UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number: 0-19512
READ-RITE CORPORATION
(Exact name of Registrant as specified in the charter)
Delaware 94-2770690
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
345 Los Coches Street, Milpitas, California 95035
(Address of principal executive offices)
(Zip Code)
(408) 262-6700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.0001 par value 46,727,378 Shares
(Class) (Outstanding at June 30, 1996)
READ-RITE CORPORATION
Index
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
June 30, 1996 and September 30, 1995 3
Consolidated Condensed Statements of Operations-
Three and Nine Months Ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flow-
Nine Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-20
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
INDEX OF EXHIBITS 23
PART I. FINANCIAL STATEMENTS
READ-RITE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 30, September 30,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 152,987 $ 168,860
Short-term investments 51,052 93,293
Accounts receivable, net 111,253 147,277
Inventories 82,527 53,814
Prepaid expenses and other current assets 14,503 12,442
---------- ----------
Total current assets 412,322 475,686
Property, plant and equipment, at cost 780,952 586,626
Less: Accumulated depreciation and amortization 222,616 158,492
---------- ----------
Net property, plant and equipment 558,336 428,134
Intangible and other assets 33,179 35,637
---------- ----------
Total assets $1,003,837 $ 939,457
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ -- $ 1,000
Accounts payable 114,916 72,667
Income taxes payable 27,226 42,222
Accrued compensation and benefits 31,632 33,740
Other accrued liabilities 33,626 16,951
Current portion of long-term debt and
capital lease obligations 15,330 22,204
---------- ---------
Total current liabilities 222,730 188,784
Long-term debt and capital lease obligations 178,031 137,406
Deferred income taxes and other 13,398 17,004
---------- ---------
Total liabilities 414,159 343,194
---------- ---------
Minority interest in consolidated subsidiary 72,044 58,286
Stockholders' equity:
Common stock, $.0001 par value 5 5
Additional paid-in capital 335,637 370,623
Retained earnings 178,932 157,962
Cumulative translation adjustment 3,060 9,387
---------- ---------
Total stockholders' equity 517,634 537,977
---------- ---------
Total liabilities and stockholders'
equity $1,003,837 $ 939,457
========== ==========
See accompanying notes to the consolidated condensed financial statements.
READ-RITE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Net sales $238,281 $253,081 $795,711 $714,363
Cost of sales 226,912 187,599 658,231 546,550
-------- -------- -------- --------
Gross margin 11,369 65,482 137,480 167,813
Operating expenses:
Research and development 12,937 8,805 39,117 25,165
Selling, general and administrative 10,539 10,483 32,853 30,085
-------- -------- -------- --------
Total operating expenses 23,476 19,288 71,970 55,250
-------- -------- -------- --------
Operating income (loss) (12,107) 46,194 65,510 112,563
Interest expense 3,020 1,377 9,113 4,147
Interest income and other, net 2,814 997 8,383 2,545
-------- -------- -------- --------
Income (loss) before income taxes
and minority interest (12,313) 45,814 64,780 110,961
Provision for income taxes 7,409 10,766 31,309 26,076
-------- -------- -------- --------
Income (loss) before minority
interest (19,722) 35,048 33,471 84,885
Minority interest in net income of
consolidated subsidiary 3,188 2,753 12,523 8,016
-------- -------- -------- --------
Net income (loss) $(22,910) $ 32,295 $ 20,948 $ 76,869
======== ======== ======== ========
Net income (loss) per share $ (0.49) $ 0.68 $ 0.44 $ 1.63
======== ======== ======== ========
Shares used in per share
calculation 46,617 47,448 47,840 47,138
======== ======== ======== ========
See accompanying notes to the consolidated condensed financial statements.
READ-RITE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
Nine Months Ended
June 30,
1996 1995
(Unaudited)
Cash flows from operating activities:
Net income $ 20,948 $ 76,869
Adjustments required to reconcile net income
to cash provided by operations:
Depreciation and amortization 78,301 49,101
Minority interest in net income of
consolidated subsidiary 12,523 8,016
Other, net 5,814 12,455
Changes in assets and liabilities:
Accounts receivable, net 31,776 (49,315)
Inventories (29,476) 237
Prepaid expenses and other current assets (2,291) (1,976)
Accounts payable, accrued liabilities and
income taxes payable 44,472 51,762
--------- ---------
Net cash provided by operating activities 162,067 147,149
Cash flows from investing activities: --------- ---------
Capital expenditures, net (218,111) (125,846)
Sale of short-term investments 847,287 63,361
Purchase of short-term investments (805,590) (27,632)
Other assets and liabilities, net (6,302) 32
--------- ---------
Net cash used in investing activities (182,716) (90,085)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 50,000 9,540
Payments of principal on long-term debt
and capital lease obligations (16,904) (8,608)
Repurchase of common stock (43,046) (7,879)
Proceeds from issuance of common stock 5,729 9,362
--------- ---------
Net cash provided by (used in)
financing activities (4,221) 2,415
--------- ---------
Effect of exchange rate changes on cash 8,997 2,361
--------- ---------
Net increase (decrease) in cash and cash equivalents (15,873) 61,840
Cash and cash equivalents at beginning of period 168,860 65,477
--------- ---------
Cash and cash equivalents at end of period $ 152,987 $ 127,317
========= =========
Supplemental disclosures:
Cash paid during the period for:
Interest $ 6,128 $ 3,329
Income taxes $ 42,485 $ 1,857
See accompanying notes to the consolidated condensed financial statements.
READ-RITE CORPORATION
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1.
Read-Rite Corporation (the "Company") maintains a fifty-two/fifty-three
week fiscal year cycle ending on a Sunday. The third quarters of fiscal
1996 and 1995 ended on June 30, 1996 and July 2, 1995, respectively. To
conform the Company's fiscal year ends, the Company must add a fifty-third
week to every sixth or seventh fiscal year. Accordingly, the second
quarter of fiscal 1995 was a fourteen-week quarter and fiscal 1995 was a
fifty-three week fiscal year. For convenience, the accompanying financial
statements have been shown as ending on the last day of the calendar month.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have
been included. The interim results are not necessarily indicative of the
operating results expected for the last quarter or the full fiscal year
ending September 30, 1996. The accompanying unaudited financial statements
should be read in conjunction with the Company's audited financial
statements included in its 1995 Annual Report on Form 10-K.
Note 2.
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. Inventories (in thousands) consisted of the
following at:
June 30, September 30,
1996 1995
Raw materials $19,165 $17,588
Work-in-process 43,312 26,406
Finished goods 20,050 9,820
------- -------
Total inventories $82,527 $53,814
======= =======
For a discussion of certain risks associated with the Company's inventory,
see "Certain Additional Business Risks" below.
Note 3.
Income taxes were computed based on provisions of Statement of Financial
Accounting Standards No. 109. In the third quarter of fiscal 1996, the
Company reevaluated its estimated annual tax rate for fiscal 1996 and
adjusted its income tax provision to provide income taxes for certain
taxable jurisdictions. The effective tax rate for the three and nine
months ended June 30, 1996 differs from the statutory federal income tax
rate primarily due to net operating income associated with certain foreign
operations taxed at a higher rate with no benefit provided on net operating
losses generated from other operations.
Note 4.
On March 29, 1996, the Company signed a definitive agreement to purchase
certain assets, assume certain liabilities and acquire a non-exclusive
license to intellectual property from Censtor Corporation, a developer of
planar pseudo-contact and contact recording technology for disk drives.
This transaction closed July 18, 1996. The purchase price includes a
series of cash payments totaling approximately $10.0 million payable over
several quarters, the last $2.0 million of which is due April 18, 1996,
plus the assumption of certain liabilities estimated at approximately $1.0
million, and is allocated based on the estimated fair values of the
equipment and assembled workforce acquired, and the liabilities assumed.
READ-RITE CORPORATION
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 4. (Continued)
In determining the value of technology in development and related license,
the Company considered, among other factors, the stage of development of
the technology and the inherent difficulties and uncertainties in
completing the technology and converting it to a commercially viable
product, and the non-exclusivity of the license. Therefore, in accordance
with generally accepted accounting principles, the allocation of the
purchase price related to technology in the development stage was
approximately $9.0 million and was expensed in March 1996 as acquired in-
process research and development. An intangible for assembled workforce
was valued at $.8 million and will be amortized on a straight-line basis
over its estimated useful life of two years.
Note 5.
In January 1995, the Company's Board of Directors approved a stock
repurchase program authorizing the Company to repurchase up to 1,000,000
shares of its common stock on the open market, subject to certain
conditions. The Board increased such authorization by 1,000,000 shares in
October 1995. As of March 31, 1996, the Company had repurchased all of
the 2,000,000 shares authorized under this program. Of the total shares,
500,000 shares were repurchased during the fiscal year ended September 30,
1995 at an aggregate price of $7.9 million, an additional 1,000,000 shares
were repurchased during the first quarter of the current fiscal year at a
purchase price of $32.8 million, and the final 500,000 shares were
repurchased during the second quarter of fiscal 1996 for $10.2 million. In
February 1996, the Board authorized the repurchase of an additional
2,000,000 shares of common stock on the open market, subject to certain
conditions. None of these shares have been repurchased to date and
repurchases are not presently permitted under certain of the Company's
credit facilities.
Note 6.
On April 25, 1996, the Company entered into a three-year operating lease
for a 23.5-acre parcel of undeveloped land across from its wafer
fabrication facility in Fremont, California on which additional office and
support facilities may be constructed over the next several years. This
lease provides for monthly payments which vary based on the London
interbank offering rate (LIBOR) plus a margin, and requires the Company to
comply with certain minimum financial covenants similar to those in the
Company's revolving credit facility. The Company was not in compliance with
one of the financial covenants as of June 30, 1996 but received a waiver of
this non-compliance for the quarter ended June 30, 1996. In addition, the
lease provides the Company the option to purchase the subject property at
its original cost or arrange for the property to be acquired. The Company
is liable under the lease for approximately $10.7 million over the three
year term, based on current LIBOR rates.
For a discussion of certain risks associated with the Company's credit
facilities, see "Liquidity and Capital Resources" below.
READ-RITE CORPORATION
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 7.
In June 1996, the Company entered into an agreement with a financial
institution for an unsecured term loan in the amount of $50.0 million. The
loan bears interest at the LIBOR rate plus a margin; interest is payable
quarterly. Principal payments of $12.5 million are required on both June
30, 1999 and June 30, 2000, with the balance payable on June 30, 2001. The
loan requires the Company to maintain certain financial ratios and comply
with several other covenants. As of June 30, 1996, the Company was in
compliance with the requirements of the loan.
For a discussion of certain risks associated with the Company's credit
facilities, see "Liquidity and Capital Resources" below.
Note 8.
In response to the continued shift in the marketplace to newer technology
products and the fact that the product programs the Company has been
participating in using metal-in-gap ("MIG") technology reached end-of-life
in the third quarter of fiscal 1996, the Company has decided to discontinue
its MIG products and related manufacturing activities. As a result, the
Company incurred a charge of approximately $4.7 million in the fourth
quarter of fiscal 1996 associated with the termination of approximately
5,000 employees at its Philippines operations. The Company is in the
process of evaluating its remaining personnel and capacity requirements in
light of current business conditions and may incur additional charges
related to severance, equipment and facilities.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and is subject to the
"safe harbor" created by those sections. The Company's actual results for
future periods could differ materially from those projected in such forward
- - -looking information. Some factors which could cause future actual results
to materially differ from the Company's recent results or those projected
in the forward-looking information are discussed in "Certain Additional
Business Risks" below.
Three and Nine Months Ended June 30, 1996 Compared with Three and Nine
Months Ended June 30, 1995
The following table sets forth certain financial data as a percentage of
net sales for the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 95.2 74.1 82.7 76.5
----- ----- ----- -----
Gross margin 4.8 25.9 17.3 23.5
----- ----- ----- -----
Operating expenses:
Research and development 5.4 3.5 4.9 3.5
Selling, general and administrative 4.5 4.1 4.2 4.2
----- ----- ----- -----
Total operating expenses 9.9 7.6 9.1 7.7
----- ----- ----- -----
Operating income (loss) (5.1) 18.3 8.2 15.8
Interest expense 1.3 0.6 1.1 0.6
Interest income and other, net 1.2 0.4 1.0 0.3
----- ----- ----- -----
Income (loss) before income taxes and
minority interest (5.2) 18.1 8.1 15.5
Provision for income taxes 3.1 4.2 3.9 3.7
----- ----- ----- -----
Income (loss) before minority interest (8.3) 13.9 4.2 11.8
Minority interest in net income of
consolidated subsidiary 1.3 1.1 1.6 1.0
----- ----- ----- -----
Net income (loss) (9.6) 12.8 2.6 10.8
===== ===== ===== =====
Net Sales
Net sales for the three months ended June 30, 1996 were $238.3 million, a
5.8% decrease from net sales of $253.1 million for the three months ended
June 30, 1995. The primary reason for the decrease in sales between the
two periods was a decrease in average selling prices, partially offset by
higher sales of MIG products.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Net Sales (Continued)
Net sales for the nine months ended June 30, 1996 were $795.7 million, an
11.4% increase over sales of $714.4 million for the comparable period in
fiscal 1995. The increase in net sales for the current nine month period
was primarily due to increases in customer demand for both thin film
products and MIG products, partially offset by lower average selling
prices. Although MIG unit sales for the current periods increased over
levels in the previous year, in the third quarter of fiscal year 1996 the
Company's MIG programs reached their end-of-life. Accordingly, the Company
expects sales of MIG products in future periods to be minimal.
The Company has experienced declining sales during the second and third
quarters of fiscal 1996. The primary reason for the decline in sales in
these periods is the late release of several advanced inductive products
for major customer programs. In addition, due to softening demand in the
disk drive industry during the latter part of the third quarter of fiscal
1996, certain customers canceled and rescheduled deliveries of product,
significantly reducing the Company's third quarter sales.
The Company expects sales for the fourth quarter of fiscal 1996 and for the
first quarter of fiscal 1997 to be significantly lower than the $238.3
million reported for the third quarter of fiscal 1996. The primary cause
for the decrease is due to the end-of-life for MIG products, which
represented $48.2 million in the third quarter but are expected to be
minimal as a percentage of total sales for future periods. Other factors
contributing to the expected lower sales include slow ramping to volume
production on several new product lines and softer demand within the
industry.
The Company's sales continued to shift from head gimbal assemblies ("HGAs")
to head stack assemblies ("HSAs") during the current quarter as these
products were 33% and 66%, respectively, of net sales, compared to 50% and
47% for the quarter ended June 30, 1995. The Company expects HSAs to
remain at approximately two-thirds of total sales for the fourth quarter of
the current fiscal year.
For a discussion of certain risks associated with the Company's business,
see "Certain Additional Business Risks" below.
Principal Customers:
(As a Percentage of Net Sales) Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
Customer:
Western Digital 48.5% 38.2% 42.1% 38.3%
Quantum 27.4% 32.9% 30.2% 27.5%
Maxtor 10.7% 11.7% 12.1% 11.1%
Seagate/Conner 9.1% 11.2% 9.5% 12.6%
All Others 4.3% 6.0% 6.1% 10.5%
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Gross Margin
The Company's gross margins are primarily influenced by average sales
prices, process yields, the level of net sales in relation to fixed costs,
product mix (newer products and HGAs typically generate higher margins than
older products and HSAs), start-up costs associated with new product
programs, and material costs. The Company's gross margins also reflect
from time to time charges for inventory and for fixed assets related to
end-of-life products.
As mentioned above, HSAs typically have lower gross margins than HGAs.
HSAs consist of two or more HGAs and a variety of purchased components
which the Company assembles into a single unit. The cost of the purchased
components is a material percentage of the total cost of the HSA; the
margin on such purchased components is substantially lower than the margin
on HGAs produced by the Company. The combination of the respective margins
on HGAs and non-HGA components and associated labor and overhead included
in HSAs thus typically produces a significantly lower aggregate gross
margin on HSA sales.
The Company's gross margin for the three months ended June 30, 1996 was
4.8% of net sales, compared to 25.9% for the same period in fiscal 1995.
The decrease in the margin during the current quarter in comparison to the
previous period is primarily attributable to a decrease in average selling
prices, charges totaling $10.0 million for inventory and for fixed assets
related to end-of-life products, the level of net sales in relation to
fixed costs, a shift in the product mix toward HSAs and older products
carrying lower margins, and significant start-up costs and lower yields
associated with new programs.
The Company's gross margin for the nine months ended June 30, 1996 was
17.3% as a percentage of net sales, compared to 23.5% for the same period
in fiscal 1995. The decrease in the margin is primarily attributable to
declining average selling prices, a product mix weighted toward HSAs and
older products, the level of net sales in relation to fixed costs, a one-
time charge for the consolidation of the Company's San Diego operations to
Northern California, charges for inventory and for fixed assets related to
end-of-life products and significant start up costs and lower yields
associated with new programs.
The Company expects its gross margin in the fourth quarter of fiscal 1996
to be less than the third quarter as a percentage of net sales due to
expected significantly lower sales in relation to fixed costs for the
reasons discussed above in "Net Sales" and due to anticipated low yields
and high start-up costs on new programs. In addition, subsequent to June
30, 1996, the Company reduced its workforce in the Philippines by
approximately 5,000 employees and incurred a charge of approximately $4.7
million in the fourth quarter of fiscal 1996 for related severance costs.
The Company is in the process of evaluating its remaining personnel and
capacity requirements in light of current business conditions and may incur
additional charges related to severance, equipment and facilities.
For a discussion of certain risks associated with the Company's business,
see "Certain Additional Business Risks" below.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Research and Development Expenses
Research and development ("R&D") expenses were $12.9 million, or 5.4% of
net sales, for the three months ended June 30, 1996 compared to $8.8
million, or 3.5% of net sales, for the comparable period in 1995. R&D
expenses were $39.1 million, or 4.9% of net sales, for the nine months
ended June 30, 1996 compared to $25.2 million, or 3.5% of net sales, for
the nine months ended June 30, 1995.
The increase for the three months ended June 30, 1996 over the three months
ended June 30, 1995 was primarily due to increased monthly spending
associated with planar recording technology. Expenses for the nine months
ended June 30, 1996 were also higher than for the nine months of the
previous fiscal year for this reason, as well as due to a $9.0 million
charge taken in the second fiscal quarter of 1996 to reflect the original
investment in planar technology. The Company expects R&D expenses in the
fourth quarter of fiscal 1996 and the first quarter of fiscal 1997 to be
comparable in absolute dollars to those reported for the third quarter of
fiscal 1996, and to be higher as percentage of net sales due to expected
lower sales in such future quarters.
Selling, General & Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $10.5 million
for the three months ended both June 30, 1996 and June 30, 1995. SG&A
expenses were 4.5% of net sales for the current quarter compared to 4.1%
for the previous period in 1995 due to the lower sales volume in the
current quarter. SG&A expenses were $32.9 million, or 4.2% of net sales,
for the nine months ended June 30, 1996 compared to $30.1 million, or 4.2%
of net sales, for the same nine months in fiscal 1995.
The absolute dollar increase in SG&A expenses for the nine month period in
1996 over 1995 was primarily due to increased staffing and overhead to
support the increased level of net sales and volume during the first half
of the current fiscal year. The Company expects that SG&A expenses as a
percent of net sales will increase for the fourth quarter of fiscal 1996
and for the first quarter of fiscal 1997 relative to the third quarter of
fiscal 1996 due to expected lower sales in such future quarters.
Interest Expense
Interest expense was $3.0 and $9.1 million, respectively, for the three and
nine months ended June 30, 1996, and $1.4 and $4.1 million, respectively,
for the comparable periods in 1995. The increase in interest expense in
the current periods is primarily due to the significant increase in the
average amount of debt outstanding.
Interest Income and Other, Net
Interest income and other, net for the three months ended June 30, 1996 was
$2.8 million, compared to $1.0 million for the comparable period in 1995.
Interest income and other, net for the nine months ended June 30, 1996 was
$8.4 million, compared to $2.5 million for the nine months ended June 30,
1995. Interest income and other, net is higher for the current periods
primarily due to significantly higher cash balances.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Provision for Income Taxes
Income taxes were computed based on provisions of Statement of Financial
Accounting Standards No. 109. In the third quarter of fiscal 1996, the
Company reevaluated its estimated annual tax rate for fiscal 1996 and
adjusted its income tax provision to provide income taxes for certain
taxable jurisdictions. The income tax provision for the first three
quarters of fiscal 1996 was 48.3% compared to 23.5% in fiscal 1995. The
higher effective tax rate for the nine months ended June 30, 1996 compared
to the same period in fiscal 1995 is primarily attributable to higher net
tax from foreign operations.
The effective tax rate for the three and nine months ended June 30, 1996
differs from the statutory federal income tax rate primarily due to net
operating income associated with certain foreign operations taxed at a
higher rate with no benefit provided on net operating losses generated from
other operations.
Net Income (Loss)
The Company reported a net loss of $22.9 million for the three months
ended June 30, 1996, or 9.6% of net sales, compared to net income of $32.3
million, or 12.8% of net sales for the same quarter of the previous fiscal
period. The Company had net income of $20.9 million and $76.9 million for
the nine months ended June 30, 1996 and June 30, 1995, or 2.6% and 10.8% of
net sales, respectively. The percentage and absolute dollar decrease in
net income in the current quarter over the same period during the previous
fiscal year was principally due to the decrease in sales and gross margin
and the increase in R&D expenses, partially offset by a lower provision for
income taxes. The lower percentage and absolute dollar amount of net
income for the nine months ended June 30, 1996 in comparison to the same
nine months of the previous fiscal year is primarily due to a decrease in
gross margin, increases in R&D spending and a higher provision for income
taxes.
The Company expects to incur a greater loss during the fourth quarter of
fiscal 1996 than in the third quarter due to the reasons discussed above in
"Net Sales" and "Gross Margin."
Liquidity and Capital Resources
As of June 30, 1996, the Company had cash, cash equivalents and short-term
investments of $204.0 million, total assets of $1,003.8 million and total
long-term debt, including the current portion, of $193.4 million. The
Company's cash generated by operating activities was $162.1 million for the
nine months ended June 30, 1996, compared to $147.1 million for the same
nine-month period during the previous fiscal year.
The Company's business is highly capital intensive. During the nine months
ended June 30, 1996, the Company incurred capital expenditures of
approximately $218.1 million, compared to $125.8 million during the same
nine-month period of the previous fiscal year. Capital expenditures have
primarily been made to expand production capacity in Thailand and Malaysia,
to expand wafer production in Milpitas, Fremont and Japan, and to support
new manufacturing processes and new technologies, such as magnetoresistive
("MR") and planar technology. The Company plans total capital expenditures
of approximately $275 million in fiscal 1996; however, to the extent yields
for the Company's products are lower than expected, that demand for such
products exceeds Company expectations, and/or that the Company's
manufacturing process needs change significantly, such expenditures may
increase. Conversely, if the adverse conditions currently affecting
the Company's business continue, or if the
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
Company is unable to obtain adequate financing for such capital purchases,
the planned expenditures may decrease. As of June 30, 1996, total
commitments for construction or purchase of plant and equipment totaled
approximately $104 million.
In January 1995, the Company's board of directors approved a stock
repurchase program authorizing the Company to repurchase up to 1,000,000
shares of its common stock on the open market, subject to certain
conditions. The Board increased such authorization by 1,000,000 shares in
October 1995. As of March 31, 1996, the Company had repurchased all of
the 2,000,000 shares authorized under this program. Of the total shares,
500,000 shares were repurchased during the fiscal year ended September 30,
1995 at an aggregate price of $7.9 million, an additional 1,000,000 shares
were repurchased during the first quarter of the current fiscal year at a
purchase price of $32.8 million, and the final 500,000 shares were
repurchased during the second quarter of fiscal 1996 for $10.2 million. In
February 1996, the Board authorized the repurchase of an additional
2,000,000 shares of common stock on the open market, subject to certain
conditions. None of the shares have been repurchased to date under the
last authorization and repurchases are not presently permitted under
certain of the Company's credit facilities.
In September 1995, the Company completed the sale of $100 million in 7.53%
Senior Notes due September 15, 2000 ("Notes") to a group of four insurance
companies. Interest is paid semi-annually in March and September,
beginning March 1996. Principal is payable in three equal installments on
each of September 15, 1998, September 15, 1999 and September 15, 2000. The
terms of the Note Purchase Agreement pertaining to the Notes (the "Purchase
Agreement") require the Company to maintain certain financial ratios and
observe a series of additional covenants, and place a limit upon the
Company's ability to pay dividends. As of June 30, 1996, the entire $100
million represented by the Notes was outstanding, and the Company was in
compliance with the covenants under the Purchase Agreement.
In December 1994, the Company and its lenders amended and restated the
Company's $65 million Revolving Credit Facility ("Revolving Facility") to
modify certain covenants and to extend the maturity date to October 1997.
The Revolving Facility was amended in September 1995 to remove the security
interest previously held by the banks in stock and intercompany receivables
of the Company's subsidiary, Read-Rite International. The terms of the
Revolving Facility require the Company to maintain certain financial ratios
and observe a series of additional covenants, and prohibit the Company from
paying cash dividends without prior bank approval. The interest rate on
borrowings under the Revolving Facility depend on the utilization of the
Revolving Facility and are based, at the option of the Company, on interest
rates based upon the base rate or LIBOR plus a margin. As of June 30,
1996, there were no borrowings outstanding against this line. The Company
was not in compliance with three of the financial covenants as of June 30,
1996 but received a waiver of this non-compliance for the quarter ended
June 30, 1996.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
On April 25, 1996, the Company entered into a three-year Operating Lease
("Lease") for a 23.5-acre parcel of undeveloped land across from its wafer
fabrication facility in Fremont, California on which additional office and
support facilities may be constructed over the next several years. The
Lease provides for monthly payments which vary based on the London
interbank offering rate (LIBOR) plus a margin, and requires the Company to
comply with certain minimum financial covenants similar to those in the
Company's revolving credit facility (described above). The Company was not
in compliance with one of the financial covenants as of June 30, 1996 but
received a waiver of this non-compliance for the quarter ended June 30,
1996. In addition, the Lease provides the Company the option to purchase
the subject property at its original cost or arrange for the property to be
acquired. The Company is liable under the Lease for approximately $10.7
million over the three year term, based on current LIBOR rates.
In June 1996, the Company entered into an agreement with a financial
institution for an unsecured term loan ("Term Loan") in the amount of $50.0
million. The Term Loan bears interest at LIBOR plus a margin; interest is
payable quarterly. Principal repayments of $12.5 million are required on
both June 30, 1999 and June 30, 2000, with the balance payable at the
maturity date on June 30, 2001. The Term Loan requires the Company to
maintain certain financial ratios and comply with several other covenants.
The Company was in compliance with the covenants under the Term Loan as of
June 30, 1996.
While the Company was either in compliance with or obtained waivers for
debt covenants as of June 30, 1996, based on current projections, the
Company expects that it will not be in compliance with one or more
financial covenants under the Notes, the Revolving Facility, the Lease and
the Term Loan as of the end of the fourth quarter of fiscal 1996.
Covenants under these credit facilities which the Company does not expect
to meet include leverage ratios, tangible net worth requirements, and
consolidated net income requirements. The Company is in the process of
negotiating with its financial institutions to amend the covenants or
obtain the appropriate waivers for the quarter ended September 30, 1996.
There can be no assurance that the Company will be successful in obtaining
these waivers and that the lenders will not elect to call the debts.
The Company believes that its current level of liquid assets, credit
facilities, and cash generated from operations will be sufficient to fund
its operations for the next twelve months. However, if industry conditions
worsen, or if the Company does not consistently achieve timely customer
qualifications on new product programs, or if the Company is unsuccessful
at ramping up volume production on new product introductions, such as its
MR program, the Company's financial condition and results of operations
will be materially and adversely affected. In this case, or if the Company
is not successful in obtaining the necessary waivers from its lenders
during the fourth quarter of fiscal 1996, the Company's working capital and
other capital needs will significantly increase. The Company may seek such
capital through additional bank facilities, debt or equity offerings, or
other sources. There can be no assurance, however, that such financing, if
needed, will be available when required, or on terms and conditions
acceptable to the Company.
The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain any earnings for use in its business
and does not anticipate paying cash dividends in the foreseeable future.
The Company's credit facilities prohibit payment of cash dividends.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks
The Company's financial condition and operating results can be impacted by
a number of factors, including but not limited to those set forth below,
any one of which could cause the Company's actual results to vary
materially from recent results or from the Company's anticipated future
results.
The Company is a component supplier dependent upon a limited number of
customers in a volatile industry characterized by rapid technological
change, short product life cycles, intense competition and price erosion.
In addition, as demonstrated by the strong demand in the first half of
fiscal 1993 and the significant industry contraction in the latter half of
fiscal 1993, demand in the industry is highly variable and unpredictable.
This variability was further demonstrated late in the quarter ended June
30, 1996 as significant orders were canceled and/or rescheduled by several
customers with little or no advance warning.
The Company's primary revenues are derived from thin film inductive
products, which require substantial resources for product development and
manufacturing equipment to effectively extend the performance of these
products to compete with new products supporting higher areal densities.
To maintain its market position, the Company must continually and timely
improve its head, HGA and HSA technologies to meet industry demands, at
competitive costs. In addition, the Company is dependent on a limited
number of customers who have a limited number of large volume programs
conducted at any given time, and faces strong competition among recording
head manufacturers. The failure by the Company to execute on technologies
necessary to consistently obtain qualification on any of such volume
programs will have a material adverse effect on the Company's business,
financial condition and results of operations. For example, during the
second and third quarters of fiscal 1996 the Company incurred significant
start-up costs on new product programs and did not achieve volume
production on those programs necessary to absorb those costs, which in turn
reduced both net sales and gross margins for the quarters. This issue is
expected to materially and adversely impact the fourth quarter of fiscal
1996 and the first quarter of fiscal 1997 as well. See "Net Sales" and
"Gross Margin" above.
The Company's MIG programs, which accounted for $48.2 million, or 20.2%, of
the Company's sales for the third quarter of fiscal 1996, have reached
their end-of-life and orders are minimal for future quarters. Due to the
late introduction of new programs and the recent slow down in the disk
drive industry, the Company has had difficulty in transitioning its MIG
production facilities to more advanced products. This in turn has had a
material adverse effect on the Company's business, financial condition and
results of operations. Subsequent to June 30, 1996, the Company reduced
its workforce in the Philippines by approximately 5,000 employees and
incurred a charge of approximately $4.7 million in the fourth quarter of
fiscal 1996 for related severance costs. The Company is in the process of
evaluating its remaining personnel and capacity requirements in light of
current business conditions and may incur additional charges related to
severance, equipment and facilities.
The Company has invested, and will continue to invest, significant
resources in product development and manufacturing equipment to support the
Company's efforts to develop and introduce cost-competitive thin film MR
heads. The Company was qualified on a MR program for a major customer
during the third quarter of fiscal 1996 and began to ramp up volume
production. There can be no assurance, however, that the Company will be
successful in such volume production, or will timely and cost-effectively
develop and manufacture in volume and at acceptable yields MR heads
necessary to achieve consistent design-in wins or profitability.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
In March 1996, the Company entered into an agreement to acquire a
nonexclusive license to the intellectual property of Censtor Corporation, a
developer of planar pseudo-contact and contact recording technology for
disk drives. The Company believes that it can extend recording areal
densities beyond conventional thin film inductive designs by combining the
planar technology acquired with the Company's proximity recording
technology and manufacturing processes. However, there can be no assurance
that the Company will be successful in this new technology or that it will
be able to transition the technology into commercially viable volume
production.
The Company's business is highly capital intensive. To maintain its market
position, the Company must anticipate demand for its products and the path
of new technologies so that production capacity, both in terms of amount
and the proper technologies, will be in place to meet customers' needs.
Accurate capacity planning is complicated by the pace of technological
change, unpredictable demand variations, the effects of variable
manufacturing yields, and the fact that most of the Company's plant and
equipment expenditures have long lead times, thus requiring major
commitments well in advance of actual requirements. The Company's
underestimation or overestimation of its capacity requirements, or failure
to successfully and timely put in place the proper technologies, would have
a material adverse effect on the Company's business, financial condition
and results of operations.
Over the past four fiscal years, the Company has made substantial capital
expenditures and installed significant production capacity to support new
technologies and increased demand for its products. The Company
anticipates capital expenditures in fiscal 1996 to be approximately $275
million, compared to $185 million for fiscal 1995. There can be no
assurance, however, that the Company's net sales will increase sufficiently
to absorb such additional costs, and that there will not be periods, such
as in the latter half of fiscal 1993, or during the third and fourth
quarters of fiscal 1996, when net sales decline period to period.
The Company's production process is also labor intensive. As a result, the
Company conducts substantially all of its HGA machining, assembly and test
operations, HSA assembly and tape head assembly operations offshore, and is
thus subject to the many risks associated with contracting with foreign
vendors and suppliers and with the ownership and operation of foreign
manufacturing facilities, including obtaining requisite governmental
permits and approvals, currency exchange fluctuations and restrictions,
variable or higher tax rates, political instability, changes in government
policies relating to foreign investment and operations, cultural issues,
labor problems, trade restrictions, transportation delays and
interruptions, and changes in tariff and freight rates.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
The Company's manufacturing processes involve numerous complex steps.
Minor deviations can cause substantial yield loss, and in some cases, cause
production to be suspended. Yields for new products initially tend to be
low as the Company completes product development and commences volume
manufacturing, and thereafter typically increase as the Company's ramps to
full production. The Company's forward product pricing reflects this
assumption of improving yields; as a result, material variances between
projected and actual yields have a direct effect on the Company's gross
margins and profitability. The difficulty of forecasting yields accurately
and maintaining cost competitiveness through improving yields will continue
to be magnified by ever-increasing process complexity and by the
compression of product life cycles, which requires the Company to bring new
products on line faster, and for shorter periods, and yet maintain
acceptable yields and quality, without, in many cases, reaching the longer-
term, high volume manufacturing conducive to higher yields and declining
costs.
As a high technology company in a narrowly defined industry, the Company is
often dependent upon a limited number of suppliers and subcontractors, and
in some cases on single sources, for critical components or supplies.
Limitation on or interruption of the supply of certain components or
supplies can
severely and adversely affect the Company's production and results of
operations. The Company has limited alternative sources of certain key
materials such as wafer substrates and photoresist, and frequently must
rely on a single equipment supplier for a given equipment type due to lack
of viable alternatives or to insure process consistency. Accordingly,
capacity constraints or production failures at, or restricted allocations
by, the Company's suppliers could have a material adverse effect on the
Company's own production, financial condition and results of operations.
The Company is continuing its efforts to broaden its customer base.
However, given the small number of high-performance disk drive
manufacturers who require an independent source of HGA or HSA supply, the
Company's dependence on a limited number of customers is expected to
continue. As demonstrated by the significant reduction in the level of the
Company's business in the second half of fiscal 1993 and the cancellations
and reschedules at the end of the third quarter of fiscal 1996, the loss of
any large customer, or a significant decrease in orders from one or more
large customers, would have a material adverse effect on the Company's
business, financial condition and results of operations.
Moreover, given the Company's dependence upon a limited number of
customers, acquisitions and consolidations affecting such customers could
also have a material adverse effect on the Company's sales and operating
results. For example, Seagate Technology, Inc. ("Seagate"), a competitor
of the Company, acquired the tape head operations of Applied Magnetics
Corporation in fiscal 1995, and also recently completed the acquisition of
Conner Peripherals, Inc., a major customer of the Company. As a result,
Seagate has significantly reduced its future orders with the Company, and
is not expected to be a significant percentage of the Company's total sales
in the future as Seagate has significant internal disk and tape head
manufacturing capacity.
Further, Singapore Technologies recently acquired the disk drive operations
of Micropolis, while Hyundai recently acquired Maxtor. Though the Company
believes it will remain a supplier to both Micropolis and Maxtor
notwithstanding these changes in ownership; however, there can be no
assurance that these customers will continue the prior practice of
purchasing a significant quantity of their respective head requirements
from the Company.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
Vertical integration by the Company's customers, through which a customer
acquires or increases internal HGA or HSA production capability, could also
materially and adversely affect the Company's business, financial condition
and results of operations. In 1994, Quantum, a principal customer of the
Company with no previous magnetic recording head capacity, acquired Digital
Equipment Corporation's ("DEC") recording head and disk drive operations.
While this integration has to date not had a material adverse effect on the
Company's thin film head operations, there can be no assurance that Quantum
will continue to purchase a significant portion of its head requirements
from the Company, particularly as Quantum transitions its drive programs to
MR technology, the primary focus of Quantum's internal head operations.
Other acquisitions or significant transactions by the Company's customers
leading to further consolidation or vertical integration could also
materially and adversely affect the Company's business, financial condition
and results of operations.
The Company faces intense competition within the industry. Most recently,
in July 1996, IBM announced a plan to expand its disk drive business by
selling to original equipment manufacturers ("OEM"). IBM intends to invest
$380 million in their MR technology to increase manufacturing volumes for
potential sales to customers starting next year. Historically IBM has been
a vertically integrated company, producing heads only for internal use, but
by entering the OEM market, IBM could be a substantial competitor for the
Company's existing sales base.
The Company manufactures custom products for a limited number of customers.
Because its products are custom, the Company typically cannot shift raw
materials, work-in-process or finished goods from customer to customer, or
from one product program to another for a particular customer. However, to
enable its customers to get their products to market quickly and to address
its customers' demand requirements, the Company must invest substantial
resources and make significant materials commitments, often before
obtaining formal customer qualifications and generally before the market
prospects for its customers' products are clear. Moreover, given the rapid
pace of technology advancement in the disk drive industry, the disk drive
products which do succeed have unpredictable, and typically very short,
life cycles. Finally, in response to rapidly shifting business conditions,
the Company's customers have generally sought to limit their purchase order
commitments to the Company, and certain customers have on occasion canceled
or materially modified outstanding purchase orders with the Company without
significant penalties. The Company experienced significant cancellations
in the third quarter of fiscal 1993 and again during the third quarter of
fiscal 1996.
As a result of the above factors, the Company's inventory is subject to
substantial risk. To address these risks, the Company monitors its
inventories and provides inventory reserves intended to cover inventory
risks. However, given the Company's dependence on a few customers and a
limited number of product programs for each, the magnitude of the
commitments the Company must make to support its customers' programs and
the Company's limited remedies in the event of program cancellations, if a
customer cancels or materially reduces one or more product programs, or
should a customer experience financial difficulties, the Company may be
required to take significant inventory charges which, in turn, could
materially and adversely affect the Company's financial condition and
results of operations. For example, in the third quarter of fiscal 1993,
the Company incurred inventory write-down provisions of approximately $10.0
million due to the bankruptcy filing of one customer and order
cancellations from customers due to reduced demand. During the third
quarter of fiscal 1996, the Company reserved approximately $10.0 million
for inventory and for fixed assets related to end-of-life products.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
While the Company has taken certain charges and otherwise established
inventory reserves, there can be no assurance that the Company will not be
required to take additional inventory charges due to the Company's
inability to obtain necessary product qualifications or to further
cancellations by customers.
The Company has experienced substantial fluctuations in quarterly operating
results in the past, and the Company's future operating results could vary
substantially from quarter to quarter. The Company's operating results for
a particular quarter or longer periods can be materially and adversely
affected by numerous factors, such as delayed product introductions,
capacity constraints on certain technologies, low product yields, increased
material costs or material or equipment unavailability, disruptions in
foreign operations, decreased demand for or decreased average selling
prices of the Company's products, increased competition leading to a
failure by the Company to obtain "design-in wins" on one or more customer
programs, changes in product mix, increased operating costs associated with
the ramp-up of production as capacity is added or under-utilization of
capacity if demand is less than anticipated. The Company's sales will
generally be made pursuant to individual purchase orders which may be
changed or canceled by customers on short notice, often without material
penalties. Changes or cancellations of product orders could result in
under-utilization of production capacity and inventory write-offs. During
disk drive industry downturns, as has occurred in the third quarter of
fiscal 1996, and more severely in calendar 1993, the Company experienced
delays and cancellation of orders, reduced average selling prices,
inventory write-offs, increased unit costs due to under-utilization of
production capacity, and, as a consequence of the foregoing, significantly
reduced revenues and gross margins and, at times, generated operating
losses. The Company expects periodic fluctuations will occur in the
future.
The Company has from time to time been notified of claims that it may be
infringing patents owned by others. If it appears necessary or desirable,
the Company may seek licenses under patents which it is allegedly
infringing. Although patent holders commonly offer such licenses, no
assurance can be given that licenses will be offered or that the terms of
any offered licenses will be acceptable to the Company. Defending a claim
of infringement or the failure to obtain a key patent license from a third
party could cause the Company to incur substantial liabilities and/or to
suspend the manufacture of the products utilizing the patented invention.
The trading price of the Company's Common Stock is expected to continue to
be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, announcements of technological innovations
or new products by the Company or its competitors, general conditions in
the disk drive and computer industries, and other events or factors. In
addition, stock markets have experienced extreme price volatility in recent
years. This volatility has had a substantial effect on the market price of
securities issued by many high technology companies for reasons unrelated
to the operating performance of the specific companies, and the Company's
Common Stock has experienced volatility not necessarily related to
announcements of Company performance. Broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
READ-RITE CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
3.1 Restated Certificate of Incorporation of Read-Rite
Corporation; Certificate of Amendment of Restated
Certificate of Incorporation of Read-Rite Corporation
3.2 Bylaws of Read-Rite Corporation (as amended and restated
August 8, 1991); Amendment to Bylaws
10.3 Amended and Restated 1995 Director Option Plan and form of
Option Agreement
10.42 Term Loan Agreement Between Read-Rite Corporation as
Borrower and Financial Institutions as Banks and Canadian
Imperial Bank of Commerce as Agent, dated June 28, 1996
11.1 Statement Regarding Computation of Earnings Per Share
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
June 30, 1996.
READ-RITE CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: August 13, 1996 /s/ John T. Kurtzweil
John T. Kurtzweil
Vice President, Finance and
Chief Financial Officer
READ-RITE CORPORATION
Index of Exhibits
Exhibit No. Description Page No.
3.1 Restated Certificate of Incorporation of 24
Read-Rite Corporation; Certificate of Amendment of
Restated Certificate of Incorporation of Read-Rite
Corporation
3.2 Bylaws of Read-Rite Corporation (as amended and 29
restated August 8, 1991); Amendment to Bylaws
10.3 Amended and Restated 1995 Director Option Plan 47
and form of Option Agreement
10.42 Term Loan Agreement Between Read-Rite Corporation 59
as Borrower and Financial Institutions as Banks and
Canadian Imperial Bank of Commerce as Agent,
dated June 28, 1996
11.1 Statement Regarding Computation of Earnings Per Share 104
27 Financial Data Schedule (electronic filing only)
RESTATED CERTIFICATE OF INCORPORATION
OF
READ-RITE CORPORATION
a Delaware corporation
Read-Rite Corporation, a corporation organized and existing under the
laws of the State of Delaware, does hereby certify:
1. The name of the corporation is Read-Rite Corporation. Read-Rite
Corporation was originally incorporated under the name Cybernex
Corporation, and the original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on February 12, 1985 and a
Restated Certificate of Incorporation was filed on March 2, 1988, which was
further amended thereafter.
2. The restatement herein set forth has been duly approved by the
Board of Directors of Read-Rite Corporation.
3. Pursuant to Section 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation only restates
and integrates and does not further amend the provisions of the
corporation's Certificate of Incorporation as heretofore restated and
amended, and there is no discrepancy between the Certificate of
Incorporation, as heretofore restated and amended and the provisions of
this Restated Certificate.
4. The text of the Restated Certificate of Incorporation is hereby
restated to read in its entirety as follows:
ARTICLE I
The name of the corporation is Read-Rite Corporation.
ARTICLE II
The address of the registered office of the corporation in the
State of Delaware is 1209 Orange Street, in the city of Wilmington, County
of New Castle, Delaware 19801, and the name of its registered agent at that
address is The Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which this corporation is authorized to issue is Forty
Four Million (44,000,000) shares. Forty Million (40,000,000) shares shall
be Common Stock and Four Million (4,000,000) shares shall be Preferred
Stock. Each share of Common and Preferred Stock shall have a par value of
$0.0001.
The Preferred Stock may be issued from time to time in one or
more series pursuant to a resolution or resolutions providing for such
issue duly adopted by the Board of Directors (authority to do so being
hereby expressly vested in the Board), and such resolution or resolutions
shall also set forth the voting powers, full or limited or none, of each
such series of Preferred Stock and shall fix the designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of each such series of
Preferred Stock. The Board of Directors is authorized to alter the
designation, rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the
Board of Directors originally fixing the number of shares constituting any
series of Preferred Stock, to increase or decrease (but not below the
number of shares of any such series then outstanding) the number of shares
of any such series subsequent to the issue of shares of that series.
ARTICLE V
Except as otherwise provided in this Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the board of Directors is expressly authorized to make, repeal,
alter, amend, and rescind any or all of the By-laws of the corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from
time to time by a by-law or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors at an annual or special meeting of
stockholders need not be by written ballot unless the By-laws of this
corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State
of Delaware, as the By-laws may provide. The books of this corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-laws of this corporation.
ARTICLE IX
This corporation reserves the right to amend, alter, change, or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
ARTICLE X
To the fullest extent permitted by Delaware General Corporation
Law, a director of this corporation shall not be personally liable to this
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Neither any amendment nor repeal of this
ARTICLE X, nor the adoption of any provision of this Restated certificate
of Incorporation inconsistent with this ARTICLE X shall eliminate or reduce
the effect of this ARTICLE X in respect of any matter occurring, or any
cause of action, suit or claim that, but for this ARTICLE X would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
THE UNDERSIGNED, being the Chairman of the board of directors and the
Chief Executive Officer, does make this certificate, hereby declaring and
certifying that this is his act and deed and the facts herein stated are
true, and accordingly, has hereunto set his hand this 15th day of November,
1991.
Read-Rite Corporation
a Delaware Corporation
By: \s\Cyril J. Yansouni
Cyril J. Yansouni, Chairman
and Chief Executive Officer
Attest:
\s\Francis S. Currie
Francis S. Currie,
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF RESTATED CERTIFICATE OF INCORPORATION
OF READ-RITE CORPORATION
A Delaware Corporation
Read-Rite Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That at a regular meeting of the Board of Directors of the
Corporation, resolutions were duly adopted (in accordance with Section 242
of the General Corporation Law of the State of Delaware) setting forth the
proposed amendment of the Restated Certificate of Incorporation of this
Corporation, declaring said amendment to be advisable and calling for the
approval by the stockholders of the Corporation upon consideration thereof.
The resolution setting forth the proposed amendment is as follows:
RESOLVED: That the first paragraph of Article IV of the Restated
Certificate of Incorporation of the Corporation be amended in its
entirety to read as follows:
"ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which this corporation is authorized to issue is One
Hundred Sixty Four Million (164,000,000) shares. One Hundred Sixty Million
(160,000,000) shares shall be Common Stock and Four Million (4,000,000)
shares shall be Preferred Stock. Each share of Common and Preferred Stock
shall have a par value of $0.0001."
SECOND: That thereafter, pursuant to a resolution of its Board of
Directors, the Board directed that the amendment be considered at the next
annual meeting of the stockholders of this Corporation, and at such
meeting, the holders of the necessary number of shares as required by
statute voted in favor of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Read-Rite Corporation has duly caused this
Certificate of Amendment of Restated Certificate of Incorporation to be
signed by Cyril J. Yansouni, its Chairman and Chief Executive Officer, and
attested to by Rex S. Jackson, its Secretary, this 22nd day of
February, 1996.
READ-RITE CORPORATION
A Delaware Corporation
By:\s\Cyril J. Yansouni
Cyril J. Yansouni
Chairman and Chief Executive Officer
ATTEST:
By:\s\ Rex. S. Jackson
Rex S. Jackson
Secretary
BYLAWS
OF
READ-RITE CORPORATION
(As amended and restated, August 8, 1991)
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. All meetings of the stockholders for the
election of directors shall be held at the principal executive offices of
the corporation, or at such other place either within or without the State
of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual Meeting. Annual meetings of stockholders shall be held at
such date, time and place, either within or without the State of Delaware,
as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a
plurality vote a Board of Directors, and transact such other business as
may properly be brought before the meeting.
Written notice of the annual meeting stating the place, date and hour
of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
2.3 List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is
present.
2.4 Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the Chairman of the Board,
the president or the chief executive officer, and shall be called by the
president or secretary at the request in writing of a majority of the Board
of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose
or purposes of the proposed meeting.
Written notice of a special meeting stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten (10) nor more than sixty (60) days before
the date of the meeting, to each stockholder entitled to vote at such
meeting.
No business may be conducted at a special meeting of stockholders
except as specified in the notice of meeting delivered to the stockholders.
2.5 Advance Notice of Stockholder Business and Director Nominations.
To be properly brought before an annual or special meeting, nominations for
the election of directors or other business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations
or other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given notice in a timely manner and
in proper form of such stockholder's intent to bring such business before
such meeting. To be timely, such stockholder's notice must be delivered to
or mailed and received by the secretary of the corporation not less than
ninety (90) days prior to the meeting; provided, however, that in the event
that less than one-hundred (100) days notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be received by the corporation not later than
the close of business on the tenth day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was
made. In addition, at any time that the Company is subject to the periodic
reporting requirements under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), notice will be deemed timely made by a
stockholder with respect to an annual meeting of Stockholders if the notice
by the stockholder is made in a timely manner pursuant to the provisions of
Rule 14a-8(a)3)(i) under the Exchange Act. To be in proper form, a
stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who
intends to make the nominations or propose the business
and, as the case may be, the name and address of the
person or persons to be nominated or the nature of the
business to be proposed;
(ii) a representation that the stockholder is a holder
of record of stock of the corporation entitled to vote
at such meeting and, if applicable, intends to appear
in person or by proxy at the meeting to nominate the
person or persons specified in the notice or introduce
the business specified in the notice;
(iii) if applicable, a description of all arrangements
or understandings between the stockholder and each
nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or
each matter of business to be proposed by such
stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the
matter been proposed, or intended to be proposed by the
Board of Directors; and
(v) if applicable, the consent of each nominee to
serve as director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with
the foregoing procedure.
2.6 Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for
the transaction of business except as otherwise provided by statute or by
the certificate of incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall
have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present
or represented any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the
meeting.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of statute or of the
certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such
question.
2.7 Adjourned Meeting Notice. When a meeting is adjourned to another
time or place, unless these bylaws otherwise require, notice need not be
given of the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting
the corporation may transact any business that might have been transacted
at the original meeting. If the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.8 Voting. Except as otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder.
2.9 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or entitled to express consent or dissent to corporate action
in writing without a meeting (if otherwise permitted by these bylaws and
the corporation's certificate of incorporation) may authorize another
person or persons to act for such stockholder by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no
such proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by
the stockholder or the stockholder's attorney-in-fact. The revocability of
a proxy that states on its face that it is irrevocable shall be governed by
the provisions of Section 212(c) of the General Corporation Law of
Delaware.
2.10 Stockholder Action by Written Consent. Unless otherwise provided
in the certificate of incorporation, any action required to be taken at any
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders,
may be taken without a meeting, without prior notice and without a vote, if
a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders
who have not consented in writing.
2.11 Conduct of Business. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his or her absence by the
President, or in his absence by a vice president, or in the absence of the
foregoing persons by a chairman designated by the Board of Directors, or in
the absence of such designation by a chairman chosen at the meeting. The
secretary shall act as secretary of the meeting, but in his or her absence
the chairman of the meeting may appoint any person to act as secretary of
the meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such
matters as the regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1 Powers. Subject to the provisions of the General Corporation Law
of Delaware and any limitations in the certificate of incorporation or
these bylaws relating to action required to be approved by the stockholders
or by the outstanding shares, the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised by or under
the direction of the Board of Directors. The Board may exercise all such
powers of the corporation and do all such lawful acts and things as are not
by statute or by the certificate of incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.
3.2 Number of Directors. The number of directors which shall
constitute the whole Board shall be five (5). The directors shall be
elected at the annual meeting of the stockholders, except as provided in
Section 3.3 of this Article, and each director elected shall hold office
until his or her successor is elected and qualified. Directors need not be
stockholders.
3.3 Resignations and Vacancies. Any director may resign at any time
upon written notice to the corporation. Vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and
until their successors are duly elected and shall qualify, unless sooner
displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time
of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole Board (as
constituted immediately prior to any such increase), the Court of Chancery
may, upon application of any stockholder or stockholders holding at least
ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
3.4 Place of Meetings. The Board of Directors of the corporation may
hold meetings, both regular and special, either within or without the State
of Delaware.
3.5 First Meetings. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the
vote of the stockholders at the annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the
event of the failure of the stockholders to fix the time or place of such
first meeting of the newly elected Board of Directors, or in the event such
meeting is not held at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver signed by all of
the directors.
3.6 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as shall from time to
time be determined by the Board.
3.7 Special Meetings; Notice. Special meetings of the Board may be
called by the Chairman of the Board or the President on at least two (2)
days' notice to each director by mail or at least twenty-four (24) hours
notice to each director either personally or by telephone or by telegram;
special meetings shall be called by the Chairman of the Board, the
President or the Secretary in like manner and on like notice on the written
request of two directors unless the Board consists of only one director, in
which case special meetings shall be called by the President or Secretary
in like manner and on like notice on the written request of the sole
director.
3.8 Quorum. At all meetings of the Board a majority of the
authorized number of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or
by the certificate of incorporation. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
3.9 Waiver of Notice. Whenever notice is required to be given under
any provision of the General Corporation Law of Delaware or of the
certificate of incorporation or these bylaws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or
special meeting of the directors, or members of a committee of directors,
need be specified in any written waiver of notice unless so required by the
certificate of incorporation or these bylaws.
3.10 Conduct of Business. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his or her
absence by the President, or in their absence by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
or her absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. The chairman of any meeting shall determine the
order of business and the procedures at the meeting.
3.11 Board Action by Written Consent Without a Meeting. Unless
otherwise restricted by the certificate of incorporation or these bylaws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto
in writing and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
3.12 Meetings by Telephone Conference Call. Unless otherwise
restricted by the certificate of incorporation or these bylaws, members of
the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation in a meeting shall constitute
presence in person at the meeting.
3.13 Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall
have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the
Board of Directors as provided in Section 151(a) of the General Corporation
Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets
of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation), (ii) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (iii) recommend to the stockholders
the sale, lease or exchange of all or substantially all of the
corporation's property and assets (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v)
amend the bylaws of the corporation; and, unless the Board resolution
establishing the committee, the bylaws or the certificate of incorporation
expressly so provide, no such committee shall have the power or authority
to declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.4 (place of meetings) Section 3.6 (regular meetings), Section 3.7
(special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of
notice), Section 3.10 (conduct of business), Section 3.12 (meetings by
telephone) and Section 3.11 (action without a meeting), with such changes
in the context of those bylaws as are necessary to substitute the committee
and its members for the Board of Directors and its members; provided,
however, that the time of regular meetings of committees may also be called
by resolution of the Board of Directors and that notice of special meetings
of committees shall also be given to all alternate members, who shall have
the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with
the provisions of these bylaws.
3.14 Compensation of Directors. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall
have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of
the Board of Directors or a stated salary as director. No such payment
shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending
committee meetings.
3.15 Removal of Directors. Unless otherwise restricted by the
certificate of incorporation or bylaw, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a
majority of shares entitled to vote at an election of directors. No
reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
NOTICES
4.1 Notices. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to
be given to any director or stockholder, such notice may be given in
writing, by mail, addressed to such director or stockholder, at such
person's address as it appears on the records of the corporation, with
postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given personally or by telephone or by telegraph.
4.2 Waivers of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation
or of these bylaw a waiver thereof in writing signed by the person or
persons entitled to said notice whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
5.1 Officers. The officers of the corporation shall be elected by
the Board of Directors and shall include a President and a Secretary. The
Board of Directors may elect from among its members a Chairman of the Board
and a Vice Chairman of the Board. The Board of Directors may also elect a
Chief Executive Officer, Chief Financial Officer, one or more vice-
presidents, assistant secretaries and assistant treasurers, and, such other
officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board. Any number
of offices may be held by the same person.
5.2 Election of Officers. Except as otherwise provided in this
Section 5.2, the officers of the corporation shall be chosen by the Board
of Directors, subject to the rights, if any, of an officer under any
contract of employment. The Board of Directors may appoint, or empower the
Chief Executive Officer (or President, if there be no Chief Executive
Officer) to appoint (whether or not such officer is described in this
Article V), such officers and agents of the business as the corporation may
require, each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these bylaws or as
the Board of Directors may from time to time determine. Any vacancy
occurring in any office of the corporation shall be filled by the Board of
Directors or may be filled by the Chief Executive Officer (or President, if
there be no Chief Executive Officer) provided the Chief Executive Officer
(or President) appointed such officer.
5.3 Removal and Resignation of Officers. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by an affirmative vote of the
majority of the Board of Directors at any regular or special meeting of the
Board or, except in the case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred
by the Board of Directors or, in the case of an officer appointed by the
President, by the Chief Executive Officer or President.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to
which the officer is a party.
5.4 Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may from
time to time be assigned to such person by the Board of Directors or as may
be prescribed by these laws. The Chairman of the Board may also serve as
Chief Executive Officer of the corporation, if so designated by the Board,
and in such event shall have the powers and duties prescribed in
Section 5.6 of these Bylaws.
5.5 Vice Chairman of the Board. The Vice Chairman of the Board, if
such an officer be elected, shall preside at meetings of the Board of
Directors in the absence of the Chairman of the Board and shall exercise
and perform such other powers and duties as from time to time may be
assigned to such person by the Board of Directors or prescribed by these
Bylaws.
5.6 Chief Executive Officer. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers
of the corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a Chairman of the Board
and Vice Chairman of the Board, at all meetings of the Board of Directors.
He or she shall have the general powers and duties of management usually
vested in the chief executive officer of a corporation and shall have such
other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
The chief executive officer shall, without limitation, have the
authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
5.7 President. Subject to such supervisory powers as may be given by
these Bylaws or the Board of Directors to the Chairman of the Board, Vice
Chairman of the Board or the Chief Executive Officer, if there be such
officers, the president shall have general supervision, direction and
control of the business and other officers of the corporation. He or she
shall have the general powers and duties as may be prescribed by the Board
of Directors or these Bylaws.
5.8 Vice Presidents. The vice-presidents shall perform such duties
and have such powers as the Board of Directors may from time to time
prescribe. In the absence of the Chief Executive Officer and the President
or in the event of the inability or refusal of such persons to act, the
vice-president, if any, (or in the event there be more than one vice-
president, the vice-presidents in the order designated by the directors, or
in the absence of any designation, then in the order of the length of time
he or she has served as a vice-president) shall perform the duties of the
Chief Executive Officer and of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President.
5.9 Secretary. The secretary shall record all the proceedings of the
meetings of the Board of Directors and stockholders of the corporation in a
book to be kept for that purpose and shall perform like duties for the
standing committees when required. He or she shall perform such other
duties as may be prescribed by the Board of Directors or the Chief
Executive Officer (or the President, if there be no Chief Executive
Officer) under whose supervision he shall be. He or she shall have custody
of the corporate seal of the corporation and he or she, or an assistant
secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by
the signature or such assistant secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his or her signature.
5.10 Chief Financial Officer. The Chief Financial Officer shall have
the custody of the corporate funds and securities and shall keep regular
books of account. He or she shall make such disbursement of the funds of
the corporation as may be proper, and shall render to the Chief Executive
Officer (or the President, if there be no Chief Executive Officer) and to
the Board of Directors, at its regular meetings, or when the Board of
Directors so requests an account of all his or her transactions as
treasurer and of the financial condition of the corporation. If a Chief
Financial Officer of the corporation be elected by the Board, the Chief
Financial Officer shall serve as its treasurer unless the Board shall also
elect a treasurer (in which case the treasurer shall be subject to the
supervisory authority of the Chief Financial Officer). The Board of
Directors may give the authority of the treasurer to any other officer of
the corporation.
5.11 Authority and Duties of Officers. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively
have such authority and perform such duties in the management of the
business of the corporation as may be designated from time to time by the
Board of Directors or the stockholders.
ARTICLE VI
CERTIFICATES OF STOCK
6.1 Certificates. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the
corporation by, the Chairman or Vice-Chairman of the Board of Directors,
the President or a vice-president, and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by such stockholder in the
corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid
therefor, and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights
of each class of stock or series thereof and the qualification, limitations
or restrictions of such preferences and/or rights shall be set forth in
full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stock
holder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
6.2 Facsimile Signatures. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if it were such officer, transfer agent
or registrar at the date of issue.
6.3 Lost Certificate. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or such owner's
legal representative, to advertise the same in such manner as it shall
require and/or to give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or
destroyed.
6.4 Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority
to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
6.5 Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to
any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
6.6 Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as
the owner of shares and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
7.1 Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may
be declared by the Board of Director at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares
of the capital stock, subject to the provisions of the certificate of
incorporation.
Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as
a reserve or reserves to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the corporation, or for
such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
7.2 Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time
designate.
7.3 Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
7.4 Corporate Seal. The Board of Directors may adopt a corporate
seal which may be used by causing it or a facsimile thereof to be impressed
or affixed or otherwise reproduced.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
8.1 Indemnification of Directors and Officers. The corporation
shall, to the maximum extent and in the manner permitted by the General
Corporation Law of Delaware, indemnify each of its directors and officers
against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Section
8.1, a "director" or "officer" of the corporation includes any person (i)
who is or was a director or officer of the corporation, (ii) who is or was
serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
including, without limitation, any direct or indirect subsidiary of the
corporation, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
8.2 Indemnification of Others. The corporation shall have the power,
to the extent and in the manner permitted by the General Corporation Law of
Delaware, to indemnify each of its employees and agents (other than
directors and officers) against expenses (including attorneys' fees),
judgments, fines, settlements, and other amounts actually and reasonable
incurred in connection with any proceeding, arising by reason of the fact
that such person is or was an agent of the corporation. For purposes of
this Section 8.2, an "employee" or "agent" of the corporation (other than a
director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including, without limitation,
any direct or indirect subsidiary of the corporation, or (iii) who was an
employee or agent of a corporation or of another enterprise at the request
of such predecessor corporation.
8.3 Insurance. The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person
against such liability under the provisions of the General Corporation Law
of Delaware.
ARTICLE IX
AMENDMENTS
9.1 These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the Board of Directors, or, if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of a
stockholders meeting, by the stockholders at any meeting of the
stockholders.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the Board of
Directors of the corporation that the corporation should be dissolved, the
Board, after the adoption of a resolution to that effect by a majority of
the whole Board at any meeting called for that purpose, shall cause notice
to be mailed to each stockholder entitled to vote thereon of the adoption
of the resolution and of a meeting of stockholders to take action upon the
resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation
entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in accordance
with the provisions of Section 275 of the General Corporation Law of
Delaware and setting forth the names and residences of the directors and
officers shall be executed, acknowledged, and filed and shall become
effective in accordance with Section 103 of the General Corporation Law of
Delaware. Upon such certificate's becoming effective in accordance with
Section 103 of the General Corporation Law of Delaware, the corporation
shall be dissolved.
Read-Rite Corporation
Amendment to Bylaws
Approved by the Board of Directors
July 16, 1996
WHEREAS, the Board deems it in the best interests of the Company to
increase the Board of Directors to six (6) persons; and
WHEREAS, in order to increase the Board, it is necessary to increase
the number of directors constituting the entire Board under Article III,
Section 3.2 of the Bylaws of the Company.
NOW, THEREFORE, be it resolved, that effective July 16, 1996, Article
III, Section 3.2 of the Bylaws of the Company is amended in its entirety to
read as follows:
"3.2 Number of Directors. The number of directors which shall
constitute the whole Board shall be six (6). The directors shall be
elected at the annual meeting of the stockholders, except as provided
in Section 3.3 of this Article, and each director elected shall hold
office until his or her successor is elected and qualified.
Directors need not be stockholders."
AMENDED AND RESTATED
READ-RITE CORPORATION
1991 DIRECTOR OPTION PLAN
(AS AMENDED DECEMBER 1, 1995)
1. Purpose of the Plan. The purpose of this 1991 Director Option Plan
is to attract and retain the best available personnel to serve as Outside
Directors of the Company.
All options granted hereunder shall be "non-statutory stock options".
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Read-Rite Corporation, a Delaware corporation.
(e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
(g) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a
Share of Common Stock shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in Common
Stock) on the last market trading day prior to the day of determination,
as reported in the Wall Street Journal or such other source as the Board
deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal
or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means an Outside Director who receives an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1991 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is one hundred fifty thousand (150,000)
Shares (the "Pool") of Common Stock (which number gives effect to a 3-for-
2 split of the Common Stock effected in August 1991). The Shares may be
authorized but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which
were subject thereto shall, unless the Plan shall have been terminated,
become available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) Procedure for Grants. The provisions set forth in this
Section 4(b) shall not be amended more than once every six months, other
than to comply with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All grants of
Options hereunder shall be automatic and non-discretionary and shall be
made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) On July 1, 1991 and on each July 1 thereafter during
the term of this Plan, each Outside Director shall automatically receive
an Option to purchase six thousand (6,000) Shares. In addition, each new
Outside Director shall be automatically granted an Option to purchase six
thousand (6,000) Shares upon the date (after July 1, 1991) on which such
person first becomes a Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy.
(These numbers give effect to a 3-for-2 split of the Common Stock effected
in August 1991.)
(iii) The terms of each Option granted hereunder shall be
as follows:
(A) the term of the Option shall be ten (10) years.
(B) the Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Option.
(D) the Option shall become exercisable in
installments cumulatively as to twenty-five percent (25%) of the Optioned
Stock one year after the date of grant, as to an additional twenty-five
percent (25%) two years after the date of grant, as to an additional
twenty-five percent (25%) three years after the date of grant, and as to
the final twenty-five percent (25%) four years from the date of grant, so
that 100% of the Optioned Stock granted under an individual Option shall
be exercisable four years after the date of grant of the Option.
(iv) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased upon exercise of Options to exceed
the Pool, then each such automatic grant shall be for that number of
Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors on the automatic
grant date. No further grants shall be made until such time, if any, as
additional Shares become available for grant under the Plan through action
of the shareholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 2(i) of the Plan, the Fair Market Value of the
Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and
rescind rules and regulations relating to the Plan; (iv) to authorize any
person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option previously granted hereunder; and (v) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final.
5. Eligibility. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms
set forth in Section 4(b) hereof. An Outside Director who has been
granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as
a Director, nor shall it interfere in any way with any rights which the
Director or the Company may have to terminate his directorship at any
time.
6. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders
of the Company as described in Section 16 of the Plan. It shall continue
in effect for a term of ten (10) years unless sooner terminated under
Section 11 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for Optioned
Stock shall be 100% of the Fair Market Value per Share on the date of
grant of the Option.
(b) Form of Consideration. The consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method
of payment, shall be determined by the Board and may consist entirely of
(i) cash, (ii) check, (iii) promissory note, (iv) other shares which have
a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised
and which, in the case of Shares acquired upon exercise of an option, have
been owned by the Optionee for more than twelve (12) months on the date of
surrender, (v) delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise
price, (vi) delivery of an irrevocable subscription agreement for the
Shares which irrevocably obligates the Optionee to take and pay for the
Shares not more than twelve (12) months after the date of delivery of the
subscription agreement, (vii) any combination of the foregoing methods of
payment, or (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted under applicable law.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set
forth in Section 4(b) hereof; provided, however, that no Options shall be
exercisable until shareholder approval of the Plan in accordance with
Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms
of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has
been received by the Company. Full payment may consist of any
consideration and method of payment allowable under Section 7(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as
provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(b) Termination of Continuous Status as a Director. In the
event an Optionee's Continuous Status as a Director terminates (other than
upon the Optionee's death or total and permanent disability (as defined in
Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months from the date of such
termination, and only to the extent that the Optionee was entitled to
exercise it at the date of such termination (but in no event later than
the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option at the date of such
termination, and to the extent that the Optionee does not exercise such
Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent
disability (as defined in Section 22(e)(3) of the Code), the Optionee may
exercise his or her Option, but only within twelve (12) months from the
date of such termination, and only to the extent that the Optionee was
entitled to exercise it at the date of such termination (but in no event
later than the expiration of its ten (10) year term). To the extent that
the Optionee was not entitled to exercise an Option at the date of
termination, or if he or she does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death
while still a Director of the Company, any Options which are then vested
or which would otherwise have vested pursuant to Section 4(b)(iii)(D)
within the twelve (12) calendar months following the date of death shall
be exercisable by the Optionee's estate or a person who acquired the right
to exercise the Option by bequest or inheritance at any time within twelve
(12) months following the date of death (but in no event later than the
expiration of the Option's ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option at the date of death
pursuant to Section 4(b)(iii)(D) or via the acceleration provided in this
Section 8(d), or to the extent that the Optionee's estate or a person who
by bequest or inheritance acquired the right to exercise such Option does
not exercise such Option within the time and to the extent specified
herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
10. Adjustments.
(a) Changes in Capitalization. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split,
recapitalization, or other change in the capital structure of the Company,
or converted into or exchanged for other securities as a result of any
merger, consolidation or reorganization, or in the event that the
outstanding number of shares of stock of the Company is increased through
payment of a stock dividend, appropriate proportionate adjustments shall
be made in the number and class of shares of stock subject to the Plan,
the number and class of shares subject to any Option outstanding under the
Plan, and the exercise price of any such outstanding Option; provided,
however, that the Company shall not be required to issue fractional shares
as a result of any such adjustment. Any such adjustment shall be made
upon approval by the Board, whose determination shall be conclusive. If
there is any other change in the number or type of the outstanding shares
of stock of the Company, or of any other security into which such stock
shall have been changed or for which it shall have been exchanged, and if
the Board in its sole discretion determines that such change equitably
requires an adjustment in the Options then outstanding under the Plan,
such adjustment shall be made in accordance with the determination of the
Board. No adjustments shall be required by reason of the issuance or sale
by the Company for cash or other consideration of additional shares of its
stock or securities convertible into or exchangeable for shares of its
stock.
(b) Corporate Transactions. New Options (substantially
equivalent to the Options) may be substituted for the Options granted
under the Plan, or the Company's duties as to Options outstanding under
the Plan may be assumed, by an employer corporation other than the Company
or by a parent or subsidiary of such employer corporation, in connection
with any merger, consolidation, acquisition of assets or stock,
separation, reorganization, liquidation or like occurrence in which the
Company is involved, provided, however, in the event such employer
corporation or parent or subsidiary of such employer corporation does not
assume the Options granted hereunder or substitute for such Options
substantially equivalent options, or if the Board determines, in its sole
discretion, that Options outstanding under the Plan should not then
continue to be outstanding, the Options granted hereunder shall terminate
and thereupon become null and void (i) upon dissolution or liquidation of
the Company, acquisition, separation, or similar occurrence, or (ii) upon
any merger, consolidation, or similar occurrence, where the Company will
not be a surviving corporation; provided, however, that each Optionee
shall be given notice of such dissolution, liquidation, merger,
consolidation, acquisition, separation or similar occurrence and shall
have the right, at any time prior to, but contingent upon the consummation
of such transaction, to exercise (x) any unexpired Options granted
hereunder to the extent they are then exercisable, and (y) in the case of
a merger, consolidation, or similar occurrence where the Company is not
the surviving corporation, those Options which are not then otherwise
exercisable; provided, further, that such exercise right shall not in any
event expire less than thirty (30) days after the date notice of such
transaction is sent to the Optionee.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act (or any other
applicable law or regulation), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4(b)
hereof. Notice of the determination shall be given to each Outside
Director to whom an Option is so granted within a reasonable time after
the date of such grant.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, state securities laws, and the
requirements of any stock exchange upon which the Shares may then be
listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares, if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant
provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, 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.
14. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares
as shall be sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject
to approval by the shareholders of the Company at or prior to the first
annual meeting of shareholders held subsequent to the granting of an
Option hereunder. Such shareholder approval shall be obtained in the
degree and manner required under applicable state and federal law.
READ-RITE CORPORATION
DIRECTOR OPTION AGREEMENT
(Amended And Restated December 1, 1995)
This Director Option Agreement ("Agreement") dated ______________ is
by and between Read-Rite Corporation, a Delaware corporation (the
"Company"), and ______________________ ("Optionee"). Subject to the
terms, definitions and provisions of the 1991 Director Option Plan (the
"Plan") adopted by the Company and incorporated herein by reference, the
Company hereby grants to Optionee an option to purchase six thousand
(6,000) shares (the "Optioned Stock") of the Company's common stock,
$.0001 par value ("Common Stock"), at the price and on the terms set forth
below. Capitalized terms not otherwise defined herein shall have the
meaning assigned thereto in the Plan.
1. Nature of the Option. This Option is a nonstatutory stock option
and is not intended to qualify for any special tax benefits to Optionee.
2. Exercise Price. The exercise price is $_____ for each share of
Common Stock, 100% of the Fair Market Value of the Common Stock on the
date of grant of the Option.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as
follows:
(i) Right to Exercise.
(a) This Option shall become exercisable in installments
cumulatively as follows: twenty-five percent (25%) on the first
anniversary of the date of grant, twenty-five percent (25%) on the second
anniversary, twenty-five percent (25%) on the third anniversary, and
twenty-five percent (25%) on the fourth anniversary, such that the Option
shall be vested as to one hundred percent (100%) of the Optioned Shares
four (4) years from the date of grant.
(b) This Option may not be exercised for a fraction of a
Share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option
shall be governed by Sections 6, 7 and 8 below.
(ii) Method of Exercise. This Option shall be exercisable by
written notice to the Company, which shall state the election to exercise
the Option, the number of Optioned Shares in respect of which the Option
is being exercised, and such other representations and agreements as to
Optionee's investment intent as may reasonably be required by the Company.
Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the exercise price.
4. Method of Payment. Payment of the exercise price shall be by any
of the following, or a combination thereof, at Optionee's election: (i)
cash; (ii) check; (iii) surrender of other shares of Common Stock of the
Company which (A) either have been owned by Optionee for more than twelve
(12) months as of the date of surrender or were not acquired, directly or
indirectly, from the Company, and (B) have a Fair Market Value on the date
of surrender equal to the exercise price of the Shares as to which the
Option is being exercised; or (iv) delivery of a promissory note (the
"Note") of Optionee in the amount of the exercise price, together with the
execution and delivery by Optionee of a security agreement ("Security
Agreement"), in each case in a form prescribed by the Company. The Note
shall bear interest at a rate no less than the "applicable federal rate"
prescribed under the Code and its regulations at the time of purchase, and
pursuant to the Security Agreement, shall be secured by a pledge of the
shares purchased; or (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale or loan proceeds required to pay the
exercise price.
5. Restrictions on Exercise. This Option may not be exercised if
the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulations, or if
such issuance would not comply with the requirements of any stock exchange
upon which the shares may then be listed. As a condition to the exercise
of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any
applicable law or regulation.
6. Termination of Continuous Status as a Director. If Optionee's
Continuous Status as a Director terminates (other than upon the Optionee's
death or permanent and total disability (as defined in Section 22(e)(3) of
the Code)), the Optionee may exercise his or her Option, but only within
three (3) months from the date of such termination, and only to the extent
that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise
this Option at the date of such termination, and to the extent that
Optionee does not exercise this Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
7. Disability of Optionee. If Optionee's Continuous Status as a
Director terminates as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may
exercise his or her Option, but only within twelve (12) months from the
date of termination, and only to the extent that the Optionee was entitled
to exercise it at the date of such termination (but in no event later than
the date of expiration of its ten (10) year term). To the extent that
Optionee was not entitled to exercise this Option at the date of
termination, and to the extent Optionee does not exercise this Option (to
the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
8. Death of Optionee. In the event of Optionee's death while still
a Director of the Company, any Options which are then vested or which
would otherwise have vested pursuant to Section 3(i)(a) within the twelve
(12) calendar months following the date of death shall be exercisable by
the Optionee's estate or a person who acquired the right to exercise the
Option by bequest or inheritance at any time within twelve (12) months
following the date of death (but in no event later than the expiration of
the Option's ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option at the date of death pursuant to Section
3(i)(a) or via the acceleration provided in this Section 8, or to the
extent that the Optionee's estate or a person who by bequest or
inheritance acquired the right to exercise such Option does not exercise
such Option within the time and to the extent specified herein, the Option
shall terminate.
9. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent
or distribution and may be exercised during the lifetime of Optionee only
by the Optionee. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
10. Term of Option. This Option may not be exercised more than ten
(10) years from the date of grant hereof, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.
11. Taxation Upon Exercise of Option. Optionee understands that,
upon exercise of this Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then Fair Market Value of
the Shares purchased over the exercise price paid for such Shares. If the
Optionee is subject to Section 16(b) of the Securities Exchange Act of
1934, as amended, the measurement and timing of such income may be
deferred, and the Optionee is advised to contact a tax advisor concerning
the desirability of filing an 83(b) election in connection with the
exercise of the Option. Upon a resale of such Shares by the Optionee, any
difference between the sale price and the Fair Market Value of the Shares
on the date of exercise of the Option, to the extent not included in
income as described above, will be treated as capital gain or loss.
DATE OF GRANT:
READ-RITE CORPORATION,
a Delaware corporation
By:
Chairman and
Chief Executive Officer
Optionee acknowledges receipt of a copy of the Plan, a copy of which
is annexed hereto, and represents that he/she is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of
the terms and provisions thereof. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
Dated: ______________________
Optionee
_____________________________
Address
_____________________________
City, State
TERM LOAN AGREEMENT
Dated as of June 28, 1996
among
Read-Rite Corporation,
as Borrower
and
the Financial Institutions named herein,
as Banks
and
Canadian Imperial Bank of Commerce, New York Agency,
as Agent
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
SECTION 1.01 Defined Terms 1
SECTION 1.02 Other Definitional Provisions 7
ARTICLE II
THE LOANS 8
SECTION 2.01 The Term Loan 8
(a) The Term Commitment 8
SECTION 2.02 Fees 9
SECTION 2.03 Repayment 9
(a) Mandatory Repayments 9
(b) Optional Payment 9
SECTION 2.04 Interest Rate and Payment Dates 9
(a) Payment of Interest 9
(b) Base Rate Loans 9
(c) LIBO Rate Loans 9
SECTION 2.05 Continuation and Conversion Options 9
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS 10
SECTION 3.01 Use of Proceeds 10
SECTION 3.02 Post Maturity Interest 10
SECTION 3.03 Computation of Interest and Fees 10
(a) Calculations 10
(b) Determination by Agent 10
SECTION 3.04 Payments 11
SECTION 3.05 Payment on Non-Business Days 11
SECTION 3.06 Reduced Return 11
SECTION 3.07 Indemnities 11
(a) General Indemnity 11
(b) Funding Losses 12
SECTION 3.08 Funding Sources 12
SECTION 3.09 Inability to Determine Interest Rate 12
SECTION 3.10 Requirements of Law 12
SECTION 3.11 Illegality 13
SECTION 3.12 Right to Replace Bank 13
SECTION 3.13 Taxes 14
(a) Payments 14
(b) Other Taxes 14
(c) Indemnity 14
(d) Evidence of Payment 14
(e) IRS Forms 14
(f) Change of Booking Office 15
SECTION 3.14 Sharing of Payments, Etc. 15
ARTICLE IV
CONDITIONS TO TERM LOAN 15
SECTION 4.01 Conditions Precedent to the Making of
the Term Loan 15
ARTICLE V
REPRESENTATIONS AND WARRANTIES 17
SECTION 5.01 Representations and Warranties 17
(a) Organization; Subsidiaries 17
(b) Authorization 17
(c) Governmental Consents 17
(d) Validity 17
(e) Financial Condition 17
(f) Litigation 18
(g) Employee Benefit Plans 18
(h) Disclosure 18
(i) Margin Stock 18
(j) Environmental Matters 18
(k) Employee Matters 19
(l) Insurance 19
ARTICLE VI
COVENANTS 19
SECTION 6.01 Affirmative Covenants 19
(a) Financial Information 19
(b) Notices and Information 20
(c) Corporate Existence, Etc. 21
(d) Payment of Taxes and Claims 21
(e) Maintenance of Properties; Insurance 21
(f) Inspection 21
(g) Compliance with Laws, Etc 22
SECTION 6.02 Negative Covenants 22
(a) Quick Ratio 22
(b) Consolidated Tangible Net Worth 22
(c) Leverage Ratio 22
(d) Consolidated Net Income 22
(e) Liens, Etc. 22
(f) Debt 24
(g) [Intentionally Omitted] 25
(h) Dividends, Etc. 25
(i) Consolidation, Merger 26
(j) Loans, Investments,
Secondary Liabilities 26
(k) [Intentionally Omitted] 27
(l) Asset Sales 27
(m) Acquisitions 28
(n) Transactions with Affiliates 28
ARTICLE VII
EVENTS OF DEFAULT 28
SECTION 7.01 Events of Default 28
ARTICLE VIII
THE AGENT 31
SECTION 8.01 Authorization and Action 31
SECTION 8.02 Agent's Reliance, Etc 31
SECTION 8.03 CIBC Inc., Canadian Imperial Bank of
Commerce, New York Agency and
Affiliates 31
SECTION 8.04 Bank Credit Decision 31
SECTION 8.05 Indemnification 32
SECTION 8.06 Successor Agent 32
ARTICLE IX
MISCELLANEOUS 32
SECTION 9.01 Amendments, Etc 32
SECTION 9.02 Notices, Etc. 33
SECTION 9.03 Right of Setoff 33
SECTION 9.04 No Waiver; Remedies 33
SECTION 9.05 Costs and Expenses 33
SECTION 9.06 Additional Banks; Assignments;
Participations 33
SECTION 9.07 Effectiveness; Binding Effect;
Governing Law 35
SECTION 9.08 Survival of Warranties and Certain
Agreements 35
SECTION 9.09 Waiver of Jury Trial 35
SECTION 9.10 Consent to Jurisdiction; Venue 35
SECTION 9.11 Entire Agreement 36
SECTION 9.12 Separability of Provisions 36
SECTION 9.13 Obligations Several 36
SECTION 9.14 Execution in Counterparts 36
SECTION 9.15 1654 Interpretation 36
EXHIBITS
Exhibit A Form of Term Promissory Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Notice of Conversion/Continuation
Exhibit D Form of Borrower's Opinion
Exhibit E Form of Compliance Certificate
Exhibit F Form of Assignment Agreement
SCHEDULES TO DISCLOSURE LETTER
5.01(a) Subsidiaries
5.01(f) Litigation
5.01(j) Environmental Matters
6.02(e) Existing Liens
6.02(f) Existing Debt
6.02(j) Existing Investments
6.02(k) Existing Contingent Obligations
TERM LOAN AGREEMENT
This Term Loan Agreement (this "Agreement") dated as of June 28, 1996
is entered into among Read-Rite Corporation, a Delaware corporation (the
"Borrower"), the financial institutions named on the signature pages
hereof or who become parties hereto pursuant to Section 9.06(a) or
otherwise (each a "Bank" and collectively the "Banks"), and Canadian
Imperial Bank of Commerce, New York Agency, as agent for the Banks (the
"Agent").
RECITALS
WHEREAS, Borrower has requested that Banks loan funds to Borrower and
Banks have agreed to lend money to Borrower subject to the terms and
conditions of this Agreement.
NOW THEREFORE, in consideration of the promises and the agreements,
provisions and comments herein contained, the Borrower, the Banks, and the
Agent agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the following meanings:
"Acquisition": As defined in Section 6.02(m).
"Affiliate": As applied to any Person, any Person directly or
indirectly controlling, controlled by or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of that Person, whether through the ownership
of voting securities or by contract or otherwise.
"Agent": As set forth in the introductory paragraph of this
Agreement.
"Agreement": This Term Loan Agreement, as amended, supplemented or
modified from time to time.
"Amortizations": For any period, any scheduled principal repayments
during such period on current maturities of any Debt of the Borrower and
its Subsidiaries resulting in a permanent reduction of the amount
outstanding or available to be borrowed under the instrument or agreement
evidencing such Debt.
"Annualized Consolidated Cash Flow": The product of (A) four
multiplied by (B) the sum of the following amounts for the Borrower and
its Subsidiaries on a consolidated basis determined in accordance with
GAAP for the most recently ended fiscal quarter: (i) Consolidated Net
Income plus (ii) provision for income taxes plus (iii) Consolidated
Interest Expense plus (iv) depreciation and amortization plus (v) non cash
charges (except for non cash charges that are expected to result in cash
payments).
"Assignment Agreement": An Assignment Agreement in substantially the
form of Exhibit D.
"Bank": As set forth in the introductory paragraph of this
Agreement.
"Base Rate": The higher of (i) the rate of interest announced from
time to time by Canadian Imperial Bank of Commerce in New York, New York
as its Prime Commercial Lending Rate and (ii) the sum of 1/2 of 1% plus
the Federal Funds Rate on the day prior to the date on which the Base Rate
is to be determined. The Prime Commercial Lending Rate is a reference
rate; the Agent may make loans at, above or below the Prime Commercial
Lending Rate.
"Base Rate Loans": Loans hereunder at such time as they accrue
interest at a rate based upon the Base Rate.
"Book Value Per Share": As of the end of any fiscal quarter, (i) all
assets of the Borrower and its Subsidiaries on a consolidated basis as of
the last day of such fiscal quarter minus all liabilities of the Borrower
and its Subsidiaries on a consolidated basis as of the last day of such
fiscal quarter divided by (ii) the total number of shares of Common Stock
used by the Borrower in computing net income per share for such fiscal
quarter, as reflected on the Quarterly Report on Form 10-Q or Annual
Report on Form 10-K of the Borrower, as the case may be, for the fiscal
quarter or fiscal year then ended.
"Borrower": As set forth in the introductory paragraph of this
Agreement.
"Business Day": A day other than a Saturday, Sunday or a day on
which commercial banks in New York, New York or San Francisco, California
are authorized or required by law to close.
"Capital Lease": As applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease
on the balance sheet of that Person.
"Commitment": The obligation of each Bank to make Loans to the
Borrower, each pursuant to Article II in the amount or amounts referred to
therein.
"Consolidated Current Liabilities": At any date of determination,
the sum of (i) Consolidated Liabilities which may properly be classified
as current liabilities in conformity with GAAP plus (ii) (without
duplication) all amounts outstanding under the Revolver.
"Consolidated Interest Expense": For any period, all interest
expense (including that portion attributable to Capital Leases in
conformity with GAAP and amortization of capitalized interest) of the
Borrower and its Subsidiaries on a consolidated basis determined in
accordance with GAAP with respect to all outstanding Debt of the Borrower
and its Subsidiaries.
"Consolidated Liabilities": At any date of determination, the total
liabilities of the Borrower and its Subsidiaries required to be reflected
on the liability side of the consolidated balance sheet of the Borrower in
accordance with GAAP (including (1) any balance sheet liability with
respect to a Pension Plan recognized pursuant to Financial Accounting
Standards Board Statements 87 or 88 and (2) any withdrawal liability under
Section 4201 of ERISA with respect to a withdrawal from a Multiemployer
Plan, as such liability may be set forth in a notice of withdrawal
liability under Section 4219 (and as adjusted from time to time subsequent
to the date of such notice)).
"Consolidated Net Income": For any period, on a consolidated basis
determined in accordance with GAAP, the net income (or loss) after income
taxes of the Borrower and its Subsidiaries for such period.
"Consolidated Net Worth": At any date of determination, the sum of
the capital stock and additional paid-in capital plus retained earnings
(or minus accumulated deficit) of the Borrower and its Subsidiaries, on a
consolidated basis determined in conformity with GAAP.
"Consolidated Operating Lease Expense": For any period, on a
consolidated basis determined in accordance with GAAP, the direct
scheduled liabilities in respect of Operating Leases of the Borrower and
its Subsidiaries for such period.
"Consolidated Quick Assets": At any date of determination, the total
cash, marketable securities and accounts receivable of the Borrower and
its Subsidiaries on a consolidated basis in conformity with GAAP,
excluding in any event any Investments made by the Borrower or any of its
Subsidiaries of the nature permitted by Section 6.02(j)(xvi).
"Consolidated Tangible Net Worth": At any date of determination, the
sum of the capital stock and additional paid-in capital plus retained
earnings (or minus accumulated deficit) of the Borrower and its
Subsidiaries minus intangible assets, on a consolidated basis determined
in conformity with GAAP. Consolidated Tangible Net Worth shall be
calculated without giving effect to any foreign currency translation
adjustments.
"Debt": As applied to any Person, (i) all indebtedness for borrowed
money, (ii) that portion of obligations with respect to Capital Leases
which is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed
money, (iv) any obligation owed for all or any part of the deferred
purchase price of property or services which purchase price is (a) due
more than twelve months from the date of incurrence of the obligation in
respect thereof, or (b) evidenced by a note or similar written instrument,
(v) all indebtedness secured by any Lien on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is nonrecourse to the credit of
that Person (but only to the extent of the lesser of (x) the Debt so
secured or (y) the fair market value of the property or asset subject to
such Lien), and (vi) amounts outstanding under reimbursement obligations
to the issuer of any letter of credit other than trade or commercial
letters of credit.
"Disclosure Letter": That certain letter of even date herewith by
the Borrower addressed to the Agent containing the Schedules referenced in
Articles 5 and 6 hereof.
"Dollars and $": Dollars in lawful currency of the United States of
America.
"Employee Benefit Plan": Any Pension Plan, any employee welfare
benefit plan, or any other employee benefit plan which is described in
Section 3(3) of ERISA and which is maintained for employees of the
Borrower or any ERISA affiliate of the Borrower.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA Affiliate": As applied to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which that
Person is a member and which is under common control within the meaning of
Section 414(b) and (c) of the Internal Revenue Code.
"Federal Funds Rate": On any day, a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Financial Institution": Any (i) bank, savings bank, savings and
loan association or insurance company, (ii) pension plan or portfolio or
investment fund managed or administered by any bank, savings bank, savings
and loan association or insurance company, (iii) investment company owned
by any bank, savings bank, savings and loan association or insurance
company, or (iv) investment banking company.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by a significant
segment of the accounting profession.
"Interest Payment Date": As to any Base Rate Loan until payment in
full, the Maturity Date and the last day of each March, June, September
and December commencing on the first of such days to occur after a Loan is
made, converted or continued as a Base Rate Loan. As to any LIBO Rate
Loan with an Interest Period of three months or less until payment in
full, the last day of such Interest Period and the Maturity Date, and as
to any LIBO Rate Loan with an Interest Period in excess of three months
until payment in full, (i) the last day of the three month period
commencing on the first day of such Interest Period, (ii) the last day of
such Interest Period and (iii) the Maturity Date.
"Interest Period": With respect to any LIBO Rate Loan:
(i) initially, the period commencing on the conversion
date with respect to such LIBO Rate Loan and ending one, three or six
months thereafter as selected by the Borrower in its notice of conversion
as provided in Section 2.05; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such LIBO Rate Loan and
ending one, two, three or six months thereafter as selected by the
Borrower in its notice of continuation as provided in Section 2.05;
provided, that all of the foregoing provisions relating to Interest
Periods are subject to the following:
(a) if any Interest Period for a LIBO Rate Loan would otherwise
end on a day which is not a LIBO Business Day, that Interest Period shall
be extended to the next succeeding LIBO Business Day unless the result of
such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the
immediately preceding LIBO Business Day;
(b) the Borrower may not select an Interest Period with respect
to any portion of principal of a LIBO Rate Loan which extends beyond the
Maturity Date; and
(c) there shall be no more than three (3) Interest Periods with
respect to LIBO Loans outstanding at any time.
"Internal Revenue Code": The Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment": As defined in Section 6.02(j).
"Leverage Ratio": As of any date of determination, the ratio of
Consolidated Liabilities on that date to Consolidated Tangible Net Worth
on that date.
"LIBO Business Day": A day which is a Business Day and a day on
which dealings in Dollar deposits may be carried out in the London
interbank market.
"LIBO Rate": For each Interest Period (i) the rate of interest
determined by the Agent at which U.S. dollar deposits for the relevant
Interest Period and in the approximate amount of the relevant LIBO Rate
Loan would be offered by the Agent to prime banks in the London interbank
market as of 11:00 A.M. (London time) on the day which is two (2) LIBO
Business Days prior to the first day of such Interest Period, divided by
(ii) a number equal to 1.00 minus the aggregate (but without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements in
effect on the day which is two (2) LIBO Business Days prior to the
beginning of such Interest Period (including basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors of
the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto, as in effect at the time the Agent
quotes the rate to the Borrower) for Eurocurrency funding of domestic
assets (currently referred to as "Eurocurrency liabilities" in Regulation
D of such Board) which are required to be maintained by a member bank of
such System (such rate to be adjusted to the next higher 1/16 of 1%).
"LIBO Rate Loans": Loans hereunder at such time as they accrue
interest at a rate based upon the LIBO Rate.
"Lien": Any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof,
and any agreement to give any security interest).
"Loans": Loans in Dollars made to the Borrower pursuant to Section
2.01.
"Loan Agreements": This Agreement, the Notes, the letter agreement
dated June 27, 1996 from the Agent to the Borrower regarding the fee
payable pursuant to Section 2.02, any amendment to this Agreement or any
other Loan Agreement, and any waiver to this Agreement or any other Loan
Agreement.
"Loan Documents": This Agreement, the Notes, and each other
certificate or document delivered by the Borrower to the Agent or any Bank
prior to the date hereof pursuant to Section 4.01, any amendment to this
Agreement or any other Loan Document, and any waiver to this Agreement or
any other Loan Document.
"Majority Banks": As of any date of determination, Banks owed at
least 51.0% of the then aggregate unpaid principal amount of the Notes,
or, if no principal amount of the Notes is outstanding, then Banks having
at least 51.0% of the Commitments.
"Maturity Date": June 30, 2001.
"Multiemployer Plan": A "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is maintained for employees of the Borrower or
any ERISA Affiliate of the Borrower.
"Note" and Notes": The Term Notes.
"Operating Lease": As applied to any Person, means any lease of any
property (whether real, personal or mixed) that is not a Capital Lease,
other than any such lease under which that Person is the lessor. For the
purposes of this Agreement, a license with respect to intellectual
property rights does not constitute an Operating Lease.
"Other Taxes": As defined in Section 3.13.
"Pension Plan": Any employee plan which is subject to Section 412 of
the Internal Revenue Code and which is maintained for employees of the
Borrower or any ERISA Affiliate of the Borrower, other than a
Multiemployer Plan.
"Permitted Investments": Investments permitted under the Borrower's
investment policy as approved by the Borrower's Board of Directors (a true
and correct copy of which, as in effect on the date hereof, has been
delivered to each of the Banks), as amended from time to time, which
amendments shall be subject to the prior approval of the Agent.
"Person": An individual, partnership, limited liability company,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of
whatever nature.
"Potential Event of Default": A condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if
that condition or event were not cured or removed within any applicable
grace or cure period.
"Read-Rite International": Read-Rite International, a Cayman Islands
corporation.
"Read-Rite SMI": Read-Rite SMI Corporation, a Japanese corporation
formed by the Borrower and Sumitomo Metal Industries, Ltd. for the purpose
of developing and selling the products of the Borrower in Japan.
"Reference Banks": Canadian Imperial Bank of Commerce and other
Banks that the Agent may from time to time designate.
"Regulation G, T, U and X": Regulations G, T, U and X, respectively,
promulgated by the Board of Governors of the Federal Reserve System, as
amended from time to time, and any successors thereto.
"Responsible Officer": Any of the Chief Financial Officer,
Controller, Assistant Controller or Treasurer of the Borrower.
"Revolver": The Third Amended and Restated Credit Agreement dated as
of December 14, 1994 among Borrower, CIBC Inc., as Agent and the financial
institutions named therein, as amended.
"S.E.C.": The United States Securities and Exchange Commission and
any successor institution or body which performs the functions or
substantially all of the functions thereof.
"Senior Notes" means those certain Senior Notes issued by Borrower on
or about September 30, 1995 in the principal amount of up to One Hundred
Million Dollars ($100,000,000) on substantially the terms and conditions
attached to the Revolver as Exhibit A.
"SMI Joint Venture": The joint venture formed by the Borrower and
Sumitomo Metal Industries, Ltd. pursuant to the SMI Joint Venture
Agreement.
"SMI Joint Venture Agreement": That certain Joint Venture Agreement,
dated as of June 14, 1991, between the Borrower and Sumitomo Metal
Industries, Ltd., providing for the formation of Read-Rite SMI, and
(unless the context otherwise requires) such agreement as it may be
amended from time to time.
"Subsidiary": A corporation of which shares of stock having ordinary
voting power (other than stock having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors
or other managers of such corporation are at the time owned, directly, or
indirectly through one or more intermediaries, or both, by the Borrower.
"Taxes": As defined in Section 3.13.
"Term Commitment": The amount of Fifty Million Dollars
($50,000,000).
"Term Loan": As defined in Section 2.01(a).
"Term Notes": As defined in Section 2.01(c).
"Termination Event": (i) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation under such regulations), or (ii) the
withdrawal of the Borrower or any of its ERISA Affiliates from a Pension
Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(l) (2) or 4068(f) of ERISA, or (iii) the filing of
a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination under Section 4041 of ERISA, or
(iv) the institution of proceedings to terminate a Pension Plan by the
Pension Benefit Guaranty Corporation, or (v) any other event or condition
which might constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan, or (vi) the
imposition of a Lien pursuant to Section 412(n) of the Internal Revenue
Code.
"Transfer": As defined in Section 6.02(l).
"Wholly Owned Subsidiary": A Subsidiary, all of the stock of every
class which, except (a) directors' qualifying shares and (b) any shares
issued to comply with local ownership legal requirements, is owned,
directly or indirectly, by the Borrower.
SECTION 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made
or delivered pursuant hereto, unless otherwise defined therein.
(b) As used herein and in the Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms not
defined in Section 1.01, and accounting terms partly defined in Section
1.01 to the extent not defined, shall have the respective meanings given
to them under GAAP, unless otherwise defined herein or therein, as the
case may be. In the event that GAAP changes during the term of this
Agreement such that the financial covenants contained in Sections 6.02(a)
through (d), (f), (g) or (o) would then be calculated in a different
manner or with different components, (i) the Borrower and the Banks agree
to negotiate to amend this Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating the Borrower's
financial condition to substantially the same criteria as were effective
prior to such change in GAAP and (ii) the Borrower shall be deemed to be
in compliance with the financial covenants contained in such Sections,
pending reaching agreement on such amendment, following any such change in
GAAP if and to the extent that the Borrower would have been in compliance
therewith under GAAP as in effect immediately prior to such change.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement. All
article, section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified.
(d) So long as the Borrower does not have any Subsidiaries,
references to a Subsidiary or Subsidiaries in this Agreement shall be
deemed to be deleted.
(e) The terms defined in this Section 1.01 include the plural
as well as the singular. Pronouns of either gender or neuter shall
include, as appropriate, the other pronoun forms. The terms "includes"
and "including" shall not be construed to imply any limitation.
ARTICLE II
THE LOANS
SECTION 2.01. The Term Loan.
(a) The Term Commitment. Each Bank agrees, severally and not
jointly, on the terms and conditions hereinafter set forth, to make a Loan
("the Term Loan") to the Borrower on the date hereof in an aggregate
amount not to exceed the amount set opposite such Bank's name on Annex I
hereof. The Term Loan shall consist of one or more LIBO Rate Loans
(subject to the restrictions contained in the definition of Interest
Period) or Base Rate Loans, as determined by the Borrower and notified to
the Agent in accordance with Section 2.01(b), and shall be made on the
date hereof by the Banks ratably according to their respective Term
Commitments; provided, however, that each LIBO Rate Loan shall be in a
minimum aggregate amount of Five Million Dollars ($5,000,000) and in an
integral multiple of One Million Dollars ($1,000,000), and each Base Rate
Loan shall be in a minimum aggregate amount of One Million Dollars
($1,000,000) and in an integral multiple of Five Hundred Thousand Dollars
($500,000).
(b) Making the Term Loan.
(i) The Borrower may borrow the Term Loan, which shall
initially consist of Base Rate Loans, on the date hereof. The Borrower
shall deliver to the Agent on or prior to the date hereof a Notice of Term
Loan in the form of Exhibit B hereto. Promptly following receipt of such
notice, the Agent shall notify each Bank of the date of the Loan and the
amount of that Bank's pro rata share of the Loan. Not later than 11:00
a.m., San Francisco time, on the date hereof, each Bank shall deposit
immediately available funds in the amount of its pro rata share of the
Term Loan to the account of the Agent set forth on the signature pages
hereof. Upon satisfaction of the applicable conditions set forth in
Article IV, the Agent will make available the proceeds of the Term Loan to
the Borrower by crediting the account of the Borrower on the books of the
Agent or by wire transferring the amount of the Term Loan as directed by
the Borrower. After the date hereof, the Borrower may elect to continue
or convert the Term Loan into one or more Base Rate Loans or LIBO Rate
Loans as described in Section 2.05.
(ii) Unless the Agent shall have received notice from a
Bank prior to the date of any Term Loan that such Bank will not make
available to the Agent such Bank's ratable portion of such Term Loan, the
Agent may assume that such Bank has made such portion available to the
Agent on the date of such Term Loan in accordance with subsection (i) of
this Section 2.01(b) and the Agent may, in reliance upon such assumption,
make available to the Borrower a corresponding amount. If and to the
extent that such Bank shall not have so made such ratable portion
available to the Agent, such Bank and the Borrower severally agree to
repay to the Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, the interest rate applicable at
the time to such Term Loan, and (ii) in the case of such Bank, the Federal
Funds Rate. If such Bank shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Bank's pro rata share
of such Term Loan for purposes of this Agreement. The failure of any Bank
to make available its pro rata share of any Term Loan shall not relieve
any other Bank of its obligation, if any, hereunder, to make available its
pro rata share of such Term Loan on the date of such Term Loan but no Bank
shall be responsible for the failure of any other Bank to make available
its pro rata share of any Term Loan on the date of any Term Loan. The
Borrower reserves all of its rights against any defaulting Bank.
(c) Term Notes. The Term Loans made by the Banks pursuant
hereto shall be evidenced by promissory notes of the Borrower,
substantially in the form of Exhibit A, with any appropriate insertions
(the "Term Notes"), payable to the order of each Bank and representing the
obligation of the Borrower to pay the unpaid principal amount of the Term
Loans made by that Bank, with interest thereon as prescribed in Section
2.04. Each Bank is hereby authorized to record in its books and records
and on any schedule annexed to its Term Note, the date and amount of the
Term Loans made by that Bank and the date and amount of each payment of
principal thereof, and in the case of LIBO Rate Loans, the Interest Period
and interest rate with respect thereto and any such recordation shall
constitute prima facie evidence of the accuracy of the information so
recorded; provided that failure by any Bank to effect such recordation
shall not affect the Borrower's obligations hereunder. Prior to the
transfer of a Term Note, the transferring Bank shall record such
information on any schedule annexed to and forming a part of such Term
Note.
SECTION 2.02 Fees. From time to time, the Borrower shall pay to
the Agent non-refundable fees in the amount agreed to separately between
the Agent and Borrower.
SECTION 2.03. Repayment.
(a) Mandatory Repayments. The aggregate principal amount of
the Term Loans, together with interest thereon, shall be repaid according
to the following schedule: (i) on or prior to last day of the fiscal
quarter ending closest to June 30, 1999, $12,500,000; (ii) on or prior to
the last day of the fiscal quarter ending closest to June 30, 2000,
$12,500,000; (iii) on the Maturity Date, the aggregate principal amount of
the Term Loans then outstanding.
(b) Optional Payment. The Borrower may at its option pay the
Loans, in whole or in part, at any time and from time to time, provided
that the Agent shall have received from the Borrower notice of any such
payment at least one Business Day prior to the date of the proposed
payment if such date is not the last day of the then current Interest
Period for each Loan being paid, in each case specifying the date and the
amount of payment. Partial payments hereunder shall be in an aggregate
principal amount of the lesser of (i) One Million Dollars ($1,000,000) or
any whole multiple thereof and (ii) the outstanding balance of the Loan
being paid.
SECTION 2.04. Interest Rate and Payment Dates.
(a) Payment of Interest. Interest with respect to each Loan
shall be payable in arrears on each Interest Payment Date for such Loan.
(b) Base Rate Loans. Term Loans that are Base Rate Loans shall
bear interest on the unpaid principal amount thereof at a rate per annum
equal to the Base Rate in effect at such time.
(c) LIBO Rate Loans. Term Loans that are LIBO Rate Loans shall
bear interest for each Interest Period with respect thereto on the unpaid
principal amount thereof at a rate per annum equal to the LIBO Rate
determined for such Interest Period in accordance with the terms hereof
plus one and one half percent (1.50%).
SECTION 2.05. Continuation and Conversion Options. The Borrower may
elect from time to time to convert its outstanding Loans from Loans
bearing interest at a rate determined by reference to one basis to Loans
bearing interest at a rate determined by reference to an alternative basis
by giving the Agent (i) irrevocable notice in the form of Exhibit C of an
election to convert LIBO Rate Loans to Base Rate Loans and (ii) at least
three LIBO Business Days' prior irrevocable notice of an election to
convert Base Rate Loans to LIBO Rate Loans; provided that any conversion
of LIBO Rate Loans shall only be made on the last day of an Interest
Period with respect thereto; provided, further that no Base Rate Loan may
be converted to a LIBO Rate Loan so long as an Event of Default or
Potential Event of Default has occurred and is continuing. The Borrower
may elect from time to time to continue its outstanding LIBO Rate Loans
upon the expiration of the Interest Period(s) applicable thereto by giving
to the Agent at least three LIBO Business Days' prior irrevocable notice
of continuation of a LIBO Rate Loan and the succeeding Interest Period(s)
of such continued Loan or Loans will commence on the last day of the
Interest Period of the Loan to be continued, provided that no LIBO Rate
Loan may be continued as a LIBO Rate Loan so long as an Event of Default
or Potential Event of Default has occurred and is continuing. Each notice
electing to convert or continue a Loan shall specify: (i) the proposed
conversion/continuation date; (ii) the amount of the Loan to be
converted/continued; (iii) the nature of the proposed
continuation/conversion; and (iv) in the case of a conversion to, or
continuation of a LIBO Rate Loan, the requested Interest Period, and shall
certify that no Event of Default or Potential Event of Default has
occurred and is continuing. Promptly following receipt of such notice,
the Agent shall notify each Bank of the contents of such notice, and of
the effective interest rate. On the date on which such conversion or
continuation is being made each Bank shall take such action as is
necessary to effect such conversion or continuation. In the event that no
notice of continuation or conversion is received by the Agent with respect
to outstanding LIBO Rate Loans, upon expiration of the Interest Period(s)
applicable thereto, such Loans shall convert to Base Rate Loans. Subject
to the limitations set forth in this Section and in the definition of
Interest Period, all or any part of outstanding Loans may be converted or
continued as provided herein, provided that partial conversions or
continuations of any Base Rate Loan to a LIBO Rate Loan shall be in an
aggregate minimum amount of Five Million Dollars ($5,000,000) and in an
integral multiple of One Million Dollars ($1,000,000) and any conversion
of a LIBO Rate Loan to a Base Rate Loan shall be in an aggregate minimum
amount of One Million Dollars ($1,000,000) and in an integral multiple of
Five Hundred Thousand Dollars ($500,000). The notice of
conversion/continuation may be given orally (including telephonically),
and shall be promptly confirmed by a notice of conversion/continuation in
writing, or in writing (including facsimile transmission) and any conflict
regarding a notice or between an oral notice and a written notice
applicable to the same Loan shall be conclusively determined in the
absence of manifest error by the Agent's books and records. The Agent's
failure to receive any written notice of a particular Loan shall not
relieve the Borrower of its obligations to repay the Term Loan made and to
pay interest thereon. The Agent shall not incur any liability to the
Borrower in acting upon any notice of Term Loan which the Agent believes
in good faith to have been given by a Person duly authorized to borrow on
behalf of the Borrower.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
SECTION 3.01. Use of Proceeds. The proceeds of the Loans hereunder
shall be used by the Borrower for general corporate purposes.
SECTION 3.02. Post Maturity Interest. Notwithstanding anything to
the contrary contained in Section 2.04, if all or a portion of the
principal amount of the Term Loan made hereunder or any interest accrued
thereon shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), any such overdue amount shall bear interest at
a rate per annum which is equal to the greater of (a) two percent (2%)
above the highest rate which would otherwise be applicable pursuant to
Section 2.04 and (b) two percent (2%) above the Base Rate, from the date
of such nonpayment until paid in full (after as well as before judgment),
payable on demand. In addition, such Loan, if a Loan other than a Base
Rate Loan, shall be converted to a Base Rate Loan at the end of the then
current Interest Period therefor.
SECTION 3.03. Computation of Interest and Fees.
(a) Calculations. Interest in respect of the Base Rate Loans
shall be calculated on the basis of a 365/366 day year for the actual days
elapsed. Any change in the interest rate on a Base Rate Loan resulting
from a change in the Base Rate shall become effective as of the opening of
business on the day on which such change in the Base Rate shall become
effective. Interest in respect of the LIBO Rate Loans shall be calculated
on the basis of a 360 day year for the actual days elapsed.
(b) Determination by Agent. Each determination of an interest
rate or fee by the Agent pursuant to any provision of this Agreement shall
be conclusive and binding on the Borrower in the absence of manifest
error.
SECTION 3.04. Payments. The Borrower shall make each payment of
principal, interest and fees hereunder and under the Notes, without setoff
or counterclaim, not later than 10:00 A.M. (San Francisco time) on the day
when due in lawful money of the United States of America to the Agent at
the office of the Agent designated from time to time in immediately
available funds. The Agent shall promptly pay to each Bank its pro rata
share of each payment received by the Agent.
SECTION 3.05. Payment on Non-Business Days. Whenever any payment to
be made hereunder or under the Notes shall be stated to be due on a day
which is not a Business Day, such payment may be made on the next
succeeding Business Day, and with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
SECTION 3.06. Reduced Return. If any Bank shall have determined
that any applicable law, regulation, rule or regulatory requirement
("Requirement") regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Bank with
any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on
that Bank's capital as a consequence of its Commitments and obligations
hereunder, to a level below that which would have been achieved but for
such Requirement, change or compliance (taking into consideration that
Bank's policies with respect to capital adequacy) by an amount deemed by
that Bank to be material (which amount shall be determined by that Bank's
reasonable allocation of the aggregate of such reductions resulting from
such events), then from time to time, within five (5) Business Days after
demand by such Bank, the Borrower shall pay to that Bank such additional
amount or amounts as will compensate that Bank for such reduction;
provided, however, that the Borrower shall not be obligated to pay any
Bank for any such additional amount incurred more than 180 days prior to
the date of demand for payment by such Bank; provided, further, however,
that the Borrower shall not be obligated to pay any Bank for any
additional amount otherwise payable pursuant to this Section 3.06 to the
extent such amount is reflected in adjustments to the interest rates
applicable to the Loans.
SECTION 3.07. Indemnities.
(a) General Indemnity. Whether or not the transactions
contemplated hereby shall be consummated, the Borrower agrees to
indemnify, pay and hold the Agent and each Bank, and the shareholders,
officers, directors, employees and agents of the Agent and each Bank
(each, an "Indemnified Person"), harmless from and against any and all
claims, liabilities, losses, damages, costs and expenses, including
reasonable attorneys' fees and costs (including the reasonable estimate of
the allocated cost of in-house legal counsel and staff) and including
costs of investigation, document production, attendance at deposition or
other discovery, that may be incurred by or asserted against any
Indemnified Person, in each case arising out of or in connection with or
by reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with the transactions contemplated by this Agreement or any
contemplated use of the proceeds of the Loans, whether or not an
Indemnified Person is a party thereto (collectively, the "Indemnified
Liabilities"), except to the extent that such Indemnified Liabilities
result from the gross negligence or willful misconduct of the Agent or any
Bank. If any claim is made, or any action, suit or proceeding is brought,
against any Indemnified Person pursuant to this Section, the Indemnified
Person shall notify the Borrower of such claim or of the commencement of
such action, suit or proceeding, and the Borrower shall have the option
to, and at the request of the Indemnified Person shall, direct and control
the defense of such action, suit or proceeding, employing counsel selected
by the Borrower and reasonably satisfactory to the Indemnified Person, and
pay the fees and expenses of such counsel. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section
3.07 may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Liabilities incurred by any Indemnified
Person.
(b) Funding Losses. The Borrower agrees to indemnify each Bank
and to hold each Bank harmless from any loss or expense (excluding loss of
anticipated profits) including any such loss or expense arising from
interest or fees payable by such Bank to lenders of funds obtained by it
in order to maintain its LIBO Rate Loans hereunder, which such Bank may
sustain or incur as a consequence of (i) default by the Borrower in
payment of the principal amount of or interest on the LIBO Rate Loans,
(ii) failure by the Borrower to borrow a LIBO Rate Loan after delivery of
the notice required by Section 2.01(b)(1), (iii) default by the Borrower
in making a conversion or continuation after the Borrower has given a
notice thereof (other than pursuant to Section 3.09), (iv) default by the
Borrower in making any payment after the Borrower has given a notice of
payment or (v) the Borrower making any payment of a LIBO Rate Loan, or
converting a LIBO Rate Loan, on a day other than the last day of the
Interest Period for such Loan (other than pursuant to Section 3.09). For
purposes of this Section and Section 3.11, it shall be assumed that the
affected Bank had funded or would have funded 100%, as the case may be, of
a LIBO Rate Loan in the London interbank market for a corresponding amount
and term. Each Bank making a claim for payment under this Section shall
submit to the Agent, who shall promptly transmit it to the Borrower, an
invoice for the amount claimed to be owed by the Borrower, showing in
reasonable detail the calculations necessary to determine the amount. The
determination of such amount by such Bank shall be presumed correct in the
absence of manifest error.
SECTION 3.08. Funding Sources. Except to the extent provided in
Sections 3.10, 3.11 and 3.13(f), nothing in this Agreement shall be deemed
to obligate any Bank to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by any Bank that it has
obtained or will obtain the funds for any Loan in any particular place or
manner.
SECTION 3.09. Inability to Determine Interest Rate. In the event
that any Bank shall have determined (which determination shall be
conclusive and binding upon the Borrower) that by reason of circumstances
affecting the London interbank market, the LIBO Rate applicable pursuant
to Section 2.03 for any Interest Period with respect to a LIBO Rate Loan
does not adequately cover the cost of funding such Loan, such Bank shall
forthwith give notice of such determination to the Borrower and the Agent
not later than 9:00 A.M., San Francisco time, on the requested conversion
date or the last day of an Interest Period of a Loan which was to have
been continued as a LIBO Rate Loan. If such notice is given and has not
been withdrawn (i) any Base Rate Loan that was to have been converted to a
LIBO Rate Loan shall be continued as a Base Rate Loan and (ii) any
outstanding LIBO Rate Loan shall be converted, on the last day of the then
current interest Period with respect thereto, to a Base Rate Loan. Until
such notice has been withdrawn by such Bank, the Borrower shall not have
the right to convert a Base Rate Loan to a LIBO Rate Loan. The affected
Bank will review the circumstances affecting the London interbank market
from time to time and such Bank will withdraw such notice at such time as
it shall determine that the circumstances giving rise to said notice no
longer exist.
SECTION 3.10. Requirements of Law. Without duplication of any
amounts payable under Section 3.06 or 3.13, in the event that (i) the
enactment or issuance of or any change in any law, regulation or directive
or in the interpretation or application thereof or (ii) compliance by any
Bank with any request or directive (whether or not having the force of
law) from any central bank or other governmental authority, agency or
instrumentality:
(a) does or shall impose, modify or hold applicable any
reserve, assessment rate, special deposit, compulsory loan or other
requirement against assets held by, or deposits or other liabilities in or
for the account of, advances or loans by, or other credit extended by, or
any other acquisition of funds by, any office of such Bank which are not
otherwise included in the determination of any LIBO Rate at the last
conversion or continuation date of a Loan;
(b) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or other requirement against
Commitments to extend credit;
(c) does or shall impose on any Bank any other condition; and
the result of any of the foregoing is to increase the cost to any Bank of
making, renewing or maintaining its Commitment or the LIBO Rate Loans or
of purchasing a participation therein or to reduce any amount receivable
thereunder (which increase or reduction shall be determined by such Bank's
reasonable allocation of the aggregate of such cost increases or reduced
amounts receivable resulting from such events), then, in any such case,
the Borrower shall pay to such Bank within three (3) Business Days of its
demand, any additional amounts necessary to compensate such Bank for such
additional cost or reduced amount receivable as determined by such Bank
with respect to this Agreement; provided, however, that the Borrower shall
not be obligated to pay any Bank for any such additional cost or reduced
amount incurred more than one hundred and eighty (180) days prior to the
date of demand for payment by such Bank provided, further, that before
making such demand, each Bank agrees to use its reasonable efforts
(consistent with its internal policy and legal and regulatory
restrictions) to designate a different lending office if the making of
such a designation would avoid, or reduce the amount of, such additional
cost or reduced amount, and would not, in the reasonable judgment of such
Bank be otherwise disadvantageous to the Bank provided, further, that the
Borrower shall not be obligated to pay any Bank for any additional amount
otherwise payable pursuant to this Section 3.10 to the extent such amount
is reflected in adjustments to the interest rates applicable to the Loans.
Each Bank making a claim for payment under this Section 3.10 shall submit
an invoice to the Agent, who shall promptly transmit such invoice to the
Borrower, for the amount claimed to by owned by the Borrower, showing in
reasonable detail the calculations necessary to determine the amount.
Such statement shall be conclusive in the absence of manifest error;
provided, further, that this Section shall not apply to any increased cost
or reduced receivable as the result of Taxes or Other Taxes.
SECTION 3.11. Illegality. Notwithstanding any other provisions
herein, if the introduction of or any change in or in the interpretation
or application of any law, regulation, treaty or directive shall make it
unlawful, or any central bank or other governmental authority shall assert
that it is unlawful, for any Bank to make or maintain LIBO Rate Loans as
contemplated by this Agreement, (a) the commitment of such Bank hereunder
to make LIBO Rate Loans or convert Base Rate Loans to LIBO Rate Loans
shall forthwith be cancelled and (b) such Bank's Loans then outstanding as
LIBO Rate Loans, if any, shall be converted automatically to Base Rate
Loans on the next succeeding Interest Payment Date or within such earlier
period as allowed by law; provided, further, that before such cancellation
and conversion, each Bank agrees to use its reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to
designate a different lending office if the making of such a designation
would avoid the need for such cancellation and conversion and would not,
in the reasonable judgment of such Bank, be otherwise disadvantageous to
the Bank. The Borrower hereby agrees to pay any Bank, within three (3)
Business Days of its demand, any additional amounts necessary to
compensate such Bank for any costs (excluding loss of anticipated profits)
incurred by such Bank in making any conversion in accordance with this
Section, including any interest or fees payable by such Bank to lenders of
funds obtained by it in order to make or maintain its LIBO Rate Loans
hereunder (such Bank's notice of such costs, as certified to the Borrower
and the Agent shall be conclusive absent manifest error).
SECTION 3.12. Right to Replace Bank. If the Borrower shall, as a
result of the requirements of Sections 3.06, 3.07(b), 3.09, 3.10, 3.11 or
3.13 be required to pay any Bank the additional costs referred to in such
Sections, the Borrower shall have the right to substitute another
Financial Institution satisfactory to Agent (whose approval will not be
unreasonably withheld) for such Bank which has submitted an invoice for
such additional costs. Any such substitution shall be on terms and
conditions satisfactory to the Agent. Until such time as such
substitution shall be consummated, the Borrower shall continue to pay any
additional costs invoiced by such Bank and shall continue to pay all other
amounts payable to such Bank hereunder. The substituting Financial
Institution and the Bank that is being replaced shall execute and deliver
an Assignment Agreement substantially in the form of Exhibit F, and the
terms of the second and third sentences of Section 9.06(a) shall apply to
such substitution. Upon any such substitution, the Borrower shall pay or
cause to be paid to the Bank that is being replaced, all principal,
interest (to the date of such substitution) and other amounts owing
hereunder to such Bank.
SECTION 3.13. Taxes
(a) Payments. Subject to the following sentence, any and all
payments by the Borrower 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, and all liabilities with
respect thereto, excluding, in the case of each Bank and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the case
may be) is organized or any political subdivision thereof and, in the case
of each Bank, taxes imposed on its income, and franchise taxes imposed on
it, by the jurisdiction of the office or branch in which such Bank or the
Agent books the Loans 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 Borrower
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to any Bank or the Agent, (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 3.13) such Bank or the Agent, as the case may be, 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; provided that the
Borrower shall not be required pursuant to clause (i) above to increase
the sum payable to any Bank or the Agent organized under the laws of a
jurisdiction outside of the United States if such Bank or the Agent, as
the case may be, shall have failed to provide either the forms or
documents referred to in Section 3.13(e) indicating a complete exemption
from United States withholding tax.
(b) Other Taxes. In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies (other than those taxes, levies,
imposts, deductions, charges, withholdings and liabilities excluded
pursuant to Section 3.13(a) above) which arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement (hereinafter referred to as "Other
Taxes").
(c) Indemnity. The Borrower will indemnify each Bank and the
Agent 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 3.13) paid by such Bank or the Agent
(as the case may be) and 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; provided, in the
case of Taxes or Other Taxes imposed by jurisdictions outside of the
United States of America, the Borrower shall not be required to indemnify
any Bank or the Agent for any liability resulting from the failure of such
Bank or the Agent to notify the Borrower on a timely basis of the
assertion of such Taxes or Other Taxes. This indemnification shall be
made within 30 days from the date such Bank or the Agent (as the case may
be) makes written demand therefor. Each Bank and the Agent agrees to
reimburse the Borrower for amounts paid by the Borrower pursuant to this
Section 3.13 to the extent that such Bank or the Agent actually recovers
all or any portion of such amounts from the applicable taxing authority
which recovery is specifically designated by such taxing authority as
being applicable to such amounts.
(d) Evidence of Payment. Within 60 days after the date of any
payment of Taxes, the Borrower will furnish to the Agent, at its address
referred to in Section 9.02, the original or a certified copy of a receipt
evidencing payment thereof or other evidence of the payment thereof
satisfactory to the Agent.
(e) IRS Forms. Prior to the date hereof in the case of the
Agent and each Bank listed on the signature pages hereof, and on the date
of the Assignment Agreement (or any other agreement) pursuant to which it
became a Bank in the case of each other Bank (and, in each case, from time
to time thereafter if requested by the Borrower or the Agent) organized
under the laws of a jurisdiction outside the United States, shall provide
the Agent and the Borrower with the forms prescribed by the Internal
Revenue Service of the United States certifying as to such Bank's or the
Agent's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Bank or
the Agent hereunder or other documents satisfactory to the Borrower and
the Agent indicating that all payments to be made to such Bank or the
Agent, as the case may be, hereunder are subject to such taxes at a rate
reduced by an applicable tax treaty. Unless the Borrower and the Agent
have received forms or other documents satisfactory to them indicating
that payments hereunder are not subject to United States withholding tax,
the Borrower or the Agent shall withhold taxes from such payments at the
applicable statutory rate or such lower rate as provided in an applicable
tax treaty (if such Bank or the Agent, if applicable, has provided the
required forms entitling it to such reduced withholding rate) in the case
of payments to or for any Bank or the Agent organized under the laws of a
jurisdiction outside the United States.
(f) Change of Booking Office. Any Bank claiming any additional
amounts payable pursuant to this Section 3.13 shall use its reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of the office or branch in which
it books the Loans if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts which may
thereafter accrue and would not, in the reasonable judgment of such Bank,
be otherwise disadvantageous to such Bank.
SECTION 3.14. Sharing of Payments, Etc. If any Bank shall obtain
any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Loans owing to it in
excess of its ratable share of payments on account of the Loans obtained
by all the Banks such Bank shall forthwith purchase from the other Banks
such participations in the Loans owing to them as shall be necessary to
cause such purchasing Bank to share the excess payment ratably with each
of them, provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Bank, such purchase
from each Bank shall be rescinded and such Bank shall repay to the
purchasing Bank the purchase price to the extent of such recovery together
with an amount equal to the Bank's ratable share (according to the
proportion of (i) the amount of such Bank's required repayment to (ii) the
total amount so recovered from the purchasing Bank) of any interest or
other amount paid or payable by the purchasing Bank in respect of the
total amount so recovered. The Borrower agrees that any Bank so
purchasing a participation from another Bank pursuant to this Section 3.14
or any other provision of this Agreement may, to the fullest extent
permitted by law, exercise all of its rights of payment (including the
right to set-off) with respect to such participation as fully as if such
Bank were the direct creditor of the Borrower in the amount of such
participation.
ARTICLE IV
CONDITIONS TO TERM LOAN
SECTION 4.01. Conditions Precedent to the Making of the Term Loan.
The obligation of the Banks to make the Term Loan on the date hereof shall
be subject to the following conditions precedent:
(a) The Agent shall have received on or before the date hereof
the following, each dated the date hereof (except for the document
referred to in clause (ii)), in form and substance satisfactory to the
Agent and (except for the Notes) in sufficient copies for each Bank:
(i) The Notes issued by the Borrower to the order of the
Banks, respectively;
(ii) Borrower's certificate that the copies of the
Certificate of Incorporation of the Borrower, certified by the Secretary
of State of Delaware most recently provided to the Agent are in full force
and effect and have not been amended and/or supplemented;
(iii) Borrower's certificate that the copies of the
Bylaws, of the Borrower, certified by the Secretary or an Assistant
Secretary of the Borrower most recently provided to the Agent are in full
force and effect and have not been amended and/or supplemented;
(iv) Copies of resolutions of the Board of Directors or
other authorizing documents of the Borrower, approving the Loan Documents
and the Term Loan;
(v) A certificate of the Borrower, executed by the
Secretary or an Assistant Secretary of the Borrower, certifying the names
and signatures of the officers of the Borrower or other Persons authorized
to sign the Loan Documents and the other documents to be delivered
hereunder;
(vi) An executed copy of this Agreement, signed by the
Borrower, each of the Banks and the Agent; and
(vii) Favorable opinions of counsel to the Borrower, as
to the matters set forth in Exhibit D hereto, and as to such other matters
as any Bank may reasonably request.
(b) The Agent shall have received the fees referred to in
Section 2.02.
(c) All corporate and legal proceedings and all instruments and
documents in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in content, form and substance
to the Agent and its counsel, and each Bank, the Agent and Agent's counsel
shall have received any and all further information and documents which
any Bank, the Agent or such counsel may reasonably have requested in
connection therewith, such documents where appropriate to be certified by
proper corporate or governmental authorities.
(d) The following statements shall be true and the Agent shall
have received the notice required by Section 2.01(b), which notice shall
be deemed to be a certification by the Borrower that:
(i) The representations and warranties contained in
Section 5.01 are correct in all material respects on and as of the date
hereof,
(ii) No event has occurred and is continuing, or would
result from the Term Loan, which constitutes an Event of Default or
Potential Event of Default,
(iii) All Loan Agreements are in full force and effect,
(iv) There is not then pending or threatened any action or
proceeding against or affecting the Borrower or any of its Subsidiaries
before any court, governmental agency or arbitrator, which could
reasonably be expected to have a material adverse effect on the business,
operations, prospects, properties, assets or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole, or on
the ability of the Borrower to perform, or of any of the Banks to enforce,
the obligations of the Borrower under the Loan Agreements.
(e) No injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other restraining order to
be issued shall be pending or noticed with respect to any action, suit or
proceeding seeking to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, or that could
otherwise prohibit or impose materially adverse conditions upon this
Agreement or the other Loan Agreements, the making of the Term Loan
hereunder or the application of the proceeds thereof as contemplated
hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties. The Borrower
represents and warrants as follows:
(a) Organization; Subsidiaries. The Borrower is duly
organized, validly existing and in good standing under the laws of the
state of Delaware. The Borrower is also duly authorized, qualified and
licensed in all applicable jurisdictions, and under all applicable laws,
regulations, ordinances or orders of public authorities, to carry on its
business in the locations and in the manner presently conducted, except
where failure to be so authorized, qualified or licensed could not
reasonably be expected to have a material adverse effect (i) on the
business, operations, prospects, properties, assets or condition
(financial or otherwise) of (x) the Borrower and Read-Rite International,
taken together or (y) the Borrower and its Subsidiaries, taken as a whole,
or (ii) on the ability of the Borrower to perform, or of any of the Banks
to enforce, the obligations of the Borrower under the Loan Agreements.
All of the Subsidiaries of the Borrower as of the date hereof are
identified on Schedule 5.01(a) to the Disclosure Letter. The capital
stock of each Subsidiary identified in Schedule 5.01(a) owned by the
Borrower is duly authorized, validly issued, fully paid and non-assessable
and such shares of capital stock are free and clear of any claim, Lien, or
agreement with respect thereto, except to the extent otherwise provided in
the SMI Joint Venture Agreement and Liens permitted under this Agreement.
Schedule 5.01(a) correctly sets forth as of the date hereof the ownership
interest of the Borrower in each of its Subsidiaries.
(b) Authorization. The execution and delivery by the Borrower
of the Loan Documents and the performance by the Borrower of the Loan
Agreements, and the making of the Term Loan hereunder, are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) the Borrower's Certificate of
Incorporation or by-laws, or (ii) any law or regulation applicable to the
Borrower or (iii) any material agreement or instrument binding on the
Borrower or any Subsidiary.
(c) Governmental Consents. No authorization or approval or
other action by the Borrower, and no notice to or filing with, any
governmental authority or regulatory body is required by the Borrower for
the due execution and delivery by the Borrower of the Loan Documents and
the performance by the Borrower of the Loan Agreements, except as
contemplated by the Loan Agreements.
(d) Validity. The Loan Agreements are the binding obligations
of the Borrower, enforceable in accordance with their respective terms;
except in each case as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws
of general application and equitable principles relating to or affecting
creditors' rights.
(e) Financial Condition. The audited consolidated balance
sheet of the Borrower for the Borrower's fiscal year ended closest to
September 30, 1995 and the related consolidated statements of operations
and cash flows of the Borrower for the fiscal year then ended, and the
consolidated balance sheet of the Borrower as of the last day of the
fiscal quarter ended closest to March 31, 1996 and the related
consolidated statements of operations and cash flows of the Borrower for
the fiscal quarter then ended, copies of which have been furnished to each
Bank, fairly present in all material respects the consolidated financial
condition of the Borrower as at such dates and the consolidated results of
the operations of the Borrower for the respective periods ended on such
dates, all in accordance with GAAP, consistently applied, subject, in the
case of the annual financial statements, to year-end adjustments and the
absence of footnotes. Except as set forth on Schedule 5.01(c) of the
Disclosure Letter, since the last day of the fiscal year ended closest to
September 30, 1995 there has been no material adverse change in the
business, operations, prospects, properties, assets or condition
(financial or otherwise) of (i) the Borrower and Read-Rite International,
taken together or (ii) the Borrower and its Subsidiaries, taken as a
whole.
(f) Litigation. Except as set forth on Schedule 5.01(f) to the
Disclosure Letter, as of the date hereof, there is no pending or
threatened action or proceeding against or affecting the Borrower or any
of its Subsidiaries before any court, governmental agency or arbitrator,
which could reasonably be expected to have a material adverse effect
(i) on the business, operations, prospects, properties, assets or
condition (financial or otherwise) of (x) the Borrower and Read-Rite
International, taken together or (y) the Borrower and its Subsidiaries,
taken as a whole, or (ii) on the ability of the Borrower to perform, or of
any of the Banks to enforce, the obligations of the Borrower under the
Loan Agreements.
(g) Employee Benefit Plans. The Borrower and each of its ERISA
Affiliates is in compliance in all material respects with any applicable
provisions of ERISA and the regulations and published interpretations
thereunder with respect to all Employee Benefit Plans. No Termination
Event has occurred or is reasonably expected to occur with respect to any
Pension Plan. The excess of the actuarial present value of all benefit
liabilities under all Pension Plans (excluding in such computation Pension
Plans with assets greater than benefit liabilities) over the fair market
value of the assets allocable to such benefit liabilities are not greater
than five percent (5%) of Consolidated Tangible Net Worth. For purposes
of the preceding sentence, the terms "actuarial present value" and
"benefit liabilities" shall have the meanings specified in Section 4001 of
ERISA.
(h) Disclosure. The documents, certificates and written
statements (including the Loan Documents) furnished to the Agent or any
Bank prior to or on the date hereof by the Borrower for use in connection
with the transactions contemplated by this Agreement, taken as a whole, do
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein
or therein not misleading (it being recognized by the Agent and the Banks
that projections and forecasts provided by the Borrower are not to be
viewed as facts and that actual results during the period or periods
covered by any such projections and forecasts may differ from the
projected or forecasted results). Except as set forth in Schedule 5.01(h)
of the Disclosure Letter, as of the date hereof, there is no fact known to
the Borrower (other than matters of a general economic nature) which
materially adversely affects the (i) business, operations, prospects,
property, assets or condition (financial or otherwise) of (x) the Borrower
and Read-Rite International, taken together or (y) the Borrower and its
Subsidiaries, taken as a whole, or (ii) on the ability of the Borrower to
perform, or of any of the Banks to enforce, the obligations of the
Borrower under the Loan Agreements, which has not been disclosed herein or
in such other documents, certificates and statements furnished to the
Agent and each Bank for use in connection with the transactions
contemplated hereby.
(i) Margin Stock. The aggregate value of all margin stock (as
defined in Regulation U) directly or indirectly owned by the Borrower and
its Subsidiaries is less than 25% of the aggregate value of the Borrower's
assets.
(j) Environmental Matters. To the best of the Borrower's
knowledge: (i) neither the Borrower nor any Subsidiary, nor any of their
respective officers, employees, representatives or agents, nor, any other
person, has treated, stored, processed, discharged, spilled, or otherwise
disposed of any substance defined as hazardous or toxic by any applicable
federal, state or local law, rule, regulation, order or directive, or any
waste or by-product thereof, at any real property or any other facility
owned, leased or used by the Borrower or any Subsidiary, in violation of
any applicable statutes, regulations, ordinances or directives of any
governmental authority or court, which violations could reasonably be
expected to have a material adverse effect (1) on the business,
operations, prospects, properties, assets or condition (financial or
otherwise) of (x) the Borrower and Read-Rite International, taken together
or (y) the Borrower and its Subsidiaries, taken as a whole, or (2) on the
ability of the Borrower to perform, or of any of the Banks to enforce, the
obligations of the Borrower under the Loan Agreements; (ii) no employee or
other person has ever made a claim or demand against the Borrower or any
Subsidiary based on alleged damage to health caused by any such hazardous
or toxic substance or by any waste or by-product thereof, which claim or
demand could reasonably be expected to have a material adverse effect (1)
on the business, operations, prospects, properties, assets or condition
(financial or otherwise) of (x) the Borrower and Read-Rite International,
taken together or (y) the Borrower and its Subsidiaries, taken as a whole,
or (2) on the ability of the Borrower to perform, or of any of the Banks
to enforce, the obligations of the Borrower under the Loan Agreements;
(iii) neither the Borrower nor any Subsidiary has been charged by any
governmental authority with improperly using, handling, storing,
discharging or disposing of any such hazardous or toxic substance or waste
or by-product thereof or with causing or permitting any pollution of any
body of water, which charge could reasonably be expected to have a
material adverse effect (1) on the business, operations, prospects,
properties, assets or condition (financial or otherwise) of (x) the
Borrower and Read-Rite International, taken together or (y) the Borrower
and its Subsidiaries, taken as a whole, or (2) on the ability of the
Borrower to perform, or of any of the Banks to enforce, the obligations of
the Borrower under the Loan Agreements.
(k) Employee Matters. There is no strike or work stoppage in
existence or threatened involving the Borrower or its Subsidiaries that
could reasonably be expected to have a material adverse effect (i) on the
business, operations, prospects, properties, assets or condition
(financial or otherwise) of (x) the Borrower and Read-Rite International,
taken together or (y) the Borrower and its Subsidiaries, taken as a whole,
or (ii) on the ability of the Borrower to perform, or of any of the Banks
to enforce, the obligations of the Borrower under the Loan Agreements.
(l) Insurance. The Borrower maintains with financially sound
and reputable insurers, insurance with respect to its properties and
business and the properties and business of its Subsidiaries (other than
Read-Rite SMI) against loss or damage of the kinds customarily insured
against by corporations of established reputation engaged in the same or
similar businesses and similarly situated, of such types and in such
amounts as are customarily carried under similar circumstances by such
other corporations. Such insurance is in full force and effect and all
required premiums required to be paid prior to the date hereof have been
paid.
ARTICLE VI
COVENANTS
SECTION 6.01. Affirmative Covenants. So long as any Note shall
remain unpaid, or any Bank shall have any Commitment hereunder, the
Borrower will, unless the Majority Banks shall otherwise consent in
writing:
(a) Financial Information. Furnish to each Bank and the Agent:
(i) as soon as available, but in any event within ninety
(90) days after the end of each fiscal year of the Borrower, a copy of the
Borrower's consolidated and consolidating balance sheet as at the end of
each fiscal year and the related consolidated statements of operations,
stockholders' equity (deficit) (or comparable statement) and cash flows
for such year, setting forth in each case in comparative form the figures
for the previous year, accompanied by an unqualified report and opinion
thereon (with respect to the consolidated financial statements) of
nationally recognized independent certified public accountants;
(ii) as soon as available, but in any event within forty-
five (45) days after the end of each of the first three fiscal quarters of
the Borrower, the Borrower's unaudited consolidated and consolidating
balance sheet as at the end of such period and the related unaudited
consolidated statements of operations, stockholders' equity (deficit) (or
comparable statement) and cash flows for such period and year to date,
setting forth in each case in comparative form the figures for the
previous corresponding period, certified by a duly authorized officer of
the Borrower as being fairly stated in all material respects subject to
year end adjustments and the absence of footnotes;
all such financial statements to be complete and correct in all material
respects and to be prepared in accordance with GAAP (subject to year end
adjustments and absence of footnotes in the case of statements required by
clause (ii)) applied consistently throughout the periods reflected therein
(except as approved by such accountants and disclosed therein);
(iii) within five (5) Business Days of each delivery of
consolidated financial statements of the Borrower pursuant to subdivisions
(i) and (ii) above, a Compliance Certificate signed by a Responsible
Officer substantially in the form of Exhibit E hereto demonstrating in
reasonable detail compliance with the restrictions contained in Sections
6.02(a), (b), (c), (d), (f), (g) and (o) as of the end of the fiscal
period covered thereby; and
(iv) substantially concurrent with the sending or filing
thereof, copies of all proxy statements, financial statements and reports
that the Borrower sends to its stockholders generally, and copies of all
final registration statements (other than on Form S-8 or other
registration statements relating to option plans) and material reports (in
each case, without exhibits) which the Borrower or any Subsidiary files
with the S.E.C. or any national securities exchange.
(b) Notices and Information. Deliver to the Agent and each
Bank:
(i) promptly upon any Responsible Officer of the Borrower
obtaining knowledge (a) of any condition or event which constitutes an
Event of Default which is continuing or Potential Event of Default, (b)
that any Person has given any notice to the Borrower or any Subsidiary
(other than Read-Rite SMI) of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to
in Section 7.01(f), (c) of the institution of any litigation of the type
described in Section 5.01(f), or (d) of any condition or event with
respect to Borrower or any of its Subsidiaries (other than Read-Rite SMI)
which constitutes a material adverse change in the business, operations,
prospects, properties, assets or condition (financial or otherwise) of the
Borrower and its Subsidiaries, taken as a whole, or in the ability of the
Borrower to perform, or of any of the Banks to enforce, the obligations of
the Borrower under the Loan Agreements, an officers' certificate
specifying the nature and period of existence of any such condition or
event, or specifying the notice given or action taken by such holder or
Person and the nature of such claimed default, Event of Default, Potential
Event of Default, event or condition, and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
(ii) promptly upon any Responsible Officer of the Borrower
becoming aware of the occurrence of or forthcoming occurrence of any (a)
Termination Event, or (b) "prohibited transaction," as such term is
defined in Section 4975 of the Internal Revenue Code or Section 406 of
ERISA, in connection with any Employee Benefit Plan or any trust created
thereunder in excess of One Hundred Thousand Dollars ($100,000), a written
notice specifying the nature thereof, what action the Borrower has taken,
is taking or proposes to take with respect thereto, and, when known, any
action taken or threatened by the Internal Revenue Service, the Department
of Labor, or the Pension Benefit Guaranty Corporation with respect
thereto; provided, however, that this clause (ii) shall not apply to any
prohibited transaction for which an exemption has been granted pursuant to
Section 4975(c)(ii) of the Internal Revenue Code or Section 408 of ERISA;
(iii) with reasonable promptness copies of (a) all
notices received by the Borrower or any of its ERISA Affiliates of the
Pension Benefit Guaranty Corporation's intent to terminate any Pension
Plan or to have a trustee appointed to administer any Pension Plan; and
(b) all notices received by the Borrower or any of its ERISA Affiliates
from a Multiemployer Plan sponsor concerning the imposition or amount of
withdrawal liability pursuant to Section 4202 of ERISA;
(iv) promptly, and in any event within thirty (30) days
after receipt thereof, a copy of any notice, summons, citation, directive,
letter or other form of communication from any governmental authority or
court in any way concerning any action or omission on the part of the
Borrower or any of its Subsidiaries in connection with any substance
defined as toxic or hazardous by any applicable federal, state or local
law, rule, regulation, order or directive or any waste or by product
thereof, or concerning the filing of a lien upon, against or in connection
with the Borrower, its Subsidiaries, or any of their leased or owned real
or personal property, in connection with a Hazardous Substance Superfund
or a Post-Closure Liability Fund as maintained pursuant to Sec. 9507 of the
Internal Revenue Code, which could reasonably be expected to have a
material adverse effect on the business, operations, prospects,
properties, assets and condition (financial or otherwise) of the Borrower
and its Subsidiaries, taken as a whole, or on the ability of the Borrower
to perform, or of any of the Banks to enforce, the obligations of the
Borrower under the Loan Agreements;
(v) promptly, upon any Responsible Officer of the Borrower
obtaining knowledge of the occurrence of any default, or any condition or
event which with the passage of time or the giving of notice or both would
constitute a default, by Read-Rite SMI under (i) any agreement, contract
or instrument on which Read-Rite SMI is an obligor involving Debt in
excess of $2,500,000 or (ii) the SMI Joint Venture Agreement; and
(vi) promptly, and in any event within ten (10) days after
request, such other information and data with respect to the Borrower or
any of its Subsidiaries as from time to time may be reasonably requested
by any Bank, subject, however, to the last sentence of Section 6.01(f).
(c) Corporate Existence, Etc. At all times preserve and keep
in full force and effect its and its Subsidiaries' (other than Read-Rite
SMI) corporate existence and rights and franchises material to its
business and those of such Subsidiaries; provided, however, that the
corporate existence of any such Subsidiary may be terminated and any such
rights and franchises may be terminated or permitted to lapse, if, in the
good faith judgment of the Board of Directors of the Borrower, such
termination or lapse is in the best interests of the Borrower and its
Subsidiaries, taken as a whole, and is not materially disadvantageous to
the holder of any Note.
(d) Payment of Taxes and Claims. Pay, and cause each of its
Subsidiaries (other than Read-Rite SMI) to pay, all material taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business,
income or property before any penalty or interest accrues thereon, and all
claims (including claims for labor, services, materials and supplies) for
sums which have become due and payable and which by law have or may become
a lien upon any of its properties or assets, prior to the time when any
penalty or fine shall be incurred with respect thereto; provided that no
such tax, assessment, charge or claim need be paid if being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted and if such reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor.
(e) Maintenance of Properties; Insurance. Maintain or cause to
be maintained in good repair, working order and condition all properties
material to the continued conduct of the business of the Borrower and its
Subsidiaries (other than Read-Rite SMI). The Borrower will maintain or
cause to be maintained, with financially sound and reputable insurers,
insurance with respect to its properties and business and the properties
and business of its Subsidiaries (other than Read-Rite SMI) against loss
or damage of the kinds customarily insured against by corporations of
established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other corporations.
(f) Inspection. Permit any authorized representatives
designated by any Bank in writing, at such Bank's expense, upon reasonable
notice to the Borrower, to visit and inspect any of the properties of the
Borrower or any of its Subsidiaries (not including Read-Rite SMI),
including its and their financial and accounting records, and to make
copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and independent public
accountants, all at such reasonable times during normal business hours and
as often as may be reasonably requested. Notwithstanding any provision of
this Agreement to the contrary, neither the Borrower nor any of its
Subsidiaries will be required to disclose, permit the inspection,
examination, copying or making extracts of, or discussion of, any
document, information or other matter that (i) constitutes non-financial
trade secrets or non-financial proprietary information, or (ii) in respect
of which disclosure to such Bank (or designated representative) is then
prohibited by (a) law, or (b) an agreement binding on the Borrower or any
Subsidiary that was not entered into by the Borrower or such Subsidiary
for the primary purpose of concealing information from the Banks.
(g) Compliance with Laws, Etc. Exercise, and cause each of its
Subsidiaries (other than Read-Rite SMI) to exercise, all due diligence in
order to comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including all
environmental laws, rules, regulations and orders, noncompliance with
which could reasonably be expected to have a material adverse effect on
the business, operations, prospects, properties, assets or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a
whole, or on the ability of the Borrower to perform, or of any of the
Banks to enforce, the obligations of the Borrower under the Loan
Documents.
SECTION 6.02. Negative Covenants. So long as any Note shall remain
unpaid, or any Bank shall have any Commitment hereunder, the Borrower will
not, without the written consent of the Majority Banks:
(a) Quick Ratio. Permit the ratio of Consolidated Quick Assets
to Consolidated Current Liabilities on the last day of each of the fiscal
quarters of the Borrower to be less than 1.00 to 1.00.
(b) Consolidated Tangible Net Worth. Permit Consolidated
Tangible Net Worth at any time to be less than $475,000,000 plus (i) 80%
of Consolidated Net Income (but not loss) for each fiscal quarter of the
Borrower commencing with the quarter ending closest to September 30, 1996
plus (ii) 100% of the net increase in Consolidated Tangible Net Worth
occurring after June 30, 1996 resulting from the issuance of equity
securities of the Borrower after June 30, 1996.
(c) Leverage Ratio. Permit the Leverage Ratio on the last day
of each of the fiscal quarters of the Borrower (i) commencing with the
fiscal quarter ending on or about June 30, 1996 and ending with the fiscal
quarter ending on or about September 30, 1997 to be greater than 1.00 to
1.00 and (ii) ending thereafter to be greater than 0.75 to 1.00.
(d) Consolidated Net Income. Permit Consolidated Net Income to
be less than $0 for any two consecutive fiscal quarters commencing with
the fiscal quarter ending on or about September 30, 1996, calculated as of
the last day of each fiscal quarter of the Borrower.
(e) Liens, Etc. Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its properties, whether now owned or hereafter acquired
to secure any Debt of any Person other than:
(i) Liens in favor of the Agent for the benefit of the
Banks;
(ii) Liens existing on the date hereof and set forth in
Schedule 6.02(e) hereto;
(iii) Purchase money Liens upon or in any property
acquired or held by the Borrower or any Subsidiary in the ordinary course
of business (including the proceeds thereof and accessions thereto) to
secure the purchase price of such property or to secure indebtedness
incurred solely for the purpose of financing the acquisition of such
property;
(iv) Liens created to secure the purchase price, cost of
construction and/or improvement of property or assets or Debt incurred to
finance such purchase price and/or cost, provided that (1) any such Liens
attach only to the property or assets so purchased, constructed and/or
improved (and any theretofore unimproved real property on which such
property or assets are located), (2) the Debts secured by any such Lien
shall not exceed 100% of the lesser of the fair market value or the
purchase price of the property or assets purchased, constructed and/or
improved and (3) any such Liens shall be created within twelve months
following the acquisition of such property or assets or the completion of
such construction and/or improvements;
(v) Leases or subleases and licenses and sublicenses
granted to others not interfering in any material respect with the
business of the Borrower and its Subsidiaries taken as a whole, and any
interest or title of a lessor, licensor or under any lease or license;
(vi) Liens with respect to any conditional sale or other
title retention agreements and any lease in the nature thereof (other than
Capital Leases), provided that any such Lien with respect to conditional
sales or other title retention agreements encumber only property and
accretions thereto (and proceeds arising from the disposition thereof)
which are subject to such conditional sale or other title retention
agreement or lease in the nature thereof;
(vii) Liens existing on property including the proceeds
thereof and accessions thereto acquired by the Borrower or any Subsidiary
(including Liens on assets of any corporation at the time it becomes a
Subsidiary, unless such Lien was created in contemplation of such
corporation becoming a Subsidiary);
(viii) Liens on property leased by the Borrower or any
Subsidiary in the ordinary course of business (including proceeds thereof
and accessions thereto) incurred solely for the purpose of financing the
lease of such property (including Capital Leases permitted pursuant to
Section 6.02(f), and Liens arising from UCC financing statements regarding
leases permitted by this Agreement);
(ix) Liens secured by assets of Read-Rite SMI and not
secured by any other assets of the Borrower or any of its other
Subsidiaries;
(x) Liens for taxes, assessments or governmental charges
or levies (1) not more than thirty (30) days past due or (2) which are
being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such Lien, or (3) which do not in the
aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Borrower and its Subsidiaries;
(xi) Liens in respect of property or assets of the Borrower
or any of its Subsidiaries imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course of
business, and (x) which do not in the aggregate materially detract from
the value of such property or assets or materially impair the use thereof
in the operation of the business of the Borrower and its Subsidiaries or
(y) which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of
the property or asset subject to such Lien;
(xii) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under
Section 7.01(i);
(xiii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the performance
of tenders, statutory obligations, surety and appeal bonds, bids, leases
(including landlords' Liens), government contracts, performance and return-
of-money bonds and other similar obligations incurred in the ordinary
course of business (exclusive of obligations in respect of the payment for
borrowed money);
(xiv) Easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances affecting real property not interfering in any
material respect with the ordinary conduct of the business of the Borrower
and its Subsidiaries, taken as a whole;
(xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(xvi) Liens securing reimbursement obligations of the
Borrower or its Subsidiaries with respect to commercial letters of credit,
provided that such Liens shall attach only to documents or other property
relating to such letters of credit and products and proceeds thereof;
(xvii) Liens which constitute rights of set-off of a
customary nature or bankers' Liens with respect to amounts on deposit,
whether arising by operation of law or by contract, in connection with
arrangements entered into with banks in the ordinary course of business;
(xviii) Liens on real property located outside of the
United States, whether existing at the time of acquisition of such
property or created in connection with the acquisition of such property or
created at any time thereafter, provided that the Debts secured by any
such Lien or Liens shall not exceed 100% of the lesser of the fair market
value or the purchase price of the real property purchased;
(xix) Liens, not otherwise permitted by this Section
6.02(e), on assets other than current assets, intellectual property and/or
stock of Subsidiaries, which Liens do not in the aggregate exceed 5% of
Consolidated Tangible Net Worth; and
(xxi) Any Lien renewing, extending, or refunding any
Lien permitted under clauses (i) to (xx), inclusive, of this Section
6.02(e), provided that the principal amount secured is not increased and
that such Lien is not extended to other property (other than pursuant to
its original terms).
(f) Debt. (A) Subject to clause B hereto, create or suffer to
exist, or permit any of its Subsidiaries to create or suffer to exist, any
Debt, other than:
(i) the Term Loan;
(ii) Debt incurred under the Revolver (provided that no
Event of Default or Potential Event of Default exists before or after the
incurrence of such Debt);
(iii) Debt listed on Schedule 6.02(f);
(iv) Debt not otherwise permitted under this Section
6.02(f) of up to fifteen percent (15%) of Consolidated Tangible Net Worth;
(v) Debt that is subordinate to the Debt owed to the
Banks, the terms and conditions of which Debt are satisfactory to the
Banks;
(vi) Up to Ten Million Dollars ($10,000,000) in Debt of
Read-Rite (Thailand) Co., Ltd. which may be secured by a Lien on the fixed
assets and real property owned by Read-Rite (Thailand) Co., Ltd. and which
may be guaranteed by the Borrower, and any refinancings of such Debt;
(vii) Up to Fifteen Million Dollars ($15,000,000) in
Debt relating to the Philippines assembly plant of Sunward Technologies,
Inc. (or a subsidiary thereof) and a refinancing, if the Borrower so
chooses, of the existing Twelve Million Dollars ($12,000,000) of Debt
relating to the same facility currently with United Coconut Planters Bank
and listed in Schedule 6.02(f), each with a final maturity no sooner than
December 1997;
(viii) Debt of a Wholly Owned Subsidiary of the Borrower
to another Wholly Owned Subsidiary of the Borrower or to the Borrower, and
Debt of the Borrower to any Wholly Owned Subsidiary of the Borrower;
(ix) Debt of Read-Rite SMI and Debt of any Subsidiary of
Read-Rite SMI to Read-Rite SMI; and
(x) Debt secured by Liens permitted by Section
6.02(e)(ii), (ix), (xvi), (xx) or (xxi) (with respect to such clause (xxi)
to the extent such Debt is secured by a Lien which constitutes a renewal,
extension or refunding of any of the Liens permitted pursuant to the
aforementioned clauses of Section 6.02(e)).
(B) Notwithstanding anything in this Agreement to the contrary,
permit Read-Rite International to create or suffer to exist any Debt or
any trade or account payables, other than:
(i) Debt constituting obligations under leases or
agreements to lease not otherwise prohibited under this Agreement;
(ii) trade or account payables not in excess of five
percent (5%) of Consolidated Tangible Net Worth, provided that all such
trade payables are owed to any of Kabil Electronics or Lafe Computer
Magnetics Limited or Dymek Asia Co. Ltd.;
(iii) reimbursement obligations with respect to
commercial or trade letters of credit issued with respect to the
obligations described in clause (ii) above; and
(iv) Debt, trade payables or account payables not otherwise
permitted under this Section 6.02(f)(B) not exceeding Two Million Five
Hundred Thousand Dollars ($2,500,000) in the aggregate outstanding at any
one time.
(g) [Intentionally Omitted]
(h) Dividends, Etc. Declare or pay any dividends, purchase or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as
such, or permit any of its Subsidiaries to purchase or otherwise acquire
for value any stock of the Borrower, provided that the Borrower may
declare and make any dividend payment or other distribution payable in its
equity securities, and the Borrower may redeem or repurchase its
securities in connection with any agreement between the Borrower or its
Subsidiaries and any officer, director, employee or consultant of the
Borrower or its Subsidiaries entered into in the ordinary course of
business wherein the Borrower (or its Subsidiary) is obligated or entitled
to repurchase from such officer, director, employee or consultant shares
of equity securities of the Borrower upon such Person's termination of
employment or services with the Borrower; provided, further, that in
connection with exercises of options to purchase the Borrower's common
stock, $.0001 par value per share ("Common Stock"), by optionees under the
Borrower's stock option plan, the Borrower may permit or require optionees
concurrently to surrender to the Borrower one or more of the shares of
Common Stock acquired upon such exercise having a value equal to the
applicable withholding taxes payable with respect to the options exercised
(including for purposes of such calculation the value of the shares
surrendered) and the Borrower may thereafter submit payment of such
withholding taxes to the appropriate authorities on the optionee's behalf;
and provided, further, that the Borrower may repurchase shares of its
Common Stock in an amount not to exceed two million (2,000,000) shares of
Common Stock, so long as (i) the amount of cash and marketable securities
held by the Borrower on the last day of the fiscal quarter immediately
preceding the date of any such repurchase exceeds the aggregate principal
amount of all then outstanding Revolving Loans by at least One Hundred
Million Dollars ($100,000,000), (ii) the amount of cash and marketable
securities held by the Borrower immediately following any such repurchase
exceeds the aggregate principal amount outstanding under the Revolver by
at least Eighty Million Dollars ($80,000,000), (iii) any such repurchase
is made on the open market in accordance with Rule 10b-18 of the
Securities and Exchange Act of 1934, as amended, (iv) any such repurchase
is made only during the "open trading window" as defined in the Borrower's
insider trading policy, and (v) no Event of Default or Potential Event of
Default has occurred and is then continuing.
(i) Consolidation, Merger. Consolidate with or merge into any
other corporation or entity except that any corporation or entity may
consolidate with or merge into the Borrower, provided that the Borrower
shall be the surviving entity of such merger or consolidation, and
provided, further, that immediately after the consummation of such
consolidation or merger there shall exist no condition or event which
constitutes an Event of Default or a Potential Event of Default.
(j) Loans, Investments, Secondary Liabilities. Make or permit
to remain outstanding, or permit any Subsidiary to make or permit to
remain outstanding, any loan or advance to, or guarantee the obligations
of, or otherwise become contingently liable, directly or indirectly, to
purchase the stock of, pay dividends with respect to the stock of, or for
the liabilities of (if the primary purpose or intent of the arrangement
giving rise to such liability is to provide assurance that such
obligations will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligations
will be protected against loss in respect thereof), or own, purchase or
acquire any stock, obligations or securities of or any other interest in,
or make any capital contribution to, any other Person (all of the
foregoing referred to as "Investments"), except:
(i) Investments consisting of Permitted Investments;
(ii) Investments existing on the date hereof and listed on
Schedule 6.02(j);
(iii) the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(iv) Investments in or to the Borrower and Investments in
or to Wholly Owned Subsidiaries to the extent permitted by Section 6.02(l)
and Investments in or to companies which simultaneously with such
Investments become Wholly Owned Subsidiaries, and guarantees (and other
credit support) by the Borrower of obligations of Wholly Owned
Subsidiaries and guarantees (and other credit support) by Subsidiaries
(other than Read-Rite International) of obligations of the Borrower or
other Wholly Owned Subsidiaries;
(v) receivables owing to the Borrower or its Subsidiaries
and advances to customers or suppliers, in each case, if created, acquired
or made in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms;
(vi) Investments consisting of (a) travel advances,
employee relocation loans and other employee loans and advances in the
ordinary course of business, (b) loans to employees, officers or directors
relating to the purchase of equity securities of the Borrower or its
Subsidiaries, and (c) other loans to officers and employees approved by
the Board of Directors of the Borrower in an aggregate amount not in
excess of Five Million Dollars ($5,000,000) outstanding at any time;
(vii) Investments (including debt obligations) received
in connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of
business;
(viii) existing Investments in Read-Rite SMI; and
additional Investments in Read-Rite SMI from the date hereof until
termination of this Agreement, but not in excess of Fifteen Million
Dollars ($15,000,000);
(ix) Investments accepted in connection with the sale or
disposition of assets permitted by Section 6.02(l);
(x) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary course
of business for the purpose of directly mitigating risks associated with
liabilities and not for the purpose of speculation";
(xi) Investments (including the purchase of sovereign debt
obligations issued by the countries where located) by Subsidiaries
incorporated outside of the United States required by local law,
regulation or customary practice, provided that such Investments shall not
exceed in the aggregate at any one time Five Million Dollars ($5,000,000);
(xii) notes receivable of, or prepaid royalties and
other credit extensions to, customers and suppliers in the ordinary course
of business;
(xiii) Investments of Read-Rite SMI;
(xiv) Investments constituting Acquisitions permitted
pursuant to Section 6.02(m);
(xv) Investments by the Borrower and its Subsidiaries
consisting of guarantees (and other credit support) of the obligations of
vendors and suppliers of Wholly Owned Subsidiaries and guarantees (and
other credit support) of the obligations of vendors and suppliers of
Subsidiaries which are not Wholly Owned Subsidiaries, in each case in
respect of transactions entered into in the ordinary course of business
provided that such guarantees (and other credit support) shall not at any
time exceed Seven Million Five Hundred Thousand Dollars ($7,500,000); and
(xvi) Investments not otherwise permitted by this
Section 6.02(j) not in excess of five percent (5%) of Consolidated
Tangible Net Worth at any time outstanding.
(k) [Intentionally Omitted]
(l) Asset Sales. Convey, sell, lease, transfer or otherwise
dispose of (collectively a "Transfer"), or permit any Subsidiary (other
than Read-Rite SMI) to Transfer, in one transaction or a series of
transactions, all or any part of its or its Subsidiary's business,
property or fixed assets outside the ordinary course of business, whether
now owned or hereafter acquired, except that the Borrower and its Sub
sidiaries may make Transfers of business, property or fixed assets in
transactions outside of the ordinary course of business for consideration
which in the aggregate does not exceed Five Million Dollars ($5,000,000)
in any fiscal year of the Borrower; provided however, that,
notwithstanding any other provision in this Agreement, Borrower shall
continue to own at all times 100% of the capital stock of Read-Rite
International. For purposes of this Section 6.02(l), the following shall
be regarded in the ordinary course of business (in addition to any other
transaction in the ordinary course of business): (i) Transfers of non-
exclusive licenses and similar arrangements for the use of the property of
the Borrower or its Subsidiaries; (ii) Transfers of worn-out or obsolete
property and equipment; (iii) Transfers which constitute liquidation of
Investments permitted under Section 6.02(j); (iv) Transfers by the
Borrower to any Wholly Owned Subsidiary which Transfers in the aggregate,
on a cumulative basis from and after the date hereof, do not exceed 10% of
Consolidated Net Worth, measured immediately after each Transfer; (v)
Transfers from any Wholly Owned Subsidiary to another Wholly Owned
Subsidiary or the Borrower; and (vi) Transfers to the Borrower or to any
Wholly Owned Subsidiary of accounts receivable acquired in connection with
the acquisition of Sunward Technologies, Inc.
(m) Acquisitions. Acquire, or permit any Subsidiary (other
than Read-Rite SMI) to acquire (an "Acquisition"), any assets or a going
business, whether through purchase of assets, merger or otherwise, outside
of the ordinary course of business, if the aggregate fair market value of
the consideration (whether in the form of cash, debt or equity securities
of the Borrower or any Subsidiary or assumed liabilities) paid for all
such Acquisitions from the date hereof until the termination of this
Agreement exceeds ten percent (10%) of Consolidated Tangible Net Worth.
For purposes of this Section 6.02(m), the following shall be regarded as
being in the ordinary course of business (in addition to any other
transaction in the ordinary course of business): (i) Acquisitions which
constitute Investments permitted by Section 6.02(j); (ii) Acquisitions by
the Borrower from any Wholly Owned Subsidiary, or Acquisitions by any
Wholly Owned Subsidiary from another Wholly Owned Subsidiary or from the
Borrower; and (iii) Acquisitions which constitute leases permitted under
this Agreement.
(n) Transactions with Affiliates. Enter into, or permit any of
its Subsidiaries to enter into, any transaction (including the purchase,
sale, lease or exchange of any property or the rendering of any service)
with any holder of ten percent (10%) or more of any class of equity
securities of the Borrower, or with any Affiliate of the Borrower or any
such holder, on terms that (when taken in the light of any related or
series of transactions of which such transaction is a part (if any)) are
less favorable to the Borrower or any such Subsidiary than those which
might be obtained at the time from Persons who are not such a holder or
Affiliate, other than (i) compensation of employees, officers and
directors so long as the Board of Directors of the Borrower determines
that such compensation is in the best interests of the Borrower, (ii)
transactions between the Borrower and any of its Wholly Owned Subsidiaries
or transactions from one Wholly Owned Subsidiary to another Wholly Owned
Subsidiary and (iii) the supply of equipment and resources to Read-Rite
SMI for fair value and the transactions contemplated by the SMI Joint
Venture Agreement.
(o) Operating Performance Ratio. Permit on the last day of
each of the fiscal quarters of the Borrower, the ratio of (i) Annualized
Consolidated Cash Flow (calculated as of the last day of the fiscal
quarter ending on such date) to (ii) the sum of (A) current portion of
long term debt (determined for Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP) plus four multiplied by
Consolidated Interest Expense for the most recently ended fiscal quarter,
to be less than 1.50 to 1.00.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. 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 installment of the
principal when due, or shall fail to pay any installment of interest
within three (3) Business Days of the date when due, or shall fail to pay
any other amount payable hereunder within five (5) Business Days of the
date when due; or
(b) Any representation or warranty made or deemed made by the
Borrower herein or in any other Loan Agreement or any other certificate or
writing delivered pursuant hereto or thereto shall prove to have been
incorrect in any material respect when made; or
(c) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 3.01 or 6.02(a), (b), (c),
(d), (g), (h), (i), (l), (m), (n) or (o) on its part to be performed or
observed; or
(d) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 6.01(b), 6.02(e), (f), or (j)
on its part to be performed or observed and any such failure shall remain
unremedied or uncured for thirty (30) days after the Chief Executive
Officer or any Responsible Officer of the Borrower knows of such failure
(whether by notice from the Agent or any Bank or otherwise); or
(e) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in this Agreement or any other Loan
Document other than those referred to in Sections 7.01(a), (b), (c) and
(d) above on its part to be performed or observed and any such failure
shall remain unremedied or uncured for thirty (30) days after the Agent or
any Bank notifies the Borrower of such failure; or
(f) The Borrower or any of its Subsidiaries (other than Read-
Rite SMI) shall (i) fail to pay any principal of, or premium or interest
on, any Debt, the aggregate outstanding principal amount of which is at
least Two Million Five Hundred Thousand Dollars ($2,500,000) (excluding
Debt evidenced by the Notes and Debt under the Revolver), when due
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise) and such failure shall continue after the applicable grace
period, if any, or (ii) fail to perform or observe any term, covenant or
condition on its part required to be performed or observed under any
agreement or instrument relating to any Debt, the aggregate outstanding
principal of which is at least Two Million Five Hundred Thousand Dollars
($2,500,000) (excluding Debt evidenced by the Notes and Debt under the
Revolver), and the effect of such failure is to accelerate or permit the
acceleration of the maturity of such Debt or (iii) fail to perform or
observe any term, covenant or condition on its part to be performed or
observed under any agreement or instrument relating to any Debt, the
aggregate outstanding principal amount of which is at least One Million
Dollars ($1,000,000) (excluding Debt evidenced by the Notes and Debt under
the Revolver), and the effect of such failure is to accelerate the
maturity of such Debt; or
(g) (i) The Borrower shall commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets,
or the Borrower shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) consecutive days; or (iii) there shall
be commenced against the Borrower any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within sixty
(60) consecutive days from the entry thereof; or (iv) the Borrower shall
take any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the acts set forth in clause (i), (ii) and
(iii) above; or (v) the Borrower shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they
become due; or
(h) (i) Any Subsidiary (other than Read-Rite SMI) shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or any such
Subsidiary shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against any such Subsidiary
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) consecutive days; or (iii) there shall
be commenced against any such Subsidiary any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint
or similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within sixty
(60) consecutive days from the entry thereof; or (iv) any such Subsidiary
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii) and (iii) above; or (v) any such Subsidiary shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(i) One or more judgments or decrees requiring the payment of
money shall be entered against the Borrower or any of the Subsidiaries
involving in the aggregate a liability (to the extent not paid or covered
by insurance) equal to or greater than Two Million Dollars ($2,000,000)
and such judgments or decrees shall not have been satisfied in full,
vacated, discharged, or stayed or bonded pending appeal within sixty (60)
consecutive days from the entry thereof; or
(j) (i) The Borrower or any of its ERISA Affiliates fails to
make full payment when due of all amounts which, under the provisions of
any Pension Plan or Section 412 of the Internal Revenue Code, the Borrower
or any of its ERISA Affiliates is required to pay as contributions
thereto;
(ii) any accumulated funding deficiency occurs or exists,
whether or not waived, with respect to any Pension Plan;
(iii) the excess of the actuarial present value of all
benefit liabilities under all Pension Plans over the fair market value of
the assets of such Pension Plans (excluding in such computation Pension
Plans with assets greater than benefit liabilities) allocable to such
benefit liabilities are greater than five percent (5%) of Consolidated
Tangible Net Worth;
(iv) the Borrower or any of its ERISA Affiliates enters
into any transaction which has as its principal purpose the evasion of
liability under Subtitle D of Title IV of ERISA;
(v) (A) any Pension Plan maintained by the Borrower or
any of its ERISA Affiliates shall be terminated within the meaning of
Title IV of ERISA, or (B) a trustee shall be appointed by an appropriate
United States district court to administer any Pension Plan, or (C) the
Pension Benefit Guaranty Corporation (or any successor thereto) shall
institute proceedings to terminate any Pension Plan or to appoint a
trustee to administer any Pension Plan, or (D) the Borrower or any of its
ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a
Pension Plan, if as of the date of the event listed in subclauses (A)-(D)
above or any subsequent date, either the Borrower or its ERISA Affiliates
has any liability (such liability to include, without limitation, any
liability to the Pension Benefit Guaranty Corporation, or any successor
thereto, or to any other party under Sections 4062, 4063 or 4064 of ERISA
or any other provision of law) resulting from or otherwise associated with
the events listed in subclauses (A)-(D) above; or
(vi) As used in this subsection 7.01(i) the term
"accumulated funding deficiency" has the meaning specified in Section 412
of the Internal Revenue Code, and the terms "actuarial present value" and
"benefit liabilities" have the meanings specified in Section 4001 of
ERISA;
Then, (i) upon the occurrence of any Event of Default described in
clause (g) above, the Commitment shall immediately terminate and all Loans
hereunder together with accrued interest thereon, and all other amounts
owing under this Agreement, the Notes and the other Loan Documents shall
automatically become due and payable, and (ii) upon the occurrence of any
other Event of Default, the Agent shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower, declare the
Commitment to be terminated forthwith, whereupon the Commitment shall
immediately terminate; and/or, by notice to the Borrower, declare the
Loans hereunder, with accrued interest thereon, and all other amounts
owing under this Agreement, the Notes and the other Loan Documents to be
due and payable forthwith, whereupon the same shall immediately become due
and payable. Except as expressly provided above in this Section or
elsewhere in this Agreement, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. Each Bank hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including enforcement or collection of the Notes), the Agent shall not be
required to exercise any discretion or take any action, but, subject to
Section 9.01, shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Banks, and such instructions shall be binding
upon all Banks and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or applicable
law. The Agent agrees to give to each Bank prompt notice of each notice
given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection
with this Agreement, except for its or their own gross negligence or
wilful misconduct. Without limiting the generality of the foregoing, the
Agent: (i) may treat the payee of any Note as the holder thereof until
the Agent receives written notice of the assignment or transfer thereof
signed by such payee and in form satisfactory to the Agent; (ii) may
consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall
not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts;
(iii) makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any statements, warranties or representations
made in or in connection with this Agreement; (iv) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of the
Borrower or to inspect the property (including the books and records) of
the Borrower; (v) shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished
pursuant hereto; and (vi) shall incur no liability under or in respect of
this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, cable or telex) believed
by it to be genuine and signed or sent by the proper party or parties.
SECTION 8.03. CIBC Inc., Canadian Imperial Bank of Commerce, New
York Agency and Affiliates. With respect to its Commitment, the Loans
made by it and the Note issued to it, CIBC Inc. ("CIBC") and Canadian
Imperial Bank of Commerce, New York Agency ("CIBC NYA") and their
respective affiliates may accept deposits from, lend money to, act as
trustee under indentures of, and generally engage in any kind of business
with, the Borrower, any of its subsidiaries and any Person who may do
business with or own securities of the Borrower or any such subsidiary,
all as if CIBC and CIBC NYA were not a Bank and the Agent, respectively,
and without any duty to account therefor to the Banks.
SECTION 8.04. Bank Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank
and based on the financial statements referred to in Section 5.01(e) and
such other documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance
upon the Agent or any other Bank 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.
SECTION 8.05. Indemnification. The Banks agree to indemnify the
Agent (to the extent not reimbursed by the Borrower), ratably according to
the respective principal amounts of the Notes then held by each of them
(or if no Notes are at the time outstanding or if any Notes are held by
Persons which are not Banks, ratably according to the respective amounts
of their Commitments), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Agent in any way relating
to or arising out of this Agreement or any action taken or omitted by the
Agent under this Agreement, provided that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
the Agent's gross negligence or wilful misconduct. Without limiting the
foregoing, each Bank agrees to reimburse the Agent promptly upon demand
for its ratable share of any out-of-pocket expenses (including counsel
fees) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice
in respect of rights or responsibilities under, this Agreement, to the
extent that the Agent is not reimbursed for such expenses by the Borrower.
SECTION 8.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Banks and the Borrower and may be
removed at any time with or without cause by the Majority Banks. Upon any
such resignation or removal, the Majority Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so
appointed by the Majority Banks, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent from
among the Banks. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Agent's resignation or removal hereunder as Agent, the provisions of this
Article VIII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
provision of the Loan Agreements nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Majority Banks, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all the Banks, do
any of the following: (a) waive any of the conditions specified in
Section 4.01, (b) increase the Commitments of the Banks or subject the
Banks to any additional obligations, (c) reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, (d)
postpone any date fixed for any payment of principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, (e) change the
percentage of the Commitments or of the aggregate unpaid principal amount
of the Notes, or the number of Banks, which shall be required for the
Banks or any of them to take any action hereunder, (f) amend any of the
provisions in Sections 3.06 through 3.13, (g) amend the definition of
Majority Banks or this Section 9.01; and provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by the
Agent in addition to the Banks required above to take such action, affect
the rights or duties of the Agent under this Agreement or any other Loan
Document; and provided, further that no waiver or consent shall, unless in
writing and signed by the affected Bank, waive the rights of that Bank to
receive any payment or compensation under any of Sections 3.06 through
3.13.
SECTION 9.02. Notices, Etc. Except as otherwise set forth in this
Agreement, all notices and other communications provided for hereunder
shall be in writing (including telegraphic, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile
or delivered, if to the Borrower, at its address set forth on the
signature page hereof; and if to any Bank or the Agent, at its address set
forth on the signature page hereof; or, as to each party, 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 (i) when
telecopied, telegraphed, telexed or cabled, be effective when telecopied,
delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively, and (ii) when mailed first
class postage prepaid, be effective on the third Business Day after the
date deposited in the mail, except that notices and communications to the
Agent pursuant to Article II or VII shall not be effective until received
by the Agent, and any notice of a default or of amounts payable to the
Agent or the Banks by the Borrower which is given to the Borrower shall
not be effective until received by the Borrower.
SECTION 9.03. Right of Setoff. Upon the occurrence of both (i) any
Event of Default and (ii) the making of the request or the granting of the
consent specified by the last paragraph of Article VII to authorize the
Agent to declare the Loans and other amounts due and payable pursuant to
the provisions of the last paragraph of Article VII, each Bank is hereby
authorized by the Borrower, at any time and from time to time, without
notice, (a) to set off against, and to appropriate and apply to the
payment of, the obligations and liabilities of the Borrower under the Loan
Documents (whether matured or unmatured, fixed or contingent or liquidated
or unliquidated) any and all amounts owing by such Bank to the Borrower
(whether payable in Dollars or any other currency, whether matured or
unmatured, and, in the case of deposits, whether general or special, time
or demand and however evidenced) and (b) pending any such action, to the
extent necessary, to hold such amounts as collateral to secure such
obligations and liabilities and to return as unpaid for insufficient funds
any and all checks and other items drawn against any deposits so held as
such Bank in its sole discretion may elect. The rights of each Bank under
this Section are in addition to other rights and remedies (including other
rights of set-off) which such Bank may have.
SECTION 9.04. No Waiver; Remedies. No failure on the part of the
Agent or any Bank to exercise, and no delay in exercising, any right under
any of the Loan Documents shall operate as a waiver thereof; nor shall any
single or partial exercise of any right under any of the Loan Documents
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 9.05. Costs and Expenses. Without duplication of any
amounts payable pursuant to Article III, the Borrower agrees to pay on
demand all costs and expenses of the Agent (including reasonable
attorney's fees and the reasonable estimate of the allocated cost of in-
house counsel and staff) in connection with the preparation, amendment,
modification, enforcement (including in appellate, bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings) or
restructuring of the Loan Documents. In addition, without duplication of
any amounts payable pursuant to Article III, the Borrower agrees to pay on
demand all costs and expenses of each Bank (including reasonable
attorney's fees and the reasonable estimate of the allocated cost of in-
house counsel and staff) in connection with the bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings of
the Borrower.
SECTION 9.06. Additional Banks; Assignments; Participations. (a)
Any Bank may assign, from time to time, all or any portion of its pro rata
share of the Commitments and its Note to an Affiliate of that Bank or, (so
long as no Event of Default shall have occurred and be continuing) with
the prior written approval of the Borrower (which approval will not be
unreasonably withheld), to any other Financial Institution acceptable to
the Agent; provided that (i) the amount of the Commitment of the assigning
Bank being assigned pursuant to each such assignment (determined as of the
date of the Assignment Agreement with respect to such assignment) shall in
no event be less than Five Million Dollars ($5,000,000) and shall be an
integral multiple of One Million Dollars ($1,000,000) and (ii) the parties
to each such assignment shall execute and deliver to the Agent and the
Borrower an Assignment Agreement substantially in the form of Exhibit F.
Upon such execution and delivery, from and after the effective date
specified in such Assignment Agreement (y) 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 Agreement, have the
rights and obligations of a Bank hereunder and (z) the Bank assignor
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment Agreement, relinquish its
rights and be released from its obligations under this Agreement (other
than pursuant to Section 9.06(e)), and, in the case of an Assignment
Agreement covering all or the remaining portion of an assigning Bank's
rights and obligations under this Agreement, such Bank shall cease to be a
party hereto, subject to its continuing obligations under Section 9.06(e).
The Commitments hereunder shall be modified to reflect the Commitment of
such assignee, and, if any such assignment occurs while any Loan is
outstanding, new Notes shall, upon the surrender of the assigning Bank's
Notes, be issued to such assignee and to the assigning Bank as necessary
to reflect the new Commitments of the assigning Bank and of its assignee.
(b) Each Bank may sell, negotiate or grant participations to
other Financial Institutions in all or part of the obligations of the
Borrower outstanding under the Loan Agreements, without notice to or the
approval of the Agent or the Borrower; provided that any such sale,
negotiation or participation shall be in compliance with the applicable
federal and state securities laws and the other requirements of this
Section 9.06. No participant shall constitute a "Bank" under any Loan
Document, and the Borrower shall continue to deal solely and directly with
the Agent and the Banks.
(c) Each Bank may disclose to any proposed assignee or
participant which is a Financial Institution any information relating to
the Borrower or any of its Subsidiaries; provided, that prior to such
disclosure such proposed assignee or participant shall have agreed in
writing to keep any such information confidential substantially on the
terms of Section 9.06(e).
(d) The grant of a participation interest shall be on such
terms as the granting Bank determines are appropriate, provided only that
(1) the holder of such a participation interest shall not have any of the
rights of a Bank under this Agreement except, if the participation
agreement so provides, rights to demand the payment of costs of the type
described in Article III, provided that the aggregate amount that the
Borrower shall be required to pay under Article III with respect to any
ratable share of the Commitment or any Loan (including amounts paid to
participants) shall not exceed the amount that the Borrower would have had
to pay if no participation agreements had been entered into, and (2) the
consent of the holder of such a participation interest shall not be
required for amendments or waivers of provisions of the Loan Agreements
other than those which (i) increase the amount of the Commitment, (ii)
extend the term of the Commitment, (iii) decrease the rate of interest or
the amount of any fee or any other amount payable to the Banks under the
Loan Agreements, (iv) reduce the principal amount payable under the Loan
Agreements, or (v) extend the date fixed for the payment of principal or
interest or any other amount payable under the Loan Agreements.
(e) Each Bank understands that some of the information and
documents furnished to it pursuant to this Agreement may be confidential
and each Bank agrees that it will keep all non-public information,
documents and agreements so furnished to it confidential and will make no
disclosure to other Persons of such information or agreements until it
shall have become public, except (i) to the extent required in connection
with matters involving operations under or enforcement or amendment of the
Loan Agreements; (ii) in accordance with such Bank's obligations under law
or regulations or pursuant to subpoenas or other process to make
information available to governmental agencies and examiners or to others;
(iii) to any corporate parent of any Bank so long as such parent agrees to
accept such information or agreement subject to the restrictions provided
in this Section 9.06(e); (iv) to any participant bank or trust company of
any Bank so long as such participant shares the corporate parent with such
Bank and agrees to keep such information, documents or agreement
confidential in accordance with the restrictions provided in this Section
9.06(e); (v) to the Agent or to any other Bank and their respective
counsel and other professional advisors and to its own counsel and
professional advisors so long as such Persons are instructed to keep such
information confidential in accordance with the provisions of this Section
9.06(e); (vi) to proposed assignees and participants which are Financial
Institutions in accordance with Section 9.06(c); and (vii) with the prior
written consent of the Borrower.
SECTION 9.07. Effectiveness; Binding Effect; Governing Law. This
Agreement shall become effective when it shall have been executed by the
Borrower, the Agent, and each Bank and each of the conditions precedent
set forth in Section 4.01 shall have been satisfied. This Agreement shall
be binding upon and inure to the benefit of the Borrower, the Agent, each
Bank and their 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 Agent and all the Banks.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT
TO ITS CHOICE OF LAW DOCTRINE.
SECTION 9.08. Survival of Warranties and Certain Agreements.
Subject to the remainder of this Section 9.08, this Agreement shall
terminate upon the termination of the Commitment and the indefeasible
repayment in full of the Notes and all other amounts owing under this
Agreement. All agreements, representations and warranties made herein and
in any Loan Document shall survive the execution and delivery of this
Agreement and the making of the Loans hereunder. Notwithstanding anything
in this Agreement or implied by law to the contrary, the agreements
contained in Sections 3.06, 3.07, 3.10, 3.13 and 9.05 shall survive the
payment of the Loans and the Notes and the termination of this Agreement;
provided, however, that such Sections (other than Section 9.05) shall
terminate on the fifth anniversary of the termination of this Agreement.
SECTION 9.09. Waiver of Jury Trial. THE BORROWER, THE AGENT AND
EACH BANK HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT,
ANY OF THE LOAN AGREEMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER
RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed
in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. The Agent, each Bank and the
Borrower each acknowledge that this waiver is a material inducement to
enter into a business relationship, that each has already relied on the
waiver in entering into this Agreement, and that each will continue to
rely on the waiver in their related future dealings. The Agent, each Bank
and the Borrower further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily
waives its jury trial rights following consultation with legal counsel.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMEND
MENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN
AGREEMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN.
In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
SECTION 9.10. Consent to Jurisdiction; Venue. All judicial
proceedings brought against the Borrower with respect to this Agreement
and the Loan Documents may be brought in any state or federal court of
competent jurisdiction in the City of Los Angeles or San Francisco in the
State of California (whichever city is closest to the Borrower's executive
offices), and by execution and delivery of this Agreement, the Borrower
accepts for itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts,
and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. The Borrower irrevocably waives any right
it may have to assert the doctrine of forum non conveniens or to object to
venue to the extent any proceeding is brought in accordance with this
Section. Nothing herein shall affect the right of the Agent or any Bank
to bring proceedings against the Borrower in courts of any jurisdiction.
SECTION 9.11. Entire Agreement. This Agreement with Exhibits and
Schedules and the other Loan Documents embody the entire agreement and
understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof.
SECTION 9.12. Separability of Provisions. In case any one or more
of the provisions contained in this Agreement should be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not in any way be
affected or impaired thereby.
SECTION 9.13. Obligations Several. The obligation of each Bank
hereunder is several, and no Bank shall be responsible for the obligation
or commitment of any other Bank hereunder. Nothing contained in this
Agreement and no action taken by the Banks pursuant hereto shall be deemed
to constitute the Banks to be a partnership, an association, a joint
venture or any other kind of entity.
SECTION 9.14. 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.
SECTION 9.15. 1654 Interpretation. This Agreement has been
negotiated at arm's length and between persons sophisticated and
knowledgeable in the matters dealt with in this Agreement. Each party has
been represented by experienced and knowledgeable legal counsel.
Accordingly, any rule of law (including California Civil Code Section
1654) or legal decision that would require interpretation of any
ambiguities in this Agreement against the party that has drafted it is not
applicable and is waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the purpose of the parties
and this Agreement.
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.
READ-RITE CORPORATION
By:\s\ Jane Conn
Title: Treasurer
Address:
345 Los Coches Street
Milpitas, California 95035
Telephone: (408) 262-6700
Telecopier: (408) 945-9644
Attention: Chief Financial Officer
Canadian Imperial Bank of Commerce, New
York Agency, as Agent
By:\s\ Tom R. Wagner
Title: Vice President
Address:
425 Lexington Avenue
Seventh Floor
New York, New York 10017
Telephone: (212) 856-3684
Telecopier: (212) 856-3763
Attention: Geraldine Kerr
Payment Address:
Morgan Guaranty Trust
Company of New York
New York, New York
ABA No.: 021-000-238
Account No.: __________
Account Name: CIBC, New York Agency
for further credit to agented loans
Account No.: __________
Reference: Read-Rite
Corporation
BANKS:
CIBC INC.
By:\s\ Tom Wagner
Title: Vice President
Address:
One Post Street
Suite 3550
San Francisco, California 94104
Telephone: (415) 399-5744
Telecopier: (415) 399-5761
Attention: Tom R. Wagner
ANNEX I
BANK COMMITMENT AMOUNT
CIBC INC. $50,000,000
EXHIBIT A
READ-RITE CORPORATION
[FORM OF TERM NOTE]
TERM NOTE
San Francisco, California
$ June , 1996
FOR VALUE RECEIVED, READ-RITE CORPORATION, a Delaware corporation (the
"Borrower"), promises to pay to the order of
__________________________________________ (the "Bank") the principal
amount of _______________________ ($__________) or, if less, the aggregate
amount of Term Loans (as defined in the Term Loan Agreement referred to
below) made by the Bank to the Borrower pursuant to the Term Loan
Agreement referred to below. The aggregate principal amount of the Term
Loans, together with interest thereon, shall be repaid according to the
following schedule: (i) on or prior to last day of the fiscal quarter
ending closest to June 30, 1999, $12,500,000; (ii) on or prior to the last
day of the fiscal quarter ending closest to June 30, 2000, $12,500,000;
(iii) on the Maturity Date, the aggregate principal amount of the Term
Loans then outstanding.
The Borrower also promises to pay interest on the unpaid principal
amount hereof from the date hereof until paid at the rates and at the
times which shall be determined in accordance with the provisions of the
Term Loan Agreement.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at
the office of the Agent described in the Term Loan Agreement. Until
notified of the transfer of this Note, the Borrower shall be entitled to
deem the Bank or such person who has been so identified by the transferor
in writing to the Borrower as the holder of this Note, as the owner and
holder of this Note. Each of the Bank and any subsequent holder of this
Note agrees that before disposing of this Note or any part hereof it will
make a notation hereon of all principal payments previously made hereunder
and of the date to which interest hereon has been paid on the schedule
attached hereto, if any; provided, however, that the failure to make
notation of any payment made on this Note shall not limit or otherwise
affect the obligation of the Borrower hereunder with respect to payments
of principal or interest on this Note.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Term Loan Agreement dated as of June 28, 1996 (the
"Agreement") among the Borrower, the Banks named therein, Canadian
Imperial Bank of Commerce, New York Agency, as Agent for the Banks. The
Agreement, among other things, (i) provides for the making of advances
(the "Loans") by the Bank to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting
from each such Loan being evidenced by this 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.
The terms of this Note are subject to amendment only in the manner
provided in the Agreement.
No reference herein to the Agreement and no provision of this Note or
the Agreement shall alter or impair the obligation of the Borrower, which
is absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency
herein prescribed.
The Borrower promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred in the collection and enforcement of
this Note. The Borrower hereby consents to renewals and extensions of
time at or after the maturity hereof, without notice, and hereby waive
diligence, presentment, protest, demand and notice of every kind and, to
the full extent permitted by law, the right to plead any statute of
limitations as a defense to any demand hereunder.
This Note shall be governed by, and construed in accordance with, the
laws of the state of California without giving effect to its choice of law
doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
READ-RITE CORPORATION
By: _________________
Title: _______________
Exhibit 11.1
READ-RITE CORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Net income (loss) $(22,910) $32,295 $20,948 $76,869
======== ======= ======= =======
Weighted average common shares
outstanding 46,617 45,817 46,757 45,600
Common equivalent shares
issuable under dilutive stock
options after applying treasury
stock method, net of tax benefits -- 1,631 1,083 1,538
-------- ------- ------- -------
Common and common equivalent
shares used in computing net
income (loss) per share 46,617 47,448 47,840 47,138
======== ======= ======= =======
Net income (loss) per share $ (0.49) $ 0.68 $ 0.44 $ 1.63
======== ======= ======= =======
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AT JUNE 30, 1996 (UNAUDITED) AND
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
JUNE 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-1-1995
<PERIOD-END> JUN-30-1996
<CASH> 152,987
<SECURITIES> 51,052
<RECEIVABLES> 113,659
<ALLOWANCES> 2,406
<INVENTORY> 82,527
<CURRENT-ASSETS> 412,322
<PP&E> 780,952
<DEPRECIATION> 222,616
<TOTAL-ASSETS> 1,003,837
<CURRENT-LIABILITIES> 222,730
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0
0
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<CGS> 658,231
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<OTHER-EXPENSES> 71,970
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<INTEREST-EXPENSE> 9,113
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<INCOME-TAX> 31,309
<INCOME-CONTINUING> 20,948
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<EXTRAORDINARY> 0
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<NET-INCOME> 20,948
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
