
this Agreement in full reliance on representations by the Borrower in the
following terms; and the Borrower now warrants to the Lender that:
(a) Status: The Borrower is duly incorporated with limited liability
under the laws of the United States of America;
(b) Powers:
(i) the documents which contain or establish the Borrower's
constitution include provisions which authorize, and all
necessary corporate authority has been taken to authorize, and
all authorizations of any governmental or other authority have
been duly and unconditionally obtained and are in full force
and effect which are required to authorize, the Borrower to
own its assets, carry on its business as it is now being
conducted, and sign and deliver, and perform the transactions
contemplated in this Agreement and this Agreement constitutes
valid and binding obligations of the Borrower enforceable in
accordance with their terms; and
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<PAGE> 8
(ii) the documents which contain or establish the Guarantor's
constitution include provisions which authorize, and all
necessary corporate authority has been taken to authorize, and
all authorizations of any concerned authorities have been duly
and unconditionally obtained and are in full force and effect
which are required to authorize, the Guarantor to sign and
deliver, and perform the obligations contemplated in the
Guarantee and the Guarantee constitutes valid and binding
obligations of the Guarantor enforceable in accordance with
their terms;
(c) No contravention: neither the signing and delivery of this Agreement
nor the performance of any of the transactions contemplated in it
will;
(i) contravene or constitute a default under any provision contained
in any agreement, law, permit or consent by which the Borrower
and the Guarantor or any of their respective assets is bound or
affected; or
(ii) cause any limitation on the Borrower and the Guarantor or the
powers of their respective directors, whether imposed by or
contained in any document which contains or establishes their
respective constitutions or in any law, agreement or otherwise,
to be exceeded;
(d) No authorizations: no registration, recording, filing or notarization
of this Agreement and no payment of any duty or tax and no other
action whatsoever is necessary or desirable to ensure the validity,
enforceability or priority in the U.S.A. and the Republic of Korea of
the liabilities and obligations of the Borrower and the Guarantor or
the rights of the Lender and Paribas under this Agreement;
(e) No default: no event has occurred which constitutes, or which with
the giving of notice and/or the lapse of time and/or a relevant
determination would constitute, a contravention of, or default
under, any agreement or instrument by which the Borrower and the
Guarantor or any of its assets is bound or affected, being a
contravention or default which might either have a material adverse
effect on the business, assets or condition of the Borrower and the
Guarantor or materially and adversely affect its ability to observe or
perform its obligations under this Agreement;
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<PAGE> 9
(f) Litigation: no litigation, arbitration or administrative proceeding
or claim which might by itself or together with any other such
proceedings or claims either have a material adverse effect on its
business, assets or condition or materially and adversely affect its
ability to observe or perform its obligations under this Agreement,
is at present in progress or pending or, to the best of the
knowledge, information and belief of the Borrower, threatened against
the Borrower and the Guarantor or any of their respective assets;
(g) Tax liabilities: all necessary returns have been delivered by or on
behalf of the Borrower and the Guarantor to the relevant taxation
authorities and neither the Borrower nor the Guarantor is in default
in the payment of any taxes of a material amount, and no material
claim is being asserted with respect to taxes which is not disclosed
in the financial statements referred to in clause 8.1(h);
(h) Accounts: the audited financial statements (including the income
statement and balance sheet) of the Borrower and the Guarantor for
the year ended 31 December 1995 have been prepared on a basis
consistently applied and give a true and fair view of the results of
their respective operations for that year and the state of their
respective affairs at that date, and in particular accurately
disclose or reserve against all their respective liabilities (actual
or contingent) of the Borrower and the Guarantor;
(i) No immunity: the transactions on the part of the Borrower which are
contemplated in this Agreement represent transactions of a purely
commercial nature by the Borrower and neither the Borrower nor the
Guarantor nor any of their respective assets is entitled under the
laws of the U.S.A. and the Republic of Korea to any immunity
(sovereign or otherwise) from legal process (of any nature before or
after judgment) in respect of any such transactions;
(j) Information: the information furnished by the Borrower and the
Guarantor in connection with the Facility does not contain any untrue
statement or omit to state any fact the omission of which makes the
statements therein, in the light of the circumstances under which
they were made, misleading, and all expressions of expectation,
intention, belief and opinion contained therein were honestly made on
reasonable grounds after due and careful enquiry by the Borrower and
the Guarantor;
(k) Disclosure: the Borrower and the Guarantor have fully disclosed in
writing to Paribas all facts
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<PAGE> 10
relating to the Borrower and the Guarantor which the Borrower and
the Guarantor know or should reasonably know and which are material
for disclosure to the Lender in the context of this Agreement; and
(l) Guarantee: the Guarantee has been duly authorized and when executed,
will constitute a legal, valid and binding agreement, enforceable
against the Guarantor in accordance with its terms.
8.2 Survival: The representations and warranties set out in clause 8.1 shall
survive the signing and delivery of this Agreement and the making of the
Drawing.
Clause 9. Undertakings
9. The Borrower undertakes with the Lender that, from the date of this
Agreement until all its liabilities under this Agreement have been
discharged:
(a) Banking and negative pledge: the liabilities of the Borrower and the
Guarantor under this Agreement will rank at least equally and
rateably (pari passu) in point of priority and security with all its
other liabilities (both actual and contingent) except;
(i) liabilities which are subject to liens or rights of set off
arising in the normal course of trading and the aggregate
amount of which is not material;
(ii) liabilities which are preferred solely by the laws of the
U.S.A. and the Republic of Korea and not by reason of any
Security interest;
(iii) liabilities which are secured by Security Interests subsisting
as at the date of this Agreement;
(iv) liabilities which are secured by Security Interests on assets
acquired after the date of this Agreement, which Security
Interests were in existence prior to such acquisition or are
created at the time of acquisition only to secure the purchase
price of such assets;
(v) liabilities which are subject to Security Interests arising
out of pledges or deposits under workmen's compensation laws,
unemployment insurance, old age pensions or other social
security or retirement benefits or similar legislation; and
(vi) liabilities which are secured by Security Interests in any
construction contract awarded
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<PAGE> 11
to the Borrower or in the proceeds thereof or in any subsequent
guarantee in favour of the Borrower in connection with such a
construction contract provided that in each case such Security
Interest is (aa) in favor of any financial institution providing
performance bonds, advance payment guarantees or financing for
the account and for the benefit of the Borrower in respect of
such construction contract and (bb) limited to the face or
principal amount of such bonds, guarantees or financing plus
accrued interest and related fees and expenses,
and the Borrower will not create or permit to exist over all or any
part of its business or assets any Security interest (other than any
permitted under clause 2.(a)(i), (iii), (iv), (v) and (vi) unless the
benefit of the Security Interest is, upon its creation or arising,
extended equally and rateably, to the satisfaction of the Lender, to
the liabilities of the Borrower under this Agreement and so that, in
default of such extension, the person entitled to the Security
Interest shall (if he had notice of this undertaking) hold the
Security Interest (and any proceeds arising from its enforcement) pro
tanto upon trust for the Lender;
(b) Information: it will deliver to Paribas in sufficient numbers for the
Lender;
(i) as soon as they become available but in any event, within five
months after the end of each of its financial periods (which
shall not be longer than 15 months), copies of its financial
statements for that period which shall contain an income
statement and a balance sheet, accurately disclose all its
liabilities (actual or contingent), be prepared on a basis
consistently applied, be audited and certified without
qualification (other than qualifications in respect of which
Paribas has received explanation satisfactory to it, and is
satisfied that the same are not material) by a firm of
independent accountants of recognized international standing
and give a true and fair view, in accordance with accounting
principles for the time being generally accepted in the U.S.A.
and the Republic of Korea, of the results of the operations and
the state of affairs of the Borrower and the Guarantor;
(ii) promptly, such additional financial or other information as
Paribas may from time to time reasonably request;
(c) Conduct of business: the Borrower will conduct its business in a
proper and efficient manner;
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<PAGE> 12
(d) Authorizations: the Borrower or the Guarantor will maintain in full
force and effect all relevant authorizations (governmental and
otherwise) and will promptly obtain any further authorizations which
may become necessary to enable it to perform any of the transactions
contemplated by this Agreement; and
(e) Default: if the Borrower becomes aware of the occurrence of an Event
of Default, it will forthwith notify Paribas and provide Paribas with
full details of any steps which it is taking, or is considering
taking, in order to remedy or mitigate the effect of the Event of
Default or otherwise in connection with it.
Clause 10. Changes in Circumstances
10.1 Illegality: Where the introduction, imposition or variation of any law or
any change in the interpretation or application of any law makes it
unlawful or impractical without breaching such law for Paribas to make
available to the Borrower, or to fund, the Drawing or for the Lender to
allow all or any part of the Loan to remain outstanding or to fund all or
any part of the Loan or to charge or receive interest at the rate
applicable, upon notice to Paribas to that effect:
(a) (if the Drawing has not been made) Paribas' obligation to make
available to the Borrower the Drawing shall terminate and the
facility shall be cancelled; or
(b) (if the Drawing has been made) the Borrower shall, upon being so
notified, prepay to Paribas for the account of the Lender the loan or
the relevant part thereof in accordance with clause 10.5 on such date
as the Lender shall certify to be necessary to comply with the
relevant law and the Facility shall be cancelled to the extent of
that prepayment.
10.2 Increased costs: Where the Lender determines that, as a result of the
introduction or variation of any law or any change in the interpretation
or application of any law, or compliance with any request (whether or not
having the force of law) from any central bank or other fiscal, monetary
or other authority or agency, the cost to the Lender of making or
maintaining or funding all or any
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<PAGE> 13
part of the Loan is increased or the amount of any sum received or
receivable by it in respect of all or any part of the Loan or the
effective return to it under this Agreement is reduced or it is obliged
to make any payment (except in respect of tax on its overall net income)
or foregoes any interest or other return on, or calculated by reference
to, the amount of any sum received or receivable by it from the Borrower
under this Agreement, then:
(a) the Lender shall notify the Borrower through Paribas of such event
promptly upon its becoming aware of such event;
(b) the Borrower shall on demand pay to Paribas for the account of the
Lender such amounts as the Lender from time to time and at any time
notifies Paribas to be necessary to compensate it for such
increased cost, reduction, payment of foregone interest or return;
and
(c) at any time thereafter, so long as the circumstances giving rise to
the obligation to make the compensating payment continue;
(i) (if the Drawing has not been made) at the Borrower's
irrevocable election (by notice to Paribas), Paribas'
obligation to make available to the Borrower the Drawing
shall terminate and the Facility shall be cancelled; or
(ii) (if the Drawing has been made) the Borrower may, upon giving
Paribas not less than 30 days' notice which shall be
irrevocable, prepay to Paribas for the account of the Lender
the Loan or the relevant part thereof subject to and in
accordance with clauses 10.4 and 10.5.
10.3 Market disruption: If, in relation to any Interest Period:
(a) Paribas determines that, by reason of circumstances affecting the
London Inter-bank market generally, reasonable and adequate means
do not or will not exist for ascertaining under clause 5.1 a rate
of interest applicable to the Loan or any part of it; or
(b) Paribas is notified by the Lender that deposits in dollars are not
in the ordinary course of business
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available in the London Inter-bank market for a period equal to the
forthcoming Interest Period in amounts sufficient to fund all or any part
of the Loan,
Paribas shall forthwith notify the Borrower, and:
(i) (if the Drawing has not been made), the Drawing shall not be made
while such circumstances continue to exist and, at the Borrower's irrevocable
election (by notice to Paribas), the Facility may be cancelled;
(ii) (if the Drawing has been made) unless within 30 days after the
giving of the notice, the Borrower and Paribas (in consultation with
the Lender) arrive, by negotiation in good faith, at an alternative
basis acceptable to the Borrower and the Lender for continuing the
Loan (and any alternative basis agreed in writing shall be
retroactive to and effective from the commencement of the relevant
Interest Period), the Borrower shall prepay to Paribas for the
account of the Lender the Loan within ten Business Days after the
end of the 30-day period in accordance with clause 10.5, save that
the accrued interest shall be payable to the Lender at a rate equal
to the Margin plus the aggregate of the amount determined by the
Lender, and notified through Paribas to the Borrower, as being the
cost to the Lender of continuing the Loan or the relevant part
thereof during the two periods referred to in this clause 10.3 (ii);
and
(iii) while any agreed alternative basis is in forum, Paribas in
consultation with the Lender shall periodically (but at least
monthly) determine whether circumstances are such that the basic is
no longer necessary; and if Paribas so determines, it shall
forthwith notify the Borrower and the Lender and that basis shall
cease to be effective on a date specified by Paribas after
consultation with the Lender.
10.4 Prepayment: Where the Borrower has given notice under clause 10.2 to
prepay all or any part of the Loan;
(a) the Borrower shall provide Paribas with satisfactory evidence that all
authorizations necessary to the prepayment have been unconditionally
obtained;
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(b) the amount of the prepayment shall become due and payable on expiry
of the period specified in the notice to Paribas; and
(c) the Facility shall be cancelled to the extent of that prepayment.
10.5 Amount: On prepaying all or any part of the Loan under any provisions of
this clause 10, the Borrower shall pay to Paribas for the account of the
Lender accrued interest thereon together with all other amounts due to the
Lender (including any sum payable under the indemnity contained in clause
13).
10.6 Certificates: Any determination or notification by Paribas or the Lender
concerning any matter referred to in any provision of this clause 10
shall, in the absence of manifest error, be conclusive evidence as to that
matter and shall be binding on the Borrower, the Lender and Paribas.
Clause 11. Payments
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11.1 By the Borrower: All payments to be made by the Borrower:
(a) for the account of the Lender shall be made in dollars not later
than 11:00 a.m. (New York time) on the relevant day to Banque
Paribas, New York, CHIPS UID 127191 ABA 986 for the account of
Banque Paribas, Seoul Branch or such other account as Paribas may
have notified to the Borrower for the account of Paribas who shall,
before the close of business in New York on the date of receipt,
remit to the Lender in dollars the payment so made by remitting it
in accordance with the instructions which the Lender may have
previously notified to Paribas; and
(b) to Paribas shall be made in such currency and to such account as it
may specify by notice to the Borrower.
11.2 By Paribas: The amount to be advanced by Paribas to the Borrower under
this Agreement shall be remitted in dollars not later than 11:00 a.m. (New
York time) on the relevant day to the account and bank in New York City
which are specified in the Drawing Notice.
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11.3 Withholdings: All payments by the Borrower under this Agreement, whether
in respect of principal, interest, fees or any other item, shall be made in
full without any deduction or withholding (whether in respect of set off,
counterclaim, duties, taxes, charges or otherwise whatsoever) unless the
deduction or withholding is required by law, in which event the Borrower
shall:
(a) ensure that the deduction or withholding does not exceed the minimum
amount legally required;
(b) forthwith pay to Paribas for the account of the relevant payee such
additional amount so that the net amount received by that payee will
equal the full amount which would have been received by it had no such
deduction or withholding been made;
(c) pay to the relevant taxation or other authorities within the period
for payment permitted by applicable law the full amount of the
deduction or withholding (including, but without prejudice to the
generality of the foregoing, the full amount of any deduction of
withholding from any additional amount paid pursuant to this clause
11.3); and
(d) furnish to Paribas on behalf of the relevant payee, within the period
for payment permitted by the relevant law, either:
(i) an official receipt of the relevant taxation authorities involved
in respect of all amounts so deducted or withheld; or
(ii) if such receipts are not issued by the taxation authorities
concerned on payment to them of amounts so deducted or withheld,
a certificate of deduction or equivalent evidence of the relevant
deduction or withholding.
11.4 Judgment currency: If, under any applicable law, whether as a result of a
judgment against the Borrower or the liquidation of the Borrower or for any
other reason, any payment under or in connection with this Agreement is
made or is recovered in a currency (the "other currency") other than that
in which it is required to be paid hereunder (the "original currency")
then, to the extent that the payment to any payee (when converted at the
rate of exchange on the date of payment or, in the case of a liquidation,
the latest date for the determination of
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liabilities permitted by the applicable law) falls short of the amount
unpaid under this Agreement, the Borrower shall as a separate and
independent obligation, fully indemnify that payee against the amount of
the shortfall, and for the purposes of this clause 11.4 "rate of exchange"
means the rate at which the relevant payee is able on the relevant date to
purchase the original currency in London with the other currency.
11.5 Default interest:
(a) If the Borrower fails to pay any amount in accordance with this
Agreement, the Borrower shall pay interest in dollars on that amount
from the time of default up to the time of actual payment (as well
after as before judgment) at the rate per annum which is the Margin
plus two per cent (2%) above the rate, (as determined by Paribas),
for a deposit of an amount comparable to the defaulted amount,
offered to Paribas in the London Inter-bank market, for such period
as Paribas may from time to time select, at about 11:00 a.m. (London
time) on the Business Day succeeding that on which Paribas becomes
aware of the default for value two Business Days later.
(b) If an amount unpaid in accordance with this Agreement is of
principal due on a day during, but not the last day of, an Interest
Period relating thereto, the period selected by Paribas under clause
11.5(a) shall equal the unexpired portion of the Interest Period and
there shall be substituted for the rate specified in clause 11.5(a)
the rate of two per cent (2%) above the rate calculated in
accordance with clause 5.1 (including the Margin) and applicable to
the unpaid amount immediately before it fell due.
(c) Interest under this clause 11.5 shall accrue daily on the bank basis
of a year of 360 days from and including the first day to but
excluding the last day of each period for which a rate of interest
is determined as aforesaid and shall be due and payable by the
Borrower at the end of each such period. So long as the default
continues the rate referred to in clause 11.5(a) shall be calculated
on a similar basis at the end of each period selected by Paribas and
notified to the Lender and interest payable under this clause 11.5
which is unpaid at the end of each such period shall thereafter
itself bear interest at the rates provided in this clause 11.5.
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11.6 Date: If any payment would otherwise be due on a day which is not a
Business Day, it shall be due on the next succeeding Business Day or, if
that Business Day falls in the following month of the year, the preceding
Business Day.
Clause 12. Default
12.1 Events: if:
(a) Non-payment: the Borrower fails to pay any amount due under this
Agreement on the due date or on demand, if so payable;
(b) Breach of obligations: the Borrower or the Guarantor fails to
observe or perform any of its obligations under this Agreement, the
Guarantee or under any undertaking or arrangement entered into in
connection herewith, other than an obligation of the type referred
to in clause 12.1(a) and, in the case of failure capable of being
remedied, the Lender does not determine, within 21 days after the
Borrower became aware of the failure, that it has been remedied to
the Lender's satisfaction;
(c) Misrepresentations: any representation, warranty or statement which
is made (or acknowledged to have been made) by the Borrower in this
Agreement or which is contained in the Guarantee, any certificate,
statement, legal opinion or notice provided under or in connection
with this Agreement proves to be incorrect in any material respect,
or if repeated at any time with reference to the facts and
circumstances subsisting at such time would not be accurate in all
material respects;
(d) Invalidity: any provision of this Agreement or the Guarantee is or
becomes, for any reason, invalid or unenforceable;
(e) Disposal of assets: without the prior written consent of the Lender,
the Borrower or the Guarantor transfers or disposes of, or threatens
to transfer or dispose of, a substantial part (as determined in good
faith by the Lender) of its respective business or assets;
(f) Cessation of business: the Borrower or the Guarantor changes or
threatens to change the nature or scope of its business, suspend
or threatens to suspend a substantial part of the present business
operations which it now conducts directly or indirectly, or any
governmental authority
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expropriates or threatens to expropriate all or part of its
respective assets and the result of any of the foregoing is, in the
determination of the Lender, materially and adversely to affect its
respective financial condition or its respective ability to observe
or perform its respective obligations under this Agreement;
(g) The Guarantee for any reason has been revoked, modified or becomes
unacceptable to the Lender or the Guarantor has breached any one of
the terms thereof or any event of default has occurred under and as
defined in any other loan agreement between the Lender and the
Guarantor;
(h) Cross-default: any indebtedness of the Borrower or the Guarantor
become due or capable of being declared due before its stated
maturity, any guarantee of the Borrower or the Guarantor is not
discharged at maturity or when called or the Borrower or the Guarantor
goes into default under, or commits a breach of, any instrument or
agreement relating to any such indebtedness or guarantee;
(i) The Borrower or the Guarantor becomes insolvent or unable to pay its
debts at maturity due to its respective financial inability or a
petition is submitted by the Borrower, the Guarantor or any third
party for bankruptcy, corporate reorganization proceedings,
compulsory composition proceedings or liquidation or other similar
procedures for relief or readjustment of any of the Borrower's or the
Guarantor's indebtedness or the Borrower or the Guarantor fails to
maintain substantially its respective management control, including
without limitation any case in which its management control has been
assumed by its creditor(s), or the Borrower or the Guarantor ceases
to exist;
(j) Composition, winding up: the Borrower or the Guarantor convenes a
meeting of its creditors or proposes or makes any arrangement or
composition with, or any assignment for the benefit of, its creditors
or a petition is presented or a meeting is convened for the purpose
of considering a resolution or other steps are taken for making an
administration order against or for winding up of the Borrower or the
Guarantor (other than for the purposes of and followed by a
reconstruction previously approved in writing by the Lender, unless
during or following such reconstruction the Borrower or the Guarantor
becomes or is declared to be insolvent); or
(k) Analogous proceedings: anything analogous to any of the events
specified is paragraphs (i) or (j) occurs
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under the laws of any applicable jurisdiction, then, at once or at
any time thereafter, Paribas upon the request of the Lender, shall,
by notice to the Borrower, declare the Loan to be immediately due
any payable whereupon:
(i) it shall become so due and payable together with accrued
interest thereon and any other amounts then payable under
this Agreement; and
(ii) the Facility shall be cancelled.
12.2 Notice: If Paribas is notified under this Agreement of the occurrence of
an Event of Default it shall inform the Lender.
Clause 13. Indemnity
13. The Borrower shall fully indemnify each of the Lender and Paribas from
and against any expense, less, damage or liability (as to the amount of
which the certificate of Paribas shall be prima facie evidence) which it
may incur as a consequence of the occurrence of any Event of Default, of
any failure to borrow in accordance with the Drawing Notice or of any
prepayment under this Agreement otherwise than an Interest Payment Date
or otherwise in connection with this Agreement. Without prejudice to its
generality, the foregoing indemnity shall extend to any interest, fees or
other sums whatsoever paid or payable on account of any funds borrowed in
order to carry any unpaid amount and to any loss (including loss of
profit), premium, penalty or expense which may be incurred in liquidating
or employing deposits from third parties acquired to make, maintain or
fund the Loan (or any part of it) or any other amount due or to become
due under this Agreement.
Clause 14. Paribas
14.1 Appointment: The Lender irrevocably authorizes Paribas to take such
action on its behalf and to exercise and carry out such powers,
discretions, authorities and duties as are specifically delegated to it
by this Agreement and such powers as Paribas reasonably considers are
incidental thereto. Paribas shall have only those powers, discretions,
authorities and duties which are expressly specified in this Agreement.
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14.2 Relationship:
(a) In connection with its powers, discretions, authorities and duties
under this Agreement, Paribas shall act solely as the agent of the
Lender, and Paribas shall not assume, and shall not be deemed to have
assumed, any obligations to, or fiduciary relationship with, the
Lender other than those for which specific provision is made by this
Agreement or any obligations to, or fiduciary relationship with, the
Borrower.
(b) Paribas shall not be liable for any failure of the Borrower or any of
the other parties for the time being to this Agreement duly and
punctually to observe and perform any of its obligations under this
Agreement.
(c) Paribas shall not be liable for any action taken or omitted by it
under or in connection with this Agreement in good faith.
(d) Paribas may act under this Agreement through its personnel and agents.
14.3 Lender's discretions: In the exercise of any power or discretion given to
Paribas under this Agreement and as to any matter not expressly provided
for in this Agreement or where a decision of the Lender is provided for,
Paribas shall act or refrain from acting in accordance with the
instructions of the Lender. In the absence of any such instructions,
Paribas may act or refrain from acting as it shall see fit. Any such
instructions of the Lender or any such decision of Paribas shall be
binding on the Borrower and all the other parties for the time being to
this Agreement and Paribas shall not be liable to any of them for the
consequences of any such instructions or decision.
14.4 Credit approval: In favour of Paribas, the Lender acknowledges in
connection with this Agreement:
(a) that it has made such enquiries on its own behalf and taken such care
as would have been the case had all or any part of the Loan been a
loan made directly by the Lender to the Borrower without the
intervention of Paribas and that it has not relied, and does not
rely, upon any information or advice provided, or any appraisal of,
or investigation into the financial condition, credit worthiness,
affairs, status or nature of the Borrower effected, by Paribas; and
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(b) that, subject to clause 14.0, Paribas was not or will not be obliged
either before or at any time after the signing of this Agreement to
provide the Lender with any information or advice or to make any such
investigation or appraisal.
14.5 Documentation: Paribas and its directors, officers, employees or agents
shall not be liable:
(a) for the execution, validity, enforceability or effectiveness of this
Agreement or any document delivered pursuant thereto or connected
therewith; or
(b) for any statements, representations or warranties made or referred to
in this Agreement or any information given in connection with this
Agreement.
14.6 Reliance: Paribas shall not be liable:
(a) for the consequences of relying on any communication or document
believed by it to be genuine and correct and to have been communicated
or signed by the person by whom it purports to be communicated or
signed; or
(b) for the consequences of relying on the advice of any professional
advisers selected by it in connection with this Agreement.
14.7 Default:
(a) Paribas shall not be obliged to take any steps to ascertain whether
any Event of Default has occurred and until Paribas have received
express notice to the contrary from the Borrower or the Lender, it
shall be entitled to assume that no such event has occurred.
(b) Paribas shall not be obliged to take any proceedings against the
Borrower for the recovery of any sum due under this Agreement or
otherwise in connection therewith unless it has been fully indemnified
to its satisfaction by the Lender.
14.8 Information:
(a) Paribas shall send a copy of all notices served by the Borrower under
this Agreement and of all other documents delivered to it under this
Agreement to the Lender.
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(b) Paribas shall not be obliged to transmit to the Lender any
information in any way relating to the Borrower or any of the other
parties for the time being to this Agreement which Paribas may have
acquired otherwise than in connection with this Agreement.
14.9 Dealings with Borrower: Paribas and its associates and affiliates
may, without liability to disclose or account, engage in any kind of
financial, trust or commercial business with, or acquire or dispose of any
kind of security of, the Borrower or any of its associates or affiliates
and Paribas and its associates or affiliates shall not have any obligation
to disclose or account for any dealings with the Borrower or any of its
associates or affiliates prior to the date of this Agreement.
14.10 Indemnity: The Lender shall fully indemnify Paribas from and against all
claims, proceedings, expenses, losses, damages and liabilities of every
description which may be incurred by Paribas (otherwise than as a Lender)
in good faith and which in any way relate to or arise out of this
Agreement or any related documents or any action taken or omitted by
Paribas (otherwise than as a Lender) in enforcing or preserving, or in
attempting to enforce or preserve, any of the rights of the Lender under
this Agreement or any related documents. Unless the Borrower notifies
Paribas before the date a payment is due hereunder that it does not
intend to make the payment, Paribas may assume that the Borrower has made
that payment when so due and Paribas may make available to the Lender on
that payment date an amount equal to the assumed payment. If the borrower
has not made payment to Paribas, the Lender shall on demand repay to
Paribas, for value on the date of payment to the Lender, the amount made
available to the Lender.
14.11 Amendments: Paribas may (except where any other authority is required for
the same by the express provisions of this Agreement) grant waivers or
consents or vary the terms of this Agreement if authorized by the Lender.
Any such waiver, consent or variation so authorized and effected by
Paribas shall be binding on all the parties for the time being to this
Agreement (other than the Borrower) and Paribas shall be under no
liability whatsoever in respect of any such waiver, consent or variation.
This clause 14.11 shall not authorize:
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(a) any change in the rate at which interest is payable under this
agreement;
(b) any extension of the date for, or alteration in the amount or
currency of, any payment of principal, interest, fee or any other
amount payable under this Agreement;
(c) any increase in the principal amount of the Facility;
(d) any extension of the Drawing Period;
(e) any variation of (i) the definition of the Lender or (ii) this
clause 14.11,
except with the prior consent of all the parties for the time being to
this Agreement (other than the Borrower).
14.12 Alternative basis: If Paribas serves a notice in accordance with clause
10.3 the Lender shall, within three Business Days after receipt of the
notice (or such longer period as Paribas may agree), notify Paribas of
the alternative basis which would be acceptable to the Lender for
continuing the Facility or the Loan and Paribas shall take into account
(but shall not be bound by) that notification for all purposes when
negotiating in accordance with clause 10.3. If the Lender fails to notify
Paribas of such alternative basis Paribas shall be entitled to agree, or
to notify the Borrower of, such alternative basis on behalf of the Lender
as it considers reasonable.
Clause 15. Expenses
15.1 Expenses: The Borrower shall on demand pay, in each case on the basis of
a full indemnity;
(a) to Paribas all expenses (including legal, printing, publicity and
out-of-pocket expenses) incurred in connection with the negotiation,
preparation or completion of this Agreement and any related
documents (other than Transferable Loan Certificates) and the
maintenance of the Register; and
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(b) to Paribas (for its own account of (as the case may require) for the
account of the Lender) all expenses (including legal and
out-of-pocket expenses) incurred in connection with any variation,
consent, or approval relating to this Agreement or any related
documents (other than Transferable Loan Certificates) or in
connection with the preservation or enforcement or the attempted
preservation or enforcement of any of their rights under this
Agreement or any related documents (other than Transferable Loan
Certificates).
15.2 Stamp duty: The Borrower shall pay any stamp, documentary and other
similar duties and taxes to which this Agreement or any related documents
(other than Transferable Loan Certificates) may be subject or give rise
and shall fully indemnify the Lender and Paribas from and against any
losses or liabilities which they may incur as a result of any delay or
omission by the Borrower to pay any such duties or taxes.
Clause 16. Set Off
16. Following an Event of Default, the Lender may without notice to the
Borrower combine, consolidate or merge all and any of the Borrower's
accounts with, and liabilities to, the Lender and may set off or transfer
any sum standing to the credit of any such accounts in or towards
satisfaction of any of the Borrower's liabilities to the Lender under this
Agreement, and may do so notwithstanding that the balances on such
accounts and the liabilities may not be expressed in the same currency and
the Lender is hereby authorized to effect any necessary conversions at the
Lender's own rate of exchange then prevailing.
Clause 17. Assignment and Transferable Loan Certificates
17.1 Borrower's acknowledgment: The Borrower hereby acknowledges that Paribas
may assign all or any part of its rights at the discretion of Paribas in
relation to the Loan under this Agreement. The Borrower irrevocably
consents to the assignment of Participations under the provisions of this
clause 17.
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17.2 Assignment:
(a) Subject to clause 17.2 (b), the Lender may at any time assign a
Participation in whole (and not in part only) by delivery to Paribas
of a Transferable Loan Certificate representing that Participation.
Each Transferable Loan Certificate shall:
(i) be expressed to represent a Participation; and
(ii) name the party proposing to assign that Participation as
holder of that Participation.
Each Transferable Loan Certificate delivered to Paribas shall only
be valid if it is in writing signed by each of the Assignor and the
Assignee and is contained in one document or two counterparts.
(b) A person who is not on Approved Institution may not be a
Participant Assignee.
(c) Upon receipt by Paribas of a Transferable Loan Certificate complying
with clause 17.2(a), Paribas shall be bound to countersign that
Transferable Loan Certificate for itself and on behalf of the
Borrower and the other parties for the time being in this Agreement.
(d) The Borrower and all the other parties for the time being to this
Agreement agree that, following the countersignature of a
Transferable Loan Certificate by Paribas under clause 17.2(c) and
with effect from the Assignment Date of that Transferable Loan
Certificate:
(i) the Assignor shall cease to be entitled to the Participation
represented by that Transferable Loan Certificate and any
rights, title, benefit and interest arising on or after that
Assignment Date in respect of that Participation; and
(ii) The Assignee shall become a party hereto entitled to that
Participation and all rights, title, benefit and interest
arising on or after that Assignment Date in respect of that
Participation.
(e) Each of the Borrower and the other parties for the time being to
this Agreement irrevocably:
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(i) appoints and authorizes Paribas to act on its behalf in the
countersignature of any Transferable Loan Certificate under clause
17.2(c), such countersignature being evidence of the acceptance of
each of the Borrower and the other parties for the time being to
this Agreement of the relevant Assignee as a party to this Agreement
entitled to the relevant Participation and such rights, title,
benefit and interest as are mentioned in clause 17.2(d)
in substitution for the Assignor; and
(ii) agrees to be bound by such countersignature.
Paribas shall be entitled to exercise the authority under this clause
17.2(e) without calling upon the Borrower or any such party to sign any
Transferable Loan Certificate on its own account.
(f) Any revocation, or attempted or purported revocation, by the Borrower of
the authority under clause 17.2(e) shall, for the purposes of clause
12.1(b), be deemed to be a default by the Borrower in the observance of
this Agreement.
(g) Each Assignee shall, by its execution of a Transferable Loan Certificate,
accept that none of the Lender, the Assignor and Paribas are in any way
responsible for:
(i) any statements, representations or warranties made or referred to in
this Agreement or any information given in connection with this
Agreement;
(ii) the financial condition, creditworthiness, affairs, status or nature
of the Borrower or the performance by the Borrower of any of its
obligations under this Agreement or any related document; or
(iii) the execution, validity, enforceability or effectiveness of this
Agreement or any related document,
and, save as otherwise expressly provided herein, that none of the Lender,
the Assignor and Paribas shall, or shall be deemed to be, the agent or
trustee of the Assignee in connection herewith. Each Assignee shall, by
its execution, give the acknowledgment contained in clause 14.4.
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(h) Paribas shall be fully entitled to rely on any Transferable Loan
Certificate delivered to it in accordance with clause 17.2(a) which
is complete and regular on its face and purportedly signed on
behalf of the Assignor and the Assignee and shall have no liability
or responsibility to the Borrower or any of the other parties for
the time being to this Agreement as a consequence of placing
reliance on, countersigning and acting in accordance with that
Transferable Loan Certificate.
(i) Each of the Assignor and the Assignee shall bear its own costs and
expenses incurred in connection with any assignment of a
Participation effected hereunder and any stamp, documentary and
other duties and taxes to which a Transferable Loan Certificate may
be subject or give rise and none of the Lender, Paribas and the
Borrower shall be responsible or liable for any such costs,
expenses, duties or taxes or for any losses or liabilities
resulting from any delay or omission by the Assignor or the
Assignee to pay any such duties or taxes.
(j) Notwithstanding anything herein to the contrary none of the
Participant Assignees may exercise in its name its rights against
the Borrower other than through Paribas and notwithstanding the
execution of any Transferable Loan Certificate, the Borrower shall
continue to deal solely with Paribas with respect to payments,
notices and other matters relating to the administration of this
Agreement.
Clause 18. Registration Provisions
18.1 Maintenance of Register: Paribas shall at all times during the
continuation of this Agreement maintain a register in which Paribas shall
record the names, participations and administrative details (including
address, telex number and the relevant account for payments) from time to
time of the Lender and Paribas shall make the Register available for
inspection by the borrower or any of the other parties for the time being
to this Agreement during normal banking hours upon receipt by Paribas of
reasonable prior notice to that effect.
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18.2 Entries conclusive: The entries on the Register shall, in the absence of
manifest error, be conclusive in determining the identity of the Lender
from time to time in respect of the Participations therein specified and
may be relied upon by Paribas, the Borrower and all the other parties for
the time being to this Agreement for all purposes in connection with this
Agreement.
18.3 Procedure: Paribas shall, immediately following countersignature by it of
a Transferable Loan Certificate under clause 17.2(c), enter the name of
the Assignee on the Register as a person entitled to the Participation
represented thereby in substitution for the Assignor with effect from the
Assignment Date of that Transferable Loan Certificate.
18.4 Closure: Paribas shall be entitled to close the Register for registration
of assignments of Participations for a period of three Business Days
commencing on the second Business Day prior to each Interest Payment Date.
18.5 Miscellaneous:
(a) Each Transferable Loan Certificate delivered to, and countersigned by,
Paribas shall be held and kept by Paribas with the Register and shall
be available for inspection with the Register in accordance with
clause 18.1.
(b) Paribas shall give notice to the Borrower of each registration of an
assignment of a Participation within ten days after the relevant
Assignment Date.
Clause 19. Further Provisions
19.1 Disclosure of information: The Lender may disclose to any person who
derives or may derive rights under or by reference to this Agreement
(including potential Participant Assignees or sub-participants) such
information about the Borrower as shall have been made available to the
Lender generally.
19.2 No assignment by Borrower: The Borrower may not assign any of its rights,
or transfer any of its obligations, under this Agreement.
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19.3 Office: Paribas may make the Drawing available from, and may receive the
benefit of any payment due to it under this Agreement at, any of its
lending offices. Paribas shall give the Borrower prior written notice of
any change in its lending office for the purpose of this Agreement.
19.4 Evidence of indebtedness: In any proceeding relating to this Agreement.
(a) a statement as to any amount due to the Lender under this Agreement
which is certified as being correct by an officer of Paribas; and
(b) a statement as to any amount due to the Lender under this Agreement
which is certified as being correct by an officer of the Lender,
shall, unless otherwise provided in this Agreement, be prima facie
evidence that such amount is in fact due and payable.
19.5 Application of moneys: If any sum paid or recovered in respect of the
liabilities of the Borrower under this Agreement is less than the amount
then due, Paribas may apply that sum to principal, interest, fees or any
other amount due under this Agreement in such proportions and order and
generally in such manner as the Lender shall determine.
19.6 Rights cumulative, waivers: The respective rights of the Lender and
Paribas under this Agreement are cumulative, may be exercised as often as
they consider appropriate and are in addition to their respective rights
under the general law. The respective rights of the Lender and Paribas in
relation to this Facility and/or the Loan (whether arising under this
Agreement or under the general law) shall not be capable of being waived
or varied otherwise than by an express waiver or variation in writing; and
in particular any failure to exercise or any delay in exercising any of
such rights shall not operate as a waiver or variation of that or any
other such right; any defective or partial exercise of any of such rights
shall not preclude any other or further exercise of that or any other such
right; and no act or course of conduct or negotiation on their part or on
their behalf shall in any way preclude them from exercising any such right
or constitute a suspension or any variation of any such right.
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<PAGE> 31
19.7 Notices: Any notice or communication under or in connection with this
Agreement shall be in writing and shall be delivered personally, or by
post, telex or cable to the addresses given in this Agreement or at such
other address as the recipient may have notified to the other parties in
writing. Proof of posting or dispatch of any notice or communication to
the Borrower shall be deemed to be proof of receipt:
(a) in the case of a letter, on the third Business Day after posting;
and
(b) in the case of a telex or cable, on the Business Day immediately
following the date of dispatch.
19.8 English language: All notices or communications under or in connection
with this Agreement shall be in the English language or, if in any other
language, accompanied by a translation into English. In the event of any
conflict between the English text and the text in any other language, the
English text shall prevail.
19.9 Invalidity of any provision: If any of the provisions of this Agreement
becomes invalid, illegal or unenforceable in any respect under any law,
the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired.
19.10 Governing law: This Agreement is governed by, and shall be construed in
accordance with, the laws of Republic of Korea.
19.11 Submission to jurisdiction:
(a) For the benefit of each of the Lender and Paribas, all the parties
for the time being to this Agreement agree that the courts of
Republic of Korea are to have jurisdiction to settle any disputes
which may arise in connection with the legal relationships
established by this Agreement (including, without limitation,
claims for set off or counterclaim) or otherwise arising in
connection with this Agreement.
(b) Without prejudice to clause 19.11(a), the Borrower irrevocably
submits to the jurisdiction of the courts of any state or federal
court sitting in the State of New York as Paribas may elect.
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<PAGE> 32
(c) The Borrower irrevocably waives any objections on the ground of
venue or forum non conveniens or any similar grounds.
(d) The Borrower irrevocably consents to service of process by mail or
in any other manner permitted by the relevant law.
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<PAGE> 33
SCHEDULE 1
DRAWING NOTICE
To: Banque Paribas, Seoul Branch
[Date]
Loan Agreement, dated *
We refer to the Facility constituted by a loan agreement dated * 1996
(the "Loan Agreement") between (1) ourselves and (2) yourselves. Terms defined
in the Loan Agreement have the same meanings herein.
We hereby:
(a) give you notice that we wish to make the Drawing of US$10,000,000 on
* ;
(b) request that the Drawing be remitted to [please specify name and
address of bank in U.S.A. and account number]: and
(c) confirm that each of the conditions contained in clause 4.1 of the
Loan Agreement is satisfied as at the date hereof and we know of no
reason why it should not be satisfied as at the date referred to in
(a) above.
Maxtor Corporation
By ____________________________
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<PAGE> 34
SCHEDULE 2-1
CERTIFICATE
(to be given by the Borrower)
referred to in clause 3(a)
[Letterhead of Borrower]
To: Banque Paribas, Seoul Branch
I, [name], a representative director/authorized director of Maxtor Corporation
of 510 Cottonwood Drive, Milpitas, CA 95035, U.S.A. (the "Company")
HEREBY CERTIFY that:
(a) attached hereto, marked "A", are true and correct copies of all
documents which contain or establish or relate to the constitution of
the Company;
(b) attached hereto, marked "R", is a true and correct copy of the
Commercial Registry extracts regarding the Company, including all
amendments thereto as of the date hereof, which Commercial Registry
extracts as amended continue in full force and effect on the date
hereof;
(c) attached hereto, marked "C", is a true and correct copy of the minutes
of the Board of Directors' meeting of the Company duly convened and
held on * at which a quorum of Directors was present and acting
throughout and adopting resolutions approving the Loan Agreement and
authorizing its signature, delivery and performance; and such
resolutions have not been amended, modified or revoked and are in
full force and effect.
The following signatures are the true signatures of the persons who have been
authorized to sign the Loan Agreement and to give notices and communications,
including the Drawing Notice (as defined in the Loan Agreement), under or in
connection with the Loan Agreement.
- 34 -
<PAGE> 35
<TABLE>
<CAPTION>
Name Position Signature
<S> <C> <C>
* *
* *
* *
</TABLE>
Signed:
-------------------------------------------
representative director/authorized director
Date:
- 35 -
<PAGE> 36
SCHEDULE 2-2
Certificate
(to be given by the Guarantor)
referred to in clause 3(b)
[Letterhead of Guarantor]
To: Banque Paribas, Seoul Branch
I, [name], a representative director/authorized director of Hyundai Electronics
Industries Co., Ltd. of 140-2, Kye-dong, Chongro-ku, Seoul, Republic of Korea
(the "Company")
HEREBY CERTIFY that:
(a) attached hereto, marked "A", are true and correct copies of all
documents which contain or establish or relate to the constitution
of the Company;
(b) attached hereto, marked "B", is a true and correct copy of the
Commercial Registry extracts regarding the Company, including all
amendments thereto as of the date hereof, which Commercial Registry
extracts as amended continue in full force and effect on the date
hereof;
(c) attached hereto, marked "C", is a true and correct copy of the
minutes of the Board of Directors' meeting of the Company duly
convened and held on * at which a quorum of Directors was present
and acting throughout and adopting resolutions approving the
execution, delivery and performance by the Company of the Guarantee
(the "Guarantee") in favor of Banque Paribas, Seoul Branch (the
"Lender") for the account of Maxtor Corporation (the "Obligor")
with respect to the borrowing by the Obligor from the Lender of
US$10,000,000 and authorizing the persons who have executed or will
execute the Guarantee to do so; and such resolutions have not been
amended, modified or revoked and are in full force and effect;
- 36 -
<PAGE> 37
In witness whereof, the undersigned has hereunder set his signature and seal as
of the ___th day of __________, 1996.
Signed:
-------------------------------------------
representative director/authorized director
Date:
- 37 -
<PAGE> 38
SCHEDULE 3
Form of Transferable Loan Certificate
MAXTOR CORPORATION
US$10,000,000 Transferable Loan Facility
TRANSFERABLE LOAN CERTIFICATE
representing a loan participation in the form of all rights, title,
benefit and interest in and to an amount equal to US$ [ * ] of the
principal amount advanced to Maxtor Corporation, U.S.A. (the "Borrower"),
pursuant to a US$10,000,000 loan agreement dated [ * ] (the "Loan
Agreement") between (1) the Borrower and (2) Banque Paribas, Seoul Branch
("Paribas"), held by
[Name]
(the "Assignor")
Terms defined in the Loan Agreement have the same meanings herein.
The Assignor's entitlement to the Participation represented by this Certificate
arises under the Loan Agreement and the terms and conditions applicable to the
assignment thereof effected pursuant to this certificate are set out overleaf.
By signing this certificate and delivery of this certificate to Paribas, the
Assignor and the person named below as assignee (the "Assignee") request the
Borrower and the other parties for the time being to the Loan Agreement to
accept the Assignee as being entitled to the whole of the Participation
represented by this certificate in substitution for the Assignor.
This certificate is not a document of title. The entries on the Register shall,
in the absence of manifest error, be conclusive in determining the identity of
the person for the time being entitled to the Participation represented by this
certificate and may be relied upon by Paribas, the Borrower and the other
parties for the time being to the Loan Agreement for all purposes in connection
with the Loan Agreement.
This certificate and all rights arising pursuant hereto shall be governed by,
and construed in accordance, with the laws of Republic of Korea.
-38-
<PAGE> 39
ASSIGNOR ASSIGNEE
[name] [name]
_____________________________ _____________________________
Authorized Signatory Authorized Signatory
Address of Assignee for purposes
of Loan Agreement: __________________________
__________________________
Attention: __________________________
Telephone No.: __________________________
Telex No.: __________________________
Assignee's account for payments: __________________________
Countersigned by Paribas for itself and on behalf of the Borrower and the other
parties for the time being to the Loan Agreement.
BANQUE PARIBAS, SEOUL BRANCH
_____________________________
Authorized Signatory
Note: (a) The Assignor's name and the Assignee's name and its administrative
information above should be typewritten.
(b) This certificate is not a security and is of no value to any person
other than the Assignor, the Assignee and Paribas.
-39-
<PAGE> 40
TERMS AND CONDITIONS
1. Any reference in this certificate to "the Participation represented by
this certificate" shall be construed as a reference to all rights, title,
benefit and interest in and to an amount equal to USS * of the
Loan.
2. Upon the Assignment Date of this certificate:
(a) the Assignor shall cease to be entitled to the Participation
represented by this Certificate and any rights, title, benefit and
interest arising on or after such Assignment Date in respect of the
Participation represented by this certificate; and
(b) the Assignee shall be entitled to the Participation represented by
this Certificate and all rights, title, benefit and interest arising
on or after such Assignment Date in respect of the Participation
represented by this certificate.
3. Paribas shall be entitled to close the Register for registration of
assignments of Participations for a period of three Business Days commencing on
the second Business Day prior to an Interest Payment Date.
4. Paribas, subject to receipt thereof from the Borrower, shall make payment
of the principal amount and accrued interest thereon due in respect of the
Participation represented by this certificate to the Assignee. Accordingly, the
Assignor and the Assignee by their execution of this certificate acknowledge and
confirm that they will make all such payments as may be necessary for the
adjustment after the Assignment Date of accrued interest attributable to the
Participation represented by this certificate prior to the Assignment Date of
this certificate directly between themselves. Notwithstanding anything herein to
the contrary none of the Participant Assignees may exercise in its name its
rights against the Borrower other than through Paribas and, notwithstanding the
execution of this certificate, the Borrower shall continue to deal solely with
Paribas with respect to payments, notices and other matters relating to the
administration of the Loan Agreement.
-40-
<PAGE> 41
5. Interest on the loan is payable under the Loan Agreement and at the rate,
and only in accordance with the terms, therein set out.
6. Execution and delivery to Paribas of this certificate shall constitute the
Assignee's confirmation that it has received a copy of the Loan Agreement and
such information as it has required in connection with its becoming a
Participant Assignee and the Assignee's acceptance of the matters set out in
clause 17.2(q) of the Loan Agreement. By execution of this certificate, the
Assignee gives the acknowledgment contained in clause 14.4 of the Loan
Agreement.
7. Any and all conditions and warranties as to any of the matters set out in
clause 17.2(g) of the Loan Agreement, whether express or implied by law or
otherwise, are hereby excluded.
8. Paribas shall be fully entitled to rely on this certificate as delivered
to it if complete and regular on its face and purportedly signed on behalf of
the Assignor and the Assignee and; shall have no liability or responsibility to
the Borrower or any of the other parties for the time being to the Loan
Agreement as a consequence of placing reliance on, countersigning and acting in
accordance with this certificate.
9. The Assignee's bank account to which all payments shall be made by
Paribas under the Loan Agreement in relation to the Participation represented
by this certificate is that specified overleaf or such other account as may
from time to time be notified to Paribas by the Assignee.
10. Paribas' address for delivery of this certificate is:
21st Floor, Kyobo Building
1, 1-Ka, Chongro Chongro-ku
Seoul, Korea
or such other address as may from time to time be notified by Paribas.
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<PAGE> 42
EXECUTION
Signed by the authorized representative of the parties
The Borrower
MAXTOR CORPORATION
by: /s/ AUTHORIZED SIGNATURE
---------------------------------
Paribas
BANQUE PARIBAS, SEOUL BRANCH
by: /s/ AUTHORIZED SIGNATURE
---------------------------------
- 42 -
<PAGE> 43
Exhibit A
(Date:)
To: Banque Paribas, Seoul Branch
21st Floor, Kyobo Building
l, l-ka, Chongro, Chongro-ku
Seoul, Korea
CORPORATE GUARANTY
1. We, the undersigned, Hyundai Electronics Industries Co., Ltd. (the
"Guarantor"), hereby irrevocably and unconditionally guarantee by this
corporate guaranty (the "Guaranty") to Banque Paribas, Seoul Branch (the
"Lender") that Maxtor Corporation, U.S.A. (the "Borrower") will perform and
comply with all terms and conditions of the agreement entered into between the
Lender and the borrower dated as of September __, 1996 (the "Agreement"), in
connection with a loan facility of US$10,000,000. (the "Loan"), made by the
Lender to the Borrower, the promissory notes executed pursuant thereto. All
terms used herein shall be as defined in the Agrement unless expressly defined
otherwise herein.
2. We hereby also irrevocably and unconditionally guarantee, as primary
obligor and not merely as surety to the Lender, jointly and severally with the
Borrower, the performance by the Borrower of all of its respective obligations
under the Agreement, the due and punctual payment of the Loan principal of but
not exceeding the sum of Ten Million United States Dollars (US$10,000,000), the
Promissory Notes evidencing the Loan and interest accrued on the Loan as well as
default, interest and all other amounts, including without limitation,
enforcement costs, payable by the Borrower to the Lender under the Agreement and
the Promissory Notes when and as the same shall become due and payable, whether
at maturity, upon acceleration or otherwise, according to the terms of the
Agreement, irrespective of the validity, legality or enforceability of the
Agreement, or any other circumstances which might otherwise constitute a legal
or equitable discharge or defense for us. In addition, we hereby agree to
indemnify upon demand, and hold harmless the Lender from any and all losses or
damages, including attorney fees and other expenses incurred by the Lender,
arising out of any claims brought against the Lender by the suppliers of the
Borrower or
- 43 -
<PAGE> 44
any other creditors of the Borrower for losses or damages they suffered as a
result of their reliance on the creditworthiness of the Borrower inferred from
the fact that the Lender, a worldwide reputable bank, has provided the Loan or
other credit facility to the Borrower, the repayment of which is guaranteed
hereunder.
3. We hereby agree to pay to the Lender the principal of and interest
accrued on the Loan and any additional payment which may be owing pursuant to
the preceding paragraph at any time against the Lender's invoice therefor
accompanied by the Lender's certificate stating that the Borrower has failed to
fulfill any one of its obligations under the Agreement or the Promissory Notes
which invoice shall be final and conclusive as to the amount owned absent
manifest error. We hereby covenant that the Lender's invoice issued under and
in compliance with the terms of this Guaranty will be honored without objection
upon due presentation and in payment thereof we will immediately deliver to the
Lender at such bank and at such place as instructed by the Lender the amount
stated in such invoice without deduction of any kind, in Dollars. In the event
we are required to make any deduction, we shall pay the Lender such additional
amount so that the sum received by the Lender after deduction shall equal the
amount of the invoice.
4. We acknowledge that this Guaranty is express in Dollars and payable in
Dollars and covenant and warrant that all payments made by us pursuant hereto
shall be made in same day Dollar funds (or such other Dollar funds as are then
used for the settlement of international loan transactions).
5. We acknowledge and consent that our obligation to make payment in Dollars
of any amounts which may become due hereunder to the Lender shall not be
discharged or satisfied by any tender, or any recovery pursuant to any
judgment, which is expressed in or converted by the Lender to any currency
other than the full amount of Dollars expressed to be payable in respect of
amounts due. Our obligation to make payment in Dollars as aforesaid shall be
enforceable as an alternative or additional cause of action for the purpose of
recovery in Dollars expressed to be payable in respect to amounts due hereunder
and shall not be affected by judgment being obtained for any other sums due
and/or in any other currency from the Borrower or under this Guaranty.
6. We hereby also agree to pay to the Lender promptly upon demand any and
all expenses included without limitation attorneys' fees incurred by the Lender
in implementation and enforcement of this Guaranty.
-44-
<PAGE> 45
7. We hereby acknowledge receipt of a photostatic copy(ies) of the Agreement
and hereby waive diligence, presentment, demand, protest or notice of any
kind whatsoever (including notice of the occurrence of a default,
extension of time of payment, amendment of the Agreement and the like) as
well as any requirement that the Lender exhaust any right or take any
action against the Borrower or any other guaranty or security for the
Borrower's obligations guaranteed hereunder.
8. No delay or omission to exercise any right or remedy accruing upon any
breach or default of the Borrower under the Agreement, or any agreement
executed pursuant to the terms of the Agreement or of us under this
Guaranty shall impair any such right or remedy of the Lender nor shall it
be construed to be a waiver of any such breach or default.
9. We hereby represent and warrant and agree as follows:
a. We are a duly organized corporation (chusik hoesa), existing in
good standing under the laws of the Republic of Korea.
b. We have all necessary powers and authority to issue this Guaranty
and to perform and observe the obligations contained herein and
this Guaranty has been validly authorized by our Board of Directors
(in full compliance with the requirements of Article 398 of the
Korean Commercial Code and Article 124 of the Korean Civil Code, if
applicable) and this Guaranty constitutes our legal, valid and
binding obligations enforceable in accordance with its terms.
c. Neither the giving of this Guaranty nor the observance of its terms
including without limitation the making of payment hereunder in
Dollars contravenes any law, degree, ordinance, or similar enactment
binding on us (including Article 11 of the Securities and Exchange
Commission's "Regulation on Financial Control of Publicly Traded
Corporations"); nor does the giving of this Guaranty and the
observance of its terms contravene any existing mortgage, contract
or agreement binding on us.
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<PAGE> 46
d. All approvals, consents, licenses and other authorizations from any
legislative or executive body of government, ministry, agency,
exchange control authority or other authority required by the
Constitution or the laws of the Republic of Korea in order for us to
incur the obligations contained in this Guaranty, to execute and
deliver this Guaranty and to perform and observe the terms and
provisions hereof and to make all payments hereunder in Dollars, have
been duly obtained and are in full force and shall remain in full
force and effect without amendment or restriction during the term
hereof.
e. There are no proceedings pending before any court or to our knowledge
threatened against or affecting us, the Borrower or any of our
subsidiaries and there are no proceedings pending before any
governmental agency or administrative body or to our knowledge
threatened against us, the Borrower or any of our subsidiaries which
if adversely determined would materially and adversely affect our
financial condition or our ability to pay under the terms and
conditions of this Guaranty, and our obligations hereunder rank and
shall rank throughout the life hereof at least pari passu with all
other unsecured indebtedness.
f. This Guaranty constitutes our legal, valid and binding obligations
from the date hereof and will not be discharged except by complete
performance of the respective obligations of the Borrower contained in
the Agreement and the documents executed pursuant thereto and our
obligations in this Guaranty.
g. The Borrower is a corporation duly organized and validly existing
under the laws of the United States of America with which we have
common business interests.
h. Our balance sheets as at December 31, 1995 and the related statements
of income and retained earnings for the fiscal year then ended, copies
of which have been provided to the Lender, fairly present our
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<PAGE> 47
financial condition as at the date of such balance sheet and the
results of our operations for the period ended on such date all in
accordance with generally accepted accounting principles
consistently applied and since the dates of each such balance sheet
there has been no material adverse change in our financial
condition or operations.
10. This Guaranty shall remain valid until full payment of all sums shall have
been made and all the obligations of the Borrower under the Agreement, the
Promissory Notes and all documents executed pursuant thereto and our obligations
under this Guaranty shall have been fully performed to the Lender's satisfaction
in accordance with the terms and conditions of the Agreement and any amendments
thereto and this Guaranty and the Lender has given us written notice thereof.
11. We hereby agree that we shall not pursue or claim in priority to, or in
competition with, the Lender any claims which we may have against the Borrower
hereunder or under any other agreement unless and until the Lender has been
fully paid, the same being hereby subordinated to the Lender's claims against
the Borrower.
12. We hereby also consent that as security for our obligations hereunder and
to the extent permitted by law, the Lender shall have rights of security upon,
and of set-off against, any deposit or other account which we may have with the
Lender or any branch, head office or other affiliate of the Lender and all our
claims, money, shares, bonds, commercial instruments and other property, rights
or interests which have or shall, for any purpose, come into the possession,
custody or control of the Lender or any such branch, head office or affiliate.
13. The Lender may upon written notice to us and without our consent sell,
assign or otherwise transfer this Guaranty, in whole or in part, to any person,
firm, corporation or other entity which now holds or shall acquire prior to, or
at the time of, such sale, assignment or transfer, any interest in the
Borrower's obligations secured by this Guaranty.
- 47 -
<PAGE> 48
14. We also agree that any other security or guaranty that we have given to
the Lender regarding the present or other obligations of the Borrower shall not
be affected by the issuance, performance, cancellation and/or termination of
this Guaranty.
15. The Lender may change or release any other security or guaranty received
or to be received by the Lender regarding the Borrower's obligations guaranteed
hereunder and such shall have no effect whatsoever on this Guaranty.
16. This Guaranty shall be deemed to be made under and shall be governed by
the laws of the Republic of Korea in all respects, including matters of
construction, validity and performance.
17. We hereby agree that any legal action or proceeding with respect to this
Guaranty, and any action or proceeding to execute or otherwise enforce any
judgment obtained against us for breach hereof, may be instituted in the courts
having jurisdiction over the Lender's office in Seoul or in any other court in
the State of New York or elsewhere, as the Lender may elect, and by execution
and delivery of this Guaranty we generally and unconditionally submit to each
such jurisdiction.
18. If any of the provisions of this Guaranty shall contravene or be held
invalid under the laws of the Republic of Korea, this Guaranty shall be
construed as if not containing those provisions and the rights and obligations
of the parties hereto shall be construed and enforced accordingly.
19. We hereby agree to execute any and all further negotiable instruments or
other documents as the Lender from time to time requests to evidence our
obligations hereunder.
20. Throughout the life of this Guaranty, we shall provide the Lender with
copies of our unaudited financial statements for the first six months of each
fiscal year and our audited financial statements for each fiscal year as soon
as they are available but in any event no more than 120 days after the close of
each fiscal period covered by an unaudited statement and not more than 150 days
after the close of each fiscal period covered by an audited financial
statement and such other information
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<PAGE> 49
regarding our financial status as the Lender may reasonably request. Each
financial statement provided hereunder shall include at the minimum a balance
sheet and profit and loss statement and be accompanied by a certificate of a
duly authorized officer of the provider thereof stating that as of the date of
such financial statement the Guarantor is in full compliance with all terms and
conditions hereof.
21. Any communication, demand or notice to be given to us hereunder shall be
deemed to be duly given when delivered in writing or by mail or when sent by
telex as follows:
To Guarantor: Hyundai Electronics Industries Co., Ltd.
110-2, Kye-dong, Chongro-ku,
Seoul, Korea
TELEX: K29793/4
ANSWERBACK: HDETN
32. This Guaranty may be cancelled, partially or wholly, only upon the
Lender's written instruction.
Sincerely yours,
Hyundai Electronics Industries Co., Ltd.
By: /s/ AUTHORIZED SIGNATURE
-------------------------------------
Name:
Title:
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<PAGE> 50
IRREVOCABLE POWER OF ATTORNEY AGREEMENT
TO COMPLETE PROMISSORY NOTE
September __, 1996
To: Banque Paribas, Seoul Branch
Reference is made to a loan agreement (the "Loan Agreement") dated September
__, 1996, entered into by and between the Borrower and you, as Paribas, whereby
you have, subject to the terms and conditions of the Loan Agreement, agreed to
provide to the Borrower the transferable Loan Facility of US$10,000,000 for the
financing of the Borrower's working capital requirements.
Except as otherwise specifically stated herein, all defined terms used in this
Power of Attorney shall have the same meanings as defined in the Loan Agreement.
We, the undersigned, being the Guarantor, deliver to you a Promissory Note
pursuant to the terms of the Loan Agreement, payable to you and duly executed
by the Guarantor, which is complete in all respects except that the maturity
date and the amount has been left blank.
We acknowledge that the Promissory Note will be delivered to you in connection
with the Loan Agreement and that, in addition to and not limited by the
authorizations contained herein, you have the right to treat the Promissory
Note in all respects, including but not limited to consolidation and demand for
payment, in the manner contemplated by the Loan Agreement.
You or any of your agents or employees with full rights of substitution are
hereby irrevocably and specifically authorized and empowered, in your sole
discretion and upon the occurrence of any Event of Default provided for in
clause 12 of the Loan Agreement, to complete the Promissory Note by inserting
therein the maturity date and the proper amount in Won currency (including
accrued interest, default interest and other costs) calculated by application
of the U.S. Dollar T/T Selling rate as applied by you with respect to general
transactions with your customers in connection with the conversion between Won
and Dollars on the date you complete the Promissory Note.
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<PAGE> 51
- 2 -
We acknowledge and agree that all actions taken by you pursuant to this Power of
Attorney including but not limited to the determination of the maturity date and
the amount in won currency to be inserted in the Promissory Note, shall be
binding, final and conclusive on us absent manifest error.
We further acknowledge and agree that this authorization is irrevocable and may
not be limited in any manner whatsoever except to the extent specifically stated
herein. This authorization shall expire on the date that you, in you sole
discretion, determine that all sums owing or which shall become owing under the
Loan Agreement, as the case may be, have been fully paid.
GUARANTOR: Hyundai Electronics Industries Co., Ltd.
By: /s/ AUTHORIZED SIGNATURE
-----------------------------------------
Name:
Title: Representative Director
Agreed and Accepted: Banque Paribas, Seoul Branch
By: /s/ AUTHORIZED SIGNATURE
-----------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.61
EXECUTION COPY
LOAN AGREEMENT
US$10,000,000
MAXTOR CORPORATION
- BORROWER -
BANQUE NATIONALE DE PARIS
SEOUL BRANCH
- LENDER -
HYUNDAI ELECTRONICS IND. CO., LTD.
- GUARANTOR -
DECEMBER 20, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
PREAMBLE 1
1. DEFINITIONS 1
1.01 Advance 1
1.02 Availability Period 1
1.03 Banking Day 2
1.04 Commitment 2
1.05 Dollars 2
1.06 Drawdown 2
1.07 Encumbrance 2
1.08 Event of Default 2
1.09 Guarantor 2
1.10 Guaranty 2
1.11 Indebtedness 2
1.12 Interbank Rate 2
1.13 Interest Determination Date 3
1.14 Interest Payment Date 3
1.15 Interest Period 3
1.16 Loan 3
1.17 Month 3
1.18 Permitted Liens 3
1.19 Repayment Date 5
1.20 Termination Date 5
1.21 Won 5
2. THE LOAN 5
2.01 Purpose and Amount of Loan 5
2.02 Drawdown 5
3. INTEREST AND DEFAULT INTEREST 6
3.01 Interest Rate 6
3.02 Interest Determination 6
3.03 Default Interest 6
3.04 Costs 6
4. PAYMENT AND REPAYMENT 7
4.01 Interest 7
4.02 Repayment 7
4.03 Prepayment 7
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Article Page
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<S> <C>
4.04 Banking Day 7
4.O5 Place of Payment 7
4.06 Application of Payments 8
4.07 Loan Account 8
5. SECURITY 8
5.01 Default Note 8
5.02 Guaranty 8
6. YIELD PROTECTION 9
6.01 Substitute Basis of Borrowing 9
6.02 Taxes 9
6.03 Compliance Costs 11
6.04 Change of Law 11
6.05 Adversity Prepayment 12
6.06 Funding Costs 12
6.07 Dollar Transaction 12
7. BORROWER'S REPRESENTATIONS AND WARRANTIES 12
7.01 Representations and Warranties 12
7.02 Repetitions 16
8. COVENANTS 16
8.01 Financial Statements 16
8.02 Taxes 17
8.03 Representations and Warranties 17
8.04 Litigation 17
8.05 Notice 17
8.06 Further Documents 17
8.07 Government Approval 17
9. CONDITIONS PRECEDENT 18
9.01 First Drawdown 18
9.02 Subsequent Drawdowns 18
9.03 Other Conditions Precedent 19
10. EVENTS OF DEFAULT 19
10.01 Event of Default 19
10.02 Consequences of Default 22
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Article Page
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<S> <C>
11. MISCELLANEOUS 22
11.01 Term 22
11.02 Entire Agreement 22
11.03 Waiver; Cumulative Rights 22
11.04 Assignment; Participation 23
11.05 Indemnification 23
11.06 Governing Law and Jurisdiction 23
11.07 Waiver of Sovereign Immunity 24
11.08 Set-Offs 24
11.09 Notices 24
11.10 Severability 26
11.11 Counterparts 26
SIGNATURES 27
</TABLE>
EXHIBITS
EXHIBIT A Corporate Guaranty
EXHIBIT B Notice of Drawdown
EXHIBIT C Irrevocable Power of Attorney Agreement
To Complete Promissory Note
EXHIBIT D Certificate
EXHIBIT E Certificate
- iii -
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is entered into as of this 20th
day of December, 1996 by and between:
MAXTOR CORPORATION, A juridical person (chusik hoesa), organized and
existing under the laws of the State of Delaware with its registered
office at 510 Cottonwood Drive Milpitas, C.A., 95035, U.S.A. (the
"Borrower"), and
BANQUE NATIONALE DE PARIS, SEOUL BRANCH, a foreign bank branch duly
licensed in Korea, having its office at 8F., Oriental Chemical Building,
50, Sokong-dong, Chung-ku, Seoul, Korea (the "Lender") .
WITNESSETH:
WHEREAS, the Borrower has requested the Lender to extend to the Borrower
loans in an aggregate principal amount not to exceed Ten Million United States
Dollars (US$10,000,000) in order to finance working capital of the Borrower for
its business operation; and
WHEREAS, subject to the terms and conditions of this Agreement and the
applicable laws and regulations of Korea and the state of Delaware of the United
States of America, including the Foreign Exchange Management Regulations of
Korea, the Lender has agreed to extend to the Borrower the loans so requested by
the Borrower.
NOW, THEREFORE, it is hereby agreed as follows:
Article 1. Definitions.
In addition to those terms defined above, the following terms as used herein
shall have the meanings set forth below, which shall include both the singular
and plural thereof.
1.01 "Advance" shall mean an advance to the Borrower by the Lender of a
Drawdown AS specified in Section 2.02.
1.02 "Availability Period" shall mean a period beginning on the date of this
Agreement and ending on the date falling three (3) months thereafter.
<PAGE> 6
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1.03 "Banking Day" shall mean a day on which (i) banks are open for business
in New York City and Seoul and (ii) deposit transactions in Dollars are
being carried out in the London interbank market (the "Interbank
Market").
1.04 "Commitment" shall mean Ten Million Dollars (US$10,000,000).
1.05 "Dollars" shall mean dollars in the lawful currency of the United States
of America.
1.06 "Drawdown" shall mean any payment of an advance to be made by the Lender
pursuant to a notice of drawdown under Section 2.01.
1.07 "Encumbrance" shall mean any mortgage, charge, pledge, lien, security
interest, title retention, assignment by way of security, hypothecation
or similar right or other encumbrance securing any obligation of any
person.
1.08 "Event of Default" shall have the meaning set forth in Section 10.01.
1.09 "Guarantor" shall mean Hyundai Electronics Ind. Co., Ltd., a corporation
(chusik hoesa) organized and existing under the laws of Korea with its
registered office at San 136-1, Amiri, Pubon-up, Ichon-si, Kyongki-do,
Korea.
1.10 "Guaranty" shall mean the irrevocable and unconditional guaranty by the
Guarantor of the repayment of the principal of the Loan, interest
thereon and all other sums related thereto payable to the Lender
hereunder, which guaranty shall be substantially in the form of Exhibit
A hereto and in form and substance satisfactory to the Lender and its
counsel.
1.11 "Indebtedness" shall mean any obligation (whether incurred as principal
or as surety) for the payment or repayment of borrowed moneys, or moneys
in the nature of borrowed moneys, whether present or future, actual or
contingent.
1.12 "Interbank Rate" shall mean the interest rate determined by the Lender
to be equal to the per annum interest rate offered for deposits in
Dollars for the period equal to or as close as practicable to the
Interest Period which appears on page 3750 of the Dow Jones Telerate
Service (or any other successor page therefor) ("Telerate Page 3750"),
as at approximately 11:00 a.m. (London time) on the Interest
Determination Date or if there are two or more such interest
<PAGE> 7
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rates, the arithmetic mean (rounded upwards, if necessary, to the
nearest one-sixteenth of one percent) of such interest rates; provided,
that if for any reason such offered interest rate does not appear or if
Telerate Page 3750 is not available at or about 11:00 a.m. (London time)
on the Interest Determination Date, Interbank Rate, with respect to each
Interest Period, the rate of interest which is determined by the Lender
to be the per annum rate of interest at which deposits in an amount
comparable to the Lender's Advances scheduled to be outstanding during
the relevant Interest Period are offered to prime banks by a bank in
London as selected by the Lender for such Interest Period in the London
interbank market at approximately 11:00 a.m. (London time) on the
Interest Determination Date prior to the commencement of such Interest
Period.
1.13 "Interest Determination Date" shall mean the date which is two (2) days,
during which deposit transactions in Dollars are being carried out in
the Interbank Market, prior to the first day of each Interest Period.
1.14 "Interest Payment Date" shall mean the last day of each Interest Period.
1.15 "Interest Period" shall mean the period commencing on the date of the
first Drawdown and having a duration of three (3) months; provided, that
with respect to any Drawdown after the first Drawdown the Interest
Period with respect to such Drawdown shall commence on the date of such
Drawdown and terminate on the last day of the then current Interest
Period; and provided, further, that the last Interest Period which
commences prior to the Repayment Date shall terminate on the Repayment
Date.
1.16 "Loan" shall mean the outstanding balance from time to time of the
Advances.
1.17 "month" shall mean the period commencing on one day in a calendar month
and ending on the numerically corresponding day in the next calendar
month; provided that if a period commences on the last day in a calendar
month or if there is no numerically corresponding day in the month in
which the period ends, that period shall end on the last day in that
later month, and the references to "months" shall be construed
accordingly.
1.18 "Permitted Liens" shall mean any of the following mortgages, security
interests, pledges, charges, encumbrances or liens
<PAGE> 8
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(hereinafter referred to as "Liens"), (i) Liens in existence on the date hereof
and previously disclosed to the Lender; (ii) purchase money Liens and purchase
money security interests on any property (or Liens on property securing
indebtedness incurred solely for the purpose of financing the acquisition of
such property) acquired in the ordinary course of business of the Borrower
consistent with the past practice of the Borrower; (iii) Liens securing any
renewal, extension or refunding of indebtedness secured by Liens permitted under
clauses (i) and (ii) above; (iv) Liens for taxes, assessments, charges or other
governmental levies not delinquent or being contested in good faith by
appropriate proceedings and for which adequate reserves have been established by
the Borrower, or against which bonds are established; (v) Liens in connection
with workers' compensation, unemployment insurance or social security
obligations; (vi) mechanics', materialmen's, carriers' or other like Liens
arising in the ordinary course of business with respect to obligations which are
not due or which are being contested in good faith by appropriate proceedings;
(vii) judgment Liens which remain in effect no more than 30 days, unless the
Borrower has an appeal or proceeding for review lodged which is being prosecuted
diligently and in good faith by appropriate proceeding and execution or other
enforcement of any such judgment Liens is effectively stayed; (viii) Liens on
goods and documents securing trade letters of credit; (ix) the sale or pledge of
the accounts receivable of the Borrower in the ordinary course of business; (x)
survey exceptions, easements, rights-of-way, reservations, servitudes, highways
and railroad crossings, sewers, electric lines, telegraph and telephone lines,
zoning or other restrictions and similar rights of other persons or in favor of
or against the property, which individually or in the aggregate do not
materially adversely affect the use, marketability or the value of the property
subject to such Lien; (xi) Liens for employees' wages arising from garnishment
or other similar proceedings; (xii) previously existing Liens on assets of third
parties to which the Borrower acquires title pursuant to an action taken in
respect of unpaid accounts due to the Borrower; (xiii) assignments and
subrogations in connection with insurance claims or actions in favor of the
insurance company; (xiv) Liens arising in the ordinary course of business of the
Borrower securing debt not exceeding US$5,000,000 in aggregate; and (xv) Liens
arising in favor of any governmental authority by operation of statute provided
that there is no default in the payment of any monies secured by such Lien, of
or upon any of the
<PAGE> 9
- 5 -
Borrower's or its subsidiaries' assets, whether owned at the date of
this Agreement or thereafter acquired, to secure any indebtedness of the
Borrower or any of its subsidiaries.
1.19 "Repayment Date" shall mean the first anniversary date of the date of
the first Drawdown hereunder.
1.20 "Termination Date,, shall mean the date on which the obligation of the
Lender to permit Drawdown ceases pursuant to Section 10.02 hereof.
1.21 "Won" or "WI" shall mean the lawful currency of Korea.
Article 2. The Loan.
2.01 Purpose and Amount of Loan. (a) Subject to the terms and conditions
hereof and to the applicable laws and regulations of Korea and the
United States of America, including the Foreign Exchange Management
Regulations of Korea, the Lender agrees to make Advances in favor of the
Borrower, up to the Commitment during the Availability Period, according
to the procedure set out in Section 2.02 below; provided, that the
Lender shall have no responsibility as to the Borrower's application of
the Proceeds of the Advances or the Loan.
(b) The Borrower hereby agrees that the proceeds of the Loan shall be
used for the working capital for its business operation within the
United States of America.
2.02 Drawdown. (a) The Borrower may borrow the Commitment in one or more
Drawdowns on any Banking Day during the Availability Period.
(b) The Borrower shall give the Lender a notice of Drawdown,
substantially in the form of Exhibit B hereto, at least three (3)
Banking Days (or such shorter period as the Lender and the Borrower
shall otherwise agree) prior to the proposed date of Drawdown; provided,
that on the date such notice is given all applicable conditions
precedent specified in Article 9 have been satisfied. Such notice once
received by the Lender shall be irrevocable and binding on the Borrower
and the Borrower shall reimburse the Lender, on demand, for any costs or
losses incurred by the Lender in the event that the Borrower does not
continue to satisfy such conditions precedent and does not satisfy all
other conditions precedent applicable to the Drawdown on the date of
such Drawdown.
<PAGE> 10
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Article 3. interest and Default Interest.
3.01 Interest Rate. The rate of interest on the Loan for each Interest Period
shall be fifty three-hundredths of one percent (0.53%) per annum above
the Interbank Rate for such Interest Period (the "Interest Rate").
3.02 Interest Determination. The applicable Interest Rate for any given
interest Period shall be determined on the relevant Interest
Determination Date.
3.03 Default Interest. Without prejudice to any other provision herein, in
the event the Borrower fails to make payment of all or any portion of
interest on the Loan when due or any other payment due hereunder
(whether at its stated maturity, by acceleration or otherwise), the
Borrower shall pay interest on such unpaid amount from such due date
until full payment thereof at the rate which shall be one and fifty
three-hundredths of one percent (1.53%) per annum above the interest
rate which shall be determined by the Lender to be the rate for deposits
in Dollars for periods of one (1) day, one (1) week, one (1) month or
three (3) months (as the Lender shall so select in its sole discretion)
as displayed on the Telerate Page 3750 as in effect at or about 11:00
a.m. (London time) on such original due date for each successive day or
period thereafter so long as such amount remains unpaid. In addition to
payment of such default interest, the Borrower shall indemnify the
Lender, on demand, against reasonable expenses resulting from the
Borrower failing to pay when due any amounts of principal or interest
hereunder.
3.04 Costs. The Borrower shall, whether or not any portion of the Commitment
is advanced, pay to the Lender on demand, the charges including the
reasonable fees and expenses of counsel incurred by the Lender in
connection with the preparation, due execution and implementation of the
Agreement and all documents executed pursuant hereto, and all amounts,
including the reasonable fees and expenses of counsel, which the Lender
may expend or become liable for in demanding, suing for, recovering and
receiving payment of any sum due hereunder and under any documents
executed pursuant hereto.
<PAGE> 11
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Article 4. Payment and Repayment.
4.01 Interest. Interest at the applicable Interest Rate shall be payable
quarterly in arrears on each Interest Payment Date and shall be
calculated on the basis of the actual number of days elapsed and a year
of 360 days.
4.02 Repayment. The Borrower shall repay the full amount of the Loan to the
Lender on the Repayment Date.
4.03 Prepayment. Notwithstanding the foregoing, the Borrower may prepay on
any Interest Payment Date the Loan in whole or in part in the minimum
amount of one Million Dollars (US$1,000,000) and in integral multiples
thereof or, if less, the amount of the Loan to be outstanding on such
Interest Payment Date upon the giving of at least thirty (30) days'
prior written notice to the Lender; provided, that such prepayment shall
be accompanied by payment of all accrued interest and other amounts then
due hereunder and the amount necessary to reimburse the Lender for any
reasonable costs or losses incurred by the Lender resulting from such
prepayment; and provided, further, that any governmental approval
required for prepayment shall have been obtained. The sums prepaid may
not be reborrowed.
4.04 Banking Day. Whenever any payment or calculation is to be made on a day
which is not a Banking Day, such payment or calculation may be made on
the immediately succeeding Banking Day unless, with respect to payments,
as a result thereof, such payment would be made in the next calendar
month, in which case payment shall be made on the immediately preceding
Banking Day. Any adjustment so made shall, as appropriate, be reflected
in the computation of interest and other amounts due hereunder.
4.05 Place of Payment. All sums payable to the Lender by the Borrower
hereunder or under any document contemplated hereby, including but not
limited to payments of principal and interest and any costs or expenses
shall be payable in Dollars and in same day funds (or such other Dollar
funds as may be determined by the Lender to be customary for the
settlement of international banking transactions denominated in Dollars)
not later than 11:00 a.m. (Californian time) on the day in question to
the account of the Lender, (account no. 200-195154-541-91) Banque
Nationale de Paris, New York, N.Y., U.S.A. or to such other account
and/or at such other place as the Lender may by written notice to the
Borrower instruct.
<PAGE> 12
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4.06 Application of Payments. Notwithstanding anything herein to the
contrary, all payments made to or collected by the Lender hereunder,
under the Default Note (defined below) or under the Guaranty shall be
applied by the Lender in the following order of priority, (1) to any
amount then due and payable to the Lender hereunder, under the Default
Note (defined below) or under the Guaranty not otherwise listed in this
Section 4.06, (2) to any default interest then due and payable, (3) to
accrued interest then due and payable, (4) to principal then due and
payable, and (5) to prepayment of principal as specified in Section
4.03.
4.07 Loan Account. The Lender shall open and maintain on its books a loan
account in the Borrower's name and showing the Advances, the Loan,
repayment, prepayments, the computation and payment of interest and
other amounts due and sums paid hereunder. Such loan account shall be a
prima facie evidence as to the amount at any time due from the Borrower.
Article 5. Security.
5.01 Default Note. The Guarantor shall, prior to the making of the first
Drawdown, deliver to the Lender a bank clearable promissory note, in
form and substance satisfactory to the Lender payable to the Lender,
properly executed by the Guarantor and complete in all respects except
that the maturity date and the amount shall be left blank (the "Default
Note"), together with an irrevocable power of attorney agreement,
substantially in the form of Exhibit C hereto, authorizing the Lender
upon the occurrence of any Event of Default hereunder to complete the
Default Note by inserting the maturity date and the proper amount in
Won calculated at the exchange rate determined by the Lender including
the principal of the Loan, any interest, default interest or other cost
to be borne by the Borrower hereunder then due and owing to the Lender.
5.02 Guaranty. The Borrower shall deliver to the Lender the Guaranty duly
executed by the Guarantor. The Guaranty provided hereunder shall remain
in full force and effect during the term of this Agreement as provided
in Section 11.01 hereof.
<PAGE> 13
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Article 6. Yield Protection.
6.01 Substitute Basis of Borrowing. (a) If the Lender on any Interest
Determination Date determines that Dollar deposits for periods equal to
the relevant Interest Period and in an amount comparable to the Loan to
be outstanding during such Interest Period are not being offered to
prime banks in the Interbank Market or if the applicable Interbank
Rate, in the opinion of the Lender, does not accurately reflect the
cost to the Lender of making or maintaining the Loan during such
Interest Period, the Lender shall so notify the Borrower.
(b) The Lender and the Borrower shall then enter into negotiations in
good faith with a view to agreeing on an alternative mutually
acceptable for funding the Loan and for determining the interest rates
from time to time applicable to the Loan (hereinafter referred to as
the "Substitute Basis of Borrowing"). If at the expiry of twenty-five
(25) days from the date of the notice, the Lender and the Borrower have
agreed on such Substitute Basis of Borrowing, it shall be retroactive
to and take effect from the beginning of the then current Interest
Period.
(c) If at the expire of twenty-five (25) days from the date of any such
notice, no Substitute Basis of Borrowing has been agreed upon, then (i)
the Borrower shall forthwith prepay the Loan and (ii) interest shall be
payable on the Loan at the rate which is fifty three-hundredths of one
percent (0.53%) per annum above the per annum interest rate which shall
be notified by the Lender to the Borrower as representing the cost to
the Lender of funding (whether in Dollars or any other currency) the
Loan during such period.
6.02 Taxes. (a) Any and all payments made by the Borrower hereunder or under
any instrument delivered hereunder shall be made free and clear of and
without deduction for any present or future taxes, levies, imposts,
deductions, charges, or withholdings and all liabilities with respect
thereto (excluding taxes imposed on net income of the Lender by the
jurisdiction of its incorporation) (all such non-excluded taxes
hereinafter referred to as "Taxes"). If the Borrower shall be required
by law to make any such deduction from any payment hereunder, (i) the
sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional
sums payable under this Section) the Lender receives an amount equal to
the sum it would have received had no such deductions been made, (ii)
the Borrower shall
<PAGE> 14
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make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes, education tax or any other excise or property
taxes, charges or similar levies which arise from any payment made
hereunder or from the execution, delivery or registration of, or
otherwise with respect to, any instrument delivered hereunder
(hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify the Lender for the full amount of Taxes
or other Taxes (including without limitation any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section) paid
by the Lender or any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally assessed. This
indemnification shall be made within thirty (30) days from the date the
Lender makes written demand therefor.
(d) Within thirty (30) days after the date of any payment of Taxes, the
Borrower will furnish to the Lender, at its address referred to in
Section 11.09, the original or a certified copy of a receipt evidencing
payment thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in subsections (a) through (d) above shall survive the payment
in full of principal, interest and expenses hereunder and under any
instrument delivered hereunder.
(f) If the Borrower shall be required to reimburse the Lender or make
any payment under subsections (a) through (e) above in respect of any
Taxes or Other Taxes imposed by a law or regulation which comes into
effect after the date of this Agreement, the Borrower shall be free at
any time within thirty (30) days after receiving written notice of the
effectiveness of the requirement of such reimbursement or payment to
prepay the Loan as provided in Section 6.05, subject to giving the
Lender not less than five (5) Banking Days' notice thereof.
(g) The Lender will submit to the Borrower on or prior to the date of
the initial Drawdown hereunder a duly completed
<PAGE> 15
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and signed copy of United States Treasury Form 4224 or 1001 as may be
appropriate (relating to the Lender and entitling it to a reduction or;
complete exemption from withholding on all payments to be made
hereunder to the Lender by the Borrower). The Borrower shall provide
the Lender with such form in time. If the Lender fails to provide such
form in accordance with the preceding sentence, the Lender may not be
entitled to the benefits of Section 6.02 until such form is provided to
the Borrower, unless Lender's failure to do so is due to the Borrower's
failure to provide the Lender with such form in a timely manner, in
which case the Lender will be entitled to the benefits of Section 6.02.
Thereafter and from time to time, upon notice from the Borrower, the
Lender shall (to the extent it may lawfully do so) submit to the
Borrower such additional duly completed and signed copies of such form
(or such successor form as shall be adopted from time to time by the
relevant United States, State or local taxing authorities) as may be
required under then current United States, State or local laws or
regulations either to reduce or exempt from United States withholding
taxes all payments to be made hereunder to the Lender.
6.03 Compliance Costs. (a) The cost of maintaining any reserves or special
deposits against the Loan and any other cost of complying with any law,
regulation or condition with respect to the Advances or relating in any
way to funding or renewing the Advances, including without limitation
any reserve or special deposit requirement and any restraint, guideline
or policy of any state or regulating authority not having the force of
law with which the Lender may comply, shall be reimbursed by the
Borrower to the Lender. For purposes of this subsection 6.03(a), the
term, "Lender," shall be deemed to include the head office of the Lender
as well as any other branch of such head office.
(b) If the Borrower shall be required to reimburse the Lender under
subsection 6.03(a) in respect of any law or regulation which comes into
effect after the date of this Agreement, the Borrower shall be free at
any time within thirty (30) days after receiving written notice of the
effectiveness of the requirement of such payment to prepay the Loan as
provided in Section 6.05, subject to giving the Lender not less than
five (5) Banking Days' notice thereof.
6.04 Change of Law. Notwithstanding any other provision herein, in the event
that any change in any applicable law, rule or regulation or in the
interpretation or administration
<PAGE> 16
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thereof by any governmental authority charged with the interpretation or
administration thereof shall make it unlawful for the Lander to (i)
honor its Commitment or (ii) maintain the Loan, then the Commitment
shall terminate and the Borrower shall within thirty (30) days, or
within such longer period as may be allowed by such law, rule or
regulation, prepay the Loan as provided in Section 6.05.
6.05 Adversity Prepayment. If the Borrower shall exercise its right to prepay
the Loan pursuant to Section 6.02 or 6.03, or if the Borrower shall be
required to prepay the Loan pursuant to Section 6.01 or 6.04, the
Borrower shall pay such amounts, together with interest accrued thereon
to the date of prepayment (computed on the Substitute Basis of
Borrowing, if applicable, for the time it is in effect) together with
such additional amounts as may be necessary to compensate the Lender for
any reasonable costs or losses resulting from such prepayment. Any such
prepayment shall not relieve the Borrower from paying all other amounts
payable under Sections 6.01, 6.02, 6.03 or 6.04.
6.06 Funding Costs. For purposes of Sections 2.02, 3.03, 6.05 and 10.02, the
costs and losses of the Lender shall include, but shall not be limited
to, any loss arising from the re-employment of funds at rates lower than
the cost to the Lender of such funds and any related costs.
6.07 Dollar Transaction. In this transaction the specification of Dollars is
of the essence and Dollars shall be the currency of account and of
payment in all events. The payment obligation hereunder shall not be
discharged by an amount paid in another currency whether pursuant to a
judgment or otherwise, to the extent that the amount so paid on prompt
conversion to Dollars under normal banking procedures does not yield the
amount of Dollars due hereunder. In the event that any payment, whether
pursuant to a judgment or otherwise, upon such conversion and transfer
does not result in payment of such amount of Dollars, the Lender shall
be entitled to demand immediate payment of, and shall have a separate
cause of action for, the Dollar deficiency in respect of payments due.
Article 7. Borrower's Representations and warranties.
7.01 Representations and Warranties. The Borrower represents and warrants to
the Lender as follows:
<PAGE> 17
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(a) The Borrower is a corporation duly organized and validly existing under
the laws of the State of Delaware of the United States of America, has
its principal office at the address set forth above, and has full legal
right, full power and authority to own its assets and to carry on its
business as it is now being conducted;
(b) To the best of its knowledge, there is no constitutional provision,
treaty, convention, statute, law, regulation, decree or similar
authority binding on or affecting the Borrower and no provision of the
Borrowers certificate of Incorporation or By-Laws (or equivalent
documents) and no provision of any existing contract, agreement or
instrument binding on the Borrower which has been or would be
contravened by the execution and delivery of this Agreement or any other
document or instrument to be delivered by the Borrower hereunder or by
the performance, or observance by the Borrower of any of the terms
hereof and thereof;
(c) All authorizations, approvals, consents and licenses from all
legislative bodies of government, ministries, agencies, exchange control
authorities or other authorities required by the Constitution, statutes,
public decrees, laws and regulations of the jurisdiction of the
Borrower, including without limitation the authorizations required for
the execution, delivery and performance of this Agreement, in order for
the Borrower (i) to incur the obligations provided for in this
Agreement, (ii) to execute and deliver this Agreement and all other
documents and instruments to be delivered by the Borrower hereunder,
(iii) to perform and observe the terms and provisions hereof and thereof
and (iv) to make all payments hereunder and thereunder in Dollars, have
been or, by the date of the first Drawdown will have been duly obtained
and are, or will by such date be, in full force and effect;
(d) The Borrower has power to enter this Agreement and to exercise its
rights and perform its obligations hereunder and all corporate action
required to authorize its execution of this Agreement and its
performance of its obligations hereunder has been duly taken;
(e) The Borrower has not taken any corporate action nor have any other steps
been taken or legal proceedings been started or threatened against it
for its winding-up or dissolution or any equivalent or analogous
proceedings or for the appointment of a receiver, trustee, administrator
or similar officer of it or any or all of its assets and revenues;
<PAGE> 18
- 14 -
(f) The Borrower is not in breach of or default under any agreement to which
it is a party or which is binding on it or any of its assets to an
extent or in a manner which might have a material adverse effect on its
business or financial condition;
(g) No litigation, action or administrative proceeding of or before any
court, tribunal or agency which might have a material adverse effect on
its business or financial condition or on its ability to perform its
obligations hereunder has, so far as it is aware, been started or, or to
the best of its knowledge threatened;
(h) The financial statements of the Borrower for the year ended March 31,
1996 were prepared in accordance with accounting principles generally
accepted in the State of Delaware of the United States of America and
consistently applied and give (in conjunction with the notes thereto) a
true and fair view of its financial condition at the date as of which
they were prepared and the results of its operations during the fiscal
year then ended;
(i) As of the date as of which the financial statements were prepared it had
no liabilities (contingent or otherwise) which were not disclosed
thereby (or by the notes thereto) or reserved against therein and no
unrealized or anticipated losses;
(j) Since the date as of which the financial statements were prepared there
has been no material adverse change in its business or financial
condition;
(k) Except for Permitted Liens, no Encumbrance exists over all or any of its
present or future revenues or assets;
(1) The Borrower's Indebtedness under this Agreement will rank at least pari
passu with all its other unsecured Indebtedness other than such claims
as may be preferred solely by operation of law without notarization,
registration or any other act;
(m) The obligations expressed to be assumed by it in this Agreement are
legal, valid and binding obligations enforceable against it in
accordance with the terms hereof, except that the enforceability of this
Agreement and the other documents contemplated hereby may be limited by
bankruptcy, insolvency or other similar laws of general application
affecting the enforceability of creditors'
<PAGE> 19
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rights or by general principles of equity limiting the availability of
equitable remedies;
(n) It is not necessary in order to ensure the legality, validity,
enforceability or admissibility in evidence of this Agreement in the
State of Delaware of the United States of America that it be filed,
recorded or enrolled with any court or authority in the State of
Delaware of the United States of America;
(o) Under the laws of the State of Delaware of the United States of America
in force at the date hereof, there is no Taxes, imposed by withholding
or otherwise, on any payment to be made by the Borrower pursuant to this
Agreement and there is no stamp, registration or other tax to be imposed
on or with respect to the execution, delivery or performance of this
Agreement;
(p) No event has occurred which constitutes, or with the passage of time or
the giving of notice or both would constitute, one of those events
mentioned in Section 10.01;
(q) The Borrower may sue and be sued in its own name, and its execution of
this Agreement constitutes and its exercise of its rights and
performance of its obligations hereunder and will constitute, private
and commercial acts done and performed for private and commercial
purposes;
(r) The Borrower will not claim for itself or any of its assets immunity
from suit, execution, attachment or other legal process in any
proceedings in relation to this Agreement;
(s) To the beat of our knowledge, it is not necessary under the laws and
constitution of the State of Delaware of the United States of America
(i) in order to enable the Lender to enforce its rights under this
Agreement or (ii) by reason of the execution of this Agreement or the
performance by the Lender of its obligations hereunder that the Lender
should be licensed, qualified or otherwise entitled to carry on business
in the United States of America;
(t) To the best of our knowledge, the Lender is not or will not be deemed to
be resident, domiciled or carrying on business in the United States of
America by reason only of the execution, performance and/or enforcement
of this Agreement;
(u) To the best of our knowledge, the Borrower's irrevocable submission
under Section 11.06 to the non-exclusive
<PAGE> 20
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jurisdiction of the courts of Korea, its agreement that this Agreement
shall be governed by and construed in accordance with the Korean law and
its agreement not to claim any immunity to which it or its property may
be entitled are legal, valid and binding under the laws of the State of
Delaware of the United States of America and any judgment rendered by
the courts in Korea will be admissible as evidence by the courts of the
State of Delaware of the United States of America; and
(v) The Guaranty has been duly authorized and when executed will constitute
legal, valid and binding agreement, enforceable against the Guarantor in
accordance with its respective terms.
7.02 Repetitions. The representations and warranties set out in Section 7.01
shall be deemed to be repeated at the time of the giving of any notice
of Drawdown, at the time of Drawdown of any Advances and on the last day
of each Interest Period (updated mutatis mutandis to such date and in
particular so that in sub-sections (h) (i) and (j) references to
financial statements shall be to financial statements of the Borrower
most recently supplied under Section 8.01).
Article 8. Covenants.
8.01 Financial Statements. Throughout the life of this Agreement, the
Borrower shall provide the Lender with copies of its audited financial
statements (consolidated, if available), for each fiscal year as they
are available but in any event not later than one hundred and eighty
(180) days after the close of each fiscal period covered by an audited
financial statement (consolidated, if available) , and such other
information respecting the financial condition and operations of the
Borrower as the Lender may from time to time reasonably request. Each
financial statement provided hereunder shall have been prepared in
accordance with generally accepted accounting principles, consistently
applied in the State of Delaware of the United States of America, and be
accompanied by a certificate executed by a duly authorized officer of
the Borrower stating that such financial statement gives a true and fair
view of the financial conditions of the Borrower as at the end of the
period covered by such financial statement.
<PAGE> 21
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8.02 Taxes. The Borrower shall pay all taxes, assessments and governmental
charges upon it or upon its properties, promptly when due and, in any
event, prior to the date on which penalties may become attached thereto;
Provided, however, that the Borrower shall not be required to pay and
discharge or cause to be paid and discharged any such tax, assessment or
charge so long as the validity thereof shall be contested in good faith
by appropriate proceedings and the Borrower shall have established
adequate reserves in respect thereof.
8.03 Representations & Warranties. The Borrower shall ensure that the
representations and warranties contained in this Agreement remain at all
times true and accurate.
8.04 Litigation. The Borrower shall promptly give notice to the Lender of
any litigation and of any proceedings by or before any governmental
agency and of all disputes which have been started or to its best
knowledge and belief after due inquiry, threatened against the Borrower
or any of the assets of the Borrower, which, if adversely determined
would have a material adverse effect on the operations or financial
condition of the Borrower.
8.05 Notice. As soon as possible but in any event within five (5) days after
occurrence thereof, the Borrower shall give written notice to the Lender
of any Event of Default or any event which, with the giving of notice or
passage of time or both, would constitute an Event of Default and of any
other matter which has resulted or might result in a material adverse
change in the Borrower's operations or financial condition.
8.06 Further Documents. The Borrower shall execute all such other documents
and instruments and do all such other acts and things as the Lender may
reasonably require to carry out the transactions contemplated herein or
in the documents required to be delivered hereunder.
8.07 Government Approval. The Borrower shall obtain and maintain or cause to
be obtained and maintained all governmental approvals, authorizations,
consents and confirmations as may be necessary or appropriate for the
performance of its obligations hereunder.
<PAGE> 22
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Article 9. Conditions Precedent.
9.01 First Drawdown. The obligation of the Lender to make the first Drawdown
is subject to fulfillment, as determined solely by the Lender and its
counsel, of the following conditions precedent three (3) Banking Days
(or such shorter time period as the Lender otherwise agree) prior to the
date of such Drawdown (except as otherwise indicated below).
The Lender shall have received in form and substance satisfactory to it
and its counsel:
(a) A Certificate signed by the Secretary of the Borrower
substantially in the form set out in Exhibit D and the documents
therein referred to;
(b) A Certificate signed by the Representative Director of the
Guarantor substantially in the form set out in Exhibit E and the
documents therein referred to;
(c) The Guaranty duly executed by the Guarantor;
(d) The Default Note and irrevocable power of attorney agreement
required by Section 5.01;
(e) The notice of Drawdown as specified in Section 2.02;
(f) Certified copies of the approval of government agency of Korea
and the United States of America necessary or available in
connection with the execution, delivery and performance of this
Agreement, the Guaranty and any other document or instrument
required hereunder or thereunder;
(g) An acceptance letter from the process agent referred to in
Section 11.06 hereof accepting its appointment set forth herein;
and
(h) Such other documents as the Lender may reasonably request.
9.02 Subsequent Drawdowns. In addition to satisfaction of the conditions
precedent set forth in Section 9.01 above, the Lender shall be under no
obligation to make any Drawdown until the following conditions precedent
have been fulfilled satisfactorily to it and/or its counsel three (3)
Banking Days (or such shorter period as the Lender and the Borrower
shall otherwise agree) prior to the date requested for the
<PAGE> 23
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making of such Drawdown and found all other matters related thereto to
be in order:
(a) The conditions precedent set forth in Section 9.01 above shall
have been fulfilled and all documents and instruments delivered
to the Lender pursuant thereto shall continue to be in full
force and effect.
(b) The Lender shall have received (i) the notice of Drawdown as
specified in Section 2.02 and (ii) such other documents as the
Lender may reasonably request.
9.03 Other Conditions Precedent. The obligations of the Lender as described
in Sections 9.01 and 9.02 above are also subject to the condition
precedent that no Event of Default and no event which with the passage
of time or the giving of notice or both would become an Event of Default
shall have occurred and be continuing, and the representations and
warranties made herein shall have remained and then be true and correct
as if also made on the date of the making of such Drawdown and all legal
matters in connection with this Agreement and the Guaranty shall be
satisfactory to the Lender and its counsel.
Article 10. Events of Default.
10.01 Event of Default. Each of the following events and occurrences shall
constitute an Event of Default:
(a) The Borrower or the Guarantor fails to pay on the due date any sum
payable under this Agreement, the Default Note or the Guaranty; or
(b) Any representation or warranty made by the Borrower shall be shown
to have been incorrect or misleading in any material respect as of its
date, or any certificate or opinion furnished under this Agreement
proves to have been false or misleading as of its date in any material
respect; or
(c) The Borrower or the Guarantor fails to perform or violates any other
provision of this Agreement, the Guaranty or any other agreements
relating to any transactions with the Lender, and such failure or
violation is not remediable or, if in the reasonable opinion of the
Lender remediable, continues unremedied for a period of thirty (30) days
from the date such failure has occurred; or
<PAGE> 24
- 20 -
(d) At any time any act, condition or thing required under the laws of
the State of Delaware of the United States of America or Korea to be
done, fulfilled or performed in order (i) to enable the borrower or the
Guarantor lawfully to enter into, exercise its rights and perform its
obligations under this Agreement, the Default Note or the Guaranty, as
applicable, (ii) to ensure that the obligations of the Borrower or the
Guarantor in this Agreement, the Default Note or the Guaranty, as
applicable, are legal, valid, binding and enforceable or (iii) to make
this Agreement, the Default Note or the Guaranty admissible in evidence
in the State of Delaware of the United States of America or Korea is not
done, fulfilled or performed in strict compliance with their constituent
documents and the laws of the State of Delaware of the United States of
America or Korea or any governmental registration or approval granted or
required in connection with this Agreement, the Default Note or the
Guaranty expires or is terminated or revoked or is modified in any
manner unacceptable to the Lender; or
(e) It becomes unlawful for the Borrower or the Guarantor to perform any
obligation hereunder, under the Default Note or under the Guaranty or
any documents delivered hereunder or thereunder or all or any of the
obligations of the Borrower or the Guarantor hereunder, under the
Default Note or under the Guaranty cease to be the legal, valid, binding
and enforceable obligations of the Borrower or the Guarantor in
accordance with their terms; or
(f) The whole or substantially all of the business or assets of the
Borrower or the Guarantor shall, without the prior written consent of
the Lender, be confiscated for any reason or sold, transferred or
otherwise disposed of, by one or more transactions or series of
transactions (whether related or not); or
(g) The Borrower or the Guarantor shall, without the prior written
consent of the Lender, voluntarily or involuntarily merge into or
consolidate with any other entity; or
(h) At any time for any reason the Indebtedness of the Borrower or the
Guarantor hereunder, under the Default Note or under the Guaranty does
not rank at least pari passu with all its other unsecured Indebtedness
other than such claims as may be preferred on a winding up or
dissolution or any equivalent or analogous proceedings solely by
operation of law without notarization, registration or any other act; or
<PAGE> 25
- 21 -
(i) The Guaranty for any reason has been revoked or modified without
consent of the Lender; or
(j) Any judgment or decree for money damages or for a fine or penalty in
excess of Five Million Dollars (US$5,000,000) or its equivalent in any
other currency is entered against the Borrower or the Guarantor and is
not paid, discharged or fully bonded within ten (10) days, unless the
Borrower has an appeal or proceeding for review lodged which is being
prosecuted diligently and in good faith and adequate reserves have been
provided therefor; or
(k) The Borrower or the Guarantor shall fail to perform any of its
obligations to any third party when it is due or within any applicable
grace period under any other agreement (whether or not written) or
document evidencing, securing, guaranteeing or otherwise relating to
indebtedness or pecuniary obligations of the Borrower or the Guarantor
exceeding US$5,000,000, or there occurs to the Borrower or the Guarantor
any other event of default or other event which, with the giving of
notice or the passing of time, or both, would constitute a default or an
event of default under any such agreement or document and the effect of
which is to accelerate or to permit acceleration of the maturity of such
indebtedness or obligation; or
(l) The Borrower or the Guarantor becomes insolvent or unable to pay its
debts when due, or the Borrower or the Guarantor commences negotiations
with any of its creditors with a view to the general adjustment of its
Indebtedness or makes a general assignment for the benefit of or a
composition with its creditors; or
(m) The Borrower or the Guarantor takes any corporate action or other
steps are taken or legal proceedings are started for its winding-up,
bankruptcy, administration, reorganization, compulsory composition,
liquidation, or dissolution or any equivalent or analogous proceedings
or for the appointment of a receiver, trustee, administrator or similar
officer of it or any or all of its revenues and assets; or
(n) The Guarantor, without the written consent of the Lender, ceases to
own and control, whether directly or indirectly at least sixty percent
(60%) of the issued share capital of the Borrower; or
<PAGE> 26
- 22 -
(o) Any circumstance occurs which in the reasonable judgment of the
Lender gives reasonable grounds for belief that the Borrower or the
Guarantor may not (or may not be able to) perform its obligations
hereunder, under the Default Note or under the Guaranty.
10.02 Consequences of Default. Upon the happening of any of the foregoing
Events of Default, (i) the obligation of the Lender to permit Drawdowns
shall immediately cease, (ii) the principal and accrued interest on the
Loan and all other amounts then owed by the Borrower to the Lender shall
be immediately due and payable and (iii) interest shall begin to accrue
on all such sums at the default interest rate specified in Section 3.03.
The Borrower shall also pay to the Lender such additional amounts as may
be necessary to compensate the Lender for any reasonable costs or losses
resulting from such Event of Default. No waiver of any Event of Default
shall constitute a waiver of any other or any succeeding Event of
Default except to the extent provided in such waiver.
Article 11. Miscellaneous.
11.01 Term. The term of this Agreement shall commence on the date first set
forth above and shall end on the Termination Date or, if later, upon
payment in full of all principal, interest and other sums payable by the
Borrower hereunder. The representations and warranties of the Borrower
set forth herein shall survive the making of the Loan and the
indemnities of the Borrower contained herein shall survive repayment of
the Loan.
11.02 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire obligation of the parties hereto with respect to
the subject matter hereof and shall supersede any prior expressions of
intent or understandings with respect to this transaction. Any amendment
hereto shall be in writing, signed by or on behalf of both parties.
11.03 Waiver; Cumulative Right. The failure or delay of the Lender to require
performance by the Borrower of any provision of this Agreement shall not
affect its right to require performance of such provision unless and
until such performance has been waived in writing by the Lender in
accordance with the terms hereof. Each and every right granted to the
Lender hereunder or under any other document
<PAGE> 27
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or instrument delivered hereunder or in connection herewith, or allowed
to it at law shall be cumulative and may be exercised in part or in
whole from time to time.
11.04 Assignment; Participation. This Agreement shall be binding upon and
inure to the benefit of the borrower and the lender and their respective
successors and assigns, except that the Borrower shall have no right to
assign or transfer its rights or obligations hereunder. An assignment by
the Lender of all or a part of its rights and obligations hereunder
shall be effective upon written notice to the Borrower. The Lender may
at any time grant participations to any one or more banks or other
financial institutions in all or any part of the Advances and its rights
and benefits related thereto under this Agreement. Upon any transfer or
assignment by the Lender, the transferee or assignee shall be entitled
to the benefit of the indemnities, tax reimbursements and rights of
set-off of the Lender, and upon any sale of a participation by the
Lender, the participant shall be entitled to the benefit of the
indemnities and tax reimbursements pursuant to the provisions of this
Agreement as fully as if a party hereto. The Lender may disclose to any
actual or prospective transferee, assignee or participant such
information about the Borrower and their respective financial condition
as shall have been made available to the Lender generally.
11.05 Indemnification. The Borrower agrees to indemnify and hold harmless the
Lender from and against any and all losses, claims, damages and
liabilities caused by any untrue or misleading statements made to the
Lender or caused by any omission of a material fact necessary to make
the statements so made not misleading.
11.06 Governing Law and Jurisdiction. This Agreement (including without
limitation, the obligations of the Borrower to repay the Loan with
interest hereunder and to pay all other amounts hereunder) shall in all
events and for all purposes be governed by and construed in accordance
with the laws of Korea. Any litigation arising out of or in connection
with this Agreement may be brought in the Seoul District Court or the
federal or state courts located in State of Delaware, United States of
America and by execution and delivery of this Agreement the Borrower
irrevocably and unconditionally submits to such non-exclusive
jurisdiction. For the purpose of proceedings in the Seoul District
Court, the Borrower hereby irrevocably designates Hyundai Electronics
Ind. Co., Ltd. currently located at 140-2 Kye-dong, Chongro-ku, Seoul,
<PAGE> 28
- 24 -
Korea as its agent to accept on its behalf service of any and all
process or other documents which may be served in any action or
proceedings in the Seoul District Court and further agrees that service
upon such agent shall constitute valid and effective service upon it;
provided, that a copy of any such service shall also be delivered to the
Borrower in accordance with the provisions of Section 11.09. The
Borrower hereby authorizes the Lender to file on its behalf any report
to the court with respect to its designation of the agent to receive
service of process. The foregoing, however, shall not limit the rights
of the Lender to bring any legal action or proceeding or to obtain
execution of judgment in any other jurisdiction, whether concurrently or
not.
11.07 Waiver of Sovereign Immunity. The Borrower represents and warrants that
the execution of this Agreement is a commercial rather than a public or
governmental act and that the Borrower is not entitled to claim immunity
from legal proceedings with respect to itself or any of its property on
the grounds of sovereignty or otherwise under any law or in any
jurisdiction where an action may be brought for the enforcement of any
of the obligations arising under or relating to this Agreement. To the
extent that the Borrower or any of its properties has or hereafter may
acquire any right to immunity from set-off, legal proceedings,
attachment prior to judgment, other attachment or execution of judgment
on the grounds of sovereignty or otherwise, the Borrower hereby
irrevocably waives such rights to immunity in respect of its obligations
arising under or relating to this Agreement.
11.08 Set-Offs. Unless otherwise prohibited by law, the Lender shall have the
right, without any obligation, to apply amounts in currency on deposit
or account with the Lender (whether matured or not) , at its head
office or at any branch, subsidiary or affiliate of its head office in
satisfaction of amounts past due hereunder; for this purpose the Lender
is authorized to purchase (at such rate of exchange and in such foreign
exchange market as it may, in its absolute discretion, determine) with
the moneys standing to the credit of any such account such other
currencies as may be necessary to effect such application.
11.09 Notices. Any communication, demand or notice hereunder shall be given in
writing by hand or by mail, facsimile transmission or telex as follows:
<PAGE> 29
- 25 -
To the Borrower: Maxtor Corporation
510 cottonwood Drive Milpitas, C.A. 95035 U.S.A.
Attn: Financing Department
Facsimile: (408) 432-4480, 4158
Telex:
Answerback:
With a copy to:
Hyundai Electronics Ind. Co., Ltd.
140-2 Kye-dong, Chongro-ku
Seoul, Korea
Attn: Int'l Finance Department
Facsimile: 746-8277
Telex: K29793/4 Answerback: HDETN
To the Lender: Banque Nationale de Paris
Seoul Branch
8F, Oriental Chemical Building
50, Sokong-dong
Chung-ku, Seoul, Korea
Facsimile: (822) 757-2530
Telex: K26539
Answerback: BANAPAR
or, to each party, at such other address as such party may designate by
notice in writing to the other party. Notices delivered by hand shall be
deemed received upon delivery; notices sent by postage prepaid
registered mail shall be deemed received seven (7) days after sending;
and notices sent by facsimile or telex shall be deemed received at the
time after the dispatch thereof, when the answerback is received or
appropriate evidence of receipt is confirmed.
All notices, demands, requests, statements or other communications to be
made or given by the Borrower hereunder shall be in the English
language. Any documents required to be delivered pursuant to this
Agreement which are not in the English language must be accompanied by a
<PAGE> 30
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certified English language translation thereof and in the event of any
conflict between the original of the document and the English language
translation thereof, the English language translation shall prevail.
11.10 Severability. (a) If any one or more of the provisions contained in this
Agreement or any document executed in connection herewith shall be
invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
(b) Anything in this Agreement to the contrary notwithstanding, the
obligation of the Borrower to pay interest on the Loan shall be subject
to the limitation that no payment of such interest shall be required to
the extent that receipt of such payment would be contrary to the
applicable penal laws of Korea relating to usury.
11.11 Counterparts. This Agreement may be signed in any number of
counterparts. Any single counterpart or a set of counterparts signed, in
either case, by both parties hereto shall constitute a full and original
agreement for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized signatories as of the day and year
first written above.
<PAGE> 31
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BORROWER: MAXTOR CORPORATION
By /s/ KANG HO LEE
------------------------------------
Name: Kang Ho Lee
Title: General Manager
LENDER: BANQUE NATIONALE DE PARIS, SEOUL BRANCH
By /s/ DAVID M. CEANNT
------------------------------------
Name: David M. Ceannt
Title: Senior Vice President
By /s/ HONG-SUK JANG
------------------------------------
Name: Hong-Suk Jang
Title: Senior Manager
(W350,000 tax stamps affixed, if executed in Korea)
<PAGE> 32
Exhibit A
December ___, 1996
To: Banque Nationale de Paris
Seoul Branch
8F, Oriental Chemical Building
50, Sokong-dong
Chung-ku, Seoul
Korea
CORPORATE GUARANTY
1. GUARANTEE
1.01 We, the undersigned, Hyundai Electronics Ind. Co., Ltd. (the
"Guarantor"), for and in consideration of Banque Nationale de Paris,
Seoul Branch (the "Lender") entering into the Loan Agreement (as defined
hereinafter) with, and making the Advances to Maxtor Corporation (the
"Borrower") and for other good and valuable consideration which the
Guarantor hereby acknowledges having received, hereby irrevocably and
unconditionally:
(a) guarantee, as primary obligor and not merely as surety to the
Lender, jointly and severally with the Borrower, the prompt
performance by the Borrower (including its permitted successors
and assigns under the Loan Agreement hereinafter referred to) of
all obligations of the Borrower under or in connection with the
loan agreement entered into between the Lender and the Borrower
dated as of December 20, 1996 (the "Loan Agreement") for
advances of up to US$10,000,000 and the payment of all sums
payable now or in the future to the Lender by the Borrower
thereunder or in connection therewith in each case when and as
the same shall become due; and
(b) undertake to the Lender that, if and whenever the Borrower shall
be in default in the payment of any sum to be payable by the
Borrower to the Lender under or in connection with the Loan
Agreement, the Guarantor shall pay such sum on demand against a
certificate of the Lender stating the amount due and stating
that the Borrower has failed to fulfill any one or more
<PAGE> 33
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obligations under the Loan Agreement, which certificate shall be
conclusive as to the amount due save for manifest error.
All terms used herein shall be as defined in the Loan Agreement unless
expressly defined otherwise herein.
1.02 Without prejudice to the rights of the Lender against the Borrower, the
Guarantor unconditionally and irrevocably agrees that, if any sums
hereby guaranteed are not recoverable on the basis of a guarantee
(whether by reason of any legal limitation, illegality, disability or
incapacity on or of the Borrower or the Guarantor or any other person or
by reason of any other fact or circumstance and whether or not known to
or discoverable by the Lender), then the Guarantor will, as a separate
independent stipulation and as a primary obligor, on demand indemnify
the Lender against any loss or liability suffered or incurred by the
Lender as a result thereof.
1.03 The Guarantor hereby agrees that this Guaranty shall be a continuing
security and shall not be satisfied, discharged or affected by any
intermediate payment or settlement of any sum or sums owing or payable
by the Guarantor hereunder and shall remain in full force and effect
until the moneys and liabilities hereby guaranteed have been
unconditionally and irrevocably paid and discharged in full to the
satisfaction of the Lender.
1.04 Any settlement or discharge under this Guaranty between the Lender and
the Guarantor shall be conditional upon no security or payment to the
Lender by the Borrower, the Guarantor or any other person being avoided
or set-aside or ordered to be refunded or reduced by virtue of any
provision or enactment relating to bankruptcy, insolvency or liquidation
for the time being in force, and if such condition is not satisfied,
the Lender shall be entitled to recover from the Guarantor on demand the
value of such security or the amount of any such payment as if such
settlement or discharge had not occurred.
1.05 The obligation of the Guarantor hereunder shall not be affected by any
act, omission, matter or thing which, but for this provision, might
operate to release or otherwise exonerate the Guarantor from its
obligations hereunder in whole or in part, including without limitation,
and whether or not known to or discoverable by the Guarantor, the
Borrower, the Lender or any other person:
<PAGE> 34
- A-3 -
(a) any time or waiver granted to or composition with the Borrower
or any other person; or
(b) the taking, variation, compromise, renewal or release of or
refusal or neglect to perfect or enforce any rights, remedies or
securities against the Borrower or any other person; or
(c) any legal limitation, disability, dissolution, incapacity or
other circumstances relating to the Borrower or any other person
including, without limitation, the event that Korea or the
United States of America or any competent authority thereof
declares any moratorium on the payment of its indebtedness by
any governmental agency or authority thereof or by juridical
entities domiciled or resident in Korea or the United States of
America; or
(d) any amendment or supplement to the Loan Agreement or any other
document or security; or
(e) the dissolution, amalgamation, reconstruction or reorganization
of the Borrower or any other person; or
(f) the unenforceability or invalidity of any obligations of the
Borrower or any other person under the Loan Agreement or any
other document or security.
1.06 The Guarantor acknowledges and agrees that:
(a) it has not received any security from the Borrower or any other
person for the giving of this Guaranty and it will not take any
such security without the prior written consent of the Lender
and the Guarantor will hold any security taken in breach of this
provision in trust for the Lender;
(b) the Lender shall not be bound to enforce any guarantee or
security or to proceed with or take any other steps against the
Borrower or any other person before enforcing this Guaranty; and
(c) this Guaranty shall be in addition to, and not in substitution
for, any other rights which the Lender may now or hereafter have
under or by virtue of any guarantee, security, agreement or lien
or by operation of law or under any collateral or other security
now or
<PAGE> 35
- A-4 -
hereafter held by the Lender or to which the Lender may be
entitled.
1.07 until the moneys and liabilities hereby guaranteed have been
unconditionally and irrevocably paid and discharged in full to the
satisfaction of the Lender, the Guarantor shall not by virtue of any
payment made hereunder on account of such moneys and liabilities or
otherwise howsoever:
(a) be subrogated to any rights, security or moneys held, received
or receivable by the Lender; or
(b) be entitled to exercise any right of contribution from any
co-surety liable in respect of such moneys and liabilities under
any other guarantee, security or agreement; or
(c) exercise any right of set-off or counterclaim against the
Borrower or any such co-surety; or
(d) receive claims or have the benefit of any payment, distribution,
security or indemnity from the Borrower or any such co-surety;
or
(e) unless so directed by the Lender (when the Guarantor will prove
in accordance with such directions) , claim as a creditor of the
Borrower or any such co-surety in competition with the Lender.
The Guarantor shall hold in trust for the Lender and forthwith pay or
transfer (as appropriate) to the Lender any such payment (including an
amount equal to any such setoff), distribution or benefit of such
security, indemnity or claim in fact received by it.
1.08 The Lender may at any time keep in a separate account (without liability
to pay interest thereon) for as long as it may think fit, any moneys
received, recovered or realized under this Guaranty or under any other
guarantee, security or agreement relating in whole or in part to the
moneys and liabilities hereby guaranteed without being under any
intermediate obligation to apply the same or any part thereof in or
towards the discharge of such amount, until all moneys and liabilities
hereby guaranteed have been unconditionally and irrevocably paid in full
to the satisfaction of the Lender.
<PAGE> 36
- A-5 -
2. REPRESENTATIONS AND WARRANTIES
2.01 The Guarantor hereby represents and warrants to the Lender and agree as
follows:
a. We are a corporation (chusik hoesa) duly organized and validly
existing under the laws of Korea.
b. We have all necessary powers and authority to issue this
Guaranty and to perform and observe the obligations contained
herein and this Guaranty has been validly authorized by our
Board of Directors (in full compliance with the requirements of
Article 398 of the Korean Commercial Code and Article 124 of the
Korean Civil Code, if applicable) and this Guaranty constitutes
our legal, valid and binding obligations enforceable in
accordance with its terms.
c. To the best of our knowledge, neither the giving of this
Guaranty nor the observance of its terms including without
limitation the making of payments hereunder in Dollars
contravenes any law, decree, ordinance, or similar enactment
binding on us nor does the giving of this Guaranty and the
observance of its terms contravene any existing mortgage,
contract or agreement binding on us.
d. There are no proceedings pending before any court or to our
knowledge threatened against or affecting us, the Borrower or
any of our subsidiaries and there are no proceedings pending
before any governmental agency or administrative body or to our
knowledge threatened against us, the Borrower or any of our
subsidiaries which if adversely determined would materially and
adversely affect our financial condition or our ability to pay
under the terms and conditions of this Guaranty, and our
obligations hereunder rank and shall rank throughout the life
hereof at least pari passu with all other unsecured indebtedness
of the Guarantor except for certain indebtedness preferred by
mandatory provisions of law.
e. We have not taken any corporate action and no other steps have
been taken or legal proceedings started or threatened against us
for our winding-up, dissolution or reorganization or for the
appointment of a receiver, trustee or similar officer of us or
of any or all of our assets and revenues.
<PAGE> 37
- A-6 -
f. This Guaranty constitutes our legal, valid and binding
obligations from the date hereof and will not be discharged
except by complete performance of the respective obligations of
the Borrower contained in the Agreement and the agreements
executed pursuant thereto and our obligations in this Guaranty.
g. The Borrower is a corporation (chusik hoesa) duly organized and
validly existing and in good standing under the laws of the
State of Delaware of the United states of America, of which
business is and throughout the life of the Loan Agreement, shall
continue to be under the Guarantor's direct control.
h. The Guarantor shall, during the term of this Agreement, maintain
the 60% shareholding as it is at the date hereof. If the
Guarantor intends to change the status of its shareholding, it
shall obtain the prior written consent of the Lender, which
consent shall not unreasonably be withheld. It is understood by
the parties that the reasonableness of withholding of such
consent shall be decided by the Lender.
i. Our balance sheets as at December 31, 1995, and the related
statements of income and retained earnings for the fiscal year
then ended, copies of which have been provided to the Lender,
fairly present our financial condition as at the date of such
balance sheet and the results of our operations for the period
ended on such date all in accordance with generally accepted
accounting principles in Korea, consistently applied, and since
the dates of each such balance sheet there has been no material
adverse change in our financial condition or operations.
3. UNDERTAKINGS
3.01 The Guarantor undertakes that throughout the period of this Guaranty it
shall provide the Lender with copies of the Guarantor's unaudited
financial statements upon request of the Lender and the Guarantor's
audited financial statements (consolidated, if available) on an annual
basis as soon as they are available but in any event not later than 150
days after the close of each fiscal period covered by an audited
financial statement (consolidated, if available) and such other
information regarding the Guarantor's financial status as the Lender
may reasonably request.
<PAGE> 38
- A-7 -
3.02 Each financial statement provided hereunder shall have been prepared in
accordance with generally accepted Korean accounting principles,
consistently applied, and be accompanied by a certificate of its duly
authorized officer stating that as of the date of such financial
statement the Guarantor is in full compliance with all terms and
conditions hereof.
3.03 The Guarantor shall do with its best efforts all things necessary or
desirable to ensure that any licenses or consents required to enable the
Guarantor to enter into and perform this Guaranty are maintained in full
force and effect and to secure to the Lender the full benefit of this
Guaranty. The Guarantor hereby agrees to obtain, comply with the terms
of and do all that is necessary in order to lawfully enter into and
perform its obligations under this Guaranty. The guarantor hereby agrees
that it will, from time to time on a request of the Lender furnish the
Lender with such information about its financial condition as the Lender
may reasonably request.
4. PAYMENTS, CALCULATIONS AND INTEREST
4.01 All payments to be made by the Guarantor to the Lender under this
Guaranty shall be made by not later than 10:00 a.m. (New York time) on
the due date in same day Dollar funds or in such other funds and/or
settled in such other manner as the Lender will specify as being
customary at the time for the settlement of international transactions
of the type contemplated by this Guaranty, to the account of the Lender
with such bank account as the Lender may from time to time notify to the
Guarantor.
4.02 If any sum shall become due on a day which is not a Banking Day, the due
date thereof shall be extended to the next succeeding Banking Day,
unless such Banking Day falls in the next calendar month, in which event
such due date shall be the immediately preceding Banking Day.
4.03 In the event that the Lender does not receive on the due date any sum
due under this Guaranty, the Guarantor shall pay to the Lender on demand
interest on such sum from and including the due date therefor to the
date of actual payment (after as well as before judgment) at the rate
per annum determined in accordance with the terms of Section 3.03 of the
Loan Agreement. All payments of interest
<PAGE> 39
- A-8 -
hereunder shall be calculated on the basis of actual days elapsed in a
360 day year.
5. EXPENSES
5.01 The Guarantor shall pay to the Lender on demand all reasonable costs and
expenses (including, but not limited to, reasonable legal fees and
expenses) and Taxes (as hereinafter defined) thereon incurred by the
Lender in connection with the preserving or enforcing of, any of its
rights under this Guaranty.
5.02 The Guarantor shall pay promptly all stamp, documentary and other like
present and future taxes, duties, imposts, charges, fees, deductions or
withholdings of any nature (herein referred to as "Taxes") to which this
Guaranty may be subject or give rise and shall indemnify the Lender on
demand against any and all liabilities with respect to or resulting from
any delay or omission on the part of the Guarantor to pay any such
Taxes.
6. CURRENCY INDEMNITY
6.01 If, under any applicable law or regulation, and whether pursuant to a
judgment being made or registered against the Guarantor or the
liquidation of the Guarantor or for any other reason, any payment under
or in connection with this Guaranty is made or fails to be satisfied in
a currency (the "payment currency") other than the currency in which
such payment is due under or in connection with this Guaranty (the
"contractual currency") , then to the extent that the amount of such
payment actually received by the Lender, when converted into the
contractual currency at the rate of exchange, falls short of the amount
due under or in connection with this Guaranty, the Guarantor, as a
separate and independent obligation, shall indemnify and hold harmless
the Lender against the amount of such shortfall. For the purposes of
this Clause 6.01, "rate of exchange" means the rate at which the Lender
is able on or about the date of such payment to purchase the contractual
currency with the payment currency and shall take into account any
premium and other costs of exchange with respect thereto.
<PAGE> 40
- A-9 -
7. NO COUNTERCLAIM, TAXATION
7.01 All payments to be made by or on behalf of the Guarantor to the Lender
pursuant to this Guaranty shall be made (a) without any set-off,
counterclaim or condition whatsoever and (b) free and clear of, and
without deduction for or on account of, any present or future Taxes,
unless the Guarantor is required by law or regulation to make any such
payment subject to any Taxes.
7.02 In the event that the Guarantor is required by any law or regulation to
make any deduction or withholding on account of any Taxes from any
payment due under this Guaranty, then:
(a) the Guarantor shall notify the Lender promptly as soon as it
becomes aware of such requirement;
(b) the Guarantor shall remit promptly the amount of such Taxes to
the appropriate taxation authority, and in any event prior to
the date on which penalties attach thereto;
(c) such payment shall be increased by such amount as may be
necessary to ensure that the Lender receives a net amount, free
and clear of all Taxes, equal to the full amount which the
Leader would have received had such payment not been subject to
such Taxes; and
(d) the Guarantor shall indemnify the Lender against any liability
of any of them in respect of such Taxes.
7.03 Not later than thirty days after each deduction or withholding of any
such Taxes, the Guarantor shall forward to the Lender evidence
satisfactory to the Lender that such Taxes have been remitted to the
appropriate taxation authority.
8. SET-OFF
8.01 The Guarantor hereby authorizes the Lender (without prior notice) to
apply any credit balance (whether or not then due) which is at any time
held by the Lender for the account of the Guarantor at any office of the
Lender in or towards satisfaction of any sum then due from the Guarantor
to the Lender under this Guaranty and unpaid. The Lender is authorized
to use all or any part of any such credit balance to buy such other
currencies as may be necessary to effect
<PAGE> 41
- A-10 -
such application. The Lender shall not be obliged to exercise any of its
rights under this Clause 8.01, which shall be without prejudice and in
addition to any right of set-off, combination of accounts, lien or other
rights to which the Lender is at any time otherwise entitled (whether by
operation of law, contract or otherwise).
9. COMMUNICATIONS
9.01 Any communication, demand or notice to be given to the Guarantor
hereunder shall given in writing or by mail, facsimile transmission or
telex as follows:
To Guarantor: Hyundai Electronics Ind. Co., Ltd.
140-2 Kye-dong, Chongro-ku
Seoul, Korea
Attn: Int'l Finance Department
Facsimile; 746-8076/8277
Telex:
Answerback:
or to such other address or telex number that the Guarantor shall notify
the Lender.
9.02 All communications and documents delivered pursuant to or otherwise
relating to this Guaranty shall either be in English or accompanied by
a certified English translation.
9.03 A certificate or determination of the Lender as to any matter provided
for in this Guaranty, in the absence of manifest error, shall be
conclusive and binding on the Guarantor.
10. ASSIGNMENTS AND TRANSFERS
10.01 This Guaranty shall be binding upon and inure to the benefit of the
Lender and the Guarantor and their respective successors and permitted
assigns and references in this Guaranty to either of them shall be
construed accordingly.
10.02 The Guarantor may not assign or transfer any of its rights and/or
obligations under this Guaranty.
<PAGE> 42
- A-11 -
10.03 The Lender may assign all or any part of its rights hereunder to any
assignee of all or a similar proportion of its rights under the Loan
Agreement, without the consent of the Guarantor. The Lender shall
notify the Guarantor prior to any such assignment.
10.04 The Lender may disclose to any potential assignee or transferee of all
or any part of its rights or obligations under this Guaranty or to any
person who may otherwise enter into contractual relations with the
Lender in relation to this Guaranty, such information about the
Guarantor and/or its related entities as the Lender thinks fit;
provided, that the identity of any such person receiving the information
pursuant to this Clause 10.04 shall have been notified to the Guarantor
in advance of such release of information.
11. MISCELLANEOUS
11.01 Time shall be of the essence in the performance of the obligations by
the Guarantor under this Guaranty. No delay or omission on the part of
the Lender in exercising any right, power or remedy under this Guaranty
shall impair such right, power or remedy or be construed as a waiver
thereof nor shall any single or partial exercise of any such right,
power or remedy preclude any further exercise thereof or the exercise of
any other right, power or remedy. The rights, powers and remedies herein
provided are cumulative and not exclusive of any rights, powers and
remedies provided by law.
11.02 No failure to exercise any right, power or privilege under this Guaranty
on the part of the Lender shall operate as a waiver thereof. No waiver
by the Lender of any terms of this Guaranty shall be effective unless in
writing.
11.03 If at any time any one or more of the provisions in this Guaranty are or
become invalid, illegal or unenforceable in any respect under any law or
regulation, the validity, legality and enforceability of the remaining
provisions of this Guaranty shall not be in any way affected or impaired
thereby.
11.04 The obligations of the Guarantor under this Guaranty shall remain in
full force and effect until the Lender shall have received all amounts
due or to become due to it hereunder in accordance with the terms
hereof. Without prejudice to the
<PAGE> 43
- A-12 -
foregoing, the obligations of the Guarantor under Clauses 1.04, 4.03,
5 and 6 shall survive the repayment of the Loan.
12. LAW AND JURISDICTION
12.01 This Guaranty shall be governed by, and construed in accordance with,
the laws of Korea.
12.02 Any litigation arising out of or in connection with this Guaranty shall
be brought in the courts having jurisdiction over the Lender's
registered office in Seoul or in such other courts as the Lender may
elect, and by execution and delivery of this Guaranty irrevocably and
unconditionally submits to each such jurisdiction. The foregoing,
however, shall not limit the rights of the Lender to bring any legal
action or proceeding or to obtain execution of judgment in any other
jurisdiction, whether concurrently or not.
12.03 The Guarantor represents and warrants that this Guaranty is a commercial
rather than a public or governmental act and that the Guarantor is not
entitled to claim immunity from legal proceedings with respect to itself
or any of its property on the grounds of sovereignty or otherwise under
any law or in any jurisdiction where an action may be brought for the
enforcement of any of the obligations arising under or relating to this
Guaranty. To the extent that the Guarantor or any of its properties has
or hereafter may acquire any right to immunity from set-off, legal
proceedings, attachment prior to judgment, other attachment or execution
of judgment on the grounds of sovereignty or otherwise, the Guarantor
hereby irrevocably waives such rights to immunity in respect of its
obligations arising under or relating to this Guaranty.
IN WITNESS WHEREOF we have executed this Guaranty as of the day and year first
above written.
HYUNDAI ELECTRONICS IND. CO., LTD.
By /s/ AUTHORIZED SIGNATURE
----------------------------------------
Name: Authorized Officer
Title:
<PAGE> 44
EXHIBIT B
(Letterhead of the Borrower)
NOTICE OF DRAWDOWN
Date:
Banque Nationale de Paris
Seoul Branch
8F, Oriental Chemical Building
50, Sokong-dong
Chung-ku, Seoul
Korea
Re: Loan Agreement dated as of December 20, 1996/
Notice of Drawdown
Gentlemen:
Maxtor Corporation (the "Borrower") hereby gives notice, in accordance
with Section 2.02 of the loan agreement dated as of December 20, 1996 (the "Loan
Agreement"), of the Borrower's intent to draw down thereunder and requests that
a Drawdown be made on ___________ 199_ in the amount of US$ __________________.
All sums advanced to the Borrower shall be transferred to Account no. ______
_________________ at_________________________ standing in the name
of_____________________.
The Borrower hereby certifies to you that as of the date of this notice:
(1) no Event of Default, and no event which with the giving of
notice or the passing of time, or both, would constitute an
Event of Default, has occurred;
(2) the representations and warranties contained in the Loan
Agreement remain true and correct as of the date of this notice;
and
<PAGE> 45
- B-2 -
(3) all applicable conditions precedent specified in Sections
*(9.01) (9.02) and 9.03 of the Loan Agreement have been
satisfied.
The terms used herein have the meanings ascribed to them in the Loan
Agreement.
MAXTOR CORPORATION
By ___________________________________
Name:
Title:
- ----------
*delete as appropriate
<PAGE> 46
EXHIBIT C
IRREVOCABLE POWER OF ATTORNEY AGREEMENT
TO COMPLETE PROMISSORY NOTE
(Date)
To: Banque Nationale de Paris
Seoul Branch
Reference is made to the loan agreement ("Loan Agreement") entered into between
you as the Lender and Maxtor Corporation as the Borrower, dated as of December
20, 1996.
Except as otherwise specifically stated herein all terms used in this Power of
Attorney shall be as defined in the Loan Agreement.
We, the undersigned, being the Guarantor, will deliver to you a bank clearable
promissory note (the "Default Note") pursuant to the terms of the Loan
Agreement, payable to you, duly executed by the Guarantor and complete in all
respects except that the maturity date and the amount will be blank.
We acknowledge that the Default Note will be delivered to you in fulfillment of
the requirement of Section 5.01 of the Loan Agreement and that, in addition to
and not limited by the authorizations contained herein, you have the right to
treat the Default Note in all respects, including but not limited to
consolidation and demand for payment, in the manner contemplated by the Loan
Agreement.
You or any of your agents or employees with full rights of substitution are
hereby irrevocably and specifically authorized and empowered, in your sole
discretion and upon the occurrence of any Event of Default, to complete the
Default Note by inserting therein the maturity date and the proper amount in Won
calculated at the exchange rate determined by the Lender including principal
amount of Loan, accrued interest, default interest and other costs to be borne
by the Borrower pursuant to the Loan Agreement.
<PAGE> 47
- C-2 -
We acknowledge and agree that all actions taken by you pursuant to this Power of
Attorney including but not limited to the determination of the maturity date and
the amount to be inserted in the Default Note shall be binding, final and
conclusive on us absent manifest error.
We further acknowledge and agree that this authorization is irrevocable and may
not be limited in any manner whatsoever except to the extent specifically stated
herein. This authorization shall expire on the date that you, in your sole
discretion, determine that all sums owing or which shall become owing under the
Loan Agreement, have been fully paid.
Any and all authorizations of the Board of Directors of the Guarantor required
for this Power of Attorney have been obtained and shall remain in full force and
effect until all obligations under the Loan Agreement have been discharged.
GUARANTOR: HYUNDAI ELECTRONICS INC. CO., LTD.
By /s/ AUTHORIZED SIGNATURE
--------------------------------
Name: Authorized Officer
Title:
<PAGE> 48
EXHIBIT D
(Letterhead of the Borrower)
CERTIFICATE
Date:
Banque Nationale de Paris
Seoul Branch
8F, Oriental Chemical Building
50, Sokong-dong
Chung-ku, Seoul
Korea
I [ name ] the duly elected, qualified and acting secretary of Maxtor
Corporation (the "Borrower"), HEREBY CERTIFY that:
(a) attached hereto marked "Attachment-A", are true and correct
copies of the Certificate of Incorporation and By-Laws of the
Borrower as amended to date;
(b) attached hereto marked "Attachment-B", are true and correct
copies of the resolutions of the Directors of the Borrower
approving the execution, delivery and performance of the Loan
Agreement made between the Borrower and Banque Nationale de
Paris, Seoul Branch and dated December 20, 1996 (the
"Agreement"), and all other agreements and documents to be
delivered by the Borrower pursuant thereto and authorizing a
named person or persons to sign the Agreement and all documents
to be delivered by the Borrower pursuant thereto and such
resolutions have not been amended, modified or revoked and are
in full force and effect;
<PAGE> 49
- D-2 -
The following signatures are the true signatures of the persons who have
each been authorized to sign the Agreement and any documents related thereto and
to give notices and communications, including notices of Drawdown, under or in
connection with the Agreement.
Name Position Signature
* *
* *
* *
MAXTOR CORPORATION
By ________________________________
Name:
Title: Secretary
<PAGE> 50
EXHIBIT E
(Letterhead of the Guarantor)
CERTIFICATE
Date:
Banque Nationale de Paris
Seoul Branch
8F, Oriental Chemical Building
50, Sokong-dong
Chung-ku, Seoul
Korea
I, [ name ] of the Representative Director of Hyundai Electronics Ind.
Co., Ltd. (the "Guarantor") , HEREBY CERTIFY that:
(a) attached hereto marked "Attachment-A", are true and correct
copies of the Articles of Incorporation of, and the Company
Registry extracts regarding, the Guarantor;
(b) attached hereto marked "Attachment-B", are true and correct
copies of the minutes of the Board of Directors' meeting of the
Guarantor at which the Board adopted resolutions approving the
execution, delivery and performance by the Guarantor of the
Guaranty in connection with the Loan Agreement made between
Maxtor Corporation and Banque Nationale de Paris, Seoul Branch
and dated December 20, 1996 (the "Loan Agreement") , and all
documents to be delivered by the Guarantor pursuant to the
Guaranty and the Loan Agreement, and authorizing a named person
or persons to sign such documents and such resolutions have not
been amended, modified or revoked and are in full force and
effect;
(c) attached hereto marked "Attachment-C", is a true and correct
copy of the seal impression certificate of the Representative
Director and the seal impressions affixed on the minutes of the
Board of Directors' meeting as referred to in (b) are genuine
seal impressions of the Directors participating in such
meeting;
<PAGE> 51
E-2
The following signatures are the true signatures of the persons who have
each been authorized to sign the Guaranty and any related documents as
referred to in (b) above.
<TABLE>
<CAPTION>
Name Position Signature
---- -------- ---------
<S> <C> <C>
* *
* *
* *
</TABLE>
HYUNDAI ELECTRONICS IND. CO., LTD.
By
--------------------------------
Name:
Title: Representative Director
<PAGE> 1
EXHIBIT 10.62
[BANK OF NEW YORK LETTERHEAD]
December 27, 1996
Mr. Kang Ho, Lee
General Manager
International Finance Dept.
Hyundai Electronics Industries Co., Ltd.
12th Fl., Hyundai Bldg.
140-2, Kye-dong, Chongro-ku
Seoul, Korea
Dear Mr. Lee,
RE: US$20,000,000 OFFSHORE LOAN
Further to our recent discussions, we take a pleasure to outline our proposal
to grant a US$20,000,000 offshore loan under the following terms and conditions:
1. Lender: The Bank of New York, Seoul Branch (offshore loan
booking)
2. Borrower: Maxtor Corporation, U.S.A.
3. Amount: Up to US$20,000,000
4. Purpose: To accommodate Maxtor Corp's financing needs.
5. Interest Rate: 0.6% p.a. over 3-month LIBOR, payable in arrears.
6. Loan Period: 90 days
7. Maturity: On the 90th day after drawdown date, the principal
and interest thereto should be paid by Maxtor Corp.
8. Guaranty/ 1) Unconditional payment guarantee of Hyundai
Security Support: Electronics Industries Co., Ltd. Seoul, Korea
2) A bank clearable blank p-note issued by Hyundai
Electronics Industries Co., Ltd.
<PAGE> 2
9. Other Remarks: Other terms and conditions not mentioned above will be in
line with the prevailing market practice.
Kindly evidence your acceptance of the offer by signing and returning the
enclosed duplicate copy of this letter to the attention of the undersigned no
later than closing of December 27, 1996.
Sincerely yours,
/s/ K.B. KIM
- --------------------------------
K.B. Kim
Vice President
Accepted by
/s/ KANG HO, LEE
- --------------------------------
Kang Ho, Lee
General Manager
International Finance Dept.
Hyundai Electronics Industries Co., Ltd.
<PAGE> 3
DRAWING NOTICE
To: The Bank of New York, Seoul Branch
December 27, 1996
Loan Agreement dated December 27, 1996
We refer to the Facility constituted by a loan agreement dated December 27,
1996 (the "Loan Agreement") between (1) ourselves and (2) yourselves. Terms
defined in the Loan Agreement have the same meaning herein.
We hereby:
(a) give you notice that we wish to make the Drawing of
US$20,000,000.00 on December 30, 1996.
(b) request that the Drawing be remitted to account No. 14840-04218
(Swift Code: BOFAUS6S ABA No.: 121000358) in the name of Maxtor
Corporation with Bank of America, 1850 Gateway Blvd. Concord, CA
94530, U.S.A. with the same value on December 30, 1996.
(c) confirm that as of the date of this notice no Event of Default,
and no event which with the giving of notice or the passing of
the time, or both, would constitute an Event of Default, has
occurred, that the representations and warranties contained in
the Loan Agreement remain true and correct as of the date of
this notice, and that all applicable conditions precedent
specified in the Loan Agreement have been satisfied.
Maxtor Corporation
By /s/ KANG HO LEE
-----------------------
Name: Kang Ho Lee
Title: General Manager
<PAGE> 1
EXHIBIT 10.63
WAIVER AND AMENDMENT NO. 1
TO THE CREDIT AGREEMENT
Dated as of May 22, 1998
WAIVER AND AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among, Maxtor
Corporation, a Delaware corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Citibank, N.A., as
administrative agent (the "Administrative Agent") for the Lenders.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders, Citicorp Securities, Inc. and
Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco International
Branch and Royal Bank of Canada, as co-agents, Fleet National Bank, as manager,
and the Administrative Agent have entered into a 364-Day Credit Agreement dated
as of August 29, 1996 (the "Credit Agreement"). Capitalized terms not otherwise
defined in this Amendment have the same meanings as specified in the Credit
Agreement.
(2) Hyundai Electronics Industries, Co., Ltd. ("HEI") has
released its 1997 year end financial statements, which financial statements
indicate that HEI is in default of the financial covenant set forth in Section
XII(a) of the Guaranty (the "HEI Default").
(3) The Borrower has requested that the Lenders waive the HEI
Default, amend certain provisions of the Credit Agreement and accept Hyundai
Heavy Industries Co., Ltd. as a guarantor in the place of HEI.
(4) The Lenders are, on the terms and conditions stated below,
willing to grant the request of the Borrower and the Borrower and the Lenders
have agreed to amend the Credit Agreement as hereinafter set forth.
SECTION 1. Waivers. Effective as of the date of the origination of
the HEI Default and subject to the satisfaction of the conditions precedent set
forth in Section 4, the Lenders hereby waive (a) Section 6.01(c)(ii) of the
Credit Agreement to the extent of the HEI Default and (b) Section 6.01(d) of the
Credit Agreement to the extent that the HEI Default constitutes an event or
condition that would permit the acceleration of the maturity of any Debt
referred to in Section 6.01(d), but only so long as the maturity of such Debt
has not been accelerated.
<PAGE> 2
2
SECTION 2. Amendments to Credit Agreement. The Credit Agreement
is, effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4, hereby amended as follows:
(a) Section 1.01 is amended by deleting the definitions of
"Applicable Margin", "Guarantor", "Guaranty" and "Hyundai Group" set
forth therein and replacing them, respectively with the following new
definitions:
"Applicable Margin" means, as of any date prior to April
1, 1998, a percentage per annum equal to 0 % for Base Rate
Advances and .38% for Eurodollar Rate Advances and, as of any
date on or after April 1, 1998, a percentage per annum equal to
0% for Base Rate Advances and 1.75% for Eurodollar Rate Advances.
"Guarantor" means Hyundai Heavy Industries Co., Ltd., a
company incorporated with limited liability in the Republic of
Korea.
"Guaranty" means the guaranty executed by the Guarantor in
the form attached on Exhibit A to Amendment No. 1.
"Hyundai Group" means, collectively, the Guarantor, Hyundai
Merchant Marine Co., Ltd., Hyundai Corporation and Hyundai
Electronics Industries Co., Ltd.
(b) Section 1.01 is further amended by adding thereto in proper
alphabetical sequence the following definition:
"Amendment No. 1" means Waiver and Amendment No. 1 to the
Credit Agreement dated as of May 22, 1998.
(c) Section 2.04(a) is amended by deleting therefrom the figure
".15%" and substituting therefor the figure "0.25%".
(d) Section 4.01(e)(ii) is amended by deleting therefrom, in both
places where such date appears, the date "December 31, 1995" and
substituting therefor the date "December 31, 1997".
(e) Section 5.02(b)(iii)(A) is amended in full to read as
follows:
(A) Debt incurred in connection with the
Securitization in an amount not to exceed $225,000,000 at
any time outstanding or the
<PAGE> 3
3
transactions listed on Schedule 5.02(b)(iii)(A) to the
extent (x) such item of such Debt does not exceed the
amount corresponding to each such item on such Schedule and
(y) the Debt permitted by this clause (A) does not exceed
$274,000,000 in the aggregate, and any Debt extending the
maturity of, or refunding or refinancing, in whole or in
part, any such Debt, provided that the terms of any such
extending, refunding or refinancing Debt, and of any
agreement entered into and of any instrument issued in
connection therewith, are otherwise permitted by the Loan
Documents, and provided further that the principal amount
of such Debt shall not be increased above the maximum
aggregate principal amount set forth above, and the direct
and contingent obligors therefor shall not be changed, as a
result of or in connection with such extension, refunding
or refinancing,
(f) Section 5.02(c) is amended by adding the following clause (iii)
immediately before the period at the end of such sections "and (iii) a
wholly-owned special purpose Subsidiary of the Borrower may convey,
transfer or otherwise dispose of receivables pursuant to any transaction
described in Section 5.02(b)(iii)(A)".
(g) Section 6.01(h)(ii) is amended by deleting the phrase "on the
date hereof" and substituting therefor the phrase "on the date of
Amendment No. 1".
SECTION 3. Release of HEI Guaranty. Effective as of the date of
the origination of the HEI Default and subject to the satisfaction of the
conditions precedent set forth in Section 4, the HEI Guaranty is hereby
terminated as it relates to the Credit Agreement.
SECTION 4. Conditions of Effectiveness. This Amendment is subject
to the provisions of Section 8.01 of the Credit Agreement. This Amendment shall
become effective as of the date of the origination of the HEI Default when the
Administrative Agent shall have received counterparts of this Amendment executed
by the Borrower and all of the Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed this
Amendment and Sections 1, 2 and 3 hereof shall become effective as of such date
when, and only when, on or before June 1, 1998 the Administrative Agent shall
have additionally received all of the following documents, each such document
(unless otherwise specified) dated the date of receipt thereof by the
Administrative Agent (unless otherwise specified) and in sufficient copies for
each Lender, in form and substance satisfactory to the Administrative Agent
(unless otherwise specified):
(a) Certified copies of (i) the resolutions of the Board of
Directors of (A) the Borrower approving this Amendment and the matters
contemplated hereby and
<PAGE> 4
4
thereby and (B) the Guarantor evidencing approval of the Guaranty and
the matters contemplated hereby and thereby and (ii) all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to this Amendment, the Guaranty and the matters
contemplated hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of the
Borrower and the Representative Director or a duly authorized officer of
the Guarantor certifying the names and true signatures of the officers
of the Borrower and the Guarantor authorized to sign this Amendment and
the Guaranty, respectively, and the other documents to be delivered
hereunder and thereunder.
(c) Counterparts of the Guaranty in the form attached as Exhibit A
hereto, executed by the Guarantor.
(d) Favorable opinions of Bae, Kim & Lee, counsel for the
Guarantor, or other Korean counsel to the Guarantor acceptable to the
Administrative Agent, and the Corporate Counsel of the Guarantor, in
substantially the form of Exhibits B and C hereto and as to such other
matters as any Lender through the Administrative Agent may reasonably
request,
(e) A certificate signed by a duly authorized officer of the
Borrower stating that:
(i) The representations and warranties contained in Section
5 below are correct on and as of the date of such certificate as
though made on and as of such date; and
(ii) After giving effect to this Amendment, no event has
occurred and is continuing that constitutes a Default.
SECTION 5. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and, where applicable, in good standing under the laws of the
jurisdiction of its incorporation.
(b) The execution, delivery and performance by each Loan Party of
this Amendment and the Loan Documents, as amended hereby, to which it is
or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's corporate powers, have
been duly authorized by all necessary corporate
<PAGE> 5
5
action, and do not contravene (i) such Loan Party's charter or by-laws or (ii)
any law, regulation (including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System) or contractual restriction
binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery and performance by either
Loan Party of this Amendment or any other Loan Document to which it is or is
to be a party, except for those authorizations, approvals, actions, notices
and filings listed on Schedule 4.01(c) hereto, all of which have been duly
obtained, taken, given or made and are in full force and effect except that
the Guarantor is required to report to its designated foreign exchange trading
bank any payment to be made under the Guaranty at the time of making such
payment.
(d) This Amendment and the Guaranty have been duly executed and
delivered by each Loan Party party thereto. This Amendment and each of the other
Loan Documents, as amended hereby, to which the Borrower is a party is, and the
Guaranty is, the legal, valid and binding obligation of each of the Borrower and
the Guarantor, respectively, enforceable against each such Loan Party in
accordance with their respective terms.
(e) (i) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 28, 1997, and the related Consolidated statements
of income and cash flows of the Borrower and its Subsidiaries for the fiscal
year then ended, accompanied by an opinion of Ernst & Young, independent
public accountants, copies of which have been furnished to each Lender, fairly
present the Consolidated financial condition of the Borrower and its
Subsidiaries as at such date and the Consolidated results of the operations of
the Borrower and its Subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles consistently applied.
Since December 28, 1997, there has been no Material Adverse Change with
respect to the Borrower, other than as provided on Schedule 4.01(e)(i) hereto.
(ii) The balance sheet of the Guarantor and its Subsidiaries as at
December 31, 1997, and the related statements of income and cash flows of the
Guarantor and its Subsidiaries for the fiscal year then ended, accompanied by
an opinion of Samil Accounting Corporation, a member firm of Coopers &
Lybrand, independent public accountants, copies of which have been furnished
to each Lender, fairly present the financial condition of the Guarantor and
its Subsidiaries as at such date and the results of the operations of the
Guarantor and its Subsidiaries for the periods ended on such date, all in
accordance with generally accepted financial
<PAGE> 6
6
accounting standards in the Republic of Korea consistently applied.
Since December 31, 1997, there has been no Material Adverse Change with
respect to the Guarantor.
(f) There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation,
any Environmental Action, affecting either Loan Party or any of its
Subsidiaries before any court, governmental agency or arbitrator that
(i) could be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Amendment, the Guaranty or any other Loan Document, as amended hereby,
or the consummation of the transactions contemplated hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On
and after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) On and after the effectiveness of this Amendment, each
reference in the Credit Agreement to "the Guaranty", "thereunder", "thereof" or
words of like import referring to the Guaranty, shall mean and be a reference to
the Guaranty, as defined in the Credit Agreement as amended by this Amendment.
(c) The Credit Agreement and the Notes, as specifically amended by
this Amendment, are and shall continue to be in full force and effect and are
hereby in all respects ratified and confirmed.
(d) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or the Administrative Agent under any of
the Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses of the Administrative Agent in connection with the
preparation, execution, delivery and administration, modification and amendment
of this Amendment, the Guaranty and the other instruments and documents to be
delivered hereunder (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in accordance with the terms
of Section 8.04 of the Credit Agreement.
<PAGE> 7
7
SECTION 8. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR CORPORATION
By: /s/ RAJA VENKATESH
----------------------------------
Title: Corporate Treasurer
CITIBANK, N.A.,
By: /s/ Authorized Signatory
----------------------------------
Title: Attorney-in-Fact
<PAGE> 8
8
ABN AMRO BANK, N.V. SAN
FRANCISCO INTERNATIONAL
BRANCH
By: ABN AMRO NORTH AMERICA,
INC., AS AGENT
By: /s/ TOM R. WAGNER
-----------------------------
Title: Thomas R. Wagner
Group Vice President
By: /s/ JAMIE DILLON
----------------------------
Title: Jamie Dillon
Vice President
FLEET NATIONAL BANK
By: AUTHORIZED SIGNATURE
-----------------------------
Title: VICE PRESIDENT
THE SUMITOMO BANK, LTD., SAN
FRANCISCO BRANCH
By: AUTHORIZED SIGNATURE
-----------------------------
Title: GENERAL MANAGER
<PAGE> 9
MAXTOR CORPORATION
SECRETARY'S CERTIFICATE
I, Glenn H. Stevens, Secretary of Maxtor Corporation, a Delaware
corporation, do hereby certify, in connection with (i) the Waiver and Amendment
No. 1 dated May 22, 1998 (the "Waiver and Amendment") to the Credit Agreement
dated August 29, 1996 among Maxtor Corporation, the banks, financial
institutions and other institutional lenders parties, Citicorp Securities, Inc.
and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco
International Branch and Royal Bank of Canada, as co-agents, Fleet National
Bank, as manager, and Citibank, N.A., as administrative agent, (ii) the Waiver
and Amendment No. 1 dated May 22, 1998 (the "364-Day Credit Agreement Waiver
and Amendment") to the 364-Day Credit Agreement dated August 29, 1996 among
Maxtor Corporation, the banks, financial institutions and other institutional
lenders parties, Citicorp Securities, Inc. and Hanil Bank, as joint arrangers,
ABN AMRO Bank, N.V., San Francisco International Branch and Royal Bank of
Canada, as co-agents, Fleet National Bank, as manager, and Citibank, N.A., as
administrative agent and (iii) the Waiver and Amendment No. 1 dated May 22, 1998
to the Credit Agreement dated October 30, 1997 between Maxtor Corporation and
Nomura International Bank plc (together with the Waiver and Amendment and the
364-Day Credit Agreement Waiver and Amendment, the "Waivers and Amendments"),
that:
1. Attached hereto as Exhibit A, is a true and correct copy of
resolutions duly adopted by the Board of Directors of Maxtor at a
meeting thereof duly called and held on May 13, 1998, at which
meeting a quorum was present and acting throughout. Such
resolutions are the only resolutions regarding the Agreements, have
not been amended, modified or revoked and are in full force and
effect on the date hereof.
2. The Waivers and Amendments to which Maxtor is a party, as executed
and delivered on behalf of Maxtor, are substantially in the form
thereof approved by the Board of Directors referred to in paragraph
1 hereof.
3. The below named persons, who include all persons who, as officers
of Maxtor, executed and delivered the Waivers and Amendments, were
on the date of such execution, and are on the date hereof, duly
appointed, qualified and acting as such officers holding their
respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine
signatures:
Name Office Signature
---- ------ ---------
Michael R. Cannon President and Chief
Executive Officer ---------------------
Paul J. Tufano Vice President Finance,
i
<PAGE> 10
and Chief Financial
Officer /s/ PAUL J. TUFANO
-----------------------
Raja Venkatesh Corporate Treasurer /s/ RAJA VENKATESH
-----------------------
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ GLENN H. STEVENS
--------------------------------
Glenn H. Stevens, Secretary
I, Paul J. Tufano, Vice President of Maxtor Corporation, do hereby
certify that Glenn H. Stevens has been duly appointed and has duly qualified as,
and on this day is, Secretary of Maxtor Corporation, and the signature above is
his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ PAUL J. TUFANO
---------------------------------
Paul J. Tufano
ii
<PAGE> 11
RESOLUTIONS OF THE BOARD OF DIRECTORS OF MAXTOR CORPORATION
Dated: May 13, 1998
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Credit Agreement") dated August 29, 1996 with the banks, financial institutions
and other institutional lenders parties (collectively, the "Lenders"), Citicorp
Securities, Inc. and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San
Francisco International Branch and Royal Bank of Canada, as co-agents.
WHEREAS, the Corporation has entered into a 364-Day Credit
Agreement (the "364-Day Credit Agreement") dated August 29, 1996 with the banks,
financial institutions and other institutional lenders parties (collectively,
the "364-Day Credit Agreement Lenders"), Citicorp Securities, Inc. and Hanil
Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco International
Branch and Royal Bank of Canada, as co-agents, Fleet National Bank, as manager,
and Citibank, N.A., as administrative agent.
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Nomura Credit Agreement") dated October 30, 1997 with Nomura International Bank
plc (together with the Lenders and the 364-Day Credit Agreement Lenders, the
"Maxtor Lenders").
WHEREAS, under such Credit Agreements, Hyundai Electronics
Industries. Co., Ltd. ("HEI") guaranteed the payments of Maxtor Corporation to
the Maxtor Lenders under a guaranty (the "Guaranty").
WHEREAS, HEI released its 1997 year end financial statements, which
financial statements indicate that HEI is in default of the financial covenants
of the Guaranty, (the "HEI Default")
Now, THEREFORE, BE IT RESOLVED, that it is in the best interests of
the Corporation in order to ensure the availability of working capital to the
Corporation to request that the Maxtor Lenders waive the HEI Default.
RESOLVED FURTHER, that it is in the best interests of the
Corporation to enter into the (i) Waiver and Amendment No. 1 dated May 22, 1998
to the Credit Agreement, (ii) Waiver and Amendment No. 1 dated May 22, 1998 to
the 364-Day Credit Agreement and (iii) Waiver and Amendment No. 1 dated May 22,
1998 to the Nomura Credit Agreement (together the "Waivers and Amendments").
RESOLVED FURTHER, that the Waivers and Amendments and the
performance by the Corporation of its obligations under the Waivers and
Amendments, be, and the same hereby are, in all respects approved, and that the
Chairman of the Board of Directors of the Corporation, the President, any Vice
<PAGE> 12
President or the Treasurer of the Corporation (each an "Authorized Officer") be,
and each of them hereby is, authorized and directed (any one of them acting
alone), in the name and on behalf of the Corporation, to execute and deliver the
Waivers and Amendments, each in the form as the Authorized Officer of the
Corporation executing the same shall approve, such approval to be conclusively
evidenced by his or her execution and delivery thereof; and
RESOLVED FURTHER, that prior to the execution of the Waivers and
Amendments, the Authorized Officers are, and each hereby is, authorized to
negotiate and agree on the terms and conditions of each of the Waivers and
Amendments as such Authorized Officers, or any one of them, in his, her or their
sole discretion, deem to be in the best interests of the Corporation; and
RESOLVED FURTHER, that the Authorized Officers be, and each of them
hereby is, authorized and empowered (any one of them acting alone) to do or
cause to be done all such acts or things and to sign and deliver, or cause to be
signed and delivered, all such documents, instruments and certificates
(including, without limitation, all notices and certificates required or
permitted to be given or made under the terms of the Waivers and Amendments) and
to pay all such expenses, in the name and on behalf of the Corporation or
otherwise as such Authorized Officer may deem necessary, advisable or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions and to perform the obligations of the Corporation under the Waivers
and Amendments and the other agreements and instruments as referred to above or
referred to therein; and
RESOLVED FURTHER, that the Corporation hereby authorizes, ratifies,
confirms and adopts in all respects all acts of the officers of the Corporation,
and of any person designated and authorized to act by an officer of the
Corporation, heretofore done or performed by such person in connection with the
acts and transactions approved by these resolutions.
<PAGE> 13
Filed with the minutes of the proceedings of the Board of Directors
by the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
--------------------------
Secretary
<PAGE> 14
CONTINUING GUARANTY
May 29, 1998
To each of the Lenders parties to either of the Credit Agreements each dated as
of August 29, 1996 among Maxtor Corporation, the Lenders parties thereto and
Citibank, N.A., as Administrative Agent for said Lenders (as amended to date,
the "Credit Agreements"), and to Citibank, N.A., as Administrative Agent
I. For and in consideration of any indebtedness to you under the
Credit Agreements and the Notes (as defined in the Credit Agreements) of Maxtor
Corporation, a Delaware corporation having an address at 510 Cottonwood Drive,
Milpitas, California 95035 (hereinafter called the "Borrower"), for the payment
of which the undersigned is now obligated to you, either as guarantor or
otherwise, and/or in order to induce you, in your discretion, at any time(s)
hereafter, to make any loan(s) or advance(s) or to extend credit in any other
manner to, or at the request of or for the account of, the Borrower, either with
or without security, and/or to purchase or discount any notes, bills receivable,
drafts, acceptances, checks or other instruments or evidence of indebtedness
upon which the Borrower, under the Credit Agreements, is or may become liable as
maker, endorser, acceptor, or otherwise, in each case, under the Credit
Agreements, (all liabilities and obligations of the Borrower to you under the
Credit Agreements and the Notes (as defined in the Credit Agreements) being
hereinafter referred to as "Obligations"), the undersigned does hereby
unconditionally GUARANTEE the punctual payment when due to you of each and all
of the Obligations, together with interest thereon and any and all expenses
which may be incurred by you in collecting all or any of the Obligations and/or
in enforcing any rights hereunder.
II. As implementing the foregoing, it is understood and agreed that
(i) the undersigned guarantees that the Obligations will be paid to you strictly
in accordance with the terms and provisions of the Credit Agreements. In
reference thereto, regardless of any law, regulation or decree, now or hereafter
in effect, which might in any manner affect any of the terms or provisions of
the Credit Agreements or your rights with respect thereto as against the
Borrower, or cause or permit to be invoked any alteration in the time, amount or
manner of payment by the Borrower of any of the Obligations, and (ii) in each
instance when the Borrower shall have agreed, relative to any one or more of the
Obligations, to pay or provide your Head Office or any of your Branches or
correspondents with any amount of money that is other than that which is locally
in common circulation at the time as currency in the place where such agreement
is made, and such amount is not actually paid or provided at and when agreed or
within such time as you may deem reasonable, the undersigned will, upon request
and as you may elect, either pay or provide the amount in the exact currency and
place as agreed by the
<PAGE> 15
Borrower or pay or provide you in the City of New York with the equivalent of
the amount in U.S. dollars at your then prevailing rate for sales of the kind of
currency agreed to be paid or provided for transfer by cable to a place where it
is current on condition that the undersigned obtains necessary permission from
the Korean Government in case such permission is required under the Korean laws
and regulations concerning foreign exchange control then in force.
III. As security for any and all liabilities of the undersigned to you,
now existing or hereafter arising hereunder, or otherwise, you are hereby given
the right to retain, and you are hereby given a lien upon any and all moneys or
other property (i.e., good and merchandise, as well as any and all documents
relative thereto; also funds, securities, choses in action and any and all other
forms of property whether real, personal or mixed, and any right, title or
interest of the undersigned therein or thereto), and/or the proceeds thereof,
which have/has been or may hereafter be, deposited or left with you (or with any
third party acting on your behalf) by or for the account or credit of the
undersigned, including (without limitation of the foregoing) that in safekeeping
or in which the undersigned may have any interest. All remittances and property
shall be deemed left with you as soon as put in transit to you by mail or
carrier. In the event of the happening of any one or more of the following, to
wit: (a) the non-payment of any of the Obligations after any applicable grace
period; (b) the dissolution or termination of existence of the Borrower or the
undersigned; (c) any petition in bankruptcy being filed by or against the
Borrower or the undersigned, or any proceedings in bankruptcy, or under any laws
or regulations of any jurisdiction relating to the relief of debtors, being
commenced for the relief or readjustment or any indebtedness of the Borrower or
the undersigned, either through reorganization, composition, extension or
otherwise; (d) the making by the Borrower or the undersigned of an assignment
for the benefit of creditors or the commencement of any proceedings by either of
the same of any insolvency law; (e) the appointment of a receiver of any
property of the Borrower or the undersigned undismissed after 45 days; (f) any
seizure, vesting or intervention by or under authority of a government, by which
the management of either the Borrower or the undersigned is displaced or its
authority in the conduct of its business is curtailed; (g) the attachment or
distraint of any funds or other property of the Borrower or the undersigned
which may be in, or come into, your possession or under your control, or that of
any third party acting for you, or of the same becoming subject at any time to
any mandatory order of court or other legal process -- then, or at any time(s)
any such event exists, any or all of the Obligations shall, at your option,
become (for the purposes of this guaranty) immediately due and payable by the
undersigned, without demand or notice. Furthermore, in any such event, full
power and authority are hereby given you to sell, assign, and deliver the whole
or any of the property upon which you have hereinbefore been given a lien, at
any broker's board, or at public or private sale, at your option, either for
cash or on credit or for future delivery, without assumption of any credit risk,
and without either demand, advertisement or notice of any kind, all of which are
hereby
<PAGE> 16
expressly waived, and no delay on your part in exercising any power of sale or
any other rights or options hereunder, and no notice or demand, which may be
given to or made upon the undersigned by you with respect to any power of sale
or other right or option hereunder, shall constitute a waiver thereof, or limit
or impair your right to take any action or to exercise any power of sale or any
other rights hereunder, without notice or demand, or prejudice your rights as
against the undersigned in any respect. At any sale hereunder, you may purchase
the whole or any part of the property sold, free from any right of redemption on
the part of the undersigned, all such rights being also hereby waived and
released. In the event of any sale or other disposition of any of the property
aforesaid, after deducting all costs or expenses of every kind for care,
safekeeping, collection, sale, delivery or otherwise, you shall, after applying
the residue of the proceeds of the sale, or other disposition thereof, to the
payment or reduction (in whole or in part) of the principal and/or interest (as
you may elect) then owing on the Obligations, and after making proper allowance
for interest on Obligations not then due, return any excess to the undersigned,
all without prejudice to your rights as against the undersigned with respect to
any and all amounts which may then be or remain unpaid on any Obligations.
IV. The undersigned hereby consents and agrees that you may at any
time, or from time to time, in your discretion; (1) extend or change the time of
payment, and/or the manner, place or terms of payment of all or any of the
Obligations; (2) exchange, release, fail to perfect, and/or surrender all or any
of the collateral security, or any part(s) thereof, by whomsoever deposited,
which is now or may hereafter be held by you in connection with all or any of
the Obligations; (3) sell and/or purchase all or any such collateral at public
or private sale, or at any broker's board and after deducting all costs and
expenses of every kind for collection, sale or delivery, the net proceeds of any
such sale(s) may be applied by you upon all or any of the Obligations: and (4)
settle or compromise with the Borrower, and/or any other person(s) liable
thereon, any and all of the Obligations, and/or subordinate the payment of same,
or any part(s) thereof, to the payment of any other debts or claims, which may
at any time(s) be due or owing to you and/or any other person(s) or
corporation(s); all in such manner and upon such terms as you may deem proper,
and without notice to or further assent from the undersigned, it being hereby
agreed that the undersigned shall be and remain bound upon this guaranty,
irrespective of the existence, value or condition of any collateral, and
notwithstanding any such change, exchange, settlement compromise, surrender,
release, sale, application, renewal or extension, and notwithstanding also that
the Obligations may at any time(s) exceed the aggregate principal sum
hereinabove prescribed. The liability of the undersigned under this guaranty
shall be unconditional irrespective of (i) any amendment or waiver or consent to
departure from the terms of any Obligation provided that any such amendment dose
not relate to an increase in the amount of the Obligation or an extension of the
maturity of such Obligation which has not been consented to by the undersigned,
(ii) any change in the corporate existence, structure or ownership of the
<PAGE> 17
Borrower, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Borrower or its assets or any resulting release or
discharge of any of the Obligations, (iii) the existence of any claim, set-off
or other rights which the undersigned may have at any time against the
Borrower, you, or any other corporation or person, whether in connection
herewith or any unrelated transactions, provided that nothing herein shall
prevent the assertion of any such claim by separate suit or compulsory
counterclaim, and (iv) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Borrower or a
guarantor.
V. The undersigned hereby waives notice of acceptance of this
guaranty, and also presentment, demand, protest and notice of dishonor of any
and all of the Obligations, and promptness in commencing suit against any party
thereto or liable thereon, and/or in giving any notice to or of making any claim
or demand hereunder upon the undersigned, and any requirement that you exhaust
any right or take any action against the Borrower or any collateral security.
This guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any Obligation is rescinded or must otherwise
be returned by you upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made. No act or
omission of any kind on your part in the premises shall in any event affect or
impair this guaranty.
VI. This is a continuing guaranty and shall (i) remain in full force
and effect until written notice shall have been received by you from the
undersigned (or the successor or legal representative of the undersigned) that
it has been revoked, but any such notice shall not release the undersigned from
any liability as to any Obligations, which may be held by you, or in which you
may have any interest, at the time of the receipt of such notice; (ii) be
binding upon the undersigned, the heirs, executors, administrators, successors
and assigns of the undersigned, and shall inure to the benefit of, and be
enforceable by, you, your successors, transferees and assigns; and (iii) be
deemed to have been made under and shall be governed by the laws of Korea in all
respects, including matters of construction, validity and performance, and it is
understood and agreed that none of its terms or provisions may be waived,
altered, modified or amended except in writing duly signed for and on your
behalf.
VII. If this guaranty is executed by two or more parties, they shall be
severally liable hereunder, and the word "undersigned" wherever used herein
shall be construed to refer to each of such parties separately, all in the same
manner and with the same effect as if each of them had signed separate
instruments; and in any such case this guaranty shall not be revoked or
impaired as to any one or more of such parties by the death of any of the others
or by the revocation or release of any liabilities hereunder of any one or more
of such other parties.
<PAGE> 18
VIII. Any and all payments by the undersigned hereunder shall be made
free and clear of and without deduction for any and all present of future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding (i) taxes imposed on your overall net income, (ii)
franchise taxes imposed on you in lieu of net income taxes by the jurisdiction
under the laws of which you are organized or any political subdivision thereof,
and (iii) if applicable, taxes imposed on your overall net income, and franchise
taxes imposed on you in lieu of net income taxes, by the jurisdiction of your
lending office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the undersigned shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this paragraph) you will receive an amount equal to the sum you would have
received had no such deductions been made, (ii) the undersigned shall make such
deductions and (iii) the undersigned shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law. In addition, the undersigned agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, performing under or otherwise with respect to, this
guaranty or the Obligations (hereinafter referred to as "Other Taxes" within 30
days of any payment of Taxes, the undersigned will furnish to you the original
or a certified copy of a receipt evidencing payment thereof. The undersigned
will indemnify you for the full amount of Taxes or Other Taxes (including,
without limitation, any taxes imposed by any jurisdiction on amounts payable
under this paragraph) paid by you or any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted, within 30 days of
your request therefor. Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations of the undersigned contained in
this paragraph shall survive the payment in full of the Obligations and
principal and interest hereunder and any termination or revocation of this
guaranty. In the case of any payment hereunder by or on behalf of the Guarantor
through an account or branch outside the United States or on behalf of the
Guarantor by a payer that is not a United States person, if the Guarantor
determines that no Taxes are payable in respect thereof, the Guarantor shall
furnish, or shall cause such payer to furnish, to the Administrative Agent, at
such address, an opinion of counsel acceptable to the Administrative Agent
stating that such payment is exempt from Taxes. For purpose of the preceding
sentence, the terms "United States" and "United States person" shall have the
meanings specified in Section 7701 of the Internal Revenue Code.
IX. Notwithstanding any other provision of this guaranty, until
payment in
<PAGE> 19
full of the Obligations after termination of any of your commitments with
respect thereto, (i) the undersigned hereby irrevocably waives any right to
assert, enforce, or otherwise exercise any right of subrogation to any of the
rights, security interests, claims, or liens which you have against the Borrower
in respect to the Obligations, (ii) the undersigned shall have no right of
recourse, reimbursement, contribution, indemnification, or similar right that
the undersigned may have (by contract or otherwise) against the Borrower in
respect of the Obligations, and (iii) the undersigned hereby irrevocably waives
any and all of the foregoing rights and also irrevocably waives the benefit of,
and any right to participate in, any collateral or other security given to you
to secure payment of the Obligations.
X. If the undersigned shall fail to pay any of its obligations
hereunder when the same shall become due and payable, you are hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by you to or for the credit or account of the undersigned against any and all of
the Obligations, whether or not you shall have made any demand under this
guaranty. You agree promptly to notify the undersigned after any such set-off
and application, provided that the failure to give such notice shall not affect
the validity of such set-off and application. Your rights under this paragraph
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which you may have.
XI. The undersigned hereby represents and warrants as follows: (i) the
execution, delivery and performance by the undersigned of this guaranty are
within its corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (x) its articles of incorporation or
by-laws or (y) law or any contractual restriction binding on or affecting it or
any entity that controls it; (ii) all authorizations, approvals, consents,
licenses, exemptions, filings, registrations and other requirements of
governmental, judicial and public bodies and authorities of or in Korea required
of the Guarantor in connection with the entry into and performance of this
Guaranty have been obtained and are in full force and effect, except that the
undersigned is required to report to its designated foreign exchange trading
bank any payment to be made under this Guaranty at the time of making each such
payment; and (iii) this guaranty has been duly executed and delivered by the
undersigned, and is the legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms,
XII. The undersigned covenants and agrees that, so long as any part of
the Obligations shall remain unpaid or any Lender shall have any commitment to
lend under either Credit Agreement, (a) the Tangible Net Worth of the
undersigned on the last day of any fiscal quarter shall be not less than the sum
of (i) 70% of the Tangible Net Worth as of December 31, 1997 plus (ii) 50% of
positive Net Income of the undersigned
<PAGE> 20
for each fiscal year of the undersigned beginning with the fiscal year ending
December 31, 1998 and (b) the undersigned shall maintain a ratio of current
assets to current liabilities greater than or equal to 0.8. "Tangible Net Worth"
shall mean the excess of (x) total tangible assets over (y) total liabilities,
and "Net Income" shall mean the difference, after taxes, between total revenues
and total costs and expenses.
XIII. Delivery of an executed counterpart of a signature page to this
guaranty by telecopier shall be effective as delivery of a manually executed
counterpart of this guaranty.
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
---------------------------------------
Name Hyung Byuk Kim
Title Representative Director
<PAGE> 21
[BAE, KIM & LEE LETTERHEAD]
June 1, 1998
To: Each of the Lenders parties to the US$31,000,000 Credit
Agreement dated as of August 29, 1996, among Maxtor
Corporation, said Lenders and Citibank, N.A., as
Administrative Agent for said Lenders; and
Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Heavy Industries
Co., Ltd. (the "GUARANTOR") in connection with a Corporate Guaranty (the
"GUARANTY") dated May 22, 1998 issued by the Guarantor in favor of the Lenders
and the Administrative Agent for the purpose of guaranteeing the obligations of
Maxtor Corporation as the Borrower under the above-mentioned Credit Agreement
(the "CREDIT AGREEMENT") as amended by a certain amendment agreement thereto
dated August 27, 1997 and further amended by a certain waiver and amendment no.
1 to the credit agreement (the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms
defined in the Credit Agreement and Amendment Agreement are used herein as
therein defined and the term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section
4(d) of the Amendment Agreement.
For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty;
<PAGE> 22
BAE, KIM & LEE
June 1, 1998
Page 2
(d) the Articles of Incorporation of the Guarantor;
(e) the Regulations of the Board of Directors of the
Guarantor;
(f) Commercial Registry extracts regarding the Guarantor;
(g) the Approval of the Guarantor's Representative Director in
respect of the Guaranty;
(h) the report to, and acceptance thereof by, the designated
foreign exchange trading bank in respect of the Guaranty;
and
(i) such other documents as we have considered necessary or
relevant in order for us to provide this opinion.
In giving this opinion we have assumed that:
(i) the authenticity of all signatures, seals, stamps and
markings;
(ii) that all documents submitted to us as originals are
authentic, complete and up-to-date, all documents
submitted to us as copies conform to the originals, and
that all factual statements made in such documents are
correct and we have relied on them without further
enquiry;
(iii) that the Credit Agreement and Amendment Agreement and any
other agreement or instrument thereunder have been validly
authorized, signed and delivered by the parties thereto
(other than the Guarantor) in accordance with applicable
laws;
(iv) that the Credit Agreement and Amendment Agreement and any
other agreements or instruments thereunder constitute or
will constitute legal, valid and binding obligations of
each of the parties thereto enforceable in accordance with
its terms respectively under the laws of the State of New
York by which the Credit Agreement and Amendment Agreement
and any other agreement or instrument are expressed to be
governed;
(v) that the copies of the Articles of Incorporation of, the
Regulations of the Board of Directors of and the
Commercial Registry extracts relating to, the Guarantor
referred to in paragraphs (d) through (f) above are true,
complete, accurate and up-to-date; and
<PAGE> 23
BAE, KIM & LEE
June 1, 1998
Page 3
(vi) that the Approval of the Guarantor's Representative
Director referred to in paragraph (g) above was duly
executed and that such Approval has not been amended or
rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the laws
of Korea are concerned:
(1) The Guarantor is a limited liability company, duly
organized and validly existing under the laws of Korea,
with full power and authority to enter into and perform
the Guaranty.
(2) The Guarantor has taken all necessary corporate action to
authorize the entry into and performance of the Guaranty
and the transactions contemplated thereby.
(3) The Guaranty constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with
its terms and is in proper form for its enforcement in the
courts of Korea.
(4) The entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate (i)
any law or regulation of Korea or any judicial order in
Korea or (ii) the constitutional documents of the
Guarantor.
(5) All authorizations, approvals, consents, licenses,
exemptions, filings, registrations and other requirements
of governmental, judicial and public bodies and
authorities of or in Korea required of the Guarantor in
connection with the entry into and performance of the
Guaranty have been obtained and are in full force and
effect, except that the Guarantor is required to report
any payment to be made under the Guaranty at the time of
making each such payment to its designated foreign
exchange trading bank.
(6) The obligations of the Guarantor under the Guaranty rank
at least pari passu with all its other present or future
unsecured and unsubordinated obligations of the Guarantor
except for those preferred by operation of law applicable
to companies generally.
<PAGE> 24
BAE, KIM & LEE
June 1, 1998
Page 4
(7) All amounts payable by the Guarantor under the Guaranty
may be made free and clear of and without deduction for or
on account of any taxes imposed, assessed or levied in
Korea or by any authority thereof or therein except,
however, that although the tax laws of Korea are not
entirely clear as to whether payment of any interest by
the Guarantor under the Guaranty may be made without
withholding of Korean taxes, the Korean tax authorities
may require the Guarantor to withhold Korean taxes from
such interest payment. In the event of Korean taxes being
imposed on interest payments, the guarantor's obligation
to bear the cost of such tax under the Guaranty would
become operative.
(8) Neither the Guarantor nor any of its property (except such
property specifically protected by law) has any immunity
from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to
judgment, attachment in aid of execution or otherwise)
under the laws of Korea.
(9) To ensure the enforceability or admissibility in evidence
of this Guaranty in Korea, it is not necessary that this
Guaranty or any other document or instrument be filed or
recorded with any court or other authority in Korea.
Our opinion is subject to the following general qualifications:
(i) the obligations of the Guarantor under the Guaranty may be
limited or affected by the bankruptcy law, the corporate
reorganization law, the compulsory composition law and
other similar laws which generally affect the rights of
creditors; and
(ii) the remedies of specific performance or injunction might
not necessarily be available in Korea with respect to any
particular provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by
you and your counsel.
Yours faithfully,
/s/ BAE, KIM & LEE
----------------------------
Bae, Kim & Lee
<PAGE> 25
- --------------------------------------------------------------------------------
HANDLING PERIOD
-----------------
APPLICATION FOR THE VALIDATION OF GUARANTY
- --------------------------------------------------------------------------------
Tradename Hyundai Heavy Industries Co., Ltd.
----------------------------------------------------------------
APPLICANT Address 1, Cheonha-dong, Ulsan, Kyurgnam, Korea
----------------------------------------------------------------
Name of CEO Hyung Byuk Kim
----------------------------------------------------------------
Business area Manufacturing
- --------------------------------------------------------------------------------
Obligee(Lender) Citibank and other financial institution
acceptable to Agent
----------------------------------------------------------------
DETAILS OF Obligee(Guarantor) Hyundai Heavy Industries Co., Ltd.
----------------------------------------------------------------
APPLICATION Beneficiary(Borrower) Maxtor Corporation
----------------------------------------------------------------
Amount USD31,000,000.-
----------------------------------------------------------------
Effective period Until August 28, 1998
----------------------------------------------------------------
Purpose Working Capital
----------------------------------------------------------------
Repayment Lump Sum Repayment at marturity
- --------------------------------------------------------------------------------
We hereby apply for the validation of Guaranty in accordance with the
Article 21 of Korea Foreign Exchange Control Regulation.
1998
To : Applicant No. of Validation Singosuri0696-Keumyungl2-
---------------------------------------------
Your application for the
Validation of Validated amount USD31,000,000.-
---------------------------------------------
Guaranty 15 approved. Effective period Until August 28, 1998
Condition : N/A
---------------------------------------------
1998
Confirmation by the Authorized Foreign Exchange Bank
On the basis of Korea Foreign Exchange Control Regulation, we as the
authorized bank, hereto affix the seal of us in testimony of approval.
THE PRESIDENT OF KOREA EXCHANGE BANK (SEAL)
(KYE-DONG BRANCH)
- --------------------------------------------------------------------------------
<PAGE> 26
May 27, 1998
To: Each of the Lenders parties to the
U$31,000,000 Credit Agreement dated as of
August 29, 1996 among Maxtor Corporation, said
Lenders and Citibank, N.A., as Administrative
Agent for said Lenders; and
Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Heavy Industries Co.,
Ltd. (the "GUARANTOR") in connection with 2 Corporate Guaranty (the "GUARANTY")
dated May 1998 issued by the Guarantor in favor of the Lenders and the
Administrative Agent for the purpose of guaranteeing the obligations of Maxtor
Corporation as the Borrower under the above mentioned Credit Agreement (the
"CREDIT AGREEMENT") as amended by a certain amendment agreement thereto dated
August 27, 1997 and further amended by a certain waiver and amendment no. 1 to
the credit agreement(the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms
defined in the Credit Agreement and Amendment Agreement are used herein as
therein defined the term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the
Amendment Agreement. For the purpose of this opinion, I have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty; and
(d) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide
this opinion.
Based on the foregoing, I am of the opinion that, so far as the laws of Korea
are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
/s/ Y. B. KIM
- ------------------------------
Y. B. Kim
Corporate Counsel
<PAGE> 27
HYUNDAI HEAVY INDUSTRIES CO., LTD.
CERTIFICATE
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of Hyundai
Heavy Industries Co., Ltd., a corporation duly organized and existing under the
laws of the Republic of Korea with its registered head office at 1,
Cheonha-dong, Ulsan, Kyungnam, Korea (the "COMPANY"), does hereby certify:
(1) that attached hereto as EXHIBIT A is a true and correct copy of the
approval of the Representative Director of the Company approving,
among other things, the execution, delivery and performance by the
Company of a guaranty (the "GUARANTY") in favour of the banks,
financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT
AGREEMENT") dated August 29, 1996 as amended by a certain amendment
agreement thereto dated August 27, 1997 and as further amended by a
certain waiver and amendment no. 1 to the Credit Agreement in
relation to the obligations of Maxtor Corporation (the "BORROWER")
under a credit facility (the "FACILITY") extended by the Lenders to
the Borrower in an aggregate principal amount of up to
US$31,000,000, which approval has not been amended or rescinded and
are in full force and effect on the date hereof; and
(2) that attached hereto as EXHIBIT B is a true and correct copy of the
report to and acceptance thereof by its designated foreign exchange
trading bank of the Company in respect of the Guaranty, together
with an accurate English translation thereof.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings, when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal as of
this 29th day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
--------------------------------
Name: Hyung Byuk Kim
Title : Representative Director
<PAGE> 28
HYUNDAI HEAVY INDUSTRIES CO., LTD.
APPROVAL OF THE REPRESENTATIVE DIRECTOR
OF
HYUNDAI HEAVY INDUSTRIES CO., LTD.
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of
Hyundai Heavy Industries Co., Ltd. (the "COMPANY"), approves the execution,
delivery and performance by the Company of a guaranty (the "GUARANTY") in favour
of the banks, financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT AGREEMENT")
dated August 29, 1996 as amended by a certain amendment agreement thereto dated
August 27, 1997 and as further amended by a certain waiver and amendment no. 1
to the Credit Agreement in relation to the obligations of Maxtor Corporation
(the "BORROWER") under a credit facility (the "FACILITY") extended by the
Lenders to the Borrower in an aggregate principal amount of up to US$31,000,000.
Terms defined in the Credit Agreement and Guaranty shall have the
same respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and
seal as of this 29th day of May, 1998,
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO.,
LTD.
By /s/ HYUNG BYUK KIM
---------------------------------
Name: Hyung Byuk Kim
Title : Representative Director
<PAGE> 1
EXHIBIT 10.64
WAIVER AND AMENDMENT NO. 1
TO THE CREDIT AGREEMENT
Dated as of May 22, 1998
WAIVER AND AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among, Maxtor
Corporation, a Delaware corporation (the "Borrower") and Nomura Bank
International p1c (the "Lender").
PRELIMINARY STATEMENTS:
(1) The Borrower and the Lender have entered into a 364-Day Credit
Agreement dated as of October 31, 1997 (the "Credit Agreement"). Capitalized
terms not otherwise defined in this Amendment have the same meanings as
specified in the Credit Agreement.
(2) Hyundai Electronics Industries, Co., Ltd. ("HEI") has released its
1997 year end financial statements, which financial statements indicate that HEI
is in default of the financial covenant set forth in Section XI(a) of the
Guaranty (the "HEI Default").
(3) The Borrower has requested that the Lender waive the HEI Default,
amend certain provisions of the Credit Agreement and accept Hyundai Heavy
Industries Co., Ltd. as a guarantor in the place of HEI.
(4) The Lender is, on the terms and conditions stated below, willing to
grant the request of the Borrower and the Borrower and the Lender have agreed to
amend the Credit Agreement as hereinafter set forth.
SECTION 1. Waivers. Effective as of the date of the origination of the
HEI Default and subject to the satisfaction of the conditions precedent set
forth in Section 4, the Lender hereby (a) waives Section 6.01(c)(ii) of the
Credit Agreement to the extent of the HEI Default, (b) waives Section 6.01(d) of
the Credit Agreement to the extent that the HEI Default constitutes an event or
condition that would permit the acceleration of the maturity of any Debt
referred to in Section 6.01(d), but only so long as the maturity of such Debt
has not been accelerated and (c) agrees that the HEI Default or cross defaults
caused by the HEI Default does not constitute a Material Adverse Change.
<PAGE> 2
SECTION 2. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4, hereby amended as follows:
(a) Section 1.01 is amended by deleting the definitions of
"Margin", "Guarantor", "Guaranty" and "Hyundai Group" set forth therein
and replacing them, respectively with the following new definitions:
"Margin" means, as of any date prior to April 1, 1998, a
percentage per annum equal to .73 % for the Loan and, as of any
date on or after April 1, 1998, a percentage per annum equal to
1.93 % for the Loan.
"Guarantor" means Hyundai Heavy Industries Co., Ltd., a
company incorporated with limited liability in the Republic of
Korea.
"Guaranty" means the guaranty executed by the Guarantor
in the form attached on Exhibit A to Amendment No. 1.
"Hyundai Group" means, collectively, the Guarantor,
Hyundai Merchant Marine Co., Ltd., Hyundai Corporation and
Hyundai Electronics Industries Co., Ltd.
(b) Section 1.01 is further amended by adding thereto in proper
alphabetical sequence the following definition:
"Amendment No. 1" means Waiver and Amendment No. 1 to
the Credit Agreement dated as of May 22, 1998.
(c) Section 4.01 (f) is amended by deleting therefrom, in both
places where such date appears, the date "December 31, 1996" and
substituting therefor the date "December 31, 1997".
(d) Section 5.02(b)(iii)(A) is amended in full to read as
follows:
(A) Debt incurred in connection with the Securitization
or any Debt extending the maturity of, or refunding or
refinancing, in whole or in part, any such Debt to the extent
that such Debt does not exceed $225,000,000 in the aggregate,
(e) Section 5.02(c) is amended by adding the following clause
(iii) immediately before the period at the end of such section: "and
(iii) a wholly-owned
2
<PAGE> 3
special purpose Subsidiary of the Borrower may convey, transfer or
otherwise dispose of receivables pursuant to any transaction described
in Section 5.02(b)(iii)(A)".
(f) Section 6.01(h)(ii) is amended by deleting the phrase "on
the date hereof" and substituting therefor the phrase "on the date of
Amendment No. 1".
SECTION 3. Release of HEI Guaranty. Effective as of the date of the
origination of the HEI Default and subject to the satisfaction of the conditions
precedent set forth in Section 4, the HEI Guaranty is hereby terminated as it
relates to the Credit Agreement.
SECTION 4. Conditions of Effectiveness. This Amendment is subject to the
provisions of Section 7.01 of the Credit Agreement. This Amendment shall become
effective as of the date of the origination of the HEI Default when the Lender
shall have received counterparts of this Amendment executed by the Borrower and
have additionally received all of the following documents:
(a) Certified copies of (i) the resolutions of the Board of
Directors, (ii) the approval of the Representative Director of the
Guarantor evidencing approval of the Guaranty and the matters
contemplated hereby and thereby and (iii) all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Amendment, the Guaranty and the matters contemplated
hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of
the Borrower and the Representative Director or a duly authorized
officer of the Guarantor certifying the names and true signatures of the
officers of the Borrower and the Guarantor authorized to sign this
Amendment and the Guaranty, respectively, and the other documents to be
delivered hereunder and thereunder.
(c) Counterparts of the Guaranty in the form attached as Exhibit
A hereto, executed by the Guarantor.
(d) Favorable opinions of Bae, Kim & Lee, counsel for the
Guarantor, or other Korean counsel to the Guarantor, and the Corporate
Counsel of the Guarantor, in substantially the form of Exhibits B and C
hereto and as to such other matters as the Lender may reasonably
request.
(e) A certificate signed by a duly authorized officer of the
Borrower stating that:
3
<PAGE> 4
(i) The representations and warranties contained in
Section 5 below are correct on and as of the date of such
certificate as though made on and as of such date; and
(ii) After giving effect to this Amendment, no event has
occurred and is continuing that constitutes a Default.
SECTION 5. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and, where applicable, in good standing under the laws of the
jurisdiction of its incorporation.
(b) The execution, delivery and performance by each Loan Party
of this Amendment and the Loan Documents, as amended hereby, to which it
is or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) such Loan Party's charter or by-laws or (ii) any law,
regulation (including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System) or contractual
restriction binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery and
performance by either Loan Party of this Amendment or any other Loan
Document to which it is or is to be a party, except for those
authorizations, approvals, actions, notices and filings listed on
Schedule 4.01(c) hereto, all of which have been duly obtained, taken,
given or made and are in full force and effect except that the Guarantor
is required to report to its designated foreign exchange trading bank
any payment to be made under the Guaranty at the time of making such
payment.
(d) This Amendment and the Guaranty have been duly executed and
delivered by each Loan Party party thereto. This Amendment and each of
the other Loan Documents, as amended hereby, to which the Borrower is a
party is, and the Guaranty is, the legal, valid and binding obligation
of each of the Borrower and the Guarantor, respectively, enforceable
against each such Loan Party in accordance with their respective terms.
4
<PAGE> 5
(e)(i) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 28, 1997, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Coopers &
Lybrand, independent public accountants, copies of which have been
furnished to the Lender, fairly present the Consolidated financial
condition of the Borrower and its Subsidiaries as at such date and the
Consolidated results of the operations of the Borrower and its
Subsidiaries for the period ended on such date, all in accordance with
generally accepted accounting principles consistently applied. Since
December 28, 1997, there has been no Material Adverse Change with
respect to the Borrower.
(ii) The balance sheet of the Guarantor and its Subsidiaries
as at December 31, 1997, and the related statements of income and cash
flows of the Guarantor and its Subsidiaries for the fiscal year then
ended, accompanied by an opinion of Samil Accounting Corporation, a
member firm of Coopers & Lybrand, independent public accountants, copies
of which have been furnished to the Lender, fairly present the financial
condition of the Guarantor and its Subsidiaries as at such date and the
results of the operations of the Guarantor and its Subsidiaries for the
periods ended on such date, all in accordance with generally accepted
financial accounting standards in the Republic of Korea consistently
applied. Since December 31, 1997, there has been no Material Adverse
Change with respect to the Guarantor.
(f) There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation,
any Environmental Action, affecting either Loan Party or any of its
Subsidiaries before any court, governmental agency or arbitrator that
(i) could be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Amendment, the Guaranty or any other Loan Document, as amended hereby,
or the consummation of the transactions contemplated hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) On and after the effectiveness of this Amendment, each reference in
the Credit Agreement to "the Guaranty", "thereunder", "thereof" or words of like
import referring to the Guaranty, shall mean and he a reference to the Guaranty,
as defined in the Credit Agreement as amended by this Amendment.
5
<PAGE> 6
(c) The Credit Agreement and the Notes, as specifically amended by this
Amendment, are and shall continue to be in full force and effect and are hereby
in all respects ratified and confirmed.
(d) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Lender under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Lender in connection with the preparation, execution,
delivery and administration, modification and amendment of this Amendment, the
Guaranty and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Lender) in accordance with the terms of Section 7.04 of the Credit
Agreement,
SECTION 8. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
6
<PAGE> 7
SECTION 9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR CORPORATION
By /s/ Authorized Signature
-------------------------------------
Title:
7
<PAGE> 8
NOMURA BANK INTERNATIONAL plc
as Lender
By /s/ Authorized Signature
-------------------------------------
Title: Deputy General Manager
/s/ Authorized Signature
-------------------------------------
SENIOR EXECUTIVE
<PAGE> 9
SCHEDULE 4.01(c)
REQUIRED AUTHORIZATIONS AND APPROVALS
1. Report to, and acceptance thereof, by the designated foreign exchange
trading bank in respect of the Guaranty.
9
<PAGE> 10
SCHEDULE 4.01(e)
MATERIAL ADVERSE CHANGE
1. None.
10
<PAGE> 11
MAXTOR CORPORATION
SECRETARY'S CERTIFICATE
I, Glenn H. Stevens, Secretary of Maxtor Corporation, a Delaware
corporation, do hereby certify, in connection with (i) the Waiver and Amendment
No. 1 dated May 22, 1998 (the "Waiver and Amendment") to the Credit Agreement
dated August 29, 1996 among Maxtor Corporation, the banks, financial
institutions and other institutional lenders parties, Citicorp Securities, Inc.
and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco
International Branch and Royal Bank of Canada, as co-agents, Fleet National
Bank, as manager, and Citibank, N.A., as administrative agent, (ii) the Waiver
and Amendment No. 1 dated May 22, 1998 (the "364-Day Credit Agreement Waiver
and Amendment") to the 364-Day Credit Agreement dated August 29, 1996 among
Maxtor Corporation, the banks, financial institutions and other institutional
lenders parties, Citicorp Securities, Inc. and Hanil Bank, as joint arrangers,
ABN AMRO Bank, N.V., San Francisco International Branch and Royal Bank of
Canada, as co-agents, Fleet National Bank, as manager, and Citibank, N.A., as
administrative agent and (iii) the Waiver and Amendment No. 1 dated May 22 1998
to the Credit Agreement dated October 30, 1997 between Maxtor Corporation and
Nomura International Bank plc (together with the Waiver and Amendment and the
364-Day Credit Agreement Waiver and Amendment, the "Waivers and Amendments"),
that:
1. Attached hereto as Exhibit A is a true and correct copy of
resolutions duly adopted by the Board of Directors of Maxtor at a
meeting thereof duly called and held on May 13, 1998, at which
meeting a quorum was present and acting throughout. Such
resolutions are the only resolutions regarding the Agreements, have
not been amended, modified or revoked and are in full force and
effect on the date hereof.
2. The Waivers and Amendments to which Maxtor is a party, as executed
and delivered on behalf of Maxtor, are substantially in the form
thereof approved by the Board of Directors referred to in paragraph
1 hereof.
3. The below named persons, who include all persons who, as officers
of Maxtor, executed and delivered the Waivers and Amendments, were
on the date of such execution, and are on the date hereof, duly
appointed, qualified and acting as such officers holding their
respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine
signatures:
Name Office Signature
---- ------ ---------
Michael R. Cannon President and Chief
Executive Officer ---------------------
Paul J. Tufano Vice President Finance,
i
<PAGE> 12
and Chief Financial
Officer /s/ PAUL J. TUFANO
-----------------------
Raja Venkatesh Corporate Treasurer /s/ RAJA VENKATESH
-----------------------
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ GLENN H. STEVENS
--------------------------------
Glenn H. Stevens, Secretary
I, Paul J. Tufano, Vice President of Maxtor Corporation, do hereby
certify that Glenn H. Stevens has been duly appointed and has duly qualified as,
and on this day is, Secretary of Maxtor Corporation, and the signature above is
his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ PAUL J. TUFANO
---------------------------------
Paul J. Tufano
ii
<PAGE> 13
RESOLUTIONS OF THE BOARD OF DIRECTORS OF MAXTOR CORPORATION
Dated: May 13, 1998
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Credit Agreement") dated August 29, 1996 with the banks, financial institutions
and other institutional lenders parties (collectively, the "Lenders"), Citicorp
Securities, Inc. and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San
Francisco International Branch and Royal Bank of Canada, as co-agents.
WHEREAS, the Corporation has entered into a 364-Day Credit Agreement
(the "364-Day Credit Agreement") dated August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the "364-Day
Credit Agreement Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint
arrangers, ABN AMRO Bank, N.V., San Francisco International Branch and Royal
Bank of Canada, as co-agents, Fleet National Bank, as manager, and Citibank,
N.A., as administrative agent.
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Nomura Credit Agreement") dated October 30, 1997 with Nomura International Bank
plc (together with the Lenders and the 364-Day Credit Agreement Lenders, the
"Maxtor Lenders").
WHEREAS, under such Credit Agreements, Hyundai Electronics Industries,
Co., Ltd. ("HEI") guaranteed the payments of Maxtor Corporation to the Maxtor
Lenders under a guaranty (the "Guaranty").
WHEREAS, HEI released its 1997 year end financial statements, which
financial statements indicate that HEI is in default of the financial covenants
of the Guaranty, (the "HEI Default").
NOW, THEREFORE, BE IT RESOLVED, that it is in the best interests of the
Corporation in order to ensure the availability of working capital to the
Corporation to request that the Maxtor Lenders waive the HEI Default.
RESOLVED FURTHER, that it is in the best interests of the Corporation to
enter into the (i) Waiver and Amendment No. 1 dated May 22, 1998 to the Credit
Agreement, (ii) Waiver and Amendment No. 1 dated May 22, 1998 to the 364-Day
Credit Agreement and (iii) Waiver and Amendment No. 1 dated May 22, 1998 to the
Nomura Credit Agreement (together the "Waivers and Amendments").
RESOLVED FURTHER, that the Waivers and Amendments and the performance by
the Corporation of its obligations under the Waivers and Amendments, be, and the
same hereby are, in all respects approved, and that the Chairman of the Board of
Directors of the Corporation, the President, any Vice
<PAGE> 14
President or the Treasurer of the Corporation (each an "Authorized Officer") be,
and each of them hereby is, authorized and directed (any one of them acting
alone), in the name and on behalf of the Corporation, to execute and deliver the
Waivers and Amendments, each in the form as the Authorized Officer of the
Corporation executing the same shall approve, such approval to be conclusively
evidenced by his or her execution and delivery thereof; and
RESOLVED FURTHER, that prior to the execution of the Waivers and
Amendments, the Authorized Officers are, and each hereby is, authorized to
negotiate and agree on the terms and conditions of each of the Waivers and
Amendments as such Authorized Officers, or any one of them, in his, her or their
sole discretion, deem to be in the best interests of the Corporation; and
RESOLVED FURTHER, that the Authorized Officers be, and each of them
hereby is, authorized and empowered (any one of them acting alone) to do or
cause to be done all such acts or things and to sign and deliver, or cause to be
signed and delivered, all such documents, instruments and certificates
(including, without limitation, all notices and certificates required or
permitted to be given or made under the terms of the Waivers and Amendments) and
to pay all such expenses, in the name and on behalf of the Corporation or
otherwise as such Authorized Officer may deem necessary, advisable or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions and to perform the obligations of the Corporation under the Waivers
and Amendments and the other agreements and instruments as referred to above or
referred to therein; and
RESOLVED FURTHER, that the Corporation hereby authorizes, ratifies,
confirms and adopts in all respects all acts of the officers of the Corporation,
and of any person designated and authorized to act by an officer of the
Corporation, heretofore done or performed by such person in connection with the
acts and transactions approved by these resolutions.
<PAGE> 15
Filed with the minutes of the proceedings of the Board of Directors by
the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
----------------------------------------
Secretary
<PAGE> 16
GUARANTY
May 29, 1998
To Nomura Bank International plc
I. For and in consideration of any indebtedness to you under the 364 Day
Credit Agreement (as amended to date, the "Credit Agreement") dated as of
October 31, 1997 between you and Maxtor Corporation, a Delaware corporation
having an address at 510 Cottonwood Drive, Milpitas, California 95035
(hereinafter called the "Borrower"), and the Note (as defined in the Credit
Agreement) for the payment of which the undersigned is now obligated to you,
either as guarantor or otherwise, and/or in order to induce you, in your
discretion, at any time(s) hereafter, to make any loan(s) or advance(s) or to
extend credit in any other manner to, or at the request of or for the account
of, the Borrower, either with or without security, under the Credit Agreement,
(all liabilities and obligations of the Borrower to you under the Credit
Agreement and the Note (as defined in the Credit Agreement) being hereinafter
referred to as "Obligations"), the undersigned does hereby unconditionally
GUARANTEE and INDEMNIFY the punctual payment when due to you of each and all of
the Obligations, together with interest thereon and any and all expenses which
may be incurred by you in collecting all or any of the Obligations and/or in
enforcing any rights hereunder.
II. It is understood and agreed that (i) the undersigned guarantees that
the Obligations will be paid to you strictly in accordance with the terms and
provisions of the Credit Agreements. In reference thereto, regardless of any
law, regulation or decree, now or hereafter in effect, which might in any manner
affect any of the terms or provisions of the Credit Agreements or your rights
with respect thereto as against the Borrower, or cause or permit to be invoked
any alteration in the time, amount or manner of payment by the Borrower of any
of the Obligations, and (ii) in each instance when the Borrower shall have
agreed, relative to any one or more of the Obligations, to pay or provide your
Head Office or any of your branches or correspondents with any amount of money
that is other than that which is locally in common circulation at the time as
currency in the place where such agreement is made, and such amount is not
actually paid or provided at and when agreed or within such time as you may deem
reasonable, the undersigned will, upon request and as you may elect, either pay
or provide the amount in the exact currency and place as agreed by the Borrower
or pay or provide you in the City of New York with the equivalent of the amount
in U.S. dollars at your then prevailing rate for sales of the kind of currency
agreed to be paid or provided for transfer by cable to a place where it is
current on condition that the undersigned obtains necessary permission from the
Korean Government in case such permission is required under the Korean laws and
regulations concerning foreign exchange control then in force.
III. As security for any and all liabilities of the undersigned to you,
now
<PAGE> 17
existing or hereafter arising hereunder, or otherwise, you are hereby given the
right to retain, and you are hereby given a lien upon any and all moneys or
other property (i.e., good and merchandise, as well as any and all documents
relative thereto; also funds, securities, choses in action and any and all
other forms of property whether real, personal or mixed, and any right, title or
interest of the undersigned therein or thereto), and/or the proceeds thereof,
which have/has been or may hereafter be, deposited or left with you (or with any
third party acting on your behalf) by or for the account or credit of the
undersigned, including (without limitation of the foregoing) that in safekeeping
or in which the undersigned may have any interest. All remittances and property
shall be deemed left with you as soon as put in transit to you by mail or
carrier. In the event of the happening of any one or more of the following, to
wit: (a) the non-payment of any of the Obligations after any applicable grace
period; (b) the dissolution or termination of existence of the Borrower or the
undersigned; (c) any petition in bankruptcy being filed by or against the
Borrower or the undersigned, or any proceedings in bankruptcy, or under any laws
or regulations of any jurisdiction relating to the relief of debtors, being
commenced for the relief or readjustment or any indebtedness of the Borrower or
the undersigned, either through reorganization, composition, extension or
otherwise; (d) the making by the Borrower or the undersigned of an assignment
for the benefit of creditors or the commencement of any proceedings by either
of the same of any insolvency law; (e) the appointment of a receiver of any
property of the Borrower or the undersigned undismissed after 45 days; (f) any
seizure, vesting or intervention by or under authority of a government, by which
the management of either the Borrower or the undersigned is displaced or its
authority in the conduct of its business is curtailed; (g) the attachment or
distraint of any funds or other property of the Borrower or the undersigned
which may be in, or come into, your possession or under your control, or that of
any third party acting for you, or of the same becoming subject at any time to
any mandatory order of court or other legal process -- then, or at any time(s)
any such event exists, any or all of the Obligations shall, at your option,
become (for the purposes of this guaranty) immediately due and payable by the
undersigned, without demand or notice. Furthermore, in any such event, full
power and authority are hereby given you to sell, assign, and deliver the whole
or any of the property upon which you have hereinbefore been given a lien, at
any broker's board, or at public or private sale, at your option, either for
cash or on credit or for future delivery, without assumption of any credit risk,
and without either demand, advertisement or notice of any kind, all of which are
hereby expressly waived, and no delay on your part in exercising any power of
sale or any other rights or options hereunder, and no notice or demand, which
may be given to or made upon the undersigned by you with respect to any power of
sale or other right or option hereunder, shall constitute a waiver thereof, or
limit or impair your right to take any action or to exercise any power of sale
or any other rights hereunder, without notice or demand, or prejudice your
rights as against the undersigned in any respect. At any sale hereunder, you may
purchase the whole or any part of the property sold, free from any right of
redemption on the part of the undersigned, all such rights being also hereby
<PAGE> 18
waived and released. In the event of any sale or other disposition of any of the
property aforesaid, after deducting all costs or expenses of every kind for
care, safekeeping, collection, sale, delivery or otherwise, you shall, after
applying the residue of the proceeds of the sale, or other disposition thereof,
to the payment or reduction (in whole or in part) of the principal and/or
interest (as you may elect) then owing on the Obligations, and after making
proper allowance for interest on Obligations not then due, return any excess to
the undersigned, all without prejudice to your rights as against the undersigned
with respect to any and all amounts which may then be or remain unpaid on any
Obligations.
IV. The undersigned hereby consents and agrees that you may at any time,
or from time to time, in your discretion; (1) extend or change the time of
payment, and/or the manner, place or terms of payment of all or any of the
Obligations; (2) exchange, release, fail to perfect, and/or surrender all or any
of the collateral security, or any part(s) thereof, by whomsoever deposited
which is now or may hereafter be held by you in connection with all or any of
the Obligations; (3) sell and/or purchase all or any such collateral at public
or private sale, or at any broker's board, and after deducting all costs and
expenses of every kind for collection, sale or delivery, the net proceeds of any
such sale(s) may be applied by you upon all or any of the Obligations; and (4)
settle or compromise with the Borrower, and/or any other person(s) liable
thereon, any and all of the Obligations, and/or subordinate the payment of same,
or any part(s) thereof, to the payment of any other debts or claims, which may
at any time(s) be due or owing to you and/or any other person(s) or
corporation(s); all in such manner and upon such terms as you may deem proper,
and without notice to or further assent from the undersigned, it being hereby
agreed that the undersigned shall be and remain bound upon this guaranty,
irrespective of the existence, value or condition of any collateral, and
notwithstanding any such change, exchange, settlement compromise, surrender,
release, sale, application, renewal or extension, and notwithstanding also that
the Obligations may at any time(s) exceed the aggregate principal sum
bereinabove prescribed. The liability of the undersigned under this guaranty
shall be unconditional irrespective of (i) any amendment or waiver or consent to
departure from the terms of any Obligation provided that any such amendment does
not relate to an increase in the amount of the Obligation or an extension of the
maturity of such Obligation which has not been consented to by the undersigned,
(ii) any change in the corporate existence, structure or ownership of the
Borrower, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Borrower or its assets or any resulting release or
discharge of any of the Obligations, (iii) the existence of any claim, set-off
or other rights which the undersigned may have at any time against the Borrower,
you, or any other corporation or person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall prevent the assertion
of any such claim by separate suit or compulsory counterclaim, and (iv) any
other circumstance which might otherwise constitute a defense available to, or a
legal or equitable discharge of, the Borrower or a
<PAGE> 19
guarantor.
V. The undersigned hereby waives notice of acceptance of this guaranty,
and also presentment, demand, protest and notice of dishonor of any and all of
the Obligations, and promptness in commencing suit against any party thereto or
liable thereon, and/or in giving any notice to or of making any claim or demand
hereunder upon the undersigned, and any requirement that you exhaust any right
or take any action against the Borrower or any collateral security. This
guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any Obligation is rescinded or must otherwise be
returned by you upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made. No act or
omission of any kind on your part in the premises shall in any event affect or
impair this guaranty.
VI. This is a continuing guaranty and shall (i) remain in full force and
effect until written notice shall have been received by you from the undersigned
(or the successor or legal representative of the undersigned) that it has been
revoked, but any such notice shall not release the undersigned from any
liability as to any Obligations which may be held by you, or in which you may
have any interest, at the time of the receipt of such notice; (ii) be binding
upon the undersigned, the heirs, executors, administrators, successors and
assigns of the undersigned, and shall inure to the benefit of, and be
enforceable by, you, your successors, transferees and assigns; and (iii) be
deemed to have been made under and shall be governed by the laws of Korea in all
respects, including matters of construction, validity and performance, and it is
understood and agreed that none of its terms or provisions may be waived,
altered, modified or amended except in writing duly signed for and on your
behalf.
VII. Any and all payments by the undersigned hereunder shall be made
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, all liabilities with
respect thereto, excluding (i) taxes imposed on your overall net income, (ii)
franchise taxes imposed on you in lieu of net income taxes by the jurisdiction
under the laws of which you are organized or any political subdivision thereof,
and (iii) if applicable, taxes imposed on your overall net income, and franchise
taxes imposed on you in lieu of net income taxes, by the jurisdiction of your
lending office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the undersigned shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this paragraph) you will receive an amount equal to the sum you would have
received had no such deductions been made, (ii) the undersigned shall make such
deductions and (iii) the undersigned shall pay
<PAGE> 20
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law. In addition, the undersigned agrees to pay
any present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, performing under or otherwise
with respect to, this guaranty or the Obligations (hereinafter referred to as
"Other Taxes"). Within 30 days of any payment of Taxes, the undersigned will
furnish to you the original or a certified copy of a receipt evidencing payment
thereof. The undersigned will indemnify you for the full amount of Taxes or
Other Taxes (including, without limitation, any taxes imposed by any
jurisdiction on amounts payable under this paragraph) paid by you or any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted, within 30 days of your request therefor. Without prejudice to
the survival of any other agreement contained herein, the agreements and
obligations of the undersigned contained in this paragraph shall survive the
payment in full of the Obligations and principal and interest hereunder and any
termination or revocation of this guaranty. In the case of any payment hereunder
by or on behalf of the Guarantor through an account or branch outside the United
States or on behalf of the Guarantor by a payer that is not a United States
person, if the Guarantor determines that no Taxes are payable in respect
thereof, the Guarantor shall furnish, or shall cause such payer to furnish, to
the Administrative Agent, at such address, an opinion of counsel acceptable to
the Administrative Agent stating that such payment is exempt from Taxes. For
purpose of the preceding sentence, the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
VIII. Notwithstanding any other provision of this guaranty, until
payment in full of the Obligations after termination of any of your commitments
with respect thereto, (i) the undersigned hereby irrevocably waives any right to
assert, enforce, or otherwise exercise any right of subrogation to any of the
rights, security interests, claims, or liens which you have against the Borrower
in respect to the Obligations, (ii) the undersigned shall have no right of
recourse, reimbursement, contribution, indemnification, or similar right that
the undersigned may have (by contract or otherwise) against the Borrower in
respect of the Obligations, and (iii) the undersigned hereby irrevocably waives
any and all of the foregoing rights and also irrevocably waives the benefit of,
and any right to participate in, any collateral or other security given to you
to secure payment of the Obligations.
IX. If the undersigned shall fail to pay any of its obligations
hereunder when the same shall become due and payable, you are hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by you to or for the credit or account of the
<PAGE> 21
undersigned against any and all of the Obligations, whether or not you shall
have made any demand under this guaranty. You agree promptly to notify the
undersigned after any such set-off and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
Your rights under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of set off) which you may have.
X. The undersigned hereby represents and warrants as follows: (i) the
execution, delivery and performance by the undersigned of this guaranty are
within its corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (x) its articles of incorporation or
by-laws or (y) law or any contractual restriction binding on or affecting it or
any entity that controls it; (ii) all authorizations, approvals, consents,
licenses, exemptions, filings, registrations and other requirements of
governmental, judicial and public bodies and authorities of or in Korea required
of the Guarantor in connection with the entry into and performance of this
Guaranty have been obtained and are in full force and effect, except that the
undersigned is required to report to its designated foreign exchange trading
bank any payment to be made under this Guaranty at the time of making each such
payment; and (iii) this guaranty has been duly executed and delivered by the
undersigned, and is the legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms.
XI. The undersigned covenants and agrees that, so long as any part of
the Obligations shall remain unpaid or any Lender shall have any commitment to
lend under either Credit Agreement, (a) the Tangible Net Worth of the
undersigned on the last day of any fiscal quarter shall be not less than the sum
of (i) 70% of the Tangible Net Worth as of December 31, 1997 plus (ii) 50% of
positive Net Income of the undersigned for each fiscal year of the undersigned
beginning with the fiscal year ending December 31, 1998 and (b) the undersigned
shall maintain a ratio of current assets to current liabilities greater than or
equal to 0.8. "Tangible Net Worth" shall mean the excess of (x) total tangible
assets over (y) total liabilities, and "Net Income" shall mean the difference,
after taxes, between total revenues and total costs and expenses.
XII. Delivery of an executed counterpart of a signature page to this
guaranty by telecopier shall be effective as delivery of a manually executed
counterpart of this guaranty.
HYUNDAI HEAVY INDUSTRIES CO., LTD.
[SEAL]
By /s/ HYUNG BYUK KIM
------------------------------------
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 22
[LETTERHEAD OF BAC, KIM & LEE]
May 22, 1998
To: Nomura Bank International plc
Nomura House
1, St Martin's-Le-Grand
London EC1A 4NP
(the "Lender")
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Heavy Industries Co.,
Ltd. (the "GUARANTOR") in connection with a Corporate Guaranty (the "GUARANTY")
dated May 22, 1998 issued by the Guarantor in favor of the Lender for the
purpose of guaranteeing the obligations of Maxtor Corporation as the Borrower
under the above-mentioned Credit Agreement (the "CREDIT AGREEMENT") as amended
by a certain waiver and amendment no. 1 to the Credit Agreement (the "AMENDMENT
AGREEMENT") dated May 22, 1998. Terms defined in the Credit Agreement and
Amendment Agreement are used herein as therein defined and the term "Korea"
refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement.
For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty;
(d) the Articles of Incorporation of the Guarantor;
(e) the Regulations of the Board of Directors of the Guarantor;
(f) Commercial Registry extracts regarding the Guarantor;
(g) the Approval of the Guarantor's Representative Director in respect of
the Guaranty;
<PAGE> 23
Bae, Kim & Lee
May 22, 1998
Page 2.
(h) the report to, and acceptance thereof by, the designated foreign
exchange trading bank in respect of the Guaranty; and
(i) such other documents as we have considered necessary or relevant in
order for us to provide this opinion.
In giving this opinion we have assumed that:
(i) the authenticity of all signatures, seals, stamps and markings;
(ii) that all documents submitted to us as originals are authentic,
complete and up-to-date, all documents submitted to us as copies
conform to the originals, and that all factual statements made in
such documents are correct and we have relied on them without
further enquiry;
(iii) that the Credit Agreement and Amendment Agreement and any other
agreement or instrument thereunder have been validly authorized,
signed and delivered by the parties thereto (other than the
Guarantor) in accordance with applicable laws;
(iv) that the Credit Agreement and Amendment Agreement and any other
agreements or instruments thereunder constitute or will constitute
legal, valid and binding obligations of each of the parties thereto
enforceable in accordance with its terms respectively under the
laws of the State of New York by which the Credit Agreement and
Amendment Agreement and any other agreement or instrument are
expressed to be governed;
(v) that the copies of the Articles of Incorporation of, the
Regulations of the Board of Directors of and the Commercial
Registry extracts relating to, the Guarantor referred to in
paragraphs (d) through (f) above are true, complete, accurate and
up-to-date; and
(vi) that the Approval of the Guarantor's Representative Director
referred to in paragraph (g) above was duly executed and that such
Approval has not been amended or rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the laws of
Korea are concerned;
<PAGE> 24
Bae, Kim & Lee
May 22, 1998
Page 3.
(1) The Guarantor is a limited liability company, duly organized and validly
existing under the laws of Korea, with full power and authority to enter
into and perform the Guaranty.
(2) The Guarantor has taken all necessary corporate action to authorize the
entry into and performance of the Guaranty and the transactions
contemplated thereby.
(3) The Guaranty constitutes a legal, valid and binding obligation of the
Guarantor enforceable in accordance with its terms and is in proper form
for its enforcement in the courts of Korea.
(4) The entry into the Guaranty and the performance of the obligations
thereunder by the Guarantor do not violate (i) any law or regulation of
Korea or any judicial order in Korea or (ii) the constitutional documents
of the Guarantor.
(5) All authorizations, approvals, consents, licenses, exemptions, filings,
registrations and other requirements of governmental, judicial and public
bodies and authorities of or in Korea required of the Guarantor in
connection with the entry into and performance of the Guaranty have been
obtained and are in full force and effect, except that the Guarantor is
required to report any payment to be made under the Guaranty at the time
of making each such payment to its designated foreign exchange trading
bank.
(6) The obligations of the Guarantor under the Guaranty rank at least pari
passu with all its other present or future unsecured and unsubordinated
obligations of the Guarantor except for those preferred by operation of
law applicable to companies generally.
(7) All amounts payable by the Guarantor under the Guaranty may be made free
and clear of and without deduction for or on account of any taxes imposed,
assessed or levied in Korea or by any authority thereof of therein except,
however, that although the tax laws of Korea are not entirely clear as to
whether payment of any interest by the Guarantor under the Guaranty may be
made without withholding of Korean taxes, the Korean tax authorities may
require the Guarantor to withhold Korean taxes from such interest payment.
In the event of Korean taxes being imposed on interest payments, the
guarantor's obligation to bear the cost of such tax under the Guaranty
would become operative.
(8) Neither the Guarantor nor any of its property (except such property
specifically protected by law) has any immunity from jurisdiction of any
court or from any legal process (whether through service or notice,
attachment prior to judgment,
<PAGE> 25
Bae, Kim & Lee
May 22, 1998
Page 4.
attachment in aid of execution or otherwise) under the laws of Korea.
(9) To ensure the enforceability or admissibility in evidence of this
Guaranty in Korea, it is not necessary that this Guaranty or any other
document or instrument be filed or recorded with any court or other
authority in Korea.
Our opinion is subject to the following general qualifications:
(i) the obligations of the Guarantor under the Guaranty may be limited or
affected by the bankruptcy law, the corporate reorganization law, the
compulsory composition law and other similar laws which generally
affect the rights of creditors; and
(ii) the remedies of specific performance or injunction might not
necessarily be available in Korea with respect to any particular
provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by you
and your Counsel.
Yours faithfully,
/s/ BAE, KIM & LEE
-----------------------------------------
Bae, Kim & Lee
<PAGE> 26
HANDLING PERIOD
---------------
APPLICATION FOR THE VALIDATION OF GUARANTY
<TABLE>
<S> <C> <C>
Tradename Hyundai Heavy Industries Co., Ltd.
APPLICANT Address 1, Cheonha-dong, Ulsan, Kyungnam, Korea
Name of CEO Hyung Byuk Kim
Business area Manufacturing
Obligee(Lender) Nomura Bank International plc
DETAILS OF Obligor(Guarantor) Hyundai Heavy Industries Co., Ltd.
APPLICATION Beneficiary(Borrower) Maxtor Corporation
Amount USD10,000,000.
Effective period Until November 13, 1998
Purpose Working Capital
Repayment Lump Sum Repayment at maturity
</TABLE>
We hereby apply for the validation of Guaranty in accordance with the
Article 21 of Korea Foreign Exchange Control Regulation.
1998
<TABLE>
<S> <C> <C>
To: Applicant No. of Validation Singosuri0696-Keumyungl2-
Your application for the Validation of Validated amount USD10,000,000.-
Guaranty is approved. Effective period Until November 13, 1998
Condition : N/A
</TABLE>
1998
Confirmation by the Authorized Foreign Exchange Bank:
On the basis of Korea Foreign Exchange Control Regulation, we as the
authorized bank, hereto affix the seal of us in testimony of approval.
THE PRESIDENT OF KOREA EXCHANGE BANK [SEAL]
(KYE-DONG BRANCH)
<PAGE> 27
May 27, 1998
To: Nomura Bank International plc (lender)
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Heavy Industries Co., Ltd.
(the "GUARANTOR") in connection with a Corporate Guaranty (the "GUARANTY") dated
May , 1998 issued by the Guarantor in favor of Nomura Bank International plc
for the purpose of guaranteeing the obligations of Maxtor Corporation as the
Borrower under a certain credit agreement (the "CREDIT AGREEMENT") dated October
31, 1997 and entered into by and between Maxtor Corporation as borrower and
Nomura Bank International plc as lender as amended by a certain waiver and
amendment no. 1 to the Credit Agreement (the "AMENDMENT AGREEMENT") dated May
22, 1998. Terms defined in the Credit Agreement and the Amendment Agreement are
used herein as therein defined and the term "Korea" refers to the Republic of
Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement. For the purpose of this opinion, I have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty; and
(d) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide this
opinion.
Based on the foregoing, I am of the opinion that, so far as the laws of Korea
are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
/s/ Y.B. KIM
- ----------------------
Y.B. Kim
Corporate Counsel
<PAGE> 28
HYUNDAI HEAVY INDUSTRIES CO., LTD.
CERTIFICATE
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of Hyundai
Heavy Industries Co., Ltd., a corporation duly organized and existing under the
laws of the Republic of Korea with its registered head office at 1,
Cheonha-dong, Ulsan, Kyungnam, Korea (the "COMPANY"), does hereby certify:
(1) that attached hereto as EXHIBIT A is a true and correct copy of the
approval of the Representative Director of the Company approving,
among other things, the execution, delivery and performance by the
Company of a guaranty (the "GUARANTY") in favour of Nomura Bank"
International plc, named as lender (the "LENDER") in a certain
credit agreement (the "CREDIT AGREEMENT") dated October 31, 1997 as
amended by a certain waiver and amendment no. 1 to the Credit
Agreement in relation to the obligations of Maxtor Corporation (the
"BORROWER") under a credit facility (the "FACILITY") extended by the
Lender to the Borrower in an aggregate principal amount of up to
US$10,000,000, which approval has not been amended or rescinded and
are in full force and effect on the date hereof; and
(2) that attached hereto as EXHIBIT B is a true and correct copy of the
report to and acceptance thereof by its designated foreign exchange
trading bank of the Company in respect of the Guaranty, together
with an accurate English translation thereof.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal as of
this day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM [SEAL]
------------------------------
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 29
HYUNDAI HEAVY INDUSTRIES CO., LTD.
APPROVAL OF THE REPRESENTATIVE DIRECTOR
OF
HYUNDAI HEAVY INDUSTRIES CO., LTD.
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of
Hyundai Heavy Industries Co., Ltd. (the "COMPANY"), approves the execution,
delivery and performance by the Company of a guaranty (the "GUARANTY") in favour
of Nomura Bank International plc named as lender (the "LENDER") in a certain
credit agreement (the, "CREDIT AGREEMENT") dated October 31, 1997 as amended by
a certain waiver and amendment no. 1 to the Credit Agreement in relation to the
obligations of Maxtor Corporation (the "BORROWER") under a credit facility (the
"FACILITY") extended by the Lender to the Borrower in an aggregate principal
amount of up to US$10,000,000.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal
as of this day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM [SEAL]
------------------------------
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 1
EXHIBIT 10.65
WAIVER AND AMENDMENT NO. 1
TO THE CREDIT AGREEMENT
Dated as of May 22, 1998
WAIVER AND AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among, Maxtor
Corporation, a Delaware corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Citibank, N.A., as
administrative agent (the "Administrative Agent") for the Lenders.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders, Citicorp Securities, Inc. and Hanil
Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco International
Branch and Royal Bank of Canada, as co-agents, Fleet National Bank, as manager,
and the Administrative Agent have entered into a Credit Agreement dated as of
August 29, 1996 (the "Credit Agreement"). Capitalized terms not otherwise
defined in this Amendment have the same meanings as specified in the Credit
Agreement.
(2) Hyundai Electronics Industries, Co., Ltd. ("HEI") has released
its 1997 year end financial statements, which financial statements indicate that
HEI is in default of the financial covenant set forth in Section XII(a) of the
Guaranty (the "HEI Default").
(3) The Borrower has requested that the Lenders waive the HEI
Default, amend certain provisions of the Credit Agreement and accept Hyundai
Heavy Industries Co., Ltd. as a guarantor in the place of HEI.
(4) The Lenders are, on the terms and conditions stated below,
willing to grant the request of the Borrower and the Borrower and the Lenders
have agreed to amend the Credit Agreement as hereinafter set forth.
SECTION 1. Waivers. Effective as of the date of the origination of
the HEI Default and subject to the satisfaction of the conditions precedent set
forth in Section 4, the Lenders hereby waive (a) Section 6.01(c)(ii) of the
Credit Agreement to the extent of the HEI Default and (b) Section 6.01(d) of the
Credit Agreement to the extent that the HEI Default constitutes an event or
condition that would permit the acceleration of the maturity of any Debt
referred to in Section 6.01(d), but only so long as the maturity of such Debt
has not been accelerated.
<PAGE> 2
2
SECTION 2. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4, hereby amended as follows:
(a) Section 1.01 is amended by deleting the definitions of
"Applicable Margin", "Guarantor", "Guaranty" and "Hyundai Group" set forth
therein and replacing them, respectively with the following new
definitions:
"Applicable Margin" means, as of any date prior to April 1,
1998, a percentage per annum equal to 0% for Base Rate Advances and
.305% for Eurodollar Rate Advances and, as of any date on or after
April 1, 1998, a percentage per annum equal to 0% for Base Rate
Advances and 1.75% for Eurodollar Rate Advances.
"Guarantor" means Hyundai Heavy Industries Co., Ltd., a
company incorporated with limited liability in the Republic of
Korea.
"Guaranty" means the guaranty executed by the Guarantor in the
form attached on Exhibit A to Amendment No. 1.
"Hyundai Group" means, collectively, the Guarantor, Hyundai
Merchant Marine Co., Ltd., Hyundai Corporation and Hyundai
Electronics Industries Co., Ltd.
(b) Section 1.01 is further amended by adding thereto in proper
alphabetical sequence the following definition:
"Amendment No.1" means Waiver and Amendment No. 1 to the
Credit Agreement dated as of May 22, 1998.
(c) Section 2.04(a) is amended by deleting therefrom the figure
".225%" and substituting therefor the figure "0.25%".
(d) Section 4.01(e)(ii) is amended by deleting therefrom, in both
places where such date appears, the date "December 31, 1995" and
substituting therefor the date "December 31, 1997".
(e) Section 5.02(b)(iii)(A) is amended in full to read as follows:
(A) Debt incurred in connection with the
Securitization in an amount not to exceed $225,000,000 at any
time outstanding or the
<PAGE> 3
3
transactions listed on Schedule 5.02(b)(iii)(A) to the extent
(x) such item of such Debt does not exceed the amount
corresponding to each such item on such Schedule and (y) the
Debt permitted by this clause (A) does not exceed $266,000,000
in the aggregate, and any Debt extending the maturity of, or
refunding or refinancing, in whole or in part, any such Debt,
provided that the terms of any such extending, refunding or
refinancing Debt, and of any agreement entered into and of any
instrument issued in connection therewith, are otherwise
permitted by the Loan Documents, and provided further that the
principal amount of such Debt shall not be increased above the
maximum aggregate principal amount set forth above, and the
direct and contingent obligors therefor shall not be changed,
as a result of or in connection with such extension, refunding
or refinancing,
(f) Section 5.02(c) is amended by adding the following clause
(iii) immediately before the period at the end of such section: "and (iii)
a wholly-owned special purpose Subsidiary of the Borrower may convey,
transfer or otherwise dispose of receivables pursuant to any transaction
described in Section 5.02(b)(iii)(A)".
(g) Section 6.01(h)(ii) is amended by deleting the phrase "on the
date hereof" and substituting therefor the phrase "on the date of
Amendment No. 1".
SECTION 3. Release of HEI Guaranty. Effective as of the date of the
origination of the HEI Default and subject to the satisfaction of the conditions
precedent set forth in Section 4, the HEI Guaranty is hereby terminated as it
relates to the Credit Agreement.
SECTION 4. Conditions of Effectiveness. This Amendment is subject to
the provisions of Section 8.01 of the Credit Agreement. This Amendment shall
become effective as of the date of the origination of the HEI Default when the
Administrative Agent shall have received counterparts of this Amendment executed
by the Borrower and all of the Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed this
Amendment and Sections 1, 2 and 3 hereof shall become effective as of such date
when, and only when, on or before June 1, 1998 the Administrative Agent shall
have additionally received all of the following documents, each such document
(unless otherwise specified) dated the date of receipt thereof by the
Administrative Agent (unless otherwise specified) and in sufficient copies for
each Lender, in form and substance satisfactory to the Administrative Agent
(unless otherwise specified):
(a) Certified copies of (i) the resolutions of the Board of
Directors of (A) the Borrower approving this Amendment and the matters
contemplated hereby and
<PAGE> 4
4
thereby and (B) the Guarantor evidencing approval of the Guaranty and the
matters contemplated hereby and thereby and (ii) all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Amendment, the Guaranty and the matters contemplated
hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of
the Borrower and the Representative Director or a duly authorized officer
of the Guarantor certifying the names and true signatures of the officers
of the Borrower and the Guarantor authorized to sign this Amendment and
the Guaranty, respectively, and the other documents to be delivered
hereunder and thereunder.
(c) Counterparts of the Guaranty in the form attached as Exhibit A
hereto, executed by the Guarantor.
(d) Favorable opinions of Bae, Kim & Lee, counsel for the
Guarantor, or other Korean counsel to the Guarantor acceptable to the
Administrative Agent, and the Corporate Counsel of the Guarantor, in
substantially the form of Exhibits B and C hereto and as to such other
matters as any Lender through the Administrative Agent may reasonably
request.
(e) A certificate signed by a duly authorized officer of the
Borrower stating that:
(i) The representations and warranties contained in Section
5 below are correct on and as of the date of such certificate as
though made on and as of such date; and
(ii) After giving effect to this Amendment, no event has
occurred and is continuing that constitutes a Default.
SECTION 5. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and, where applicable, in good standing under the laws of the
jurisdiction of its incorporation.
(b) The execution, delivery and performance by each Loan Party of
this Amendment and the Loan Documents, as amended hereby, to which it is
or is to be a party, and the consummation of the transactions contemplated
hereby, are within such Loan Party's corporate powers, have been duly
authorized by all necessary corporate
<PAGE> 5
5
action, and do not contravene (i) such Loan Party's charter or by-laws or
(ii) any law, regulation (including, without limitation, Regulations U and
X of the Board of Governors of the Federal Reserve System) or contractual
restriction binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any
other third party is required for the due execution, delivery and
performance by either Loan Party of this Amendment or any other Loan
Document to which it is or is to be a party, except for those
authorizations, approvals, actions, notices and filings listed on Schedule
4.01(c) hereto, all of which have been duly obtained, taken, given or
made and are in full force and effect except that the Guarantor is
required to report to its designated foreign exchange trading bank any
payment to be made under the Guaranty at the time of making such payment.
(d) This Amendment and the Guaranty have been duly executed and
delivered by each Loan Party party thereto. This Amendment and each of the
other Loan Documents, as amended hereby, to which the Borrower is a party
is, and the Guaranty is, the legal, valid and binding obligation of each
of the Borrower and the Guarantor, respectively, enforceable against each
such Loan Party in accordance with their respective terms.
(e) (i) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 28, 1997, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Ernst &
Young, independent public accountants, copies of which have been furnished
to each Lender, fairly present the Consolidated financial condition of the
Borrower and its Subsidiaries as at such date and the Consolidated results
of the operations of the Borrower and its Subsidiaries for the period
ended on such date, all in accordance with generally accepted accounting
principles consistently applied. Since December 28, 1997, there has been
no Material Adverse Change with respect to the Borrower, other than as
provided on Schedule 4.01(e)(i) hereto.
(ii) The balance sheet of the Guarantor and its Subsidiaries
as at December 31, 1997, and the related statements of income and
cash flows of the Guarantor and its Subsidiaries for the fiscal year
then ended, accompanied by an opinion of Samil Accounting
Corporation, a member firm of Coopers & Lybrand, independent public
accountants, copies of which have been furnished to each Lender,
fairly present the financial condition of the Guarantor and its
Subsidiaries as at such date and the results of the operations of
the Guarantor and its Subsidiaries for the periods ended on such
date, all in accordance with generally accepted financial
<PAGE> 6
6
accounting standards in the Republic of Korea consistently applied.
Since December 31, 1997, there has been no Material Adverse Change with
respect to the Guarantor.
(f) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting either Loan Party or any of its Subsidiaries before any
court, governmental agency or arbitrator that (i) could be reasonably
likely to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of this Amendment, the Guaranty or
any other Loan Document, as amended hereby, or the consummation of the
transactions contemplated hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) On and after the effectiveness of this Amendment, each
reference in the Credit Agreement to "the Guaranty", thereunder",
"thereof" or words of like import referring to the Guaranty, shall mean
and be a reference to the Guaranty, as defined in the Credit Agreement as
amended by this Amendment.
(c) The Credit Agreement and the Notes, as specifically amended by
this Amendment, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed.
(d) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or the Administrative Agent under any
of the Loan Documents, nor constitute a waiver of any provision of any of
the Loan Documents.
SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses of the Administrative Agent in connection with the
preparation, execution, delivery and administration, modification and amendment
of this Amendment, the Guaranty and the other instruments and documents to be
delivered hereunder (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in accordance with the terms
of Section 8.04 of the Credit Agreement.
<PAGE> 7
7
SECTION 8. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR CORPORATION
By: /s/ RAJA VENKATESH
----------------------------------
Title: Corporate Treasurer
CITIBANK, N.A.,
By: /s/ AUTHORIZED SIGNATURE
----------------------------------
Title: Attorney-in-fact
HANIL BANK, NEW YORK AGENCY
By: /s/ AUTHORIZED SIGNATURE
----------------------------------
Title: Agent & General Manager
<PAGE> 8
8
ABN AMRO BANK, N.V. SAN
FRANCISCO INTERNATIONAL
BRANCH
By: ABN AMRO NORTH AMERICA,
INC., AS AGENT
By: /s/ TOM R. WAGNER
-----------------------------
Title: Thomas R. Wagner
Group Vice President
By: /s/ JAMIE DILLON
----------------------------
Title: Jamie Dillon
Vice President
ROYAL BANK OF CANADA
By: /s/ STEPHEN S. HUGHES
-----------------------------
Title: Senior Manager
FLEET NATIONAL BANK
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President
BANCA COMMERCIALE INTALIANA
LOS ANGELES FOREIGN BRANCH
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President and Manager
<PAGE> 9
9
THE BANK OF NOVA SCOTIA
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Unit Head
BANCO CENTRAL HISPANO
By /s/ FERNANDO LASECA
--------------------------------------
Title: Senior Vice President and
General Manager
CHO HUNG BANK, NEW YORK
BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
THE COMMERCIAL BANK OF KOREA,
LTD., NY AGENCY
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Manager
THE DAI-ICHI KANGYO BANK,
LIMITED, SAN FRANCISCO AGENCY
By /s/ TAKUO YOSHIDA
--------------------------------------
Title: Takuo Yoshida
General Manager
<PAGE> 10
10
KOREA FIRST BANK, NEW YORK
AGENCY
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
NOMURA BANK INTERNATIONAL
PLC
By /s/ DAVID L. STEWART
--------------------------------------
Title: Head, Credit
By /s/ JAMIE G.S. MACDONALD
--------------------------------------
Title: Deputy General Manager
SHINHAN BANK, NEW YORK
BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Assistant Manager
THE SUMITOMO BANK, LTD., SAN
FRANCISCO BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Authorized Officer
<PAGE> 11
11
INDUSTRIAL BANK OF KOREA
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
<PAGE> 12
MAXTOR CORPORATION
SECRETARY'S CERTIFICATE
I, Glenn H. Stevens, Secretary of Maxtor Corporation, a Delaware
corporation, do hereby certify, in connection with (i) the Waiver and Amendment
No. 1 dated May 22, 1998 (the "Waiver and Amendment") to the Credit Agreement
dated August 29, 1996 among Maxtor Corporation, the banks, financial
institutions and other institutional lenders parties, Citicorp Securities, Inc.
and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco
International Branch and Royal Bank of Canada, as co-agents, Fleet National
Bank, as manager, and Citibank, N.A., as administrative agent, (ii) the Waiver
and Amendment No. 1 dated May 22, 1998 (the "364-Day Credit Agreement Waiver
and Amendment") to the 364-Day Credit Agreement dated August 29, 1996 among
Maxtor Corporation, the banks, financial institutions and other institutional
lenders parties, Citicorp Securities, Inc. and Hanil Bank, as joint arrangers,
ABN AMRO Bank, N.V., San Francisco International Branch and Royal Bank of
Canada, as co-agents, Fleet National Bank, as manager, and Citibank, N.A., as
administrative agent and (iii) the Waiver and Amendment No. 1 dated May 22 1998
to the Credit Agreement dated October 30, 1997 between Maxtor Corporation and
Nomura International Bank plc (together with the Waiver and Amendment and the
364-Day Credit Agreement Waiver and Amendment, the "Waivers and Amendments"),
that:
1. Attached hereto as Exhibit A is a true and correct copy of
resolutions duly adopted by the Board of Directors of Maxtor at a
meeting thereof duly called and held on May 13, 1998, at which
meeting a quorum was present and acting throughout. Such
resolutions are the only resolutions regarding the Agreements, have
not been amended, modified or revoked and are in full force and
effect on the date hereof.
2. The Waivers and Amendments to which Maxtor is a party, as executed
and delivered on behalf of Maxtor, are substantially in the form
thereof approved by the Board of Directors referred to in paragraph
1 hereof.
3. The below named persons, who include all persons who, as officers
of Maxtor, executed and delivered the Waivers and Amendments, were
on the date of such execution, and are on the date hereof, duly
appointed, qualified and acting as such officers holding their
respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine
signatures:
Name Office Signature
---- ------ ---------
Michael R. Cannon President and Chief
Executive Officer ---------------------
Paul J. Tufano Vice President Finance,
i
<PAGE> 13
and Chief Financial
Officer /s/ PAUL J. TUFANO
-----------------------
Raja Venkatesh Corporate Treasurer /s/ RAJA VENKATESH
-----------------------
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ GLENN H. STEVENS
--------------------------------
Glenn H. Stevens, Secretary
I, Paul J. Tufano, Vice President of Maxtor Corporation, do hereby
certify that Glenn H. Stevens has been duly appointed and has duly qualified as,
and on this day is, Secretary of Maxtor Corporation, and the signature above is
his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ PAUL J. TUFANO
---------------------------------
Paul J. Tufano
ii
<PAGE> 14
RESOLUTIONS OF THE BOARD OF DIRECTORS OF MAXTOR CORPORATION
Dated: May 13, 1998
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Credit Agreement") dated. August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the
"Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint arrangers, ABN
AMRO Bank, N.V., San Francisco International Branch and Royal Bank of Canada, as
co-agents.
WHEREAS, the Corporation has entered into a 364-Day Credit Agreement
(the "364-Day Credit Agreement") dated August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the "364-Day
Credit Agreement Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint
arrangers, ABN AMRO Bank, N.V., San Francisco International Branch and Royal
Bank of Canada, as co-agents, Fleet National Bank, as manager, and Citibank,
N.A., as administrative agent.
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Nomura Credit Agreement") dated October 30, 1997 with Nomura International Bank
plc (together with the Lenders and the 364-Day Credit Agreement Lenders, the
"Maxtor Lenders"),
WHEREAS, under such Credit Agreements, Hyundai Electronics
Industries Co., Ltd. ("HEI") guaranteed the payments of Maxtor Corporation to
the Maxtor Lenders under a guaranty (the "Guaranty").
WHEREAS, HEI released its 1997 year end financial statements, which
financial statements indicate that HEI is in default of the financial covenants
of the Guaranty, (the "HEI Default")
NOW, THEREFORE, BE IT RESOLVED, that it is in the best interests of
the Corporation in order to ensure the availability of working capital to the
Corporation to request that the Maxtor Lenders waive the HEI Default.
RESOLVED FURTHER, that it is in the best interests of the
Corporation to enter into the (i) Waiver and Amendment No. 1 dated May 22, 1998
to the Credit Agreement, (ii) Waiver and Amendment No. 1 dated May 22, 1998 to
the 364-Day Credit Agreement and (iii) Waiver and Amendment No. 1 dated May 22,
1998 to the Nomura Credit Agreement (together the "Waivers and Amendments").
RESOLVED FURTHER, that the Waivers and Amendments and the
performance by the Corporation of its obligations under the Waivers and
Amendments, be, and the same hereby are, in all respects approved, and that the
Chairman of the Board of Directors of the Corporation, the President, any Vice
<PAGE> 15
President or the Treasurer of the Corporation (each an "Authorized officer") be,
and each of them hereby is, authorized and directed (any one of them acting
alone), in the name and on behalf of the Corporation, to execute and deliver the
Waivers and Amendments, each in the form as the Authorized Officer of the
Corporation executing the same shall approve, such approval to be conclusively
evidenced by his or her execution and delivery thereof; and
RESOLVED FURTHER, that prior to the execution of the Waivers and
Amendments, the Authorized Officers are, and each hereby is, authorized to
negotiate and agree on the terms and conditions of each of the Waivers and
Amendments as such Authorized Officers, or any one of them, in his, her or their
sole discretion, deem to be in the best interests of the Corporation; and
RESOLVED FURTHER, that the Authorized Officers be, and each of them
hereby is, authorized and empowered (any one of them acting alone) to do or
cause to be done all such acts or things and to sign and deliver, or cause to be
signed and delivered, all such documents, instruments and certificates
(including, without limitation, all notices and certificates required or
permitted to be given or made under the terms of the Waivers and Amendments) and
to pay all such expenses, in the name and on behalf of the Corporation or
otherwise as such Authorized Officer may deem necessary, advisable or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions and to perform the obligations of the Corporation under the Waivers
and Amendments and the other agreements and instruments as referred to above or
referred to therein; and
RESOLVED FURTHER, that the Corporation hereby authorizes, ratifies,
confirms and adopts in all respects all acts of the officers of the Corporation,
and of any person designated and authorized to act by an officer of the
Corporation, heretofore done or performed by such person in connection with the
acts and transactions approved by these resolutions.
<PAGE> 16
Filed with the minutes of the proceedings of the Board of Directors
by the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
--------------------------
Secretary
<PAGE> 17
Filed with the minutes of the proceedings of the Board of Directors
by the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
--------------------------
Secretary
<PAGE> 18
[BAE, KIM & LEE LETTERHEAD]
June 1, 1998
To: Each of the Lenders Parties to the US$129,000,000 Credit
Agreement dated as of August 29, 1996, among
Maxtor Corporation, said Lenders and
Citibank, N.A., as Administrative Agent for said
Lenders; and Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Heavy Industries
Co., Ltd. (the "GUARANTOR") in connection with a Corporate Guaranty (the
"GUARANTY") dated May 22, 1998 issued by the Guarantor in favor of the Lenders
and the Administrative Agent for the purpose of guaranteeing the obligations of
Maxtor Corporation as the Borrower under the above mentioned Credit Agreement
(the "CREDIT AGREEMENT") as amended by a certain amendment agreement thereto
dated August 27, 1997 and further amended by a certain waiver and amendment no.
1 to the credit agreement (the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms
defined in the Credit Agreement and Amendment Agreement are used herein as
therein defined and the term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement.
For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty;
<PAGE> 19
Bae Kim & Lee
June 1, 1998
Page 2
(d) the Articles of Incorporation of the Guarantor;
(e) the Regulations of the Board of Directors of the Guarantor;
(f) Commercial Registry extracts regarding the Guarantor;
(g) the Approval of the Guarantor's Representative Director in respect
of the Guaranty;
(h) the report to, and acceptance thereof by, the designated foreign
exchange trading bank in respect of the Guaranty; and
(i) such other documents as we have considered necessary or relevant in
order for us to provide this opinion.
In giving this opinion we have assumed that:
(i) the authenticity of all signatures, seals, stamps and markings;
(ii) that all documents submitted to us as originals are authentic,
complete and up-to-date, all documents submitted to us as copies
conform to the originals, and that all factual statements made in
such documents are correct and we have relied on them without
further enquiry;
(iii) that the Credit Agreement and Amendment Agreement and any other
agreement or instrument thereunder have been validly authorized,
signed and delivered by the parties thereto (other than the
Guarantor) in accordance with applicable laws;
(iv) that the Credit Agreement and Amendment Agreement and any other
agreements or instruments thereunder constitute or will constitute
legal, valid and binding obligations of each of the parties thereto
enforceable in accordance with its terms respectively under the laws
of the State of New York by which the Credit Agreement and Amendment
Agreement and any other agreement or instrument are expressed to be
governed;
(v) that the copies of the Articles of Incorporation of, the Regulations
of the Board of Directors of and the Commercial Registry extracts
relating to, the Guarantor referred to in paragraphs (d) through (f)
above are true, complete, accurate and up-to-date; and
<PAGE> 20
Bae Kim & Lee
June 1, 1998
Page 3
(vi) that the Approval of the Guarantor's Representative Director
referred to in paragraph (g) above was duly executed and that such
Approval has not been amended or rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the laws of
Korea are concerned:
(1) The Guarantor is a limited liability company, duly organized and
validly existing under the laws of Korea, with full power and
authority to enter into and perform the Guaranty.
(2) The Guarantor has taken all necessary corporate action to authorize
the entry into and performance of the Guaranty and the transactions
contemplated thereby.
(3) The Guaranty constitutes a legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms and is in
proper form for its enforcement in the courts of Korea.
(4) The entry into the Guaranty and the performance of the obligations
thereunder by the Guarantor do not violate (i) any law or regulation
of Korea or any judicial order in Korea or (ii) the constitutional
documents of the Guarantor.
(5) All authorizations, approvals, consents, licenses, exemptions,
filings, registrations and other requirements of governmental,
judicial and public bodies and authorities of or in Korea required
of the Guarantor in connection with the entry into and performance
of the Guaranty have been obtained and are in full force and effect,
except that the Guarantor is required to report any payment to be
made under the Guaranty at the time of making each such payment to
its designated foreign exchange trading bank.
(6) The obligations of the Guarantor under the Guaranty rank at least
pari passu with all its other present or future unsecured and
unsubordinated obligations of the Guarantor except for those
preferred by operation of law applicable to companies generally.
<PAGE> 21
Bae Kim & Lee
June 1, 1998
Page 4
(7) All amounts payable by the Guarantor under the Guaranty may be made
free and clear of and without deduction for or on account of any
taxes imposed, assessed or levied in Korea or by any authority
thereof or therein except, however, that although the tax laws of
Korea are not entirely clear as to whether payment of any interest
by the Guarantor under the Guaranty may be made without withholding
of Korean taxes, Korean tax authorities may require the Guarantor
to withhold Korean taxes from such interest payment. In the event of
Korean taxes being imposed on interest payments, the guarantor's
obligation to bear the cost of such tax under the Guaranty would
become operative.
(8) Neither the Guarantor nor any of its property (except such property
specifically protected by law) has any immunity from jurisdiction of
any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution
or otherwise) under the laws of Korea.
(9) To ensure the enforceability or admissibility in evidence of this
Guaranty in Korea, it is not necessary that this Guaranty or any
other document or instrument be filed or recorded with any court or
other authority in Korea.
Our opinion is subject to the following general qualifications:
(i) the obligations of the Guarantor under the Guaranty may be limited
or affected by the bankruptcy law, the corporate reorganization law,
the compulsory composition law and other similar laws which
generally affect the rights of creditors; and
(ii) the remedies of specific performance or injunction might not
necessarily be available in Korea with respect to any particular
provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by you and
your counsel.
Yours faithfully,
/s/ Bae, Kim & Lee
Bae, Kim & Lee
<PAGE> 22
May 29, 1998
To: Each of the Lenders parties to the U$129,000,000 Credit
Agreement dated as of August 29, 1996 among
Maxtor Corporation, said Lenders and
Citibank, N.A., as Administrative Agent for said
Lenders; and
Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Heavy Industries Co., Ltd.
(the "GUARANTOR") in connection with a Corporate Guaranty (the "GUARANTY") dated
May 1998 issued by the Guarantor in favor of the Lenders and the Administrative
Agent for the purpose of guaranteeing the obligations of Maxtor Corporation as
the Borrower under the above mentioned Credit Agreement (the "CREDIT AGREEMENT")
as amended by a certain amendment agreement thereto dated August 27, 1997 and
further amended by a certain waiver and amendment no. 1 to the credit
agreement(the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms defined in the
Credit Agreement and Amendment Agreement are used herein as therein defined the
term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement. For the purpose of this opinion, I have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty; and
(d) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide this
opinion.
Based on the foregoing, I am of the opinion that, so far as the laws of Korea
are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
/s/ Y. B. KIM
- ------------------------------
Y. B. Kim
Corporate Counsel
<PAGE> 23
HANDLING PERIOD
---------------
APPLICATION FOR THE VALIDATION OF GUARANTY
<TABLE>
<S> <C> <C>
Tradename Hyundai Heavy Industries Co., Ltd.
APPLICANT Address 1, Cheonha-dong, Ulsan, Kyurignam, Korea
Name of CEO Hyung Byuk Kim
Business area Manufacturing
Obligee(Lender) Citibank and other financial institution acceptable to Agent
DETAILS OF Obligor(Guarantor) Hyundai Heavy Industries Co., Ltd.
APPLICATION Beneficiary(Borrower) Maxtor Corporation
Amount USD 129,000,000
Effective period Until August 28, 1999
Purpose Working Capital
Repayment Lump Sum Repayment at maturity
</TABLE>
We hereby apply for the validation of Guaranty in accordance with the
Article 21 of Korea Foreign Exchange Control Regulation.
1998
<TABLE>
<S> <C> <C>
To: Applicant No. of Validation Singusuri 0696-Keumyung l2-
Your application for the Validation of Validated amount USD 129,000,000
Guaranty is approved. Effective period Until August 28, 1999
Condition: N/A
</TABLE>
1998
Confirmation by the Authorized Foreign Exchange Bank:
On the basis of Korea Foreign Exchange Control Regulation, we as the
authorized bank, hereto affix the seal of us in testimony of approval.
THE PRESIDENT OF KOREA EXCHANGE BANK (SEAL)
(KYE-DONG BRANCH)
<PAGE> 24
HYUNDAI HEAVY INDUSTRIES CO., LTD.
CERTIFICATE
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of Hyundai
Heavy Industries Co., Ltd., a corporation duly organized and existing under the
laws of the Republic of Korea with its registered head office at 1,
Cheonha-dong, Ulsan, Kyungnam, Korea (the "COMPANY"), does hereby certify:
(1) that attached hereto as EXHIBIT A is a true and correct copy of the
approval of the Representative Director of the Company approving,
among other things, the execution, delivery and performance by the
Company of a guaranty (the "GUARANTY") in favour of the banks,
financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT
AGREEMENT") dated August 29, 1996 as amended by a certain amendment
agreement thereto dated August 27, 1997 and as further amended by a
certain waiver and amendment no. 1 to the Credit Agreement in
relation to the obligations of Maxtor Corporation (the "BORROWER")
under a credit facility (the "FACILITY") extended by the Lenders to
the Borrower in an aggregate principal amount of up to
US$129,000,000, which approval has not been amended or rescinded and
are in full force and effect on the date hereof; and
(2) that attached hereto as EXHIBIT B is a true and correct copy of the
report to and acceptance thereof by its designated foreign exchange
trading bank of the Company in respect of the Guaranty, together
with an accurate English translation thereof.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal as of
this 29th day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
-------------------------------- [SEAL]
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 25
HYUNDAI HEAVY INDUSTRIES CO., LTD.
APPROVAL OF THE REPRESENTATIVE DIRECTOR
OF
HYUNDAI HEAVY INDUSTRIES CO., LTD.
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of
Hyundai Heavy Industries Co., Ltd. (the "COMPANY"), approves the execution,
delivery and performance by the Company of a guaranty (the "GUARANTY") in favour
of the banks, financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT AGREEMENT")
dated August 29, 1996 as amended by a certain amendment agreement thereto dated
August 27, 1997 and as further amended by a certain waiver and amendment no. 1
to the Credit Agreement in relation to the obligations of Maxtor Corporation
(the "BORROWER") under a credit facility (the "FACILITY") extended by the
Lenders to the Borrower in an aggregate principal amount of up to
US$129,000,000.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal
as of this 29th day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
-------------------------------- [SEAL]
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 1
EXHIBIT 10.65
WAIVER AND AMENDMENT NO. 1
TO THE CREDIT AGREEMENT
Dated as of May 22, 1998
WAIVER AND AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among, Maxtor
Corporation, a Delaware corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Citibank, N.A., as
administrative agent (the "Administrative Agent") for the Lenders.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders, Citicorp Securities, Inc. and Hanil
Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco International
Branch and Royal Bank of Canada, as co-agents, Fleet National Bank, as manager,
and the Administrative Agent have entered into a Credit Agreement dated as of
August 29, 1996 (the "Credit Agreement"). Capitalized terms not otherwise
defined in this Amendment have the same meanings as specified in the Credit
Agreement.
(2) Hyundai Electronics Industries, Co., Ltd. ("HEI") has released
its 1997 year end financial statements, which financial statements indicate that
HEI is in default of the financial covenant set forth in Section XII(a) of the
Guaranty (the "HEI Default").
(3) The Borrower has requested that the Lenders waive the HEI
Default, amend certain provisions of the Credit Agreement and accept Hyundai
Heavy Industries Co., Ltd. as a guarantor in the place of HEI.
(4) The Lenders are, on the terms and conditions stated below,
willing to grant the request of the Borrower and the Borrower and the Lenders
have agreed to amend the Credit Agreement as hereinafter set forth.
SECTION 1. Waivers. Effective as of the date of the origination of
the HEI Default and subject to the satisfaction of the conditions precedent set
forth in Section 4, the Lenders hereby waive (a) Section 6.01(c)(ii) of the
Credit Agreement to the extent of the HEI Default and (b) Section 6.01(d) of the
Credit Agreement to the extent that the HEI Default constitutes an event or
condition that would permit the acceleration of the maturity of any Debt
referred to in Section 6.01(d), but only so long as the maturity of such Debt
has not been accelerated.
<PAGE> 2
2
SECTION 2. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4, hereby amended as follows:
(a) Section 1.01 is amended by deleting the definitions of
"Applicable Margin", "Guarantor", "Guaranty" and "Hyundai Group" set forth
therein and replacing them, respectively with the following new
definitions:
"Applicable Margin" means, as of any date prior to April 1,
1998, a percentage per annum equal to 0% for Base Rate Advances and
.305% for Eurodollar Rate Advances and, as of any date on or after
April 1, 1998, a percentage per annum equal to 0% for Base Rate
Advances and 1.75% for Eurodollar Rate Advances.
"Guarantor" means Hyundai Heavy Industries Co., Ltd., a
company incorporated with limited liability in the Republic of
Korea.
"Guaranty" means the guaranty executed by the Guarantor in the
form attached on Exhibit A to Amendment No. 1.
"Hyundai Group" means, collectively, the Guarantor, Hyundai
Merchant Marine Co., Ltd., Hyundai Corporation and Hyundai
Electronics Industries Co., Ltd.
(b) Section 1.01 is further amended by adding thereto in proper
alphabetical sequence the following definition:
"Amendment No.1" means Waiver and Amendment No. 1 to the
Credit Agreement dated as of May 22, 1998.
(c) Section 2.04(a) is amended by deleting therefrom the figure
".225%" and substituting therefor the figure "0.25%".
(d) Section 4.01(e)(ii) is amended by deleting therefrom, in both
places where such date appears, the date "December 31, 1995" and
substituting therefor the date "December 31, 1997".
(e) Section 5.02(b)(iii)(A) is amended in full to read as follows:
(A) Debt incurred in connection with the
Securitization in an amount not to exceed $225,000,000 at any
time outstanding or the
<PAGE> 3
3
transactions listed on Schedule 5.02(b)(iii)(A) to the extent
(x) such item of such Debt does not exceed the amount
corresponding to each such item on such Schedule and (y) the
Debt permitted by this clause (A) does not exceed $266,000,000
in the aggregate, and any Debt extending the maturity of, or
refunding or refinancing, in whole or in part, any such Debt,
provided that the terms of any such extending, refunding or
refinancing Debt, and of any agreement entered into and of any
instrument issued in connection therewith, are otherwise
permitted by the Loan Documents, and provided further that the
principal amount of such Debt shall not be increased above the
maximum aggregate principal amount set forth above, and the
direct and contingent obligors therefor shall not be changed,
as a result of or in connection with such extension, refunding
or refinancing,
(f) Section 5.02(c) is amended by adding the following clause
(iii) immediately before the period at the end of such section: "and (iii)
a wholly-owned special purpose Subsidiary of the Borrower may convey,
transfer or otherwise dispose of receivables pursuant to any transaction
described in Section 5.02(b)(iii)(A)".
(g) Section 6.01(h)(ii) is amended by deleting the phrase "on the
date hereof" and substituting therefor the phrase "on the date of
Amendment No. 1".
SECTION 3. Release of HEI Guaranty. Effective as of the date of the
origination of the HEI Default and subject to the satisfaction of the conditions
precedent set forth in Section 4, the HEI Guaranty is hereby terminated as it
relates to the Credit Agreement.
SECTION 4. Conditions of Effectiveness. This Amendment is subject to
the provisions of Section 8.01 of the Credit Agreement. This Amendment shall
become effective as of the date of the origination of the HEI Default when the
Administrative Agent shall have received counterparts of this Amendment executed
by the Borrower and all of the Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed this
Amendment and Sections 1, 2 and 3 hereof shall become effective as of such date
when, and only when, on or before June 1, 1998 the Administrative Agent shall
have additionally received all of the following documents, each such document
(unless otherwise specified) dated the date of receipt thereof by the
Administrative Agent (unless otherwise specified) and in sufficient copies for
each Lender, in form and substance satisfactory to the Administrative Agent
(unless otherwise specified):
(a) Certified copies of (i) the resolutions of the Board of
Directors of (A) the Borrower approving this Amendment and the matters
contemplated hereby and
<PAGE> 4
4
thereby and (B) the Guarantor evidencing approval of the Guaranty and the
matters contemplated hereby and thereby and (ii) all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Amendment, the Guaranty and the matters contemplated
hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of
the Borrower and the Representative Director or a duly authorized officer
of the Guarantor certifying the names and true signatures of the officers
of the Borrower and the Guarantor authorized to sign this Amendment and
the Guaranty, respectively, and the other documents to be delivered
hereunder and thereunder.
(c) Counterparts of the Guaranty in the form attached as Exhibit A
hereto, executed by the Guarantor.
(d) Favorable opinions of Bae, Kim & Lee, counsel for the
Guarantor, or other Korean counsel to the Guarantor acceptable to the
Administrative Agent, and the Corporate Counsel of the Guarantor, in
substantially the form of Exhibits B and C hereto and as to such other
matters as any Lender through the Administrative Agent may reasonably
request.
(e) A certificate signed by a duly authorized officer of the
Borrower stating that:
(i) The representations and warranties contained in Section
5 below are correct on and as of the date of such certificate as
though made on and as of such date; and
(ii) After giving effect to this Amendment, no event has
occurred and is continuing that constitutes a Default.
SECTION 5. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and, where applicable, in good standing under the laws of the
jurisdiction of its incorporation.
(b) The execution, delivery and performance by each Loan Party of
this Amendment and the Loan Documents, as amended hereby, to which it is
or is to be a party, and the consummation of the transactions contemplated
hereby, are within such Loan Party's corporate powers, have been duly
authorized by all necessary corporate
<PAGE> 5
5
action, and do not contravene (i) such Loan Party's charter or by-laws or
(ii) any law, regulation (including, without limitation, Regulations U and
X of the Board of Governors of the Federal Reserve System) or contractual
restriction binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any
other third party is required for the due execution, delivery and
performance by either Loan Party of this Amendment or any other Loan
Document to which it is or is to be a party, except for those
authorizations, approvals, actions, notices and filings listed on Schedule
4.01(c) hereto, all of which have been duly obtained, taken, given or
made and are in full force and effect except that the Guarantor is
required to report to its designated foreign exchange trading bank any
payment to be made under the Guaranty at the time of making such payment.
(d) This Amendment and the Guaranty have been duly executed and
delivered by each Loan Party party thereto. This Amendment and each of the
other Loan Documents, as amended hereby, to which the Borrower is a party
is, and the Guaranty is, the legal, valid and binding obligation of each
of the Borrower and the Guarantor, respectively, enforceable against each
such Loan Party in accordance with their respective terms.
(e) (i) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 28, 1997, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Ernst &
Young, independent public accountants, copies of which have been furnished
to each Lender, fairly present the Consolidated financial condition of the
Borrower and its Subsidiaries as at such date and the Consolidated results
of the operations of the Borrower and its Subsidiaries for the period
ended on such date, all in accordance with generally accepted accounting
principles consistently applied. Since December 28, 1997, there has been
no Material Adverse Change with respect to the Borrower, other than as
provided on Schedule 4.01(e)(i) hereto.
(ii) The balance sheet of the Guarantor and its Subsidiaries
as at December 31, 1997, and the related statements of income and
cash flows of the Guarantor and its Subsidiaries for the fiscal year
then ended, accompanied by an opinion of Samil Accounting
Corporation, a member firm of Coopers & Lybrand, independent public
accountants, copies of which have been furnished to each Lender,
fairly present the financial condition of the Guarantor and its
Subsidiaries as at such date and the results of the operations of
the Guarantor and its Subsidiaries for the periods ended on such
date, all in accordance with generally accepted financial
<PAGE> 6
6
accounting standards in the Republic of Korea consistently applied.
Since December 31, 1997, there has been no Material Adverse Change with
respect to the Guarantor.
(f) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting either Loan Party or any of its Subsidiaries before any
court, governmental agency or arbitrator that (i) could be reasonably
likely to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of this Amendment, the Guaranty or
any other Loan Document, as amended hereby, or the consummation of the
transactions contemplated hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) On and after the effectiveness of this Amendment, each
reference in the Credit Agreement to "the Guaranty", thereunder",
"thereof" or words of like import referring to the Guaranty, shall mean
and be a reference to the Guaranty, as defined in the Credit Agreement as
amended by this Amendment.
(c) The Credit Agreement and the Notes, as specifically amended by
this Amendment, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed.
(d) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or the Administrative Agent under any
of the Loan Documents, nor constitute a waiver of any provision of any of
the Loan Documents.
SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses of the Administrative Agent in connection with the
preparation, execution, delivery and administration, modification and amendment
of this Amendment, the Guaranty and the other instruments and documents to be
delivered hereunder (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in accordance with the terms
of Section 8.04 of the Credit Agreement.
<PAGE> 7
7
SECTION 8. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR CORPORATION
By: /s/ RAJA VENKATESH
----------------------------------
Title: Corporate Treasurer
CITIBANK, N.A.,
By: /s/ AUTHORIZED SIGNATURE
----------------------------------
Title: Attorney-in-fact
HANIL BANK, NEW YORK AGENCY
By: /s/ AUTHORIZED SIGNATURE
----------------------------------
Title: Agent & General Manager
<PAGE> 8
8
ABN AMRO BANK, N.V. SAN
FRANCISCO INTERNATIONAL
BRANCH
By: ABN AMRO NORTH AMERICA,
INC., AS AGENT
By: /s/ TOM R. WAGNER
-----------------------------
Title: Thomas R. Wagner
Group Vice President
By: /s/ JAMIE DILLON
----------------------------
Title: Jamie Dillon
Vice President
ROYAL BANK OF CANADA
By: /s/ STEPHEN S. HUGHES
-----------------------------
Title: Senior Manager
FLEET NATIONAL BANK
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President
BANCA COMMERCIALE INTALIANA
LOS ANGELES FOREIGN BRANCH
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President and Manager
<PAGE> 9
9
THE BANK OF NOVA SCOTIA
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Unit Head
BANCO CENTRAL HISPANO
By /s/ FERNANDO LASECA
--------------------------------------
Title: Senior Vice President and
General Manager
CHO HUNG BANK, NEW YORK
BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
THE COMMERCIAL BANK OF KOREA,
LTD., NY AGENCY
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Manager
THE DAI-ICHI KANGYO BANK,
LIMITED, SAN FRANCISCO AGENCY
By /s/ TAKUO YOSHIDA
--------------------------------------
Title: Takuo Yoshida
General Manager
<PAGE> 10
10
KOREA FIRST BANK, NEW YORK
AGENCY
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
NOMURA BANK INTERNATIONAL
PLC
By /s/ DAVID L. STEWART
--------------------------------------
Title: Head, Credit
By /s/ JAMIE G.S. MACDONALD
--------------------------------------
Title: Deputy General Manager
SHINHAN BANK, NEW YORK
BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Assistant Manager
THE SUMITOMO BANK, LTD., SAN
FRANCISCO BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Authorized Officer
<PAGE> 11
11
INDUSTRIAL BANK OF KOREA
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
<PAGE> 12
MAXTOR CORPORATION
SECRETARY'S CERTIFICATE
I, Glenn H. Stevens, Secretary of Maxtor Corporation, a Delaware
corporation, do hereby certify, in connection with (i) the Waiver and Amendment
No. 1 dated May 22, 1998 (the "Waiver and Amendment") to the Credit Agreement
dated August 29, 1996 among Maxtor Corporation, the banks, financial
institutions and other institutional lenders parties, Citicorp Securities, Inc.
and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco
International Branch and Royal Bank of Canada, as co-agents, Fleet National
Bank, as manager, and Citibank, N.A., as administrative agent, (ii) the Waiver
and Amendment No. 1 dated May 22, 1998 (the "364-Day Credit Agreement Waiver
and Amendment") to the 364-Day Credit Agreement dated August 29, 1996 among
Maxtor Corporation, the banks, financial institutions and other institutional
lenders parties, Citicorp Securities, Inc. and Hanil Bank, as joint arrangers,
ABN AMRO Bank, N.V., San Francisco International Branch and Royal Bank of
Canada, as co-agents, Fleet National Bank, as manager, and Citibank, N.A., as
administrative agent and (iii) the Waiver and Amendment No. 1 dated May 22 1998
to the Credit Agreement dated October 30, 1997 between Maxtor Corporation and
Nomura International Bank plc (together with the Waiver and Amendment and the
364-Day Credit Agreement Waiver and Amendment, the "Waivers and Amendments"),
that:
1. Attached hereto as Exhibit A is a true and correct copy of
resolutions duly adopted by the Board of Directors of Maxtor at a
meeting thereof duly called and held on May 13, 1998, at which
meeting a quorum was present and acting throughout. Such
resolutions are the only resolutions regarding the Agreements, have
not been amended, modified or revoked and are in full force and
effect on the date hereof.
2. The Waivers and Amendments to which Maxtor is a party, as executed
and delivered on behalf of Maxtor, are substantially in the form
thereof approved by the Board of Directors referred to in paragraph
1 hereof.
3. The below named persons, who include all persons who, as officers
of Maxtor, executed and delivered the Waivers and Amendments, were
on the date of such execution, and are on the date hereof, duly
appointed, qualified and acting as such officers holding their
respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine
signatures:
Name Office Signature
---- ------ ---------
Michael R. Cannon President and Chief
Executive Officer ---------------------
Paul J. Tufano Vice President Finance,
i
<PAGE> 13
and Chief Financial
Officer /s/ PAUL J. TUFANO
-----------------------
Raja Venkatesh Corporate Treasurer /s/ RAJA VENKATESH
-----------------------
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ GLENN H. STEVENS
--------------------------------
Glenn H. Stevens, Secretary
I, Paul J. Tufano, Vice President of Maxtor Corporation, do hereby
certify that Glenn H. Stevens has been duly appointed and has duly qualified as,
and on this day is, Secretary of Maxtor Corporation, and the signature above is
his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ PAUL J. TUFANO
---------------------------------
Paul J. Tufano
ii
<PAGE> 14
RESOLUTIONS OF THE BOARD OF DIRECTORS OF MAXTOR CORPORATION
Dated: May 13, 1998
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Credit Agreement") dated. August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the
"Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint arrangers, ABN
AMRO Bank, N.V., San Francisco International Branch and Royal Bank of Canada, as
co-agents.
WHEREAS, the Corporation has entered into a 364-Day Credit Agreement
(the "364-Day Credit Agreement") dated August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the "364-Day
Credit Agreement Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint
arrangers, ABN AMRO Bank, N.V., San Francisco International Branch and Royal
Bank of Canada, as co-agents, Fleet National Bank, as manager, and Citibank,
N.A., as administrative agent.
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Nomura Credit Agreement") dated October 30, 1997 with Nomura International Bank
plc (together with the Lenders and the 364-Day Credit Agreement Lenders, the
"Maxtor Lenders"),
WHEREAS, under such Credit Agreements, Hyundai Electronics
Industries Co., Ltd. ("HEI") guaranteed the payments of Maxtor Corporation to
the Maxtor Lenders under a guaranty (the "Guaranty").
WHEREAS, HEI released its 1997 year end financial statements, which
financial statements indicate that HEI is in default of the financial covenants
of the Guaranty, (the "HEI Default")
NOW, THEREFORE, BE IT RESOLVED, that it is in the best interests of
the Corporation in order to ensure the availability of working capital to the
Corporation to request that the Maxtor Lenders waive the HEI Default.
RESOLVED FURTHER, that it is in the best interests of the
Corporation to enter into the (i) Waiver and Amendment No. 1 dated May 22, 1998
to the Credit Agreement, (ii) Waiver and Amendment No. 1 dated May 22, 1998 to
the 364-Day Credit Agreement and (iii) Waiver and Amendment No. 1 dated May 22,
1998 to the Nomura Credit Agreement (together the "Waivers and Amendments").
RESOLVED FURTHER, that the Waivers and Amendments and the
performance by the Corporation of its obligations under the Waivers and
Amendments, be, and the same hereby are, in all respects approved, and that the
Chairman of the Board of Directors of the Corporation, the President, any Vice
<PAGE> 15
President or the Treasurer of the Corporation (each an "Authorized officer") be,
and each of them hereby is, authorized and directed (any one of them acting
alone), in the name and on behalf of the Corporation, to execute and deliver the
Waivers and Amendments, each in the form as the Authorized Officer of the
Corporation executing the same shall approve, such approval to be conclusively
evidenced by his or her execution and delivery thereof; and
RESOLVED FURTHER, that prior to the execution of the Waivers and
Amendments, the Authorized Officers are, and each hereby is, authorized to
negotiate and agree on the terms and conditions of each of the Waivers and
Amendments as such Authorized Officers, or any one of them, in his, her or their
sole discretion, deem to be in the best interests of the Corporation; and
RESOLVED FURTHER, that the Authorized Officers be, and each of them
hereby is, authorized and empowered (any one of them acting alone) to do or
cause to be done all such acts or things and to sign and deliver, or cause to be
signed and delivered, all such documents, instruments and certificates
(including, without limitation, all notices and certificates required or
permitted to be given or made under the terms of the Waivers and Amendments) and
to pay all such expenses, in the name and on behalf of the Corporation or
otherwise as such Authorized Officer may deem necessary, advisable or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions and to perform the obligations of the Corporation under the Waivers
and Amendments and the other agreements and instruments as referred to above or
referred to therein; and
RESOLVED FURTHER, that the Corporation hereby authorizes, ratifies,
confirms and adopts in all respects all acts of the officers of the Corporation,
and of any person designated and authorized to act by an officer of the
Corporation, heretofore done or performed by such person in connection with the
acts and transactions approved by these resolutions.
<PAGE> 16
Filed with the minutes of the proceedings of the Board of Directors
by the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
--------------------------
Secretary
<PAGE> 17
Filed with the minutes of the proceedings of the Board of Directors
by the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
--------------------------
Secretary
<PAGE> 18
[BAE, KIM & LEE LETTERHEAD]
June 1, 1998
To: Each of the Lenders Parties to the US$129,000,000 Credit
Agreement dated as of August 29, 1996, among
Maxtor Corporation, said Lenders and
Citibank, N.A., as Administrative Agent for said
Lenders; and Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Heavy Industries
Co., Ltd. (the "GUARANTOR") in connection with a Corporate Guaranty (the
"GUARANTY") dated May 22, 1998 issued by the Guarantor in favor of the Lenders
and the Administrative Agent for the purpose of guaranteeing the obligations of
Maxtor Corporation as the Borrower under the above mentioned Credit Agreement
(the "CREDIT AGREEMENT") as amended by a certain amendment agreement thereto
dated August 27, 1997 and further amended by a certain waiver and amendment no.
1 to the credit agreement (the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms
defined in the Credit Agreement and Amendment Agreement are used herein as
therein defined and the term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement.
For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty;
<PAGE> 19
Bae Kim & Lee
June 1, 1998
Page 2
(d) the Articles of Incorporation of the Guarantor;
(e) the Regulations of the Board of Directors of the Guarantor;
(f) Commercial Registry extracts regarding the Guarantor;
(g) the Approval of the Guarantor's Representative Director in respect
of the Guaranty;
(h) the report to, and acceptance thereof by, the designated foreign
exchange trading bank in respect of the Guaranty; and
(i) such other documents as we have considered necessary or relevant in
order for us to provide this opinion.
In giving this opinion we have assumed that:
(i) the authenticity of all signatures, seals, stamps and markings;
(ii) that all documents submitted to us as originals are authentic,
complete and up-to-date, all documents submitted to us as copies
conform to the originals, and that all factual statements made in
such documents are correct and we have relied on them without
further enquiry;
(iii) that the Credit Agreement and Amendment Agreement and any other
agreement or instrument thereunder have been validly authorized,
signed and delivered by the parties thereto (other than the
Guarantor) in accordance with applicable laws;
(iv) that the Credit Agreement and Amendment Agreement and any other
agreements or instruments thereunder constitute or will constitute
legal, valid and binding obligations of each of the parties thereto
enforceable in accordance with its terms respectively under the laws
of the State of New York by which the Credit Agreement and Amendment
Agreement and any other agreement or instrument are expressed to be
governed;
(v) that the copies of the Articles of Incorporation of, the Regulations
of the Board of Directors of and the Commercial Registry extracts
relating to, the Guarantor referred to in paragraphs (d) through (f)
above are true, complete, accurate and up-to-date; and
<PAGE> 20
Bae Kim & Lee
June 1, 1998
Page 3
(vi) that the Approval of the Guarantor's Representative Director
referred to in paragraph (g) above was duly executed and that such
Approval has not been amended or rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the laws of
Korea are concerned:
(1) The Guarantor is a limited liability company, duly organized and
validly existing under the laws of Korea, with full power and
authority to enter into and perform the Guaranty.
(2) The Guarantor has taken all necessary corporate action to authorize
the entry into and performance of the Guaranty and the transactions
contemplated thereby.
(3) The Guaranty constitutes a legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms and is in
proper form for its enforcement in the courts of Korea.
(4) The entry into the Guaranty and the performance of the obligations
thereunder by the Guarantor do not violate (i) any law or regulation
of Korea or any judicial order in Korea or (ii) the constitutional
documents of the Guarantor.
(5) All authorizations, approvals, consents, licenses, exemptions,
filings, registrations and other requirements of governmental,
judicial and public bodies and authorities of or in Korea required
of the Guarantor in connection with the entry into and performance
of the Guaranty have been obtained and are in full force and effect,
except that the Guarantor is required to report any payment to be
made under the Guaranty at the time of making each such payment to
its designated foreign exchange trading bank.
(6) The obligations of the Guarantor under the Guaranty rank at least
pari passu with all its other present or future unsecured and
unsubordinated obligations of the Guarantor except for those
preferred by operation of law applicable to companies generally.
<PAGE> 21
Bae Kim & Lee
June 1, 1998
Page 4
(7) All amounts payable by the Guarantor under the Guaranty may be made
free and clear of and without deduction for or on account of any
taxes imposed, assessed or levied in Korea or by any authority
thereof or therein except, however, that although the tax laws of
Korea are not entirely clear as to whether payment of any interest
by the Guarantor under the Guaranty may be made without withholding
of Korean taxes, Korean tax authorities may require the Guarantor
to withhold Korean taxes from such interest payment. In the event of
Korean taxes being imposed on interest payments, the guarantor's
obligation to bear the cost of such tax under the Guaranty would
become operative.
(8) Neither the Guarantor nor any of its property (except such property
specifically protected by law) has any immunity from jurisdiction of
any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution
or otherwise) under the laws of Korea.
(9) To ensure the enforceability or admissibility in evidence of this
Guaranty in Korea, it is not necessary that this Guaranty or any
other document or instrument be filed or recorded with any court or
other authority in Korea.
Our opinion is subject to the following general qualifications:
(i) the obligations of the Guarantor under the Guaranty may be limited
or affected by the bankruptcy law, the corporate reorganization law,
the compulsory composition law and other similar laws which
generally affect the rights of creditors; and
(ii) the remedies of specific performance or injunction might not
necessarily be available in Korea with respect to any particular
provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by you and
your counsel.
Yours faithfully,
/s/ Bae, Kim & Lee
Bae, Kim & Lee
<PAGE> 22
May 29, 1998
To: Each of the Lenders parties to the U$129,000,000 Credit
Agreement dated as of August 29, 1996 among
Maxtor Corporation, said Lenders and
Citibank, N.A., as Administrative Agent for said
Lenders; and
Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Heavy Industries Co., Ltd.
(the "GUARANTOR") in connection with a Corporate Guaranty (the "GUARANTY") dated
May 1998 issued by the Guarantor in favor of the Lenders and the Administrative
Agent for the purpose of guaranteeing the obligations of Maxtor Corporation as
the Borrower under the above mentioned Credit Agreement (the "CREDIT AGREEMENT")
as amended by a certain amendment agreement thereto dated August 27, 1997 and
further amended by a certain waiver and amendment no. 1 to the credit
agreement(the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms defined in the
Credit Agreement and Amendment Agreement are used herein as therein defined the
term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement. For the purpose of this opinion, I have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty; and
(d) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide this
opinion.
Based on the foregoing, I am of the opinion that, so far as the laws of Korea
are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
/s/ Y. B. KIM
- ------------------------------
Y. B. Kim
Corporate Counsel
<PAGE> 23
HANDLING PERIOD
---------------
APPLICATION FOR THE VALIDATION OF GUARANTY
<TABLE>
<S> <C> <C>
Tradename Hyundai Heavy Industries Co., Ltd.
APPLICANT Address 1, Cheonha-dong, Ulsan, Kyurignam, Korea
Name of CEO Hyung Byuk Kim
Business area Manufacturing
Obligee(Lender) Citibank and other financial institution acceptable to Agent
DETAILS OF Obligor(Guarantor) Hyundai Heavy Industries Co., Ltd.
APPLICATION Beneficiary(Borrower) Maxtor Corporation
Amount USD 129,000,000
Effective period Until August 28, 1999
Purpose Working Capital
Repayment Lump Sum Repayment at maturity
</TABLE>
We hereby apply for the validation of Guaranty in accordance with the
Article 21 of Korea Foreign Exchange Control Regulation.
1998
<TABLE>
<S> <C> <C>
To: Applicant No. of Validation Singusuri 0696-Keumyung l2-
Your application for the Validation of Validated amount USD 129,000,000
Guaranty is approved. Effective period Until August 28, 1999
Condition: N/A
</TABLE>
1998
Confirmation by the Authorized Foreign Exchange Bank:
On the basis of Korea Foreign Exchange Control Regulation, we as the
authorized bank, hereto affix the seal of us in testimony of approval.
THE PRESIDENT OF KOREA EXCHANGE BANK (SEAL)
(KYE-DONG BRANCH)
<PAGE> 24
HYUNDAI HEAVY INDUSTRIES CO., LTD.
CERTIFICATE
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of Hyundai
Heavy Industries Co., Ltd., a corporation duly organized and existing under the
laws of the Republic of Korea with its registered head office at 1,
Cheonha-dong, Ulsan, Kyungnam, Korea (the "COMPANY"), does hereby certify:
(1) that attached hereto as EXHIBIT A is a true and correct copy of the
approval of the Representative Director of the Company approving,
among other things, the execution, delivery and performance by the
Company of a guaranty (the "GUARANTY") in favour of the banks,
financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT
AGREEMENT") dated August 29, 1996 as amended by a certain amendment
agreement thereto dated August 27, 1997 and as further amended by a
certain waiver and amendment no. 1 to the Credit Agreement in
relation to the obligations of Maxtor Corporation (the "BORROWER")
under a credit facility (the "FACILITY") extended by the Lenders to
the Borrower in an aggregate principal amount of up to
US$129,000,000, which approval has not been amended or rescinded and
are in full force and effect on the date hereof; and
(2) that attached hereto as EXHIBIT B is a true and correct copy of the
report to and acceptance thereof by its designated foreign exchange
trading bank of the Company in respect of the Guaranty, together
with an accurate English translation thereof.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal as of
this 29th day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
-------------------------------- [SEAL]
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 25
HYUNDAI HEAVY INDUSTRIES CO., LTD.
APPROVAL OF THE REPRESENTATIVE DIRECTOR
OF
HYUNDAI HEAVY INDUSTRIES CO., LTD.
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of
Hyundai Heavy Industries Co., Ltd. (the "COMPANY"), approves the execution,
delivery and performance by the Company of a guaranty (the "GUARANTY") in favour
of the banks, financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT AGREEMENT")
dated August 29, 1996 as amended by a certain amendment agreement thereto dated
August 27, 1997 and as further amended by a certain waiver and amendment no. 1
to the Credit Agreement in relation to the obligations of Maxtor Corporation
(the "BORROWER") under a credit facility (the "FACILITY") extended by the
Lenders to the Borrower in an aggregate principal amount of up to
US$129,000,000.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal
as of this 29th day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
-------------------------------- [SEAL]
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 1
EXHIBIT 10.64
WAIVER AND AMENDMENT NO. 1
TO THE CREDIT AGREEMENT
Dated as of May 22, 1998
WAIVER AND AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among, Maxtor
Corporation, a Delaware corporation (the "Borrower") and Nomura Bank
International p1c (the "Lender").
PRELIMINARY STATEMENTS:
(1) The Borrower and the Lender have entered into a 364-Day Credit
Agreement dated as of October 31, 1997 (the "Credit Agreement"). Capitalized
terms not otherwise defined in this Amendment have the same meanings as
specified in the Credit Agreement.
(2) Hyundai Electronics Industries, Co., Ltd. ("HEI") has released its
1997 year end financial statements, which financial statements indicate that HEI
is in default of the financial covenant set forth in Section XI(a) of the
Guaranty (the "HEI Default").
(3) The Borrower has requested that the Lender waive the HEI Default,
amend certain provisions of the Credit Agreement and accept Hyundai Heavy
Industries Co., Ltd. as a guarantor in the place of HEI.
(4) The Lender is, on the terms and conditions stated below, willing to
grant the request of the Borrower and the Borrower and the Lender have agreed to
amend the Credit Agreement as hereinafter set forth.
SECTION 1. Waivers. Effective as of the date of the origination of the
HEI Default and subject to the satisfaction of the conditions precedent set
forth in Section 4, the Lender hereby (a) waives Section 6.01(c)(ii) of the
Credit Agreement to the extent of the HEI Default, (b) waives Section 6.01(d) of
the Credit Agreement to the extent that the HEI Default constitutes an event or
condition that would permit the acceleration of the maturity of any Debt
referred to in Section 6.01(d), but only so long as the maturity of such Debt
has not been accelerated and (c) agrees that the HEI Default or cross defaults
caused by the HEI Default does not constitute a Material Adverse Change.
<PAGE> 2
SECTION 2. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4, hereby amended as follows:
(a) Section 1.01 is amended by deleting the definitions of
"Margin", "Guarantor", "Guaranty" and "Hyundai Group" set forth therein
and replacing them, respectively with the following new definitions:
"Margin" means, as of any date prior to April 1, 1998, a
percentage per annum equal to .73 % for the Loan and, as of any
date on or after April 1, 1998, a percentage per annum equal to
1.93 % for the Loan.
"Guarantor" means Hyundai Heavy Industries Co., Ltd., a
company incorporated with limited liability in the Republic of
Korea.
"Guaranty" means the guaranty executed by the Guarantor
in the form attached on Exhibit A to Amendment No. 1.
"Hyundai Group" means, collectively, the Guarantor,
Hyundai Merchant Marine Co., Ltd., Hyundai Corporation and
Hyundai Electronics Industries Co., Ltd.
(b) Section 1.01 is further amended by adding thereto in proper
alphabetical sequence the following definition:
"Amendment No. 1" means Waiver and Amendment No. 1 to
the Credit Agreement dated as of May 22, 1998.
(c) Section 4.01 (f) is amended by deleting therefrom, in both
places where such date appears, the date "December 31, 1996" and
substituting therefor the date "December 31, 1997".
(d) Section 5.02(b)(iii)(A) is amended in full to read as
follows:
(A) Debt incurred in connection with the Securitization
or any Debt extending the maturity of, or refunding or
refinancing, in whole or in part, any such Debt to the extent
that such Debt does not exceed $225,000,000 in the aggregate,
(e) Section 5.02(c) is amended by adding the following clause
(iii) immediately before the period at the end of such section: "and
(iii) a wholly-owned
2
<PAGE> 3
special purpose Subsidiary of the Borrower may convey, transfer or
otherwise dispose of receivables pursuant to any transaction described
in Section 5.02(b)(iii)(A)".
(f) Section 6.01(h)(ii) is amended by deleting the phrase "on
the date hereof" and substituting therefor the phrase "on the date of
Amendment No. 1".
SECTION 3. Release of HEI Guaranty. Effective as of the date of the
origination of the HEI Default and subject to the satisfaction of the conditions
precedent set forth in Section 4, the HEI Guaranty is hereby terminated as it
relates to the Credit Agreement.
SECTION 4. Conditions of Effectiveness. This Amendment is subject to the
provisions of Section 7.01 of the Credit Agreement. This Amendment shall become
effective as of the date of the origination of the HEI Default when the Lender
shall have received counterparts of this Amendment executed by the Borrower and
have additionally received all of the following documents:
(a) Certified copies of (i) the resolutions of the Board of
Directors, (ii) the approval of the Representative Director of the
Guarantor evidencing approval of the Guaranty and the matters
contemplated hereby and thereby and (iii) all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Amendment, the Guaranty and the matters contemplated
hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of
the Borrower and the Representative Director or a duly authorized
officer of the Guarantor certifying the names and true signatures of the
officers of the Borrower and the Guarantor authorized to sign this
Amendment and the Guaranty, respectively, and the other documents to be
delivered hereunder and thereunder.
(c) Counterparts of the Guaranty in the form attached as Exhibit
A hereto, executed by the Guarantor.
(d) Favorable opinions of Bae, Kim & Lee, counsel for the
Guarantor, or other Korean counsel to the Guarantor, and the Corporate
Counsel of the Guarantor, in substantially the form of Exhibits B and C
hereto and as to such other matters as the Lender may reasonably
request.
(e) A certificate signed by a duly authorized officer of the
Borrower stating that:
3
<PAGE> 4
(i) The representations and warranties contained in
Section 5 below are correct on and as of the date of such
certificate as though made on and as of such date; and
(ii) After giving effect to this Amendment, no event has
occurred and is continuing that constitutes a Default.
SECTION 5. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and, where applicable, in good standing under the laws of the
jurisdiction of its incorporation.
(b) The execution, delivery and performance by each Loan Party
of this Amendment and the Loan Documents, as amended hereby, to which it
is or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) such Loan Party's charter or by-laws or (ii) any law,
regulation (including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System) or contractual
restriction binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery and
performance by either Loan Party of this Amendment or any other Loan
Document to which it is or is to be a party, except for those
authorizations, approvals, actions, notices and filings listed on
Schedule 4.01(c) hereto, all of which have been duly obtained, taken,
given or made and are in full force and effect except that the Guarantor
is required to report to its designated foreign exchange trading bank
any payment to be made under the Guaranty at the time of making such
payment.
(d) This Amendment and the Guaranty have been duly executed and
delivered by each Loan Party party thereto. This Amendment and each of
the other Loan Documents, as amended hereby, to which the Borrower is a
party is, and the Guaranty is, the legal, valid and binding obligation
of each of the Borrower and the Guarantor, respectively, enforceable
against each such Loan Party in accordance with their respective terms.
4
<PAGE> 5
(e)(i) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 28, 1997, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Coopers &
Lybrand, independent public accountants, copies of which have been
furnished to the Lender, fairly present the Consolidated financial
condition of the Borrower and its Subsidiaries as at such date and the
Consolidated results of the operations of the Borrower and its
Subsidiaries for the period ended on such date, all in accordance with
generally accepted accounting principles consistently applied. Since
December 28, 1997, there has been no Material Adverse Change with
respect to the Borrower.
(ii) The balance sheet of the Guarantor and its Subsidiaries
as at December 31, 1997, and the related statements of income and cash
flows of the Guarantor and its Subsidiaries for the fiscal year then
ended, accompanied by an opinion of Samil Accounting Corporation, a
member firm of Coopers & Lybrand, independent public accountants, copies
of which have been furnished to the Lender, fairly present the financial
condition of the Guarantor and its Subsidiaries as at such date and the
results of the operations of the Guarantor and its Subsidiaries for the
periods ended on such date, all in accordance with generally accepted
financial accounting standards in the Republic of Korea consistently
applied. Since December 31, 1997, there has been no Material Adverse
Change with respect to the Guarantor.
(f) There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation,
any Environmental Action, affecting either Loan Party or any of its
Subsidiaries before any court, governmental agency or arbitrator that
(i) could be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Amendment, the Guaranty or any other Loan Document, as amended hereby,
or the consummation of the transactions contemplated hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) On and after the effectiveness of this Amendment, each reference in
the Credit Agreement to "the Guaranty", "thereunder", "thereof" or words of like
import referring to the Guaranty, shall mean and he a reference to the Guaranty,
as defined in the Credit Agreement as amended by this Amendment.
5
<PAGE> 6
(c) The Credit Agreement and the Notes, as specifically amended by this
Amendment, are and shall continue to be in full force and effect and are hereby
in all respects ratified and confirmed.
(d) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Lender under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Lender in connection with the preparation, execution,
delivery and administration, modification and amendment of this Amendment, the
Guaranty and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Lender) in accordance with the terms of Section 7.04 of the Credit
Agreement,
SECTION 8. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
6
<PAGE> 7
SECTION 9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR CORPORATION
By /s/ Authorized Signature
-------------------------------------
Title:
7
<PAGE> 8
NOMURA BANK INTERNATIONAL plc
as Lender
By /s/ Authorized Signature
-------------------------------------
Title: Deputy General Manager
/s/ Authorized Signature
-------------------------------------
SENIOR EXECUTIVE
<PAGE> 9
SCHEDULE 4.01(c)
REQUIRED AUTHORIZATIONS AND APPROVALS
1. Report to, and acceptance thereof, by the designated foreign exchange
trading bank in respect of the Guaranty.
9
<PAGE> 10
SCHEDULE 4.01(e)
MATERIAL ADVERSE CHANGE
1. None.
10
<PAGE> 11
MAXTOR CORPORATION
SECRETARY'S CERTIFICATE
I, Glenn H. Stevens, Secretary of Maxtor Corporation, a Delaware
corporation, do hereby certify, in connection with (i) the Waiver and Amendment
No. 1 dated May 22, 1998 (the "Waiver and Amendment") to the Credit Agreement
dated August 29, 1996 among Maxtor Corporation, the banks, financial
institutions and other institutional lenders parties, Citicorp Securities, Inc.
and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco
International Branch and Royal Bank of Canada, as co-agents, Fleet National
Bank, as manager, and Citibank, N.A., as administrative agent, (ii) the Waiver
and Amendment No. 1 dated May 22, 1998 (the "364-Day Credit Agreement Waiver
and Amendment") to the 364-Day Credit Agreement dated August 29, 1996 among
Maxtor Corporation, the banks, financial institutions and other institutional
lenders parties, Citicorp Securities, Inc. and Hanil Bank, as joint arrangers,
ABN AMRO Bank, N.V., San Francisco International Branch and Royal Bank of
Canada, as co-agents, Fleet National Bank, as manager, and Citibank, N.A., as
administrative agent and (iii) the Waiver and Amendment No. 1 dated May 22 1998
to the Credit Agreement dated October 30, 1997 between Maxtor Corporation and
Nomura International Bank plc (together with the Waiver and Amendment and the
364-Day Credit Agreement Waiver and Amendment, the "Waivers and Amendments"),
that:
1. Attached hereto as Exhibit A is a true and correct copy of
resolutions duly adopted by the Board of Directors of Maxtor at a
meeting thereof duly called and held on May 13, 1998, at which
meeting a quorum was present and acting throughout. Such
resolutions are the only resolutions regarding the Agreements, have
not been amended, modified or revoked and are in full force and
effect on the date hereof.
2. The Waivers and Amendments to which Maxtor is a party, as executed
and delivered on behalf of Maxtor, are substantially in the form
thereof approved by the Board of Directors referred to in paragraph
1 hereof.
3. The below named persons, who include all persons who, as officers
of Maxtor, executed and delivered the Waivers and Amendments, were
on the date of such execution, and are on the date hereof, duly
appointed, qualified and acting as such officers holding their
respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine
signatures:
Name Office Signature
---- ------ ---------
Michael R. Cannon President and Chief
Executive Officer ---------------------
Paul J. Tufano Vice President Finance,
i
<PAGE> 12
and Chief Financial
Officer /s/ PAUL J. TUFANO
-----------------------
Raja Venkatesh Corporate Treasurer /s/ RAJA VENKATESH
-----------------------
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ GLENN H. STEVENS
--------------------------------
Glenn H. Stevens, Secretary
I, Paul J. Tufano, Vice President of Maxtor Corporation, do hereby
certify that Glenn H. Stevens has been duly appointed and has duly qualified as,
and on this day is, Secretary of Maxtor Corporation, and the signature above is
his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ PAUL J. TUFANO
---------------------------------
Paul J. Tufano
ii
<PAGE> 13
RESOLUTIONS OF THE BOARD OF DIRECTORS OF MAXTOR CORPORATION
Dated: May 13, 1998
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Credit Agreement") dated August 29, 1996 with the banks, financial institutions
and other institutional lenders parties (collectively, the "Lenders"), Citicorp
Securities, Inc. and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San
Francisco International Branch and Royal Bank of Canada, as co-agents.
WHEREAS, the Corporation has entered into a 364-Day Credit Agreement
(the "364-Day Credit Agreement") dated August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the "364-Day
Credit Agreement Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint
arrangers, ABN AMRO Bank, N.V., San Francisco International Branch and Royal
Bank of Canada, as co-agents, Fleet National Bank, as manager, and Citibank,
N.A., as administrative agent.
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Nomura Credit Agreement") dated October 30, 1997 with Nomura International Bank
plc (together with the Lenders and the 364-Day Credit Agreement Lenders, the
"Maxtor Lenders").
WHEREAS, under such Credit Agreements, Hyundai Electronics Industries,
Co., Ltd. ("HEI") guaranteed the payments of Maxtor Corporation to the Maxtor
Lenders under a guaranty (the "Guaranty").
WHEREAS, HEI released its 1997 year end financial statements, which
financial statements indicate that HEI is in default of the financial covenants
of the Guaranty, (the "HEI Default").
NOW, THEREFORE, BE IT RESOLVED, that it is in the best interests of the
Corporation in order to ensure the availability of working capital to the
Corporation to request that the Maxtor Lenders waive the HEI Default.
RESOLVED FURTHER, that it is in the best interests of the Corporation to
enter into the (i) Waiver and Amendment No. 1 dated May 22, 1998 to the Credit
Agreement, (ii) Waiver and Amendment No. 1 dated May 22, 1998 to the 364-Day
Credit Agreement and (iii) Waiver and Amendment No. 1 dated May 22, 1998 to the
Nomura Credit Agreement (together the "Waivers and Amendments").
RESOLVED FURTHER, that the Waivers and Amendments and the performance by
the Corporation of its obligations under the Waivers and Amendments, be, and the
same hereby are, in all respects approved, and that the Chairman of the Board of
Directors of the Corporation, the President, any Vice
<PAGE> 14
President or the Treasurer of the Corporation (each an "Authorized Officer") be,
and each of them hereby is, authorized and directed (any one of them acting
alone), in the name and on behalf of the Corporation, to execute and deliver the
Waivers and Amendments, each in the form as the Authorized Officer of the
Corporation executing the same shall approve, such approval to be conclusively
evidenced by his or her execution and delivery thereof; and
RESOLVED FURTHER, that prior to the execution of the Waivers and
Amendments, the Authorized Officers are, and each hereby is, authorized to
negotiate and agree on the terms and conditions of each of the Waivers and
Amendments as such Authorized Officers, or any one of them, in his, her or their
sole discretion, deem to be in the best interests of the Corporation; and
RESOLVED FURTHER, that the Authorized Officers be, and each of them
hereby is, authorized and empowered (any one of them acting alone) to do or
cause to be done all such acts or things and to sign and deliver, or cause to be
signed and delivered, all such documents, instruments and certificates
(including, without limitation, all notices and certificates required or
permitted to be given or made under the terms of the Waivers and Amendments) and
to pay all such expenses, in the name and on behalf of the Corporation or
otherwise as such Authorized Officer may deem necessary, advisable or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions and to perform the obligations of the Corporation under the Waivers
and Amendments and the other agreements and instruments as referred to above or
referred to therein; and
RESOLVED FURTHER, that the Corporation hereby authorizes, ratifies,
confirms and adopts in all respects all acts of the officers of the Corporation,
and of any person designated and authorized to act by an officer of the
Corporation, heretofore done or performed by such person in connection with the
acts and transactions approved by these resolutions.
<PAGE> 15
Filed with the minutes of the proceedings of the Board of Directors by
the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
----------------------------------------
Secretary
<PAGE> 16
GUARANTY
May 29, 1998
To Nomura Bank International plc
I. For and in consideration of any indebtedness to you under the 364 Day
Credit Agreement (as amended to date, the "Credit Agreement") dated as of
October 31, 1997 between you and Maxtor Corporation, a Delaware corporation
having an address at 510 Cottonwood Drive, Milpitas, California 95035
(hereinafter called the "Borrower"), and the Note (as defined in the Credit
Agreement) for the payment of which the undersigned is now obligated to you,
either as guarantor or otherwise, and/or in order to induce you, in your
discretion, at any time(s) hereafter, to make any loan(s) or advance(s) or to
extend credit in any other manner to, or at the request of or for the account
of, the Borrower, either with or without security, under the Credit Agreement,
(all liabilities and obligations of the Borrower to you under the Credit
Agreement and the Note (as defined in the Credit Agreement) being hereinafter
referred to as "Obligations"), the undersigned does hereby unconditionally
GUARANTEE and INDEMNIFY the punctual payment when due to you of each and all of
the Obligations, together with interest thereon and any and all expenses which
may be incurred by you in collecting all or any of the Obligations and/or in
enforcing any rights hereunder.
II. It is understood and agreed that (i) the undersigned guarantees that
the Obligations will be paid to you strictly in accordance with the terms and
provisions of the Credit Agreements. In reference thereto, regardless of any
law, regulation or decree, now or hereafter in effect, which might in any manner
affect any of the terms or provisions of the Credit Agreements or your rights
with respect thereto as against the Borrower, or cause or permit to be invoked
any alteration in the time, amount or manner of payment by the Borrower of any
of the Obligations, and (ii) in each instance when the Borrower shall have
agreed, relative to any one or more of the Obligations, to pay or provide your
Head Office or any of your branches or correspondents with any amount of money
that is other than that which is locally in common circulation at the time as
currency in the place where such agreement is made, and such amount is not
actually paid or provided at and when agreed or within such time as you may deem
reasonable, the undersigned will, upon request and as you may elect, either pay
or provide the amount in the exact currency and place as agreed by the Borrower
or pay or provide you in the City of New York with the equivalent of the amount
in U.S. dollars at your then prevailing rate for sales of the kind of currency
agreed to be paid or provided for transfer by cable to a place where it is
current on condition that the undersigned obtains necessary permission from the
Korean Government in case such permission is required under the Korean laws and
regulations concerning foreign exchange control then in force.
III. As security for any and all liabilities of the undersigned to you,
now
<PAGE> 17
existing or hereafter arising hereunder, or otherwise, you are hereby given the
right to retain, and you are hereby given a lien upon any and all moneys or
other property (i.e., good and merchandise, as well as any and all documents
relative thereto; also funds, securities, choses in action and any and all
other forms of property whether real, personal or mixed, and any right, title or
interest of the undersigned therein or thereto), and/or the proceeds thereof,
which have/has been or may hereafter be, deposited or left with you (or with any
third party acting on your behalf) by or for the account or credit of the
undersigned, including (without limitation of the foregoing) that in safekeeping
or in which the undersigned may have any interest. All remittances and property
shall be deemed left with you as soon as put in transit to you by mail or
carrier. In the event of the happening of any one or more of the following, to
wit: (a) the non-payment of any of the Obligations after any applicable grace
period; (b) the dissolution or termination of existence of the Borrower or the
undersigned; (c) any petition in bankruptcy being filed by or against the
Borrower or the undersigned, or any proceedings in bankruptcy, or under any laws
or regulations of any jurisdiction relating to the relief of debtors, being
commenced for the relief or readjustment or any indebtedness of the Borrower or
the undersigned, either through reorganization, composition, extension or
otherwise; (d) the making by the Borrower or the undersigned of an assignment
for the benefit of creditors or the commencement of any proceedings by either
of the same of any insolvency law; (e) the appointment of a receiver of any
property of the Borrower or the undersigned undismissed after 45 days; (f) any
seizure, vesting or intervention by or under authority of a government, by which
the management of either the Borrower or the undersigned is displaced or its
authority in the conduct of its business is curtailed; (g) the attachment or
distraint of any funds or other property of the Borrower or the undersigned
which may be in, or come into, your possession or under your control, or that of
any third party acting for you, or of the same becoming subject at any time to
any mandatory order of court or other legal process -- then, or at any time(s)
any such event exists, any or all of the Obligations shall, at your option,
become (for the purposes of this guaranty) immediately due and payable by the
undersigned, without demand or notice. Furthermore, in any such event, full
power and authority are hereby given you to sell, assign, and deliver the whole
or any of the property upon which you have hereinbefore been given a lien, at
any broker's board, or at public or private sale, at your option, either for
cash or on credit or for future delivery, without assumption of any credit risk,
and without either demand, advertisement or notice of any kind, all of which are
hereby expressly waived, and no delay on your part in exercising any power of
sale or any other rights or options hereunder, and no notice or demand, which
may be given to or made upon the undersigned by you with respect to any power of
sale or other right or option hereunder, shall constitute a waiver thereof, or
limit or impair your right to take any action or to exercise any power of sale
or any other rights hereunder, without notice or demand, or prejudice your
rights as against the undersigned in any respect. At any sale hereunder, you may
purchase the whole or any part of the property sold, free from any right of
redemption on the part of the undersigned, all such rights being also hereby
<PAGE> 18
waived and released. In the event of any sale or other disposition of any of the
property aforesaid, after deducting all costs or expenses of every kind for
care, safekeeping, collection, sale, delivery or otherwise, you shall, after
applying the residue of the proceeds of the sale, or other disposition thereof,
to the payment or reduction (in whole or in part) of the principal and/or
interest (as you may elect) then owing on the Obligations, and after making
proper allowance for interest on Obligations not then due, return any excess to
the undersigned, all without prejudice to your rights as against the undersigned
with respect to any and all amounts which may then be or remain unpaid on any
Obligations.
IV. The undersigned hereby consents and agrees that you may at any time,
or from time to time, in your discretion; (1) extend or change the time of
payment, and/or the manner, place or terms of payment of all or any of the
Obligations; (2) exchange, release, fail to perfect, and/or surrender all or any
of the collateral security, or any part(s) thereof, by whomsoever deposited
which is now or may hereafter be held by you in connection with all or any of
the Obligations; (3) sell and/or purchase all or any such collateral at public
or private sale, or at any broker's board, and after deducting all costs and
expenses of every kind for collection, sale or delivery, the net proceeds of any
such sale(s) may be applied by you upon all or any of the Obligations; and (4)
settle or compromise with the Borrower, and/or any other person(s) liable
thereon, any and all of the Obligations, and/or subordinate the payment of same,
or any part(s) thereof, to the payment of any other debts or claims, which may
at any time(s) be due or owing to you and/or any other person(s) or
corporation(s); all in such manner and upon such terms as you may deem proper,
and without notice to or further assent from the undersigned, it being hereby
agreed that the undersigned shall be and remain bound upon this guaranty,
irrespective of the existence, value or condition of any collateral, and
notwithstanding any such change, exchange, settlement compromise, surrender,
release, sale, application, renewal or extension, and notwithstanding also that
the Obligations may at any time(s) exceed the aggregate principal sum
bereinabove prescribed. The liability of the undersigned under this guaranty
shall be unconditional irrespective of (i) any amendment or waiver or consent to
departure from the terms of any Obligation provided that any such amendment does
not relate to an increase in the amount of the Obligation or an extension of the
maturity of such Obligation which has not been consented to by the undersigned,
(ii) any change in the corporate existence, structure or ownership of the
Borrower, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Borrower or its assets or any resulting release or
discharge of any of the Obligations, (iii) the existence of any claim, set-off
or other rights which the undersigned may have at any time against the Borrower,
you, or any other corporation or person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall prevent the assertion
of any such claim by separate suit or compulsory counterclaim, and (iv) any
other circumstance which might otherwise constitute a defense available to, or a
legal or equitable discharge of, the Borrower or a
<PAGE> 19
guarantor.
V. The undersigned hereby waives notice of acceptance of this guaranty,
and also presentment, demand, protest and notice of dishonor of any and all of
the Obligations, and promptness in commencing suit against any party thereto or
liable thereon, and/or in giving any notice to or of making any claim or demand
hereunder upon the undersigned, and any requirement that you exhaust any right
or take any action against the Borrower or any collateral security. This
guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any Obligation is rescinded or must otherwise be
returned by you upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made. No act or
omission of any kind on your part in the premises shall in any event affect or
impair this guaranty.
VI. This is a continuing guaranty and shall (i) remain in full force and
effect until written notice shall have been received by you from the undersigned
(or the successor or legal representative of the undersigned) that it has been
revoked, but any such notice shall not release the undersigned from any
liability as to any Obligations which may be held by you, or in which you may
have any interest, at the time of the receipt of such notice; (ii) be binding
upon the undersigned, the heirs, executors, administrators, successors and
assigns of the undersigned, and shall inure to the benefit of, and be
enforceable by, you, your successors, transferees and assigns; and (iii) be
deemed to have been made under and shall be governed by the laws of Korea in all
respects, including matters of construction, validity and performance, and it is
understood and agreed that none of its terms or provisions may be waived,
altered, modified or amended except in writing duly signed for and on your
behalf.
VII. Any and all payments by the undersigned hereunder shall be made
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, all liabilities with
respect thereto, excluding (i) taxes imposed on your overall net income, (ii)
franchise taxes imposed on you in lieu of net income taxes by the jurisdiction
under the laws of which you are organized or any political subdivision thereof,
and (iii) if applicable, taxes imposed on your overall net income, and franchise
taxes imposed on you in lieu of net income taxes, by the jurisdiction of your
lending office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the undersigned shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this paragraph) you will receive an amount equal to the sum you would have
received had no such deductions been made, (ii) the undersigned shall make such
deductions and (iii) the undersigned shall pay
<PAGE> 20
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law. In addition, the undersigned agrees to pay
any present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, performing under or otherwise
with respect to, this guaranty or the Obligations (hereinafter referred to as
"Other Taxes"). Within 30 days of any payment of Taxes, the undersigned will
furnish to you the original or a certified copy of a receipt evidencing payment
thereof. The undersigned will indemnify you for the full amount of Taxes or
Other Taxes (including, without limitation, any taxes imposed by any
jurisdiction on amounts payable under this paragraph) paid by you or any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted, within 30 days of your request therefor. Without prejudice to
the survival of any other agreement contained herein, the agreements and
obligations of the undersigned contained in this paragraph shall survive the
payment in full of the Obligations and principal and interest hereunder and any
termination or revocation of this guaranty. In the case of any payment hereunder
by or on behalf of the Guarantor through an account or branch outside the United
States or on behalf of the Guarantor by a payer that is not a United States
person, if the Guarantor determines that no Taxes are payable in respect
thereof, the Guarantor shall furnish, or shall cause such payer to furnish, to
the Administrative Agent, at such address, an opinion of counsel acceptable to
the Administrative Agent stating that such payment is exempt from Taxes. For
purpose of the preceding sentence, the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
VIII. Notwithstanding any other provision of this guaranty, until
payment in full of the Obligations after termination of any of your commitments
with respect thereto, (i) the undersigned hereby irrevocably waives any right to
assert, enforce, or otherwise exercise any right of subrogation to any of the
rights, security interests, claims, or liens which you have against the Borrower
in respect to the Obligations, (ii) the undersigned shall have no right of
recourse, reimbursement, contribution, indemnification, or similar right that
the undersigned may have (by contract or otherwise) against the Borrower in
respect of the Obligations, and (iii) the undersigned hereby irrevocably waives
any and all of the foregoing rights and also irrevocably waives the benefit of,
and any right to participate in, any collateral or other security given to you
to secure payment of the Obligations.
IX. If the undersigned shall fail to pay any of its obligations
hereunder when the same shall become due and payable, you are hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by you to or for the credit or account of the
<PAGE> 21
undersigned against any and all of the Obligations, whether or not you shall
have made any demand under this guaranty. You agree promptly to notify the
undersigned after any such set-off and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
Your rights under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of set off) which you may have.
X. The undersigned hereby represents and warrants as follows: (i) the
execution, delivery and performance by the undersigned of this guaranty are
within its corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (x) its articles of incorporation or
by-laws or (y) law or any contractual restriction binding on or affecting it or
any entity that controls it; (ii) all authorizations, approvals, consents,
licenses, exemptions, filings, registrations and other requirements of
governmental, judicial and public bodies and authorities of or in Korea required
of the Guarantor in connection with the entry into and performance of this
Guaranty have been obtained and are in full force and effect, except that the
undersigned is required to report to its designated foreign exchange trading
bank any payment to be made under this Guaranty at the time of making each such
payment; and (iii) this guaranty has been duly executed and delivered by the
undersigned, and is the legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms.
XI. The undersigned covenants and agrees that, so long as any part of
the Obligations shall remain unpaid or any Lender shall have any commitment to
lend under either Credit Agreement, (a) the Tangible Net Worth of the
undersigned on the last day of any fiscal quarter shall be not less than the sum
of (i) 70% of the Tangible Net Worth as of December 31, 1997 plus (ii) 50% of
positive Net Income of the undersigned for each fiscal year of the undersigned
beginning with the fiscal year ending December 31, 1998 and (b) the undersigned
shall maintain a ratio of current assets to current liabilities greater than or
equal to 0.8. "Tangible Net Worth" shall mean the excess of (x) total tangible
assets over (y) total liabilities, and "Net Income" shall mean the difference,
after taxes, between total revenues and total costs and expenses.
XII. Delivery of an executed counterpart of a signature page to this
guaranty by telecopier shall be effective as delivery of a manually executed
counterpart of this guaranty.
HYUNDAI HEAVY INDUSTRIES CO., LTD.
[SEAL]
By /s/ HYUNG BYUK KIM
------------------------------------
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 22
[LETTERHEAD OF BAC, KIM & LEE]
May 22, 1998
To: Nomura Bank International plc
Nomura House
1, St Martin's-Le-Grand
London EC1A 4NP
(the "Lender")
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Heavy Industries Co.,
Ltd. (the "GUARANTOR") in connection with a Corporate Guaranty (the "GUARANTY")
dated May 22, 1998 issued by the Guarantor in favor of the Lender for the
purpose of guaranteeing the obligations of Maxtor Corporation as the Borrower
under the above-mentioned Credit Agreement (the "CREDIT AGREEMENT") as amended
by a certain waiver and amendment no. 1 to the Credit Agreement (the "AMENDMENT
AGREEMENT") dated May 22, 1998. Terms defined in the Credit Agreement and
Amendment Agreement are used herein as therein defined and the term "Korea"
refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement.
For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty;
(d) the Articles of Incorporation of the Guarantor;
(e) the Regulations of the Board of Directors of the Guarantor;
(f) Commercial Registry extracts regarding the Guarantor;
(g) the Approval of the Guarantor's Representative Director in respect of
the Guaranty;
<PAGE> 23
Bae, Kim & Lee
May 22, 1998
Page 2.
(h) the report to, and acceptance thereof by, the designated foreign
exchange trading bank in respect of the Guaranty; and
(i) such other documents as we have considered necessary or relevant in
order for us to provide this opinion.
In giving this opinion we have assumed that:
(i) the authenticity of all signatures, seals, stamps and markings;
(ii) that all documents submitted to us as originals are authentic,
complete and up-to-date, all documents submitted to us as copies
conform to the originals, and that all factual statements made in
such documents are correct and we have relied on them without
further enquiry;
(iii) that the Credit Agreement and Amendment Agreement and any other
agreement or instrument thereunder have been validly authorized,
signed and delivered by the parties thereto (other than the
Guarantor) in accordance with applicable laws;
(iv) that the Credit Agreement and Amendment Agreement and any other
agreements or instruments thereunder constitute or will constitute
legal, valid and binding obligations of each of the parties thereto
enforceable in accordance with its terms respectively under the
laws of the State of New York by which the Credit Agreement and
Amendment Agreement and any other agreement or instrument are
expressed to be governed;
(v) that the copies of the Articles of Incorporation of, the
Regulations of the Board of Directors of and the Commercial
Registry extracts relating to, the Guarantor referred to in
paragraphs (d) through (f) above are true, complete, accurate and
up-to-date; and
(vi) that the Approval of the Guarantor's Representative Director
referred to in paragraph (g) above was duly executed and that such
Approval has not been amended or rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the laws of
Korea are concerned;
<PAGE> 24
Bae, Kim & Lee
May 22, 1998
Page 3.
(1) The Guarantor is a limited liability company, duly organized and validly
existing under the laws of Korea, with full power and authority to enter
into and perform the Guaranty.
(2) The Guarantor has taken all necessary corporate action to authorize the
entry into and performance of the Guaranty and the transactions
contemplated thereby.
(3) The Guaranty constitutes a legal, valid and binding obligation of the
Guarantor enforceable in accordance with its terms and is in proper form
for its enforcement in the courts of Korea.
(4) The entry into the Guaranty and the performance of the obligations
thereunder by the Guarantor do not violate (i) any law or regulation of
Korea or any judicial order in Korea or (ii) the constitutional documents
of the Guarantor.
(5) All authorizations, approvals, consents, licenses, exemptions, filings,
registrations and other requirements of governmental, judicial and public
bodies and authorities of or in Korea required of the Guarantor in
connection with the entry into and performance of the Guaranty have been
obtained and are in full force and effect, except that the Guarantor is
required to report any payment to be made under the Guaranty at the time
of making each such payment to its designated foreign exchange trading
bank.
(6) The obligations of the Guarantor under the Guaranty rank at least pari
passu with all its other present or future unsecured and unsubordinated
obligations of the Guarantor except for those preferred by operation of
law applicable to companies generally.
(7) All amounts payable by the Guarantor under the Guaranty may be made free
and clear of and without deduction for or on account of any taxes imposed,
assessed or levied in Korea or by any authority thereof of therein except,
however, that although the tax laws of Korea are not entirely clear as to
whether payment of any interest by the Guarantor under the Guaranty may be
made without withholding of Korean taxes, the Korean tax authorities may
require the Guarantor to withhold Korean taxes from such interest payment.
In the event of Korean taxes being imposed on interest payments, the
guarantor's obligation to bear the cost of such tax under the Guaranty
would become operative.
(8) Neither the Guarantor nor any of its property (except such property
specifically protected by law) has any immunity from jurisdiction of any
court or from any legal process (whether through service or notice,
attachment prior to judgment,
<PAGE> 25
Bae, Kim & Lee
May 22, 1998
Page 4.
attachment in aid of execution or otherwise) under the laws of Korea.
(9) To ensure the enforceability or admissibility in evidence of this
Guaranty in Korea, it is not necessary that this Guaranty or any other
document or instrument be filed or recorded with any court or other
authority in Korea.
Our opinion is subject to the following general qualifications:
(i) the obligations of the Guarantor under the Guaranty may be limited or
affected by the bankruptcy law, the corporate reorganization law, the
compulsory composition law and other similar laws which generally
affect the rights of creditors; and
(ii) the remedies of specific performance or injunction might not
necessarily be available in Korea with respect to any particular
provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by you
and your Counsel.
Yours faithfully,
/s/ BAE, KIM & LEE
-----------------------------------------
Bae, Kim & Lee
<PAGE> 26
HANDLING PERIOD
---------------
APPLICATION FOR THE VALIDATION OF GUARANTY
<TABLE>
<S> <C> <C>
Tradename Hyundai Heavy Industries Co., Ltd.
APPLICANT Address 1, Cheonha-dong, Ulsan, Kyungnam, Korea
Name of CEO Hyung Byuk Kim
Business area Manufacturing
Obligee(Lender) Nomura Bank International plc
DETAILS OF Obligor(Guarantor) Hyundai Heavy Industries Co., Ltd.
APPLICATION Beneficiary(Borrower) Maxtor Corporation
Amount USD10,000,000.
Effective period Until November 13, 1998
Purpose Working Capital
Repayment Lump Sum Repayment at maturity
</TABLE>
We hereby apply for the validation of Guaranty in accordance with the
Article 21 of Korea Foreign Exchange Control Regulation.
1998
<TABLE>
<S> <C> <C>
To: Applicant No. of Validation Singosuri0696-Keumyungl2-
Your application for the Validation of Validated amount USD10,000,000.-
Guaranty is approved. Effective period Until November 13, 1998
Condition : N/A
</TABLE>
1998
Confirmation by the Authorized Foreign Exchange Bank:
On the basis of Korea Foreign Exchange Control Regulation, we as the
authorized bank, hereto affix the seal of us in testimony of approval.
THE PRESIDENT OF KOREA EXCHANGE BANK [SEAL]
(KYE-DONG BRANCH)
<PAGE> 27
May 27, 1998
To: Nomura Bank International plc (lender)
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Heavy Industries Co., Ltd.
(the "GUARANTOR") in connection with a Corporate Guaranty (the "GUARANTY") dated
May , 1998 issued by the Guarantor in favor of Nomura Bank International plc
for the purpose of guaranteeing the obligations of Maxtor Corporation as the
Borrower under a certain credit agreement (the "CREDIT AGREEMENT") dated October
31, 1997 and entered into by and between Maxtor Corporation as borrower and
Nomura Bank International plc as lender as amended by a certain waiver and
amendment no. 1 to the Credit Agreement (the "AMENDMENT AGREEMENT") dated May
22, 1998. Terms defined in the Credit Agreement and the Amendment Agreement are
used herein as therein defined and the term "Korea" refers to the Republic of
Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement. For the purpose of this opinion, I have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty; and
(d) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide this
opinion.
Based on the foregoing, I am of the opinion that, so far as the laws of Korea
are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
/s/ Y.B. KIM
- ----------------------
Y.B. Kim
Corporate Counsel
<PAGE> 28
HYUNDAI HEAVY INDUSTRIES CO., LTD.
CERTIFICATE
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of Hyundai
Heavy Industries Co., Ltd., a corporation duly organized and existing under the
laws of the Republic of Korea with its registered head office at 1,
Cheonha-dong, Ulsan, Kyungnam, Korea (the "COMPANY"), does hereby certify:
(1) that attached hereto as EXHIBIT A is a true and correct copy of the
approval of the Representative Director of the Company approving,
among other things, the execution, delivery and performance by the
Company of a guaranty (the "GUARANTY") in favour of Nomura Bank"
International plc, named as lender (the "LENDER") in a certain
credit agreement (the "CREDIT AGREEMENT") dated October 31, 1997 as
amended by a certain waiver and amendment no. 1 to the Credit
Agreement in relation to the obligations of Maxtor Corporation (the
"BORROWER") under a credit facility (the "FACILITY") extended by the
Lender to the Borrower in an aggregate principal amount of up to
US$10,000,000, which approval has not been amended or rescinded and
are in full force and effect on the date hereof; and
(2) that attached hereto as EXHIBIT B is a true and correct copy of the
report to and acceptance thereof by its designated foreign exchange
trading bank of the Company in respect of the Guaranty, together
with an accurate English translation thereof.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal as of
this day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM [SEAL]
------------------------------
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 29
HYUNDAI HEAVY INDUSTRIES CO., LTD.
APPROVAL OF THE REPRESENTATIVE DIRECTOR
OF
HYUNDAI HEAVY INDUSTRIES CO., LTD.
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of
Hyundai Heavy Industries Co., Ltd. (the "COMPANY"), approves the execution,
delivery and performance by the Company of a guaranty (the "GUARANTY") in favour
of Nomura Bank International plc named as lender (the "LENDER") in a certain
credit agreement (the, "CREDIT AGREEMENT") dated October 31, 1997 as amended by
a certain waiver and amendment no. 1 to the Credit Agreement in relation to the
obligations of Maxtor Corporation (the "BORROWER") under a credit facility (the
"FACILITY") extended by the Lender to the Borrower in an aggregate principal
amount of up to US$10,000,000.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal
as of this day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM [SEAL]
------------------------------
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 1
EXHIBIT 10.65
WAIVER AND AMENDMENT NO. 1
TO THE CREDIT AGREEMENT
Dated as of May 22, 1998
WAIVER AND AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among, Maxtor
Corporation, a Delaware corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Citibank, N.A., as
administrative agent (the "Administrative Agent") for the Lenders.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders, Citicorp Securities, Inc. and Hanil
Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco International
Branch and Royal Bank of Canada, as co-agents, Fleet National Bank, as manager,
and the Administrative Agent have entered into a Credit Agreement dated as of
August 29, 1996 (the "Credit Agreement"). Capitalized terms not otherwise
defined in this Amendment have the same meanings as specified in the Credit
Agreement.
(2) Hyundai Electronics Industries, Co., Ltd. ("HEI") has released
its 1997 year end financial statements, which financial statements indicate that
HEI is in default of the financial covenant set forth in Section XII(a) of the
Guaranty (the "HEI Default").
(3) The Borrower has requested that the Lenders waive the HEI
Default, amend certain provisions of the Credit Agreement and accept Hyundai
Heavy Industries Co., Ltd. as a guarantor in the place of HEI.
(4) The Lenders are, on the terms and conditions stated below,
willing to grant the request of the Borrower and the Borrower and the Lenders
have agreed to amend the Credit Agreement as hereinafter set forth.
SECTION 1. Waivers. Effective as of the date of the origination of
the HEI Default and subject to the satisfaction of the conditions precedent set
forth in Section 4, the Lenders hereby waive (a) Section 6.01(c)(ii) of the
Credit Agreement to the extent of the HEI Default and (b) Section 6.01(d) of the
Credit Agreement to the extent that the HEI Default constitutes an event or
condition that would permit the acceleration of the maturity of any Debt
referred to in Section 6.01(d), but only so long as the maturity of such Debt
has not been accelerated.
<PAGE> 2
2
SECTION 2. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4, hereby amended as follows:
(a) Section 1.01 is amended by deleting the definitions of
"Applicable Margin", "Guarantor", "Guaranty" and "Hyundai Group" set forth
therein and replacing them, respectively with the following new
definitions:
"Applicable Margin" means, as of any date prior to April 1,
1998, a percentage per annum equal to 0% for Base Rate Advances and
.305% for Eurodollar Rate Advances and, as of any date on or after
April 1, 1998, a percentage per annum equal to 0% for Base Rate
Advances and 1.75% for Eurodollar Rate Advances.
"Guarantor" means Hyundai Heavy Industries Co., Ltd., a
company incorporated with limited liability in the Republic of
Korea.
"Guaranty" means the guaranty executed by the Guarantor in the
form attached on Exhibit A to Amendment No. 1.
"Hyundai Group" means, collectively, the Guarantor, Hyundai
Merchant Marine Co., Ltd., Hyundai Corporation and Hyundai
Electronics Industries Co., Ltd.
(b) Section 1.01 is further amended by adding thereto in proper
alphabetical sequence the following definition:
"Amendment No.1" means Waiver and Amendment No. 1 to the
Credit Agreement dated as of May 22, 1998.
(c) Section 2.04(a) is amended by deleting therefrom the figure
".225%" and substituting therefor the figure "0.25%".
(d) Section 4.01(e)(ii) is amended by deleting therefrom, in both
places where such date appears, the date "December 31, 1995" and
substituting therefor the date "December 31, 1997".
(e) Section 5.02(b)(iii)(A) is amended in full to read as follows:
(A) Debt incurred in connection with the
Securitization in an amount not to exceed $225,000,000 at any
time outstanding or the
<PAGE> 3
3
transactions listed on Schedule 5.02(b)(iii)(A) to the extent
(x) such item of such Debt does not exceed the amount
corresponding to each such item on such Schedule and (y) the
Debt permitted by this clause (A) does not exceed $266,000,000
in the aggregate, and any Debt extending the maturity of, or
refunding or refinancing, in whole or in part, any such Debt,
provided that the terms of any such extending, refunding or
refinancing Debt, and of any agreement entered into and of any
instrument issued in connection therewith, are otherwise
permitted by the Loan Documents, and provided further that the
principal amount of such Debt shall not be increased above the
maximum aggregate principal amount set forth above, and the
direct and contingent obligors therefor shall not be changed,
as a result of or in connection with such extension, refunding
or refinancing,
(f) Section 5.02(c) is amended by adding the following clause
(iii) immediately before the period at the end of such section: "and (iii)
a wholly-owned special purpose Subsidiary of the Borrower may convey,
transfer or otherwise dispose of receivables pursuant to any transaction
described in Section 5.02(b)(iii)(A)".
(g) Section 6.01(h)(ii) is amended by deleting the phrase "on the
date hereof" and substituting therefor the phrase "on the date of
Amendment No. 1".
SECTION 3. Release of HEI Guaranty. Effective as of the date of the
origination of the HEI Default and subject to the satisfaction of the conditions
precedent set forth in Section 4, the HEI Guaranty is hereby terminated as it
relates to the Credit Agreement.
SECTION 4. Conditions of Effectiveness. This Amendment is subject to
the provisions of Section 8.01 of the Credit Agreement. This Amendment shall
become effective as of the date of the origination of the HEI Default when the
Administrative Agent shall have received counterparts of this Amendment executed
by the Borrower and all of the Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed this
Amendment and Sections 1, 2 and 3 hereof shall become effective as of such date
when, and only when, on or before June 1, 1998 the Administrative Agent shall
have additionally received all of the following documents, each such document
(unless otherwise specified) dated the date of receipt thereof by the
Administrative Agent (unless otherwise specified) and in sufficient copies for
each Lender, in form and substance satisfactory to the Administrative Agent
(unless otherwise specified):
(a) Certified copies of (i) the resolutions of the Board of
Directors of (A) the Borrower approving this Amendment and the matters
contemplated hereby and
<PAGE> 4
4
thereby and (B) the Guarantor evidencing approval of the Guaranty and the
matters contemplated hereby and thereby and (ii) all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Amendment, the Guaranty and the matters contemplated
hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of
the Borrower and the Representative Director or a duly authorized officer
of the Guarantor certifying the names and true signatures of the officers
of the Borrower and the Guarantor authorized to sign this Amendment and
the Guaranty, respectively, and the other documents to be delivered
hereunder and thereunder.
(c) Counterparts of the Guaranty in the form attached as Exhibit A
hereto, executed by the Guarantor.
(d) Favorable opinions of Bae, Kim & Lee, counsel for the
Guarantor, or other Korean counsel to the Guarantor acceptable to the
Administrative Agent, and the Corporate Counsel of the Guarantor, in
substantially the form of Exhibits B and C hereto and as to such other
matters as any Lender through the Administrative Agent may reasonably
request.
(e) A certificate signed by a duly authorized officer of the
Borrower stating that:
(i) The representations and warranties contained in Section
5 below are correct on and as of the date of such certificate as
though made on and as of such date; and
(ii) After giving effect to this Amendment, no event has
occurred and is continuing that constitutes a Default.
SECTION 5. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and, where applicable, in good standing under the laws of the
jurisdiction of its incorporation.
(b) The execution, delivery and performance by each Loan Party of
this Amendment and the Loan Documents, as amended hereby, to which it is
or is to be a party, and the consummation of the transactions contemplated
hereby, are within such Loan Party's corporate powers, have been duly
authorized by all necessary corporate
<PAGE> 5
5
action, and do not contravene (i) such Loan Party's charter or by-laws or
(ii) any law, regulation (including, without limitation, Regulations U and
X of the Board of Governors of the Federal Reserve System) or contractual
restriction binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any
other third party is required for the due execution, delivery and
performance by either Loan Party of this Amendment or any other Loan
Document to which it is or is to be a party, except for those
authorizations, approvals, actions, notices and filings listed on Schedule
4.01(c) hereto, all of which have been duly obtained, taken, given or
made and are in full force and effect except that the Guarantor is
required to report to its designated foreign exchange trading bank any
payment to be made under the Guaranty at the time of making such payment.
(d) This Amendment and the Guaranty have been duly executed and
delivered by each Loan Party party thereto. This Amendment and each of the
other Loan Documents, as amended hereby, to which the Borrower is a party
is, and the Guaranty is, the legal, valid and binding obligation of each
of the Borrower and the Guarantor, respectively, enforceable against each
such Loan Party in accordance with their respective terms.
(e) (i) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 28, 1997, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Ernst &
Young, independent public accountants, copies of which have been furnished
to each Lender, fairly present the Consolidated financial condition of the
Borrower and its Subsidiaries as at such date and the Consolidated results
of the operations of the Borrower and its Subsidiaries for the period
ended on such date, all in accordance with generally accepted accounting
principles consistently applied. Since December 28, 1997, there has been
no Material Adverse Change with respect to the Borrower, other than as
provided on Schedule 4.01(e)(i) hereto.
(ii) The balance sheet of the Guarantor and its Subsidiaries
as at December 31, 1997, and the related statements of income and
cash flows of the Guarantor and its Subsidiaries for the fiscal year
then ended, accompanied by an opinion of Samil Accounting
Corporation, a member firm of Coopers & Lybrand, independent public
accountants, copies of which have been furnished to each Lender,
fairly present the financial condition of the Guarantor and its
Subsidiaries as at such date and the results of the operations of
the Guarantor and its Subsidiaries for the periods ended on such
date, all in accordance with generally accepted financial
<PAGE> 6
6
accounting standards in the Republic of Korea consistently applied.
Since December 31, 1997, there has been no Material Adverse Change with
respect to the Guarantor.
(f) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, affecting either Loan Party or any of its Subsidiaries before any
court, governmental agency or arbitrator that (i) could be reasonably
likely to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of this Amendment, the Guaranty or
any other Loan Document, as amended hereby, or the consummation of the
transactions contemplated hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) On and after the effectiveness of this Amendment, each
reference in the Credit Agreement to "the Guaranty", thereunder",
"thereof" or words of like import referring to the Guaranty, shall mean
and be a reference to the Guaranty, as defined in the Credit Agreement as
amended by this Amendment.
(c) The Credit Agreement and the Notes, as specifically amended by
this Amendment, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed.
(d) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or the Administrative Agent under any
of the Loan Documents, nor constitute a waiver of any provision of any of
the Loan Documents.
SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses of the Administrative Agent in connection with the
preparation, execution, delivery and administration, modification and amendment
of this Amendment, the Guaranty and the other instruments and documents to be
delivered hereunder (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in accordance with the terms
of Section 8.04 of the Credit Agreement.
<PAGE> 7
7
SECTION 8. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR CORPORATION
By: /s/ RAJA VENKATESH
----------------------------------
Title: Corporate Treasurer
CITIBANK, N.A.,
By: /s/ AUTHORIZED SIGNATURE
----------------------------------
Title: Attorney-in-fact
HANIL BANK, NEW YORK AGENCY
By: /s/ AUTHORIZED SIGNATURE
----------------------------------
Title: Agent & General Manager
<PAGE> 8
8
ABN AMRO BANK, N.V. SAN
FRANCISCO INTERNATIONAL
BRANCH
By: ABN AMRO NORTH AMERICA,
INC., AS AGENT
By: /s/ TOM R. WAGNER
-----------------------------
Title: Thomas R. Wagner
Group Vice President
By: /s/ JAMIE DILLON
----------------------------
Title: Jamie Dillon
Vice President
ROYAL BANK OF CANADA
By: /s/ STEPHEN S. HUGHES
-----------------------------
Title: Senior Manager
FLEET NATIONAL BANK
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President
BANCA COMMERCIALE INTALIANA
LOS ANGELES FOREIGN BRANCH
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President
By:/s/ AUTHORIZED SIGNATURE
-----------------------------
Title: Vice President and Manager
<PAGE> 9
9
THE BANK OF NOVA SCOTIA
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Unit Head
BANCO CENTRAL HISPANO
By /s/ FERNANDO LASECA
--------------------------------------
Title: Senior Vice President and
General Manager
CHO HUNG BANK, NEW YORK
BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
THE COMMERCIAL BANK OF KOREA,
LTD., NY AGENCY
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Manager
THE DAI-ICHI KANGYO BANK,
LIMITED, SAN FRANCISCO AGENCY
By /s/ TAKUO YOSHIDA
--------------------------------------
Title: Takuo Yoshida
General Manager
<PAGE> 10
10
KOREA FIRST BANK, NEW YORK
AGENCY
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
NOMURA BANK INTERNATIONAL
PLC
By /s/ DAVID L. STEWART
--------------------------------------
Title: Head, Credit
By /s/ JAMIE G.S. MACDONALD
--------------------------------------
Title: Deputy General Manager
SHINHAN BANK, NEW YORK
BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Assistant Manager
THE SUMITOMO BANK, LTD., SAN
FRANCISCO BRANCH
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Authorized Officer
<PAGE> 11
11
INDUSTRIAL BANK OF KOREA
By /s/ AUTHORIZED SIGNATURE
--------------------------------------
Title: Deputy General Manager
<PAGE> 12
MAXTOR CORPORATION
SECRETARY'S CERTIFICATE
I, Glenn H. Stevens, Secretary of Maxtor Corporation, a Delaware
corporation, do hereby certify, in connection with (i) the Waiver and Amendment
No. 1 dated May 22, 1998 (the "Waiver and Amendment") to the Credit Agreement
dated August 29, 1996 among Maxtor Corporation, the banks, financial
institutions and other institutional lenders parties, Citicorp Securities, Inc.
and Hanil Bank, as joint arrangers, ABN AMRO Bank, N.V., San Francisco
International Branch and Royal Bank of Canada, as co-agents, Fleet National
Bank, as manager, and Citibank, N.A., as administrative agent, (ii) the Waiver
and Amendment No. 1 dated May 22, 1998 (the "364-Day Credit Agreement Waiver
and Amendment") to the 364-Day Credit Agreement dated August 29, 1996 among
Maxtor Corporation, the banks, financial institutions and other institutional
lenders parties, Citicorp Securities, Inc. and Hanil Bank, as joint arrangers,
ABN AMRO Bank, N.V., San Francisco International Branch and Royal Bank of
Canada, as co-agents, Fleet National Bank, as manager, and Citibank, N.A., as
administrative agent and (iii) the Waiver and Amendment No. 1 dated May 22 1998
to the Credit Agreement dated October 30, 1997 between Maxtor Corporation and
Nomura International Bank plc (together with the Waiver and Amendment and the
364-Day Credit Agreement Waiver and Amendment, the "Waivers and Amendments"),
that:
1. Attached hereto as Exhibit A is a true and correct copy of
resolutions duly adopted by the Board of Directors of Maxtor at a
meeting thereof duly called and held on May 13, 1998, at which
meeting a quorum was present and acting throughout. Such
resolutions are the only resolutions regarding the Agreements, have
not been amended, modified or revoked and are in full force and
effect on the date hereof.
2. The Waivers and Amendments to which Maxtor is a party, as executed
and delivered on behalf of Maxtor, are substantially in the form
thereof approved by the Board of Directors referred to in paragraph
1 hereof.
3. The below named persons, who include all persons who, as officers
of Maxtor, executed and delivered the Waivers and Amendments, were
on the date of such execution, and are on the date hereof, duly
appointed, qualified and acting as such officers holding their
respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine
signatures:
Name Office Signature
---- ------ ---------
Michael R. Cannon President and Chief
Executive Officer ---------------------
Paul J. Tufano Vice President Finance,
i
<PAGE> 13
and Chief Financial
Officer /s/ PAUL J. TUFANO
-----------------------
Raja Venkatesh Corporate Treasurer /s/ RAJA VENKATESH
-----------------------
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ GLENN H. STEVENS
--------------------------------
Glenn H. Stevens, Secretary
I, Paul J. Tufano, Vice President of Maxtor Corporation, do hereby
certify that Glenn H. Stevens has been duly appointed and has duly qualified as,
and on this day is, Secretary of Maxtor Corporation, and the signature above is
his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this 29 day of May,
1998.
/s/ PAUL J. TUFANO
---------------------------------
Paul J. Tufano
ii
<PAGE> 14
RESOLUTIONS OF THE BOARD OF DIRECTORS OF MAXTOR CORPORATION
Dated: May 13, 1998
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Credit Agreement") dated. August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the
"Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint arrangers, ABN
AMRO Bank, N.V., San Francisco International Branch and Royal Bank of Canada, as
co-agents.
WHEREAS, the Corporation has entered into a 364-Day Credit Agreement
(the "364-Day Credit Agreement") dated August 29, 1996 with the banks, financial
institutions and other institutional lenders parties (collectively, the "364-Day
Credit Agreement Lenders"), Citicorp Securities, Inc. and Hanil Bank, as joint
arrangers, ABN AMRO Bank, N.V., San Francisco International Branch and Royal
Bank of Canada, as co-agents, Fleet National Bank, as manager, and Citibank,
N.A., as administrative agent.
WHEREAS, the Corporation has entered into a Credit Agreement (the
"Nomura Credit Agreement") dated October 30, 1997 with Nomura International Bank
plc (together with the Lenders and the 364-Day Credit Agreement Lenders, the
"Maxtor Lenders"),
WHEREAS, under such Credit Agreements, Hyundai Electronics
Industries Co., Ltd. ("HEI") guaranteed the payments of Maxtor Corporation to
the Maxtor Lenders under a guaranty (the "Guaranty").
WHEREAS, HEI released its 1997 year end financial statements, which
financial statements indicate that HEI is in default of the financial covenants
of the Guaranty, (the "HEI Default")
NOW, THEREFORE, BE IT RESOLVED, that it is in the best interests of
the Corporation in order to ensure the availability of working capital to the
Corporation to request that the Maxtor Lenders waive the HEI Default.
RESOLVED FURTHER, that it is in the best interests of the
Corporation to enter into the (i) Waiver and Amendment No. 1 dated May 22, 1998
to the Credit Agreement, (ii) Waiver and Amendment No. 1 dated May 22, 1998 to
the 364-Day Credit Agreement and (iii) Waiver and Amendment No. 1 dated May 22,
1998 to the Nomura Credit Agreement (together the "Waivers and Amendments").
RESOLVED FURTHER, that the Waivers and Amendments and the
performance by the Corporation of its obligations under the Waivers and
Amendments, be, and the same hereby are, in all respects approved, and that the
Chairman of the Board of Directors of the Corporation, the President, any Vice
<PAGE> 15
President or the Treasurer of the Corporation (each an "Authorized officer") be,
and each of them hereby is, authorized and directed (any one of them acting
alone), in the name and on behalf of the Corporation, to execute and deliver the
Waivers and Amendments, each in the form as the Authorized Officer of the
Corporation executing the same shall approve, such approval to be conclusively
evidenced by his or her execution and delivery thereof; and
RESOLVED FURTHER, that prior to the execution of the Waivers and
Amendments, the Authorized Officers are, and each hereby is, authorized to
negotiate and agree on the terms and conditions of each of the Waivers and
Amendments as such Authorized Officers, or any one of them, in his, her or their
sole discretion, deem to be in the best interests of the Corporation; and
RESOLVED FURTHER, that the Authorized Officers be, and each of them
hereby is, authorized and empowered (any one of them acting alone) to do or
cause to be done all such acts or things and to sign and deliver, or cause to be
signed and delivered, all such documents, instruments and certificates
(including, without limitation, all notices and certificates required or
permitted to be given or made under the terms of the Waivers and Amendments) and
to pay all such expenses, in the name and on behalf of the Corporation or
otherwise as such Authorized Officer may deem necessary, advisable or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions and to perform the obligations of the Corporation under the Waivers
and Amendments and the other agreements and instruments as referred to above or
referred to therein; and
RESOLVED FURTHER, that the Corporation hereby authorizes, ratifies,
confirms and adopts in all respects all acts of the officers of the Corporation,
and of any person designated and authorized to act by an officer of the
Corporation, heretofore done or performed by such person in connection with the
acts and transactions approved by these resolutions.
<PAGE> 16
Filed with the minutes of the proceedings of the Board of Directors
by the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
--------------------------
Secretary
<PAGE> 17
Filed with the minutes of the proceedings of the Board of Directors
by the undersigned on May 13, 1998.
/s/ GLENN H. STEVENS
--------------------------
Secretary
<PAGE> 18
[BAE, KIM & LEE LETTERHEAD]
June 1, 1998
To: Each of the Lenders Parties to the US$129,000,000 Credit
Agreement dated as of August 29, 1996, among
Maxtor Corporation, said Lenders and
Citibank, N.A., as Administrative Agent for said
Lenders; and Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
We have acted as the Korean legal advisers to Hyundai Heavy Industries
Co., Ltd. (the "GUARANTOR") in connection with a Corporate Guaranty (the
"GUARANTY") dated May 22, 1998 issued by the Guarantor in favor of the Lenders
and the Administrative Agent for the purpose of guaranteeing the obligations of
Maxtor Corporation as the Borrower under the above mentioned Credit Agreement
(the "CREDIT AGREEMENT") as amended by a certain amendment agreement thereto
dated August 27, 1997 and further amended by a certain waiver and amendment no.
1 to the credit agreement (the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms
defined in the Credit Agreement and Amendment Agreement are used herein as
therein defined and the term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement.
For the purpose of this opinion, we have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty;
<PAGE> 19
Bae Kim & Lee
June 1, 1998
Page 2
(d) the Articles of Incorporation of the Guarantor;
(e) the Regulations of the Board of Directors of the Guarantor;
(f) Commercial Registry extracts regarding the Guarantor;
(g) the Approval of the Guarantor's Representative Director in respect
of the Guaranty;
(h) the report to, and acceptance thereof by, the designated foreign
exchange trading bank in respect of the Guaranty; and
(i) such other documents as we have considered necessary or relevant in
order for us to provide this opinion.
In giving this opinion we have assumed that:
(i) the authenticity of all signatures, seals, stamps and markings;
(ii) that all documents submitted to us as originals are authentic,
complete and up-to-date, all documents submitted to us as copies
conform to the originals, and that all factual statements made in
such documents are correct and we have relied on them without
further enquiry;
(iii) that the Credit Agreement and Amendment Agreement and any other
agreement or instrument thereunder have been validly authorized,
signed and delivered by the parties thereto (other than the
Guarantor) in accordance with applicable laws;
(iv) that the Credit Agreement and Amendment Agreement and any other
agreements or instruments thereunder constitute or will constitute
legal, valid and binding obligations of each of the parties thereto
enforceable in accordance with its terms respectively under the laws
of the State of New York by which the Credit Agreement and Amendment
Agreement and any other agreement or instrument are expressed to be
governed;
(v) that the copies of the Articles of Incorporation of, the Regulations
of the Board of Directors of and the Commercial Registry extracts
relating to, the Guarantor referred to in paragraphs (d) through (f)
above are true, complete, accurate and up-to-date; and
<PAGE> 20
Bae Kim & Lee
June 1, 1998
Page 3
(vi) that the Approval of the Guarantor's Representative Director
referred to in paragraph (g) above was duly executed and that such
Approval has not been amended or rescinded.
As to any other matters of objective fact material to the opinions
expressed herein, we have made no independent inquiry and have relied solely
upon certificates or oral or written statements of officers or other
representatives of the Guarantor.
Based on the foregoing, we are of the opinion that so far as the laws of
Korea are concerned:
(1) The Guarantor is a limited liability company, duly organized and
validly existing under the laws of Korea, with full power and
authority to enter into and perform the Guaranty.
(2) The Guarantor has taken all necessary corporate action to authorize
the entry into and performance of the Guaranty and the transactions
contemplated thereby.
(3) The Guaranty constitutes a legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms and is in
proper form for its enforcement in the courts of Korea.
(4) The entry into the Guaranty and the performance of the obligations
thereunder by the Guarantor do not violate (i) any law or regulation
of Korea or any judicial order in Korea or (ii) the constitutional
documents of the Guarantor.
(5) All authorizations, approvals, consents, licenses, exemptions,
filings, registrations and other requirements of governmental,
judicial and public bodies and authorities of or in Korea required
of the Guarantor in connection with the entry into and performance
of the Guaranty have been obtained and are in full force and effect,
except that the Guarantor is required to report any payment to be
made under the Guaranty at the time of making each such payment to
its designated foreign exchange trading bank.
(6) The obligations of the Guarantor under the Guaranty rank at least
pari passu with all its other present or future unsecured and
unsubordinated obligations of the Guarantor except for those
preferred by operation of law applicable to companies generally.
<PAGE> 21
Bae Kim & Lee
June 1, 1998
Page 4
(7) All amounts payable by the Guarantor under the Guaranty may be made
free and clear of and without deduction for or on account of any
taxes imposed, assessed or levied in Korea or by any authority
thereof or therein except, however, that although the tax laws of
Korea are not entirely clear as to whether payment of any interest
by the Guarantor under the Guaranty may be made without withholding
of Korean taxes, Korean tax authorities may require the Guarantor
to withhold Korean taxes from such interest payment. In the event of
Korean taxes being imposed on interest payments, the guarantor's
obligation to bear the cost of such tax under the Guaranty would
become operative.
(8) Neither the Guarantor nor any of its property (except such property
specifically protected by law) has any immunity from jurisdiction of
any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution
or otherwise) under the laws of Korea.
(9) To ensure the enforceability or admissibility in evidence of this
Guaranty in Korea, it is not necessary that this Guaranty or any
other document or instrument be filed or recorded with any court or
other authority in Korea.
Our opinion is subject to the following general qualifications:
(i) the obligations of the Guarantor under the Guaranty may be limited
or affected by the bankruptcy law, the corporate reorganization law,
the compulsory composition law and other similar laws which
generally affect the rights of creditors; and
(ii) the remedies of specific performance or injunction might not
necessarily be available in Korea with respect to any particular
provisions of the Guaranty.
This opinion is addressed to you and may be relied upon solely by you and
your counsel.
Yours faithfully,
/s/ Bae, Kim & Lee
Bae, Kim & Lee
<PAGE> 22
May 29, 1998
To: Each of the Lenders parties to the U$129,000,000 Credit
Agreement dated as of August 29, 1996 among
Maxtor Corporation, said Lenders and
Citibank, N.A., as Administrative Agent for said
Lenders; and
Citibank, N.A., as Administrative Agent
Re: Hyundai Heavy Industries Co., Ltd.
Ladies and Gentlemen:
I have acted as corporate counsel to Hyundai Heavy Industries Co., Ltd.
(the "GUARANTOR") in connection with a Corporate Guaranty (the "GUARANTY") dated
May 1998 issued by the Guarantor in favor of the Lenders and the Administrative
Agent for the purpose of guaranteeing the obligations of Maxtor Corporation as
the Borrower under the above mentioned Credit Agreement (the "CREDIT AGREEMENT")
as amended by a certain amendment agreement thereto dated August 27, 1997 and
further amended by a certain waiver and amendment no. 1 to the credit
agreement(the "AMENDMENT AGREEMENT") dated May 22, 1998. Terms defined in the
Credit Agreement and Amendment Agreement are used herein as therein defined the
term "Korea" refers to the Republic of Korea.
This opinion is furnished to you pursuant to Section 4(d) of the Amendment
Agreement. For the purpose of this opinion, I have examined:
(a) the Credit Agreement;
(b) the Amendment Agreement;
(c) the Guaranty; and
(d) such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide this
opinion.
Based on the foregoing, I am of the opinion that, so far as the laws of Korea
are concerned, the entry into the Guaranty and the performance of the
obligations thereunder by the Guarantor do not violate any contractual or legal
restriction contained in any document or agreement applicable to the Guarantor.
Yours faithfully,
/s/ Y. B. KIM
- ------------------------------
Y. B. Kim
Corporate Counsel
<PAGE> 23
HANDLING PERIOD
---------------
APPLICATION FOR THE VALIDATION OF GUARANTY
<TABLE>
<S> <C> <C>
Tradename Hyundai Heavy Industries Co., Ltd.
APPLICANT Address 1, Cheonha-dong, Ulsan, Kyurignam, Korea
Name of CEO Hyung Byuk Kim
Business area Manufacturing
Obligee(Lender) Citibank and other financial institution acceptable to Agent
DETAILS OF Obligor(Guarantor) Hyundai Heavy Industries Co., Ltd.
APPLICATION Beneficiary(Borrower) Maxtor Corporation
Amount USD 129,000,000
Effective period Until August 28, 1999
Purpose Working Capital
Repayment Lump Sum Repayment at maturity
</TABLE>
We hereby apply for the validation of Guaranty in accordance with the
Article 21 of Korea Foreign Exchange Control Regulation.
1998
<TABLE>
<S> <C> <C>
To: Applicant No. of Validation Singusuri 0696-Keumyung l2-
Your application for the Validation of Validated amount USD 129,000,000
Guaranty is approved. Effective period Until August 28, 1999
Condition: N/A
</TABLE>
1998
Confirmation by the Authorized Foreign Exchange Bank:
On the basis of Korea Foreign Exchange Control Regulation, we as the
authorized bank, hereto affix the seal of us in testimony of approval.
THE PRESIDENT OF KOREA EXCHANGE BANK (SEAL)
(KYE-DONG BRANCH)
<PAGE> 24
HYUNDAI HEAVY INDUSTRIES CO., LTD.
CERTIFICATE
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of Hyundai
Heavy Industries Co., Ltd., a corporation duly organized and existing under the
laws of the Republic of Korea with its registered head office at 1,
Cheonha-dong, Ulsan, Kyungnam, Korea (the "COMPANY"), does hereby certify:
(1) that attached hereto as EXHIBIT A is a true and correct copy of the
approval of the Representative Director of the Company approving,
among other things, the execution, delivery and performance by the
Company of a guaranty (the "GUARANTY") in favour of the banks,
financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT
AGREEMENT") dated August 29, 1996 as amended by a certain amendment
agreement thereto dated August 27, 1997 and as further amended by a
certain waiver and amendment no. 1 to the Credit Agreement in
relation to the obligations of Maxtor Corporation (the "BORROWER")
under a credit facility (the "FACILITY") extended by the Lenders to
the Borrower in an aggregate principal amount of up to
US$129,000,000, which approval has not been amended or rescinded and
are in full force and effect on the date hereof; and
(2) that attached hereto as EXHIBIT B is a true and correct copy of the
report to and acceptance thereof by its designated foreign exchange
trading bank of the Company in respect of the Guaranty, together
with an accurate English translation thereof.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal as of
this 29th day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
-------------------------------- [SEAL]
Name: Hyung Byuk Kim
Title: Representative Director
<PAGE> 25
HYUNDAI HEAVY INDUSTRIES CO., LTD.
APPROVAL OF THE REPRESENTATIVE DIRECTOR
OF
HYUNDAI HEAVY INDUSTRIES CO., LTD.
THE UNDERSIGNED, Mr. Hyung Byuk Kim, the Representative Director of
Hyundai Heavy Industries Co., Ltd. (the "COMPANY"), approves the execution,
delivery and performance by the Company of a guaranty (the "GUARANTY") in favour
of the banks, financial institutions and other institutional lenders named as
lenders (the "LENDERS") in a certain credit agreement (the "CREDIT AGREEMENT")
dated August 29, 1996 as amended by a certain amendment agreement thereto dated
August 27, 1997 and as further amended by a certain waiver and amendment no. 1
to the Credit Agreement in relation to the obligations of Maxtor Corporation
(the "BORROWER") under a credit facility (the "FACILITY") extended by the
Lenders to the Borrower in an aggregate principal amount of up to
US$129,000,000.
Terms defined in the Credit Agreement and Guaranty shall have the same
respective meanings when used herein.
IN WITNESS WHEREOF, THE UNDERSIGNED has hereunto affixed his name and seal
as of this 29th day of May, 1998.
For and on behalf of
HYUNDAI HEAVY INDUSTRIES CO., LTD.
By /s/ HYUNG BYUK KIM
-------------------------------- [SEAL]
Name: Hyung Byuk Kim
Title: Representative Director
