<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3573 77-0364572
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
166 Baypointe Parkway, San Jose, CA 95134, Telephone: (408) 468-1800
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
------------------------
DAVID T. MITCHELL
Chief Executive Officer
JTS Corporation
166 Baypointe Parkway, San Jose, CA 95134, (408) 468-1800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
With Copies to:
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<S> <C>
JEFFREY D. SAPER, ESQ. ANDREI M. MANOLIU, ESQ.
J. ROBERT SUFFOLETTA, ESQ. MATTHEW W. SONSINI, ESQ.
Wilson Sonsini Goodrich & Rosati, P.C. Cooley Godward Castro Huddleson & Tatum
650 Page Mill Road Five Palo Alto Square
Palo Alto, California 94304 Palo Alto, California 94306
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
The proposed sale will take place upon the merger (the "Merger") of Atari
Corporation, a Nevada Corporation ("Atari"), with and into JTS Corporation (the
"Registrant").
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
Common Stock, $.001
par value............ 63,735,718 Shares(1) $6.46875 $412,290,425 $142,170(2)
</TABLE>
- --------------------------------------------------------------------------------
(1) Represents the estimated maximum number of shares of the Common Stock of the
Registrant which may be issued to former stockholders of Atari pursuant to
the Merger described herein.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended, on
the basis of the market value of Atari Common Stock to be received by the
Registrant in the proposed merger, calculated in accordance with Rule 457(f)
on the basis of the average of the high and low sales prices reported for
such securities by the American Stock Exchange on June 17, 1996.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
JTS CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------- --------------------------------------------
<C> <S> <C>
(Information about the Transaction)
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................ Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............. Summary; Risk Factors; Introduction
4. Terms of the Transaction.................... Summary; Introduction; The Proposed Merger
and Related Transactions; Description of
Capital Stock of Atari and JTS; Comparison
of Rights of Stockholders of Atari and JTS
5. Pro Forma Financial Information............. Unaudited Pro Forma Condensed Combined
Financial Information
6. Material Contacts with the Company being
Acquired.................................. The Proposed Merger and Related Transactions
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ Not Applicable
8. Interests of Named Experts and Counsel...... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
(Information about the Registrant)
10. Information with Respect to S-3
Registrants............................... Not Applicable
11. Incorporation of Certain Information by
Reference................................. Not Applicable
12. Information with Respect to S-2 or S-3
Registrants............................... Not Applicable
13. Incorporation of Certain Information by
Reference................................. Not Applicable
14. Information with Respect to Registrants
other than S-2 or S-3 Registrants......... Summary; Risk Factors; Introduction; Voting
and Proxies; The Proposed Merger and Related
Transactions; Stock Price and Dividend
Information; Unaudited Pro Forma Condensed
Combined Financial Statements; Information
Regarding JTS Corporation; Description of
Capital Stock of Atari and JTS; Index to
Financial Statements
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------- --------------------------------------------
<C> <S> <C>
(Information about the Company being Acquired)
15. Information with Respect to S-3 Companies... Summary; Risk Factors; Introduction; Voting
and Proxies; The Proposed Merger and Related
Transactions; Stock Price and Dividend
Information; Unaudited Pro Forma Condensed
Combined Financial Statements; Information
Regarding Atari; Description of Capital
Stock of Atari and JTS; Index to Financial
Statements
16. Information with Respect to S-2 or S-3
Companies................................. Not Applicable
17. Information with Respect to Companies other
than S-2 or S-3 Companies................. Not Applicable
(Voting and Management Information)
18. Information, if Proxies, Consents or
Authorizations are to be Solicited........ Summary; Introduction; Voting and Proxies,
The Proposed Merger and Related
Transactions; Information Regarding Atari
Corporation; Information Regarding JTS
Corporation; Description of Capital Stock
of Atari and JTS.
19. Information, if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer...................... Not Applicable
</TABLE>
<PAGE> 4
ATARI CORPORATION
455 SOUTH MATHILDA AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 328-0900
Dear Stockholder:
A Special Meeting of Stockholders (the "Special Meeting") of Atari
Corporation ("Atari") will be held at the offices of Wilson Sonsini Goodrich &
Rosati, P.C., 650 Page Mill Road, Palo Alto, California, legal counsel to Atari,
on Thursday, July , 1996, at 9:00 a.m.
At the Special Meeting, you will be asked to consider and vote upon the
approval of an Amended and Restated Agreement and Plan of Reorganization dated
as of April 8, 1996 (the "Merger Agreement"), between Atari and JTS Corporation
("JTS") and the merger of Atari with and into JTS (the "Merger").
Pursuant to the Merger Agreement, upon consummation of the Merger, all
outstanding shares of Atari Common Stock will be converted into an aggregate of
63,735,718 shares of JTS Common Stock and all outstanding options to acquire
Atari Common Stock will become options to acquire JTS Common Stock. Following
consummation of the Merger (assuming no exercise of outstanding options to
purchase Atari Common Stock or JTS Common Stock after May 22, 1996), Atari
stockholders immediately prior to the Merger will hold approximately 62% of the
outstanding capital stock of JTS.
Atari's Board of Directors has unanimously approved the Merger and the
Merger Agreement and has determined that they are fair to, and in the best
interests of, Atari and its stockholders. The Board of Directors recommends a
vote FOR the Merger and the Merger Agreement.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken at the Special Meeting and a proxy card. The Joint Proxy
Statement/Prospectus provides more detailed information regarding the proposed
Merger and related matters, includes information about Atari and JTS and
discusses the Board's reasons for recommending the Merger.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED
AND VOTED AT THE SPECIAL MEETING.
June , 1996
Sincerely,
Sam Tramiel
President
<PAGE> 5
ATARI CORPORATION
455 SOUTH MATHILDA AVENUE
SUNNYVALE, CALIFORNIA 94086
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY , 1996
To the Stockholders of Atari Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Atari Corporation, a Nevada corporation ("Atari"), will be held on
Thursday, July , 1996, at 9:00 a.m. at the offices of Wilson Sonsini Goodrich
& Rosati, P.C., 650 Page Mill Road, Palo Alto, California, legal counsel to
Atari.
A Proxy Card and Joint Proxy Statement/Prospectus for the Special Meeting
are enclosed.
The Special Meeting is for the purpose of considering and acting upon:
1. A proposal to approve (a) the Amended and Restated Agreement and Plan
of Reorganization dated as of April 8, 1996 (the "Merger Agreement") between
Atari and JTS Corporation, a Delaware corporation ("JTS"), and (b) the merger of
Atari with and into JTS (the "Merger"). Pursuant to the terms of the Merger
Agreement, each outstanding share of Atari Common Stock will be converted into
one share of JTS Common Stock, and each outstanding option to acquire Atari
Common Stock will become an option to acquire JTS Common Stock.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Merger is more fully described in, and the Merger Agreement is attached
in its entirety to, the Joint Proxy Statement/Prospectus accompanying this
Notice.
Only stockholders of record at the close of business on May 22, 1996 (the
"Record Date") are entitled to notice of, and to vote at, the Special Meeting or
at any postponement(s) or adjournment(s) thereof.
Approval of the Merger and the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of Atari Common
Stock outstanding on the Record Date.
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON.
June , 1996
By Order of the Board of Directors
Sam Tramiel
President
<PAGE> 6
JTS CORPORATION
166 BAYPOINTE PARKWAY
SAN JOSE, CALIFORNIA 95134
(408) 468-1800
Dear Stockholder:
A Special Meeting of Stockholders (the "Special Meeting") of JTS
Corporation ("JTS") will be held at JTS' offices located at 166 Baypointe
Parkway, San Jose, California on Thursday, July , 1996 at 9:00 a.m.
At the Special Meeting, you will be asked to consider and vote upon the
approval of an Amended and Restated Agreement and Plan of Reorganization dated
as of April 8, 1996 (the "Merger Agreement"), between JTS and Atari Corporation
("Atari"), and the merger of Atari with and into JTS (the "Merger").
Pursuant to the Merger Agreement, upon consummation of the Merger, all
outstanding shares of Atari Common Stock will be converted into shares of JTS
Common Stock. Following consummation of the Merger (assuming no exercise of
outstanding options to purchase JTS Common Stock or Atari Common Stock after May
22, 1996), the former stockholders of Atari will hold approximately 62% of the
outstanding capital stock of JTS.
JTS' Board of Directors has unanimously approved the Merger and the Merger
Agreement and has determined that they are fair to, and in the best interests
of, JTS and its stockholders. The Board of Directors recommends a vote FOR the
Merger and the Merger Agreement.
In the materials accompanying this letter, you will find a Notice of
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to
the actions to be taken at the Special Meeting and a proxy card. The Joint Proxy
Statement/Prospectus provides more detailed information regarding the proposed
Merger and related matters, includes information about JTS and Atari and
discusses the Board's reasons for recommending the Merger.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. IN
ORDER TO ENSURE THAT YOUR VOTE WILL BE COUNTED, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON. IF YOU ATTEND THE
SPECIAL MEETING IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
June , 1996
Sincerely,
David T. Mitchell
Chief Executive Officer and President
<PAGE> 7
JTS CORPORATION
166 BAYPOINTE PARKWAY
SAN JOSE, CALIFORNIA 95134
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY , 1996
To the Stockholders of JTS Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of JTS Corporation, a Delaware corporation ("JTS"), will be held on
Thursday, July , 1996, at 9:00 a.m., at JTS' offices located at 166 Baypointe
Parkway, San Jose, California.
The Special Meeting is for the purpose of considering and acting upon:
1. A proposal to approve (a) the Amended and Restated Agreement and Plan
of Reorganization dated as of April 8, 1996 (the "Merger Agreement") between JTS
and Atari Corporation, a Nevada Corporation ("Atari"), and (b) the merger of
Atari with and into JTS (the "Merger"). Pursuant to the terms of the Merger
Agreement, each outstanding share of Atari Common Stock will be converted into
one share of JTS Common Stock, and each outstanding option to acquire Atari
Common Stock will become an option to acquire JTS Common Stock.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Merger is more fully described in, and the Merger Agreement is attached
in its entirety to, the Joint Proxy Statement/Prospectus accompanying this
Notice.
Only stockholders of record of JTS Common Stock and JTS Series A Preferred
Stock at the close of business on June 18, 1996 (the "Record Date") are entitled
to notice of, and to vote at, the Special Meeting, or at any postponement(s) or
adjournment(s) thereof.
Approval of the Merger and the Merger Agreement will require the
affirmative vote of the holders of (a) a majority of the shares of JTS Common
Stock and JTS Series A Preferred Stock outstanding on the Record Date, voting
together, and (b) at least two-thirds of the shares of JTS Series A Preferred
Stock outstanding on the Record Date, voting separately as a class. If the
Merger is consummated, stockholders of JTS who do not vote in favor of the
Merger and the Merger Agreement and who otherwise comply with Section 262 of the
Delaware General Corporation Law or Chapter 13 of the California General
Corporation Law will be entitled to statutory appraisal or dissenters' rights.
See "The Proposed Merger and Related Transactions -- Appraisal and Dissenters'
Rights" and Appendices D-1 and D-2 to the accompanying Joint Proxy
Statement/Prospectus.
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON.
June , 1996
By Order of the Board of Directors
David T. Mitchell
Chief Executive
Officer and President
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE , 1996
JTS CORPORATION
PROSPECTUS
------------------------------------
JOINT PROXY STATEMENT
ATARI CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY , 1996
JTS CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY , 1996
------------------------------------
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") of Atari Corporation ("Atari") and JTS Corporation
("JTS") is being used (a) to solicit proxies on behalf of Atari from holders of
the outstanding Common Stock of Atari (the "Atari Common Stock") in connection
with the Special Meeting of Stockholders of Atari to be held on July , 1996
(the "Atari Special Meeting"), and (b) to solicit proxies on behalf of JTS from
holders of the outstanding JTS Common Stock (the "JTS Common Stock") and JTS
Series A Preferred Stock (the "JTS Series A Preferred Stock") in connection with
the Special Meeting of Stockholders of JTS to be held on July , 1996 (the "JTS
Special Meeting").
At the meetings referred to above, the stockholders of Atari and JTS will
be asked to consider and vote upon the approval of (a) the Amended and Restated
Agreement and Plan of Reorganization between Atari and JTS dated as of April 8,
1996 (the "Merger Agreement"), a copy of which is attached hereto as Appendix A
and incorporated herein by reference, and (b) the merger of Atari with and into
JTS (the "Merger").
Upon consummation of the Merger, Atari will be merged with and into JTS,
the separate existence of Atari will cease, JTS will remain as the surviving
corporation and all of the rights, privileges, powers, franchises, properties,
assets, liabilities and obligations of Atari will be vested in JTS. At the
effective time of the Merger, each outstanding share of Atari Common Stock will
be converted into one share of JTS Common Stock. See "The Proposed Merger and
Related Transactions--Summary of the Merger Agreement--Manner and Basis of
Converting Atari Common Stock."
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
JTS under the Securities Act of 1933, as amended (the "Securities Act"), for the
offering of up to 63,735,718 shares of JTS Common Stock in connection with the
Merger. This prospectus does not cover resales of the JTS Common Stock to be
issued in connection with the Merger and no person is authorized to use this
prospectus in connection with any resale.
The information set forth in this Joint Proxy Statement/Prospectus
regarding Atari has been furnished by Atari and the information set forth in
this Joint Proxy Statement/Prospectus regarding JTS has been furnished by JTS.
This Joint Proxy Statement/Prospectus is being mailed to stockholders of
Atari and JTS on or about June , 1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE
CONSIDERED IN CONNECTION WITH APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
------------------------------------
NEITHER THIS TRANSACTION NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS
JOINT PROXY STATEMENT/PROSPECTUS HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JUNE , 1996.
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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SUMMARY............................................................................. 6
The Parties to the Proposed Merger................................................ 6
Atari Special Meeting of Stockholders............................................. 6
JTS Special Meeting of Stockholders............................................... 7
The Merger........................................................................ 7
Market Price of Common Stock...................................................... 11
Risk Factors...................................................................... 11
Atari Historical Selected Consolidated Financial Data............................. 12
JTS and Moduler Electronics Unaudited Selected Financial Data..................... 13
Atari and JTS Unaudited Selected Pro Forma Combined Financial Data................ 14
Comparative Per Share Data........................................................ 15
RISK FACTORS........................................................................ 16
Risk Factors Related to the Business of Atari..................................... 16
Risk Factors Related to the Business of JTS....................................... 18
Other Risk Factors Related to the Merger.......................................... 24
INTRODUCTION........................................................................ 27
VOTING AND PROXIES.................................................................. 28
Date, Time and Place of Special Stockholder Meetings.............................. 28
Record Date and Outstanding Shares................................................ 28
Voting and Revocability of Proxies................................................ 28
Stockholder Votes Required........................................................ 29
Solicitation of Proxies; Expenses................................................. 30
Appraisal and Dissenters' Rights.................................................. 30
THE PROPOSED MERGER AND RELATED TRANSACTIONS........................................ 31
Background and Board Recommendations.............................................. 31
Summary of the Merger Agreement................................................... 39
Certain Other Items Related to the Merger......................................... 46
Related Transactions.............................................................. 48
Appraisal and Dissenters' Rights.................................................. 49
Certain Federal Income Tax Considerations......................................... 53
STOCK PRICE AND DIVIDEND INFORMATION................................................ 55
JTS' ACQUISITION OF THE DISK DRIVE DIVISION OF MODULER ELECTRONICS.................. 56
JTS CORPORATION AND MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS....................... 57
ATARI CORPORATION AND JTS CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS.............................................................. 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL CONDITION AND
PRO FORMA COMBINED RESULTS OF OPERATIONS OF THE COMBINED COMPANY FOR THE QUARTER
ENDED MARCH 31, 1996.............................................................. 67
INFORMATION REGARDING ATARI CORPORATION............................................. 68
Business of Atari................................................................. 68
Selected Consolidated Financial Data of Atari..................................... 73
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Atari............................................................ 74
Management of Atari............................................................... 79
Principal Stockholders of Atari................................................... 80
INFORMATION REGARDING JTS CORPORATION............................................... 82
Business of JTS................................................................... 82
JTS and Moduler Electronics Unaudited Selected Financial Data..................... 91
Management's Discussion and Analysis of Financial Condition and Results of
Operations of JTS.............................................................. 92
Management of JTS................................................................. 96
</TABLE>
2
<PAGE> 10
<TABLE>
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PAGE
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Certain Transactions................................................................ 103
Principal Stockholders of JTS....................................................... 106
DESCRIPTION OF CAPITAL STOCK OF ATARI AND JTS....................................... 108
Atari Capital Stock............................................................... 108
JTS Capital Stock................................................................. 108
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ATARI AND JTS AND THE COMBINED COMPANY...... 111
LEGAL MATTERS....................................................................... 116
EXPERTS............................................................................. 116
STOCKHOLDER PROPOSALS............................................................... 117
INDEX TO FINANCIAL STATEMENTS....................................................... F-1
APPENDICES
A Amended and Restated Agreement and Plan of Reorganization...................... A-1
B-1 Form of Atari Voting Agreement................................................ B-1-1
B-2 Form of JTS Voting Agreement.................................................. B-2-1
C Montgomery Securities Fairness Opinion......................................... C-1
D-1 Section 262 of the Delaware General Corporation Law........................... D-1-1
D-2 Chapter 13 of the California General Corporation Law.......................... D-2-1
</TABLE>
3
<PAGE> 11
AVAILABLE INFORMATION
Atari is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York, New York 10048. Copies of such material may also be obtained
from the Commission at prescribed rates by writing to the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, material filed by Atari can be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006.
Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Atari and JTS to approve the Merger and the Merger
Agreement constitutes an offering of the JTS Common Stock to be issued in
connection with the Merger. Accordingly, JTS has filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act with respect to such offering. This Joint Proxy
Statement/Prospectus constitutes the prospectus of JTS that is filed as part of
the Registration Statement. Other parts of the Registration Statement are
omitted from this Joint Proxy Statement/Prospectus in accordance with the rules
and regulations of the Commission. Copies of the Registration Statement,
including exhibits thereto, may be inspected, without charge, at the offices of
the Commission referred to above, or obtained at prescribed rates from the
Public Reference Section of the Commission at the address set forth above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SHARES OF JTS COMMON STOCK TO BE ISSUED IN THE MERGER, OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
4
<PAGE> 12
TRADEMARKS
This Joint Proxy Statement/Prospectus contains registered and other
trademarks and tradenames of Atari, JTS and other companies.
------------------
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth below. Reference is made to the particular
discussions set forth under "Information Regarding Atari
Corporation -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of Atari" and "Information Regarding JTS
Corporation -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of JTS." In connection with forward-looking statements
that appear in these disclosures, stockholders of Atari and JTS should carefully
review the factors set forth in the Joint Proxy Statement/Prospectus including,
but not limited to, those discussed under "Risk Factors -- Risk Factors Related
to the Business of Atari -- Significant Operating Losses; Disappointing Sales of
Jaguar Products," "-- Risk of Substantial Inventory Write-Downs," "-- Risk of
Potential Liabilities," "-- Intellectual Property," "-- Competition," "-- Risks
of Bridge Loan to JTS," "-- Reduction in Voting Control; Loss of Management
Control," "-- Risk Factors Related to the Business of JTS -- Limited Operating
History; Working Capital Deficit; Independent Accountants' Report and
Explanatory Paragraph," "-- Need for Additional Financing," "-- Highly
Competitive Market," "-- Uncertainty of Market Acceptance; Lengthy Sales Cycle,"
"-- Rapid Technological Change," "Recent Significant Appreciation in Price of
Atari Common Stock," "-- Availability of Components and Materials; Dependence on
Suppliers," "-- Cyclical Nature of Disk Drive and Computer Industries,"
"-- Dependence on Compaq Relationship; Customer Concentration," "-- Reliance on
Licensed Technology," "-- Intellectual Property and Proprietary Rights,"
"-- Expansion of Manufacturing Capacity," "-- Production Yields; Product
Quality," "-- Management of Growth," "-- Variability of Operating Results,"
"-- Dependence on Single Manufacturing Facility," "Risks of International Sales
and Manufacturing," "-- Dependence on Key Management Personnel," "-- Other Risk
Factors Related to the Merger," "-- Utilization of Net Operating Losses,"
"-- Control by Affiliates; Anti-takeover Effects" and "-- Diversion of
Management Attention." Certain statements contained within this Joint Proxy
Statement/Prospectus have been specifically identified as forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. However, the failure to specifically identify other
statements as forward-looking statements shall not be construed to imply that
such statements do not necessarily qualify as such within the meaning of the
applicable Securities Act and Exchange Act provisions.
5
<PAGE> 13
SUMMARY
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Atari Corporation, a Nevada corporation ("Atari"), with and into
JTS Corporation, a Delaware corporation ("JTS"), and certain related matters.
Upon consummation of the Merger, the separate existence of Atari will cease and
JTS will remain as the surviving corporation. Such corporation is sometimes
referred to herein as the "Combined Company." Unless otherwise indicated, all
references herein to Atari include Atari and its subsidiaries, and all
references herein to JTS include JTS and its subsidiaries, including Moduler
Electronics (India) Pvt. Ltd. ("Moduler Electronics").
The following is intended as a summary of the information contained in this
Joint Proxy Statement/Prospectus, is not intended to be a complete statement of
all material features of the proposals to be voted on, and is qualified in its
entirety by the more detailed information appearing elsewhere in this Joint
Proxy Statement/Prospectus and attached Appendices, including the Amended and
Restated Agreement and Plan of Reorganization attached hereto as Appendix A (the
"Merger Agreement") and the forms of Voting Agreement attached hereto as
Appendix B-1 and B-2 (the "Voting Agreements"), all of which are important and
should be carefully reviewed.
In May 1996, the JTS stockholders approved, subject to the closing of the
Merger, (i) an amendment and restatement of the JTS Certificate of Incorporation
to, among other things, increase the authorized shares of JTS Common Stock, and
(ii) an amendment and restatement of the JTS Bylaws. In addition, the holders of
the JTS Series A Preferred Stock elected to convert all outstanding shares of
JTS Series A Preferred Stock into shares of JTS Common Stock immediately prior
to the closing of the Merger. Unless otherwise indicated, all information
contained herein reflects the foregoing changes to the Certificate of
Incorporation and Bylaws of JTS and the conversion of all outstanding shares of
JTS Series A Preferred Stock into shares of JTS Common Stock.
This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth in this Joint Proxy Statement/Prospectus.
THE PARTIES TO THE PROPOSED MERGER
Atari Corporation. Atari markets video game consoles, related software and
peripheral products and multimedia entertainment software for various platforms.
Atari's principal products are its Jaguar 64-bit interactive multimedia
entertainment system, Jaguar software and Jaguar peripherals. Due to
disappointing sales of Jaguar and related products, in late 1995 Atari
significantly downsized its Jaguar operations, and decided to focus its efforts
on selling its inventory of Jaguar and related products and to emphasize its
licensing and development activities related to multimedia entertainment
software for various platforms.
Atari was incorporated in Nevada in May 1984. Atari maintains its executive
offices at 455 South Mathilda Avenue, Sunnyvale, California 94086, and its
telephone number is (408) 328-0900.
JTS Corporation JTS designs, manufactures and markets hard disk drives for
the personal computer industry. JTS has developed two product families of hard
disk drives: the 3-inch form factor Nordic product family for notebook computers
and the 3.5-inch form factor Palladium product family for desktop personal
computers. In addition, JTS is developing a 5.25-inch form factor disk drive for
desktop personal computers.
JTS was incorporated in Delaware in February 1994. JTS maintains its
executive offices at 166 Baypointe Parkway, San Jose, California 95134, and its
telephone number is (408) 468-1800.
ATARI SPECIAL MEETING OF STOCKHOLDERS
Time, Date, and Purpose. The Atari Special Meeting of Stockholders (the
"Atari Special Meeting") will be held at the offices of Wilson Sonsini Goodrich
& Rosati, P.C., 650 Page Mill Road, Palo Alto, California, legal counsel to
Atari, on Thursday, July , 1996 at 9:00 a.m. The purpose of the Atari Special
Meeting is for Atari stockholders to consider and vote upon a proposal to
approve the Merger and the Merger Agreement.
6
<PAGE> 14
Record Date; Stockholder Approval. The record date for stockholders of
Atari entitled to vote at the Atari Special Meeting is May 22, 1996 (the "Atari
Record Date"). Approval of the Merger and the Merger Agreement requires the
affirmative vote of holders of a majority of the shares of Atari Common Stock
outstanding on the Atari Record Date.
JTS SPECIAL MEETING OF STOCKHOLDERS
Time, Date and Purpose. The JTS Special Meeting of Stockholders (the "JTS
Special Meeting") will be held at the offices of JTS located at 166 Baypointe
Parkway, San Jose, California, on Thursday, July , 1996 at 9:00 a.m. The
purpose of the JTS Special Meeting is for JTS Stockholders to consider and vote
upon a proposal to approve the Merger and the Merger Agreement.
Record Date; Stockholder Approval. The record date for stockholders of JTS
entitled to vote at the JTS Special Meeting is June 18, 1996 (the "JTS Record
Date"). Approval of the Merger and the Merger Agreement requires the affirmative
vote of holders of (a) a majority of the shares of JTS Common Stock and JTS
Series A Preferred Stock outstanding on the JTS Record Date, voting together,
(b) a majority of the shares of JTS Common Stock outstanding on the JTS Record
Date, voting separately as a class, and (c) at least two-thirds of the shares of
JTS Series A Preferred Stock outstanding on the JTS Record Date, voting
separately as a class.
THE MERGER
Effect of the Merger. Upon consummation of the Merger, Atari will be
merged with and into JTS, the separate existence of Atari will cease, JTS will
remain as the surviving corporation and all of the rights, privileges, powers,
franchises, properties, assets, liabilities and obligations of Atari will be
vested in JTS. At the Effective Time (as such term is defined below), each
outstanding share of Atari Common Stock will be converted into one share of JTS
Common Stock. See "The Proposed Merger and Related Transactions -- Summary of
the Merger Agreement -- Manner and Basis of Converting Atari Common Stock."
Immediately after giving effect to the Merger, assuming that no
stockholders of JTS perfect appraisal or dissenters' rights and assuming no
exercise of outstanding options to purchase Atari Common Stock or JTS Common
Stock after May 22, 1996, the shares of JTS Common Stock issued in the Merger
upon conversion of the Atari Common Stock will represent approximately 62% of
the outstanding shares of the Combined Company.
If the Merger does not receive all necessary stockholder approvals or the
Merger is not consummated for any other reason, Atari currently intends to
continue operating its business as presently conducted and will focus on its
existing licensing and software development activities. Atari also expects to
evaluate other strategic business opportunities. If the Merger does not receive
all necessary stockholder approvals or the Merger is not consummated for any
other reason, JTS expects to continue to operate its business as currently
planned and to pursue alternative sources of funding to provide necessary
working capital and to permit the expansion of its operations.
Atari Board of Directors. The Board of Directors of Atari has unanimously
approved the Merger Agreement and the Merger and has determined that the Merger
is fair to, and in the best interests of Atari and its stockholders. The Atari
Board of Directors unanimously recommends approval of the Merger Agreement and
the Merger by the Atari stockholders. The primary factors considered and relied
upon by the Atari Board of Directors in reaching its recommendation are referred
to in "The Proposed Merger and Related Transactions -- Recommendation of the
Board of Directors of Atari."
JTS Board of Directors. The Board of Directors of JTS has unanimously
approved the Merger Agreement and the Merger and has determined that the Merger
is fair to, and in the best interests of JTS and its stockholders. The JTS Board
of Directors unanimously recommends approval of the Merger Agreement and the
Merger by the JTS stockholders. The primary factors considered and relied upon
by the JTS Board of
7
<PAGE> 15
Directors in reaching its recommendation are referred to in "The Proposed Merger
and Related Transactions -- Recommendation of the Board of Directors of JTS."
Stockholder Votes Required. To approve the Merger, a majority of the
shares of Atari Common Stock must approve the Merger. It is expected that all of
the shares of Atari Common Stock owned by directors and executive officers of
Atari and their affiliates will be voted for approval of the Merger. These
shares constitute approximately 44% of the total number of outstanding shares of
Atari Common Stock. Approval of the Merger also requires the vote of holders of
a majority of the JTS Common Stock and Series A Preferred Stock (voting
together), a majority of the JTS Common Stock (voting separately as a class) and
at least two-thirds of the JTS Series A Preferred Stock (voting separately as a
class). It is expected that all of the shares of JTS Common Stock and Series A
Preferred Stock owned by directors and executive officers of JTS and their
affiliates will be voted for approval of the Merger. These shares constitute
approximately 96% of the total number of JTS Common Stock and 48% of the total
number of JTS Series A Preferred Stock.
Opinion of Montgomery Securities. Montgomery Securities ("Montgomery"),
financial advisor to Atari, has delivered to the Atari Board of Directors its
written opinion, dated February 5, 1996, to the effect that the conversion ratio
of Atari Common Stock into JTS Common Stock is fair to Atari from a financial
point of view, as of that date. Reference is made to the full text of the
opinion, a copy of which is attached hereto as Appendix C. See "The Proposed
Merger and Related Transactions -- Background and Board Recommendations -- Atari
Financial Advisor."
Effective Time. The Merger will be consummated on the date that the
Certificate of Merger is filed with the Nevada Secretary of State and the
Delaware Secretary of State (the "Effective Time"). The Effective Time is
expected to occur as soon as practicable after approval of the Merger and the
Merger Agreement at the Atari and JTS Special Meetings and satisfaction or
waiver of the conditions precedent to the Merger, as set forth in the Merger
Agreement.
Listing of Common Stock. The Atari Common Stock is listed on the American
Stock Exchange under the symbol "ATC." There is no public market for the JTS
Common Stock or the JTS Series A Preferred Stock. Upon consummation of the
Merger, it is expected that the JTS Common Stock will be listed on the American
Stock Exchange under the symbol "JTS", and that the Atari Common Stock will be
delisted from the American Stock Exchange.
Exchange of Shares. Exchange of Atari Common Stock certificates for JTS
Common Stock certificates will be made upon surrender of Atari Common Stock
certificates to Registrar and Transfer Company, Cranford, NJ, as exchange agent.
Atari stockholders will be provided with a letter of transmittal and related
materials for the exchange of their certificates after the Effective Time.
ATARI STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE INSTRUCTIONS AND TRANSMITTAL FORMS AFTER COMPLETION OF THE MERGER.
Assumption of Atari Options. Upon consummation of the Merger, each option
to purchase Atari Common Stock then outstanding will be assumed by JTS and will
be converted automatically into an option to purchase the same number of shares
of JTS Common Stock at an exercise price per share equal to the exercise price
per share of the Atari option. The other terms of the Atari options, including
vesting schedules, will remain unchanged.
Registration Statement on Form S-8. Within five days following the closing
of the Merger, JTS will file a Registration Statement on Form S-8 with the
Commission with respect to the shares of JTS Common Stock issuable upon exercise
of the assumed Atari options and JTS options granted or available for grant
under the JTS amended and restated 1995 Stock Option Plan (the "Restated Plan").
Assumption of Atari Debentures. Upon consummation of the Merger, all of
Atari's obligations under its outstanding 5 1/4% convertible subordinated
debentures due April 29, 2002 (the "Atari Debentures") will be assumed by JTS.
The Atari Debentures are presently convertible into Atari Common Stock at a
conversion
8
<PAGE> 16
price of $16.3125 per share, and following the Merger will be convertible into
JTS Common Stock at the same conversion price. The other terms of the Atari
Debentures will remain unchanged.
Conditions to Consummation of the Merger. Consummation of the Merger is
subject to various conditions precedent, including Atari and JTS stockholder
approvals of the Merger and the Merger Agreement, the receipt of certain
consents and approvals from various third parties and governmental agencies,
receipt of opinions of counsel regarding certain legal matters, including
opinions of tax counsel to the effect that the Merger will qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that stockholders of JTS holding not more than 5% of
the JTS capital stock entitled to vote at the JTS Special Meeting shall be
entitled to exercise appraisal or dissenters' rights. Each of the parties to the
Merger Agreement may, at its option, waive compliance with any condition
precedent to its obligation to consummate the Merger. In the event that a
condition to consummation of the Merger is not satisfied, each party whose
obligation to consummate the Merger is subject to satisfaction of such condition
intends to evaluate whether it would be in the best interests of that party and
its stockholders to waive the condition and consummate the Merger. In the event
that a condition to consummation of the Merger is waived by one of the parties
and applicable law requires that party to resolicit stockholder approval,
stockholder approval will be resolicited prior to consummation. For example,
stockholder approval would be resolicited in the event that such waiver would
result in an alteration or change in (a) the amount or kind of consideration to
be received by the Atari stockholders in exchange for their shares of Atari
Common Stock as a result of the Merger, (b) any term of the Certificate of
Incorporation of JTS to be effected by the Merger or (c) any of the terms and
conditions of the Merger Agreement if such alteration or change would adversely
affect the holders of JTS Common Stock or Atari Common Stock. Neither Atari nor
JTS presently has any intention of waiving any terms or conditions of the Merger
Agreement.
Termination and Amendment of Merger Agreement. The Merger Agreement may be
terminated, notwithstanding its approval by the stockholders of Atari or JTS,
(a) by mutual written agreement of the parties, (b) by Atari if there has been a
breach of any representation, warranty, covenant or agreement in the Merger
Agreement on the part of JTS which has or can reasonably be expected to have a
material adverse effect on JTS and its subsidiaries, taken as a whole, or upon
the occurrence of certain other events, (c) by JTS if there has been a breach of
any representation, warranty, covenant or agreement in the Merger Agreement on
the part of Atari which has or can reasonably be expected to have a material
adverse effect on Atari and its subsidiaries, taken as a whole, or upon the
occurrence of certain other events, or (d) by Atari or JTS if (i) the closing of
the Merger does not occur by July 31, 1996, (ii) there should be a final
nonappealable order of federal or state court preventing consummation of the
Merger, (iii) the JTS or Atari stockholders do not approve the Merger at their
respective stockholders' meetings, or (iv) the Atari Board of Directors shall
have accepted, approved or recommended to the Atari stockholders a superior
acquisition proposal. In addition, the Merger Agreement may be amended by the
mutual consent of the parties at any time prior to the Effective Time, whether
or not the Merger has been approved by the stockholders of Atari or JTS but,
after any such approval, no amendment will be made which by law requires further
approval by such stockholders without such further approval. See "The Proposed
Merger and Related Transactions -- Summary of the Merger Agreement --
Termination, Amendment and Waiver."
Availability of Appraisal and Dissenters' Rights. Under Section 262 of the
Delaware General Corporation Law ("DGCL"), a copy of which is attached hereto as
Appendix D-1, and Chapter 13 of the California General Corporation Law ("CGCL"),
a copy of which is attached hereto as Appendix D-2, stockholders of JTS may,
under certain circumstances and by following prescribed statutory procedures,
have the right to seek appraisal of the "fair value" of such stockholders'
shares. The failure of a stockholder choosing to execute such right to follow
such procedures may result in termination or waiver of appraisal and dissenters'
rights. See "The Proposed Merger and Related Transactions -- Appraisal and
Dissenters' Rights." The obligation of Atari to consummate the Merger is subject
to the condition that the holders of not more than 5% of the JTS capital stock
entitled to vote at the JTS Special Meeting shall have asserted and not
effectively withdrawn or lost the right to obtain the fair value of such
holders' shares pursuant to the applicable provisions of the DGCL and CGCL.
9
<PAGE> 17
The stockholders of Atari are not entitled to statutory appraisal or
dissenters' rights pursuant to the applicable provisions of the Nevada General
Corporation Law ("NGCL").
Resale of JTS Common Stock. The shares of JTS Common Stock to be issued to
former holders of Atari Common Stock in the Merger have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), by a Registration
Statement on Form S-4, of which this Joint Proxy Statement/Prospectus is a part,
thereby allowing such shares of JTS Common Stock to be traded without
restriction under the Securities Act by all such holders not deemed to be
"affiliates" (as such term is defined for purposes of Rule 145 promulgated under
the Securities Act) of Atari prior to the consummation of the Merger. See "The
Proposed Merger and Related Transactions -- Certain Other Items Related to the
Merger -- Resale of JTS Common Stock."
Certain Federal Income Tax Considerations. The obligations of each of
Atari and JTS to consummate the Merger are conditioned upon receipt of opinions
from their respective legal counsel that the Merger will qualify as a
reorganization for federal income tax purposes under Section 368(a) of the Code
and that, accordingly, no gain or loss ordinarily will be recognized by JTS or
Atari nor by Atari stockholders upon their receipt of shares of JTS Common Stock
in exchange for their shares of Atari Common Stock, except to the extent of cash
received for fractional shares, if any. Such legal opinions will be subject to
certain limitations and qualifications and will be based upon certain factual
assumptions and representations. Furthermore, such opinions will not be binding
on the Internal Revenue Service. In view of the complexities of federal income
and other tax laws, each Atari and JTS stockholder should consult with their own
tax advisors as to the specific tax consequences of the Merger, including the
applicable federal, state, local and foreign tax consequences to them of the
Merger in their specific circumstances.
Accounting Treatment. For accounting purposes, the Merger is treated as if
Atari acquired JTS. A new basis of accounting will be established for the assets
and liabilities of JTS. The new basis reflects the allocation of the purchase
price to the JTS assets and liabilities on the basis of their fair values at the
time the proposed transaction was announced. The aggregate purchase price to be
allocated includes the outstanding common stock of JTS, valued using $2.50 per
share which is the representative value of the Atari Common Stock at the time
the proposed transaction was announced, as well as the value of JTS options and
warrants and direct costs of the acquisition. Subsequent to the Merger, the
financial statements of the Combined Company will reflect the combined financial
position, results of operations and cash flows of Atari and JTS based on the new
basis of accounting for JTS and the historic cost basis of Atari. Pro forma
combined condensed financial statements are presented herein giving effect to
the Merger as if the transaction occurred, for purposes of the pro forma
combined financial position of the Combined Company, on March 31, 1996, and for
purposes of the pro forma combined results of operations of the Combined
Company, on the first day of each of the periods presented. The allocation of
the purchase price in the pro forma statements was based on a preliminary
independent appraisal of the fair value of the JTS assets acquired and
liabilities assumed which will be revised as updated information becomes
available at the Effective Time. Under the purchase accounting method, giving
effect to the Merger, existing technology and goodwill in the amount of
approximately $22.0 million and $11.7 million, respectively, are expected to be
recognized by the Combined Company. It is anticipated that the Combined Company
will amortize the resulting existing technology and goodwill over periods of
three and seven years, respectively, which will have an adverse effect on its
results of operations. In addition, upon the consummation of the Merger, in the
third quarter of calendar year 1996, the Combined Company expects to expense
approximately $100.0 million of purchased in-process technology. See "Unaudited
Pro Forma Combined Condensed Financial Statements."
Atari Loan to JTS. In connection with the merger, on February 13, 1996,
Atari loaned $25.0 million to JTS pursuant to a Subordinated Secured Convertible
Promissory Note (the "Note") which is secured by substantially all of the assets
of JTS. Interest accrues on the unpaid principal amount of the Note at the rate
of 8.5% per annum. The Note provides that JTS shall repay the outstanding
principal and interest under the Note on September 30, 1996 if the Merger has
not occurred prior to such time. In the event that the Merger Agreement is
terminated, either party may, under certain conditions, elect to convert the
outstanding indebtedness under the Note into shares of JTS Series A Preferred
Stock. The Note is expressly subordinated
10
<PAGE> 18
to outstanding indebtedness in connection with JTS' primary bank loan agreement,
up to an amount of $5.0 million at any given time.
Related Transactions. In connection with the Merger, the parties have
effected or will effect a number of related party transactions, including the
grant of certain stock options by JTS. In addition, pursuant to the Voting
Agreements, certain stockholders of Atari and JTS have agreed to vote the shares
of Atari Common Stock, JTS Common Stock and JTS Series A Preferred Stock held by
them for the approval of the Merger and the Merger Agreement. See "The Proposed
Merger and Related Transactions -- Related Transactions."
Interests of Certain Persons. Certain members of the management of JTS
have certain interests in connection with the Merger that are in addition to the
interests of stockholders of JTS generally. See "The Proposed Merger and Related
Transactions -- Certain Other Items Related to the Merger -- Interests of
Certain Persons in the Merger."
Differences in Rights of Stockholders. Upon consummation of the Merger,
stockholders of Atari will become stockholders of JTS. As a result, their rights
as stockholders, which are now governed by the NGCL and the Articles of
Incorporation and Bylaws of Atari, will be governed by the DGCL and the
Certificate of Incorporation and Bylaws of the Combined Company. Because of
certain differences between the provisions of the NGCL and the Articles of
Incorporation and Bylaws of Atari, on the one hand, and the DGCL and the
Certificate of Incorporation and Bylaws of the Combined Company, on the other
hand, the current rights of the stockholders of Atari will change after the
Merger. See "Comparison of Rights of Stockholders of Atari and JTS."
MARKET PRICE OF COMMON STOCK
Atari Common Stock is traded on the American Stock Exchange under the
symbol "ATC." There is no public market for the JTS Common Stock or the JTS
Series A Preferred Stock. The closing price per share of Atari Common Stock was
$1 7/8 at February 12, 1996, the last day of trading before the announcement of
the Merger, and $ at June , 1996, the latest trading day before the
filing of this Joint Proxy Statement/Prospectus with the Commission.
RISK FACTORS
The consummation of the Merger and the Merger Agreement and an investment
in the shares of JTS Common Stock each involve a high degree of risk. Before
voting on the Merger, stockholders of Atari and JTS should carefully consider
the information set forth in "Risk Factors."
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<PAGE> 19
ATARI HISTORICAL SELECTED CONSOLIDATED FINANCIAL DATA
The following historical selected consolidated financial data of Atari have
been derived from the historical consolidated financial statements of Atari and
should be read in conjunction with such consolidated financial statements and
notes thereto, included elsewhere herein, with the exception of the Atari
Consolidated Statement of Operations Data prior to fiscal 1993 and the Atari
Consolidated Balance Sheet Data prior to December 31, 1994, which were derived
from historical consolidated financial statements not included herein. The
unaudited quarterly financial data reflects all adjustments (which include only
normal, recurring adjustments), which are, in the opinion of management,
necessary to state fairly the results for the periods presented. The results for
such periods are not necessarily indicative of the results to be expected for
the full fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, FISCAL YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues................... $ 1,272 $ 4,874 $ 14,626 $ 38,748 $ 29,108 $127,340 $257,992
Cost of revenues................. 6,211 3,846 44,234 35,200 42,768 132,455 189,598
Research and development
expenses....................... 201 1,815 5,410 5,775 4,876 9,171 15,333
Marketing and distribution
expenses....................... 758 2,576 12,726 14,651 8,980 31,125 48,249
General and administrative
expenses....................... 1,251 1,795 5,921 7,169 7,558 16,544 23,495
Restructuring charges............ -- -- -- -- 12,425 17,053 --
Operating loss................... (7,149) (5,158) (53,665) (24,047) (47,499) (79,008) (18,683)
Other income (expense), net(1)... 6,343 685 3,507 33,441 (1,631) (4,145) 42,288
Income tax credit................ -- -- -- -- 264 434 54
Income (loss) from continuing
operations..................... (806) (4,473) (50,158) 9,394 (48,866) (82,719) 23,659
Discontinued operations.......... -- -- -- -- -- 9,000 --
Income (loss) before
extraordinary
credit......................... (806) (4,473) (50,158) 9,394 (48,866) (73,719) 23,659
Extraordinary credit............. -- 47 582 -- -- 104 1,960
Net income (loss)................ (806) (4,426) (49,576) 9,394 (48,866) (73,615) 25,619
Earnings (loss) per common share:
Income (loss) from continuing
operations..................... (0.01) (0.07) (0.79) 0.16 (0.85) (1.44) 0.41
Income (loss) before
extraordinary
credit......................... (0.01) (0.07) (0.79) 0.16 (0.85) (1.29) 0.41
Net income (loss)................ (0.01) (0.07) (0.78) 0.16 (0.85) (1.28) 0.44
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Current assets...................... $ 55,976 $ 65,126 $113,188 $ 51,388 $109,551 $239,296
Working capital..................... 47,200 55,084 92,670 33,896 75,563 159,831
Total assets........................ 68,406 77,569 131,042 74,833 138,508 253,486
Current liabilities................. 8,776 10,042 20,518 17,492 33,988 79,465
Long-term obligations............... 42,354 42,354 43,454 52,987 53,937 48,492
Shareholders' equity................ 17,276 25,173 67,070 4,354 50,583 125,529
</TABLE>
- ---------------
(1) Includes a gain from the sale of marketable securities of $6.3 million in
1996, a gain from the settlement of patent litigation of $32.1 million in
1994 and a gain from the sale of a Taiwan manufacturing facility of $40.9
million in 1991.
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<PAGE> 20
JTS AND MODULER ELECTRONICS UNAUDITED SELECTED FINANCIAL DATA
The following unaudited selected pro forma combined financial data of JTS
and Moduler Electronics presents the pro forma combined financial position and
results of operations of JTS and Moduler Electronics as of and for the year
ended January 28, 1996 and for the three months ended April 28, 1996 and April
30, 1995. These unaudited selected pro forma financial data combine JTS and
Moduler Electronics giving effect to the JTS and Moduler Electronics
combination, which was accounted for as a purchase. The April 28, 1996 balance
sheet reflects the acquisition of Moduler Electronics which took place on April
4, 1996. Intercompany balances and transactions have been eliminated in the
presentation. This financial data should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Financial Statements and related notes
and the historical financial statements and related notes of JTS and Moduler
Electronics which are included elsewhere herein. All amounts are stated in
thousands, except per share amounts.
<TABLE>
<S> <C>
Statement of Operations Data:
Year Ended January 28, 1996 (Pro forma) --
Net revenues........................................................ $ 18,777
Gross margin (deficit).............................................. (14,849)
Research and development............................................ 13,375
Selling, general and administrative expenses........................ 5,777
Operating loss...................................................... (34,001)
Net loss............................................................ (35,170)
Loss per common share(1)............................................ (7.63)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
APRIL 28, 1996 APRIL 30, 1995
<S> <C> <C>
Quarters ended April 28, 1996 and April 30, 1995 (Pro
forma) --
Total revenues.............................................. $ 17,581 $2,077
Operating loss.............................................. (12,098) (1,203)
Net loss.................................................... (12,820) (1,143)
Net loss per share(1)....................................... (1.47) (.26)
</TABLE>
<TABLE>
<CAPTION>
APRIL 28, 1996 JANUARY 28, 1996
(ACTUAL) (PRO FORMA)
-------------- ----------------
<S> <C> <C>
Balance Sheet Data:
Current assets.......................................... $ 30,474 $ 12,722
Equipment and leasehold improvements, net............... 16,212 14,795
Total assets............................................ 46,871 28,111
Current liabilities..................................... 61,669 30,615
Long-term debt.......................................... 6,381 6,248
Redeemable Series A Preferred Stock..................... 29,697 29,696
Stockholders' deficit................................... (50,876) (38,448)
</TABLE>
- ---------------
(1) Excludes JTS Series A Preferred Stock, warrants and options as their effect
would be antidilutive.
13
<PAGE> 21
ATARI AND JTS UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth the unaudited selected pro forma combined
financial data for the periods and as of the date indicated which are derived
from the Unaudited Pro Forma Combined Condensed Financial Statements (the "Pro
Forma Financial Statements") which present the pro forma combined condensed
financial position and results of operations of Atari and JTS. The unaudited pro
forma condensed combined balance sheet has been prepared as if the Merger, which
will be accounted for as a purchase of JTS by Atari, was consummated as of March
31, 1996. The unaudited pro forma condensed combined statements of operations
give effect to the Merger as if the acquisition were completed at the beginning
of the periods presented. The Pro Forma Financial Statements combine the
historical results of operations of Atari for the year ended December 31, 1995
with the JTS and Moduler Electronics unaudited pro forma combined results of
operations for the year ended January 28, 1996 and the historical financial
position and results of operations of Atari as of and for the quarter ended
March 31, 1996 with the historical financial position and results of operations
of JTS as of and for the quarter ended April 28, 1996.
The unaudited selected pro forma combined financial data is provided for
illustrative purposes only and is not necessarily indicative of the combined
financial position or combined results of operations that would have been
reported had the Merger occurred on the dates indicated, nor do they represent a
forecast of the combined financial position or results of operations for any
future period. No pro forma adjustments have been included herein which reflect
potential effects of (a) efficiencies which may be obtained by combining Atari
and JTS operations or (b) costs of restructuring, integrating or consolidating
their operations. The unaudited selected pro forma combined financial data
should be read in conjunction with the Pro Forma Financial Statements and
related notes, and the historical financial statements and related notes of
Atari and JTS which are included elsewhere herein. All amounts are stated in
thousands, except for per share amounts.
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
Pro Forma Combined Statement of Operations Data:
Net revenues.................................................. $ 18,853 $33,403
Cost of revenues.............................................. 27,725 86,177
Selling, marketing, general and administrative expenses....... 5,530 26,097
Research and development expenses............................. 7,607 18,785
Operating loss................................................ (22,009) (97,656)
Net loss before extraordinary credit.......................... (22,506) (95,318)
Loss per common share before extraordinary credit............. (0.22) (0.92)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
<S> <C> <C>
Pro Forma Combined Balance Sheet Data:
Current assets................................................ $ 61,450
Working capital............................................... 14,805
Total assets.................................................. 126,756
Current liabilities........................................... 46,645
Long-term debt................................................ 48,735
Stockholders' equity.......................................... 31,376
</TABLE>
14
<PAGE> 22
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Atari
and pro forma combined per share data giving effect to the JTS and Moduler
Electronics combination and the Atari and JTS Merger as if the combination and
Merger were effective January 1, 1995 for the loss per common share data for the
year ended December 31, 1995 and January 1, 1996 for the loss per common share
data for the quarter ended March 31, 1996, and March 31, 1996 for book value per
common share data using the purchase method of accounting. The pro forma
combined per share data are derived from financial information in the Pro Forma
Financial Statements. The pro forma data are not necessarily indicative of
amounts which would have been achieved had the Merger been consummated at the
beginning of the period presented and should not be construed as representative
of future operations. This data should be read in conjunction with the Pro Forma
Financial Statements and notes thereto included elsewhere herein, and the
separate historical financial statements and notes thereto of Atari, JTS and
Moduler Electronics, also included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
COMBINED ATARI,
JTS AND JTS AND
ATARI MODULER MODULER
HISTORICAL ELECTRONICS(1) ELECTRONICS(2)
---------- -------------- --------------
<S> <C> <C> <C>
Loss per common share before extraordinary credit for
the year ended December 31, 1995................... $(0.79) $(7.63) $(0.92)
Loss per common share for the quarter ended March 31,
1996............................................... $(0.01) $(1.47) $(0.22)
Book value per common share at March 31, 1996........ $ 0.27 $(5.40) $ 0.30
Tangible book value per common share at
March 31, 1996..................................... $ 0.26 $(5.42) $(0.03)
</TABLE>
- ---------------
(1) For purposes of this table, the period presented for the unaudited pro forma
combined net loss per share of JTS and Moduler Electronics is the fiscal
year ended January 28, 1996 and the quarter ended April 28, 1996 and the
book values are as of April 28, 1996. Outstanding JTS options, warrants and
JTS Series A Preferred Stock are excluded as their effect would be
antidilutive.
(2) The unaudited pro forma combined per share data assumes conversion of all
JTS Series A Preferred Stock outstanding into JTS Common Stock at the
effective date.
15
<PAGE> 23
RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted on at the Atari Special Meeting and the JTS Special
Meeting. For periods following the Merger, references to the products, business,
results of operations or financial condition of JTS should be considered to
refer to JTS and Atari, unless the context otherwise requires.
RISK FACTORS RELATED TO THE BUSINESS OF ATARI
Significant Operating Losses; Disappointing Sales of Jaguar
Products. Atari has incurred significant operating losses for the past five
fiscal years. Most recently, Atari incurred an operating loss of $53.7 million
for fiscal 1995 and $24.0 million for fiscal 1994. Over the past several years,
Atari has undergone significant change. In 1992 and 1993, Atari significantly
downsized its operations, decided to exit the computer products business and
focused its efforts on its video game business. While restructuring, Atari
developed its 64-bit Jaguar interactive multimedia entertainment system, which
was introduced in the fourth quarter of 1993. For 1995 and 1994, net sales of
Jaguar and related software and accessories were $9.9 million and $29.3 million,
respectively, and were substantially below Atari's expectations. Atari
attributes the poor performance of Jaguar products to a number of factors
including (i) extensive delays in development of software for Jaguar which
resulted in reduced orders due to consumer concern as to when titles for the
platform would be released and how many titles would ultimately be available,
and (ii) the introduction of competing products by Sega Enterprises, Ltd.
("Sega") and Sony Corporation ("Sony") in May 1995 and September 1995,
respectively. Due to disappointing sales and competitive pricing pressures,
Atari reduced the suggested retail price of the Jaguar console from its original
price of $249.99 to its current price of $99.99. As a result of Jaguar price
reductions, the substantial curtailment of sales and marketing activities for
the Jaguar and the substantial curtailment of efforts by Atari and independent
software developers to develop additional software titles for the Jaguar, Atari
expects sales of Jaguar and related products to decline substantially in 1996
and thereafter.
The failure of Jaguar to achieve commercial acceptance has had a severe
financial impact on Atari. In this regard, Atari reported a net loss of $49.6
million for 1995 compared to net income of $9.4 million in 1994, and Atari's net
revenues declined from $38.7 million in 1994 to $14.6 million in 1995.
Accelerated amortization and write-offs of software development costs in the
amount of $16.6 million and inventory write-downs of $12.6 million contributed
significantly to the 1995 loss. The net loss for the first quarter of 1996 was
$800,000 compared to a net loss of $4.4 million for the first quarter of 1995
and Atari's net revenues declined from $4.9 million for the first quarter of
1995 to $1.3 million for the comparable period in 1996. The net loss in the
first quarter of 1996 was impacted by the $6.3 million gain from sale of
marketable securities offset by a $5.0 million inventory write-down in the
quarter. In response to these losses, the number of employees at Atari was
reduced from 101 at December 31, 1994 to 73 at December 31, 1995 and to 31 at
March 31, 1996. In addition to reductions in the Atari workforce, this
downsizing resulted in significant curtailment of research and development and
sales and marketing activities for Jaguar and related products. Accordingly,
Atari has decided to focus its efforts on selling its inventory of Jaguar and
related products and to emphasize its existing licensing and development
activities related to multimedia entertainment software for various platforms.
See "Information Regarding Atari Corporation -- Business of Atari."
Risk of Additional Inventory Write-Downs. From the introduction of Jaguar
in late 1993 through May 1996, Atari sold approximately 135,000 units of Jaguar.
As of December 31, 1995, Atari had approximately 100,000 units of Jaguar in
inventory and the value of Jaguar inventory and related software was
approximately $9.9 million. Due to disappointing sales of Jaguar and increased
competition from products introduced by Sega and Sony, Atari reduced the
suggested retail price of Jaguar to $99.99 and recorded an inventory write-down
of $12.6 million in 1995. Despite the introduction of four additional game
titles in the first quarter of 1996, sales of Jaguar and related software have
remained disappointing due to uncertainty about Atari's commitment to the Jaguar
platform, increased price competition and pending competitive product
introductions. As a result of continued disappointing sales, management revised
estimates and wrote-down inventory by an additional $5.0 million in the first
quarter of 1996. As of the end of May 1996, Atari had approximately 90,000 units
of Jaguar in inventory.
16
<PAGE> 24
Volume sales of Jaguar and related software in 1996 have consisted
primarily of a large order from a new European customer. Atari is also pursuing
wholesale sales channels in the U.S. as well as licensing opportunities. There
can be no assurance that Atari's substantial unsold inventory of Jaguar and
related software can be sold at current or reduced prices, if at all. In
addition, any further decrease in the value of such inventory could result in
additional inventory write-downs by Atari.
Risk of Potential Liabilities. In connection with the restructuring of
Atari's business in 1992 and 1993 and Atari's decision in late 1995 to
significantly downsize its Jaguar operations, Atari has terminated and plans to
terminate numerous contracts and business relationships, including several
related to software development activities. Although Atari does not regard any
of such contracts or business relationships as material, the termination of
contracts and relationships has, from time to time, resulted in litigation,
diverting management and financial resources. There can be no assurance that the
parties to such contracts will not commence or threaten to commence litigation
related to such contracts. Any such litigation or threatened litigation would
further divert management and financial resources and could have a material
adverse effect on Atari's business, operating results and financial condition.
In addition, Atari holds several properties for sale, some of which are
currently being leased. The ownership and use of such properties subjects Atari
to numerous risks, including risks of environmental and personal injury
liabilities. Although Atari is attempting to sell certain of such properties,
such sales are not expected to eliminate all the risks associated with Atari's
ownership of such properties, including potential environmental liabilities and
ongoing indemnification and other contractual obligations. At present, Atari has
no such indemnification obligations and is not aware of any such environmental
liability.
Intellectual Property. Atari has exclusive use of its "Atari" name and
"Fuji" logo in all areas other than coin-operated arcade video game use. Atari
also has a portfolio of other intellectual properties including patents,
trademarks, and copyrights associated with its video game and computer
businesses. Atari believes its patents, trademarks and other intellectual
property are important assets. As of May 31, 1996, Atari held over 150 patents
in the United States and other jurisdictions which expire from 1996 to 2010 and
had applications pending for three additional patents. There can be no assurance
that any of these patent rights will be upheld in the future or that Atari will
be able to preserve any of its other intellectual property rights. Atari has in
the past received communications from third parties asserting rights to certain
of its intellectual property. Atari has also been involved in several major
lawsuits regarding its intellectual property, including a suit with Nintendo of
America, Inc. and its affiliates ("Nintendo.") which was settled in March 1994
and a suit with Sega which was settled in September 1994. In the event any third
party were to make a valid claim with respect to Atari's intellectual property
and a license were not available on commercially reasonable terms, Atari's
business, financial condition and results of operations would be materially and
adversely affected. Litigation, which has in the past resulted and could in the
future result in substantial costs and diversion of resources, may also be
necessary to enforce Atari's patents or other intellectual property rights or to
defend against third party infringement claims. The occurrence of litigation
relating to patent infringement or other intellectual property matters,
regardless of the outcome, could have a material adverse effect on Atari's
business, financial condition and results of operations.
Competition. The video game business is intensely competitive. Since its
introduction in late 1993, the Jaguar, Atari's principal product, has failed to
achieve broad market acceptance. Atari does not expect that the Jaguar, even at
its substantially reduced price, will ever become a broadly accepted video game
console, or that Jaguar technology will be broadly adopted by software title
developers. The video game industry is also characterized by unpredictable and
rapid shifts in the popularity of certain platforms, by severe price
competition, and by frequent new technology and product introductions. In this
regard, numerous companies have introduced or have developed and are expected to
introduce video game consoles that are or may become competitive with Jaguar. In
addition, an increasing number of entertainment titles are being developed for
or ported to the PC platform. Most of Atari's competitors have greater
experience and expertise in 3D graphics and multimedia technology and have
substantially greater engineering, marketing and financial resources than Atari.
17
<PAGE> 25
Risks of Bridge Loan to JTS. In February 1996, Atari loaned $25.0 million
to JTS in connection with the Merger. The loan is due to be repaid by JTS in
September 1996 and is secured by substantially all of the assets of JTS. Atari's
security interest in such assets is junior to existing security interests in
favor of a bank and certain equipment lessors. In the event the Merger is not
consummated, there can be no assurance that Atari's security interest in such
assets will adequately protect Atari in the event JTS is unable to repay the
loan. In addition, the loan is convertible into shares of JTS Series A Preferred
Stock at the option of Atari or JTS upon the occurrence of certain conditions,
including a breach of the Merger Agreement by the other party. In the event such
conversion occurs, Atari would hold a significant percentage of JTS' outstanding
equity securities and would be subject to the numerous risks associated with
JTS' business. There can be no assurance that such securities would be freely
tradeable at the time of conversion, if ever. See "Risk Factors Related to the
Business of JTS."
Reduction in Voting Control; Loss of Management Control. Upon the closing
of the Merger, the stockholders of JTS prior to the Merger will own
approximately 38% of the outstanding voting securities of the Combined Company
(assuming no exercise of options or warrants after May 22, 1996). In addition,
it is anticipated that the executive officers of JTS prior to the Merger will
continue to serve as executive officers of the Combined Company and that none of
the executive officers of Atari prior to the Merger will serve as executive
officers of the Combined Company. Further, the Board of Directors of the
Combined Company will include five current JTS directors and two current Atari
directors. The current JTS officers and directors and their affiliates will own
approximately 23% of the outstanding voting securities of the Combined Company
(assuming no exercise of options or warrants after May 22, 1996). As a result,
such stockholders, acting together, could exert significant influence over
matters requiring approval of the stockholders of the Combined Company. Such
matters include the election of the members of the Combined Company's Board of
Directors, proxy contests, mergers involving the Combined Company, tender offers
or other transactions that could afford stockholders of the Combined Company the
opportunity to realize a premium over the then prevailing market price of the
Common Stock of the Combined Company.
RISK FACTORS RELATED TO THE BUSINESS OF JTS
Limited Operating History; History of Operating Losses; Working Capital
Deficit; Independent Accountants' Report with Explanatory Paragraph. JTS was
incorporated in February 1994 and did not commence production of hard disk
drives until October 1995. JTS experienced operating losses for its fiscal years
ended January 29, 1995 and January 28, 1996 of $5.2 million and $31.6 million,
respectively, which have resulted from the substantial costs associated with the
design, development and marketing of new products, the establishment of
manufacturing operations and the development of a supplier base. At January 28,
1996, JTS had a working capital deficit of $15.2 million and a negative net
worth of $38.6 million. JTS has yet to generate significant revenues and cannot
assure that any level of future revenues will be attained or that JTS will
achieve or maintain successful operations in the future. Such factors have
raised substantial doubt about the ability of JTS to continue its operations
without achieving successful future operations or obtaining financing to meet
its working capital needs, neither of which can be assured. The report of
independent public accountants on JTS' financial statements includes an
explanatory paragraph describing uncertainties concerning the ability of JTS to
continue as a going concern. See "Notes to JTS Financial Statements."
Need For Additional Financing; Current Financing Plans. The hard disk
drive business is extremely capital intensive, and JTS anticipates that it will
need significant additional financing resources in the near term for facilities
expansion, capital expenditures, working capital, research and development and
vendor tooling. In this regard, JTS has held discussions with investment banking
firms regarding the possibility of raising additional capital through the
issuance of debt or equity securities. In June 1996, JTS signed an engagement
letter with an investment banking firm regarding the private issuance of debt
securities convertible into JTS Common Stock. JTS intends for such financing to
close as soon as practicable after the closing of the Merger. However, there can
be no assurance that JTS will be able to consummate such financing on terms
acceptable to JTS or at all. The issuance of equity or convertible debt
securities, upon conversion, would result in dilution of the voting control of
existing stockholders, could result in dilution to earnings per share and would
provide to the holders of convertible debt securities seniority over the holders
of
18
<PAGE> 26
JTS Common Stock issued in the Merger. There can be no assurance that additional
funding will be available on terms acceptable to JTS or at all. The failure to
fund its capital requirements with additional financing would have a material
adverse effect on JTS' business, operating results and financial condition.
Furthermore, certain equipment and receivables financing as well as term loans
made to JTS and Moduler Electronics are contingent on JTS' ability to comply
with stringent financial covenants. There can be no assurance that JTS will be
able to maintain its current financing facilities or obtain additional financing
as needed on acceptable terms or at all. If JTS is unable to obtain sufficient
capital, it would be required to curtail its facilities expansion, capital
expenditures, working capital, research and development and vendor tooling
expenditures, which would materially adversely affect JTS' business, operating
results and financial condition. See "Information Regarding JTS
Corporation -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of JTS -- Liquidity and Capital Resources."
Uncertainty of Market Acceptance; Lengthy Sales Cycle. Since its inception
in February 1994, JTS has primarily engaged in research and development of its
core technology for hard disk drives. JTS' marketing strategy depends
significantly on its ability to establish distribution, licensing, product
development and other strategic relationships with major computer OEMs and on
the willingness and ability of these companies to utilize and to promote JTS'
hard disk drive technology and products. JTS' first commercial product line, the
Palladium family of hard disk drives, was introduced in September 1995 and is
targeted at the desktop personal computer market. JTS' second product line, the
Nordic family of hard disk drives, has been designed for notebook computers. See
"Information Regarding JTS Corporation -- Business of JTS -- Products." There
can be no assurance that any significant market for either product family will
develop. In particular, the Nordic drives use a 3-inch form factor, which JTS
has only recently introduced to the industry. At present, only a limited number
of computer manufacturers are developing or have plans to develop computers that
may accommodate Nordic drives. If additional computer manufacturers do not
modify their existing products or develop new products that are capable of
accommodating 3-inch form factor disk drives, sales of Nordic disk drives and,
hence, JTS' business, operating results and financial condition would be
materially adversely affected.
Qualifying hard disk drives for incorporation into a new computer product
requires JTS to work extensively with the customer and the customer's other
suppliers to meet product specifications. Customers often require a significant
number of product presentations and demonstrations, as well as substantial
interaction with JTS' senior management, before making a purchasing decision.
Accordingly, JTS' products typically have a lengthy sales cycle during which JTS
may expend substantial financial resources and management time and effort with
no assurance that a sale will result.
Highly Competitive Market. The hard disk drive industry is intensely
competitive and dominated by a small number of large companies, including
Quantum Corporation ("Quantum"), Seagate Technology, Inc. ("Seagate"), Western
Digital Corporation ("Western Digital") and Maxtor Corporation ("Maxtor"). In
addition, a number of computer companies, such as Hewlett-Packard Co.
("Hewlett-Packard"), International Business Machines, Inc. ("IBM") and Toshiba
Corporation ("Toshiba"), have in-house or "captive" disk drive manufacturing
operations that produce disk drives for incorporation into their own computers
as well as for sale to other OEMs. Many of JTS' competitors have broader product
lines than JTS, and all have significantly greater financial, technical and
marketing resources. Furthermore, JTS has licensed key 3-inch form factor
technology to Western Digital, a potential competitor in the personal computer
disk drive market. See "Information Regarding JTS Corporation -- Business of
JTS -- Western Digital Arrangement." There can be no assurance that JTS will
develop and manufacture products on a timely basis with the quality and features
necessary to compete effectively. High volume hard disk drive users typically
will only utilize from two to four suppliers. As a result, it may be necessary
for JTS to displace competitors in many circumstances to increase its net sales.
In addition, JTS faces competition from the manufacturing operations of its
current and potential OEM customers, which could initiate or increase internal
production of hard disk drives and reduce or cease purchasing from independent
hard disk drive suppliers such as JTS. Moreover, the hard disk drive industry is
characterized by price erosion and resulting pressure on gross margins. JTS
expects that hard disk drive prices will continue to decline in the future and
that competitors will offer products which meet or exceed the performance
capabilities of JTS products. Due to such pricing pressures, JTS' future gross
margins
19
<PAGE> 27
will be substantially dependent upon its ability to control manufacturing costs,
improve manufacturing yields and introduce new products on a timely basis. Any
increase in price competition would have a material adverse effect on JTS'
business, operating results and financial condition. JTS may also experience
competition from other forms of data storage, including optical storage, flash
memory and holographic storage. If JTS' current and prospective customers and
end users were to adopt such data storage products as an alternative to JTS'
products, JTS' business, operating results and financial condition would be
adversely affected. See "Information Regarding JTS Corporation -- Business of
JTS -- Competition."
Rapid Technological Change; Short Product Life Cycles; Price Erosion. The
hard disk drive industry is characterized by rapid technological change, short
product life cycles and price erosion. As a result, JTS must continually
anticipate change and adapt its products to meet demand for increased storage
capacity. Although JTS intends to engage in a continuous process of developing
new products and production techniques, there can be no assurance that JTS will
anticipate advances in hard disk drive technology and develop products
incorporating such advances in a timely manner to compete effectively against
its competitors' new products. Due to the rapid technological change and
frequent development of new hard disk drive products, it is common in the
industry for the relative mix of customers and products to change rapidly, even
from quarter to quarter. For example, in the first half of 1996, the demand for
1 gigabyte 3.5-inch form factor hard disk drives decreased dramatically due to
increased availability of and demand for larger capacity disk drives. As a
result, pricing pressure on such disk drives increased and gross margins
decreased. Generally, new products have higher average selling prices than more
mature products. Therefore, JTS' ability to introduce new products in a timely
fashion is an important factor in achieving growth and profitability. In
addition, JTS anticipates continued changes in the requirements of its customers
in the computer industry. There can be no assurance that JTS will be able to
develop, manufacture and sell products that respond adequately to such changes
or that future technological innovations will not reduce demand for hard disk
drives. JTS' business, operating results and financial condition would be
materially adversely affected if its development efforts are not successful, if
the technologies that JTS has chosen not to develop prove to be competitive
alternatives or by trends toward technology that would replace hard disk drives
as a storage medium, such as optical storage, flash memory and holographic
storage. As JTS increases its production and shipment of hard disk drives and
expands its product line, JTS' inventory levels will increase. Due to the rapid
rate of change in JTS' business, a large inventory poses the risk of inventory
obsolescence which could have an adverse effect on JTS' business, operating
results and financial condition. In this regard, JTS anticipates incurring
future inventory allowances, the level of which will depend upon a number of
factors, including manufacturing yields, new product introductions, maturity or
obsolescence of product designs, inventory levels and competitive pressures.
Recent Significant Appreciation in Price of Atari Common Stock. The
closing price per share of Atari Common Stock was $1.875 at February 12, 1996,
the last day of trading before announcement of the agreement between JTS and
Atari to merge the two companies. The price of Atari Common Stock has
appreciated significantly since then, notwithstanding the absence of any
significant publicly available information regarding the financial results or
business operations of JTS or the Combined Company and the absence of any
material positive developments in the financial results or business operations
of Atari. See "Price Range of Common Stock." There can be no assurance that the
recent price appreciation of Atari Common Stock is indicative of the price that
will prevail for the JTS Common Stock following completion of the Merger.
Availability of Components and Materials; Dependence on Suppliers. JTS
relies on a limited number of suppliers for many components and materials used
in its manufacturing processes, including recording disks, head stack components
and integrated circuits. At present, JTS does not have multiple suppliers for
all of its materials and component requirements, and there can be no assurance
that JTS will secure more than one source for all of its requirements in the
future or that its suppliers will be able to meet its requirements on a timely
basis or on acceptable terms. Furthermore, JTS does not have contractual
arrangements with any of its sole source suppliers. In particular, JTS presently
relies on sole source suppliers for controller application specific integrated
circuits ("ASICs"), spindle motors, certain head stack components and disk
media. Delays in the receipt of certain components and materials have occurred
in the past, and there can be no assurance that delays will not occur in the
future or that suppliers will not extend lead times. Moreover, changing
20
<PAGE> 28
suppliers for certain materials, such as spindle motors, could require
requalification of JTS' products with some or all of its customers.
Requalification could prevent early design-in wins or could prevent or delay
continued participation in hard disk drive programs for which JTS' products have
been qualified. In addition, long lead times are required to obtain many
materials, such as integrated circuits utilized in JTS' printed circuit board
assemblies ("PCBAs"). Regardless of whether these materials are available from
established or new sources of supply, these lead times could impede JTS' ability
to quickly respond to changes in demand and product requirements. Any
limitations on, or delays in, the supply of materials could disrupt JTS'
production volume and could have a material adverse effect on JTS' business,
operating results and financial condition. In this regard, in the fourth quarter
of fiscal 1996, JTS experienced delays in obtaining certain integrated circuits
required in the assembly of PCBAs due to the supplier's production problems,
which resulted in a significant reduction in production volume during such
period. Such production problems were corrected, but there can be no assurance
that production problems of this type or otherwise will not occur again in the
future. Furthermore, a significant increase in the price of one or more of these
components or materials could adversely affect JTS' business, operating results
and financial condition. In addition, there are only a limited number of
providers of hard disk drive manufacturing equipment, such as servo-writers,
burn-in equipment and final test equipment, and ordering additional equipment
for replacement or expansion involves long lead times, which limit the rate and
flexibility of capacity expansion. Failure to obtain such manufacturing
equipment on a timely basis could limit JTS' production of hard disk drives and
adversely affect JTS' business, operating results and financial condition. See
"Information Regarding JTS Corporation -- Business of JTS -- Manufacturing."
Cyclical Nature of Hard Disk Drive and Computer Industries. JTS' operating
results are dependent on the demand for hard disk drives, which in turn depends
on the demand for notebook and desktop personal computers. The hard disk drive
industry is cyclical and has experienced periods of oversupply, resulting in
significantly reduced demand for hard disk drives, as well as pricing pressures
and reduced production levels. The effect of these cycles has been magnified by
computer manufacturers' practice of ordering components, including hard disk
drives, in excess of their needs during periods of rapid growth. In recent
years, the disk drive industry has experienced significant growth, and JTS
intends to expand its capacity based on current and anticipated demand. There
can be no assurance that such growth will continue or that the level of demand
will not decline. A decline in demand for hard disk drives would have a material
adverse effect on JTS' business, operating results and financial condition.
Additionally, in the past some computer manufacturers have experienced
substantial financial difficulties due to the cyclical nature of the computer
industry and other factors. In this regard, certain personal computer
manufacturers have recently announced reductions in anticipated revenue growth.
Any increased price pressure in the personal computer industry could be passed
through to personal computer component suppliers, including manufacturers of
hard disk drives.To date, JTS has not incurred significant bad debt expense.
However, there can be no assurance that JTS will not face difficulty in
collecting receivables or be required to offer more liberal payment terms in the
future, particularly in a period of reduced demand. Any failure to collect or
delay in collecting receivables could have a material adverse effect on JTS'
business, operating results and financial condition.
Dependence on Compaq Computer Relationship; Customer Concentration. JTS'
strategy to commercialize its products and achieve market acceptance has focused
in large part on the development of distribution, licensing, product development
and other strategic relationships with leading computer companies, other
manufacturers of computer peripherals and recognized distribution organizations.
Through these relationships, JTS seeks to establish its products and
technologies as industry standards. In this regard, JTS has entered into a
Development Agreement with Compaq Computer Corporation ("Compaq") pursuant to
which Compaq has agreed to design JTS' Nordic disk drives into at least one of
Compaq's products and to purchase a minimum number of hard disk drives from JTS
within two years following Compaq's acceptance of the first of such products. In
return, JTS has granted certain licensing rights to Compaq that include a
royalty on the sale of JTS' products to third parties during the term of the
agreement. In order to provide a second source of JTS' products, JTS has entered
into a Technology Transfer and License Agreement with Western Digital pursuant
to which Western Digital has the right to manufacture and sell Nordic disk
drives to Compaq. If either of these agreements were to terminate prematurely,
JTS' efforts to establish market acceptance of its products and, consequently
its business, operating results and financial condition would be
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adversely affected. See "Information Regarding JTS Corporation -- Business of
JTS -- Relationship With Compaq" and "-- Western Digital Arrangement." In fiscal
1996, Olidata S.p.A, Connexe Peripherals, Ltd., Liuski International, Inc. and
Aashima Technology, B.V. accounted for 34%, 12%, 11% and 10%, respectively, of
JTS' total revenue. In the quarter ended April 28, 1996, Peacock Systems GmbH,
Markvision International S.A. and Future Tech accounted for 43%, 18% and 14%,
respectively, of JTS' total revenues. JTS expects that sales to a relatively
small number of OEMs will account for a substantial portion of its net revenues
for the foreseeable future, although the companies that comprise JTS' largest
customers may change from period to period. The loss of, or decline in orders
from, one or more of JTS' key customers would have a material adverse effect on
JTS' business, operating results and financial condition. See "Information
Regarding JTS Corporation -- Business of JTS -- Patents and Licenses."
Reliance on Licensed Technology. JTS owns no patents and has licensed in a
substantial portion of the technology used in its hard disk drives pursuant to
license agreements with Pont Peripherals Corporation, TEAC Corporation and
Western Digital. If such license agreements were prematurely terminated or if
JTS were enjoined from relying upon such licenses due to JTS' alleged or actual
breach of such agreements, JTS would be prevented from manufacturing hard disk
drives incorporating technology subject to such licenses. As a result, JTS'
business, operating results and financial condition would be materially
adversely affected. See "Information Regarding JTS Corporation -- Business of
JTS -- Patents and Licenses."
Intellectual Property and Proprietary Rights. Although JTS attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that JTS will be able to
protect its technology adequately or that competitors will not be able to
develop similar technology independently. There can be no assurance that patents
will be issued with respect to JTS' pending patent applications or that any
future patents will be sufficiently broad to protect JTS' technology. There can
be no assurance that any patent issued to JTS will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
adequate protection to JTS' products. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate JTS'
products or, if patents are issued to JTS, design around the patents issued to
JTS. In addition, the laws of certain foreign countries may not protect JTS'
intellectual property rights to the same extent as do the laws of the United
States.
In recent years, the hard disk drive industry has experienced an increase
in litigation to enforce intellectual property rights. Thus, litigation may be
necessary to enforce JTS' patents, copyrights or other intellectual property
rights, to protect JTS' trade secrets, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement or
claims for indemnification resulting from infringement claims. Such litigation,
even if successful, could result in substantial costs and diversion of resources
and could have a material adverse effect on JTS' business, operating results and
financial condition. Alternatively, if any claims are asserted against JTS, JTS
may seek to obtain a license under the third party's intellectual property
rights or to seek to design around such claims. There can be no assurance,
however, that a license will be available on reasonable terms or at all, and it
could be expensive and time consuming or prove impossible for JTS to design
around such claims. Any of such alternatives could materially and adversely
affect JTS' business, results of operations and financial condition.
Expansion of Manufacturing Capacity. JTS' competitive position will depend
substantially on its ability to expand its manufacturing capacity. Accordingly,
JTS is continuing to make significant investments to expand such capacity,
particularly through the acquisition of capital equipment, facilities expansion
and the hiring and training of new personnel. JTS currently plans to add new
production lines at its existing manufacturing facility in Madras, India during
calendar year 1996 that will utilize all available floor space at this facility.
There can be no assurance that JTS will be able to expand such capacity in a
timely manner, that the cost of such expansion will not exceed management's
current estimates, that such capacity will not exceed the demand for JTS
products or that such additional capacity will achieve satisfactory levels of
manufacturing efficiency in a timely manner or at all. In addition, the
expansion of manufacturing capacity will significantly increase JTS' fixed
costs. JTS' profitability will depend on its ability to utilize its
manufacturing capacity in an effective manner, and JTS' inability to fully
utilize its capacity would have a material adverse effect on JTS' business,
operating results and financial condition. See "Information Regarding JTS
Corporation -- Business of JTS -- Manufacturing."
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Dependence on Single Manufacturing Facility. In fiscal 1996, substantially
all of JTS' manufacturing operations took place at Moduler Electronics in
Madras, India. Because JTS does not currently operate multiple facilities in
different geographic areas, a disruption of JTS' manufacturing operations
resulting from various factors, including sustained process abnormalities, human
error, government interventions or a natural disaster such as fire or flood,
could cause JTS to cease or limit its manufacturing operations and consequently
would have a material adverse effect on JTS' business, operating results and
financial condition.
Risks of International Sales and Manufacturing. In fiscal 1996 and the
three months ended April 30, 1996, substantially all of JTS' net sales consisted
of products sold to customers in Europe, Asia and Latin America, and JTS
anticipates that a substantial percentage of its products will be sold to
customers outside of the United States for the foreseeable future. Furthermore,
JTS expects to conduct substantially all of its manufacturing operations in
India, although JTS may evaluate alternative or additional locations from time
to time. Accordingly, JTS' operating results are subject to the risks of doing
business in a foreign country, including compliance with, or changes in, the law
and regulatory requirements of a foreign country, political instability, local
content rules, taxes, tariffs or other barriers, and transportation delays and
other interruptions. For example, the Indian government has granted JTS a five
year "tax holiday," and its subsidiary, Moduler Electronics, is located in the
Madras Export Processing Zone where it currently enjoys an exemption from Indian
taxes on export profits. Such exemption may be terminated at any time, in which
event JTS would become subject to significantly greater taxes on sales of disk
drives outside of India. Other benefits associated with conducting business in
India, which historically has experienced considerable political instability,
are subject to the vagaries of the Indian government and may be withdrawn at any
time. Although all of JTS' sales presently are made in U.S. dollars, there can
be no assurance that future international sales will not be denominated in
foreign currencies. Regardless of whether JTS' sales are denominated in foreign
currencies, JTS is, and will continue to be, subject to risks related to foreign
currency fluctuations.
Production Yields; Product Quality. The hard disk drive manufacturing
process is complex, and low production yields may result from a variety of
factors, including the introduction of new products, increased complexity in
product specifications, human error, the introduction of contaminants in the
manufacturing environment, equipment malfunction, use of defective materials and
components and inadequate testing. From time to time, JTS has experienced lower
than anticipated production yields as a result of such factors. Furthermore,
while JTS has implemented procedures to monitor the quality of the materials
received from its suppliers, there can be no assurance that materials will meet
JTS' specifications or that substandard materials will not adversely impact
production yields or cause other production problems. JTS' failure to maintain
high quality production standards or acceptable production yields would result
in loss of customers, delays in shipments, increased costs, cancellation of
orders and product returns for rework, any of which could have a material
adverse effect on JTS' business, operating results and financial condition. For
example, JTS' cost of sales for fiscal 1996 included a $4.3 million provision
for inventory allowances principally due to the costs for return of defective
products, scrapped material associated with unrepairable damage caused during
the assembly process and estimates of physical loss of inventory associated with
high volume manufacturing activities.
Variability of Operating Results. JTS' operating results are expected to
be subject to significant quarterly and annual fluctuations based upon a variety
of factors including market acceptance of JTS' products, timing of significant
orders, changes in pricing by JTS or its competitors, the timing of product
announcements by JTS, its customers or its competitors, changes in product mix,
manufacturing yields, order cancellations, modifications and quantity
adjustments and shipment reschedulings, the level of utilization of JTS'
production capacity, increases in production and engineering costs associated
with initial manufacture of new products, changes in the cost of or limitations
on availability of components and materials and customer returns. The impact of
these and other factors on JTS' revenues and operating results in any future
period cannot be predicted with certainty. JTS' expense levels are based, in
large part, on its expectations as to future revenues. Substantial advance
planning and commitment of financial and other resources is necessary for
expansion of manufacturing capacity, while JTS' sales are generally made
pursuant to purchase orders that are subject to cancellation, modification,
quantity reductions or rescheduling without significant penalties. Furthermore,
because the hard disk drive industry is capital intensive and requires a high
level of fixed costs,
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operating results are extremely sensitive to changes in volume. Accordingly, if
revenue levels do not meet expectations, operating results and net income, if
any, are likely to be adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of JTS."
Management of Growth. JTS has recently experienced and may continue to
experience substantial growth in the number of its employees and the scope of
its operations. Such growth would further strain JTS' managerial, financial,
manufacturing and other resources. In addition, in order to manage its growth
effectively, JTS must implement additional operating, financial and management
information systems and hire and train additional personnel. In particular, JTS
must hire and train a significant number of additional personnel to operate the
highly complex capital equipment required by its manufacturing operations. There
can be no assurance that JTS will successfully implement additional systems in a
timely or efficient manner, to hire and properly train a sufficient number of
qualified personnel or to effectively manage such growth, and JTS' failure to do
so could have a material adverse effect on its business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of JTS" and "Information Regarding JTS
Corporation -- Business of JTS -- Employees."
Dependence on Key Management Personnel. JTS' operating results will depend
in significant part upon the continued contributions of its key management and
technical personnel, including Sirjang L. Tandon, its Chairman and Corporate
Technical Strategist, David T. Mitchell, its President and Chief Executive
Officer, Kenneth D. Wing, its Executive Vice President, Research and Development
Quality/Reliability, W. Virginia Walker, its Executive Vice President, Finance
and Administration, Chief Financial Officer and Secretary, and Steven L.
Kaczeus, its Chief Technical Officer, each of whom would be difficult to
replace. See "Information Regarding JTS Corporation -- Management of JTS." JTS
does not have an employment agreement with any of these individuals. The loss of
any of these key personnel could have a material adverse effect on the business,
operating results and financial condition of JTS. In addition, JTS' future
operating results depend in part upon its ability to attract, train, retain and
motivate other qualified management, technical, manufacturing, sales and support
personnel for its operations. Competition for such personnel is intense, and
there can be no assurance that JTS will be successful in attracting or retaining
such personnel. The loss of the services of existing personnel as well as the
failure to recruit additional personnel could materially adversely affect JTS'
business, operating results and financial condition. See "Information Regarding
JTS Corporation -- Business of JTS -- Employees."
Purchase Orders Subject to Cancellation, Modification and
Rescheduling. JTS' sales are generally made pursuant to purchase orders that
are subject to cancellation, modification, quantity reductions or rescheduling
without significant penalties. Changes in forecasts, cancellations, rescheduling
and quantity reductions may result in excess inventory costs, inventory losses
and under-utilization of production capacity and could have a material adverse
effect on JTS' business, operating results and financial condition. As a result
of the foregoing, JTS' backlog as of any particular date may not be
representative of actual sales for any succeeding period.
Reduction in Voting Control. Upon the closing of the Merger, the Atari
stockholders immediately prior to the Merger will own approximately 62% of the
outstanding voting securities of the Combined Company (assuming no exercise of
options after May 22, 1996). As a result, such stockholders, acting together,
could determine the outcome of matters requiring approval of the stockholders of
the Combined Company. Such matters include the election of the members of the
Combined Company's Board of Directors, proxy contests, mergers involving the
Combined Company, tender offers or other transactions that could afford
stockholders of the Combined Company the opportunity to realize a premium over
the then prevailing market price of the Common Stock of the Combined Company.
Furthermore, following the Merger, members of the Tramiel family will own
approximately 27% of the outstanding voting securities of the Combined Company
(assuming no exercise of options after May 22, 1996). Jack Tramiel will also be
a member of the Combined Company's Board of Directors. As a result, the members
of the Tramiel family, acting together, could exert significant influence over
matters requiring approval of the stockholders of the Combined Company.
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OTHER RISK FACTORS RELATED TO THE MERGER
Utilization of Net Operating Losses. As of December 31, 1995, Atari had
federal net operating losses ("NOLs") and tax credit carryforwards in the amount
of approximately $166.8 million, and as of January 28, 1996, JTS had federal
NOLs of approximately $27.0 million. Under the Internal Revenue Code of 1986, as
amended (the "Code"), certain changes in the ownership or business of a
corporation that has NOLs or tax credit carryforwards will result in the
inability to use or the imposition of significant restrictions on the use of
such NOLs or tax credit carryforwards to offset future income and tax liability
of such corporation, its subsidiaries or its successors. The Merger will
constitute a change in ownership with respect to JTS, and the Merger or
subsequent events may constitute an event with respect to Atari which results in
the imposition of restrictions on the ability of the Combined Company to utilize
NOLs and tax credit carryforwards of Atari or JTS. There can be no assurance
that the Combined Company will be able to utilize all or any NOLs or tax credit
carryforwards of Atari or JTS. The ability of the Combined Company to utilize
Atari's accumulated NOLs and tax carryforwards was a factor considered by the
boards of directors of Atari and JTS in concluding to approve the Merger and the
Merger Agreement and to recommend that the stockholders of Atari and JTS approve
the Merger and the Merger Agreement. See "The Proposed Merger and Related
Transactions -- Background and Board Recommendations -- Recommendation of the
Board of Directors of Atari" and "--Recommendation of the Board of Directors of
JTS."
Control by Affiliates; Anti-takeover Effects. Upon completion of the
Merger, directors, officers and holders of 10% or more of the outstanding JTS
Common Stock will own approximately 35% of the outstanding shares of the
Combined Company (assuming no exercise of options or warrants after May 22,
1996). As a result, these affiliates of the Combined Company, acting together,
will have the ability to exert significant influence over the election of
directors and other corporate actions affecting the Combined Company. Certain
provisions of the Certificate of Incorporation and Bylaws of the Combined
Company and certain provisions of the DGCL, including Section 203 thereof, may
also discourage certain transactions involving a change in control of the
Combined Company. In addition to the foregoing, the ability of the Board of
Directors of the Combined Company to issue additional "blank check" preferred
stock without further stockholder approval could have the effect of delaying,
deferring or preventing a change in control of the Combined Company. See
"Information Regarding Atari Corporation -- Principal Stockholders of Atari,"
"Information Regarding JTS Corporation -- Principal Stockholders of JTS" and
"Description of Capital Stock of Atari and JTS."
Shares Eligible for Future Sale. Sales of substantial amounts of JTS
Common Stock in the public market after the consummation of the Merger could
adversely affect prevailing market prices. Following the Merger, the Combined
Company will have approximately 102,687,204 shares of Common Stock outstanding
(assuming no exercise of options or warrants after May 22, 1996). All of the
63,735,718 shares of JTS Common Stock to be issued to the former stockholders of
Atari in the Merger will be eligible for sale in the public market upon the
closing of the Merger. Of such shares, approximately 23,935,000 shares held by
affiliates of Atari will be subject to volume and other restrictions under Rule
145 of the Securities Act. In addition, 90 days following the consummation of
the Merger, approximately 3,900,000 shares of JTS Common Stock will become
eligible for sale in the public market pursuant to Rule 701 under the Securities
Act. In addition, in February and August 1997, approximately 16,200,000 shares
and 12,500,000 shares of JTS Common Stock, respectively, will become eligible
for sale in the public market pursuant to Rule 144 of the Securities Act upon
expiration of the two-year holding periods from the dates such shares were
issued.
In addition, the holders of approximately 57,200,000 shares of JTS Common
Stock outstanding as of the closing of the Merger will be entitled to certain
rights with respect to registration of such shares under the Securities Act. JTS
also intends to register for sale on a Form S-8 Registration Statement under the
Securities Act an aggregate of approximately 8,985,000 shares of JTS Common
Stock reserved for issuance under JTS' Restated Plan, 500,000 shares of JTS
Common Stock reserved for issuance under JTS' Non-Employee Directors' Plan, and
approximately 900,000 shares of JTS Common Stock reserved for issuance pursuant
to the exercise of options granted under Atari's 1986 Stock Option Plan which
will be assumed by JTS in the Merger. Former stockholders of JTS have not
previously had the opportunity to sell their shares in the public market.
Substantial sales of JTS Common Stock after the Merger could have a negative
impact on the market price and liquidity of the JTS Common Stock.
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Diversion of Management Attention. Following the Merger, Atari and JTS
will operate as separate divisions of the Combined Company and the current
management of JTS will serve as the management of the Combined Company. The
Combined Company's management is expected to devote substantially all of its
time to the affairs of JTS following the Merger. If the management of the
Combined Company were unable to effectively manage the separate businesses, the
operating results and financial condition of the Combined Company could be
materially adversely affected.
No Prior Market; Liquidity; Stock Price Volatility. Prior to the Merger
there was no public market for JTS' capital stock. Although it is expected that
the JTS Common Stock will be listed on the American Stock Exchange upon the
closing of the Merger, there can be no assurance that an active public market
for the JTS Common Stock will develop or be sustained. The trading price of the
JTS Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcements of
technological innovations or new products by JTS or its competitors, general
conditions in the hard disk drive, computer or video game industries, changes in
earnings estimates or recommendations by analysts, or other events or factors.
In addition, the public stock markets have experienced extreme price and trading
volume volatility in recent months. This volatility has significantly affected
the market prices of securities of many technology companies for reasons
frequently unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the JTS
Common Stock.
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INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by Atari and JTS of proxies to be voted at the Atari Special
Meeting and the JTS Special Meeting, respectively. This Joint Proxy
Statement/Prospectus is being mailed to stockholders of Atari and JTS on or
about June , 1996.
The purpose of the Atari and JTS Special Meetings is to consider and vote
upon a proposal to approve the Merger and the Merger Agreement. Upon
consummation of the Merger, Atari will be merged with and into JTS, the separate
existence of Atari will cease, JTS will remain as the surviving corporation and
all of the rights, privileges, powers, franchises, properties, assets,
liabilities and obligations of Atari will be vested in JTS. At the Effective
Time (as such term is defined below), each outstanding share of Atari Common
Stock will be converted into one share of JTS Common Stock and each outstanding
option to purchase Atari Common Stock will become an option to purchase JTS
Common Stock.
Based on the number of shares of outstanding Atari Common Stock, JTS Common
Stock and JTS Series A Preferred Stock as of May 22, 1996 (assuming no exercise
of outstanding options after such date), immediately after consummation of the
Merger (assuming the conversion of all outstanding shares of JTS Series A
Preferred Stock into shares of JTS Common Stock and that none of the holders of
JTS Common Stock or JTS Series A Preferred Stock perfects appraisal or
dissenters' rights), a total of 102,687,204 shares of JTS Common Stock would be
issued and outstanding, of which 63,735,718 shares, or 62%, would represent
shares issued in the Merger upon conversion of Atari Common Stock.
THE BOARDS OF DIRECTORS OF EACH OF ATARI AND JTS HAVE UNANIMOUSLY
DETERMINED THAT THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST
INTERESTS OF, ITS RESPECTIVE CORPORATION AND ITS RESPECTIVE STOCKHOLDERS.
THE BOARDS OF DIRECTORS OF EACH OF ATARI AND JTS UNANIMOUSLY RECOMMEND THAT
THE STOCKHOLDERS OF ITS RESPECTIVE CORPORATION APPROVE THE MERGER AND THE MERGER
AGREEMENT.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
JTS under the Securities Act for the offering of JTS Common Stock in connection
with the Merger. This Joint Proxy Statement/Prospectus does not cover resales of
the securities of JTS to be received in connection with the Merger and no person
is authorized to use this prospectus in connection with any resale.
The principal offices of Atari are located at 455 South Mathilda Avenue,
Sunnyvale, California 94086, and its telephone number is (408) 328-0900. The
principal offices of JTS are located at 166 Baypointe Parkway, San Jose,
California 95134, and its telephone number is (408) 468-1800.
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VOTING AND PROXIES
DATE, TIME AND PLACE OF SPECIAL STOCKHOLDER MEETINGS
Atari. The Atari Special Meeting will be held at the offices of Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California,
legal counsel to Atari, on July , 1996 at 9:00 a.m.
JTS. The JTS Special Meeting will be held at JTS's offices at 166
Baypointe Parkway, San Jose, California 95134, on July , 1996 at 9:00 a.m.
RECORD DATE AND OUTSTANDING SHARES
Atari. Stockholders of record of Atari Common Stock at the close of
business on May 22, 1996 (the "Atari Record Date") are entitled to notice of and
to vote at the Atari Special Meeting. At the Atari Record Date, there were
approximately 2,600 holders of record of Atari Common Stock and 63,735,718
shares of Atari Common Stock were issued and outstanding. Except for the
stockholders identified below under "Information Regarding Atari Corporation --
Principal Stockholders of Atari," there were no persons known to the management
of Atari to be the beneficial owners of more than 5% of the outstanding shares
of Atari Common Stock.
JTS. Stockholders of record of JTS Common Stock and JTS Series A Preferred
Stock at the close of business on June 18, 1996 (the "JTS Record Date") are
entitled to notice of and to vote at the JTS Special Meeting. At the JTS Record
Date, there were 16 holders of record of JTS Common Stock and 52 holders of
record of JTS Series A Preferred Stock and 9,255,116 shares of JTS Common Stock
and 29,696,370 shares of JTS Series A Preferred Stock were issued and
outstanding. Except for the stockholders identified below under "Information
Regarding JTS Corporation -- Principal Stockholders of JTS," there were no
persons known to the management of JTS to be the beneficial owners of more than
5% of the outstanding shares of any class of JTS capital stock.
VOTING AND REVOCABILITY OF PROXIES
All properly executed proxies that are not revoked will be voted at the
respective Atari and JTS Special Meetings and any postponement or adjournment
thereof, in accordance with the instructions contained therein. Proxies
containing no instructions regarding the proposals specified in the form of
proxy will be voted for approval of the Merger and the Merger Agreement at the
Atari and JTS Special Meetings, as the case may be. Each record holder of Atari
Common Stock as of the Atari Record Date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted for the vote of the stockholders at the Atari Special Meeting. Each
record holder of JTS Common Stock and JTS Series A Preferred Stock as of the JTS
Record Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
stockholders at the JTS Special Meeting.
If an executed proxy card is returned and a stockholder has abstained from
voting on any matter, the shares represented by such proxy will be considered
present at the applicable special meeting for purposes of determining a quorum
and for purposes of calculating the vote, but will not be considered to have
been voted in favor as to such matter. In the case of the Atari Special Meeting,
if an executed proxy is returned by a broker holding shares in street name which
indicates that the broker does not have discretionary authority as to certain
shares to vote on one or more matters, such shares will be considered
represented at the Atari Special Meeting for purposes of determining a quorum,
but will not be considered to be represented at the Atari Special Meeting for
purposes of calculating the vote with respect to such matter ("broker
non-votes"). Because approval of the Merger and the Merger Agreement requires,
in the case of Atari, the affirmative vote of a majority of the total number of
outstanding shares of Atari Common Stock entitled to vote at the Atari Special
Meeting, and in the case of JTS, the affirmative vote of a majority of the total
number of outstanding shares of JTS Common Stock and JTS Series A Preferred
Stock (voting together) and at least two thirds of the total number of
outstanding shares of JTS Series A Preferred Stock (voting as a separate class)
entitled to
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vote at the JTS Special Meeting, abstentions and, in the case of Atari, broker
non-votes, will have the same effect as a vote against the proposal.
The presence of a stockholder at the applicable special meeting for which
such stockholder has executed a proxy will not automatically revoke such
stockholder's proxy. A stockholder may, however, revoke a proxy at any time
prior to its exercise by filing a written notice of revocation with, or by
delivering a duly executed proxy bearing a later date to, the Corporate
Secretary at the address of the principal executive offices of the company to
which such proxy relates, or by attending the special meeting to which such
proxy relates and voting in person.
STOCKHOLDER VOTES REQUIRED
Atari. The presence, in person or by proxy, of a majority of the shares of
Atari Common Stock outstanding on the Atari Record Date is necessary to
constitute a quorum at the Atari Special Meeting. Approval of the Merger and the
Merger Agreement requires the affirmative vote of holders of a majority of the
shares of Atari Common Stock outstanding on the Atari Record Date.
It is expected that all of the 23,453,129 shares of Atari Common Stock
(excluding shares subject to stock options) beneficially owned by directors and
executive officers of Atari and their affiliates at the Atari Record Date (37%
of the total number of outstanding shares of Atari Common Stock) will be voted
for approval of the Merger and the Merger Agreement. As of the Atari Record
Date, JTS and its directors and executive officers and their affiliates
beneficially owned no shares of Atari Common Stock (excluding shares of Atari
Common Stock subject to the Voting Agreements). See "Information Regarding Atari
- -- Principal Stockholders of Atari."
JTS. The presence, in person or by proxy, of a majority of the shares of
JTS Common Stock and JTS Series A Preferred Stock outstanding on the JTS Record
Date is necessary to constitute a quorum at the JTS Special Meeting. Approval of
the Merger and the Merger Agreement requires the affirmative vote of holders of
(a) a majority of the shares of JTS Common Stock and JTS Series A Preferred
Stock outstanding on the JTS Record Date, voting together, (b) a majority of the
shares of JTS Common Stock outstanding on the JTS Record Date, voting separately
as a class, and (c) at least two thirds of the shares of JTS Series A Preferred
Stock outstanding on the JTS Record Date, voting separately as a class.
It is expected that all of the 9,068,020 shares of JTS Common Stock
(excluding shares subject to stock options) and 14,122,107 shares of JTS Series
A Preferred Stock beneficially owned by directors and executive officers of JTS
and their affiliates at the JTS Record Date (96% of the total number of
outstanding shares of JTS Common Stock and 48% of the total number of
outstanding shares of JTS Series A Preferred Stock) will be voted for approval
of the Merger and the Merger Agreement. As of the JTS Record Date, Atari and its
directors and executive officers and their affiliates beneficially owned no
shares of JTS Common Stock or JTS Series A Preferred Stock (except for shares of
JTS capital stock subject to the Voting Agreements). See "Information Regarding
JTS Corporation -- Principal Stockholders of JTS."
Voting Agreements. Pursuant to the Voting Agreements, certain stockholders
of Atari and JTS have agreed to vote all shares held by them in favor of the
Merger and the Merger Agreement. Specifically, holders of approximately 43% of
the shares of Atari Common Stock, 91% of the shares of JTS Common Stock and 70%
of the shares of JTS Series A Preferred Stock entitled to vote at the respective
stockholder meetings have entered into Voting Agreements and irrevocable
proxies. As a result, it is expected that the Merger and the Merger Agreement
will be approved by the holders of a majority of the shares of Atari Common
Stock outstanding on the Atari Record Date and by the holders of a majority of
the shares of JTS Common Stock and JTS Series A Preferred Stock outstanding on
the JTS Record Date (voting together), a majority of the shares of JTS Common
Stock outstanding on the JTS Record Date (voting as a separate class) and at
least two-thirds of the shares of JTS Series A Preferred outstanding on the JTS
Record Date (voting as a separate class). See "The Proposed Merger and Related
Transactions -- Related Transactions -- Voting Agreements."
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SOLICITATION OF PROXIES; EXPENSES
Atari and JTS will equally bear the costs of solicitation of proxies from
their stockholders, all printing and mailing costs in connection with the
preparation and mailing of this Joint Proxy Statement/Prospectus to Atari and
JTS stockholders, all Commission filing fees with respect to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, and all
costs of qualifying the shares of JTS Common Stock under state blue sky laws. In
addition to solicitation by mail, the directors, officers and employees of Atari
and JTS may solicit proxies from stockholders by telephone, telegram or letter
or in person, but will not be specially compensated for such activities.
Brokers, nominees, fiduciaries and other custodians have been requested to
forward solicitation material to the beneficial owners of Atari Common Stock
held of record by them. Such custodians will be reimbursed by Atari for their
reasonable expenses incurred in that connection. If the Merger is consummated,
all costs and expenses incurred in connection with the Merger not previously
paid will be paid by the Combined Company.
APPRAISAL AND DISSENTERS' RIGHTS
Stockholders of record of JTS Common Stock and JTS Series A Preferred Stock
may under certain circumstances and by following procedures prescribed by
Section 262 of the DGCL or Chapter 13 of the CGCL, exercise either appraisal or
dissenters' rights and receive cash for their respective shares of capital stock
of JTS. The failure of any dissenting stockholder of JTS to follow the
appropriate procedures may result in the termination or waiver of such rights.
See "The Proposed Merger and Related Transactions -- Appraisal and Dissenters'
Rights."
The stockholders of Atari are not entitled to appraisal or dissenters'
rights under the NGCL.
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THE PROPOSED MERGER AND RELATED TRANSACTIONS
BACKGROUND AND BOARD RECOMMENDATIONS
BACKGROUND OF THE MERGER
By the second half of 1995, Atari and its Board of Directors recognized
that despite the significant financial resources that had been devoted to the
Jaguar product, it was unlikely that Jaguar would ever become a broadly accepted
video game console or that Jaguar technology would be broadly adopted by
software title developers. As a result, at its meeting on October 13, 1995, the
Atari Board of Directors determined to substantially reduce the resources
devoted to the Jaguar and related products, and to change Atari's strategic
focus by devoting its resources to PC software publishing and strategic
opportunities. In particular, the Atari Board of Directors directed management
to focus on evaluating strategic opportunities for Atari including potential
investments and acquisitions.
As part of Atari's efforts to pursue strategic opportunities, during the
fourth quarter of 1995, Atari management contacted various individuals and
investment advisors with respect to potential strategic investments or
acquisitions. These efforts resulted in Atari's evaluation of several strategic
opportunities, including a potential investment in or merger with an
entertainment software company, a video game software company, a computer video
game peripherals company and a potential investment or merger with JTS.
Since its inception in February 1994, JTS has continually sought to
identify new sources of financing to support the expansion of its manufacturing
facilities, capital expenditures and research and development activities. In
late 1995, JTS recognized the need for a significant infusion of capital within
the next three to four months to fund the growth of JTS' operations.
Accordingly, at a meeting held on October 30, 1995, the JTS Board of Directors
instructed members of management to explore various financing sources, including
the private placement of equity securities to one or more institutional
investors.
In early November 1995, Sam Tramiel contacted JTS to set up a meeting with
Sirjang L. "Jugi" Tandon, the Chairman of JTS, and David T. Mitchell, JTS'
President and Chief Executive Officer, to discuss possible strategic
opportunities between the companies. On November 16, 1995, Sam Tramiel and Mr.
Tandon met at the Las Vegas airport following the Comdex show. At the meeting,
Mr. Tandon stated that JTS was pursuing additional sources of financing, and Sam
Tramiel indicated that Atari was evaluating various strategic opportunities,
including potential investments and acquisitions. A follow-up meeting was
scheduled for early December to further discuss a possible investment in JTS by
Atari.
At a meeting held on November 29, 1995, the JTS Board of Directors
instructed Messrs. Tandon and Mitchell to accelerate their efforts to identify
new sources of financing. In this regard, JTS initiated discussions with two
investment banks (one of which was Montgomery) in December 1995 to explore the
possibility of a private placement to institutional investors which would result
in a substantial infusion of capital to JTS.
On December 14, 1995, Jack Tramiel and Sam Tramiel met with Messrs. Tandon
and Mitchell at JTS. At this meeting, the parties discussed a potential
investment by Atari in JTS and the possibility that Jack Tramiel would become a
director of JTS. Later that day, the Executive Committee of the Atari Board of
Directors (consisting of Jack Tramiel, Sam Tramiel and August J. Liguori) held a
special meeting to discuss the proposed transaction with JTS. At the meeting,
the Atari Executive Committee directed Mr. Liguori, Atari's former Chief
Financial Officer, to contact JTS to initiate due diligence.
On December 22, 1995, Mr. Liguori met with Mr. Mitchell and W. Virginia
Walker, JTS' Chief Financial Officer, at JTS to conduct an initial due diligence
review of JTS' business and financial condition.
On January 4, 1996, the Executive Committee of the Atari Board of Directors
held a special meeting to discuss Mr. Liguori's due diligence investigation of
JTS. At this meeting, the Atari Executive Committee authorized Jack Tramiel to
continue discussions with JTS regarding a potential investment or other
strategic business relationship between Atari and JTS and instructed Mr. Liguori
to continue due diligence activities. The Atari Executive Committee also
instructed Jack Tramiel to contact the other members of the Atari Board to
update them on the potential business opportunity involving JTS.
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On January 8, 1996, Jack Tramiel, Sam Tramiel and Mr. Mitchell met at Jack
Tramiel's home to further discuss a possible strategic transaction between Atari
and JTS. At this meeting, the parties considered a significant investment by
Atari in JTS and a merger of Atari and JTS. Mr. Mitchell indicated that JTS
would be interested in securing a bridge loan from Atari if a merger agreement
were signed. The parties also generally discussed that, if a merger were to
occur, the consideration would be common stock of the acquiring company and the
exchange ratio would be one-for-one.
On January 9, 1996, the JTS Board of Directors held a telephonic meeting at
which a possible investment by or merger with Atari was discussed. At the
meeting, the merits of such a transaction, including the general terms of a
possible merger, were considered and the JTS Board instructed members of
management to initiate a due diligence review of Atari. In addition, the JTS
Board agreed to retain the law firm of Cooley Godward Castro Huddleson & Tatum
("Cooley Godward") to assist in the evaluation of a possible business
combination with Atari.
On January 10, 1996, Mr. Mitchell and Ms. Walker met with Jack Tramiel and
Mr. Liguori at Atari to conduct a due diligence review of Atari. From January 11
through January 16, Ms. Walker and Mr. Liguori had numerous meetings and phone
calls and exchanged due diligence information and materials.
On January 17, 1996, a meeting was held at JTS to discuss the proposed
transaction. Present at the meeting were Jack Tramiel, Sam Tramiel and Mr.
Liguori of Atari and Mr. Tandon, Mr. Mitchell and Ms. Walker of JTS. Also
present were representatives from Wilson Sonsini Goodrich & Rosati, P.C.,
counsel to Atari, and a representative of Cooley Godward. At the meeting, there
was substantial discussion regarding a proposed merger of Atari and JTS. The
meeting focused on the business opportunities, business risks and financial
positions of Atari and JTS. The parties first discussed the general terms of the
proposed merger including that the Combined Company would be managed by the
current members of JTS management, that at the time the merger agreement was
signed Atari would extend to JTS a $25.0 million bridge loan, that the bridge
loan would be convertible into JTS Series A Preferred Stock, and that JTS would
issue warrants to Atari in connection with the bridge loan if the merger were
not consummated. The parties further discussed the proposed one-for-one exchange
ratio for the Atari Common Stock, JTS Common Stock and JTS Series A Preferred
Stock. The proposal to issue common stock of the surviving company in exchange
for the outstanding stock of the corporation to be acquired was based upon a
number of factors, including tax considerations, the preservation of the
surviving company's working capital and the desire to give the JTS and Atari
stockholders an opportunity to participate as equity holders in the surviving
company. The proposed one-for-one exchange ratio of JTS and Atari stock, as
well, was based upon numerous factors, including the valuation assigned to JTS
in its most recent round of preferred stock financing the financial forecasts of
JTS furnished to Atari, the due diligence review of the two companies, the
relative ownership interests of the JTS and Atari stockholders in the surviving
company and the historic and current trading prices of Atari Common Stock. At
the end of the meeting, Atari and JTS agreed to present the proposed transaction
to their respective boards of directors. Following the meeting, the Executive
Committee of the Atari Board of Directors met separately and considered the
advisability of obtaining a fairness opinion from an investment banking firm
with respect to the proposed merger, and Sam Tramiel was instructed to initiate
discussions with respect to obtaining such an opinion.
On January 19, 1996, Mr. Mitchell, Ms. Walker and representatives of Cooley
Godward reported to the JTS Board of Directors on the status of the negotiations
with Atari and the preliminary results of the JTS due diligence review of Atari.
The JTS Board discussed in substantial detail the merits and the risks of a
possible business combination with Atari, as well as the alternative sources of
financing then available to the company. Following discussion, the JTS Board of
Directors instructed management to continue to pursue all financing
alternatives, including a private equity placement and a possible transaction
with Atari.
Between January 20 and January 29, 1996, Atari's and JTS' management and
legal counsel continued their negotiations and due diligence reviews of the two
companies. In addition, counsel for Atari and JTS began preparation of a merger
agreement and bridge loan financing documentation.
On January 30, 1996, the JTS Board of Directors met to consider the results
of management's further due diligence review of Atari and the merits of a merger
between the two companies. The JTS Board discussed the
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terms of the proposed merger with representatives of Cooley Godward and reviewed
a draft of the merger agreement. In particular, the JTS Board considered the
possibility of obtaining bridge financing from Atari, the condition of Atari's
business and the JTS stockholders' interest in the combined company. The JTS
Board also discussed with management the status of a possible private equity
placement to meet the company's immediate capital requirements. The JTS Board
noted, among other factors, that a private equity placement would require three
months or longer to complete and that a business combination with Atari
represented an immediate source of financing. After further discussion, the JTS
Board of Directors unanimously approved the principal terms of the merger and
authorized management and Cooley Godward to proceed with the finalization of the
merger agreement and bridge loan documentation substantially on the terms
discussed by the JTS Board. A more detailed discussion of certain matters
considered by the JTS Board of Directors at this meeting is included under the
caption "-- Recommendation of the Board of Directors of JTS."
On January 30, 1996, JTS notified Montgomery that it was no longer
considering a private placement to institutional investors and that it was
engaged in merger discussions with Atari, and introduced Montgomery to Atari.
Atari informed Montgomery that it wished to retain Montgomery to render a
fairness opinion, and negotiations commenced between Atari and Montgomery
regarding the terms of that engagement. On January 31, 1996, Atari and
Montgomery entered into a written engagement letter, the terms of which are
summarized below under "-- Opinion of Montgomery Securities."
On February 1, 1996, the Atari Board of Directors held a telephonic meeting
to discuss the terms of the proposed merger with JTS. At the meeting, Jack
Tramiel, Sam Tramiel and Mr. Liguori reviewed with the Board the proposed terms
of the merger which had been discussed with JTS on January 17. Mr. Liguori also
presented the results of Atari's due diligence investigation of JTS. At the
meeting, the Atari Board instructed Jack Tramiel to proceed with merger
negotiations and due diligence pending further deliberations by the Atari Board.
On February 5, 1996, the Atari Board of Directors met at Atari's offices
beginning at 1:00 p.m. Present were the Atari directors, representatives of
Wilson Sonsini Goodrich & Rosati, P.C., legal counsel to Atari, and
representatives from Montgomery, Atari's financial advisor. The Atari Board
reviewed the status of the negotiations regarding the proposed merger of Atari
and JTS. In particular, the Board considered the one-for-one exchange ratio,
closing conditions and termination provisions. Mr. Liguori also reported on the
results of Atari's due diligence investigation of JTS. At the meeting,
Montgomery presented the results of its review of the transaction and delivered
its oral and written opinion that the conversion ratio of Atari Common Stock
into JTS Common Stock is fair to Atari from a financial point of view, as of
February 5, 1996. Following the Montgomery presentation, the Board conducted
substantial deliberations regarding the proposed transaction including the
future prospects for Atari's business and the risks and prospects associated
with the JTS business. At the end of the meeting, the Atari Board instructed Mr.
Liguori to conduct further due diligence with respect to JTS' transaction with
Moduler Electronics and other matters. The Board deferred a final decision on
the merger pending the results of Mr. Liguori's additional due diligence. The
meeting was adjourned at 7:00 p.m. on February 5 and continued for several hours
on the morning of February 6.
As the merger discussions continued, it became apparent that JTS'
acquisition of Moduler Electronics would not be completed prior to the signing
of the Merger Agreement. Accordingly, JTS agreed that the closing of JTS'
acquisition of Moduler Electronics would be a condition to Atari's obligation to
close the Merger. JTS also agreed not to effect the acquisition of Moduler
Electronics without the consent of Atari. Subsequent to the signing of the
merger agreement, JTS and Moduler Electronics negotiated the final documentation
related to the terms of their merger. As part of Atari's due diligence, Atari
was provided copies of the interim and definitive acquisition agreements.
From February 5, 1996 to February 12, 1996, Jack Tramiel, Sam Tramiel and
Mr. Liguori held a series of telephonic conversations and meetings with Mr.
Tandon, Mr. Mitchell and Ms. Walker regarding the proposed transaction and due
diligence matters. There were also numerous telephone calls among Jack Tramiel,
Sam Tramiel, Michael Rosenberg (an Atari director) and Leonard Schreiber (an
Atari director) regarding the proposed transaction and the results of the
ongoing due diligence review. Similarly, JTS
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management held a number of informal meetings with certain JTS Board members to
discuss the results the ongoing due diligence review.
On February 12, 1996, the Atari Board of Directors held two telephonic
meetings to discuss the final terms of the merger agreement and the additional
due diligence materials. Prior to the meeting, each member of the Board had been
provided with a draft of the proposed merger agreement and related documents,
including disclosure schedules provided by Atari and JTS. Based on such
information and further discussions, the Atari Board of Directors unanimously
approved the merger agreement and the transactions contemplated thereby.
The merger agreement and related documents were executed by the parties on
February 12, 1996, and a press release was issued on February 13, 1996.
On April 8, 1996, JTS and Atari amended and restated the merger agreement
to modify the legal structure of the Merger from a consolidation of JTS and
Atari into a newly-formed Delaware corporation to a merger of Atari with and
into JTS, with JTS as the surviving company. This change in the legal structure
of the Merger did not materially modify the economic terms of the merger. The
merger agreement, as so amended and restated, is attached hereto as Annex A.
On June 21, 1996, the Atari Board of Directors met to review the status of
the Merger. Jack Tramiel, who had attended recent JTS Board meetings, updated
the other members of the Board on the business prospects of JTS including the
financial targets discussed at the JTS Board meeting on June 18, 1996 and the
recent acceptance by Compaq of the Nordic 3-inch disk drive. See
"-- Forward-Looking Financial Information Provided by JTS." Based on such
information and further discussions, the Atari Board of Directors unanimously
affirmed its approval of the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ATARI
The Atari Board of Directors has determined that the Merger is fair to, and
in the best interests of, Atari and Atari's stockholders and unanimously
recommends that the Atari stockholders vote in favor of approval of the Merger
and the Merger Agreement.
The Atari Board held a series of meetings at which a business combination
with or an investment in JTS was discussed. Individual members of the Board were
updated from time to time on developments. In reaching its conclusion to approve
the Merger and the Merger Agreement and to recommend that the stockholders
approve the Merger and the Merger Agreement, the Atari Board considered a number
of factors, including, without limitation, the following:
- The level of working capital required to support Atari's future business
which was significantly downsized in late 1995 and early 1996 as Atari
focused on licensing and software development activities.
- The future prospects for Atari's financial performance, taking into
consideration the substantial decrease in net sales from 1994 to 1995 and
the substantial operating losses sustained in the past several years
among other things.
- The prospects of the business of JTS, based partly upon financial
forecasts, including cash flow, gross margin and unit shipment
projections, and related assumptions of JTS provided by JTS management.
- The intense competition in the video game industry.
- The significant equity position that the former stockholders of Atari
would have in the Combined Company.
- The risks associated with the businesses of Atari and JTS.
- The treatment of the Merger as a tax-free reorganization under Section
368(a) of the Code.
- The opinion of Montgomery that the conversion ratio of Atari Common
Stock into JTS Common Stock is fair to Atari, from a financial point of
view, as of February 5, 1996.
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- The anticipated ability of the Combined Company to utilize Atari's
accumulated NOLs and tax carryforwards (although the Board of Directors
did not assign material value to the NOLs and tax carryforwards due to
the inherent limitations on the survival of such carryovers and the
complexity of applicable tax laws).
- The results of the due diligence review of JTS by management of Atari,
Deloitte & Touche LLP and Wilson, Sonsini, Goodrich & Rosati, P.C.,
counsel to Atari.
The Atari Board did not attempt to prioritize the foregoing factors in any
manner.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF JTS
The JTS Board of Directors has determined that the Merger is fair to, and
in the best interests of, JTS and JTS' stockholders and unanimously recommends
that the JTS stockholders vote in favor of approval of the Merger and the Merger
Agreement.
The JTS Board of Directors held a series of formal and informal meetings in
January and February 1996 at which a business combination with Atari was
discussed. During this period, an extensive financial and legal due diligence
review of Atari was conducted by members of JTS management and accountants and
legal counsel retained by JTS. Individual members of the JTS Board of Directors
were updated regularly on developments and certain members of the Board
participated actively in negotiations and discussions with Atari and the due
diligence review of Atari. In reaching its conclusion to approve the Merger and
the Merger Agreement and to recommend that the stockholders approve the Merger
and the Merger Agreement, the JTS Board considered a number of factors,
including, without limitation, the following:
- JTS' need for working capital to maintain and expand its manufacturing
operations and research and development activities and the immediate and
significant source of capital to fund such operations and activities that
the merger with Atari would provide.
- The availability to JTS of alternative sources of capital and the time
required to obtain such capital.
- The benefits to the stockholders of JTS resulting from the expected
trading market for JTS Common Stock following the Merger, which would
provide a means of liquidity for such stockholders' stock.
- The opportunity for JTS stockholders to continue to participate in the
potential growth of JTS.
- The diminished equity position that the former stockholders of JTS will
have in the Combined Company.
- The risks associated with the businesses of Atari and JTS.
- The treatment of the Merger as a tax-free reorganization under section
368(a) of the Code.
- The anticipated ability of the Combined Company to utilize Atari's
accumulated NOLs and tax carryforwards (although the Board of Directors
did not assign material value to the NOLs and tax carryforwards due to
the inherent limitations on the survival of such carryovers and the
complexity of applicable tax laws).
- The results of the due diligence review of Atari by management of JTS
and Cooley Godward, counsel to JTS.
The JTS Board did not attempt to prioritize the foregoing factors in any
manner.
OPINION OF MONTGOMERY SECURITIES
Pursuant to an engagement letter dated January 31, 1996, Atari retained
Montgomery to render an opinion with respect to the fairness from a financial
point of view of the consideration to be paid by Atari in connection with the
acquisition of JTS. Montgomery is a nationally recognized firm and, as part of
its investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and other
types of acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Atari selected Montgomery to render a fairness opinion on
the basis of Montgomery's experience
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and expertise in transactions similar to the Merger and its reputation in the
computer peripherals and investment communities.
On February 5, 1996, Montgomery delivered its oral and written opinion that
the conversion ratio of Atari Common Stock into JTS Common Stock was fair to
Atari, from a financial point of view, as of that date. The amount of such
consideration was determined pursuant to negotiations between Atari and JTS and
not pursuant to recommendations of Montgomery. No limitations were imposed by
Atari on Montgomery with respect to the investigations made or procedures
followed in rendering its opinion.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO ATARI IS ATTACHED HERETO
AS APPENDIX C AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF
MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION. MONTGOMERY'S OPINION IS DIRECTED TO THE ATARI BOARD OF DIRECTORS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ATARI OR JTS AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. IN FURNISHING
ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF
THE TERM "EXPERT" AS USED IN THE SECURITIES ACT, OR THAT ITS OPINION CONSTITUTES
A REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT,
AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN
OPINION.
In connection with its opinion, Montgomery, among other things: (i)
reviewed certain publicly available financial and other data with respect to
Atari, including the consolidated financial statements for recent years and
interim periods to September 30, 1995, and certain other relevant financial and
operating data relating to Atari and JTS made available to Montgomery from
published sources and from the internal records of Atari and JTS, including the
consolidated financial statements of JTS for recent years and interim periods to
November 30, 1995; (ii) reviewed the February 2, 1996 draft of the Merger
Agreement provided to Montgomery by Atari; (iii) reviewed certain historical
market prices and trading volumes of Atari Common Stock as reported on the
American Stock Exchange; (iv) compared Atari and JTS from a financial point of
view with certain other companies in the computer peripherals industry that
Montgomery deemed to be relevant; (v) considered the financial terms, to the
extent publicly available, of selected recent business combinations of companies
in the computer peripherals industry that Montgomery deemed to be comparable, in
whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of Atari and JTS certain information of a
business and financial nature regarding Atari and JTS, furnished to Montgomery
by them, including the number of shares to be issued by JTS in connection with
the acquisition of Moduler Electronics; (vii) reviewed and discussed with
representatives of the management of Atari and JTS financial forecasts,
including cash flow, gross margin and unit shipment projections, and related
assumptions of JTS, provided to Montgomery by JTS management, which forecasts
and assumptions included the estimated contribution of Moduler Electronics to
JTS' financial performance; (viii) made inquiries regarding and discussed the
Merger and the draft of the Merger Agreement and other matters related thereto
with Atari's counsel; and (ix) performed such other analyses and examinations as
Montgomery deemed appropriate.
In connection with its review, Montgomery assumed and relied upon the
accuracy and completeness of the foregoing information and did not assume any
responsibility for independent verification of such information. With respect to
the financial forecasts provided to it as described above, Montgomery assumed
for purposes of its opinion that such forecasts had been reasonably prepared on
bases reflecting the best available estimates and judgments of the management of
JTS at the time of preparation as to the future financial performance of JTS,
and, except as described below, that they provided a reasonable basis upon which
Montgomery could form its opinion. For purposes of its opinion and with the
agreement of management of Atari, Montgomery adjusted the financial forecasts
for JTS provided to Montgomery by the management of JTS to reflect more
conservative assumptions regarding future results of operations. Such forecasts
were based upon numerous variables and assumptions that are inherently
uncertain, including, without limitation, factors related to general economic
and competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such forecasts. Montgomery has assumed no liability for
such forecasts. Montgomery also assumed that there had been no material changes
in Atari's or JTS' assets, financial condition, results of operations, business
or prospects since the respective dates of their last financial statements made
available to Montgomery, and that there had occurred no material changes in the
terms of JTS' proposed acquisition of
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Moduler Electronics. Montgomery relied on advice of counsel and independent
accountants to Atari as to all legal and financial reporting matters with
respect to Atari, the Merger and the draft of the Merger Agreement. In addition,
Montgomery did not assume responsibility for making an independent evaluation,
appraisal or physical inspection of the assets or individual properties of Atari
or JTS, nor was Montgomery furnished with any such appraisals. Finally,
Montgomery's opinion is based on economic, monetary and market and other
conditions as in effect on, and the information made available to Montgomery as
of, February 5, 1996.
Montgomery further assumed, with the consent of Atari's management, that
the Merger would be consummated in accordance with the terms described in the
draft of the Merger Agreement without any amendments thereto, and without waiver
by Atari or JTS of any of the conditions to their respective obligations
thereunder.
Set forth below is a brief summary of the report presented by Montgomery to
Atari's Board of Directors on February 5, 1996 in connection with its opinion.
Discounted Cash Flow Analysis. Montgomery applied a discounted cash flow
analysis to JTS financial forecasts for 1996, 1997 and 1998, prepared by JTS's
management and provided to Montgomery, and for 1999 and 2000, prepared by
Montgomery using assumptions more conservative than those underlying the JTS
management forecasts. JTS did not provide Montgomery with any financial
forecasts for periods beyond 1998. As described above, with Atari's consent
Montgomery adjusted the forecasts prepared by JTS management, and the extensions
thereof prepared by Montgomery, to reflect more conservative assumptions
regarding future results of operations. In conducting its review, Montgomery
adjusted JTS' financial projections by reducing JTS' forecasted revenues and
earnings before interest and taxes ("EBIT") by approximately 45% and 68%,
respectively. The unadjusted forecasts are referred to as the "Base Case
Forecasts," and the Base Case Forecasts as so adjusted by Montgomery are
referred to as the "Alternative Case Forecasts."
In conducting its discounted cash flow analysis, Montgomery first
calculated the estimated future streams of free cash flows that JTS would
produce through the year 2000. Montgomery then estimated JTS's aggregate value
at the end of 2000 by applying multiples ranging from 7.0x to 8.0x to JTS'
estimated EBIT in 2000. Finally, Montgomery discounted such cash flow streams
and aggregate values to present values using discount rates ranging from 25.0%
to 35.0%, chosen to reflect different assumptions regarding Atari's cost of
capital, and reduced such present values by JTS' net debt as of December 31,
1995. This analysis indicated an imputed equity value (defined as aggregate
value minus net debt) of JTS of between $449.3 million and $725.9 million based
on the Base Case Forecasts, and of between $106.1 million an $192.5 million
based on the Alternative Case Forecasts. By contrast, the consideration to be
provided by Atari in the Merger, based on the Exchange Ratio and the February 2,
1996 closing sale price of Atari Common Stock on the American Stock Exchange of
$2.00 per share, equals approximately $75.7 million.
Comparable Company Analysis. Using public and other available information,
Montgomery calculated the imputed equity value of JTS based on the multiples of
estimated 1996 revenue, EBIT and net income at which three publicly traded disk
drive companies were trading on February 2, 1996. The February 2, 1996 stock
prices of the comparable companies reflected the following median multiples:
0.3x estimated 1996 revenues; 4.8x estimated 1996 EBIT; and 8.5x estimated 1996
net income. Montgomery applied the foregoing median multiples to the analogous
forecasted 1996 statistics for JTS, made applicable adjustments to reflect JTS'
net debt (defined as debt minus cash) at December 31, 1995, narrowed the
resulting range of data to exclude valuations that Montgomery deemed to be
unrealistically high, and applied a private company illiquidity discount to the
resulting totals. This analysis indicated an imputed equity value of JTS of
between $70.0 million and $175.0 million based on the Base Case Forecasts, and
of between $49.0 million and $105.0 million based on the Alternative Case
Forecasts. By contrast, the consideration to be provided by Atari in the Merger,
based on the Exchange Ratio and the February 2, 1996 closing sale price of Atari
Common Stock on the American Stock Exchange of $2.00 per share, equals
approximately $75.7 million.
Comparable Transactions Analysis. Montgomery reviewed the consideration
paid in the following twelve acquisitions of comparable disk drive and other
computer storage companies that were announced since 1989 (target/acquiror):
Micropolis (disk drive business)/Singapore Technologies Industrial;
Maxtor/Hyundai Electronics Industries (two separate transactions); Conner
Peripherals Inc./Seagate; Digital
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Equipment Corporation (disk drive business)/Quantum; Sunward Technologies
Inc./Read-Rite Corporation; Archive Corporation/Conner Peripherals Inc.; Dastek
Inc./Komag Inc.; MiniScribe Corporation (assets)/Maxtor; Cipher Data Products
Inc./Archive Corporation; Imprimis Technology Inc./Seagate; and Irwin Magnetic
Systems Inc./Cipher Data Products Inc. Montgomery analyzed the consideration
paid in such transactions as a multiple of the target companies' revenue, EBIT
and net income for the latest twelve months ("LTM"). Such analysis yielded
median multiplies of 0.5x LTM revenue, 17.6x LTM EBIT and 18.4x LTM net income.
Montgomery applied the foregoing median multiples to the analogous forecasted
1996 statistics for JTS and made applicable adjustments to reflect JTS' net debt
at December 31, 1995. The foregoing process yielded a range of imputed equity
values of JTS as of December 31, 1996. Montgomery then discounted that range to
present values using a discount rate of 40%, a rate generally considered to
reflect the standard venture capital return hurdle, and narrowed the resulting
range of data to exclude valuations that Montgomery deemed to be unrealistically
high. This analysis indicated an imputed equity value of JTS of between $150.0
million and $300.0 million based on the Base Case Forecasts, and of between
$100.0 million and $250.0 million based on the Alternative Case Forecasts. By
contrast, the consideration to be provided by Atari in the Merger, based on the
Exchange Ratio and the February 2, 1996 closing sale price of Atari Common Stock
on the American Stock Exchange of $2.00 per share, equals approximately $75.7
million.
No other company or transaction used in the comparable transactions
analysis as a comparison is identical to JTS or the Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which JTS and the
Merger are being compared.
Contribution Analysis. Montgomery compared the percentage interest in the
Combined Company that will be held by present stockholders of Atari and JTS
immediately following the Merger -- approximately 62% and 38%, respectively --
to the relative contributions of the two companies to various operating
statistics of the merged entity. Montgomery compared Atari's revenues for the
twelve months ended September 30, 1995 (the last date for which revenue
statistics for Atari were available) to JTS's revenues for the twelve months
ended January 15, 1996, which comparison indicated a relative contribution of
approximately 66% and 34%, respectively, for Atari and JTS. Montgomery also
compared Atari's estimated 1996 revenues (which Montgomery assumed would be
equal to Atari's revenues for the twelve months ended September 30, 1995) to
JTS' backlog of approximately $25.2 million as of January 15, 1996, to JTS's
1996 run rate revenues (defined as JTS' actual revenues for January 1 through
15, 1996, which equaled approximately $3.1 million, on an annualized basis) and
to JTS's forecasted 1996 revenues (based on the Base Case Forecasts). Such
comparisons indicated relative contributions of approximately 52% and 48%, 26%
and 74%, and 6% and 94%, respectively, for Atari and JTS.
The summary set forth above does not purport to be a complete description
of the presentation by Montgomery to Atari or of the analyses performed by
Montgomery. The preparation of a fairness opinion necessarily is not susceptible
to partial analysis or summary description. Montgomery believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to Atari. In
addition, Montgomery may have given various analyses more or less weight than
other analyses, and may have deemed various assumptions more or less probable
than other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Montgomery's view
of the actual value of JTS. Although Montgomery did not consider any of the
foregoing analyses in isolation for purposes of rendering its opinion,
Montgomery does not believe that any of such analyses is inconsistent with its
opinion.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Atari and JTS. The
analyses performed by Montgomery are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the Merger to Atari and were provided
to Atari in connection with the delivery of Montgomery's opinion. The analyses
do not purport
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to be appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at any time in the future.
Montgomery used in its analyses various projections of future performance
prepared by the managements of Atari and JTS. The projections are based on
numerous variables and assumptions which are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those set forth in such projections.
As described above, Montgomery's opinion and presentation to Atari were
among the many factors taken into consideration by Atari in making its
determination to approve, and to recommend that its stockholders approve, the
Merger.
Pursuant to a letter agreement dated January 31, 1996 (the "Engagement
Letter"), Atari engaged Montgomery to render an opinion with respect to the
fairness from a financial point of view of the consideration to be paid by Atari
in connection with the acquisition of JTS. The Engagement Letter provides for
Atari to pay Montgomery a fee of $325,000, which was paid upon delivery of
Montgomery's opinion. The fee is not conditioned on the outcome of Montgomery's
opinion or whether or not such opinion was deemed to be favorable for any
party's purposes. The Engagement Letter also calls for Atari to reimburse
Montgomery for its reasonable out-of-pocket expenses. Pursuant to a separate
letter agreement, Atari has agreed to indemnify Montgomery, its affiliates, and
their respective partners, directors, officers, agents, consultants, employees
and controlling persons against certain liabilities, including liabilities under
the federal securities laws.
Montgomery has not performed investment banking services for JTS, except
that Montgomery was contacted in connection with a potential private placement
of JTS securities.
The Atari Board of Directors does not intend to obtain an updated fairness
opinion with respect to the Merger.
FORWARD-LOOKING FINANCIAL INFORMATION PROVIDED BY JTS*
As a matter of course, JTS does not intend to publicly disclose
forward-looking financial information. Nevertheless, in connection with the due
diligence review of JTS' business, the Atari Board of Directors and Montgomery
reviewed preliminary financial targets furnished by JTS in January 1996. Such
financial targets indicated revenues of $445 million, gross profit of $100
million and net income of $53 million for fiscal 1997. These financial targets
were based on certain assumptions including assumptions that JTS would develop
and introduce new products on a timely basis, that Indian bank funding would be
available on a timely basis for facility expansion at Moduler Electronics, that
the notebook computer systems designed to accept the Nordic disk drive would be
released within a certain time frame, that competitive conditions within the
disk drive industry would not undergo material adverse change, that the market
for computer systems, storage upgrades to computer systems and multimedia
applications, such as digital video and video on demand and hence the market for
hard disk drives, would remain strong, and that there would be no material
adverse change in JTS' operations or business. Such assumptions involve
judgments with respect to, among other things, future economic conditions,
financial market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the
control of JTS.
In June 1996, JTS management provided to the Board of Directors of Atari
and JTS updated preliminary financial targets for the Combined Company, based on
the assumption that the Merger would be consummated in June 1996. Such financial
targets for the Combined Company indicated revenues of $238 million, gross
profit of $31 million and a net loss of $113 million for fiscal 1997. The
decline in targeted revenues and gross profit and the increase in net loss in
the June 1996 targets compared to the January 1996 targets resulted primarily
from a five month delay in the scheduled release of a notebook computer which
- ---------------
* The statements contained in this section regarding JTS' preliminary financial
targets constitute "forward- looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act and are subject
to the safe harbors created thereby.
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<PAGE> 47
would incorporate JTS' Nordic drives. JTS' manufacturing schedule was changed to
reflect this delay in expected shipments of its Nordic products. As a result of
the delay in production and sales of Nordic disk drives, Palladium disk drives,
on which JTS earns a lower gross margin than Nordic drives, are expected to
comprise a greater proportion of total revenues for fiscal 1997. Accordingly,
JTS' targeted gross margin decreased from January 1996 to June 1996.
Additionally, expected funding from an Indian bank, for facilities expansion and
capital equipment for Moduler Electronics was delayed three months resulting in
a decrease in targeted production capacity. The net loss in the June 1996
updated preliminary financial targets includes expenses associated with the
Merger, including a write-off of approximately $100 million of purchased in-
process research and development in addition to goodwill amortization, Atari
general and administrative expenses and interest expense related to the Atari
convertible debentures.
While JTS believes that the assumptions underlying the preliminary
financial targets are reasonable, any of the assumptions could prove inaccurate
and, therefore, there can be no assurance that the forward-looking financial
information will prove to be accurate. In addition, as disclosed elsewhere in
this Joint Proxy Statement/Prospectus under "Risk Factors," the business and
operations of JTS are subject to substantial risks which increase the
uncertainty inherent in such preliminary financial targets. Any of the factors
disclosed under "Risk Factors" could cause the actual revenues, operating income
and net income of JTS to differ materially from the preliminary financial
targets described above. Accordingly, for these reasons it is expected that
there will be differences between the actual and targeted results, and actual
results may be materially higher or lower than those indicated above.
In light of the significant uncertainties inherent in forward-looking
financial information of any kind, the inclusion of such information herein
should not be regarded as a representation by JTS, Atari or any other person
that the preliminary financial targets will be achieved. Investors are cautioned
that these preliminary financial targets should not be regarded as fact and
should not be relied upon as an accurate representation of future results.
Further, the preliminary financial targets furnished by JTS were not prepared
with a view to public disclosure or in compliance with the established
guidelines concerning financial projections promulgated by the American
Institute of Certified Public Accountants. In addition, such preliminary
financial targets do not purport to present operations in accordance with
generally accepted accounting principles and have not been audited, compiled or
otherwise examined by Arthur Andersen LLP, JTS' independent auditors, or by any
other independent auditor. Accordingly, neither Arthur Andersen LLP nor any
other independent auditor assumes any responsibility for the preliminary
financial targets disclosed herein. The preliminary financial targets are being
presented solely because they were furnished to the Atari Board of Directors and
Montgomery, and they should not be interpreted as suggesting that the Atari
Board or Montgomery relied solely upon such targets or placed any particular
emphasis upon such targets in evaluating any proposed transaction. JTS has
advised Atari and Montgomery that its preliminary financial targets were
prepared solely for internal use and capital budgeting and other management
decisions, and are subjective in many respects and thus susceptible to
interpretations and periodic revision based on actual experience and business
developments. None of Atari, JTS or any of their financial advisors or any of
their respective directors or officers assumes any responsibility as a result of
the inclusion of such preliminary financial targets in this Joint Proxy
Statement/Prospectus for the accuracy of such information. JTS does not intend
publicly to update or otherwise publicly to revise the preliminary financial
targets disclosed above to reflect circumstances existing after the date hereof.
SUMMARY OF THE MERGER AGREEMENT
The detailed terms of, and conditions to, the Merger and certain related
transactions are contained in the Merger Agreement, a copy of which is attached
hereto as Appendix A. The statements made in this Joint Proxy
Statement/Prospectus with respect to the terms of the Merger and such related
transactions are qualified in their entirety by reference to the more complete
information set forth in the Merger Agreement.
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<PAGE> 48
EFFECTIVE TIME
The Merger will become effective at such time as the Certificate of Merger
has been duly filed with the Secretary of State of the State of Nevada in
accordance with the NGCL and with the Secretary of State of the State of
Delaware in accordance with the DGCL, or at such later time as is specified in
the Certificate of Merger (the "Effective Time"). See "-- Conditions to the
Merger." It is anticipated that, if the Merger and the Merger Agreement are
approved at the respective stockholder meetings of Atari and JTS and all other
conditions to the Merger have been fulfilled or waived, the Effective Time will
occur as soon as practicable following the approval of the Merger and the Merger
Agreement by the stockholders of Atari and JTS.
MANNER AND BASIS OF CONVERTING ATARI COMMON STOCK
Conversion of Atari Stock. At the Effective Time, each outstanding share
of Atari Common Stock will be automatically converted into one share of JTS
Common Stock. Shares of Atari Common Stock held as treasury stock and shares of
Atari Common Stock held directly or indirectly by JTS shall not be converted
into JTS Common Stock.
Based on the number of shares of Atari Common Stock, JTS Common Stock and
JTS Series A Preferred Stock outstanding as of May 22, 1996, immediately after
consummation of the Merger (assuming the conversion of all outstanding shares of
JTS Series A Preferred Stock into shares of JTS Common Stock and that none of
the holders of JTS Common Stock or JTS Series A Preferred Stock perfect
appraisal or dissenters' rights), a total of 102,687,204 shares of JTS Common
Stock would be issued and outstanding, of which 63,735,718 shares, or 62%, would
represent shares issued in the Merger upon conversion of Atari Common Stock.
Fractional Shares. No fractional shares of JTS Common Stock will be
issued as a result of the Merger. In lieu thereof, each holder of Atari Common
Stock shall receive cash (without interest) in an amount equal to the fraction
of a share of JTS Common Stock otherwise issuable to such holder multiplied by
the last sale price per share of Atari Common Stock for the trading day
preceding the date of the Effective Time as reported in The Wall Street Journal.
Exchange of Certificates. Registrar and Transfer Company, Cranford, NJ has
been designated to act as Exchange Agent for the purpose of exchanging Atari
Common Stock certificates for JTS Common Stock certificates. As promptly as
practicable after the Effective Time, instructions will be mailed to all holders
of Atari Common Stock regarding treatment of their stock certificates. After the
Effective Time, there will be no further registration of transfers of Atari
Common Stock.
Upon the surrender of a certificate representing shares of Atari Common
Stock to the Exchange Agent, together with a duly executed letter of
transmittal, the holder of such certificate will be entitled to receive in
exchange therefor the number of shares of JTS Common Stock to which the holder
of Atari Common Stock is entitled pursuant to the provisions of the Merger
Agreement. Until outstanding certificates formerly representing shares of Atari
Common Stock are properly surrendered to the Exchange Agent, no dividend or
distribution payable to holders of record of JTS Common Stock shall be paid to
any holder of such outstanding certificates, but upon surrender of such
outstanding certificates by such holder there shall be paid to such holder the
amount of any dividends or distributions (without interest) theretofore paid
with respect to such whole shares of JTS Common Stock, but not paid to such
holder, and which dividends or distributions had a record date occurring on or
subsequent to the Effective Time.
Until a certificate representing shares of Atari Common Stock has been
surrendered to the Exchange Agent, each such certificate shall be deemed at any
time after the Effective Time to represent the right to receive upon such
surrender the number of shares of JTS Common Stock to which the stockholder is
entitled under the Merger Agreement.
ATARI STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE INSTRUCTIONS TO DO SO AFTER COMPLETION OF THE MERGER.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
each of the parties to the effect that, subject to certain exceptions, among
other things: (a) such party is duly organized and in good standing, and has the
requisite corporate power to own its properties and carry on its business; (b)
each subsidiary of JTS and each significant subsidiary of Atari has been duly
organized and is in good standing, and all issued and outstanding capital stock
of such subsidiary is owned by its respective parent company; (c) such party has
a certain number of authorized shares, issued and outstanding shares, and shares
reserved for issuance; (d) such party has all requisite corporate power and
authority to enter into the Merger Agreement and to consummate the Merger, the
execution and delivery of the Merger Agreement has been duly authorized, and the
Merger Agreement constitutes the valid and binding obligation of such party; (e)
the execution, delivery and consummation of the Merger will not conflict with
such party's Certificate of Incorporation or Bylaws, or violate any material
agreement or law to which such party or its assets are bound; (f) the financial
statements of such party have been prepared in accordance with generally
accepted accounting principles and fairly present its financial condition,
results of operations and cash flows; (g) such party has operated its business
in the ordinary course consistent with past practice since certain dates
(January 28, 1996, in the case of JTS, and December 31, 1995, in the case of
Atari (respectively, such party's "Balance Sheet Date")), and, since such
Balance Sheet Date, there have been no actions or events that have materially
adversely affected such party; (h) such party has no material obligations or
liabilities other than those adequately provided for in such party's balance
sheet as of the Balance Sheet Date, or those incurred in the ordinary course of
business; (i) there is no litigation pending or, to the best of such party's
knowledge threatened against such party that, if determined or resolved
adversely, would have a material adverse effect on such party; (j) there is no
agreement or order binding upon such party which has or could have the effect of
prohibiting or impairing such party's business; (k) such party has obtained each
governmental license or permit required for the operation of such party's
business; (l) such party has good and marketable title to all of its properties
and assets reflected in its balance sheet or acquired after such party's Balance
Sheet Date, except for such liens as do not materially impair such party's
business or are reflected on such party's balance sheet; (m) such party owns
certain intellectual property, has no knowledge of material unauthorized use,
disclosure infringement or misappropriation of any such intellectual property,
and has not entered into any agreement to indemnify any other person against a
charge of infringement of such intellectual property; (n) to the knowledge of
such party, no hazardous material is present on such party's property and such
party has materially complied with certain laws and regulations relating to such
hazardous materials; (o) such party has timely filed all required tax returns or
statements, and such party has provided adequate accruals in its financial
statements for any taxes not yet paid; (p) such party has complied with the
provisions of the Employment Retirement Income Security Act of 1974, as amended,
with respect to each "employee benefit plan" maintained by it; (q) execution of
the Merger Agreement will not result in extraordinary payments to or the
acceleration of benefits to such party's employees; (r) such party is in
material compliance with applicable laws and regulations regarding employment,
discrimination, and other terms and conditions of employment, and such party has
no pending or, to its knowledge threatened material controversy with any of its
employees.
In addition to the foregoing mutual representations and warranties, Atari
has made certain representations and warranties to JTS to the effect that: (a)
Atari has furnished to JTS copies of each report, registration statement, proxy
statement and other document filed with the Commission by Atari since January 1,
1993, such reports as of the dates they were filed do not contain an untrue
statement or omit to state a material fact, and such reports complied in all
material respects, when filed, with the then applicable requirements of the
Commission and (b) Atari has obtained an opinion from Montgomery Securities to
the effect that the Merger is fair, from a financial point of view, to Atari.
The foregoing summary of the various representations and warranties is
qualified in its entirety by the full text of the representations and warranties
of Atari and JTS set forth in Articles III and IV of the Merger Agreement
attached to the Joint Proxy Statement/Prospectus as Appendix A.
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CONDUCT OF BUSINESS PRIOR TO THE MERGER
Under the terms of the Merger Agreement, and for the period from the date
of the Merger Agreement and continuing until the earlier of the termination of
the Merger Agreement or the Effective Time of the Merger, each of Atari and JTS
has agreed (except to the extent expressly contemplated by the Merger Agreement
or as consented to in writing by the other), to carry on its and its
subsidiaries' business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay and to cause its
subsidiaries to pay debts and taxes when due subject to good faith disputes over
such debts or taxes and to pay or perform other obligations when due. Each of
Atari and JTS has also agreed to promptly notify the other of any event or
occurrence not in the ordinary course of its or its subsidiaries' business, and
of any event which could have a material adverse effect on it and its
subsidiaries, taken as a whole. In addition, each of Atari and JTS has agreed
that it will not, among other things, do, cause or permit any of the following,
or allow, cause or permit any of its subsidiaries to do, cause or permit any of
the following, without the prior written consent of the other: (a) cause or
permit any amendments to its Certificate of Incorporation or Bylaws; (b) issue,
deliver or sell or authorize or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or, options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than the issuance
of shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of the date of the Merger
Agreement (provided, however, that JTS may, in the ordinary course of business
consistent with past practice, grant options to purchase up to 250,000 shares of
Common Stock under its 1995 Stock Option Plan, and that Atari may issue
securities under certain existing benefit plans); (c) declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries; (d)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to its and its parent's/subsidiaries' business, taken as a whole;
(e) other than in the ordinary course of business, make or change any material
election in respect of taxes, adopt or change any accounting method in respect
of taxes, file any material return or any amendment to a material return, enter
into any closing agreement, settle any claim or assessment in respect of taxes,
or consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of taxes; (f) accelerate, amend or change the
period of exercisability of options, warrants or other rights granted under its
employee stock plans or authorize cash payments in exchange for any options,
warrants or other rights granted under any of such plans; or (g) take, or agree
in writing or otherwise to take, any of the actions described in (a) through (f)
above, or any action which would make any of its representations or warranties
contained in the Merger Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants thereunder.
In addition, under the terms of the Merger Agreement, each of Atari and JTS
has agreed that, during the period from the date of the Merger Agreement and
continuing until the earlier of the termination of the Merger Agreement or the
Effective Time, and except as expressly contemplated by the Merger Agreement, it
will not, among other things, do, cause or permit any of the following, or allow
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of the other party: (a) enter into
any material contract or commitment, or violate, amend or otherwise modify or
waive any of the terms of any of its material contracts, other than in the
ordinary course of business consistent with past practice; (b) transfer to any
person or entity any rights to its intellectual property other than in the
ordinary course of business consistent with past practice; (c) sell, lease,
license or otherwise dispose of or encumber any of its properties or assets
which are material, individually or in the aggregate, to its and its
subsidiaries' business, taken as a whole, except in the ordinary course of
business consistent with past practice; (d) incur any indebtedness for borrowed
money (except amounts borrowed under such party's existing revolving credit line
or drawdowns of existing credit facilities for working capital or construction
purposes only) or guarantee
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any such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others; (e) revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business and other than as
disclosed in such party's disclosure schedule; (f) pay, discharge or satisfy in
an amount in excess of $50,000 in any one case or $250,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in such party's financial statements; (g) terminate or waive
any right of substantial value, other than in the ordinary course of business;
(h) adopt or amend any employee benefit or stock purchase or option plan; (i)
commence a lawsuit other than (i) for the routine collection of bills, (ii) in
such cases where it in good faith determines that failure to commence suit would
result in the material impairment of a valuable aspect of its business, provided
that it consults with the other party prior to the filing of such a suit, or
(iii) for a breach of the Merger Agreement; (j) take, or agree in writing or
otherwise to take, any of the actions described in (a) through (i) above, or any
action which would make any of its representations or warranties contained in
the Merger Agreement untrue or incorrect or prevent it from performing or cause
it not to perform its covenants thereunder. In addition, Atari has agreed that,
during the period from the date of the Merger Agreement and continuing until the
earlier of the termination of the Merger Agreement or the Effective Time, it
shall not, without the prior written consent of JTS, make any capital
expenditures, capital additions or capital improvements except in the ordinary
course of business and consistent with past practice, and in any event not to
exceed $25,000 per quarter.
Each of the parties has further agreed that from and after the date of the
Merger Agreement until the earlier of the effective time of the Merger or the
termination of the Merger Agreement in accordance with its terms, it will not,
directly or indirectly (i) solicit, initiate discuss or engage in negotiations
with any person (whether such negotiations are initiated by such party or
otherwise) or take any other action intended or designed to facilitate the
efforts of any person, other than the other party, relating to the possible
acquisition of such party or any of its subsidiaries (whether by way of merger,
purchase of capital stock, purchase of assets of otherwise) or any material
portion of its or their capital stock or assets (with any such efforts by any
such person, including a firm proposal to make such an acquisition, being
referred to as an "Acquisition Proposal"), (ii) provide non-public information
with respect to such party or any of its subsidiaries to any person relating to
a possible Acquisition Proposal by any person, other than the other party, (iii)
enter into an agreement with any person, other than the other party, providing
for a possible Acquisition Proposal, or (iv) make or authorize any statement,
recommendation or solicitation in support of any possible Acquisition Proposal
by any person other than the other party. If either party receives any
unsolicited offer or proposal to enter into negotiations relating to an
Acquisition Proposal, such party shall immediately notify the other party
thereof, including information as to the identity of the party making any such
offer and the specific terms of such offer. Each party agrees that the issuance
of an injunction or other equitable remedy is an appropriate remedy for any
breach of such agreements.
Notwithstanding the foregoing, nothing contained in the Merger Agreement
prevents the Board of Directors of Atari (or its agents pursuant to its
instructions) from taking any of the following actions: (i) informing any third
party of the foregoing conditions or providing a copy of the Merger Agreement
(other than the JTS Disclosure Schedule) to any third party and (ii)
considering, negotiating, approving and recommending to the stockholders of
Atari an unsolicited, bona fide, written Acquisition Proposal which the Board of
Directors of Atari determines in good faith (after consultation with its
financial advisors and after consultation with outside counsel as to whether the
Board of Directors is required to do so in order to discharge properly its
fiduciary duties to stockholders under applicable law) would result in a
transaction more favorable to Atari's stockholders from a financial point of
view than the Merger (a "Superior Atari Proposal"). However, in the event Atari
were to accept a Superior Atari Proposal, JTS would be entitled to convert the
Atari loan into shares of JTS Series A Preferred Stock.
ADDITIONAL AGREEMENTS
Each of Atari and JTS shall afford the other with reasonable access prior
to the Effective Time to (a) all of such party's properties, books, contracts,
commitments and records and (b) all other information
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concerning the business, properties and personnel of such party as the other
party may reasonably request. Each party shall promptly apply for or otherwise
seek, and use its best efforts to obtain, all consents and approvals required to
be obtained by it for the consummation of the Merger, and shall use its best
efforts to obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the Merger for the assignment thereof.
Each person or entity who holds one percent (1%) or more of the outstanding
shares of JTS capital stock and each person or entity who holds more than five
percent (5%) of the outstanding shares of Atari capital stock shall execute and
deliver a "continuity of interest certificate" (the "Continuity of Interest
Certificate") prior to the Closing. The Continuity of Interest Certificate shall
contain certain representations relating to such stockholders' intention to sell
or dispose of their respective holdings of Atari or JTS capital stock. The
Combined Company shall be entitled to place appropriate legends on the
certificates evidencing any JTS Common Stock to be received by such persons or
entities pursuant to the terms of the Merger Agreement. Such legends shall refer
to, among other things, restrictions on disposition of JTS Common Stock pursuant
to Rule 145 under the Securities Act.
Certain stockholders of Atari and JTS, prior to the execution of the Merger
Agreement, executed and delivered a Voting Agreement pursuant to which such
stockholders agreed to: (a) refrain from selling or otherwise disposing of any
shares of Atari or JTS capital stock, as applicable, prior to the Effective Time
or the date of termination of the Merger Agreement; (b) vote such shares in
favor of the Merger Agreement, the Merger and any matter that could reasonably
be expected to facilitate the Merger; and (c) deliver to Atari or JTS, as
applicable, an irrevocable proxy to vote such shares in favor of the Merger
Agreement and the Merger.
At the Effective Time, each outstanding option to purchase shares of Atari
Common Stock under the Atari Stock Option Plan, whether vested or unvested, will
be assumed by JTS. Each such option so assumed by JTS under the Merger Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the Atari Stock Option Plan.
After the Effective Time, JTS shall (to the extent not prohibited by law)
indemnify and hold harmless, and pay in advance expenses, costs, damages,
settlements and fees to each director or officer of Atari serving as such as of
the date of the Merger Agreement as provided under Nevada law or the Articles of
Incorporation or Bylaws of Atari, or any indemnification agreement to which
Atari and such officer or director is a party, in each case as in effect at the
date of the Merger Agreement, which provisions shall survive the Merger and
shall continue in full force and effect after the Effective Time.
BOARD OF DIRECTORS AND OFFICERS FOLLOWING MERGER
At the Effective Time, the directors of the Combined Company will be
Sirjang L. Tandon, David T. Mitchell, Alain L. Azan, Jean D. Deleage, Roger
Johnson, Lip-Bu Tan, Jack Tramiel and Michael Rosenberg. Messrs. Tandon,
Mitchell, Azan, Deleage, Johnson and Tan are currently directors of JTS, and
Messrs. Tramiel and Rosenberg are currently directors of Atari. The executive
officers of JTS immediately prior to the effective time will be the executive
officers of the Combined Company. The parties have also agreed that Jack Tramiel
or a person designated by Jack Tramiel shall be a member of each committee of
the Board of Directors of the Combined Company.
CONDITIONS TO THE MERGER
Each party's respective obligation to effect the Merger is subject to,
among other things, the approval of the Merger Agreement and the Merger by the
requisite votes of the stockholders of Atari and JTS, the Commission having
declared this Joint Proxy Statement/Prospectus effective, and the satisfaction
prior to the Effective Time of the Merger of the additional following
conditions: (a) the absence of any injunction or other legal action or
regulatory restraint or prohibition preventing the consummation of the Merger or
rendering the consummation of the Merger illegal; (b) all government approvals,
waivers and consents, if any, necessary for consummation of or in connection
with the Merger and the several transactions contemplated thereby, including
such approvals, waivers and consents as may be required under the Securities
Act, under state Blue Sky laws, and under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR
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Act") having been received; (c) Atari and JTS having received substantially
identical written opinions of their respective counsel to the effect that, based
upon certain representations and assumptions and subject to certain
qualifications, the Merger will constitute a tax-free reorganization; (d) the
JTS Common Stock shall have been approved for listing on the Nasdaq National
Market or the American Stock Exchange; (e) no more than five percent (5%) of the
shareholders of JTS shall have exercised appraisal or dissenter's rights with
respect to the Merger; (f) certain significant stockholders of each party shall
have executed Continuity of Interest Certificates; and (g) JTS shall have
assumed the Atari Debentures.
The obligations of JTS to effect the Merger are subject to, among other
things, the satisfaction prior to the Effective Time of the Merger of the
following conditions, unless waived by JTS: (a) the representations and
warranties of Atari in the Merger Agreement shall be true and correct in all
respects on and as of the Effective Time as though such representations and
warranties were made on and as of such time, except to the extent that the
failure of such representations and warranties to be true and accurate in such
respects has not had and could not reasonably be expected to have a material
adverse effect on Atari and its subsidiaries; (b) Atari shall have performed and
complied in all respects with all covenants, obligations and conditions of the
Merger Agreement required to be so performed and complied with, except to the
extent that the failure to so perform and comply has not had and could not
reasonably be expected to have a material adverse effect on Atari and its
subsidiaries; (c) JTS shall have received a certificate executed on behalf of
Atari by its President and its Chief Financial Officer to the effect that, as of
the Effective Time, (i) all representations and warranties made by Atari under
the Merger Agreement are true and complete and (ii) all covenants, obligations
and conditions of the Merger Agreement to be performed by Atari have been so
performed; (d) JTS shall have been furnished with evidence satisfactory to it of
the consent or approval of third parties whose consent or approval shall be
required in connection with the merger; (e) the absence of any injunction or
other legal action or restraint limiting or restricting JTS's conduct or
operation of the business of Atari and its subsidiaries following the Merger
shall be in effect; (f) JTS shall have received a legal opinion as to certain
matters from Wilson Sonsini Goodrich & Rosati, P.C., counsel to Atari; (f) there
shall not have occurred any material adverse change in the condition (financial
or otherwise), properties, assets (including intangible assets), liabilities,
business, operations, results of operations or prospects of Atari and its
subsidiaries, taken as a whole.
The obligations of Atari to effect the Merger are subject to, among other
things, the satisfaction prior to the Effective Time of the following
conditions, unless waived by Atari: (a) the representations and warranties of
JTS in the Merger Agreement shall be true and correct in all respects on and as
of the effective time of the Merger as though such representations and
warranties were made on and as of such time, except to the extent that the
failure of such representations and warranties to be true and accurate in such
respects has not had and could not reasonably be expected to have a material
adverse effect on JTS and its subsidiaries; (b) JTS shall have performed and
complied in all respects with all covenants, obligations and conditions of the
Merger Agreement required to be performed and complied with by it as of the
effective time of the Merger, except to the extent that the failure to so
perform or comply has not had and could not reasonably be expected to have a
material adverse effect on JTS and its subsidiaries; (c) Atari shall have
received a certificate executed on behalf of JTS by its Chief Executive Officer
and its Chief Financial Officer to the effect that, as of the Effective Time,
(i) all representations and warranties made by JTS under the Merger Agreement
are true and complete and (ii) all covenants, obligations and conditions of the
Merger Agreement to be performed by JTS have been so performed; (d) Atari shall
have been furnished with evidence satisfactory to it of the consent or approval
of third parties whose consent or approval shall be required in connection with
the Merger; (e) the absence of any injunction or other legal action or restraint
limiting or restricting JTS' conduct or operation of the business of Atari and
its subsidiaries following the Merger shall be in effect; (f) Atari shall have
received a legal opinion as to certain matters from Cooley Godward Castro
Huddleson & Tatum, counsel to JTS; (g) there shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of JTS and its subsidiaries, taken as a whole; (h)
the outstanding shares of JTS Series A Preferred Stock shall have converted into
shares of JTS Common Stock; and (i) that certain Right of First Refusal and
Co-Sale Agreement between JTS and certain stockholders of JTS shall have been
terminated.
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As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, (i) JTS will file certificates of
merger with the Secretary of State of Delaware and the Recorder of the County in
which the registered office of JTS is located and (ii) Atari will file a
certificate of merger with the Secretary of State of Nevada. The Merger will
become effective upon such filings.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement may be terminated by mutual written agreement of Atari
and JTS, or by either Atari or JTS, if (a) as a result of a breach by the other
party of a representation, warranty, covenant or agreement set forth in the
Merger Agreement which has or can reasonably be expected to have a material
adverse effect on such other party which breach is not cured within five days
after written notice from the other (except that no cure period is provided for
a breach which by its nature cannot be cured), or (b) there shall be any final
action taken, or any statute, rule, regulation or order enacted which would
prohibit JTS' ownership or operation of all or a material portion of the
business of Atari, or which compels JTS or Atari to dispose of or otherwise
relinquish all or a material portion of either such party's assets.
The Merger Agreement may be terminated by any party if (a) the required
approvals of the stockholders of JTS and Atari are not obtained at the
respective stockholder meetings, (b) the closing of the Merger has not occurred
on or before July 31,1996, (c) there is a final, non-appealable order of a
federal or state court in effect preventing consummation of the Merger, or (d)
if the Atari Board of Directors accepts, approves or recommends a Superior Atari
Proposal to the Atari stockholders.
The Merger Agreement may be amended by Atari or JTS at any time before or
after approval by the Atari stockholders or the JTS stockholders, provided that
an amendment made subsequent to the adoption of the Merger Agreement by the
stockholders of JTS and Atari, shall not (a) alter or change the amount or kind
of consideration to be received on conversion of the Atari Common Stock, (b)
alter or change any term of the Certificate of Incorporation of JTS to be
effected by the Merger or (c) alter or change any of the terms and conditions of
the Merger Agreement if such alteration or change would adversely affect the
holders of JTS Common Stock, JTS Series A Preferred Stock or Atari Common Stock.
At any time prior to the Effective Time any party to the Merger Agreement
may (a) extend the time for performance of any obligation of the other parties,
(b) waive any inaccuracies in the representations and warranties made to such
party in the Merger Agreement or any document delivered in connection therewith
and (c) waive compliance with any of the agreements or conditions for the
benefit of such party contained in the Merger Agreement.
MERGER EXPENSES
Atari and JTS will equally bear the costs of solicitation of proxies from
their stockholders, all printing and mailing costs in connection with the
preparation and mailing of this Joint Proxy Statement/Prospectus to Atari and
JTS stockholders, all Commission filing fees with respect to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, and all
costs of qualifying the shares of JTS Common Stock under state blue sky laws. In
addition to solicitation by mail, the directors, officers and employees of Atari
and JTS may solicit proxies from stockholders by telephone, telegram or letter
or in person, but will not be specially compensated for such activities.
Brokers, nominees, fiduciaries and other custodians have been requested to
forward solicitation material to the beneficial owners of Atari Common Stock
held of record by them. Such custodians will be reimbursed by Atari for their
reasonable expenses incurred in that connection. If the Merger is consummated,
all costs and expenses incurred in connection with the Merger not previously
paid will be paid by the Combined Company.
CERTAIN OTHER ITEMS RELATED TO THE MERGER
ACCOUNTING TREATMENT
For accounting purposes, the Merger is treated as if Atari acquired JTS. A
new basis of accounting will be established for the assets and liabilities of
JTS. The new basis reflects the allocation of the purchase price
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to the JTS assets and liabilities on the basis of their fair values at the time
the proposed transaction was announced. The aggregate purchase price to be
allocated includes the outstanding common stock of JTS, valued using $2.50 per
share which is the representative value of the Atari Common Stock at the time
the proposed transaction was announced, as well as the value of JTS options and
warrants and direct costs of the acquisition. Subsequent to the Merger, the
financial statements of the Combined Company will reflect the combined financial
position, results of operations and cash flows of Atari and JTS based on the new
basis of accounting for JTS and the historic cost basis of Atari. Pro forma
combined condensed financial statements are presented herein giving effect to
the Merger as if the transaction occurred, for purposes of the pro forma
combined financial position of the Combined Company, on March 31, 1996, and for
purposes of the pro forma combined results of operations of the Combined
Company, on the first day of each of the periods presented. The allocation of
the purchase price in the pro forma statements was based on a preliminary
independent appraisal of the fair value of the JTS assets acquired and
liabilities assumed which will be revised as updated information becomes
available at the Effective Time. Under the purchase accounting method, giving
effect to the Merger, existing technology and goodwill in the amount of
approximately $22.0 million and $11.7 million, respectively, are expected to be
recognized by the Combined Company. It is anticipated that the Combined Company
will amortize the resulting existing technology and goodwill over periods of
three and seven years, respectively, which will have an adverse effect on its
results of operations. In addition, upon the consummation of the Merger, in the
third quarter of calendar year 1996, the Combined Company expects to expense
approximately $100.0 million of purchased in-process technology. See "Unaudited
Pro Forma Combined Condensed Financial Statements."
RESALE OF JTS COMMON STOCK
The shares of JTS Common Stock to be issued to holders of Atari Common
Stock in the Merger have been registered under the Securities Act by a
registration statement, of which this Joint Proxy Statement/Prospectus is a
part, thereby allowing such shares of JTS Common Stock to be traded without
restriction under the Securities Act by all such holders, except that such
holders who are "affiliates" (as such term is defined for purposes of Rule 145
promulgated under the Securities Act) of Atari will be subject to restrictions
on transferability as provided in Rule 145.
Notwithstanding the Merger, certain shares of JTS Common Stock will
continue to be subject to contractual restrictions on transfer, rights of
repurchase and other provisions (and corresponding restrictive legends on
certificates issued representing such shares), if any, to the same extent as
were applicable immediately prior to the Effective Time, all as set forth in the
restricted stock purchase agreements entered into by the holders of such shares
of JTS Common Stock upon the purchase of such shares by such holder and any
restrictive legends set forth on any certificates representing such shares. See
"Information Regarding JTS Corporation -- Management of JTS -- Executive
Compensation."
CERTIFICATE OF INCORPORATION AND BYLAWS OF COMBINED COMPANY
Upon consummation of the Merger, the Certificate of Incorporation and the
Bylaws of JTS will be amended and restated as approved by the JTS stockholders
in May 1996, and such documents will be the Certificate of Incorporation and the
Bylaws of the Combined Company. See "Comparison of Rights of Stockholders of
Atari and JTS."
ASSUMPTION OF ATARI OPTIONS
Upon consummation of the Merger, each option to purchase Atari Common Stock
then outstanding will be assumed by JTS and will be converted automatically into
an option to purchase the same number of shares of JTS Common Stock at an
exercise price per share equal to the exercise price per share of the Atari
option. The other terms of the Atari options, including vesting schedules, will
remain unchanged.
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ASSUMPTION OF ATARI DEBENTURES
Upon consummation of the Merger, all of Atari's obligations under its
outstanding 5 1/4% convertible subordinated debentures due April 29, 2002 (the
"Atari Debentures") will be assumed by JTS. The Atari Debentures are presently
convertible into Atari Common Stock at a conversion price of $16.3125 per share
and, following the Merger, will be convertible into JTS Common Stock at the same
conversion price. The other terms of the Atari Debentures will remain unchanged.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of May 22, 1996, members of the Board of Directors and executive
officers of Atari beneficially owned approximately 23,952,129 shares (37%) of
the outstanding Common Stock of Atari. As of the same date, members of the Board
of Directors and executive officers of JTS beneficially owned approximately
9,050,000 shares (97%) of the outstanding JTS Common Stock and approximately
14,120,000 shares (48%) of the outstanding JTS Series A Preferred Stock.
Following the consummation of the Merger, the executive officers and the members
of the Board of Directors of the Combined Company will beneficially own
approximately 35,660,000 shares (35%) of the outstanding Common Stock of the
Combined Company. See "-- Summary of the Merger Agreement -- Board of Directors
and Officers Following the Merger," "Information Regarding Atari Corporation --
Principal Stockholders of Atari" and "Information Regarding JTS Corporation --
Principal Stockholders of JTS."
Mr. David T. Mitchell, Chief Executive Officer, President and a director of
JTS, Mr. Kenneth D. Wing, Executive Vice President, Research and Development
Quality/Reliability of JTS, and Ms. W. Virginia Walker, Executive Vice
President, Finance and Administration and Chief Financial Officer of JTS, have
purchased 2,000,000 shares, 300,000 shares and 250,000 shares of restricted JTS
Common Stock, respectively, pursuant to restricted stock purchase agreements.
Each of the agreements provides that such shares of JTS Common Stock shall fully
vest over a four year period; provided, however, such shares of JTS Common Stock
shall immediately vest in the event that there occurs a change of control of JTS
and, within three years thereafter, the holder of such JTS Common Stock is
reassigned to a lesser position, terminated without cause or relocated. The
Merger constitutes a change of control under such restricted stock purchase
agreements.
In March 1996, Mr. Mitchell and Mr. Sirjang L. Tandon, JTS' Chairman of the
Board and Corporate Technical Strategist, each purchased 1,000,000 shares of JTS
Common Stock at a purchase price of $1.00 per share. All of such shares are
subject to a right of repurchase at cost in favor of JTS, which repurchase
option lapses as to all such shares after five years of service with JTS;
provided, however, that with respect to each individual, JTS' right of
repurchase will lapse at the rate of one-eighth of the total shares purchased in
September 1996 and as to 1/48th of the total shares purchased per month
thereafter if the Merger closes. In addition, at the discretion of JTS' Board of
Directors, the right of repurchase with respect to Mr. Mitchell's 1,000,000
shares of JTS Common Stock may be caused to lapse as to all such shares at any
time.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the provisions of the HSR Act, certain acquisitions of voting
securities may not be consummated unless certain information has been filed with
the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the applicable waiting
period under the HSR Act has expired or been terminated. Neither Atari nor JTS
is required to file HSR forms under the HSR Act in connection with the Merger,
except to the extent that the acquisition of JTS Common Stock by certain Atari
stockholders in connection with the Merger may separately be subject to the
premerger notification and waiting period requirements of the HSR Act. All
necessary filings have been made and the applicable waiting period has
terminated with respect to such filings.
At any time before or after the Effective Time, and notwithstanding the
termination of the HSR Act waiting period, the Antitrust Division, the FTC or a
private person could seek under the antitrust laws, among other things, to
enjoin the Merger or to cause Atari or JTS to divest itself, in whole or in
part, of a portion of its business, or the Combined Company to divest itself, in
whole or in part, of any of the businesses of Atari or
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JTS. There can be no assurance that a challenge to the Merger will not be made
or that, if such a challenge is made, Atari and JTS will prevail.
Other than the waiting period under the HSR Act, Atari and JTS are aware of
no governmental or regulatory approvals required for consummation of the Merger,
other than compliance with the federal securities laws and applicable securities
laws of the various states.
RELATED TRANSACTIONS
ATARI LOAN TO JTS
On February 13, 1996, Atari loaned $25.0 million to JTS pursuant to a
Subordinated Secured Convertible Promissory Note (the "Note") which is secured
by substantially all of the assets of JTS. Interest accrues on the unpaid
principal amount of the Note at the rate of 8.5% per annum. The Note provides
that JTS shall repay the outstanding principal and interest under the Note on
September 30, 1996 if the Merger has not occurred prior to such time. The Note
is expressly subordinated to outstanding indebtedness in connection with JTS'
primary bank loan agreement, up to an amount of $5.0 million at any one time. In
addition, Atari's security interest in JTS' assets is junior to security
interests previously obtained by a bank and certain equipment lessors. The
amount of the senior obligations was approximately $9.1 million at January 28,
1996. In addition, the Note provides that JTS may incur (a) indebtedness to
trade creditors in the ordinary course of business, (b) contingent obligations
consisting of guarantees of the obligations of vendors and suppliers of JTS in
respect to transactions entered into in the ordinary course of business, (c)
indebtedness with respect to capital lease obligations and indebtedness secured
by certain permitted liens, (d) other indebtedness, not exceeding $1.0 million
in the aggregate at any time, and (e) obligations with respect to extensions,
renewals or refinancings of any of the items in (a)-(d), provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon JTS.
Under the terms of the Note, the occurrence of any of the following shall
constitute an event of default entitling Atari to declare immediately due and
payable all outstanding obligations under the Note: (a) failure by JTS to pay
when due any principal or interest payment required under the Note; (b) failure
by JTS to observe or perform its agreements regarding prohibitions on certain
transactions and on the use of proceeds from the Note; (c) breach of any
representation or warranty made in connection with the Note or the Merger
Agreement; (d) default by JTS under certain existing loan obligations, the
effect of which is to cause indebtedness of JTS in the amount of $250,000 or
more to become due prior to its stated date of maturity; (e) involuntary or
voluntary bankruptcy proceedings with respect to JTS; (f) a final judgment or
order for the payment of money in excess of $250,000 being rendered against JTS
in which such judgment or order remains undischarged for a period of 30 days; or
(g) the uncured breach by JTS with respect to certain other obligations
specified in the Note.
In the event that the Merger Agreement is terminated, either party may,
under certain conditions, elect to convert the outstanding indebtedness under
the Note into shares of JTS Series A Preferred Stock in an amount determined by
dividing the aggregate amount of the indebtedness to be converted by the
"Conversion Price" then in effect. The initial Conversion Price is $1.00 per
share, subject to adjustments for stock splits and similar events. Atari may
effect a conversion upon (a) a mutual written consent of JTS and Atari, (b) a
breach of any representation, warranty or agreement in the Merger Agreement by
JTS, provided that Atari has not materially breached its obligations under the
Merger Agreement at such time, (c) the failure of the parties to consummate the
Merger by July 31, 1996, or (d) failure by JTS' stockholders to approve the
Merger. JTS may effect a conversion of the outstanding indebtedness under the
Note in the event that (x) Atari breaches any representation, warranty or
agreement contained in the Merger Agreement, provided that JTS has not
materially breached its obligations under the Merger Agreement at such time, (y)
Atari's stockholders do not approve the Merger, or (z) the Atari Board of
Directors shall have accepted, approved or recommended to the Atari Stockholders
a Superior Atari Proposal.
In the event that either Atari or JTS elects to convert at least $5.0
million of indebtedness outstanding under the Note into shares of JTS Series A
Preferred, JTS shall be obligated to issue to Atari warrants to purchase shares
of JTS Series A Preferred Stock. Pursuant to the terms of the Note, JTS shall,
upon the
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conversion of such outstanding indebtedness, be obligated to issue a warrant to
purchase up to 7,500,000 shares of JTS Series A Preferred. Each warrant to be
issued by JTS pursuant to the Note shall have an exercise price of $2.00 per
share, subject to adjustment on certain events, and a term of five years. The
shares of JTS Series A Preferred issuable upon exercise of any warrants issued
pursuant to the Note shall be entitled to registration rights on parity with the
existing registration rights held by the holders of JTS Series A Preferred
Stock.
VOTING AGREEMENTS
In connection with the Merger, certain stockholders of Atari and JTS have
entered into Voting Agreements. The terms of such Voting Agreements provide (i)
that such stockholders will not transfer (except as may be specifically required
by court order), sell, exchange, pledge (except in connection with a bona fide
loan transaction) or otherwise dispose of or encumber their shares of Atari
Common Stock, JTS Common Stock or JTS Series A Preferred Stock, as the case may
be, beneficially owned by them, or any new shares of such stock they may
acquire, at any time prior to the effective time or earlier termination of the
Merger, and (ii) that such stockholders will vote all shares of Atari Common
Stock, JTS Common Stock or JTS Series A Preferred Stock, as the case may be,
beneficially owned by them in favor of the approval of the Merger Agreement and
the Merger. Such voting agreements are accompanied by irrevocable proxies
whereby the stockholders of Atari provide to JTS, and the stockholders of JTS
provide to Atari, the right to vote their shares on the proposals relating to
the Merger Agreement and the Merger at the Atari Special Meeting and JTS Special
Meeting, respectively. Holders of approximately 43% of the shares of Atari
Common Stock, 91% of the shares of JTS Common Stock and 70% of the shares of JTS
Series A Preferred Stock entitled to vote at the respective stockholder meetings
have entered into such Voting Agreements and irrevocable proxies.
APPRAISAL AND DISSENTERS' RIGHTS
GENERAL
Stockholders of JTS who do not vote in favor of the Merger may, under
certain circumstances and by following the procedures prescribed by the DGCL,
exercise appraisal rights and receive cash for their shares of JTS Common Stock
and JTS Series A Preferred Stock. Alternatively, although JTS is a Delaware
corporation and is therefore subject to DGCL, the CGCL provides that JTS may be
subject to California law with respect to dissenters' rights. Accordingly,
pursuant to Chapter 13 of the CGCL, stockholders of JTS who do not vote in favor
of the Merger and who comply with the requirements of the CGCL will have a right
to demand payment for, and appraisal of the "fair value" of, their shares
("Dissenting Shares"). Although a dissenting stockholder may choose to proceed
under one or both of the states' statutes, the dissenting stockholder must
specify which statute the stockholder is proceeding under and must follow the
appropriate procedures under either the DGCL or the CGCL or suffer termination
or waiver of such rights.
DELAWARE APPRAISAL RIGHTS
If the Merger is consummated, dissenting holders of JTS Common Stock and
JTS Series A Preferred Stock may be entitled to have the "fair value" (exclusive
of any element of value arising from the accomplishment or expectation of the
Merger) of their shares immediately prior to the Effective Time paid to them by
complying with the provisions of Section 262 of the DGCL.
The following is a brief summary of Section 262, which sets forth the
procedures for dissenting from the Merger and demanding statutory appraisal
rights. This summary does not purport to be a complete statement of the
provisions of the Delaware Law relating to the rights of JTS stockholders to an
appraisal of the value of their shares and is qualified in its entirety by
reference to Section 262, the full text of which is attached hereto as Appendix
D. Failure to follow these procedures exactly could result in the loss of
appraisal rights (if available). This Joint Proxy Statement/Prospectus
constitutes notice to holders of JTS Common Stock and JTS Series A Preferred
Stock concerning the availability of appraisal rights under Section 262.
Under Section 262, a stockholder of record wishing to assert appraisal
rights must hold the shares of stock on the date of making a demand for
appraisal rights with respect to such shares and must continuously hold such
shares through the Effective Time. Stockholders who desire to exercise their
appraisal rights (if
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available) must satisfy all of the conditions of Section 262. A written demand
for appraisal of shares must be filed with JTS before the taking of the vote on
the Merger. This written demand for appraisal of shares must be in addition to
and separate from any proxy vote abstaining from or voting against the Merger.
Any such abstention or vote against the Merger will not constitute a demand for
appraisal within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights (if available)
under Section 262 must not vote for approval of the Merger. If a stockholder
returns a signed proxy but does not specify a vote against approval of the
merger or a direction to abstain, the proxy will be voted for approval of the
Merger, which will have the effect of waiving that stockholder's appraisal
rights (if available).
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the share
certificate. If the shares are owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, this demand must be executed by or for the
fiduciary. If the shares are owned by or for more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, he is acting as agent for the record owner. A person
having a beneficial interest in JTS Common Stock or JTS Series A Preferred Stock
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below and
in a timely manner to perfect whatever appraisal rights the beneficial owner may
have.
A record owner, such as a broker, who holds JTS Common Stock or JTS Series
A Preferred Stock as a nominee for others may exercise his or her right of
appraisal with respect to the shares for all or less than all of the beneficial
owners of shares as to which he or she is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly mentioned, the demand will be presumed to
cover all shares outstanding in the name of such record owner.
A JTS stockholder who elects to exercise appraisal rights (if available)
should mail or deliver his or her written demand to JTS at its address at 166
Baypointe Parkway, San Jose, California 95134, Attention: W. Virginia Walker,
Corporate Secretary. The written demand for appraisal should specify the
stockholder's name and mailing address, and that the stockholder is thereby
demanding appraisal of his or her JTS stock. If appraisal rights are available
in connection with the Merger, within ten days after the Effective Time, JTS
must provide notice of the Effective Time to all of its stockholders who have
complied with Section 262 and have not voted for approval of the Merger.
Within 120 days after the Effective Time, any stockholder who has satisfied
the requirements of Section 262 may deliver to JTS a written demand for a
statement listing the aggregate number of shares not voted in favor of the
merger and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares.
Within 120 days after the Effective Time (but not thereafter), either JTS
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court of Chancery (the "Court") demanding a
determination of the fair value of the dissenting shares. If no petition for
appraisal is filed with the Court within 120 days after the Effective Time,
stockholders' rights to appraisal (if available) will cease and stockholders
will be entitled to receive shares of JTS Common Stock as provided in the Merger
Agreement. Any stockholder who desires a petition to be filed is advised to file
it on a timely basis. JTS has no present intention to file such a petition if
demand for appraisal is made.
Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy will be made upon JTS, which will, within 20 days after
service, file in the office of the Register in Chancery in which the petition
was filed, a duly verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with whom agreements
as to the value of their shares have not been reached by JTS.
If a petition for an appraisal is filed in a timely fashion, after a
hearing on the petition, the Court will determine which stockholders are
entitled to appraisal rights and will appraise the shares owned by these
stockholders, determining the fair value of such shares, exclusive of any
element of value arising from the
52
<PAGE> 60
accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be fair value. In
determining fair value, the Court is to take into account all relevant factors.
JTS stockholders considering seeking appraisal of their shares should note
that the fair value of their shares determined under Section 262 could be more,
the same or less than the consideration they would receive pursuant to the
Merger Agreement if they did not seek appraisal of their shares. The costs of
the appraisal proceeding may be determined by the Court and taxed against the
parties as the Court deems equitable in the circumstances.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the
shares subject to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger Agreement. After this period, a stockholder may
withdraw his or her demand for appraisal and receive payment for his or her
shares as provided in the Merger Agreement only with the consent of JTS. No
petition demanding appraisal may be dismissed without approval of the Court.
Pursuant to the Merger Agreement, JTS will give Atari prompt notice of any
demands received by JTS, and Atari will have the right to participate in all
negotiations and proceedings with respect to the demands. JTS will not, except
with the prior written consent of Atari, make any payment with respect to, or
settle or offer to settle, any such demands.
Cash received pursuant to the exercise of appraisal rights may be subject
to federal or state income tax. See "-- Certain Federal Income Tax
Considerations."
The foregoing summary of the applicable provisions of Section 262 is not
intended to be a complete statement of such provisions and is qualified in its
entirety by reference to such Section, the full text of which is attached as
Appendix D-1 to this Joint Proxy Statement/Prospectus.
CALIFORNIA DISSENTERS' RIGHTS
By virtue of Section 2115 of the CGCL, if holders of JTS Common Stock and
JTS Series A Preferred Stock exercise dissenters' rights in connection with the
Merger under Chapter 13 of the CGCL ("Chapter 13"), any shares of JTS Common
Stock and JTS Series A Preferred Stock as to which such dissenters' rights are
exercised will be converted into the right to receive such consideration as may
be determined to be due with respect to such Dissenting Shares pursuant to the
laws of the State of California.
The following summary of the provisions of Chapter 13 is not intended to be
a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Chapter 13, a copy of which is attached hereto as
Appendix D-2 and is incorporated herein by reference.
If the Merger is approved by the required vote of JTS' stockholders, each
holder of shares of JTS Common Stock and JTS Series A Preferred Stock who does
not vote in favor of the Merger and who follows the procedures set forth in
Chapter 13 will be entitled to have shares of JTS Common Stock and JTS Series A
Preferred Stock purchased by JTS for cash at their fair market value. Abstention
of the stockholder from voting will not waive the stockholders' dissenter's
rights. Voting against the proposed Merger will not constitute the written
demand on the corporation for purchase of the Dissenting Shares as required
under Chapter 13. The fair market value of shares of JTS Common Stock and JTS
Series A Preferred Stock will be determined as of the day before the first
announcement of the terms of the proposed Merger, excluding any appreciation or
depreciation in consequence of the proposed Merger and therefore valuing the
shares of JTS Common Stock and Series A Preferred Stock as if the Merger had not
occurred.
Within ten days after approval of the Merger by JTS' stockholders, JTS must
mail a notice of such approval (the "Approval Notice") to all stockholders who
have not voted in favor of the Merger, together with a statement of the price
determined by JTS to represent the fair market value of the applicable
Dissenting
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<PAGE> 61
Shares, a brief description of the procedures to be followed in order for the
stockholder to pursue dissenters' rights, and a copy of Sections 1300-1304 of
Chapter 13. The statement of price by JTS constitutes an offer by JTS to
purchase all Dissenting Shares at the stated amount.
A stockholder of JTS electing to exercise dissenters' rights must, within
thirty days after the date on which the Approval Notice is mailed to such
stockholder, mail or deliver the written demand to JTS stating that such holder
is demanding purchase of his or her shares of JTS Common Stock and/or JTS Series
A Preferred Stock, stating the number of shares which JTS must purchase, what
the stockholder claims to be the fair market value of such shares and enclosing
the share certificates for endorsement by JTS. The statement of fair market
value constitutes an offer by the stockholder to sell the shares at such price.
A dissenting stockholder may not withdraw a demand for payment unless JTS
consents to it.
If JTS and the stockholder agree that the shares are Dissenting Shares and
agree upon the price of the shares, JTS must pay the stockholder the agreed upon
price plus interest thereon at the legal rate from the date of the agreement on
Dissenting Shares within thirty days from the later of (i) the date of the
agreement on Dissenting Shares, or (ii) the date all contractual conditions to
the Merger are satisfied.
If JTS denies that the shares are Dissenting Shares, or if JTS and the
stockholder fail to agree upon the fair market value of shares of capital stock,
then within six months after the date the Approval Notice was mailed to
stockholders, any stockholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the Merger may file a
complaint in California superior court requesting a determination as to whether
the shares are Dissenting Shares or as to the fair market value of such holder's
shares of JTS Common Stock and/or JTS Series A Preferred Stock, or both.
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<PAGE> 62
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences of the exchange of shares of Atari capital stock for JTS capital
stock pursuant to the Merger. This summary is based upon opinions of counsel
(the "Tax Opinions") delivered by Wilson Sonsini Goodrich & Rosati, P.C. and
Cooley Godward Castro Huddleson & Tatum (collectively "Counsel") that the Merger
will constitute a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (a "Reorganization").
Atari and JTS stockholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular stockholders of Atari and JTS in light of their particular
circumstances, such as stockholders who are banks, insurance companies,
tax-exempt organizations, dealers in securities, foreign persons or who do not
hold their Atari or JTS capital stock as capital assets or who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the Merger under foreign, state or local tax
laws or the tax consequences of transactions effectuated prior or subsequent to
or concurrently with the Merger (whether or not such transactions are in
connection with the Merger), including, without limitation, transactions in
which Atari capital stock is acquired or JTS capital stock is disposed of.
ACCORDINGLY, ATARI AND JTS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Subject to the limitations and qualifications referred to herein, Counsel
is of the opinion that the Merger will qualify as a Reorganization which will
result in the following federal income tax consequences:
(a) No gain or loss will be recognized by holders of Atari capital stock
solely upon their receipt of JTS capital stock solely in exchange for Atari
capital stock in the Merger (except to the extent of cash received in lieu of a
fractional share of JTS capital stock).
(b) The aggregate tax basis of the JTS capital stock received by Atari
stockholders in the Merger will be the same as the aggregate tax basis of Atari
capital stock surrendered in exchange therefor less the tax basis, if any,
allocated to fractional share interests.
(c) The holding period of the JTS capital stock received in the Merger will
include the period for which the Atari capital stock surrendered in exchange
therefor was held, provided that the Atari capital stock is held as a capital
asset at the time of the Merger.
(d) Cash payments received by holders of Atari capital stock in lieu of a
fractional share will be treated as if a fractional share of JTS capital stock
had been issued in the Merger and then redeemed by JTS. A stockholder of Atari
receiving such cash will generally recognize gain or loss upon such payment,
equal to the difference (if any) between such stockholder's basis in the
fractional share and the amount of cash received.
(e) A shareholder who exercises appraisal or dissenters' rights with
respect to a share of JTS capital stock and who receives payment for such stock
in cash should generally recognize capital gain or loss (if such share was held
as a capital asset at the time of the Merger) measured by the difference between
the shareholder's basis in such share and the amount of cash received, provided
that such payment is neither essentially equivalent to a dividend nor has the
effect of a distribution of a dividend (a "Dividend Equivalent Transaction"). A
sale of capital stock of JTS pursuant to an exercise of appraisal or dissenters'
rights will generally not be a Dividend Equivalent Transaction if, as a result
of such exercise, the shareholder exercising dissenters' rights and all parties
related to such Shareholder own no shares of JTS Stock (either actually or
constructively with the meaning of Section 318 of the Code) after the Merger.
If, however, a stockholder's sale for cash of JTS capital stock pursuant to an
exercise of appraisal or dissenters' rights is a Dividend Equivalent
Transaction, then such shareholder will generally recognize income for federal
income tax purposes in an amount up to the entire amount of cash so received.
(f) Neither JTS nor Atari will recognize material amounts of gain solely as
a result of the Merger.
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<PAGE> 63
No ruling has been or will be obtained from the Internal Revenue Service
(the "IRS") in connection with the Merger. Atari and JTS stockholders should be
aware that the Tax Opinions do not bind the IRS and that the IRS is therefore
not precluded from successfully asserting a contrary opinion. The Tax Opinions
are also subject to certain limitations and qualifications, they are based upon
certain factual assumptions, and are subject to the truth and accuracy of
certain representations made by Atari and JTS. Of particular importance are
certain representations relating to the Code's "continuity of shareholder
interest" and "continuity of business enterprise" requirements.
To satisfy the continuity of shareholder interest requirement, Atari
shareholders must not, pursuant to a plan or intent existing at or prior to the
Merger, dispose of or transfer so much of either (i) their Atari capital stock
in anticipation of the Merger or (ii) the JTS capital stock to be received in
the Merger (collectively, "Planned Dispositions"), such that Atari shareholders,
as a group, would no longer have a significant equity interest in the Atari
business being conducted by JTS after the Merger. Atari shareholders will
generally be regarded as having a significant equity interest as long as the
number of shares of JTS capital stock received in the Merger less the number of
shares subject to Planned Dispositions (if any) represents, in the aggregate, a
substantial portion of the entire consideration received by the Atari
shareholders in the Merger. To satisfy the continuity of business enterprise
requirement, JTS must either (i) continue the historic business conducted by
Atari or (ii) use a significant portion of the historic business assets of Atari
in a business.
A successful IRS challenge to the Reorganization status of the Merger would
result in the Merger being treated as a taxable sale of Atari's assets.
Additionally, a successful IRS challenge to such Reorganization status would
result in Atari stockholders recognizing taxable gain or loss with respect to
each share of Atari capital stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
Effective Time, of the JTS capital stock received in exchange therefor. In such
event, a stockholder's aggregate basis in the JTS capital stock so received
would equal its fair market value and the holding period for such stock would
begin the day after the Effective Time.
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<PAGE> 64
STOCK PRICE AND DIVIDEND INFORMATION
ATARI
Atari's Common Stock has traded on the American Stock Exchange under the
symbol "ATC" since November 7, 1986. As of the close of business on May 22,
1996, 63,735,718 shares of Atari Common Stock were outstanding and no shares of
Preferred Stock were outstanding. As of that date, there were approximately
2,600 stockholders of record of Atari Common Stock. The following table sets
forth the high and low sale prices of Atari's Common Stock for the periods
indicated as reported on the consolidated transaction system.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR 1996
Second Quarter (through June 19, 1996)......................... $ 9 $ 3 5/8
First Quarter.................................................. 4 1/8 1 5/8
FISCAL YEAR 1995
Fourth Quarter................................................. $ 3 5/16 $ 1 1/8
Third Quarter.................................................. 3 5/8 2 9/16
Second Quarter................................................. 3 1/8 2 1/2
First Quarter.................................................. 4 1/4 2 3/4
FISCAL YEAR 1994
Fourth Quarter................................................. $ 7 3/8 $ 3 9/16
Third Quarter.................................................. 7 3/4 2 7/8
Second Quarter................................................. 6 5/8 2 7/8
First Quarter.................................................. 8 1/8 5 5/8
</TABLE>
Atari has never paid cash dividends on its Common Stock and does not
anticipate a change in this practice in the foreseeable future.
JTS
JTS is a privately held company, and there is no public trading market for
its stock. As of the close of business on May 15, 1996, 9,255,116 shares of JTS
Common Stock and 29,696,370 shares of JTS Series A Preferred Stock were issued
and outstanding. There are a total of 52 holders of record of JTS Series A
Preferred Stock and 16 holders of record of JTS Common Stock. After the Closing,
the JTS Common Stock is expected to be publicly traded on the American Stock
Exchange under the symbol "JTS". No cash dividend has ever been paid on any
class of JTS capital stock.
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<PAGE> 65
JTS' ACQUISITION OF THE DISK DRIVE DIVISION OF MODULER ELECTRONICS
Moduler Electronics is located in Madras, India and was founded in 1986 by
members of the family of Sirjang L. Tandon, JTS' Chairman and Corporate
Technical Strategist, as a contract manufacturer of power supplies for computers
and hard disk drive subassemblies. In December 1994, Moduler Electronics
received Indian government approval to manufacture hard disk drives. At
approximately the same time, Moduler Electronics discontinued production of hard
disk drive subassemblies for customers other than JTS. In March 1995, JTS
entered into a verbal agreement to acquire the hard disk drive division of
Moduler Electronics for 1,911,673 shares of JTS Series A Preferred Stock and a
warrant to purchase 500,000 shares of JTS Common Stock at an exercise price of
$.25 per share. JTS subsequently assumed operational and management control of
certain portions of the hard disk drive business of Moduler Electronics. The
verbal agreement contemplated that prior to JTS' acquisition, Moduler
Electronics would divest itself of certain voice coil assembly and other
operations not directly involved in its hard disk drive business.
In April 1996, following Moduler Electronics' divestiture of its voice coil
business and businesses unrelated to its hard disk drive operations, JTS
purchased 90% of the outstanding capital stock of Moduler Electronics in
consideration for 1,911,673 shares of JTS Series A Preferred Stock and a warrant
to purchase 750,000 shares of JTS Common Stock at an exercise price of $0.25 per
share. The warrant is immediately exercisable as to 500,000 shares of JTS Common
Stock and becomes exercisable with respect to the remaining 250,000 shares when
certain borrowings and credit facilities in the amount of $29 million become
available to Moduler Electronics. The 250,000 share portion of the warrant
related to the credit facilities of Moduler Electronics will be valued and
recorded as additional interest expense over the term of the borrowings, if and
when such portion of the warrant becomes exercisable.
In connection with the acquisition of the hard disk drive business of
Moduler Electronics, JTS agreed not to compete in the head stack manufacturing
business within India for a period of five years, provided that JTS may
manufacture head stacks for its internal requirements. In return, the former
owners of Moduler Electronics agreed not to compete in the disk drive
manufacturing business within India for a period of five years. In addition, JTS
granted certain registration rights with respect to the shares of JTS capital
stock issued in the acquisition. JTS has a right of first refusal to purchase
the remaining 10% equity interest in Moduler Electronics at 10% of the net book
value of Moduler Electronics at the time of the purchase.
Since JTS began hard disk drive production in early 1995, JTS has conducted
substantially all of its manufacturing operations at the Moduler Electronics
facility. As of January 28, 1996, Moduler Electronics employed 1,139
individuals. The Madras facility presently occupies 85,000 square feet in a
single building, 4,000 square feet of which are designated a "clean room"
environment. At this facility, JTS is adding production lines and expanding its
clean room environment. JTS believes that locating its manufacturing operations
in India represents an important element of its manufacturing strategy due to
the local availability of a high-quality, low-cost technical labor pool. See
"Information Regarding JTS Corporation -- Business of JTS -- Manufacturing."
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<PAGE> 66
JTS CORPORATION AND
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Merger of JTS and Moduler Electronics which was consummated
on April 4, 1996 and will be accounted for as a purchase. The accompanying pro
forma combined condensed balance sheet as of January 28, 1996 assumes that the
acquisition of Moduler Electronics by JTS took place on that date and combines
JTS' and Moduler Electronics' balance sheets as of January 28, 1996. The
accompanying pro forma combined condensed statement of operations for the year
ended January 28, 1996 assumes that the acquisition took place as of the
beginning of fiscal 1996, and combines JTS' and Moduler Electronics' statements
of operations for the year ended January 28, 1996. The pro forma combined
condensed statements of operations do not include the effect of any nonrecurring
charges directly attributable to the acquisition.
In March 1995, JTS agreed to acquire the hard disk drive division of
Moduler Electronics and subsequently assumed operational and management control
of certain portions of the hard disk drive business of Moduler Electronics. The
purchase price included 1,911,673 shares of JTS Series A Preferred Stock and a
warrant to purchase JTS Common Stock at an exercise price of $0.25 per share in
exchange for 90% of the outstanding capital stock of Moduler Electronics. Actual
statements of the companies will be combined after the consummation date with no
retroactive restatements. The accompanying pro forma combined condensed
financial statements should be read in conjunction with JTS' and Moduler
Electronics' historical financial statements and related notes thereto.
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<PAGE> 67
JTS CORPORATION AND
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JANUARY 28, 1996
------------------------------------------------------
HISTORICAL
HISTORICAL MODULER PRO FORMA PRO FORMA
JTS ELECTRONICS ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and restricted cash.... $ 547 $ 868 $ 1,415
Trade and other receivable.................... 2,098 -- 2,098
Receivable from Moduler Electronics........... 6,892 -- $(6,892)(a) --
Receivable from related parties............... -- -- 380(a) 380
Inventories................................... 2,093 5,983 8,076
Prepaid and other current assets.............. 240 513 753
------- ------ -------
Total current assets.................. 11,870 7,364 12,722
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET....... 7,943 5,603 1,249(b) 14,795
GOODWILL........................................ -- -- 594(b) 594
------- ------ -------
$ 19,813 $ 12,967 $ 28,111
======= ====== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank line of credit and short-term
borrowing.................................. $ 4,323 $ 6,085 $ 10,408
Note payable to stockholder................... 1,000 -- 1,000
Accounts payable --
Trade...................................... 7,226 6,268 13,494
Moduler Electronics........................ 9,546 -- (5,734)(a) --
(3,812)(b)
Related parties............................ -- 1,168 (778)(a) 390
Accrued liabilities........................... 3,501 197 3,698
Current portion of capitalized lease
obligations
and long-term debt......................... 1,520 105 1,625
------- ------ -------
Total current liabilities............. 27,116 13,823 30,615
LONG-TERM LIABILITIES........................... 3,485 2,763 6,248
------- ------ -------
Total Liabilities..................... 30,601 16,586 36,863
REDEEMABLE SERIES A PREFERRED STOCK............. 27,785 -- 1,911(b) 29,696
STOCKHOLDERS' DEFICIT:
Common stock.................................. -- -- --
Warrant for common stock...................... -- -- 125(b) 125
Additional paid-in capital.................... 6,004 -- 6,004
Deferred compensation......................... (4,320) -- (4,320)
Notes receivable from stockholders............ (623) -- (623)
Accumulated deficit........................... (39,634) (39,634)
Liabilities in excess of assets............... -- (3,619) 3,619(b) --
======
------- -------
Total stockholders' deficit........... (38,573) (38,448)
------- -------
$ 19,813 $ 28,111
======= =======
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
60
<PAGE> 68
JTS CORPORATION AND
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 28, 1996
----------------------------------------------------------
HISTORICAL
HISTORICAL MODULER PRO FORMA PRO FORMA
JTS ELECTRONICS ADJUSTMENTS COMBINED
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Product sales.............................. $ 13,502 $15,580 $ (15,580)(c) $ 13,502
Technology license revenue................. 5,275 -- 5,275
------- ------ -------
18,777 15,580 18,777
COST OF PRODUCT SALES........................ 28,548 19,160 (15,580)(c) 33,626
------- ------ -------
(599)(e)
2,097(e)
GROSS MARGIN (DEFICIT)....................... (9,771) (3,580) (14,849)
OPERATING EXPENSES:
Research and development................... 13,375 -- 13,375
Selling, general and administrative........ 5,579 -- 198(d) 5,777
Manufacturing start-up costs............... 3,812 -- (3,812)(f) --
------- ------ -------
22,766 -- 19,152
------- ------ -------
OPERATING LOSS............................... (32,537) (3,580) (34,001)
OTHER INCOME (EXPENSE):
Interest income............................ 108 141 249
Interest expense........................... (589) (464) (1,053)
Other, net................................. (32) (333) (365)
------- ------ -------
NET LOSS..................................... $ (33,050) $(4,236) $ (35,170)
======= ====== =======
NET LOSS PER COMMON SHARE.................... $ (7.17) $ (7.63)
======= =======
SHARES USED IN COMPUTING NET LOSS PER
SHARE...................................... 4,611 (g) 4,611
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
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<PAGE> 69
JTS CORPORATION AND
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1. PURCHASE PRICE ALLOCATION
The purchase price of the acquisition of Moduler Electronics is computed as
follows (in thousands):
<TABLE>
<S> <C>
Preferred stock..................................... $1,911
Warrants............................................ 125
-------
$2,036
=======
</TABLE>
The preferred stock is valued at $1.00 per share, such number of shares and
the value per share were agreed to in March 1995. The price per preferred
share was identical to the price per preferred share received by the
Company in cash sales to unrelated parties in February and September 1995.
The warrant to purchase 500,000 shares of common stock at $.25 was valued
at $125,000 and reflects the higher value of the preferred stock relative
to the common stock. Subsequent to the March 1995 agreement to purchase
Moduler Electronics, JTS assumed operational and management control of
certain portions of the Disk Drive Unit and funded certain of the start-up
losses. Accordingly, JTS expensed 90% of the Unit's loss in its historical
financial statements.
The purchase price is expected to be allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets acquired........................... $ 6,628
Property acquired................................. 6,292
Liabilities assumed............................... (11,478)
Goodwill.......................................... 594
-------
$ 2,036
=======
</TABLE>
NOTE 2. PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the accompanying pro forma
combined condensed balance sheet and statement of operations as described below:
(a) Eliminates intercompany receivable and payable balances.
(b) Reflects the acquisition of 90% ownership of Moduler Electronics for
1,911,673 shares of JTS Series A Preferred Stock valued at $1.00 per
share and a warrant to purchase 500,000 shares of JTS Common Stock
valued at $125,000.
(c) Eliminates intercompany sales.
(d) Reflects the amortization of goodwill on a straight-line basis over
three years.
(e) Reflects the depreciation of the step-up of fixed assets.
(f) Eliminates 90% of loss of Moduler Electronics' start-up costs.
(g) Pro forma weighted average common shares do not include common stock
equivalents as inclusion of these shares would be anti-dilutive.
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<PAGE> 70
ATARI CORPORATION AND JTS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the proposed merger of Atari and JTS. The merger is subject to
shareholder and regulatory approval and other conditions. The unaudited pro
forma condensed combined balance sheet has been prepared as if the acquisition,
which will be accounted for as a purchase of JTS by Atari, was consummated as of
March 31, 1996. Such pro forma balance sheet combines Atari's balance sheet as
of March 31, 1996 and the balance sheet of JTS as of April 28, 1996. Although
the business combination will result in Atari merging into the JTS legal entity,
the substance of the transaction is that Atari, a public company with
substantially greater operating history and net worth, will own approximately
62% of the combined equity at the date of the acquisition.
The aggregate purchase price of $112.3 million has been allocated to the
acquired assets and liabilities of JTS. Included in the pro forma purchase price
are the approximately 40 million shares of outstanding common stock of JTS,
assuming conversion of all outstanding preferred stock of JTS, the value of the
assumed JTS options and warrants of $11.1 million and the estimated direct
transaction costs. The common stock, options and warrants were valued using
$2.50 per share which is the representative value of Atari stock at the time the
proposed transaction was announced. The allocation of the purchase price was
based on a preliminary independent appraisal of the fair value of assets
acquired and liabilities assumed. The fair value of JTS assets and liabilities
will be revised as updated information becomes available at the Effective Time.
Such preliminary appraisal allocated $119.0 million to purchased technology,
$97.0 million of which represented in-process research and development. The
$97.0 million will be expensed upon the closing of the Merger as the technology
had not yet reached technological feasibility and does not have alternative
future uses.
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1995 give effect to the proposed merger as if the
acquisition was completed at the beginning of the year and combines Atari's
statement of operations as of December 31, 1995 with the pro forma combined
statement of operations for JTS and Moduler Electronics for the year ended
January 28, 1996. The unaudited pro forma condensed combined statements of
operations for the quarter ended March 31, 1996 give effect to the proposed
merger as if the acquisition was completed at the beginning of the quarter and
combines Atari's statement of operations as of March 31, 1996 with the JTS pro
forma statement of operations for the quarter ended April 28, 1996. Such
statements do not include the effect of the approximately $97.0 million
nonrecurring charge for in-process research and development, as such charges
will be included in the consolidated statement of operations in the third
calendar quarter of 1996. Such statements also exclude Atari's extraordinary
gain generated from the Atari Debentures extinguished in 1995 and the $6.3
million gain on sale of marketable securities in the first quarter of 1996.
This method of combining historical financial statements for the
preparation of the pro forma condensed combined statements is for presentation
only. Actual statements of operations of the companies will be combined from the
closing date of the acquisition with no retroactive restatements. The unaudited
pro forma condensed combined financial statements are provided for illustrative
purposes only and is not necessarily indicative of the combined financial
position or combined results of operations that would have been reported had the
Merger occurred on the dates indicated, nor do they represent a forecast of the
combined financial position or results of operations for any future period. The
unaudited pro forma condensed combined financial statements should be read in
conjunction with the historical financial statements and accompanying notes for
Atari, JTS and Moduler Electronics.
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<PAGE> 71
ATARI AND JTS
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ATARI JTS
MARCH 31, APRIL 28, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents........................ $ 23,748 $ 5,116 $ 28,864
Accounts receivable......................... 601 9,608 10,209
Other receivables........................... -- 1,182 1,182
Inventories................................. 5,526 12,983 18,509
Subordinated secured convertible note....... 25,000 -- (25,000)(k) --
Other current assets........................ 1,101 1,585 2,686
--------- -------- ---------
Total current assets..................... 55,976 30,474 61,450
GAME SOFTWARE DEVELOPMENT
COSTS....................................... 861 -- 861
EQUIPMENT AND TOOLING......................... 577 16,212 2,970(d) 19,759
REAL ESTATE HELD FOR SALE..................... 10,468 -- 10,468
INTANGIBLE & OTHER ASSETS..................... 524 -- 21,980(d) 22,504
GOODWILL...................................... -- 185 (185)(c) 11,714
11,714(d)
--------- -------- ---------
TOTAL.................................... $ 68,406 $ 46,871 $ 126,756
========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings............................. $ -- $ 10,277 $ 10,277
Notes payable to stockholders............... -- 1,965 1,965
Subordinated secured convertible note....... -- 25,000 (25,000)(k) --
Accounts payable............................ 3,295 18,240 1,200(i) 22,735
Accrued liabilities......................... 5,481 4,536 10,017
Current portion of long-term obligations.... -- 1,651 1,651
--------- -------- ---------
Total current liabilities................ 8,776 61,669 46,645
LONG-TERM OBLIGATIONS......................... 42,354 6,381 48,735
REDEEMABLE PREFERRED STOCK.................... -- 29,697 (29,697)(c) --
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock................................ 637 -- 400(a) 1,037
Additional paid-in capital.................. 196,272 8,088 103,105(a,c) 307,465
Deferred compensation....................... -- (3,990) 3,990(c) --
Common stock warrants....................... -- 125 1,985(b) 2,110
Notes receivable from sale of common
stock.................................... -- (2,610) (2,610)
Accumulated translation adjustments......... (730) (730)
Accumulated deficit......................... (178,903) (52,489) 52,489(c) (275,896)
(96,993)(e)
--------- -------- ---------
Total shareholders' equity (deficit)..... 17,276 (50,876) 31,376
--------- -------- ---------
TOTAL............................... $ 68,406 $ 46,871 $ 126,756
========= ======== =========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
64
<PAGE> 72
ATARI AND JTS
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ATARI JTS
QUARTER ENDED QUARTER ENDED PRO FORMA PRO FORMA
MARCH 31, 1996 APRIL 28, 1996 ADJUSTMENTS COMBINED
-------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C>
NET REVENUES............................ $ 1,272 $ 17,581 $ 18,853
COST AND EXPENSES: 1,832(f)
Cost of revenues and inventory
write-downs........................ 6,211 19,434 248(h) 27,725
Research and development.............. 201 7,406 7,607
Sales, marketing, general and
administrative..................... 2,009 3,103 418(g) 5,530
-------- -------- --------
Total operating expenses........... 8,421 29,943 40,862
OPERATING LOSS.......................... (7,149) (12,362) (22,009)
Gain on sale of marketable
securities......................... 6,347 -- (6,347)(1) --
Other income (expense)................ 233 (56) 177
Interest income....................... 332 105 437
Interest expense...................... (569) (542) (1,111)
-------- -------- --------
Loss before income taxes........... (806) (12,855) (22,506)
Income tax credit....................... -- -- --
-------- -------- --------
NET LOSS................................ $ (806) $ (12,855) (22,506)
======== ======== ========
LOSS PER COMMON SHARE................... $ (0.01) $ (1.47) $ (0.22)
Number of shares used in computation.... 63,701 8,732 (j) 103,701
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
65
<PAGE> 73
ATARI AND JTS
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED JTS AND
ATARI MODULER ELECTRONICS
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
DEC. 31, 1995 JAN. 28, 1996 ADJUSTMENTS COMBINED
------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C>
NET REVENUES............................. $ 14,626 $ 18,777 $ 33,403
COST AND EXPENSES: 7,327(f)
Cost of revenues....................... 44,234 33,626 990(h) 86,177
Research and development............... 5,410 13,375 18,785
Sales, marketing, general and
administrative...................... 18,647 5,777 1,673(g) 26,097
-------- -------- --------
Total operating expenses............ 68,291 52,778 131,059
OPERATING LOSS........................... (53,665) (34,001) (97,656)
Other income (expense)................. 2,683 (365) 2,318
Interest income........................ 3,133 249 3,382
Interest expense....................... (2,309) (1,053) (3,362)
-------- -------- --------
Loss before income taxes............ (50,158) (35,170) (95,318)
Income tax credit........................ -- -- --
-------- -------- --------
NET LOSS BEFORE EXTRAORDINARY CREDIT..... $ (50,158) $ (35,170) (95,318)
======== ======== ========
LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY CREDIT................... $ (0.79) $ (7.63) $ (0.92)
Number of shares used in computation..... 63,697 4,611 (j) 103,697
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
66
<PAGE> 74
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF ATARI AND JTS
NOTE 1 -- PURCHASE PRICE
The purchase price of the acquisition of JTS is computed as follows:
<TABLE>
<S> <C>
Warrants and employee stock options............................ $ 11,093,000
Common stock to be issued...................................... 100,000,000
Direct transaction costs....................................... 1,200,000
------------
TOTAL..................................................... $ 112,293,000
============
</TABLE>
The JTS common stock, options and warrants were valued using $2.50 per
share which is the representative value of Atari stock at the time the proposed
transaction was announced.
The purchase price is expected to be allocated as follows:
<TABLE>
<S> <C>
Current assets................................................. $ 30,474,000
Equipment and tooling.......................................... 19,182,000
In-process technology.......................................... 96,993,000
Existing technology............................................ 21,980,000
Liabilities assumed............................................ (68,050,000)
Goodwill....................................................... 11,714,000
------------
TOTAL..................................................... $112,293,000
============
</TABLE>
NOTE 2 -- PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the unaudited pro
forma condensed combined financial statements:
(a) -- Reflects the value of all outstanding JTS common stock and the fair
value of JTS options.
(b) -- Reflects the fair value of JTS common stock warrants.
(c) -- Reflects elimination of JTS common and preferred stock, deferred
compensation, goodwill and shareholders' deficit.
(d) -- Reflects allocation of purchase price to acquired equipment,
existing technology and goodwill.
(e) -- Reflects a one-time charge for purchased in-process technology.
(f) -- Reflects amortization of purchased existing technology on a
straight-line basis over three years.
(g) -- Reflects amortization of goodwill on a straight-line basis over
seven years.
(h) -- Reflects depreciation of the step-up of equipment on a straight-line
basis over three years.
(i) -- Reflects accrual of direct transaction costs.
(j) -- Reflects the outstanding common stock of JTS assuming the
conversion of outstanding preferred stock of JTS excluding the
impact of stock options and warrants which are antidilutive.
(k) -- Reflects elimination of note between Atari and JTS.
(l) -- Reflects elimination of nonrecurring gain on sale of a marketable
security.
No deferred tax adjustments is made as the deferred tax assets, consisting
primarily of net operating loss carryforwards, exceed the deferred tax
liabilities and the excess of the deferred tax assets over the deferred tax
liabilities is offset by a valuation allowance due to the uncertainty
surrounding the realization.
NOTE 3 -- IN-PROCESS RESEARCH AND DEVELOPMENT
The allocation of the purchase price among identifiable intangible assets
was based on a preliminary independent appraisal of the fair value of those
assets. The fair value of JTS assets and liabilities will be
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<PAGE> 75
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF ATARI AND JTS (CONTINUED)
revised as updated information become available at the Effective Time. Such
preliminary appraisal allocated $97.0 million to purchased in-process research
and development. The $97.0 million will be expensed in the third calendar
quarter upon closing as the technology had not yet reached technological
feasibility and does not have alternative future uses. The unaudited pro forma
condensed combined statements of operations do not include this one-time charge
for purchased in-process technology as it represents a material nonrecurring
charge in accordance with the rules for the preparation of pro forma financial
statements.
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<PAGE> 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL CONDITION
AND PRO FORMA COMBINED RESULTS OF OPERATIONS OF THE COMBINED COMPANY FOR THE
QUARTER ENDED MARCH 31, 1996
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Atari and JTS and the introduction to the pro forma financial statements on page
60. The pro forma combined results are not necessarily indicative of what would
have occurred had the acquisition actually been made at the beginning of each of
the respective periods presented or of future operations of the Combined
Company.
The net loss on a pro forma basis for the Combined Company was $22.5
million on net revenues of $18.9 million. The Combined Company expects sales of
Atari's Jaguar and related products to decline substantially in 1996 and
thereafter as a result of Atari's decision to focus its efforts on selling its
inventory of Jaguar and related products and to emphasize its existing licensing
and development activities related to multimedia entertainment software. The
Combined Company is expected to focus a substantial portion of its resources on
the disk drive portion of its business which is expected to represent a
substantial portion of the operations of the Combined Company. Sales of disk
drives in the Combined Company are expected to increase during 1996 with the
initiation of shipments of the Nordic 3-inch disk drives to Compaq late in the
second quarter and the introduction of additional disk drive products with
higher performance characteristics and increased capacities beyond JTS' current
1.6 gigabyte product.* There can be no assurance that the Combined Company will
be successful in the production and shipment of these products.
The Combined Company anticipates that it will have a five year period
during which it will not pay taxes on its operations in India. Further, the
Combined Company's operations in India are in a tax exempt facility. These tax
benefits, to the extent the Combined Company is able to generate profitable
operations to utilize them, will provide the Combined Company with a lower tax
rate than would otherwise be the case. No assurance can be given, however, that
the Combined Company will achieve profitable operations in India or be able to
utilize these tax benefits or achieve a lower tax rate.
Upon consummation of the Merger, the subordinated convertible note due from
JTS to Atari will be canceled. The unaudited pro forma Combined Balance Sheets
reflect cash and cash equivalents of $28.9 million and working capital of $14.8
million. The Combined Company will need significant additional financing
resources over the next several years for facilities expansion, capital
expenditures, working capital, research and development and vendor tooling. In
order for the Combined Company to accelerate or increase planned expenditures or
to the extent orders do not materialize as currently projected, additional
capital will be required. Furthermore, certain equipment and receivable
financing as well as existing term loans in place are contingent on compliance
with stringent financial covenants. The Combined Company will pursue equity
and/or debt financing in the near future to meet its funding requirements. The
issuance of equity or convertible debt securities would result in dilution of
the voting control of existing stockholders of the Combined Company and could
result in dilution to earnings per share. The issuance of debt securities would
provide to the holders of those securities seniority over the holders of JTS
Common Stock issued in the Merger. There can be no assurance that the Combined
Company will be able to maintain its current financing facilities or obtain
additional financing as needed on acceptable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
JTS."
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
69
<PAGE> 77
INFORMATION REGARDING ATARI CORPORATION
BUSINESS OF ATARI
Atari was incorporated under the laws of Nevada in May 1984. From 1984 to
1992, Atari designed, manufactured and marketed proprietary personal computers
and video games and related software. Over the past several years, Atari has
undergone significant change. In 1992 and 1993, Atari significantly downsized
operations, decided to exit the computer business and focused on its video game
business. As a result, revenues from computer products as a percentage of total
revenues declined from 67% in 1993 to 16% in 1994 and 12% in 1995, while sales
of entertainment systems and related software and peripheral products and the
receipt of royalties represented the balance of revenues in each such year.
These actions resulted in significant restructuring charges for closed
operations and write-downs of computer and certain video game inventories in
1992 and 1993.
While restructuring, Atari developed its 64-bit Jaguar interactive
multimedia entertainment system, which was introduced in selected markets in the
fourth quarter of 1993. For 1995 and 1994, total sales of Jaguar and related
products were $9.9 million and $29.3 million, respectively, and represented 68%
and 76% of Atari's net revenues, respectively. These Jaguar sales were
substantially below Atari's expectations, and Atari's business and financial
results were materially adversely affected in 1995 as Atari continued to invest
heavily in Jaguar game development, entered into arrangements to publish certain
licensed titles and reduced the retail price for its Jaguar console unit. Atari
attributes the poor performance of Jaguar to a number of factors including (i)
extensive delays in development of software for the Jaguar which resulted in
reduced orders due to consumer concern as to when titles for the platform would
be released and how many titles would ultimately be available, and (ii) the
introduction of competing products by Sega and Sony in May 1995 and September
1995, respectively.
By late 1995, Atari recognized that despite the significant commitment of
financial resources that were devoted to the Jaguar and related products, it was
unlikely that Jaguar would ever become a broadly accepted video game console or
that Jaguar technology would be broadly adopted by software title developers. As
a result, Atari decided to significantly downsize its Jaguar operations. This
downsizing resulted in significant reductions in Atari's workforce, and
significant curtailment of research and development and sales and marketing
activities for Jaguar and related products. Accordingly, Atari decided to focus
its efforts on selling its inventory of Jaguar and related products and to
emphasize its existing licensing and development activities related to
multimedia entertainment software for various platforms. Atari presently has a
substantial unsold inventory of Jaguar and related products and there can be no
assurance that such inventory can be sold at current prices. Despite the
introduction of four additional game titles in the first quarter of 1996, sales
of Jaguar and related software have remained disappointing due to uncertainty
about Atari's commitment to the Jaguar platform, increased price competition and
pending competitive product introductions. As a result of continued
disappointing sales, management revised estimates and wrote-down inventory by an
additional $5.0 million in the first quarter of 1996. As of the end of May 1996,
Atari had approximately 90,000 units of Jaguar in inventory.
PRODUCTS
Atari's principal products are described below:
Jaguar Entertainment System. Atari introduced its 64-bit Jaguar
interactive multimedia entertainment system in late November 1993 into selected
markets. During 1994, Atari rolled out a nationwide program and commenced
initial shipments into Europe. From its launch through the end of 1994, Jaguar's
suggested retail price was $249.99. As a result of competition and cost
reductions, during the first quarter of 1995, Atari reduced the retail price of
Jaguar to $149.99. The current retail price of Jaguar is $99.99. Despite its
substantially lower retail price, sales of Jaguar continue to be disappointing.
Volume sales of Jaguar and related software in 1996 have consisted primarily of
a large order from a new European customer. Atari is also pursuing wholesale
sales channels in the U.S. as well as licensing opportunities. There can be no
assurance that Atari's substantial unsold inventory of Jaguar and related
software can be sold at current or reduced
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<PAGE> 78
prices, if at all. In addition, any further decrease in the value of such
inventory could result in additional inventory write-downs by Atari.
The Jaguar is a 64-bit interactive multimedia system that incorporates two
proprietary chips developed by Atari which are specialized for multimedia
entertainment. The proprietary chips include four processors (graphics
processing unit, object processor, blitter and digital signal processor) and a
standard Motorola 68000 microprocessor. The computational speed of the system is
approximately 44 MIPS and the bus bandwidth is 106.4 megabytes per second. The
video features include 24-bit graphics with up to 16.8 million colors and a 3-D
engine which can render 3-D shaded or texture mapped polygons in real time. The
sound system is based on a high-speed custom digital signal processor dedicated
to audio. The audio is 16-bit compact disk ("CD") quality from cartridge-based
software, and can be processed from simultaneous sources of audio data. This
allows for very realistic sounds in the software, including human voices.
Through the use of a compression technology customized by Atari (called
"JAGPEG"), software developers can compress data to the point that a 100-megabit
game can fit into a 16-megabit ROM cartridge. This allows for more exciting
experiences both visually and in game play due to the vast amount of data
available.
Jaguar Software Titles. From 1994 through 1995, Atari developed titles for
the Jaguar primarily under contract with third party software developers. To
date, Atari has published approximately 45 software titles for the Jaguar. These
titles include an array of licensed and nonlicensed titles, some of which
utilize 3-D graphics, high speed animation, 16.8 million colors, full motion
video, motion capture techniques and 16-bit stereo sound. Atari's software
library includes titles which are cartridge based (ROM chips) and CD based.
Since 1995, the development of titles for Jaguar has been curtailed
substantially and Atari is currently developing a very limited number of titles
which it expects to publish in either cartridge or CD format. In addition to
Atari's software development efforts, in 1994 and 1995 Atari licensed
independent software vendors ("ISVs") to develop and publish titles for the
Jaguar. Atari is not aware of any current development of Jaguar titles by ISVs
and does not expect any such development in the foreseeable future.
Jaguar Peripherals. Atari offers a CD-ROM peripheral for the Jaguar that
enables software end users to have full motion video clips and more complex
games than are available on cartridges. Publishers can take advantage of lower
media cost and quicker turnaround on orders with CD-ROM software as compared to
a ROM cartridge. The CD-ROM peripheral is a double speed player that can play
Jaguar video games, regular audio CD's and CD + G (graphics). The suggested
retail price of the CD-ROM peripheral is $149.99. The success of the CD-ROM
peripheral is substantially dependent on the size of the installed base of
cartridge-based Jaguar consoles.
PC Software. As a result of Atari's investment in game design, art and
programming for its Jaguar software, Atari has ported certain of its Jaguar
titles to the IBM PC compatible platform. Atari intends to publish and/or
license these titles in 1996. In this regard, Atari commenced shipment of the PC
CD-ROM version of Tempest 2000 in Europe during the first quarter of 1996.
Library of Titles. In 1996, Atari plans to increase its efforts to license
titles from its game library to third party publishers. Atari has over 100
titles in its game library, including the following:
<TABLE>
<S> <C> <C> <C> <C>
Asteroids Combat Iron Soldier RealSport Baseball Tempest
Battlezone Crystal Castles Major Havoc RealSport Football Warbird
Bentley Bear Earthworld Millipede Space War Warlords
Breakout Food Fight Missile Command Star Raiders Yar's Revenge
Centipede Pong
</TABLE>
COMPETITION
The video game business is intensely competitive. Since its introduction in
late 1993, Jaguar has failed to achieve broad market acceptance. Atari does not
expect that Jaguar, even at its substantially reduced price, will ever become a
broadly accepted video game console, or that Jaguar technology will be broadly
adopted by software title developers. The video game industry is also
characterized by unpredictable and rapid shifts in the popularity of certain
platforms, by severe price competition, and by frequent new technology and
product
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<PAGE> 79
introductions. In this regard, numerous companies have introduced or have
developed and are expected to introduce video game consoles that are or may
become competitive with Jaguar. In addition, an increasing number of
entertainment titles are being developed for or ported to the PC platform. Most
of Atari's competitors have greater experience and expertise in 3D graphics and
multimedia technology and have substantially greater engineering, marketing and
financial resources than Atari. Jaguar presently competes with products offered
by the following companies:
- Nintendo commenced development, in collaboration with Silicon Graphics,
Inc., of the Nintendo 64 player, expected to be released in Autumn 1996
in the United States. Nintendo also sells the 16 bit Super NES at a
retail price of $99.95.
- Sega commenced shipment of the Sega Saturn in the United States in May
1995 with a current retail price of $299.00. Sega also sells the 16 bit
Genesis at a retail price of $99.95.
- Sony released the Sony PlayStation in the United States in late 1995 with
a current retail price of $299.00.
- The 3DO Company licenses the 3DO Interactive Multiplayer System console
architecture for retail sale worldwide.
MARKETING AND DISTRIBUTION
Atari distributes its products domestically through various independent
channels. Jaguar is sold primarily through national retailers, consumer
electronic specialty stores and distributors of electronic products. European
sales are conducted from Atari's European headquarters in London, U.K. Jaguar
and Atari's PC titles are sold in European markets through substantially the
same channels of distribution as those in the United States. Net sales outside
North America for fiscal years 1995, 1994 and 1993 constituted approximately
44%, 40% and 75%, respectively, of total net revenues. No single customer
accounted for 10% or more of total net revenues for the years ended December 31,
1995, 1994 or 1993.
RESEARCH AND DEVELOPMENT
Most of Atari's products, including Jaguar, were developed by its internal
engineering and software groups as well as independent software developers under
contract with Atari. Atari's research and development expenses totaled $5.4
million, $5.8 million and $4.9 million in 1995, 1994, and 1993, respectively.
Atari has significantly downsized its research and development efforts and
currently has five employees dedicated to such efforts. As a result, Atari
expects its research and development expenses to decline substantially in 1996.*
Atari's current development efforts are dedicated to developing a limited
number of Jaguar software titles and porting certain existing Jaguar titles to
the PC platform. As part of this development process, Atari has agreements with
third parties to develop and/or license properties. Under these agreements,
Atari will make payments to these parties as either development fees and/or
advance royalties, and is obligated to make certain minimum royalty guarantees
on future sales. There can be no assurance that all payments for development
fees and/or advance royalties will be recoverable through future sales of
products.
MANUFACTURING
Atari has placed no manufacturing orders for the Jaguar console since
mid-1995. Based on current and expected sales and inventory levels, Atari does
not intend to pursue additional Jaguar manufacturing. The Jaguar console unit
was assembled in the United States by a third-party subcontractor under a
manufacturing arrangement. The agreement may be canceled by either party with 90
days' notice. Jaguar software products
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and
elsewhere in this Joint Proxy Statement/Prospectus.
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<PAGE> 80
and accessories are manufactured by several suppliers and are assembled by
subcontractors. Atari believes that it could readily replace these sources of
supply and assembly, if necessary.
INTELLECTUAL PROPERTY RIGHTS
Atari has exclusive use of its "Atari" name and "Fuji" logo in all areas
other than coin-operated arcade video game use. Atari also has a portfolio of
other intellectual properties including patents, trademarks, and copyrights
associated with its video game and computer businesses. Atari believes its
patents, trademarks and other intellectual property are important assets. As of
December 31, 1995, Atari held over 150 patents in the United States and other
jurisdictions which expire from 1996 to 2010 and had applications pending for
three additional patents. There can be no assurance that any of these patent
rights will be upheld in the future or that Atari will be able to preserve any
of its other intellectual property rights. Atari has in the past received
communications from third parties asserting rights to certain of its
intellectual property. Atari has also been involved in several major lawsuits
regarding its intellectual property, including a suit with Nintendo which was
settled in March 1994 and a suit with Sega which was settled in September 1994.
In the event any third party were to make a valid claim with respect to Atari's
intellectual property and a license were not available on commercially
reasonable terms, Atari's business, financial condition and results of
operations would be materially and adversely affected. Litigation, which has in
the past and could in the future result in substantial costs and diversion of
resources, may also be necessary to enforce Atari's patents or other
intellectual property rights or to defend against third-party infringement
claims. The occurrence of litigation relating to patent infringement or other
intellectual property matters, regardless of the outcome, could have a material
adverse effect on Atari's business, financial condition and results of
operations.
BACKLOG
Orders are usually placed by purchasers on an as-needed basis, are
sometimes cancelable before shipment, and are usually filled from inventory
shortly after receipt. Atari currently has a substantial inventory of finished
products and product components for which there are no orders. Although Atari is
taking steps to realize revenue from such inventory, Atari recognized
substantial inventory write-downs in 1995 and the first quarter of 1996 and
there can be no assurance that additional write-downs will not be required.
EMPLOYEES
Due to disappointing sales of Jaguar and related products, Atari reduced
its workforce from 101 persons at December 31, 1994 to 73 persons at December
31, 1995 and 31 persons at March 31, 1996. Atari had 22 employees at June 19,
1996, including 15 in the United States and seven outside the United States.
None of the employees are represented by a labor union. Atari considers its
employee relations to be good.
PROPERTIES
Atari leases its 7,200 square feet headquarters facility in Sunnyvale,
California under a lease which expires in 2001. Atari also leases a 33,600
square feet international sales facility in Slough, England and a 19,400 square
feet vacant facility in Viannen, Holland. Atari also holds certain properties in
Southern California and Texas for sale. Some of these properties are currently
being leased by Atari. These properties are reported as real estate held for
sale in the Atari Consolidated Financial Statements. See Note 7 of Notes to
Atari Consolidated Financial Statements.
LEGAL PROCEEDINGS
Atari is a defendant in a civil action brought in the Superior Court of the
State of California in and for the County of Santa Clara by Citizen America
Corporation, a former supplier, in February 1994 seeking damages
73
<PAGE> 81
of approximately $900,000 for alleged breach of contract and related claims.
Atari believes this action will have no material adverse effect on its business,
financial condition or results of operations.*
Atari is a defendant and counter claimant in a civil action for alleged
breach of contract brought in U.S. District Court for the Northern District of
New York, case number 95 Civ. 1945, by Tradewell, Inc., a New York corporation,
seeking specific performance for release of goods having a value of $1.6
million. Atari has counterclaimed seeking specific performance for the purchase
of media or, alternatively, damages in the amount of $3.3 million. As a result
of a partial settlement, Atari now seeks damages of approximately $1.5 million.
Atari believes this action will have no material adverse effect on its business,
financial condition or results of operations.*
Atari is a plaintiff in a civil action brought in the Superior Court of the
State of California in and for the County of Santa Clara brought against
Phillips Laser Magnetic Storage ("Phillips") for breach of contract and breach
of implied covenant of good faith and fair dealing arising out of Phillips'
failure to deliver goods to Atari. Phillips has filed a counterclaim seeking
damages in excess of $3.0 million. Atari believes this action will have no
material adverse effect on its business, financial condition or results of
operations.*
Atari is a plaintiff in a civil action brought in the Superior Court of the
State of California in and for the County of Santa Clara and removed to the
United States District Court, Northern District of California brought against
Probe Entertainment Limited for breach of contract and related claims.
Counterclaims have been filed against Atari for alleged breach of contract.
Atari believes this action will have no material adverse effect on its business,
financial condition or results of operations.*
Atari is not aware of any other pending legal proceedings against Atari and
its consolidated subsidiaries other than routine litigation incidental to their
normal business.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and
elsewhere in this Joint Proxy Statement/Prospectus.
74
<PAGE> 82
SELECTED CONSOLIDATED FINANCIAL DATA OF ATARI
The following selected consolidated financial data of Atari have been
derived from the historical consolidated financial statements of Atari, included
elsewhere herein, with the exception of the Atari Consolidated Statement of
Operations Data prior to fiscal 1993 and the Atari Consolidated Balance Sheet
Data prior to December 31, 1994 which were derived from historical consolidated
financial statements not included herein. The information set forth below should
be read in conjunction with Atari's Consolidated Financial Statements and notes
thereto and with Management's Discussion and Analysis of Financial Condition and
Results of Operations of Atari. The unaudited quarterly financial data reflect
all adjustments (which include only normal, recurring adjustments), which are,
in the opinion of management, necessary to state fairly the results for the
periods presented. The results for such periods are not necessarily indicative
of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues............ $ 1,272 $ 4,874 $ 14,626 $ 38,748 $ 29,108 $127,340 $257,992
Operating loss............ (7,149) (5,158) (53,665) (24,047) (47,499) (79,008) (18,683)
Income (loss) from
continuing
operations(1).......... (806) (4,473) (50,158) 9,394 (48,866) (82,719) 23,659
Income (loss) before
extraordinary credit... (806) (4,473) (50,158) 9,394 (48,866) (73,719) 23,659
Net income (loss)......... (806) (4,426) (49,576) 9,394 (48,866) (73,615) 25,619
Per common share data:
Income (loss) from
continuing
operations............. $ (0.01) $ (0.07) $ (0.79) $ 0.16 $ (0.85) $ (1.44) $ 0.41
Income (loss) before
extraordinary credit... (0.01) (0.07) (0.79) 0.16 (0.85) (1.29) 0.41
Net income (loss)......... (0.01) (0.07) (0.78) 0.16 (0.85) (1.28) 0.44
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ------- -------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Current assets..................... $ 55,976 $65,126 $113,188 $51,388 $109,551 $239,296
Working capital.................... 47,200 55,084 92,670 33,896 75,563 159,831
Total assets....................... 68,406 77,569 131,042 74,833 138,508 253,486
Current liabilities................ 8,776 10,042 20,518 17,492 33,988 79,465
Long-term obligations.............. 42,354 42,354 43,454 52,987 53,937 48,492
Shareholder's equity............... 17,276 25,173 67,070 4,354 50,583 125,529
</TABLE>
- ---------------
(1) Includes a gain from the sale of marketable securities of $6.3 million in
1996, a gain from the settlement of patent litigation of $32.1 million in
1994 and a gain from the sale of a Taiwan manufacturing facility of $40.9
million in 1991.
75
<PAGE> 83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ATARI
This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors -- Risk Factors Related
to the Business of Atari" and elsewhere in this Joint Proxy
Statement/Prospectus.
Over the past several years, Atari has undergone significant change. In
1992 and 1993, Atari significantly downsized operations, decided to exit the
computer business and focused on its video game business. As a result, revenues
from computer products as a percentage of total revenues declined from 67% in
1993 to 16% in 1994 and 12% in 1995, while sales of entertainment systems and
related software and peripheral products and the receipt of royalties
represented the balance of revenues in each such year. These actions resulted in
significant restructuring charges for closed operations and write-downs of
computer and certain video game inventories in 1992 and 1993.
While restructuring, Atari developed its 64-bit Jaguar interactive
multimedia entertainment system, which was introduced in selected markets in the
fourth quarter of 1993. For 1995 and 1994, total sales of Jaguar and related
products were $9.9 million and $29.3 million, respectively, and represented 68%
and 76% of Atari's net revenues, respectively. These Jaguar sales were
substantially below Atari's expectations, and Atari's business and financial
results were materially adversely affected in 1995 as Atari continued to invest
heavily in Jaguar game development, entered into arrangements to publish certain
licensed titles and reduced the retail price for its Jaguar console unit. Atari
attributes the poor performance of Jaguar to a number of factors including (i)
extensive delays in development of software for the Jaguar which resulted in
reduced orders due to consumer concern as to when titles for the platform would
be released and how many titles would ultimately be available, and (ii) the
introduction of competing products by Sega and Sony in May 1995 and September
1995, respectively.
By late 1995, Atari recognized that despite the significant commitment of
financial resources that were devoted to the Jaguar and related products, it was
unlikely that Jaguar would ever become a broadly accepted video game console or
that Jaguar technology would be broadly adopted by software title developers. As
a result, Atari decided to significantly downsize its Jaguar operations. This
downsizing resulted in significant reductions in Atari's workforce, and
significant curtailment of research and development and sales and marketing
activities for Jaguar and related products. Accordingly, Atari decided to focus
its efforts on selling its inventory of Jaguar and related products and to
emphasize its existing licensing and development activities related to
multimedia entertainment software for various platforms. Atari presently has a
substantial unsold inventory of Jaguar and related products and there can be no
assurance that such inventory can be sold at current prices. Despite the
introduction of four additional game titles in the first quarter of 1996, sales
of Jaguar and related software have remained disappointing due to uncertainty
about Atari's commitment to the Jaguar platform, increased price competition and
pending competitive product introductions. As a result of continued
disappointing sales, management revised estimates and wrote-down inventory by an
additional $5.0 million in the first quarter of 1996. As of the end of May 1996,
Atari had approximately 90,000 units of Jaguar in inventory.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues for 1995 were $14.6 million compared to $38.7 million for
1994. Sales of Jaguar and related products represented 68% and 76% of total
revenues for 1995 and 1994, respectively, and sales of other products and
royalties represented the balance of revenues in each such year. The reduction
in revenues was primarily the result of lower unit volumes of Jaguar products
and lower average selling prices of Jaguar and certain of its software titles.
In the first quarter of 1995, Atari reduced the suggested retail price of Jaguar
from its original price of $249.99 to $149.99. The current suggested retail
price of Jaguar is $99.99. As a result of the Jaguar price reductions, the
substantial curtailment of sales and marketing activities for Jaguar and the
substantial curtailment of efforts by Atari and independent software developers
to develop additional software
76
<PAGE> 84
titles for Jaguar, Atari expects sales of Jaguar and related products to decline
substantially in 1996 and thereafter.*
Cost of revenues for 1995 was $44.2 million compared to $35.2 million for
1994. Included in cost of revenues for 1995 were accelerated amortization and
write-offs of capitalized game software development costs of $16.6 million and
inventory write-downs of $12.6 million primarily relating to Jaguar products. As
a result of these charges and lower selling prices for Jaguar products and
provisions for returns and allowances and price protection, gross margin for the
year was a loss of $29.6 million. For 1994, gross margin was $3.5 million, or
9.2% of revenues. Included in cost of revenues for 1994 were write-downs of
inventory of $3.6 million and amortization and the write-off of capitalized game
software development costs of $1.5 million. As of December 31, 1995, Atari had
approximately 100,000 units of the Jaguar console in inventory and there can be
no assurance that substantial additional write-downs will not be necessary.
Research and development expenses for 1995 were $5.4 million compared to
$5.8 million for 1994. During 1995 and 1994, a significant number of Atari
employees and consultants were devoted to developing hardware and software for
the Jaguar, and Atari contracted with third-party software developers to develop
Jaguar software titles. As a result of Jaguar's poor sales performance, in the
third and fourth quarters of 1995, Atari accelerated its amortization of
contracted software development which resulted in charges in those quarters of
$6.0 million and $10.6 million, respectively. At December 31, 1995 and 1994,
Atari had capitalized software development costs of $758,000 and $5.1 million,
respectively. In the fourth quarter of 1995, Atari eliminated its internal
Jaguar development teams and other development staff as titles for Jaguar were
completed. As a result, Atari expects research and development expenses will be
substantially lower for the foreseeable future.*
Marketing and distribution expenses for 1995 were $12.7 million compared to
$14.7 million for 1994. Such costs included television and print media,
promotions and other activities to promote Jaguar. Due to the substantial
curtailment of the Jaguar marketing program, Atari expects these expenses will
be substantially lower for the foreseeable future.*
General and administrative expenses for 1995 were $5.9 million compared to
$7.2 million for 1994. The decrease in such expenses was primarily a result of
staff reductions, reduced legal fees and other operating costs. Due to the
substantial reduction in general and administrative personnel in 1995 and the
first quarter of 1996, Atari expects these expenses will be substantially lower
for the foreseeable future.*
Atari experienced a gain on foreign currency exchange of $13,000 for 1995
compared to a gain of $1.2 million for 1994. These changes were a result of
lower foreign asset exposure and a greater percentage of sales made in U.S.
dollars which further reduced exposure to foreign currency transaction
fluctuations.
In 1994, Atari received $2.2 million in connection with the settlement of
litigation between Atari, Atari Games Corporation and Nintendo. In 1994, Atari
also reached an agreement with Sega, which resulted in a gain of $29.8 million,
after contingent legal fees, and the sale of 4,705,883 shares of Atari Common
Stock to Sega at $8.50 per share for an aggregate of $40.0 million.
During 1995, Atari sold a portion of its holdings in Dixon PLC, a retailer
in England, and realized a gain of $2.4 million, of which $1.8 million was
realized in the fourth quarter of 1995. In the first quarter of 1996, Atari sold
the remaining portion of its holdings and realized a gain of $6.1 million. The
1995 gain of $2.4 million together with other income items resulted in a total
other income of $2.7 million compared to $484,000 for 1994.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and
elsewhere in this Joint Proxy Statement/Prospectus.
77
<PAGE> 85
For each of 1995 and 1994, interest expense was approximately $2.3 million
on the Atari Debentures. In 1995, Atari repurchased a portion of the Atari
Debentures and realized a gain of $582,000. As of December 31, 1995, the
outstanding balance of these debentures was $42.4 million.
Interest income for 1995 and 1994 was $3.1 million and $2.0 million,
respectively. The increase in interest income was primarily attributable to
higher average cash balances in 1995.
As a result of Atari's operating losses, there was no provision for income
taxes in 1995. See Note 11 to the Atari Consolidated Financial Statements.
As a result of the factors discussed above, Atari reported a net loss for
1995 of $49.6 million compared to net income of $9.4 million in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total revenues for 1994 were $38.7 million compared to $29.1 million for
1993. The increased revenues were primarily a result of Atari's national rollout
of the Jaguar and related products. Sales of Jaguar products represented 76% of
revenues in 1994 compared to 13% of revenues in 1993. Jaguar was introduced in
selected markets in late 1993, and approximately 100,000 units were sold by the
end of 1994 at a suggested retail price of $249.99. Sales of Atari's proprietary
personal computers and certain discontinued video game products represented 24%
of revenues for 1994 compared to 87% of revenues for 1993.
Gross margin for 1994 was $3.5 million, or 9.2% of revenues, compared to a
gross loss of $13.7 million for 1993. Included in cost of revenues are inventory
write-downs of $3.6 million and $18.1 million for 1994 and 1993, respectively,
and a write-off of capitalized game software development costs of $804,000 in
1994. These write-downs of proprietary personal computers and video game
products to estimated realizable values were made concurrently with the
introduction and change in marketing focus to Jaguar products.
Research and development expenses for 1994 were $5.8 million compared to
$4.9 million for 1993. The increase resulted from increased expenditures for the
Jaguar product line.
Marketing and distribution expenses for 1994 were $14.7 million compared to
$9.0 million for 1993. The increase in expenditures was primarily the result of
the national rollout in 1994 of the Jaguar. Such costs included television and
print media promotions and other activities.
General and administrative expenses for 1994 were $7.2 million compared to
$7.6 million for 1993. The marginally lower general and administrative expenses
were primarily due to Atari's restructuring program in 1993. During 1993, Atari
made provisions for restructuring totaling $12.4 million, which included closing
many of Atari's operations in Europe, Asia and Australia, including, but not
limited to, severance payments, rental commitments and other closure costs.
For 1994, Atari experienced a gain on foreign currency exchange of $1.2
million compared to a loss on exchange of $2.2 million in 1993. This change was
a result of fluctuation in exchange rates, a lower foreign asset exposure and a
greater percentage of sales made in U.S. dollars, thereby further reducing
exposure to foreign currency transaction fluctuations.
For each of 1994 and 1993, interest expense was approximately $2.3 million
on the Atari Debentures.
Atari utilized net operating loss carryforwards and, as a result, there was
no provision for income taxes in 1994.
As a result of the factors discussed above, Atari reported net income for
1994 of $9.4 million compared to a net loss of $48.9 million in 1993.
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995
Total revenues for the first quarter of 1996 were $1.3 million compared to
$4.9 million for the first quarter 1995, a reduction of $3.6 million. Sales of
Jaguar and related products represented 41% and 72% of total revenues for the
first quarter of 1996 and 1995, respectively, and sales of other products and
royalties represented the balance of revenues in each such year. The reduction
in revenues was primarily the result of lower unit volumes of Jaguar products
and lower average selling prices of Jaguar and certain of its software
78
<PAGE> 86
titles. As a result of the Jaguar price reductions and the substantial
curtailment of sales and marketing activities for Jaguar, Atari expects sales of
Jaguar and related products to decline substantially in 1996 and thereafter.
Cost of revenues for the first quarter of 1996 was $1.2 million compared to
$3.8 million for the first quarter of 1995. The reduction in cost of revenues is
consistent with the reduction in revenues.
In the first quarter of 1996, the Company wrote-down inventory by $5.0
million relating to Jaguar products. These write-downs resulted from
management's revised estimates of sales resulting from continued disappointing
sales of Jaguar. Despite the introduction of four additional game titles in the
first quarter of 1996, sales of Jaguar and related products have remained
disappointing due to uncertainty about Atari's commitment to the Jaguar
platform, increased price competition and pending competitive product
introductions. Atari is pursuing alternative sales channels and licensing
opportunities. Atari expects the market to remain highly competitive throughout
the year.
Research and development expenses were $200,000 for the first quarter of
1996 compared to $1.8 million for the first quarter of 1995. The substantial
decline is due to the elimination of the Company's internal Jaguar development
team and other development staff in the fourth quarter of 1995. As of March 31,
1996, Atari had capitalized $900,000 of development cost associated with certain
CD titles.
Marketing and distribution expenses were $800,000 for the first quarter of
1996 compared to $2.6 million for the first quarter of 1995. The reduction was
due to the curtailment of marketing activities for the Jaguar.
General and administrative expenses for the first quarter of 1996, were
$1.3 million compared to $1.8 million for the first quarter of 1995. The
decrease in such expenses was primarily the result of staff reductions, reduced
rent and other reductions in operating costs.
Other Income (Expense), net for the first quarter of 1996 was $290,000
compared to $200,000 for the first quarter of 1995. Gains on sales of marketable
securities were $6.3 million for the first quarter of 1996 compared to $107,000
for the first quarter of 1995. The 1996 gain represented the sale of the
remaining portion of Atari's holdings in Dixon PLC, a retailer in England.
During the 1995 quarter Atari repurchased a portion of its 5 1/4% Convertible
Subordinated Debentures and recorded an extraordinary credit of $47,250.
Interest income for the first quarter of 1996 was $300,000 compared to $1.0
million for the first quarter of 1995, reflecting Atari's significantly lower
cash balances during the first quarter of 1996. Interest expenses for the 1996
and 1995 quarters were $600,000 which represents interest due on Atari's 5 1/4%
Convertible Subordinated Debentures. In April 1996, Atari made an annual payment
of interest on its bonds that totaled $2.2 million.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, Atari held cash and marketable securities of $50.6
million compared to $81.0 million at December 31, 1994. The decrease in cash and
marketable securities was primarily the result of operating losses incurred
during 1995.
During 1995, Atari sold a portion of its holding in Dixon PLC., a U.K.
retailer, and realized a gain on the sale of these securities in the amount of
$2.4 million. In the first quarter of 1996, Atari sold its remaining interest in
Dixon PLC. and realized a gain of $6.3 million. As of December 31, 1995, Atari's
balance sheet reflected an unrealized gain on marketable securities of $7.1
million.
As of March 31, 1996 , Atari held cash and marketable securities of $23.7
million compared to $50.6 million as of December 31, 1995 for a reduction of
$26.9 million.
In connection with the Merger, on February 13, 1996, Atari extended a
bridge loan to JTS in the amount of $25.0 million. In event the Merger is not
consummated, the bridge loan can be converted into shares of JTS Series A
Preferred Stock at the option of Atari or JTS, subject to certain conditions.
See "The Proposed Merger and Related Transactions -- Related
Transactions -- Atari Loan to JTS."
79
<PAGE> 87
As of March 31, 1996, Atari had $42.4 million of its 5 1/4% convertible
subordinated debentures due April 29, 2002 outstanding. The market value of the
Atari Debentures was approximately $31.0 million at May 29, 1996. The Atari
Debentures may be redeemed at Atari's option, upon payment of a premium. The
debentures, at the option of the holders, are convertible into Atari Common
Stock at $16.3125 per share. A default with respect to other indebtedness of
Atari in an aggregate amount exceeding $5 million would result in an event of
default whereby the Atari Debentures would be due and payable immediately.
Atari believes its existing cash balances are sufficient to meet its
requirements at least for the next 12 months.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and
elsewhere in this Joint Proxy Statement/Prospectus.
80
<PAGE> 88
MANAGEMENT OF ATARI
EXECUTIVE OFFICERS AND DIRECTORS
Following the Merger, Atari and JTS have agreed that Jack Tramiel, Chairman
of the Board of Directors of Atari, and Michael Rosenberg, a member of Atari's
Board of Directors, will serve as members of the Board of Directors of the
Combined Company. In addition, Atari and JTS have agreed that Jack Tramiel or a
person designated by him shall serve as a member of each committee of the Board
of Directors of the Combined Company. None of the executive officers of Atari
prior to the Merger will serve as executive officers of the Combined Company.
The following table lists the names, ages and positions held by all
directors and executive officers of Atari as of March 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH ATARI
------------------------------- ----------------------------------------------
<S> <C> <C>
Jack Tramiel 67 Chairman of the Board
Sam Tramiel 45 Director, President, Chief Executive Officer
and Chief Financial Officer
Leonard I. Schreiber 81 Director
Michael Rosenberg 68 Director
August J. Liguori 44 Director
Laurence M. Scott, Jr. 50 Vice President, Manufacturing and Operations
Leonard Tramiel 41 Vice President, Advanced Software Development
</TABLE>
JACK TRAMIEL and a group of associates purchased the assets and liabilities
of Atari from Warner Communications in May 1984 and Mr. Tramiel has served as
Chairman of Atari's Board of Directors since such time. Mr. Tramiel served as
Atari's Chief Executive Officer from May 1984 through May 1988.
SAM TRAMIEL has served as President and as a member of the Board of
Directors of Atari since June 1984, as Chief Executive Officer of Atari since
May 1988 and as Chief Financial Officer of Atari since March 1996.
LEONARD I. SCHREIBER has served as a member of the Board of Directors of
Atari since May 1984. Mr. Schreiber was a partner of Schreiber & McBride, a
private law firm, from 1980 to 1995.
MICHAEL ROSENBERG has served as a member of the Board of Directors of Atari
since May 1987. Mr. Rosenberg has served as Chief Executive Officer of Ross &
Roberts, Inc., a plastics company, since September 1987. Mr. Rosenberg is a
Certified Public Accountant.
AUGUST J. LIGUORI has served as a member of the Board of Directors of Atari
since 1992. Since March 1996, Mr. Liguori has served as Vice President, Finance
of Marvel Entertainment Group, Inc. From October 1986 to February 1996, Mr.
Liguori served in several positions with Atari, including Vice President and
General Manager of Atari U.S. Corp., an Atari subsidiary, from October 1986 to
October 1989, Vice President of Atari Corporation from October 1989 to October
1990, and Vice President, Finance, Treasurer and Chief Financial Officer from
October 1990 to February 1996.
LAURENCE M. SCOTT, JR. has served as Vice President, Manufacturing and
Operations of Atari since 1992. Prior to joining Atari, Mr. Scott served as
President of Radofin Electronics (FE) Ltd., a contract manufacturing firm, from
1978 to 1991.
LEONARD TRAMIEL has served Vice President, Advanced Software Development of
Atari since March 1991. Mr. Tramiel served as Vice President, Software
Development of Atari from July 1984 to March 1991.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. Executive officers
of Atari are appointed by and serve at the discretion of the Atari Board of
Directors. Jack Tramiel is the father of Sam Tramiel and Leonard Tramiel.
81
<PAGE> 89
COMPENSATION OF DIRECTORS
Each of the non-employee directors of Atari, including Mr. Rosenberg,
receives $500 for each meeting of the Atari Board of Directors which such
individual attends. In 1995, each non-employee director received an option to
purchase 20,000 shares of Atari Common Stock pursuant to Atari's 1986 Stock
Option Plan, as amended. Such options have an exercise price of $2.69 and vest
over a period of five years.
PRINCIPAL STOCKHOLDERS OF ATARI
The following table sets forth information, as of May 22, 1996, with
respect to beneficial ownership of Atari Common Stock owned by (a) each person
(or group of affiliated persons) known by Atari to be the beneficial owners of
more than 5% of Atari's Common Stock, (b) each of Atari's directors, (c) each of
Atari's executive officers and (d) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
SHARES PERCENT NUMBER OF SHARES OF PERCENT OF SHARES OF
BENEFICIALLY BENEFICIALLY THE COMBINED THE COMBINED
NAME OF BENEFICIAL OWNER OWNED OWNED(1) COMPANY COMPANY(2)
- -------------------------------------- ------------ ------------ ------------------- --------------------
<S> <C> <C> <C> <C>
Jack Tramiel(3)....................... 12,494,616 19.6% 12,494,616 12.2%
455 South Mathilda Avenue
Sunnyvale, California 94086
Time Warner, Inc.(4).................. 8,600,000 13.5 8,600,000 8.4
75 Rockefeller Plaza
New York, New York 10019
Sam Tramiel(5)........................ 5,662,567 8.9 5,662,567 5.5
455 South Mathilda Avenue
Sunnyvale, California 94086
Leonard Tramiel(6).................... 5,263,946 8.2 5,263,946 5.1
455 South Mathilda Avenue
Sunnyvale, California 94086
Sega Holdings USA Inc ................ 4,705,883 7.4 4,705,883 4.6
303 Twin Dolphin Drive, Suite 200
Redwood City, California 94065
Garry Tramiel(7)...................... 4,055,000 6.4 4,055,000 3.9
455 South Mathilda Avenue
Sunnyvale, California 94086
August J. Liguori(8).................. 262,000 * 262,000 *
Michael Rosenberg(9).................. 45,000 * 45,000 *
Leonard I. Schreiber(10).............. 214,000 * 214,000 *
Laurence M. Scott, Jr.(11)............ 10,000 * 10,000 *
All directors and executive officers 23,952,129 37.3 23,952,129 23.3
as a group (seven persons)(12)......
</TABLE>
- ---------------
* Less than 1%
(1) Based on 63,735,718 shares of Atari Common Stock outstanding as of May 22,
1996.
(2) Based on (i) 63,735,718 shares of Atari Common Stock outstanding as of May
22, 1996 (assuming no exercise of outstanding options after such date) and
(ii) 29,696,370 shares of JTS Series A Preferred Stock and 9,255,116 shares
of JTS Common Stock outstanding as of May 15, 1996 (assuming no exercise of
outstanding options and warrants after such date).
(3) Includes 11,597,315 shares held by Jack Tramiel's wife. Also includes
155,690 shares held by Mr. Tramiel's wife as trustee of trusts for the
benefit of Mr. Tramiel's minor grandchildren. Also includes 4,000 shares
subject to options which are vested or become vested within 60 days
following May 22, 1996.
(4) Includes 7,100,000 shares held by Warner Communications Investors, Inc.,
1,500,000 shares held by Warner Communications, Inc.
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<PAGE> 90
(5) Includes 352,062 shares held by Sam Tramiel as custodian on behalf of his
children, 8,100 shares held by Mr. Tramiel's wife and an aggregate of
97,416 shares held by Mr. Tramiel's minor children. Also includes 225,000
shares subject to options which are vested or become vested within 60 days
following May 22, 1996.
(6) Includes 40,000 shares held by Leonard Tramiel's wife and 10,000 shares
held by Mr. Tramiel's minor children. Also includes 55,000 shares subject
to options which are vested or become vested within 60 days following May
22, 1996.
(7) Includes 55,000 shares subject to options which are vested or become vested
within 60 days following May 22, 1996.
(8) Includes 165,000 shares subject to options which are vested or become
vested within 60 days following May 22, 1996.
(9) Includes 20,000 shares subject to options which are vested or become vested
within 60 days following May 22, 1996.
(10) Includes 20,000 shares subject to options which are vested or become vested
within 60 days following May 22, 1996.
(11) Represents shares subject to options which are vested or become vested
within 60 days following May 22, 1996.
(12) Includes 499,000 shares subject to options which are vested or become
vested within 60 days following May 22, 1996.
83
<PAGE> 91
INFORMATION REGARDING JTS CORPORATION
BUSINESS OF JTS
JTS was founded as a Delaware corporation in February 1994 to design,
manufacture and market hard disk drives for use in notebook computers and
desktop personal computers. JTS has developed two product families of hard disk
drives: the Nordic product family for notebook computers, which includes disk
drives with 3-inch form factors and two or three recording disks; and the
Palladium product family for desktop personal computers, which includes disk
drives with 3.5-inch form factors and two or three recording disks. JTS is also
developing a family of 5.25-inch form factor disk drives for the desktop
personal computer market. JTS markets and sells its products to original
equipment manufacturers ("OEMs") for incorporation into their notebook and
desktop computer systems and subsystems. JTS acquired several technical
personnel and rights to certain key technology utilized in JTS' disk drives in
connection with bankruptcy proceedings involving Kalok Corporation in February
1994. All JTS disk drives are currently manufactured at JTS' subsidiary, Moduler
Electronics, located in Madras, India.
INDUSTRY BACKGROUND
The hard disk drive industry is intensely competitive and dominated by a
small number of large companies, including Quantum, Seagate, Western Digital and
Maxtor. In addition, a number of computer companies, such as Hewlett-Packard,
Toshiba and IBM, have in-house or "captive" disk drive manufacturing operations
that produce disk drives for incorporation into their own computers as well as
for sale to other OEMs. In 1995, the top six disk drive vendors accounted for
approximately 88% of the unit market share.
In 1995, approximately 89 million hard disk drives were shipped,
representing a 30% increase over the prior year. Approximately 70 million, or
77%, of the hard disk drives shipped in 1995 were sold as part of desktop
personal computers, and approximately 11 million, or 12%, were sold as part of
notebook computers. In 1995, Seagate, Quantum and Western Digital controlled
approximately 61% of the desktop hard disk drive market share, and IBM and
Toshiba controlled approximately 70% of the notebook hard disk drive market
share.
All hard disk drives used in notebook and desktop personal computers
incorporate the same basic technology. One or more rigid disks are attached to a
spin motor assembly which rotates the disks at a constant speed within a sealed,
contamination-free enclosure. Typically, both surfaces of each disk are coated
with a thin layer of magnetic material. Magnetic heads record and retrieve data
from discrete magnetic domains located on pre-formatted concentric tracks in the
magnetic layers of the rotating disks. An actuator positions the head over the
proper track upon instructions from the drive's electronic circuitry. Most disk
drives are "intelligent" disk drives which incorporate an embedded ASIC
controller to manage communications with the computer.
The size of a hard disk drive is referred to as the drive's "form factor"
or "footprint." At present, the vast majority of personal desktop and notebook
computers incorporate disk drives with either 3.5-inch or 2.5-inch form factors.
The size of the form factor determines the size of the recording disk and,
hence, dictates the recording capacity of the disk drive. Disk drives with
smaller form factors must incorporate more disks and, as a result, more heads to
offer the same recording capacity as larger form factor drives. Therefore,
because heads and disks are the most expensive components in the hard disk
drive, larger form factor disk drives are relatively less expensive to
manufacture than smaller form factor drives with comparable recording
capacities. As a result, 3.5-inch drives are better suited for desktop personal
computers, which are not subject to the size constraints of notebook computers.
In contrast, 2.5 inch drives, because of their reduced size as well as power
conservation features and lightweight design, presently dominate the notebook
computer market.
In recent years, the computer industry has witnessed the emergence of
several trends that JTS believes will continue to drive demand for innovative
disk drive products. First, new data- and image-intensive applications are
generating increased demand for greater storage capacity and performance at a
lower cost for both business and home computer users. JTS believes that this
trend will continue as more applications are developed that enable individuals
to easily access, store and manipulate digital information and as computers
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<PAGE> 92
become a more common home appliance. At the same time, a significant percentage
of personal computing is occurring on mobile devices, such as notebook
computers, which represented approximately 15% of all personal computers sold in
1995. Third, the personal computer industry is migrating towards lower profile
computing devices, both in the desktop and notebook arenas. The pressure to
shrink the dimensions, increase the capacities and lower the costs of personal
computers has presented manufacturers, especially notebook designers, with a
substantial and ongoing technical challenge.
JTS STRATEGY
JTS' objective is to become a leading supplier of hard disk drives to the
notebook and desktop computer markets. JTS' strategy to achieve this objective
includes the following key elements:
- Establish 3-inch form factor technology for notebook computers. JTS
has developed a family of 3-inch form factor disk drives, the Nordic
product family, for use in notebook computers as an alternative to 2.5-inch
drives, the current industry standard. JTS Nordic disk drives are similar
to 2.5-inch drives in terms of weight and power consumption but have a
modestly larger footprint, although the low-profile design of the 3-inch
drive results in its total volume being the same as the 2.5-inch drive. The
disks used in JTS' 3-inch drives have 82% greater recording surface area
per drive than disks used in 2.5-inch drives, and, therefore, greater
storage capacities can be achieved at the same areal densities (megabytes
per square inch) as 2.5-inch drives. JTS began shipment of Nordic drives in
the second calendar quarter of 1996.* Nordic drives are expected to be
offered at prices that are competitive with the prices of 2.5-inch drives.*
- Develop innovative disk drives for desktop personal computers. JTS
has developed a 3.5-inch family of disk drives, the Palladium family, for
desktop personal computers. Like the Nordic family of disk drives, the
Palladium family is characterized by a low-profile, fully-encapsulated
design and a simplified, highly-integrated platform approach. JTS began
volume production and shipment of Palladium drives in September 1995 and is
presently shipping Palladium drives with capacities of 1.0 and 1.6
gigabytes. JTS is also developing a family of 5.25-inch form factor disk
drives for the desktop market with many of the same design features as JTS'
Nordic and Palladium drives, but with significantly greater recording
capacities.
- Achieve low product cost structure. All of JTS' manufacturing
operations and some of its design operations take place in Madras, India,
which offers a low-cost and well-trained labor force. In order to
capitalize upon the low-cost labor base in India, JTS has adopted a
manufacturing strategy of selective vertical integration. For example, JTS
is presently vertically integrated in the manufacture of particularly
labor-intensive components such as head stacks. JTS' disk drive products
also share a significant amount of common componentry, thereby reducing
manufacturing and development costs.
- Form strategic alliances with key participants in the computer
industry. JTS has entered into a Development Agreement and Purchase
Agreement with Compaq pursuant to which Compaq has agreed to design at
least one of JTS' disk drives into Compaq's products and to purchase a
minimum number of disk drives subject to certain conditions. JTS intends to
establish similar arrangements with other major computer OEMs and notebook
computer manufacturers. In addition, JTS has entered into a Technology
Transfer and License Agreement with Western Digital, which provides for the
cross-licensing of JTS' and Western Digital's 3-inch disk drive technology
and licenses Western Digital to act as a second source of 3-inch drives to
Compaq.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
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<PAGE> 93
PRODUCTS
JTS' disk drives are characterized by the following design features:
- Low Profile Design. JTS' hard disk drives have a lower profile than
competing hard disk drives with comparable form factors and recording
capacities. The low profile design is accomplished by a high level of
electronic integration that allows for the printed circuit board assembly
("PCBA") to be placed in a small corner of the drive in the same plane as
the recording disks (this design is known as "board in the plane of the
media" packaging). Most competing drives place the PCBA under the drive
mechanics which significantly increases the height of the drive.
- Simplified and Highly-Integrated Platform Approach. JTS' product
families share a simplified, highly-integrated platform approach
characterized by a reduced number of components. JTS believes that its
PCBAs have the fewest components in the industry because of a
highly-integrated ASIC controller. JTS believes this simplified platform
approach combined with common technology among its product families
facilitates the introduction of new technology and utilizes research
personnel in a more efficient manner, thereby reducing development costs.
- Fully-Encapsulated Design. JTS disk drives are fully-encapsulated
with no exposed PCBA and contain either a standard fixed drive connector or
optional multi-insertion connector. The encapsulated design eliminates the
possibility of damage to the PCBA due to electrostatic discharge and
improves the electromagnetic interference immunity of the drive.
- Common Componentry. The Nordic and Palladium product families share
a substantial percentage of common electronic componentry which facilitates
the simultaneous development of products for the notebook and desktop
computer markets and reduces time to market for JTS products. For example,
JTS' product families share spindle motors, certain head stack components
and controller ASICs.
Nordic Product Family
JTS' Nordic product family is designed for notebook computers. Nordic
drives measure 90mm wide, the same width as a floppy diskette, and are
classified as 3-inch drives. The Nordic drives incorporate low-profile
architecture, measuring 10.5mm high for the two disk version and 12.5mm for the
three disk version. Nordic drive capacities presently range from 640 to 810
megabytes for the two disk version and 1.2 gigabytes for the three disk version.
The 10.5mm and 12.5mm Nordic drives are significantly thinner than the 17mm or
19mm high 2.5-inch drives, while the surface area of the recording disk in a
Nordic drive is 82% greater than a 2.5-inch disk. The greater surface area of
the disk media used in the Nordic drives allows for greater recording capacity
using the same areal densities. At the same time, the Nordic drives consume
approximately the same amount of power as 2.5-inch drives, making them well
suited for battery operated applications.
The Nordic product family is being developed in conjunction with Western
Digital, which has entered into a Technology Transfer and License Agreement with
JTS obligating Western Digital to make milestone payments and to share
advancements in 3-inch technology and licensing Western Digital to serve as a
second source of Nordic products to Compaq. In addition, JTS has entered into a
Development Agreement with Compaq which committed Compaq to partially fund
Nordic development costs and obligated Compaq to purchase a minimum number of
disk drives over a two year period. Shipments to Compaq of Nordic disk drives
are expected to commence in the second calendar quarter of 1996.* See
"-- Relationship with Compaq" and "-- Western Digital Arrangement."
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
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<PAGE> 94
Palladium Product Family
Palladium disk drives are 3.5-inch form factor drives designed for desktop
personal computers. The Palladium product family includes two and three disk
versions with capacities presently ranging from 540 megabytes to 1.6 gigabytes.
The Palladium drives incorporate low-profile architecture similar to Nordic
drives, measuring 1/2-inch in height compared to competing drives that typically
measure 1-inch in height. The low profile design allows two disk drives to be
configured into the same space required for one competing 3.5-inch drive. JTS
began volume production and shipments of Palladium drives in September 1995.
5.25-inch Family of Hard Disk Drives
JTS is developing a family of 5.25-inch form factor hard disk drives for
desktop personal computers. The 5.25-inch drives will initially include three
disks and have a capacity of 3.5 gigabytes. The 5.25-inch drives are being
designed to meet the increased data storage demands of advanced multimedia
applications. Like the Nordic and Palladium drives, the 5.25-inch drives will
have a low-profile, fully-encapsulated design and a simplified,
highly-integrated platform approach. JTS expects to begin volume production and
shipment of 5.25-inch drives in the fourth quarter of fiscal 1997.*
RELATIONSHIP WITH COMPAQ
In June 1994, JTS entered into a Development Agreement with Compaq pursuant
to which the two companies established a plan for the development of JTS' Nordic
family of disk drives. Pursuant to the terms of the Development Agreement,
Compaq has paid $500,000 to JTS for product development expenses. In addition,
JTS has granted to Compaq certain pricing preferences and agreed to pay
royalties to Compaq on sales of Nordic disk drives to third parties during the
term of the agreement. Compaq has been granted a license to use the Nordic
designs to manufacture Nordic drives on a royalty-free basis in the event JTS
fails to meet the agreed upon production schedule. The Development Agreement
also restricts JTS' ability to sublicense Nordic technology. The Development
Agreement has a five year term, which will automatically be renewed under
certain circumstances and may be terminated by either party only with cause. JTS
and Compaq have also entered into a Purchase Agreement related to future
purchases by Compaq of Nordic drives. See "-- Patents and Licenses."
WESTERN DIGITAL ARRANGEMENT
In February 1995, JTS entered into a Technology Transfer and License
Agreement with Western Digital. Under the terms of the agreement, Western
Digital obtained manufacturing and marketing rights to JTS' 3-inch hard disk
drive products. In return, Western Digital is obligated to make payments to JTS
totalling $6.0 million upon the achievement of certain development milestones
and is licensed to act as a second source of Nordic drives to Compaq. As of
January 28, 1996, Western Digital had made milestone payments to JTS in an
aggregate amount of $5.3 million. In February 1995, Western Digital also made a
$4.1 million equity investment in JTS as part of the transaction. The parties
have reciprocal, royalty-free, cross-license agreements for future 3-inch drive
developments, and Western Digital has granted to JTS licenses on existing
patents covering its 3-inch disk drive technology. Under certain circumstances,
the Technology Transfer and License Agreement restricts JTS from sublicensing
Nordic technology until 1998. See "-- Patents and Licenses."
MANUFACTURING
JTS' manufacturing strategy is to be a low-cost producer of hard disk
drives for the notebook and desktop personal computer markets. All of JTS'
manufacturing operations are currently conducted at its subsidiary,
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
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<PAGE> 95
Moduler Electronics, located in Madras, India, which JTS acquired in April 1996.
See "JTS' Acquisition of the Disk Drive Division of Moduler Electronics." As of
April 26, 1996, 1,760 individuals were employed at Moduler Electronics. The
Madras facility presently occupies 85,000 square feet in a single building,
4,000 square feet of which are designated a "clean room" environment. At this
facility, JTS is adding production lines and expanding its clean room
environment. JTS believes that locating its manufacturing operations in India is
an important element of its low-cost manufacturing strategy due to the
availability of a high-quality, low-cost technical labor pool. In 1995, JTS was
granted a five year "tax holiday" with respect to sales of JTS' products in and
outside of India. In addition, Moduler Electronics is located in the Madras
export processing zone and, therefore, enjoys a tax exemption with respect to
profits generated from sales outside of India. Such exemption may be terminated
at any time, in which event JTS would become subject to significantly greater
taxes on sales of disk drives outside of India. Other benefits associated with
conducting business in India, which historically has experienced considerable
political instability, are subject to the vagaries of the Indian government, and
may be withdrawn at any time.
The manufacture of high-capacity hard disk drives is a complex process,
requiring a "clean room" environment, the assembly of precision components
within narrow tolerances and extensive testing to ensure reliability. JTS'
manufacturing process is performed in three stages: subassembly, final assembly
and final test. The subassembly group builds mechanical subassemblies and flex
cables and modifies PCBAs. Printed circuit board assembly is performed by
outside vendors. The final assembly group assembles all subassemblies and
components into the mechanical head/disk assembly ("HDA"), writes servo
information, and performs preliminary testing. To avoid contamination by dust
and other particles which may impair the functioning of the disk drive, most
assembly takes place under controlled "clean room" conditions. The final test
group connects PCBAs to HDAs, burns-in completed drives and performs final
tests.
The principal components used in JTS' manufacturing process are disks,
heads and PCBAs. JTS has two qualified sources for PCBAs and is in the process
of qualifying second sources for disks and heads. JTS' Indian subsidiary imports
approximately 85% of the componentry used in the manufacture of its disk drives
from outside of India. In the past, JTS has experienced delays in obtaining
certain integrated circuits required in the assembly of PCBAs, and there can be
no assurance that such delays, or difficulties in obtaining those or other
components, will not occur in the future. JTS' inability to obtain essential
components or to qualify additional sources as necessary, if prolonged, could
have a material adverse effect on JTS' business, operating results and financial
condition. In the second quarter of 1996, JTS was advised that its sole supplier
of certain head stack components intends to decrease production and ultimately
discontinue manufacturing of such components, and, therefore, JTS will be
required to secure a new supply arrangement with another manufacturer of such
components.
JTS has developed a comprehensive quality assurance program. All
significant electrical and mechanical parts received from outside sources are
inspected or tested, normally on a sample basis, and testing and burn-in of
certain components and subassemblies occurs during assembly. In addition, JTS
performs several in-process quality checks and inspections, both in the PCBA and
HDA processes, and a final drive-level quality check prior to packaging.
Additional performance and reliability testing is done on a sample basis from
each week's production units in order to monitor quality levels and provide
corrective action to the factory processes. JTS generally warrants its products
against defects in design, materials and workmanship for three years. JTS
maintains in-house service facilities for refurbishment or repair of its
products in Madras, India.
Due to the common componentry of the Nordic and Palladium disk drives, JTS
believes that it enjoys considerable flexibility in managing inventory levels
and meeting its customers' production requirements. In addition, JTS believes
that common componentry reduces the amount of scrap materials generated in the
manufacturing process and facilitates the training of operators in producing new
products, thus reducing production costs.
JTS' longer-term manufacturing strategy calls for selective vertical
integration to reduce JTS' manufacturing costs. At present, JTS is vertically
integrated in certain labor intensive components, such as head stacks, thereby
capitalizing on the low-cost labor base in India. JTS also believes that its
proprietary controller ASIC is less expensive and more easily upgradeable than
commercially available integrated circuits.
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<PAGE> 96
RESEARCH AND DEVELOPMENT
JTS operates in an industry characterized by rapid technological change and
short product life cycles. As a result, JTS' success will depend upon its
ability to develop new products, successfully introduce these products to the
market and ramp up production to meet customer demand. Accordingly, JTS is
committed to timely development of new products and the continuing evaluation of
new technologies. JTS' research and development efforts are presently
concentrated on broadening its existing 3.5- and 3-inch product lines and
introducing new generations of products with increased capacity and improved
performance at a lower cost. In this regard, JTS is presently designing various
high performance features, such as MR heads, new ASIC/channel technology and
advanced head lifters, into each of its hard disk drive product families. In
June 1996, JTS entered into a Heads of Agreement with Headway Corporation
("Headway"), a joint venture between Hewlett-Packard and Komag Corporation,
pursuant to which Headway has agreed to act as the exclusive supplier of MR
heads for JTS' future products.
JTS expects to begin shipment of Palladium drives with recording capacities
of up to 2.5 gigabytes and Nordic drives with recording capacities of up to 2.0
gigabytes in the fourth quarter of fiscal 1997.* In addition, JTS is developing
a family of 5.25-inch disk drives for the desktop personal computer market. JTS
expects to begin shipment of 5.25-inch drives in the fourth quarter of fiscal
1997.* For the fiscal years ended January 31, 1995 and 1996, JTS' research and
development expenses totalled approximately $3.7 million and $13.4 million,
respectively. As of January 28, 1996, JTS employed 137 individuals in
engineering support and research and development.
SALES AND MARKETING
JTS sells its products through its direct sales force operating in the
United States, Europe and Asia. In addition, JTS' hard disk drives are sold into
the Latin American markets by FutureTech International, Inc. ("Futuretech"), a
products distributor. JTS presently has a sales office in Taiwan that employs
three individuals. The Taiwan sales office markets the JTS Nordic disk drives to
local notebook computer manufacturers and works closely with the manufacturers
to design JTS' disk drives into their products. In addition, JTS has independent
sales representatives located in Japan, Germany and South Africa who market JTS'
Nordic disk drives to notebook computer manufacturers. JTS employs two sales
representatives in the United States who market JTS' 3.5-inch disk drives to
OEMs. International sales accounted for 81% of revenues in fiscal 1996. See
"Notes to JTS Financial Statements."
A limited number of customers account for a significant percentage of JTS'
total revenue. In fiscal 1996, Olidata S.p.A., Connexe Peripherals, Ltd., Liuski
International, Inc. and Aashima Technology, B.V. accounted for 34%, 12%, 11% and
10%, respectively, of JTS' total revenue. In the quarter ended April 28, 1996,
Peacock Systems GmbH, Markvision International S.A. and FutureTech accounted for
43%, 18% and 14% respectively, of JTS' total revenue. JTS expects that sales to
a relatively small number of OEMs will account for a substantial portion of its
net revenues for the foreseeable future, although the companies that comprise
JTS' largest customers may change from period to period. In particular, based on
existing contracts with FutureTech and Compaq, JTS expects that revenues from
these companies will account for a substantial percentage of JTS' revenues in
the foreseeable future. The loss of, or decline in orders from, one or more of
JTS' key customers would have a material adverse effect on JTS' business,
operating results and financial condition.
PATENTS AND LICENSES
JTS holds no patents and has licensed in a substantial portion of the
technology used in its hard disk drives pursuant to license agreements with Pont
Peripherals Corporation, formerly DZU Corporation ("Pont"), TEAC Corporation
("TEAC") and Western Digital. If such license agreements were prematurely
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
89
<PAGE> 97
terminated or if JTS were enjoined from relying upon such licenses due to JTS'
alleged or actual breach of such agreements, JTS would be prevented from
manufacturing disk drives incorporating technology subject to such licenses. As
a result, JTS' business, operating results and financial condition would be
materially adversely affected. JTS has filed three United States patents
applications. Although JTS believes that patent protection could offer
significant value, the rapidly changing technology of the computer industry
makes JTS' future success dependent primarily upon the technical competence and
creative skills of its personnel rather than on patent protection.
A license with respect to certain key technology employed in JTS' Nordic
disk drives was granted to JTS by TEAC pursuant to a license agreement dated
February 4, 1994 (the "TEAC Agreement"). The TEAC Agreement also includes a
cross-license with respect to Nordic technology developed jointly by TEAC and
JTS, which will be owned jointly by the two companies, and granted certain
rights to TEAC with respect to Nordic technology developed independently by JTS,
which will be owned solely by JTS. Under the TEAC Agreement, JTS is obligated
under certain circumstances to make royalty payments to TEAC in connection with
the sale of future generation disk drives incorporating Nordic technology that
is jointly developed by JTS and TEAC or independently developed by TEAC. JTS is
not obligated to make royalty payments with respect to developments to Nordic
technology made independently by JTS, but JTS is obligated to license such
developments to TEAC on a royalty-free basis. The TEAC Agreement restricts JTS'
ability to sublicense certain technology licensed to JTS. TEAC originally
acquired its rights in certain Nordic disk drive technology pursuant to the
Agreed Order Compromising Controversies dated February 4, 1994 (the "Order")
governing the distribution of the assets of Kalok Corporation. The Order imposes
certain restrictions on JTS' right to sublicense, manufacture and sell certain
disk drive technology of Kalok Corporation that was transferred to both TEAC and
Pont pursuant to the Order.
In June 1994, JTS entered into a Development Agreement with Compaq which
imposes certain restrictions on JTS' ability to sublicense Nordic technology to
third parties. In addition, the Development Agreement imposes a royalty
obligation upon JTS with respect to the sale of Nordic disk drives to third
parties during the term of the agreement. Moreover, Compaq has a right of first
refusal with respect to all production of Nordic drives until June 1997 and a
right of first refusal to license and/or acquire future JTS technologies and
products during the term of the agreement. JTS has also granted certain
non-exclusive manufacturing and marketing rights with respect to certain Nordic
technology and developments thereto within the term of the Development
Agreement. See "-- Relationship with Compaq."
In January 1995, JTS and Pont entered into a cross-licensing agreement (the
"Pont Agreement") pursuant to which JTS granted to Pont a royalty-free,
nonexclusive, perpetual license to use certain JTS and jointly-developed hard
disk drive technology, to make developments to such technology and to
manufacture and sell in certain territories hard disk drives incorporating such
technology. In return, Pont granted to JTS a royalty-free, nonexclusive,
perpetual license to use certain Pont and jointly-developed hard disk drive
technology, to make developments to such technology and to manufacture and sell
in certain territories hard disk drives incorporating such technology. In
addition, Pont was obligated to make certain royalty payments to JTS for a
limited period of time with respect to the sale of hard disk drives
incorporating certain JTS technology.
In February 1995, the TEAC Agreement, the Order, the Pont Agreement and the
Compaq Development Agreement were each amended to permit the license and
sublicense by JTS to Western Digital of certain rights in Nordic disk drive
technology. In addition, the amendment to the TEAC Agreement provides that JTS
will pay certain royalties to TEAC, under certain circumstances, upon the sale
of Nordic drives for a limited period of time. The Pont Agreement was also
amended to expand the territories in which JTS may manufacture and sell hard
disk drives incorporating technology subject to the agreement. JTS and Western
Digital concurrently entered into a Technology Transfer and License Agreement
pursuant to which Western Digital obtained certain manufacturing and marketing
rights to Nordic disk drive technology. The parties have reciprocal,
royalty-free, cross-license agreements for future Nordic technology
developments, and Western Digital has granted to JTS licenses on existing
patents covering its 3-inch hard disk drive technology. See "-- Western Digital
Arrangement."
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COMPETITION
The hard disk drive industry is intensely competitive and dominated by a
small number of large companies, including Quantum, Seagate, Western Digital and
Maxtor. In addition, a number of computer companies, such as Hewlett-Packard,
Toshiba and IBM, have in-house or "captive" disk drive manufacturing operations
that produce disk drives for incorporation into their own computers as well as
for sale to other OEMs. JTS believes that competition in the disk drive industry
is based primarily upon time to market, product availability, performance,
product capacity and price. JTS believes that it competes favorably with respect
to each of these factors. Many of JTS' competitors have broader product lines
than JTS, and all have significantly greater financial, technical and marketing
resources. There can be no assurance that JTS will be able to develop and
manufacture products on a timely basis with the quality and features necessary
in order to be competitive. High volume disk drive users typically utilize from
two to four suppliers but desire to limit the number of sources. As a result, it
may be necessary for JTS to displace competitors in many circumstances in order
to increase its net sales. In addition, JTS faces competition from the
manufacturing operations of its current and potential OEM customers, which could
initiate or increase internal production and reduce or cease purchasing from
independent disk drive suppliers such as JTS. Moreover, the hard disk drive
industry is characterized by intense price competition. If other disk
manufacturers add significant capacity or demand for disk drives decreases, the
resulting pricing pressures could adversely affect JTS' business, operating
results and financial condition. JTS has experienced pricing pressures in the
past, and there can be no assurance that JTS will not experience increased price
competition in the future. Any increase in price competition could have a
material adverse effect on JTS' business, operating results and financial
condition. If JTS' current and prospective customers and end users were to adopt
alternative data storage products, including optical storage, flash memory and
holographic storage, JTS' business, operating results and financial condition
could be adversely affected.
BACKLOG
JTS' sales are generally made pursuant to purchase orders that are subject
to cancellation, modification, quantity reductions or rescheduling without
significant penalties. Changes in forecasts, cancellations, rescheduling and
quantity reductions may result in excess inventory costs, inventory losses and
under-utilization of production capacity and may have a material adverse effect
on JTS' business, operating results and financial condition. As a result of the
foregoing, JTS' backlog as of any particular date may not be representative of
actual sales for any succeeding period.
EMPLOYEES
As of April 26, 1996, JTS had 1,936 full-time employees, of whom 158 were
located in San Jose, California, 1,760 were located in Madras, India, 13 were
located in Singapore and five were located in Taipei, Taiwan. Of the full-time
employees, 1,490 are engaged in manufacturing, 12 in marketing, sales and
service, 108 in product development and 18 in administration and finance.
The market for well-trained employees with disk drive industry experience
is intensely competitive. JTS believes that its future success will depend on
its ability to continue to attract and retain a team of highly motivated and
skilled individuals. None of JTS' employees is represented by a labor
organization. JTS believes that its employee relations are good.
PROPERTIES
JTS presently leases facilities in San Jose, California, Madras, India,
Singapore and Taipei, Taiwan. JTS' executive and administrative headquarters are
located in a 52,000 square foot building in San Jose. The lease on this facility
expires in July 2000, and has an option to renew for four years, subject to
certain restrictions.
The Madras facility comprises approximately 85,000 square feet and is used
for all of JTS' manufacturing operations. JTS does not presently lease the
Madras facility, but rather occupies the facility pursuant to allotment letters
from the Development Commissioner of the Madras Export Processing Zone. Such
allotment letters authorize JTS to occupy the premises indefinitely so long as
the space is used in the
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reasonable conduct of JTS' business and rents are paid in a timely fashion. JTS
currently intends to increase the size of the Madras facility by 65,000 square
feet by the end of fiscal 1997.*
The Singapore office comprises approximately 1,500 square feet and is used
for JTS' purchasing operations in Southeast Asia. The lease for this facility
expires in October 1997.
The Taiwan sales office has approximately 1,144 square feet and is used for
JTS' marketing and sales operations in Taiwan. The lease for this facility
expires in July 1997.
LEGAL PROCEEDINGS
JTS has been served with a complaint filed in the Superior Court of the
State of California in and for the County of Santa Clara by Venture Lending &
Leasing, Inc. ("VLLI") relating to the relocation of certain leased equipment
from its initial location to Madras, India, in alleged violation of the lease
agreement. The complaint alleges fraud and breach of the lease agreement and
seeks damages of approximately $4.6 million.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
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JTS AND MODULER ELECTRONICS UNAUDITED SELECTED FINANCIAL DATA
The following unaudited selected pro forma combined financial data of JTS
and Moduler Electronics presents the pro forma combined financial position and
results of operations of JTS and Moduler Electronics as of and for the year
ended January 28, 1996 and for the three months ended April 28, 1996 and April
30, 1995. This unaudited selected pro forma financial data combine JTS and
Moduler Electronics and give effect to the JTS and Moduler Electronics
combination, which was accounted for as a purchase. The April 28, 1996 balance
sheet reflects the acquisition of Moduler Electronics which took place on April
4, 1996. Intercompany balances and transactions have been eliminated in the
presentation. This data should be read in conjunction with the Unaudited Pro
Forma Financial Statements and related notes, and the historical financial
statements and related notes of JTS and Moduler Electronics which are included
elsewhere herein. All amounts are stated in thousands, except per share amounts.
<TABLE>
<S> <C> <C>
Statement of Operations Data:
Year Ended January 28, 1996 (Pro forma)
Net revenues................................................ $ 18,777
Gross margin (deficit)...................................... (14,849)
Research and development.................................... 13,375
Selling, general and administrative expenses................ 5,777
Operating loss.............................................. (34,001)
Net loss.................................................... (35,170)
Loss per common share(1).................................... (7.63)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
APRIL 28, 1996 APRIL 30, 1995
---------------- --------------
<S> <C> <C>
Quarter ended April 28, 1996 and April 30, 1995 (Pro forma)
Total revenues.............................................. $ 17,581 $ 2,077
Operating loss.............................................. (12,098) (1,203)
Net loss.................................................... (12,820) (1,143)
Net loss per share(1)....................................... (1.47) (.26)
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28,
1996
APRIL 28, 1996 --------------
---------------- (PRO FORMA)
(ACTUAL)
<S> <C> <C>
Balance Sheet Data:
Current assets.............................................. $ 30,474 $ 12,722
Equipment and leasehold improvements, net................... 16,212 14,795
Total assets................................................ 46,871 28,111
Current liabilities......................................... 61,669 30,615
Long-term debt.............................................. 6,381 6,248
Redeemable Series A Preferred Stock......................... 29,697 29,696
Stockholders' deficit....................................... (50,876) (38,448)
</TABLE>
- ---------------
(1) Excludes JTS Series A Preferred Stock, warrants and options as their effect
would be antidilutive.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF JTS
JTS was incorporated in February 1994 and remained in the development stage
until October 1995, when it began shipping hard disk drives. From October 1995
through January 1996, JTS shipped 98,000 Palladium disk drives in 540 megabyte,
850 megabyte and 1 gigabyte configurations primarily to customers in the United
States and Europe. During the second quarter of calendar year 1996, JTS expects
to begin shipment of Nordic disk drives to Compaq under a volume purchase
agreement.* There can be no assurance that JTS will be successful in the
production and shipment of these products.
Since its inception, JTS has incurred significant losses which have
resulted from the substantial costs associated with the design, development and
marketing of new products, the establishment of manufacturing operations and the
development of a supplier base. JTS' ability to achieve successful operations
will depend upon a number of factors, including market acceptance of JTS'
products, the introduction of new products in a timely and cost-effective
manner, and the volume production of disk drives at acceptable manufacturing
yields. In addition, JTS will need significant additional financing resources
over the next several years for facilities expansion, capital expenditures,
working capital, research and development and vendor tooling. There can be no
assurance that JTS will achieve successful operations.
All of JTS' products are manufactured in Madras, India by its Moduler
Electronics subsidiary. In March 1995, JTS entered into a verbal agreement to
acquire Moduler Electronics and subsequently assumed operational and management
control of certain aspects of Moduler Electronics' disk drive business. In April
1996, JTS acquired 90% of Moduler Electronics and, accordingly, the Pro Forma
Combined Condensed Financial Statements of JTS and Moduler Electronics are the
bases for the following discussion and analysis.
PRO FORMA YEAR ENDED JANUARY 28, 1996 COMPARED TO YEAR ENDED JANUARY 29, 1995
For the fiscal year ended January 28, 1996, JTS' pro forma results reflect
a net loss of $35.2 million, compared to a net loss of $4.8 million for JTS in
fiscal 1995.
Total pro forma revenues for fiscal 1996 were $18.8 million and consisted
of product sales and license revenues. Net product sales for fiscal 1996 were
$13.5 million as JTS initiated product shipments to customers in October 1995.
License revenues for fiscal 1996 were $5.3 million as JTS achieved certain
development milestones under its Technology Transfer and License Agreement with
Western Digital which was executed in February 1995. Of total revenues, 81% were
derived from European customers and 19% were derived from customers in the
United States. During fiscal 1996, JTS' product sales were concentrated among
several key customers with Olidata Spa, Connexe Peripherals, Ltd., Liuski
International, Inc. and Aashima Technology B.V. accounting for 34%, 12%, 11% and
10% of total product sales, respectively. JTS had no revenues in fiscal 1995.
Pro forma gross margin for fiscal 1996 was a deficit of $14.8 million. The
deficit resulted principally from costs and expenses due to low manufacturing
yields and high per unit costs associated with the start-up of manufacturing
operations. Cost of product sales for fiscal 1996 also included a $4.3 million
provision for inventory allowances. The principal reasons for these allowances
include approximately $3.6 million for obsolete and unsaleable inventory,
approximately $345,000 for the costs of repairing defective products and a
reserve of approximately $500,000 for various other allowances. JTS anticipates
incurring future inventory allowances, the level of which will depend upon a
number of factors including manufacturing yields, new product introductions,
maturity or obsolescence of product designs, inventory levels and competitive
pressures.*
The hard disk drive industry has been characterized by ongoing rapid price
erosion and resulting pressure on gross margins. JTS expects that hard disk
drive prices will continue to decline in the future and that
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
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competitors will offer products which meet or exceed the performance
capabilities of JTS products. Due to such pricing pressures, JTS' future gross
margin will be substantially dependent upon its ability to control manufacturing
costs, improve manufacturing yields and introduce new products on a timely
basis.*
Research and development expenses for fiscal 1996 were $13.4 million
compared to $3.7 million for fiscal 1995. The increase is primarily attributable
to salaries and benefits resulting from the significant increase in staffing
required for product design and the development of manufacturing processes.
Specifically, during fiscal 1996, the number of employees in research and
development increased by 112 to a total of 137 employees at the end of fiscal
1996. In addition, expenses for supplies, materials and other costs associated
with design and pilot production of new products were approximately $5.0 million
in fiscal 1996 compared to approximately $1.5 million in fiscal 1995. JTS
expects that research and development expenses will continue to increase
throughout fiscal 1997 in absolute dollars but that such expenses will decline
as a percent of sales.*
Selling, general and administrative expenses for fiscal 1996 were $5.8
million compared to $1.5 million for fiscal 1995. The major components of these
expenses are salaries and benefits of administrative and marketing and sales
employees, facility costs and professional fees. The growth in these expenses in
fiscal 1996 was required to support the expansion of JTS' operations and the
commencement of marketing and sales efforts. Included in 1996 is a non-cash
charge of $930,000 of amortization of deferred compensation related to the
issuance of common stock to certain officers (see Note 7 to JTS Financial
Statements). JTS expects that selling, general and administrative expenses will
increase throughout fiscal 1997 in absolute dollars but that such expenses will
decline as a percentage of sales.*
QUARTER ENDED APRIL 28, 1996 COMPARED TO QUARTER ENDED APRIL 30, 1995
Revenue for the first quarter of fiscal 1997 was $17.6 million compared to
$2.0 million for the first quarter of fiscal 1996. Revenue for the current
quarter was comprised primarily of sales of the Company's 850 megabyte and 1
gigabyte Palladium 3 1/2-inch disk drives. Minimal product revenues were
recorded in the first quarter of fiscal 1996, as the Company initiated volume
shipments of disk drives in October 1995. However, JTS earned $2.0 million of
technology license revenue during the first quarter of fiscal 1997 as a result
of achieving certain development milestones under the Technology Transfer and
License Agreement with Western Digital. JTS' management expects revenues from
its 850 megabyte drives to be nominal for the rest of the fiscal year and sales
from its 1 gigabyte products to decline in the near future.* JTS recently began
shipment of its 1.6 gigabyte drives, the sales of which are expected to increase
in the near future.* During the second fiscal quarter, the Company will begin
shipment of Nordic 3-inch disk drives to Compaq Computer Corporation under a
volume purchase agreement.* There can be no assurance that product sales will
materialize as expected.
The gross margin for the first quarter of fiscal 1997 was a deficit of $1.8
million compared to a margin of $2.0 million for the first quarter in fiscal
1996. The $3.8 million increase in the gross margin deficit is attributable to
high unit costs associated with the ramp-up of volume production of disk drives.
In order for JTS to realize positive gross margins in the future, the Company
will have to control manufacturing costs, further improve manufacturing yields
and successfully introduce new products on a timely basis.
Research and development expenses were $7.4 million for the first quarter
of fiscal year 1997 compared to $1.7 million for the first quarter of fiscal
year 1996 as a result of a significant increase in the number of employees in
research and development required to meet demand for timely product design. JTS
expects that research and development expenses will continue to increase
throughout fiscal 1997 in absolute dollars but that such expenses will decline
as a percentage of sales.
Selling, general and administrative expenses for the first quarter of
fiscal 1997 were $3.1 million compared to $700,000 for the first quarter of
fiscal 1996. The increase resulted from the expansion of JTS' operations and the
commencement of marketing and sales efforts. Also included is a non-cash charge
of
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
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$330,000 related to the amortization of deferred compensation. JTS expects that
selling, general and administrative expenses will increase throughout fiscal
1997 in absolute dollars but that such expenses will decline as a percentage of
sales.
LIQUIDITY AND CAPITAL RESOURCES
As of January 28, 1996, JTS had cash and cash equivalents of $1.4 million.
Of this amount, $380,000 on deposit in India was restricted for use by JTS for a
90 day period beginning on January 28, 1996. On a pro-forma basis, at January
28, 1996, JTS had a working capital deficit of $17.9 million, which included
short term borrowings of $10.4 million. The short term borrowings were used to
finance working capital requirements, and included $4.3 million outstanding
under a bank line of credit and $6.1 million outstanding under bank lines of
credit in India.
Since inception, JTS has acquired approximately $11.0 million in capital
equipment, furniture and fixtures and leasehold improvements. Long term debt
associated with capital acquisitions amounted to approximately $7.9 million at
January 28, 1996. JTS currently expects that approximately $22 million will be
required during calendar year 1996 for capital equipment, tooling and leasehold
improvements, primarily in India.* As of January 28, 1996, JTS had no material
commitments related to such expenditures.
On February 13, 1996, Atari loaned $25.0 million to JTS pursuant to a
Subordinated Secured Convertible Promissory Note (the "Note") which is secured
by substantially all of the assets of JTS. Interest accrues on the unpaid
principal amount of the Note at the rate of 8.5% per annum. The Note provides
that JTS shall repay the outstanding principal and interest under the Note on
September 30, 1996 if the Merger has not occurred prior to such time. In the
event that the Merger Agreement is terminated, either party may, under certain
conditions, elect to convert the outstanding indebtedness under the Note into
shares of JTS Series A Preferred Stock. The Note is expressly subordinated to
outstanding indebtedness in connection with JTS' primary bank loan agreement, up
to an amount of $5.0 million at any one time. In addition, at January 28, 1996,
JTS had approximately $400,000 of unused lines of credit and approximately
$600,000 of letter of credit facilities available from three banks in India. In
March 1996, Moduler Electronics received approval from another Indian bank for a
$10 million term loan to finance capital equipment purchases. See "The Proposed
Merger and Related Transactions -- Related Transactions -- Atari Loan to JTS."
Since its inception, JTS has incurred significant losses which have
resulted from the substantial costs associated with the design, development and
marketing of new products, the establishment of manufacturing operations and the
development of a supplier base. At January 28, 1996, JTS had a working capital
deficit of $17.9 million and a negative net worth of $38.4 million. JTS has yet
to generate significant revenues and cannot assure that any level of future
revenues will be attained or that JTS will achieve or maintain successful
operations in the future. Such factors have raised substantial doubt about the
ability of JTS to continue its operations without achieving successful future
operations or obtaining financing to meet its working capital needs, neither of
which can be assured. The report of independent public accountants on JTS'
financial statements includes an explanatory paragraph describing uncertainties
concerning the ability of JTS to continue as a going concern. See "Notes to JTS
Financial Statements." JTS believes that it will be able to fund operations for
the next 12 months from a combination of funds made available as a result of the
Merger, funds available under its credit facilities, cash flow from operations
and existing cash balances.*
At April 28, 1996, JTS' consolidated balance sheets reflected cash and cash
equivalents of $5.1 million compared to $1.4 million at January 28, 1996. Of the
$5.1 million, approximately $400,000 on deposit in Indian banks was restricted
for use by JTS until certain obligations related to letters of credit are
settled. JTS had a working capital deficit of $31.2 million at quarter end,
which included short term borrowings from Atari of $25 million and $10.3 million
outstanding under bank lines of credit.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.
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The hard disk drive business is extremely capital intensive, and JTS
anticipates that it will need significant additional financing resources in the
near term for facilities expansion, capital expenditures, working capital,
research and development and vendor tooling. In this regard, JTS has held
discussions with investment banking firms regarding the possibility of raising
additional capital through the issuance of debt or equity securities. In June
1996, JTS signed an engagement letter with an investment banking firm regarding
the private issuance of debt securities convertible into JTS Common Stock. JTS
intends for such financing to close as soon as practicable after the closing of
the Merger. However, there can be no assurance that JTS will be able to
consummate such financing on terms acceptable to JTS or at all. The issuance of
equity or convertible debt securities, upon conversion, would result in dilution
of the voting control of existing stockholders, could result in dilution to
earnings per share and would provide to the holders of convertible debt
securities seniority over the holders of JTS Common Stock issued in the Merger.
There can be no assurance that additional funding will be available on terms
acceptable to JTS or at all. The failure to fund its capital requirements with
additional financing would have a material adverse effect on JTS' business,
operating results and financial condition. Furthermore, certain equipment and
receivables financing as well as term loans made to JTS and Moduler Electronics
are contingent on JTS' ability to comply with stringent financial covenants.
There can be no assurance that JTS will be able to maintain its current
financing facilities or obtain additional financing as needed on acceptable
terms or at all. If JTS is unable to obtain sufficient capital, it would be
required to curtail its facilities expansion, capital expenditures, working
capital, research and development and vendor tooling expenditures, which would
materially adversely affect JTS' business, operating results and financial
condition.
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MANAGEMENT OF JTS
The following individuals are expected to serve as directors, executive
officers or significant employees of the Combined Company following the Merger.
Their positions at JTS and their ages as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------- ---- ---------------------------------------------
<S> <C> <C>
David T. Mitchell 54 Chief Executive Officer, President and
Director
Sirjang L. Tandon 54 Chairman of the Board of Directors and
Corporate Technical Strategist
Kenneth D. Wing 48 Executive Vice President, Research &
Development Quality/Reliability
W. Virginia Walker 51 Executive Vice President, Finance and
Administration, Chief Financial Officer and
Secretary
Amit Chokshi 41 Executive Vice President, Worldwide
Operations and Managing Director of India
Operations
Steven L. Kaczeus 61 Chief Technical Officer
Alain L. Azan 47 Director
Jean D. Deleage 55 Director
Roger W. Johnson 61 Director
Lip-Bu Tan 36 Director
</TABLE>
MR. DAVID T. MITCHELL joined JTS in May 1995 as Chief Executive Officer and
President and is a member of the Board of Directors of JTS. Prior to joining
JTS, he served as President, Chief Operating Officer and a director of Conner
Peripherals, Inc. commencing in October 1992. Prior to that time, Mr. Mitchell
co-founded Seagate, where he served as President, Chief Operating Officer and
director.
MR. SIRJANG L. TANDON founded JTS in February 1994 and served as its
Chairman of the Board of Directors, Chief Executive Officer and President from
inception until May 1995. Since such time, he has served as Chairman of the
Board of Directors and Corporate Technical Strategist. Prior to founding JTS,
Mr. Tandon founded and was Chief Executive Officer of Tandon Corporation, a
personal computer manufacturing firm. Tandon Corporation filed a petition under
the Federal bankruptcy laws in 1993.
MR. KENNETH D. WING joined JTS in July 1995 as Executive Vice President,
Research & Development Quality/Reliability. Prior to joining JTS, Mr. Wing
worked for 14 years at Seagate. During his tenure at Seagate, Mr. Wing served in
several capacities, including Vice President of Process Engineering, Vice
President of Quality, Vice President of Manufacturing Operations and Vice
President of Worldwide Automation. He holds a Bachelor of Science degree in
Science and Engineering and a Master of Science in Mechanical Engineering from
the University of Michigan.
MS. W. VIRGINIA WALKER joined JTS in November 1995 as Executive Vice
President, Finance and Administration, Chief Financial Officer and Secretary.
Prior to joining JTS, Ms. Walker served as Vice President of Finance and Chief
Financial Officer of Scios Inc. from 1985 to 1992 and as Vice President, Finance
and Administration and Chief Financial Officer of Scios Inc. and Scios Nova Inc.
Prior to 1985, Ms. Walker served as Controller for Intersil Inc., a manufacturer
of integrated circuits and at that time a subsidiary of General Electric
Company.
MR. AMIT CHOKSHI joined JTS in June 1995 as Executive Vice President,
Worldwide Operations and Managing Director of India Operations. Prior to joining
JTS, Mr. Chokshi co-founded Dastek Corporation, a hard disk drive manufacturing
company, where he served as Vice President of Marketing/Sales and Operations
until December 1994. Mr. Chokshi has a Bachelor of Science degree in Statistical
Mathematics from Gujarat University, India.
MR. STEVEN L. KACZEUS joined JTS in February 1994 as Chief Technical
Officer. Prior to joining JTS, he founded Kalok Corporation in 1987 and served
in various technical and management positions, most recently as Chairman of the
Board of Directors and Chief Technical Officer. Kalok Corporation filed a
petition under the Federal bankruptcy laws in 1993. Mr. Kaczeus holds a Master
of Science and Bachelor of Science
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in Mechanical Engineering from the University of Bridgeport and University of
Budapest, Hungary, respectively.
MR. ALAIN L. AZAN became a director of JTS in 1995. In 1985, he joined the
Sofinnova group in France as a charged d'affaires. In 1987, Mr. Azan was
assigned to Sofinnova's United States subsidiary, Sofinnova Inc. Currently, Mr.
Azan serves as Managing General Partner for Sofinnova Ventures Funds I, II and
III. Mr. Azan holds degrees in Sciences Humaines et Economiques from Marseille,
International Trade from C.E.C.E. and Management from INSEAD.
MR. JEAN D. DELEAGE became a director of JTS in 1995. He has served as a
Managing General Partner of Burr, Egan, Deleage & Co., a venture capital firm,
since its formation in 1979. In 1976, he formed Sofinnova, Inc. (the U.S.
subsidiary of Sofinnova). Mr. Deleage holds a Master of Science in Electrical
Engineering from Ecole Superieure d'Electricite and a Ph.D. in Economics from
the Sorbonne. In 1993, he was awarded the Legion of Honor from the French
government in recognition of his career accomplishments. Mr. Deleage is also a
director of DepoTech Corporation and OraVex, Inc.
MR. ROGER W. JOHNSON became a director of JTS in April 1996. He served as
Administrator of the United States General Services Administration ("GSA") from
July 1993 to March 1996. From 1984 to 1993, Mr. Johnson served as Chairman of
the Board and Chief Executive Officer of Western Digital. Mr. Johnson received a
Bachelor of Business Administration from Clarkson University and a Master of
Business Administration in Industrial Management from the University of
Massachusetts.
MR. LIP-BU TAN became a director of JTS in 1995. He has served as General
Partner of the Walden Group, a venture capital firm, since 1985. He is also the
founder and Chairman of Walden International Investment Group in Asia. Mr. Tan
received a Bachelor of Science degree from Nanyang University, Singapore, a
Master of Science in Nuclear Engineering from the Massachusetts Institute of
Technology and a Master of Business Administration from the University of San
Francisco, where he served on the Advisory Council and the Board of Trustees.
Mr. Tan is also a director of Creative Technology Ltd. and Premisys
Communications, Inc.
All directors hold office until the next annual meeting of stockholders at
which their term expires and until their successors have been duly elected and
qualified. Executive officers of JTS are appointed by and serve at the
discretion of the Board of Directors of JTS. There are no family relationships
among any of the directors, officers or key employees of JTS.
COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMBINED COMPANY
JTS does not presently have an Audit Committee. Effective upon the closing
of the Merger, the Audit Committee of the Combined Company's Board of Directors
will consist of Messrs. Jack Tramiel, Michael Rosenberg and Alain L. Azan. The
Audit Committee will make recommendations to the Board regarding the selection
of independent auditors, review the results and scope of audits and other
services provided by JTS' independent auditors, and review and evaluate JTS'
internal audit and control functions.
JTS does not presently have a Compensation Committee. Effective upon the
closing of the Merger, the Compensation Committee of the Combined Company's
Board of Directors will consist of Messrs. Jack Tramiel, Lip-Bu Tan and Jean D.
Deleage. The Compensation Committee will make recommendations concerning
salaries and incentive compensation, award stock options to employees and
consultants under the Combined Company's stock option plans and otherwise
determine compensation levels and perform such other functions regarding
compensation as the Board may delegate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, JTS had no Compensation Committee. Each of the members
of the JTS Board of Directors during fiscal 1996 participated in deliberations
concerning executive officer compensation. David T. Mitchell, a member of JTS'
Board of Directors, has served as Chief Executive Officer and President of JTS
since May 1995. Mr. Sirjang L. Tandon, Chairman of JTS' Board of Directors,
served as Chief Executive Officer and President of JTS from February 1994 to May
1995.
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DIRECTOR COMPENSATION
The members of JTS' Board of Directors do not currently receive any cash
compensation from JTS for their services as members of the Board of Directors or
any committee thereof. Roger W. Johnson, a director of JTS, provides consulting
services to JTS pursuant to a two-year agreement which compensates Mr. Johnson
in the amount of $2,000 per month. Mr. Johnson's consulting agreement expires in
April 1998.
In March 1996, the JTS Board adopted the 1996 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of JTS Common Stock to non-employee directors of JTS
("Non-Employee Directors"). The maximum number of shares of JTS Common Stock
that may be issued pursuant to options granted under the Directors' Plan is
500,000. Pursuant to the terms of the Directors' Plan, each Non-Employee
Director (other than a compensated Chairman of the Board and any former Atari
director appointed to the JTS Board of Directors in connection with the Merger)
who is elected to the JTS Board for the first time after adoption of the
Directors' Plan and each other Non-Employee Director (other than a compensated
Chairman of the Board) who is reelected to the JTS Board at or after the 1998
stockholders' meeting will automatically be granted an option to purchase 50,000
shares of Common Stock on the date of his or her election or reelection to the
Board. Thereafter, each Non-Employee Director (other than a compensated Chairman
of the Board) will automatically be granted an option to purchase an additional
50,000 shares of Common Stock under the Directors' Plan on the date any and all
previous options or stock purchases by such person either under the Directors'
Plan or otherwise become fully vested, as discussed below. Neither directors of
JTS serving on the date the Directors' Plan was adopted nor former directors of
Atari appointed to the JTS Board in connection with the Merger have received
option grants under the Directors' Plan or will receive any such grants in
connection with the Merger, and such individuals are not eligible to receive
such grants until the 1998 stockholders' meeting.
Outstanding options under the Directors' Plan will vest in two equal annual
installments measured from the date of grant. The exercise price of options
granted under the Directors' Plan shall equal the fair market value of the
Common Stock on the date of grant. No option granted under the Directors' Plan
may be exercised after the expiration of ten years from the date of grant.
Options granted under the Directors' Plan are generally non-transferable. The
Directors' Plan will terminate in March 2006, unless earlier terminated by the
Board.
In the event of the dissolution, liquidation or sale of substantially all
of the assets of JTS, a specified form of merger, consolidation or
reorganization involving JTS or an acquisition transaction resulting in the
change of control of the voting power of JTS' voting securities, options
outstanding under the Plan will automatically become fully vested and will
terminate if not exercised prior to such event.
100
<PAGE> 108
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by JTS'
Chief Executive Officer and JTS' four other most highly compensated executive
officers (together, the "JTS Named Executive Officers") for services rendered to
JTS during the fiscal year ended January 28, 1996 ("fiscal 1996"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
------------------------------
SECURITIES
RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS($) (1) OPTIONS(#)
---------------------------------- -------- -------- ---------------- -----------
<S> <C> <C> <C> <C>
David T. Mitchell (2)............. $168,427 -- -- --
President and Chief Executive
Officer
Sirjang L. Tandon (3)............. 184,615 -- -- --
Chairman of the Board of
Directors
and Corporate Technical
Strategist
Kenneth D. Wing (4)............... 126,752 $82,625 -- 100,000
Executive Vice President,
Research & Development
Quality/Reliability
Amit Chokshi (5).................. 104,327 -- -- --
Executive Vice President,
Worldwide
Operations and Managing
Director of India Operations
Steven L. Kaczeus................. 192,308 -- -- 242,500
Chief Technical Officer
David B. Pearce (6)............... 206,192 -- -- 8,750
Former executive officer
</TABLE>
- ---------------
(1) Mr. Mitchell, Mr. Wing and Mr. Pearce purchased 2,000,000, 300,000 and
450,000 shares of restricted Common Stock of JTS, respectively, during
fiscal 1996 at a per share price of $0.25. The dollar value to the
purchasers of each such purchase, net of the consideration paid by the
purchasers, was zero on the date of each such purchase. No dividends have
been paid or are expected to be paid with respect to the JTS Common Stock
purchased by such individuals.
(2) Mr. Mitchell became Chief Executive Officer of JTS in May 1995. Mr. Mitchell
purchased 2,000,000 shares of restricted JTS Common Stock in fiscal 1996 at
a price of $0.25 per share, 250,000 shares of which were immediately vested.
The remaining 1,750,000 shares are subject to a right of repurchase by JTS
which began lapsing as to 1/48th of such shares monthly commencing on
January 5, 1996.
(3) Mr. Tandon served as Chief Executive Officer of JTS from February 1994 to
May 1995.
(4) Mr. Wing became Executive Vice President, Research & Development
Quality/Reliability of JTS in July 1995. Mr. Wing purchased 300,000 shares
of JTS Common Stock in fiscal 1996 at a price of $0.25 per share. Such
shares are subject to a right of repurchase by JTS which began lapsing as to
one-eighth of such shares in January 1996 and as to 1/48th of such shares
monthly thereafter. Includes forgiveness of $80,000 of loan principal and
accrued interest as specified in Mr. Wing's employment agreement. See
"Employment Agreement."
(5) Mr. Chokshi became Executive Vice President, World of JTS in June 1995.
(6) Mr. Pearce purchased 450,000 shares of restricted JTS Common Stock in fiscal
1996 at a price of $0.25 per share, 253,125 shares of which were immediately
vested. The remaining 196,875 shares were subject to a right of repurchase
by JTS which began lapsing as to 1/42nd of such shares monthly commencing on
January 15, 1996. Mr. Pearce's employment with JTS terminated in March 1996,
at which time an aggregate of 257,873 shares of his JTS Common Stock had
vested.
101
<PAGE> 109
EMPLOYMENT AGREEMENT
In June 1995, Kenneth D. Wing, Executive Vice President, Research &
Development Quality/Reliability of JTS, entered into an employment agreement
with JTS which provides for an annual base salary of $225,000, eligibility for
annual bonuses and a severance package that, under certain circumstances,
provides that Mr. Wing will continue to receive his base salary until June 1997
in the event he is terminated prior to such time. In addition, the employment
agreement provides for a $160,000 loan which was forgiven as to 50% of principal
and interest accrued thereon in January 1996 and shall be forgiven as to the
remainder in January 1997, provided Mr. Wing's employment with JTS continues
through such time.
STOCK OPTION PLAN
In April 1996, JTS amended and restated its 1995 Stock Option Plan (the
"1995 Plan"), which was adopted in March 1995. Under the 1995 Plan, as amended
and restated (the "Restated Plan"), an aggregate of 9,000,000 shares of JTS
Common Stock have been reserved for issuance upon exercise of options granted to
employees, officers and directors of and consultants to JTS. As of May 15, 1996,
options to purchase 3,680,358 shares of JTS Common Stock had been granted under
the Restated Plan. The Restated Plan will terminate in February 2006, unless
sooner terminated by the Board of Directors of JTS.
The Restated Plan provides for the grant of both incentive stock options
intended to qualify as such under Section 422 of the Code and nonstatutory stock
options. The Board of Directors has determined that, following the Merger, the
Compensation Committee will administer the Restated Plan. The Board of Directors
has also established a Non-Officer Stock Option Committee, consisting of David
T. Mitchell, JTS' President, Chief Executive Officer and a director, with
authority to grant stock options to persons who are not at the time of the grant
of the options subject to Section 16 of the Exchange Act. As used herein with
respect to the Restated Plan, the JTS Board refers to the Compensation
Committee, the Non-Officer Stock Option Committee as well as to the Board of
Directors of JTS. The JTS Board has the authority to select the persons to whom
grants are to be made, to designate the number of shares to be covered by each
option, to establish vesting schedules, to specify the type of consideration to
be paid upon exercise and, subject to certain restrictions, to specify other
terms of the options. The maximum term of options granted under the Restated
Plan is ten years. Options granted under the Restated Plan generally are
nontransferable and generally expire three months after the termination of an
optionee's employment, directorship or consulting relationship with JTS. In
general, if an optionee becomes permanently disabled or dies while employed or
retained by JTS, such person's options generally may be exercised up to 12
months after his or her disability and generally up to 18 months after his or
her death.
The exercise price of incentive stock options granted under the Restated
Plan must equal at least the fair market value of JTS' Common Stock on the date
of grant. The exercise price of nonstatutory stock options granted under the
Restated Plan must equal at least 85% of the fair market value of JTS' Common
Stock on the date of grant. The exercise price of incentive stock options
granted to any person who at the time of grant owns stock possessing more than
10% of the total combined voting power of all classes of stock must be at least
110% of the fair market value of such stock on the date of grant and the terms
of these options cannot exceed five years. Options under the Restated Plan
typically become exercisable over four years, as to one-eighth of the shares
subject to such options six months after the date of grant and as to 1/48th of
such shares each month thereafter.
The Restated Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the
Restated Plan and the class, number of shares and price per share of stock
subject to such outstanding options in the event of stock splits, stock
dividends, recapitalizations and similar events. Under the Restated Plan, the
JTS Board of Directors has discretion in connection with a merger, consolidation
or liquidation involving JTS to provide that outstanding options shall be
terminated or shall be assumed or otherwise continued or to provide for the
accelerated vesting of outstanding options.
102
<PAGE> 110
401(K) PLAN
In January 22, 1996, JTS adopted the JTS Corporation Employee 401(k) Saving
Plan ("the 401(k) Plan") covering all of JTS' employees, except collectively
bargained employees and employees who are nonresident aliens with no United
States source income. Pursuant to the 401(k) Plan, employees may elect to reduce
their current compensation by up to the lesser of 15% of eligible compensation
or the statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) plan permits, but does not require,
matching contributions and profit sharing contributions to the Plan by JTS on
behalf of all participants. JTS has not made any such contributions to date. The
401(k) Plan is intended to qualify under Section 401 of the Code so that
contributions by employees or by JTS to the 401(k) Plan, and income earned on
plan contributions, are not taxable to employees until withdrawn, and
contributions by JTS, if any, are deductible by JTS.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the 1995 Plan to each JTS Named Executive Officer during fiscal
1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIALLY
PERCENTAGE REALIZABLE VALUE AT
OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(3)
OPTIONS IN FISCAL BASE PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) YEAR(%)(2) ($/SH) DATE 5%($) 10%($)
- --------------------------------------- ------------ ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
David T. Mitchell -- -- -- -- -- --
Sirjang L. Tandon -- -- -- -- -- --
Kenneth D. Wing 100,000 2.5% $ 0.25 11/29/2005 $15,750 $39,750
Amit Chokshi -- -- -- -- -- --
Steven L. Kaczeus 242,500 6.1 0.25 2/7/2004 38,194 96,394
David B. Pearce 8,750 0.02 0.25 6/7/2005 1,378 3,478
</TABLE>
- ---------------
(1) Under the 1995 Plan, options granted to employees vest at the rate of
one-eighth at the end of six months and an additional 1/48 per month until
all options have become vested at the end of four years' service. In the
event an option was granted to an existing employee of JTS (rather than a
newly-hired employee), such option shall vest at the rate described above
based on the grant date of such option.
(2) Based on total grants of options to purchase 3,996,674 shares of JTS Common
Stock.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the optionee is possible unless the stock price increases
over the option term.
103
<PAGE> 111
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the exercise of
stock options by the Named Executive Officers during the fiscal year ended
January 28, 1996 and the number and value of securities underlying unexercised
options held by the Named Executive Officers as of January 28, 1996:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL FISCAL
ACQUIRED YEAR-END(#)(1) YEAR-END($)(1)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ----------- ----------------- --------------
<S> <C> <C> <C> <C>
David T. Mitchell -- -- -- --
Sirjang L. Tandon -- -- -- --
Kenneth D. Wing -- -- 0/100,000 0/0
Amit Chokshi -- -- -- --
Steven L. Kaczeus -- -- 125,313/117,187 0/0
David B. Pearce -- -- 8,750/0 0/0
</TABLE>
- ---------------
(1) Fair market value of JTS' Common Stock at January 28, 1996 ($0.25), minus
the exercise price of the options ($0.25), multiplied by the number of
shares underlying the options.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the DGCL, JTS' Certificate of Incorporation provides that
no director of JTS will be personally liable to JTS or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to JTS or to its
stockholders, (ii) for acts or omissions not made in good faith or which
involved intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, relating to prohibited dividends or distributions or
the repurchase or redemption of stock, or (iv) for any transaction from which
the director derives an improper personal benefit. In addition, JTS' Bylaws
provide that any director or executive officer who was or is a party or is
threatened to be made a party to any action or proceeding by reason of his or
her services to JTS will be indemnified to the fullest extent permitted by the
DGCL.
JTS has entered into indemnification agreements with each of its directors
and executive officers under which JTS has agreed to indemnify each of them
against expenses and losses incurred for claims brought against them by reason
of their being a director or officer of JTS, and JTS maintains directors' and
officers' liability insurance.
There is no pending litigation or proceeding involving a director or
officer of JTS as to which indemnification is being sought, nor is JTS aware of
any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
104
<PAGE> 112
CERTAIN TRANSACTIONS
Since JTS' inception in February 1994, JTS has maintained significant
business relationships with Moduler Electronics, Tantec Magnetics, Inc., a
California corporation ("Tantec"), and Maazda Travel, Inc. ("Maazda"). Mr.
Sirjang L. Tandon, JTS' Chairman and Corporate Technical Strategist, or members
of his immediate family, directly or indirectly own controlling equity interests
in each of Moduler Electronics, Tantec and Maazda. In fiscal 1996, Moduler
Electronics provided subassembly and final assembly manufacturing services to
JTS for which JTS had made aggregate payments to Moduler Electronics of
approximately $13.0 million, and JTS has provided certain equipment on
consignment to Moduler Electronics with an aggregate value of approximately $4.4
million. Tantec has provided certain hard disk drive component parts, test
equipment and services to JTS for which JTS had made aggregate payments to
Tantec of approximately $366,000 and $295,000 in fiscal 1995 and 1996,
respectively, and JTS sold certain hard disk drives to Tantec with an aggregate
value of approximately $653,000 in fiscal 1996. During fiscal 1996, JTS made
aggregate payments to Maazda, JTS' principal travel agent, of approximately
$100,000.
From February 1994 to February 1995, JTS received bridge loans aggregating
approximately $2.9 million from certain significant JTS stockholders evidenced
by secured convertible notes (the "First Financing Notes"). The First Financing
Notes accrued interest at a rate of 8.5% per annum. All of the First Financing
Notes were canceled and the principal outstanding thereunder was converted into
shares of JTS Series A Preferred Stock in connection with the JTS Series A
Preferred Stock financing in February 1995 (the "First Series A Financing"). JTS
sold an aggregate of 16,200,000 shares of JTS Series A Preferred Stock in the
First Series A Financing for a purchase price of $1.00 per share in exchange for
cash and cancellation of indebtedness. Purchasers of JTS Series A Preferred in
the First Series A Financing included the following:
<TABLE>
<CAPTION>
SHARES OF JTS AMOUNT OF
SERIES A PREFERRED CASH INDEBTEDNESS
PURCHASER(S) PURCHASED(#) CONSIDERATION($) CANCELED($)
-------------------------------- ------------------ ---------------- ------------
<S> <C> <C> <C>
Entities affiliated with Burr,
Egan, Deleage & Co.(1)........ 2,500,000 $1,673,374 $826,626
Entities affiliated with
Sofinnova Management,
L.P.(2) ...................... 1,000,000 709,349 290,651
Advanced Technology Ventures
III(3)........................ 1,000,000 709,350 290,650
Brentwood Associates VI,
L.P.(4)....................... 1,650,000 1,170,427 479,573
Western Digital(5).............. 4,100,000 3,300,000 800,000
Steven L. Kaczeus(6)............ 223,511 -- 223,511
</TABLE>
- ---------------
(1) Jean D. Deleage, a director of JTS, is Managing General Partner of Burr,
Egan, Deleage & Co. ("Burr Egan").
(2) Alain L. Azan, a director of JTS, is a Managing General Partner of three
funds affiliated with Sofinova Management, L.P. ("Sofinnova").
(3) Entities affiliated with Advanced Technology Ventures III own more than 5%
of the outstanding shares of JTS Series A Preferred Stock.
(4) Brentwood Associates VI, L.P. owns more than 5% of the outstanding shares of
JTS Series A Preferred Stock.
(5) Western Digital, a second source manufacturer for JTS, owns more than 5% of
the outstanding shares of JTS Series A Preferred Stock.
(6) Steven L. Kaczeus is the Chief Technical Officer of JTS.
In connection with the First Series A Financing and pursuant to that
certain Debt Cancellation Agreement, dated as of February 3, 1995, by and among
JTS, Tantec and Mr. Tandon, JTS issued 2,202,227 shares of JTS Series A
Preferred Stock to Tantec in exchange for the cancellation of $2,202,227 of
indebtedness owed by JTS to Tantec.
105
<PAGE> 113
In June 1995, JTS received bridge loans aggregating approximately $2.75
million from certain significant JTS stockholders, evidenced by secured
convertible notes (the "Second Financing Notes"). The Second Financing Notes
accrued interest at a rate of 8% per annum. All of the Second Financing Notes
were canceled and the principal amount outstanding thereunder was converted into
shares of JTS Series A Preferred Stock in connection with a JTS Series A
Preferred Stock financing in August 1995 (the "Second Series A Financing"). JTS
sold an aggregate of 12,496,370 shares of JTS Series A Preferred Stock in the
Second Series A Financing for a purchase price of $1.00 per share in exchange
for cash and cancellation of indebtedness. Purchasers of JTS Series A Preferred
in the Second Series A Financing included the following:
<TABLE>
<CAPTION>
SHARES OF JTS AMOUNT OF
SERIES A PREFERRED CASH INDEBTEDNESS
PURCHASER(S) PURCHASED(#) CONSIDERATION($) CANCELED($)
-------------------------------- ------------------ ---------------- ------------
<S> <C> <C> <C>
Entities affiliated with the
Walden Group of Venture
Capital Funds(1).............. 3,000,000 $3,000,000 --
Entities affiliated with
Advanced Technology
Ventures...................... 2,826,424 2,576,424 $ 250,000
Entities affiliated with Burr
Egan.......................... 1,437,500 437,500 1,000,000
David T. Mitchell(2)............ 1,010,196 -- 1,010,196
Brentwood Associates VI, L.P.... 952,083 448,750 503,333
Entities affiliated with
Sofinnova..................... 500,000 500,000 --
Steven L. Kaczeus............... 37,000 37,000 --
</TABLE>
- ---------------
(1) Lip-Bu Tan, a director of JTS, is a General Partner of the Walden Group.
(2) David T. Mitchell is the President, Chief Executive Officer and a member of
the Board of Directors of JTS.
In July 1995, JTS loaned $160,000 to Kenneth D. Wing, Executive Vice
President, Research & Development Quality/Reliability, pursuant to the terms of
Mr. Wing's employment agreement. Of such loan amount, $80,000 of principal (and
interest accrued thereon) were forgiven on January 1, 1996, and, subject to Mr.
Wing's continued employment with JTS, any remaining amounts owed under such loan
will be forgiven on January 1, 1997. See "Management of JTS -- Employment
Agreement."
During fiscal 1996, in connection with the Technology Transfer and
Licensing Agreement between JTS and Western Digital, JTS provided certain hard
disk drive components to Western Digital, a principal stockholder of JTS, with
an aggregate value of approximately $358,000. In addition, JTS received
aggregate milestone payments of approximately $5.3 million from Western Digital
in fiscal 1996. See "Business of JTS -- Western Digital Arrangement."
In January 1996, JTS made loans to each of David T. Mitchell, Kenneth D.
Wing, Virginia Walker, JTS' Executive Vice President, Finance and Administration
and Chief Financial Officer, and David B. Pearce in connection with the purchase
by such individuals of 2,000,000 shares, 300,000 shares, 250,000 shares and
450,000 shares of JTS Common Stock, respectively, at a purchase price of $0.25
per share. Each purchaser executed a restricted stock purchase agreement (each,
a "Restricted Stock Purchase Agreement") granting JTS a right of repurchase as
to such shares in the event the purchasers' employment with JTS terminates. With
respect to Mr. Mitchell, 250,000 shares of the JTS Common Stock purchased were
immediately vested, and JTS' repurchase right lapses monthly with respect to the
remainder of such shares at the rate of 1/48th per month. With respect to the
shares purchased by Mr. Wing, JTS' repurchase right lapsed as to one-eighth of
such shares in January 1996 and as to 1/48th of such shares monthly thereafter.
With respect to the shares purchased by Ms. Walker, JTS' repurchase right lapsed
as to one-eighth of such shares in May 1996 and as to 1/48th of such shares
monthly thereafter. With respect to the shares purchased by Mr. Pearce, 253,125
shares of the JTS Common Stock purchased were immediately vested and 14,063
additional shares had vested at the time Mr. Pearce's employment with JTS
terminated. In March 1996, JTS repurchased 182,812 shares of JTS Common Stock
from Mr. Pearce. In addition, the Restricted Stock Purchase Agreements provide
that JTS' repurchase right shall lapse entirely upon certain events following a
change in control of JTS. See "The
106
<PAGE> 114
Proposed Merger and Related Transactions -- Certain Other Items Related to the
Merger -- Interests of Certain Persons in the Merger."
From January 1996 to April 1996, JTS received an aggregate of approximately
$2.0 million in bridge loans evidenced by promissory notes (the "Bridge Notes"),
from certain significant stockholders of JTS. The Bridge Notes are due and
payable on July 15, 1996 and accrue interest at a rate of 10% per annum.
Individuals and entities to whom Bridge Notes were issued include the following:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
STOCKHOLDER(S) OF BRIDGE NOTE($)
------------------------------------------------------------ ------------------
<S> <C>
Tantec...................................................... $1,000,000
Entities affiliated with Burr Egan.......................... 260,000
Entities affiliated with Advanced Technology Ventures....... 260,000
Entities affiliated with the Walden Group of Venture Capital 200,000
Funds.....................................................
Brentwood Associates VI, L.P. .............................. 185,000
Entities affiliated with Sofinnova.......................... 99,900
</TABLE>
In April 1996, JTS acquired a 90% interest in Moduler Electronics in
exchange for issuing 1,911,673 shares of JTS Series A Preferred Stock and a
warrant to purchase 750,000 shares of JTS Common Stock at an exercise price of
$0.25 per share to Lunenburg S.A., an affiliate of Sirjang L. Tandon. Such
warrant is immediately exercisable as to 500,000 shares and becomes exercisable
as to 250,000 shares when certain credit facilities in India are made available
to Moduler Electronics in the amount of at least $29 million. See "JTS
Acquisition of Disk Drive Division of Moduler Electronics."
A family member of Sirjang Lal Tandon, JTS' Chairman and Corporate
Technical Strategist, has guaranteed the secured short term borrowings and
secured long term loans of Modular Electronics furnished by certain Indian
banks. See Notes 4 and 5 to the Financial Statements to the Hard Disk Drive
Division of Modular Electronics (India) Private Ltd.
JTS believes that all of the transactions set forth above were made on
terms no less favorable to JTS than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between JTS and its
officers, directors and principal stockholders and their affiliates will be
approved by a majority of the JTS Board of Directors, including a majority of
the independent and disinterested outside directors on the Board of Directors,
and have been and will be on terms no less favorable to JTS than could be
obtained from unaffiliated third parties.
107
<PAGE> 115
PRINCIPAL STOCKHOLDERS OF JTS
The following table sets forth certain information regarding beneficial
ownership of JTS Common Stock and JTS Series A Preferred Stock as of May 15,
1996 by (a) each person (or group of affiliated persons) known to JTS to
beneficially own more than 5% of the outstanding shares of JTS Common Stock or
more than 5% of the outstanding shares of JTS Series A Preferred Stock, (b) each
of the directors and executive officers of JTS who will be a director or
executive officer of the Combined Company, and (c) all of JTS directors and
executive officers who will be directors and executive officers of the Combined
Company as a group.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF ALL SHARES
COMMON STOCK(2) PREFERRED STOCK(2) PERCENT SHARES OF OF THE
----------------------- ------------------------ OF ALL THE COMBINED
NUMBER PERCENT OF NUMBER PERCENT OF JTS CAPITAL COMBINED COMPANY
BENEFICIAL OWNER(1) OF SHARES CLASS(%)(3) OF SHARES CLASS(%)(3) STOCK(%) COMPANY (%)(3)
- --------------------------------- --------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Tantec Magnetics, Lunenburg
S.A. and the Tandon Family
Partnership(4)................. 5,350,000 57.6% 4,613,900 15.5% 25.6% 9,963,900 9.7%
Sirjang L. Tandon
c/o JTS Corporation
166 Baypointe Parkway
San Jose, CA 95134
Western Digital Corporation...... -- -- 4,100,000 13.8 10.5 4,100,000 4.0
8105 Irving Center Drive
Irvine, CA 92718
David T. Mitchell................ 3,000,000 32.3 1,010,196 3.4 10.3 4,010,196 3.9
c/o JTS Corporation
166 Baypointe Parkway
San Jose, CA 95134
Entities affiliated with
Burr, Egan, Deleage & Co.(5)... -- -- 3,937,500 13.3 10.1 3,937,500 3.8
Jean D. Deleage
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Entities affiliated with
Advanced Technology
Ventures(6).................... -- -- 3,826,424 12.9 9.8 3,826,424 3.7
485 Ramona Street, Suite 200
Palo Alto, CA 94301
Entities Affiliated with
the Walden Group of Venture
Capital Funds(7)............... -- -- 3,000,000 10.1 7.7 3,000,000 2.9
Lip-Bu Tan
750 Battery Street, Suite 700
San Francisco, CA 94111
Brentwood Associates VI, L.P..... -- -- 2,602,083 8.8 6.7 2,602,083 2.5
11150 Santa Monica Blvd.
#1200
Los Angeles, CA 90025
Entities Affiliated with
Sofinnova Management,
L.P.(8)........................ -- -- 1,500,000 5.1 3.9 1,500,000 1.5
Alain L. Azan
One Market Plaza
Stewart Tower, Suite 2630
San Francisco, CA 94105
Steven L. Kaczeus(9)............. 153,437 1.6 260,511 * 1.1 409,261 *
Kenneth D. Wing.................. 314,583 3.4 -- -- * 300,000 *
David B. Pearce.................. 275,937 3.0 -- -- * 275,937 *
Amit Chokshi..................... -- -- -- -- -- -- --
Roger W. Johnson................. -- -- -- -- -- -- --
All current directors and
executive 9,068,020 97.0 14,122,107 47.6 59.3 23,190,857 22.6
officers as a group (10
persons)(10)
</TABLE>
- ---------------
* Less than 1%
(1) Except as indicated by footnote, and subject to community property laws
where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of JTS Common Stock and JTS
Series A Preferred Stock shown as beneficially owned by them.
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(2) Beneficial ownership is determined in accordance with the rules of the
Securities Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to
options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days, are deemed
outstanding, including for purposes of computing the percentage of the
person holding such option, but not for purposes of computing the
percentage of any other holder.
(3) Based on (i) 63,735,718 shares of Atari Common Stock outstanding as of May
22, 1996 (assuming no exercise of outstanding options after such date) and
(ii) 29,696,370 shares of JTS Series A Preferred Stock and 9,263,866 shares
of JTS Common Stock outstanding as of May 15, 1996 (assuming no exercise of
outstanding options and warrants after such date).
(4) Preferred Stock includes 2,702,227 shares and 1,911,673 shares of JTS
Series A Preferred Stock held by Tantec Magnetics, Inc. and Lunenburg S.A.,
respectively. Sirjang L. Tandon, a director of JTS, is an executive officer
of Tantec Magnetics, Inc. and may have shared voting power over the shares
held by Lunenburg S.A. Common Stock includes 4,350,000 shares of JTS Common
Stock held by the Tandon Family Partnership. Mr. Tandon is a general
partner of the Tandon Family Partnership. Includes 1,000,000 shares of JTS
Common Stock over which Mr. Tandon has voting power, but which are subject
to a right of repurchase by JTS until fully vested. Mr. Tandon disclaims
beneficial ownership of the shares held by Tantec Magnetics, Lunenburg S.A.
and the Tandon Family Partnership except to the extent of his proportionate
partnership and shareholder interests therein.
(5) Preferred Stock includes 3,896,550 shares and 40,950 shares of JTS Series A
Preferred Stock held by Alta V Limited Partnership and Customs House
Partners, respectively. Jean Deleage, a director of JTS, is Vice President
of Burr, Egan, Deleage & Co. which is a general partner of Alta V
Management Partners, L.P., a general partner of Alta V Limited Partnership,
and Customs House Partners. He has voting and investment power with respect
to such shares. Mr. Deleage disclaims beneficial ownership of such shares
except to the extent of his proportionate partnership interests therein.
(6) Preferred Stock includes 2,250,000 shares and 1,576,424 shares of JTS
Series A Preferred Stock held by Advanced Technology Ventures IV and
Advanced Technology Ventures III, respectively.
(7) Preferred Stock includes 700,000; 600,000; 500,000; 300,000; 200,000;
200,000; 200,000; 200,000 and 100,000 shares of JTS Series A Preferred
Stock held by Walden Capital Partners II, L.P.; International Venture
Capital Investment Corporation; Walden Investors; BI Walden Ventures Kedua
Sdn Bhd; Seed Ventures II Limited; OWW Pacrim Investments Ltd.; OCBC,
Wearnes & Walden Investments (Singapore) Ltd.; Walden Ventures and Walden
Technology Ventures II, L.P., respectively. Lip-Bu Tan, a director of JTS,
has voting power and investment power with respect to the shares held by
each of the foregoing investment funds, except Walden Ventures. Mr. Tan
disclaims beneficial ownership of such shares except to the extent of his
proportionate interests in such entities.
(8) Preferred Stock includes 800,000 shares and 700,000 shares of JTS Series A
Preferred Stock held by C.V. Sofinnova Ventures Partners III and C.V.
Sofinnova Ventures Partners II, respectively. Alain Azan, a director of
JTS, is a general partner of Sofinnova Management, L.P., the general
partner of C.V. Sofinnova Ventures Partners II and C.V. Sofinnova Ventures
Partners III and has voting and investment power with respect to such
shares. Mr. Azan disclaims beneficial ownership of such shares except to
the extent of his proportionate partnership interest therein.
(9) Includes options to purchase 168,020 shares of JTS Common Stock that are
exercisable within 60 days of May 15, 1996.
(10) Includes 8,900,000 shares of JTS Common Stock and 14,122,107 shares of JTS
Preferred Stock held by executive officers and entities affiliated with
certain directors and includes options to purchase 168,020 shares of JTS
Common Stock by executive officers that are exercisable within 60 days of
May 15, 1996. See footnotes (4)-(9).
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DESCRIPTION OF CAPITAL STOCK OF ATARI AND JTS
The following descriptions of the capital stock of Atari and JTS are
qualified by reference to Atari's Articles of Incorporation and JTS' Certificate
of Incorporation and any amendments thereto. Copies of these are included as
exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
ATARI CAPITAL STOCK
General. The authorized capital stock of Atari consists of 100,000,000
shares of Common Stock, $.01 par value per share, and 10,000,000 of undesignated
Preferred Stock, $.01 par value per share. As of close of business on May 22,
1996, 63,735,718 shares of Atari Common Stock were issued and outstanding and no
shares of Preferred Stock were issued and outstanding.
At the Effective Time of the Merger, each share of Atari Common Stock
issued and outstanding immediately prior to the Effective Time will be canceled
and extinguished and be converted automatically into the right to receive one
share of JTS Common Stock.
Common Stock. Holders of Atari Common Stock are entitled to one vote per
share on matters to be voted upon by the stockholders and are not entitled to
cumulative voting in the election of directors. Subject to any preferences
granted to holders of Atari Preferred Stock or of any other senior equity,
holders of Atari Common Stock are entitled to receive dividends when, as and if
declared by the Atari Board of Directors, and to share ratably in the assets of
Atari legally available for distribution to its stockholders in the event of
liquidation, dissolution and winding up of Atari. Holders of Atari Common Stock
have no preemptive, subscription, redemption or conversion rights with respect
to Atari Common Stock. All outstanding shares of Atari Common Stock are validly
issued, fully paid and nonassessable.
Preferred Stock. Atari has 10,000,000 shares of undesignated preferred
stock authorized, none of which are issued and outstanding. The Atari Board of
Directors has the authority to issue the undesignated preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued shares of undesignated preferred
stock and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders.
Convertible Subordinated Debentures. As of March 31, 1996, Atari had $42.4
million of 5 1/4% convertible subordinated debentures due April 29, 2002
outstanding. The market value of these debentures was approximately $29.3
million at June 18, 1996. The debentures may be redeemed at Atari's option, upon
payment of a premium. The debentures, at the option of the holders, are
convertible into common stock at $16.3125 per share. At March 31, 1996,
2,596,414 shares of Atari Common Stock were reserved for issuance upon
conversion of the outstanding debentures. A default with respect to other
indebtedness of Atari in an aggregate amount exceeding $5 million would result
in an event of default whereby the outstanding debentures would be due and
payable immediately.
Registrar and Transfer Agent. The registrar and transfer agent for Atari
Common Stock is the Registrar and Transfer Company.
JTS CAPITAL STOCK
Prior to the Merger, the authorized capital stock of JTS consists of
90,000,000 shares of JTS Common Stock, $.000001 par value per share, and
70,000,000 shares of Preferred Stock, $.000001 par value per share, all of which
is designated Series A Preferred Stock.
JTS is a privately held company; there is no public trading market for its
stock. As of the close of business on May 15, 1996, 9,255,116 shares of JTS
Common Stock and 29,696,370 shares of JTS Series A Preferred Stock were issued
and outstanding. There are a total of 52 holders of record of JTS Series A
Preferred Stock and 16 holders of record of JTS Common Stock.
Preferred Stock Rights. The principal rights, privileges and preferences
of the issued and outstanding shares of JTS Series A Preferred Stock are as set
forth below.
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Dividends. Holders of JTS Series A Preferred Stock are entitled to
dividend preferences when, as and if declared by the JTS Board, at an annual
rate of $.09 per share. All dividends are cumulative. JTS may not pay cash
dividends on JTS Common Stock while there are any declared but unpaid cash
dividends on any shares of JTS Series A Preferred Stock.
Liquidation. In the event of any liquidation, dissolution or winding up of
JTS (which, upon the election of the holders of a majority of the Series A
Preferred Stock, would include the Merger), holders of the JTS Series A
Preferred Stock are entitled to receive, prior and in preference to any
distribution of any assets of JTS to the holders of JTS Common Stock, $1.00 per
share plus all accrued and unpaid dividends. After the holders of JTS Series A
Preferred Stock have received the full amount of their liquidation preference,
the holders of JTS Common Stock and JTS Series A Preferred Stock (on an
as-converted basis) are entitled to receive all remaining assets of JTS
available for distribution pro rata based on the number of shares of JTS Common
Stock held or, after conversion of JTS Series A Preferred Stock, that would be
held by each such holder; provided, however, if the holders of JTS Series A
Preferred Stock, exclusive of any unpaid cumulative dividends, would receive at
least an aggregate of $5.00 per share of Series A Preferred Stock, then the
holders of Series A Preferred Stock shall not be entitled to the $1.00 per share
preference over the holders of JTS Common Stock.
Redemption. Holders of JTS Series A Preferred Stock are entitled to
certain mandatory redemption rights. Upon the election of a majority of the
holders of JTS Series A Preferred Stock and provided JTS has funds legally
available to do so, JTS shall redeem one-third, one-half and the remainder of
all of the outstanding shares of Series A Preferred Stock on February 7, 2000,
February 7, 2001 and February 7, 2002, respectively.
Voting Rights. Subject to the protective provisions described above and
except as otherwise required by law, the holders of JTS Common Stock and JTS
Series A Preferred Stock are entitled to notice of any stockholders' meeting and
to vote together as a single class upon any matter submitted to the stockholders
for a vote on the following basis:
(a) Common Vote. Each share of Common Stock issued and outstanding has one
vote.
(b) Preferred Vote. Each holder of JTS Series A Preferred Stock has a
number of votes equal to the number of full shares of JTS Common Stock into
which such JTS Preferred Stock is then convertible. Each share of JTS Series A
Preferred Stock is presently convertible into one share of JTS Common Stock.
Protective Provisions. JTS must obtain the approval of at least two-thirds
of the outstanding shares of JTS Series A Preferred Stock to (i) create a new
class of stock with rights equal to or superior to the rights of Series A
Preferred Stock; (ii) sell, lease or convey all or substantially all of JTS'
property or business; (iii) amend JTS' Certificate of Incorporation if such
alters the rights of the Series A Preferred Stock; (iv) increase the authorized
number of shares of JTS Preferred or Common Stock; (v) undertake a
reorganization, merger, or consolidation in which the holders of JTS voting
stock will hold less than 50% of the voting stock of the successor entity; (vi)
pay or declare a dividend other than in Common Stock to the holders of Common
Stock; or (vii) repurchase JTS securities other than from employees or
consultants of JTS when their employment ends.
All of the outstanding shares of JTS Common Stock and JTS Series A
Preferred Stock are validly issued, fully paid and nonassessable.
Upon consummation of the Merger, the holders of JTS Series A Preferred
Stock will become holders of JTS Common Stock and, consequently, will no longer
be entitled to certain rights and privileges described above. In addition,
certain other rights and privileges of JTS stockholders will change as a result
of the Merger. Upon completion of the Merger, the percentage ownership of the
Combined Company by each former JTS stockholder will be significantly less than
his, her or its current percentage ownership of JTS. Accordingly, former JTS
stockholders will have a significantly smaller voting influence over the affairs
of the Combined Company than they currently enjoy over the affairs of JTS. "See
Risk Factors -- Risk Factors Related to the Business of JTS -- Reduction in
Voting Control." Moreover, certain contractual rights presently possessed by
holders of JTS Series A Preferred Stock will cease to exist after the Merger.
Finally,
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the statutory protections available to JTS stockholders under Section 2115 of
the CGCL will no longer exist. See "Comparison of Rights of Stockholders of
Atari and JTS -- Application of the General Corporation Law of California to
Delaware Corporations."
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE COMBINED COMPANY
The authorized capital stock of the Combined Company shall consist of
150,000,000 shares of common stock, $.001 par value per share, and 10,000,000
shares of undesignated, "blank check" preferred stock, $.001 par value per
share. The Board of Directors of the Combined Company will have the authority to
issue the undesignated preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued shares of undesignated preferred stock and to fix the number of
shares constituting any series and the designations of such series, without any
further vote or action by the stockholders.
The Combined Company's Certificate of Incorporation will provide that all
stockholder actions must be effected at a duly called meeting and may not be
effected by written consent. In addition, the Combined Company's Certificate of
Incorporation and Bylaws will provide that only the Chairman of the Board of
Directors, the Chief Executive Officer or the Board of Directors pursuant to a
resolution adopted by at least two directors will be permitted to call a special
meeting of stockholders. These and other provisions, including the creation of
"blank check" preferred stock, could discourage potential acquisition proposals
and could delay or prevent a change in control of the Combined Company. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Combined Company. These
provisions are designed to reduce the vulnerability of the Combined Company to
an unsolicited acquisition proposal. The provisions also are intended to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Combined Company's shares and, as a consequence, they also may
inhibit fluctuations in the market price of the Combined Company's shares that
could result from actual or rumored takeover attempts. Such provisions also may
have the effect of preventing changes in the management of the Company. See
"Risk Factors -- Other Risk Factors Related to the Merger -- Control by
Affiliates; Anti-takeover Effects."
DELAWARE TAKEOVER STATUTE
The Combined Company will be subject to Section 203 of the Delaware General
Corporation Law ("DGCL"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the time that such
stockholder became an interested stockholder, unless: (i) prior to such time,
the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation by
the interested stockholder; or
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(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation. In general, Section 203 defines an interested stockholder as
any entity or person owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF ATARI AND JTS AND THE COMBINED COMPANY
The rights of Atari stockholders are governed by its Articles of
Incorporation and any amendments thereto (the "Atari Articles"), Atari's Bylaws
and any amendments thereto (the "Atari Bylaws") and the laws of the State of
Nevada. The rights of JTS stockholders are governed by its Certificate of
Incorporation and any amendments thereto (the "JTS Certificate"), JTS' Bylaws
and any amendments thereto (the "JTS Bylaws") and the DGCL. After the Effective
Time, the rights of Atari and JTS stockholders who become stockholders of the
Combined Company will be governed by the Certificate and Bylaws of the Combined
Company and the DGCL.
APPLICATION OF THE GENERAL CORPORATION LAW OF CALIFORNIA TO DELAWARE
CORPORATIONS
The discussion below primarily addresses the differences between the DGCL
and general corporation law of Nevada. However, Section 2115 of the CGCL makes
substantial portions of the CGCL applicable, with limited exceptions, to a
foreign corporation with ("Section 2115") more than half of its outstanding
stock held of record by persons having addresses in California and more than
half of its business conducted in the state (as measured by factors based on a
corporation's levels of property, payroll and sales determined for California
franchise tax purposes), irrespective of the corporation's state of
incorporation. Although JTS is incorporated in Delaware, it is subject to
Section 2115. The statutory provisions of the CGCL to which JTS is subject
include but are not limited to provisions governing a director's standard of
care in performing the duties of a director, a stockholder's right to vote
cumulatively in any election of directors, a director's or stockholder's right
to inspect corporate records, indemnification requirements concerning directors,
officers and others and the corporate requirements to effectuate corporate
reorganizations (including mergers and acquisitions). Section 2115 also invokes
the application of Chapter 13 of the CGCL to the Merger with respect to JTS
stockholders who elect to exercise dissenters' rights. Upon completion of the
Merger, the statutory protections available to JTS stockholders pursuant to
Section 2115 will no longer apply.
COMPARISON OF THE RIGHTS OF ATARI AND JTS STOCKHOLDERS AND STOCKHOLDERS OF THE
COMBINED COMPANY
The following is a summary of material differences between the rights of
Atari and JTS stockholders under their respective charter documents, the
Combined Company's charter documents and applicable state laws.
Cumulative Voting. Under Delaware and Nevada law, cumulative voting in the
election of directors is not mandatory. Elimination of cumulative voting limits
the ability of minority stockholders to obtain representation on the board of
directors. The JTS Certificate provides for cumulative voting in elections of
Directors. The Atari Articles and Bylaws do not provide for cumulative voting in
elections of Directors. The Certificate and Bylaws of the Combined Company do
not provide for cumulative voting in elections of Directors. To the extent that
Section 2115 would render California law applicable to JTS, cumulative voting in
the election of directors would be required.
Power to Call Special Stockholders' Meetings; Advance Notice of Stockholder
Business and Nominees. The Atari Bylaws provide that special meetings of
stockholders may be called by the Board of Directors, the Chairman of the Board
or the President. The JTS Bylaws provide that special meetings of stockholders
may be called by the Board of Directors or a committee of the Board. The Bylaws
of the Combined Company provide that special meetings of stockholders may be
called by the Chairman of the Board of Directors, the Chief Executive Officer or
the Board of Directors pursuant to a resolution adopted by at least two
directors.
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Under Delaware and Nevada law, a special meeting of stockholders may be
called by the board of directors or by any other person authorized to do so in
the certificate of incorporation or the bylaws.
Any limitation on the ability to call special stockholder meetings could
make it more difficult for stockholders to initiate action that is opposed by
the board of directors. Such action on the part of stockholders could include
the removal of an incumbent director, the election of a stockholder nominee as a
director or the implementation of a rule requiring stockholder ratification of
specific defensive strategies that have been adopted by the board of directors
with respect to unsolicited takeover bids.
Size of the Board of Directors. Delaware and Nevada law each permit the
board of directors alone to change the authorized number, or the range, of
directors by amendment to the bylaws, unless the directors are not authorized to
amend the bylaws or the number of directors is fixed in the certificate of
incorporation (in which case a change in the number of directors may be made
only by amendment to the certificate of incorporation following approval of such
change by the stockholders). The Atari Bylaws provide for a range of directors
between five and seven, until changed by an amendment to the Atari Articles or
by stockholder vote. However, the number of directors cannot be less than five
if the votes against the action or the votes not consenting to the action are
equal or are greater than 16 2/3% of the outstanding shares. The exact number of
directors shall be fixed by the Board or by stockholder resolution. The current
number of directors on the Atari Board is six. The JTS Certificate and Bylaws
authorize the JTS Board of Directors to determine the number of directors on the
JTS Board of Directors. The current number of directors on the JTS Board is six.
The Certificate of the Combined Company provides that number of directors on the
Board of Directors of the Combined Company shall be determined exclusively by
resolutions of the Board of the Combined Company.
Classified Board of Directors. A classified board is one to which a certain
number, but not all, of the directors are elected on a rotating basis each year.
Delaware and Nevada law permit, but do not require, a classified board of
directors, with staggered terms under which one-half or one-third of the
directors are elected for terms of two or three years, respectively. This method
of electing directors may make changes in the composition of the board of
directors, and thus a potential change in control of a corporation, a lengthier
and more difficult process. The charter documents of Atari, JTS and the Combined
Company do not provide for a classified board of directors. The establishment of
a classified board following the Merger would require the approval of the
stockholders of the Combined Company. To the extent that Section 2115 would
render California law applicable to JTS, directors must be elected annually,
unless the corporation is listed on the Nasdaq National Market and has at least
800 stockholders or is listed on certain public exchanges.
Removal of Directors. Under Nevada law, unless the articles of
incorporation provide for cumulative voting or a larger percentage of voting
stock required to do so, any director may be removed from office by the vote of
stockholders representing not less than two-thirds of the voting power of the
class or series of stock of the corporation entitled to elect such director. The
Atari Bylaws do not provide for cumulative voting. The Atari Bylaws allow the
Board to remove any director declared of unsound mind by court order or
convicted of a felony. Otherwise, a two-thirds vote of outstanding shares is
needed to remove a director.
Under Delaware law, a director of a corporation that does not have a
classified board of directors or cumulative voting may be removed with or
without cause with the approval of a majority of the outstanding shares entitled
to vote. In the case of a Delaware corporation having cumulative voting, if less
than the entire board is to be removed, a director may not be removed without
cause if the number of votes cast against such removal would be sufficient to
elect the director under cumulative voting. A director of a corporation with a
classified board of directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. To the extent that Section 2115
would render California law applicable to JTS, any directors or the entire board
of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote; provided, however, no
director may be removed (unless the entire board is removed) if the number of
shares voted against removal would be sufficient to elect the director under
applicable cumulative voting rules. The JTS Certificate provides for cumulative
voting. The Certificate of the Combined Company does not provide for cumulative
voting. The Certificate and Bylaws of the Combined Company allow removal of a
director, subject to the rights of preferred stock holders, (i) with cause by a
majority of the outstanding shares or (ii) without cause by two-thirds of the
outstanding shares.
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Filling Vacancies on the Board of Directors. Under Nevada law, unless a
Corporation's articles of incorporation provide otherwise, any vacancy on the
board of directors, including one created by removal of a director or an
increase in the number of authorized directors, may be filled by the majority of
the remaining directors, even if such number constitutes less than a quorum. The
Atari Articles so provide. The Atari Bylaws also provide for vacancies filled by
directors. Stockholders may fill the vacancy if the directors fail to do so.
Under Delaware law, vacancies and newly created directorships may be filled by a
majority of the directors then in office (even though less than a quorum) unless
otherwise provided in the certificate of incorporation or bylaws (and unless the
certificate of incorporation directs that a particular class is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director, shall fill such vacancy). In addition Delaware law permits a
ten percent (10%) stockholder to order an election to fill a director vacancy.
The JTS Bylaws allow a vacancy to be filled by a majority of the remaining
members of the Board of Directors, although the majority is less than a quorum
or by a plurality of stockholder votes. The Bylaws of the Combined Company
provide that a director vacancy shall only be filled by a majority of the
remaining directors, even though less than a quorum.
Interested Director Transactions. Under both Nevada and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under Nevada and Delaware law.
Under Nevada and Delaware law, either the stockholders or the disinterested
members of the board of directors must approve any such contract or transaction
after full disclosure of the material facts, and in the case of board approval
the contract or transaction must also be fair to the corporation, or the
contract or transaction must have been just and reasonable or fair as to the
corporation at the time it was authorized or approved. If board approval is
sought, the contract or transaction must be approved by a majority vote of a
quorum of the directors, without counting the vote of any interested directors
(except that interested directors may be counted for purposes of establishing a
quorum). The JTS Bylaws reiterate Delaware corporate law regarding interested
director transactions. The Articles and Bylaws of Atari and the Certificate and
Bylaws of the Combined Company contain no special provision regarding such
transactions.
Loans to Officers and Employees. Under Nevada law, any transaction
(including any loan or guaranty) to or for the benefit of a director or officer
of the corporation or its parent is permitted (unless otherwise provided for in
the corporation's articles of incorporation) provided a disinterested majority
of the board of directors or stockholders, after full and fair disclosure of the
material terms of such transaction, approve such transaction, or if such
transaction is fair to the corporation at the time it is authorized or approved.
Under Delaware law, a corporation may make loans to, guarantee the obligations
of or otherwise assist its officers or other employees and those of its
subsidiaries (including directors who are also officers or employees) when such
action, in the judgment of the directors, may reasonably be expected to benefit
the corporation. Pursuant to the Bylaws of the Combined Company and in
accordance with Delaware law, the Combined Company may make loans to, guarantee
the obligations of or otherwise assist its officers or other employees and those
of its subsidiaries (including directors who are also officers or employees)
when such action, in the judgment of the Board of the Combined Company, may
reasonably be expected to benefit the corporation. The Articles and Bylaws of
Atari and the Certificate and Bylaws of JTS contain no special provision
regarding such transactions.
Indemnification and Limitation of Liability. Nevada and Delaware have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their charters eliminating the liability of
a director to the corporation or its stockholders for monetary damages for
breach of the director's fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states with respect to indemnification
and limitation of liability.
Atari's Articles indemnify directors to the fullest extent permissible
under Nevada law. Atari's Bylaws further provide for indemnification for Atari's
agents and authorize the Board of Directors to purchase and maintain insurance.
Similar to Delaware law, Nevada law does not permit the elimination of monetary
liability
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where such liability is based on intentional misconduct, fraud, knowing
violation of law or payments or distributions in violation of law. In addition,
Nevada law departs from Delaware law insofar as Nevada law (i) permits a broader
array of insurance or other financial arrangements between a company and its
directors, and (ii) allows a provision in the corporation's bylaws or articles
of incorporation which mandates indemnification rather than leaving that
decision to the board of directors.
The Certificates of JTS and the Combined Company eliminate the liability of
directors and officers to the fullest extent permissible under Delaware law, as
such law exists currently or as it may be amended in the future. Under Delaware
law, such provision may not eliminate or limit director monetary liability for
(a) breaches of the director's duty of loyalty to the corporation or its
stockholders; (b) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (c) the payment of unlawful dividends
or unlawful stock repurchases or redemptions under DGCL Section 174; or (d)
transactions in which the director received an improper personal benefit. Such
limitation of liability provisions also may not limit a director's liability for
violation of, or otherwise relieve JTS, the Combined Company or the directors of
either of them from the necessity of complying with, federal or state securities
laws, or affect the availability of non-monetary remedies such as injunctive
relief or rescission.
The Bylaws of JTS and the Combined Company state that indemnification for
JTS' or the Combined Company's agents will be as set forth in the DGCL. However,
JTS may modify the extent of such indemnification by individual contracts with
its directors and executive officers. In addition, the DGCL provides that the
indemnification provided by statute shall not be deemed exclusive of any other
rights under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. The Bylaws of JTS and the Combined Company track this
provision of Delaware law.
JTS has entered into indemnification agreements with its officers and
directors. Upon consummation of the Merger, such agreements will become binding
on the Combined Company. It is expected that the Combined Company will enter in
similar agreements with Jack Tramiel and Michael Rosenberg.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to Nevada law) not opposed to the best interests of the
corporation (or in the case of a criminal proceeding, if the accused had no
reasonable cause to believe the conduct was unlawful). Without court approval,
however, no indemnification may be made in respect of any derivative action in
which such person is adjudged liable for negligence or misconduct in the
performance of his duty to the corporation.
The Certificate of the Combined Company limits director liability to the
Combined Company or its stockholders for monetary damages arising out of a
director's breach of his duty of care. The duty of care refers to the fiduciary
duty of a director to exercise sufficient diligence and care in considering a
transaction or causing the corporation to take or refuse to take corporate
action. The Certificate of the Combined Company, however, does not eliminate the
duty of care; it only eliminates monetary damage awards occasioned by a breach
of such duty. Thus, after the Merger, a breach of the duty of care would remain
a valid basis for a suit seeking to prevent a proposed transaction from
occurring. After the transaction has occurred, however, the stockholders would
not have a claim against directors for monetary damages based on the breach of
the duty of care, even if that breach involved gross negligence on the part of
the directors.
Reorganizations, Asset Sales and Mergers. Both Nevada and Delaware law
generally require that a majority of the stockholders of the acquiring and
target corporations approve statutory mergers. Delaware law does not require a
stockholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (a) the
merger agreement does not amend the existing certificate of incorporation, (b)
each share of the surviving corporation outstanding before the merger is an
identical out standing or treasury share after the merger, and (c) the number of
shares to be issued by the surviving corporation in the merger does not exceed
20% of the shares outstanding immediately prior to the merger. Nevada law
contains a substantially similar exception to its voting requirements for the
surviving corporation in a reorganization. To the extent Section 2115 would
render California law applicable to JTS,
116
<PAGE> 124
stockholder approval of each constituent corporation in a statutory merger and
any parent corporation is required, except (i) corporations which will own (or
where stockholders will own), equity securities (other than warrants) possessing
more than 5/6 of the voting power of the surviving corporation or (ii) parent
corporations, not subject to Section 2115, incorporated under the laws of other
states not requiring such approval.
Both Nevada and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by the board of
directors and a majority of the voting shares of the corporation transferring
such assets.
If required by the articles of incorporation, Nevada law requires that
mergers, reorganizations, certain sales of assets and similar transactions be
approved by a majority vote of each class of shares outstanding and/or a larger
percentage vote than a simple majority of the voting shares. The Atari Articles
do not require such approval. By contrast, Delaware law generally does not
require class voting, except in certain transactions involving an amendment to
the certificate of incorporation which adversely affects a specific class of
shares. To the extent Section 2115 would render California law applicable to
JTS, a majority vote of each class of shares outstanding and/or a larger
percentage vote than a simple majority would be required to approve certain
mergers, reorganizations, sales of assets or similar transactions. JTS'
Certificate provides for special voting rights of JTS' Series A Preferred Stock.
The following actions must be approved by at least 2/3 of holders of outstanding
JTS Series A Preferred Stock: (1) creation of a new class of stock on par or
superior in rights to the Series A Preferred Stock; (2) selling, leasing or
otherwise disposing of all or most of JTS's property; (3) an amendment of the
JTS Certificate if such amendment would alter the rights of the JTS Series A
Preferred Stock; (4) increasing the authorized number of shares of JTS Series A
Preferred or JTS Common Stock; (5) a transaction involving a reorganization,
consolidation or merger in which the holders of JTS voting stock hold less than
50% of the voting stock of the successor entity; (6) payment or declaration by
any dividend other than in Common Stock to the holders of Common Stock; or (7)
repurchase of securities other than from employees or consultants terminating
their employment or consulting relationship with JTS.
Should JTS authorize and issue shares of a new class of capital stock, the
holders thereof would vote with the holders of the previously outstanding
capital stock on proposals not adversely affecting a particular class. In such
event the holders of the previously outstanding capital stock, if in the
minority, would be unable to control the outcome of a vote, and, if in the
majority, would be able to control the outcome of such a vote.
Elimination of Actions by Written Consent of Stockholders. Under Nevada and
Delaware law, stockholders may execute an action by written consent in lieu of a
stockholder meeting. Nevada and Delaware law permit a corporation to eliminate
such actions by written consent in its charter or bylaws. The Bylaws of Atari
and JTS provide for action of the stockholders without a meeting including
written consent. The Certificate of the Combined Company does not permit action
by written consent of stockholders.
Dividends and Repurchases of Shares. Nevada law dispenses with the concepts
of par value of shares as well as statutory definitions of capital, surplus and
the like. The concepts of par value, capital and surplus are retained under
Delaware law.
Nevada law prohibits a distribution (including dividends, purchases,
redemptions or other acquisition of shares, distributions of indebtedness or
otherwise) if, after giving effect to the distribution, (1) the corporation
would not be able to pay its debts as they become due in the usual course of
business or (2) except as provided in the articles of incorporation, the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the corporation were to be dissolved at
the time of distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation. To the extent that
Section 2115 would render California law applicable to JTS,
117
<PAGE> 125
distributions (including dividends and redemptions of shares) are permitted if
the corporation's assets-to-liabilities ratios are sufficient under CGCL Section
500.
Appraisal or Dissenters' Rights. Under both Nevada and Delaware law, a
stockholder of a corporation participating in certain major corporate
transactions may, under varying circumstances, be entitled to appraisal or
dissenters' rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. Under
Delaware law, such dissenters' rights are not available (a) with respect to the
sale, lease or exchange of all or substantially all of the assets of a
corporation, (b) with respect to a merger or consolidation by a corporation
whose shares are either listed on a national securities exchange or are held of
record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares, or (c) to stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions are
met. See "The Proposed Merger and Related Transactions -- Appraisal and
Dissenters' Rights -- Delaware Appraisal Rights."
Under Nevada law, dissenters' rights are not available in a merger or share
exchange if the shares held by the stockholders prior to the share exchange or
merger were either listed on a national securities exchange or held by at least
2,000 stockholders of record unless the articles of incorporation of the
corporation provide otherwise or the stockholders are required to accept under
the plan of merger share exchange anything other than cash or shares of the
surviving corporation or shares that are listed on a national securities
exchange, or a combination of these. Because Atari Common Stock is listed on a
national securities exchange and because the Atari Articles do not provide
otherwise, Atari stockholders may not exercise dissenters' rights with respect
to the Merger.
To the extent that Section 2115 would render California law applicable to
JTS, stockholders who dissent from a merger may also be entitled to dissenters'
rights under the CGCL. See "The Proposed Merger and Related
Transactions -- Appraisal and Dissenters' Rights -- California Dissenters'
Rights."
The foregoing discussion of material differences between the rights of
Atari and JTS stockholders under their respective charter documents and
applicable state laws is only a summary of certain provisions and does not
purport to be a complete description of such differences. The discussion is
qualified in its entirety by reference to the Nevada, Delaware and California
General Corporation Laws, the respective common law in Nevada, Delaware and
California and the full text of the Certificate of Incorporation and any
amendments thereto and the Bylaws and any amendment thereto of Atari and JTS.
LEGAL MATTERS
The validity of the JTS Common Stock issuable in the Merger, the federal
income tax consequences in connection with the Merger and certain other matters
relating to the Merger will be passed upon for JTS by Cooley Godward Castro
Huddleson & Tatum. The federal income tax consequences in connection with the
Merger and certain other matters relating to the Merger will be passed upon for
Atari by Wilson Sonsini Goodrich & Rosati, P.C. As of May 22, 1996, one member
of Wilson Sonsini Goodrich & Rosati, P.C., investment partnerships of which such
individual is a partner and a trust for which such individual serves as trustee,
beneficially owned 84,000 shares of JTS Series A Preferred Stock.
EXPERTS
The consolidated financial statements of Atari Corporation as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995 included in this Joint Proxy Statement/Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
118
<PAGE> 126
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of JT Storage, Inc and The Hard Disk Drive
Division of Moduler Electronics (India) Private Limited included in this Joint
Proxy Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, to the extent and for the periods indicated in their
reports, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. Reference is made to said reports which include
an explanatory paragraph describing uncertainties concerning the ability of the
Company to continue as a going concern discussed in Note 1 to the financial
statements.
STOCKHOLDER PROPOSALS
In the event the Merger is not consummated for any reason, Atari expects to
hold an annual meeting in 1997. To be eligible for inclusion in Atari's proxy
solicitation materials for its annual stockholder meeting to be held in 1997,
any stockholder proposal to be considered at such meeting must have been
received at Atari's principal executive offices, 455 South Mathilda Avenue,
Sunnyvale, California 94086, no later than February , 1997. Any such proposal
is subject to the requirements of the proxy rules adopted under the Exchange
Act.
119
<PAGE> 127
ATARI CORPORATION, JTS CORPORATION AND
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ATARI CORPORATION
Report of Deloitte & Touche LLP....................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and
1993................................................................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995,
1994, and 1993...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Unaudited Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995...... F-15
Unaudited Consolidated Statements of Operations for the Quarters Ended March 31, 1996
and March 31, 1995.................................................................. F-16
Unaudited Consolidated Statements of Cash Flows for the Quarters Ended March 31, 1996
and March 31, 1995.................................................................. F-17
Unaudited Notes to Consolidated Financial Statements.................................. F-18
JTS CORPORATION
Report of Arthur Andersen LLP......................................................... F-19
Balance Sheets as of January 28, 1996 and January 29, 1995............................ F-20
Statements of Operations for the 52 weeks ended January 28, 1996 and for the period
from inception (February 3, 1994) to January 29, 1995............................... F-21
Statements of Stockholders' Deficit from inception (February 3, 1994) to
January 28, 1995.................................................................... F-22
Statements of Cash Flows for the 52 weeks ended January 28, 1996 and for the period
from inception (February 3, 1994) to January 29, 1995............................... F-23
Notes to Financial Statements......................................................... F-24
Unaudited Condensed Consolidated Balance Sheets as of April 28, 1996 and January 28,
1996................................................................................ F-33
Unaudited Condensed Consolidated Statements of Operations for the Quarters Ended April
28, 1996 and April 30, 1995......................................................... F-34
Unaudited Consolidated Statements of Cash Flows for the Quarters Ended April 28, 1996
and April 30, 1995.................................................................. F-35
Unaudited Notes to Consolidated Financial Statements.................................. F-36
THE HARD DISK DRIVE DIVISION OF MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
Report of Arthur Andersen LLP......................................................... F-37
Statements of Assets and Liabilities as of January 28, 1996 and January 31, 1995...... F-38
Statement of Revenues and Expenses for the period from February 1, 1995 to January 28,
1996................................................................................ F-39
Statement of Cash Flows for the period from February 1, 1995 to January 28, 1996...... F-40
Notes to Financial Statements......................................................... F-41
</TABLE>
F-1
<PAGE> 128
REPORT OF DELOITTE & TOUCHE LLP
To the Shareholders and Board of Directors
of Atari Corporation:
We have audited the accompanying consolidated balance sheets of Atari
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Atari Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
March 1, 1996
(April 8, 1996 as to Note 16)
F-2
<PAGE> 129
ATARI CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents (including $700 and $4,450 held as restricted
balances in 1995 and 1994)...................................... $ 28,941 $ 22,592
Marketable securities.............................................. 21,649 58,432
Accounts receivable (less allowances for returns and doubtful
accounts:
1995, $4,221; 1994, $1,957)..................................... 2,468 9,262
Inventories........................................................ 10,934 18,185
Other current assets............................................... 1,134 4,717
--------- ---------
Total current assets....................................... 65,126 113,188
GAME SOFTWARE DEVELOPMENT COSTS -- Net............................... 758 5,145
EQUIPMENT AND TOOLING -- Net......................................... 671 1,315
REAL ESTATE HELD FOR SALE............................................ 10,468 10,741
OTHER ASSETS......................................................... 546 653
--------- ---------
TOTAL...................................................... $ 77,569 $ 131,042
========= =========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................................... $ 4,954 $ 15,341
Accrued liabilities................................................ 5,088 5,177
--------- ---------
Total current liabilities.................................. 10,042 20,518
--------- ---------
LONG-TERM OBLIGATIONS................................................ 42,354 43,454
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 14)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value -- authorized, 10,000,000 shares;
none outstanding................................................ -- --
Common stock, $.01 par value -- authorized, 100,000,000 shares;
outstanding: 1995, 63,687,118 shares; 1994, 63,648,535 shares... 637 636
Additional paid-in capital......................................... 196,209 196,138
Unrealized net gain on marketable securities....................... 7,088 542
Accumulated translation adjustments................................ (663) (1,724)
Accumulated deficit................................................ (178,098) (128,522)
--------- ---------
Total shareholders' equity...................................... 25,173 67,070
--------- ---------
TOTAL...................................................... $ 77,569 $ 131,042
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 130
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES................................................... $ 14,626 $ 38,748 $ 29,108
COST AND EXPENSES:
Cost of revenues......................................... 44,234 35,200 42,768
Research and development................................. 5,410 5,775 4,876
Marketing and distribution............................... 12,726 14,651 8,980
General and administrative............................... 5,921 7,169 7,558
Restructuring charges.................................... -- -- 12,425
-------- -------- --------
Total operating expenses......................... 68,291 62,795 76,607
-------- -------- --------
OPERATING LOSS............................................. (53,665) (24,047) (47,499)
Settlements of patent litigation........................... -- 32,062 --
Exchange gain (loss)....................................... 13 1,184 (2,234)
Other income............................................... 2,670 484 854
Interest income............................................ 3,133 2,015 2,039
Interest expense........................................... (2,309) (2,304) (2,290)
-------- -------- --------
Income (loss) before income taxes................ (50,158) 9,394 (49,130)
Income tax credit.......................................... -- -- 264
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT.................. (50,158) 9,394 (48,866)
Extraordinary credit -- gain on extinguishment of 5 1/4%
convertible subordinated debentures...................... 582 -- --
-------- -------- --------
NET INCOME (LOSS).......................................... $(49,576) $ 9,394 $(48,866)
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary credit................ $ (0.79) $ 0.16 $ (0.85)
Net income (loss)........................................ $ (0.78) $ 0.16 $ (0.85)
Number of shares used in computations.................... 63,697 58,962 57,148
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 131
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE UNREALIZED
FROM NET GAIN
COMMON STOCK ADDITIONAL SALE OF ACCUMULATED ON
----------------- PAID-IN COMMON TRANSLATION MARKETABLE ACCUMULATED
SHARES AMOUNT CAPITAL STOCK ADJUSTMENTS SECURITIES DEFICIT TOTAL
------ ------ ---------- ---------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY
1, 1993.......... 57,137 $571 $142,315 $(19) $(3,234) $ -- $ (89,050) $ 50,583
Stock options
exercised........ 89 1 191 192
Common stock
repurchased...... (11) (9) 9 --
Collection of notes
receivable....... 7 7
Translation
adjustments...... 2,438 2,438
Net loss........... (48,866) (48,866)
------ ---- -------- ---- ------- ------ ------ ---------
BALANCES, DECEMBER
31, 1993......... 57,215 572 142,497 (3) (796) -- (137,916) 4,354
Sale of common
stock............ 6,277 63 53,270 53,333
Stock options
exercised........ 157 1 371 372
Collection of notes
receivable....... 3 3
Translation
adjustments...... (928) (928)
Unrealized net gain
on marketable
securities....... 542 542
Net income......... 9,394 9,394
------ ---- -------- ---- ------- ------ ------ ---------
BALANCES, DECEMBER
31, 1994......... 63,649 636 196,138 -- (1,724) 542 (128,522) 67,070
Stock options
exercised........ 82 1 109 110
Stock
repurchased...... (44) (38) (38)
Translation
adjustments...... 1,061 1,061
Unrealized net gain
on marketable
securities....... 6,546 6,546
Net loss........... (49,576) (49,576)
------ ---- -------- ---- ------- ------ ------ ---------
BALANCES, DECEMBER
31, 1995......... 63,687 $637 $196,209 $ -- $ (663) $7,088 $(178,098) $ 25,173
====== ==== ======== ==== ======= ====== ====== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 132
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................................................... $(49,576) $ 9,394 $(48,866)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating
activities:
Gain from extinguishment of 5 1/4% convertible subordinated debentures..................... (582) -- --
Depreciation and amortization.............................................................. 1,970 2,619 361
Provision for production tooling........................................................... 300 -- --
Provision for doubtful accounts............................................................ 50 194 232
Provision for sales returns and allowances................................................. 5,028 1,563 457
Provision for restructuring................................................................ -- -- 12,425
Gain on sale of marketable securities...................................................... (2,377) -- (324)
Provision for inventory valuation.......................................................... 12,640 5,362 18,100
Utilization of advertising barter credits.................................................. 3,179 -- --
Write-off of game software development costs............................................... 16,578 804 --
Changes in operating assets and liabilities:
Accounts receivable...................................................................... 1,637 (5,383) 16,863
Inventories.............................................................................. (5,389) (14,177) 951
Other assets............................................................................. 395 (336) 3,178
Accounts payable......................................................................... (10,372) 3,763 (4,925)
Accrued liabilities...................................................................... (42) (660) (15,881)
-------- -------- --------
Net cash provided (used) by operations..................................................... (26,561) 3,143 (17,429)
-------- -------- --------
INVESTING ACTIVITIES:
Sales and maturities of marketable securities.............................................. 55,703 -- 2,525
Purchase of marketable securities.......................................................... (9,997) (50,000) --
Purchases of property, equipment and tooling............................................... (782) (1,207) (663)
Sale of property........................................................................... 29 7,543 --
Game software development costs............................................................ (12,791) (5,810) (789)
Other assets............................................................................... 107 482 541
-------- -------- --------
Net cash provided (used) by investing activities........................................... 32,269 (48,992) 1,614
-------- -------- --------
FINANCING ACTIVITIES:
5 1/4% convertible subordinated debentures extinguished.................................... (518) -- --
Repayments of borrowings................................................................... -- (7,642) (259)
Issuance of common stock, net.............................................................. 72 53,708 199
-------- -------- --------
Net cash provided (used) by financing activities........................................... (446) 46,066 (60)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS...................................... 1,087 (684) (356)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS.............................................. 6,349 (467) (16,231)
CASH AND EQUIVALENTS:
Beginning of year.......................................................................... 22,592 23,059 39,290
-------- -------- --------
End of year................................................................................ $ 28,941 $ 22,592 $ 23,059
======== ======== ========
OTHER CASH FLOW INFORMATION:
Interest paid.............................................................................. $ 2,309 $ 2,303 $ 3,023
======== ======== ========
Income taxes refunded...................................................................... $ -- $ (426) $ (225)
======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Exchange of inventory for advertising services............................................. $ -- $ 3,179 $ --
======== ======== ========
Exchange of property for retirement of debt................................................ $ -- $ 1,891 $ --
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 133
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY
Nature of Operations -- The Company designs and markets interactive
multimedia entertainment systems and related software and peripheral products.
Manufacture of these products is performed by third parties. The principal
methods of distribution are through mass market retailers, consumer electronic
specialty stores and distributors of electronic products.
Product Focus -- Since 1992, the Company has focused its research and
development effort on its 64-bit Jaguar interactive multimedia entertainment
system. This product was introduced in 1993 and, in 1995 and 1994, 68% and 76%
of revenues, respectively, were associated with this product. Sales of the
Jaguar in 1995 were disappointing and the Company is currently test marketing
different price points and software bundles for the Jaguar in an attempt to sell
its substantial inventory of such products.
In December 1994, the Company planned price reductions beginning in early
1995 and recognized the impact of this decision on finished and in-process
inventory through a write-down of inventory of $3.6 million, which is included
in cost of sales in the fourth quarter of 1994. In December 1995, the Company
planned further price reductions beginning in early 1996 and recognized the
impact of this decision through a $10.9 million write-down of inventory, which
is included in cost of sales in the fourth quarter of 1995.
The Company continues to carry limited quantities of its older 8-bit and
16-bit video games and computer product lines. As a result of rapid
technological change and intense competition, the Company wrote down inventories
of these products by $18.1 million in 1993 which was included in cost of sales.
Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect recorded amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. In connection with
the change of the Company's focus, measurement of assets and liabilities is
dependent upon management's ability to accurately predict future operating
results. Actual results could differ from these estimates.
Restructuring -- The Company has active operations in the United States and
the United Kingdom. During 1993 and 1992, the Company significantly restructured
its operations around the world, closing operations in Australia and the Far
East, in several European countries and in Canada and Mexico. These operational
closures resulted in the bankruptcy of subsidiaries in Australia and Germany and
may result in the voluntary or involuntary liquidation or bankruptcy of other
subsidiary companies. Charges for restructuring have been separately reported in
the consolidated statements of operations for 1993. The remaining accruals of
$351,000 at December 31, 1995 relate to employee benefits in Italy and lease
obligations in the Netherlands.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the Company and its subsidiaries. All transactions and balances between
the companies are eliminated.
Cash and Equivalents -- Cash equivalents are stated at cost, which
approximates market value, have maturities not exceeding ninety days upon
acquisition and generally consist of certificates of deposit, time deposits,
treasury notes and commercial paper.
Marketable Securities -- Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Marketable securities are
carried as available-for-sale securities and reported at the fair market value.
The cumulative effect of adoption of SFAS 115 as of January 1, 1994 was not
material. Unrealized gains and losses are reported as a separate component of
shareholders' equity. Realized gains and losses are recorded in the statements
of operations and realized gains were $2.4 million in 1995. The cost of
securities sold is based on average cost.
F-7
<PAGE> 134
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Inventories are stated at the lower of cost or market. Cost
is computed using standard costs which approximate actual cost on a first-in,
first-out basis. Market for each of the Company's product lines is determined by
reference to expected sales prices less direct selling expenses.
Prepaid Advertising -- Included in other current assets at December 31,
1994 is $3.2 million of prepaid advertising resulting from a barter transaction.
The amount recorded as prepaid advertising equals the carrying value of certain
inventory exchanged for advertising credits. The Company expensed the prepaid
advertising as utilized during 1995.
Equipment and Tooling -- Equipment and tooling are stated at cost.
Depreciation on equipment is computed using the straight-line method based on
estimated useful lives of the assets of two to five years. Tooling is
depreciated on a units of production basis. Leasehold improvements are amortized
over the estimated useful life or lease term, as appropriate. Fully depreciated
assets, and related depreciation, are excluded from the consolidated financial
statements.
Real Estate Held for Sale -- Real property associated with closed
operations in the U.S. is stated at estimated market value as determined by
recent valuations, appraisals or pending sales offers.
Revenue Recognition -- Sale of consoles, software game cartridges and
related products are recorded as revenue at the time of shipment to customers.
Concurrently, the Company establishes reserves for estimated returns, which are
recorded as a reduction of sales, and for cooperative advertising allowances,
which are recorded as marketing and distribution expense. Royalty revenues are
recognized when earned and collection is probable.
Income Taxes -- The Company adopted SFAS No. 109 "Accounting for Income
Taxes" in the first quarter of 1993 which requires an asset and liability method
for financial accounting and reporting of income taxes. The impact of the
adoption of SFAS 109 was not material.
Foreign Currency Translation -- Assets and liabilities of operations
outside the United States are translated into United States dollars using
current exchange rates, and the effects of foreign currency translation
adjustments are deferred and included as a component of shareholders' equity.
Income (Loss) per Common Share -- Per share amounts are computed based on
the weighted average number of common and dilutive common equivalent shares
(stock options) outstanding during each period. The effect of the assumed
conversion of the 5 1/4% convertible subordinated debentures was antidilutive
for all periods presented and excluded from the computation.
Fiscal Year -- The Company uses a 52/53 week fiscal year which ends on the
Saturday closest to December 31. All fiscal years presented contain 52 weeks.
For simplicity of presentation, the date December 31 is used to represent the
fiscal year end.
Reclassifications -- Certain items have been reclassified in the 1994 and
1993 financial statements to conform to the 1995 presentation and had no effect
on operating results or shareholders' equity.
Recently Issued Pronouncements -- In October 1995, the Financial Accounting
Standards Board issued FASB No. 123, "Accounting for Stock-Based Compensation."
The new standard defines a fair value method of accounting for stock options and
other equity instruments, such as stock purchase plans. Under this method,
compensation cost is measured based on the fair value of the stock award when
granted and is recognized as an expense over the service period, which is
usually the vesting period. This standard will be effective for the Company
beginning in 1996, and requires measurement of awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income and
earnings per share as if the Company had applied the new method of accounting.
The Company intends to follow these
F-8
<PAGE> 135
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosure requirements for its employee stock plans. As a result, adoption of
the new standard will not impact reported earnings or earnings per share, and
will have no effect on the Company's cash flows.
3. FINANCIAL INSTRUMENTS
Marketable Securities -- Marketable securities available for sale consist
of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------------- ----------------------------------
GROSS GROSS
AMORTIZED MARKET UNREALIZED AMORTIZED MARKET UNREALIZED
ISSUE COST VALUE GAINS COST VALUE GAINS
- ---------------------------------------- --------- ------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Equity securities --
Dixon common stock.................... $ 4,565 $11,606 $7,041 $ 7,890 $ 8,432 $ 542
Government securities --
Federal Home Loan Bank................ 4,993 5,026 33 -- -- --
Federal Home Loan Mortgage Corp....... 5,003 5,017 14 -- -- --
Foreign government debt securities --
Eurodollar notes...................... -- -- -- 50,000 50,000 --
----- ------- ------- ------
Total marketable securities......... $14,561 $21,649 $7,088 $57,890 $58,432 $ 542
===== ======= ======= ======
</TABLE>
The contractual maturities of the government securities range from two to
four years. The Eurodollar notes matured during 1995.
Concentration of Credit Risk -- The Company sells to mass market retailers,
consumer electronic specialty stores and to distributors of electronic products
throughout the United States and Europe. The Company makes ongoing credit
evaluations of customers and, at times, requires letters of credit from some
foreign customers. Sales to foreign customers are generally stated in the
currency of the customer. To date, the Company has not entered into hedges of
these foreign currency exposures.
Fair Value of Financial Instruments -- In accordance with the provisions of
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," which
requires the disclosure of fair value information about both on and off balance
sheet financial instruments where it is practicable to estimate the value, the
Company has estimated the fair value of its financial instruments. The estimated
fair value of the 5 1/4% convertible subordinated debentures at December 31,
1995 was approximately $20 million based primarily on quoted market prices. The
carrying amounts of the remainder of the Company's financial instruments,
including cash and equivalents, marketable securities, accounts receivable and
accounts payable, approximate fair values due to their short maturities.
4. INVENTORIES
Inventories at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Finished goods................................................... $ 9,927 $15,799
Raw materials and work-in-process................................ 1,007 2,386
------- -------
Total....................................................... $10,934 $18,185
======= =======
</TABLE>
5. GAME SOFTWARE DEVELOPMENT COSTS
Internal game software development costs are expensed as incurred as these
costs relate primarily to development tools. External development costs are
capitalized once technological feasibility has been determined. During 1995 and
1994, the Company capitalized $12.8 million and $5.8 million, respectively, of
F-9
<PAGE> 136
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts paid to third parties, primarily as prepaid licenses, in connection with
game development for the Jaguar. The Company amortizes such costs over the
shorter of 12 months from game introduction or the estimated unit sales of the
game title. The Company assesses the recoverability of capitalized games
software development costs in light of many factors, including, but not limited
to, anticipated future revenues, estimated economic useful lives and changes in
software and hardware technologies. Amortization expense and adjustments for
management's assessment of recoverability were $17.1 million (including a
write-off of $16.6 million) and $1.5 million (including a write-off of $804,000)
for the years ended December 31, 1995 and 1994, respectively.
6. EQUIPMENT AND TOOLING
Equipment and tooling at December 31 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Equipment and tooling............................................. $1,526 $ 1,874
Furniture and fixtures............................................ 198 708
Leasehold improvements............................................ -- 43
------ -------
Total............................................................. 1,724 2,625
Accumulated depreciation and amortization......................... (753) (1,310)
Reserve for production tooling.................................... (300) --
------ -------
Equipment and tooling -- net...................................... $ 671 $ 1,315
====== =======
</TABLE>
7. REAL ESTATE HELD FOR SALE
Property held for sale at December 31, 1995 consists of nine properties in
California and Texas, from the discontinued consumer electronics and home
entertainment products operation. Certain of the properties have rental tenants,
although all properties are available for sale. Rental income, net of rental
expense and depreciation, is included in other income (expense) and was not
material. Disposals in 1994 represented the Company's building in Germany and
land and building in France, which were disposed of with no significant gain or
loss.
8. ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Accrued interest........................................... $1,483 $1,513
Accrued game software development costs.................... 1,525 --
Accrued restructuring charge............................... 351 719
Accrued royalties.......................................... 28 320
Other...................................................... 1,701 2,625
------ ------
Total...................................................... $5,088 $5,177
====== ======
</TABLE>
9. LETTERS OF CREDIT AND RESTRICTED CASH
At December 31, 1995, cash balances of $700,000 were collateral for
outstanding commercial letters of credit associated with inventory components
and software development. At December 31, 1994, cash balances of $4.5 million
were collateral for outstanding letters of credit.
F-10
<PAGE> 137
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT OBLIGATIONS
Convertible Subordinated Debentures -- The Company has $42.4 million of
5 1/4% convertible subordinated debentures due April 29, 2002. The debentures
may be redeemed at the Company's option, upon payment of a premium. The
debentures, at the option of the holders, are convertible into common stock at
$16.3125 per share. At December 31, 1995, 2,596,414 shares of common stock were
reserved for issuance upon conversion. Default with respect to other
indebtedness of Atari Corporation in an aggregate amount exceeding $5 million
would result in an event of default whereby the outstanding debentures would be
due and payable immediately.
In 1995, the Company reacquired in the open market and extinguished $1.1
million face value of these debentures for $500,000, resulting in an
extraordinary credit of $582,000.
Term Loans on Real Estate in Europe -- At December 31, 1993, the Company
had two secured term loans outstanding totaling $7.5 million for its building in
Germany and a term loan of $2.0 million for its land and building in France.
These loans were repaid or exchanged in 1994 from the sale or transfer of the
properties.
11. SETTLEMENTS OF PATENT LITIGATION
During the first quarter of 1994, the Company received $2.2 million with
respect to the settlement of litigation between the Company, Atari Games
Corporation and Nintendo. Although not part of the litigation, the Company sold
1,500,000 shares of its common stock to Time Warner (parent company of Atari
Games Corporation), Inc. for $12.8 million.
During the fourth quarter of 1994, the Company completed a comprehensive
agreement ("Agreement") with Sega Enterprises, Ltd. ("Sega") concerning
resolution of disputes, equity investment and patent and product licensing
agreements. The results of the Agreement were as follows: (i) Sega acquired
4,705,883 shares of the Company's common stock for $40.0 million; (ii) the
Company received a payment of $29.8 million ($50.0 million from Sega, net of
$20.2 million of legal fees and associated costs) in exchange for a license from
Atari covering the use of a library of Atari patents issued between 1977 through
1984 (excluding patents which exclusively claim elements of the Company's JAGUAR
and LYNX products) through the year 2001; and (iii) the Company and Sega agreed
to cross-license up to five software game titles each year through the year
2001.
12. INCOME TAXES
The credit for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Current:
Federal............................................. $-- $-- $ --
Foreign............................................. -- -- (264)
State............................................... -- -- --
-- --
-----
Income tax credit..................................... $-- $-- $(264)
== == =====
</TABLE>
At December 31, 1995, the Company has a U.S. income tax operating loss
carryforward of $165 million which expires in 2006 through 2010, a research and
development tax credit carryforward of $1.8 million which expires in 2002
through 2010, and a California income tax operating loss carryforward of $60
million which expires as follows: $16.4 million in 1997, $16.7 million in 1998,
$1.6 million in 1999 and $21.8 million in 2000.
F-11
<PAGE> 138
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rates for 1995, 1994 and 1993 were 0%, 0%, and
(1)%, respectively, and differ from the federal statutory rate of 35% as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Computed at federal statutory rates................. $(17,402) $ 3,288 $(17,103)
Valuation allowance................................. 18,604 (3,288) 16,821
Effect of foreign tax rates different than statutory
rates and utilization of foreign loss
carrybacks........................................ -- -- 16
Other............................................... (1,202) -- 2
-------- ------- --------
Income tax credit................................... $ -- $ -- $ (264)
======== ======= ========
</TABLE>
The components of the net deferred tax asset at December 31 consist of (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
U.S. operating loss carryforwards...................... $ 57,706 $ 42,149
State operating loss carryforwards..................... 3,820 2,321
Capital loss carryforwards............................. 1,035 1,804
Research and development tax credit carryforwards...... 1,813 1,370
Inventory reserves..................................... 3,237 2,781
Restructuring charges.................................. 50 239
Capitalized game software development costs............ 3,022 --
Other items............................................ 4,411 5,826
-------- --------
Subtotal............................................... 75,094 56,490
Valuation allowance.................................... (75,094) (56,490)
-------- --------
Net deferred tax asset................................. $ -- $ --
======== ========
</TABLE>
Due to the uncertainty surrounding the timing and realization of the
benefits of its favorable tax attributes in future years, the Company has
established a valuation allowance to offset its net deferred tax assets.
Current federal and state tax law includes certain provisions limiting the
use of net operating loss carryforwards in the event of certain defined changes
in stock ownership. The annual use of the Company's net operating loss
carryforwards could be limited according to these provisions, and there can be
no assurance that such limitations will not result in the loss of carryforward
benefits during the carryforward period.
13. STOCK OPTIONS
The Company's stock option plan and restricted stock plan provide for the
issuance of up to 3,000,000 shares of common stock through the issuance of
incentive stock options to employees and nonqualified stock options and
restricted stock to employees, directors and consultants. Under the plans, stock
options or restricted stock may be granted at not less than fair market value as
determined by the Board of Directors. Stock options become exercisable as
established by the Board (generally ratably over five years) and expire up to
ten years from date of grant. The Company's right to repurchase restricted stock
lapses over a maximum period of five years. At December 31, 1995, options for
551,925 shares were exercisable and options for 602,310 shares were available
for future grant. At December 31, 1995, no restricted stock under the restricted
stock plan had been issued.
F-12
<PAGE> 139
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional information with respect to the stock option plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
RANGE PER SHARE
NUMBER OF ------------------
OPTIONS LOW HIGH TOTAL
--------- ------ ----- -----------
<S> <C> <C> <C> <C> <C>
Outstanding, January 1, 1993............... 970,400 $1.500 - $7.50 $ 3,131,450
Granted.................................... 535,583 0.875 - 4.75 1,045,093
Exercised.................................. (89,300) 0.875 - 3.00 (195,463)
Cancelled.................................. (222,500) 0.875 - 6.00 (831,625)
---------
Outstanding, December 31, 1993............. 1,194,183 0.875 - 7.50 3,149,455
Granted.................................... 289,500 2.250 - 7.00 1,467,750
Exercised.................................. (157,065) 0.875 - 6.25 (372,403)
Cancelled.................................. (18,160) 1.675 - 7.50 (93,980)
---------
Outstanding, December 31, 1994............. 1,308,458 0.875 - 7.00 4,150,822
Granted.................................... 1,487,000 1.438 - 3.81 3,970,814
Exercised.................................. (82,333) 0.875 - 2.00 (110,250)
Cancelled.................................. (615,600) 0.875 - 7.00 (2,135,175)
---------
Outstanding, December 31, 1995............. 2,097,525 $0.875 - $5.25 $ 5,876,211
=========
</TABLE>
14. SEGMENT INFORMATION
The Company operates in one industry segment -- the design and sale of
consumer electronic products.
The Company's foreign operations at December 31, 1995 consist of sales and
distribution facilities in Europe. Transfers between geographic areas are
accounted for at amounts generally above cost and in accordance with the rules
and regulations of the respective governing tax authorities. Corporate assets
are primarily cash and equivalents, marketable securities and real estate held
for sale.
The following tables present a summary of operations by geographic region
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
North America.............................. $ 8,163 $ 23,158 $ 7,390
Export sales from North America............ 1,868 8,538 --
Europe..................................... 4,595 7,052 18,548
Other...................................... -- -- 3,170
------- ------- -------
Total............................ $ 14,626 $ 38,748 $ 29,108
======= ======= =======
Transfer between geographic areas
(eliminated in consolidation):
North America.............................. $ 4,041 $ 1,046 $ 17,781
Europe..................................... 68 1,895 25,284
Other...................................... -- -- 102
------- ------- -------
Total............................ $ 4,109 $ 2,941 $ 43,167
======= ======= =======
</TABLE>
F-13
<PAGE> 140
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Operating loss:
North America.............................. $(51,036) $(21,600) $(14,025)
Europe..................................... (2,629) (2,447) (19,741)
Other...................................... -- -- (13,733)
------- ------- -------
Total............................ $(53,665) $(24,047) $(47,499)
======= ======= =======
Identifiable assets at December 31:
North America.............................. $ 14,588 $ 37,627 $ 17,369
Europe..................................... 1,856 1,650 5,801
Corporate assets........................... 61,125 91,765 51,663
------- ------- -------
Total............................ $ 77,569 $131,042 $ 74,833
======= ======= =======
</TABLE>
No single customer accounted for more than 10% of total revenues for the
years ended December 31, 1995, 1994 or 1993.
15. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases various facilities and equipment under noncancellable
operating lease arrangements. These leases generally provide renewal options of
five additional years. Minimum future lease payments under noncancellable
operating leases as of December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996................................................ $ 670
1997................................................ 460
1998................................................ 183
1999................................................ 85
2000................................................ 74
------
Total minimum lease payments.............. $1,472
======
</TABLE>
Rent expense for operating leases was $1,193,000, $1,218,000 and $1,251,000
for the years 1995, 1994 and 1993, respectively.
Certain claims and suits arising in the ordinary course of business have
been filed or are pending against the Company. The number of such claims has
increased as the Company significantly downsized its development operations. In
the opinion of management, all such matters have been adequately provided for,
are without merit, or are such that if settled unfavorably would not have a
material adverse effect on the Company's consolidated financial position and
results of operations.
16. SUBSEQUENT EVENT
On February 12, 1996, the Company entered into a merger agreement with JT
Storage, Inc. (JTS) providing for the merger of the Company and JTS. On April 8,
1996, the merger agreement was amended and restated. JTS was incorporated on
February 3, 1994 to develop, market and manufacture hard disk drives. The merger
requires shareholder approval and is expected to be consummated in the second
quarter of 1996. In connection with the merger, the Company extended a bridge
loan to JTS in the amount of $25.0 million maturing on September 30, 1996 with a
stated interest rate of 8 1/2% per annum. If the merger is not consummated, the
bridge loan is convertible at the option of Atari or JTS into shares of JTS
Series A Preferred Stock and warrants to acquire JTS Series A Preferred Stock,
subject to certain conditions.
F-14
<PAGE> 141
ATARI CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and equivalents (including $441 and $700 held as restricted
balances at March 31, 1996 and December 31, 1995)................ $ 23,748 $ 28,941
Marketable securities............................................... -- 21,649
Accounts receivable (less allowances for returns and doubtful
accounts:
March 31, 1996 $4,006; December 31, 1995 $4,221)................. 601 2,468
Inventories (See Note 2)............................................ 5,526 10,934
Subordinated secured convertible note with JT Storage, Inc.
(see Note 4)..................................................... 25,000 --
Other current assets................................................ 1,101 1,134
--------- ---------
Total current assets........................................ 55,976 65,126
GAME SOFTWARE DEVELOPMENT COSTS -- Net................................ 861 758
EQUIPMENT AND TOOLING -- Net.......................................... 577 671
REAL ESTATE HELD FOR SALE............................................. 10,468 10,468
OTHER ASSETS.......................................................... 524 546
--------- ---------
TOTAL................................................................. $ 68,406 $ 77,569
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 3,295 $ 4,954
Accrued Liabilities................................................. 5,481 5,088
--------- ---------
TOTAL CURRENT LIABILITIES............................................. 8,776 10,042
--------- ---------
LONG-TERM OBLIGATIONS................................................. 42,354 42,354
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value -- authorized, 10,000,000 shares;
none outstanding................................................. -- --
Common stock, $.01 par value -- authorized, 100,000,000 shares;
(outstanding: March 1996, 63,710,318;
December 1995, 63,687,118)....................................... 637 637
Additional paid-in capital.......................................... 196,272 196,209
Unrealized gain on marketable securities............................ -- 7,088
Accumulated translation adjustments................................. (730) (663)
Accumulated deficit................................................. (178,903) (178,098)
--------- ---------
Total shareholders' equity....................................... 17,276 25,173
--------- ---------
TOTAL....................................................... $ 68,406 $ 77,569
========= =========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 142
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 1996 AND MARCH 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
NET REVENUE............................................................ $ 1,272 $ 4,874
COST AND EXPENSES:
Cost of revenues..................................................... 1,211 3,846
Write-down of inventory.............................................. 5,000 --
Research and development............................................. 201 1,815
Marketing and distribution........................................... 758 2,576
General and administrative........................................... 1,251 1,795
------- -------
Total operating expenses..................................... 8,421 10,032
------- -------
OPERATING LOSS......................................................... (7,149) (5,158)
Gain on sale of marketable securities.................................. 6,347 107
Exchange (loss) gain................................................... (60) 5
Other income(expense), net............................................. 293 201
Interest income........................................................ 332 953
Interest expense....................................................... (569) (581)
------- -------
Loss before income taxes and extraordinary credit...................... (806) (4,473)
------- -------
Provision for income taxes............................................. -- --
------- -------
Loss before extraordinary credit....................................... (806) (4,473)
------- -------
Extraordinary credit -- gain on extinguishment of 5 1/4% convertible
subordinated debentures (see Note 3)................................. -- 47
------- -------
NET LOSS............................................................... $ (806) $(4,426)
======= =======
LOSS PER COMMON SHARE:................................................. $ (0.01) $ (0.07)
======= =======
Number of shares used in computations................................ 63,701 63,701
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 143
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss)............................................................... $ (805) $ (4,426)
Adjustments to reconcile net (loss) to net cash provided (used) by
operating activities:
Gain from extinguishment of 5 1/4% convertible subordinated debentures... -- (47)
Depreciation and amortization............................................ 136 672
Gain on sale of marketable securities.................................... (6,347) (107)
Provision for inventory valuation........................................ 5,000 --
Changes in operating assets and liabilities:
Accounts receivable.................................................... 1,895 5,035
Inventories............................................................ 408 (4,051)
Other assets........................................................... 44 243
Accounts payable....................................................... (1,664) (8,983)
Accrued liabilities.................................................... 386 851
-------- --------
Net cash (used) by operations............................................ (947) (10,813)
INVESTING ACTIVITIES:
Sale of marketable securities............................................ 20,908 492
Proceeds from property sales............................................. 33 --
Property purchases....................................................... -- (51)
Borrowing by JTS......................................................... (25,000) --
Stock dividend received on investment.................................... -- 82
Decrease in other assets................................................. 22 99
Increase in software development costs................................... (103) (2,864)
-------- --------
Net cash (used) by investing activities.................................. (4,140) (2,242)
FINANCING ACTIVITIES:
Repayments of borrowings................................................. -- (100)
Extinguishment of debt................................................... (75) (46)
Issuance of common stock................................................. 63 84
-------- --------
Net cash (used) by financing activities.................................. (12) (62)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH & EQUIVALENTS..................................................... (94) 47
-------- --------
NET DECREASE IN CASH & EQUIVALENTS....................................... (5,193) (13,070)
CASH & EQUIVALENTS:
Beginning of period...................................................... 28,941 22,592
-------- --------
End of period............................................................ $ 23,748 $ 9,522
======== ========
NON CASH INVESTING ACTIVITIES:
Unrealized gain on marketable securities................................. $ -- $ 1,836
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 144
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's 1995 Annual Report on Form 10-K, filed
with the Securities and Exchange Commission.
The unaudited financial statements included herein reflect all adjustments
(which include only normal, recurring adjustments), which are, in the opinion of
management, necessary to state fairly the results for the periods presented. The
results for such periods are not necessarily indicative of the results to be
expected for the full fiscal year.
The Company operates with a 52/53 week fiscal calendar. Both quarters
covered by this report have 13 weeks and for simplicity of presentation, the
calendar quarter date is used to represent the quarter end. The actual fiscal
closing dates for the first quarter of 1996 and 1995 were March 30, and April 1,
respectively.
NOTE 2. INVENTORIES
In the first quarter of 1996, the Company wrote-down inventory by $5.0
million relating to Jaguar products. These write-downs resulted from
management's revised estimates of sales resulting from continued disappointing
sales of Jaguar.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Finished goods....................................... $ 5,049 $ 9,927
Raw materials and work-in-process.................... 477 1,007
------ -------
Total...................................... $ 5,526 $ 10,934
====== =======
</TABLE>
NOTE 3. REPURCHASE OF 5 1/4% SUBORDINATED CONVERTIBLE DEBENTURES
In the first quarter of 1995, the Company repurchased a portion of its
5 1/4% subordinated convertible debentures. The Company repurchased 100 bonds at
face value of $1,000 each, and recorded an extraordinary credit of $47,250.
NOTE 4. MERGER WITH JT STORAGE, INC.
On February 12, 1996, the Company entered into a merger agreement with JT
Storage, Inc. (JTS) providing for the merger of the Company and JTS. On April 8,
1996, the merger agreement was amended and restated. JTS was incorporated on
February 3, 1994 to develop, market and manufacture hard disk drives. The merger
requires shareholder approval and is expected to be consummated in the second
quarter of 1996. In connection with the merger, the Company extended a bridge
loan to JTS in the amount of $25.0 million maturing on September 30, 1996 with a
stated interest rate of 8 1/2% per annum. If the merger is not consummated, the
bridge loan is convertible at the option of Atari or JTS into shares of JTS
Series A Preferred Stock and warrants to acquire JTS Series A Preferred Stock,
subject to certain conditions.
F-18
<PAGE> 145
REPORT OF ARTHUR ANDERSEN LLP
To the Board of Directors of
JTS Corporation:
We have audited the accompanying balance sheets of JTS Corporation (a
Delaware corporation), formerly JT Storage, Inc., as of January 28, 1996 and
January 29, 1995, and the related statements of operations, stockholders'
deficit and cash flows for the year ended January 28, 1996 and the period from
inception (February 3, 1994) to January 29, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JTS Corporation as of
January 28, 1996 and January 29, 1995, and the results of its operations and its
cash flows for the year ended January 28, 1996 and the period from inception
(February 3, 1994) to January 29, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
ARTHUR ANDERSEN, LLP
San Jose, California
April 4, 1996
F-19
<PAGE> 146
JTS CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 547 $ --
Trade accounts receivable, less allowance for doubtful accounts of
$730 and $4, respectively........................................ 1,286 13
Receivable from Moduler Electronics................................. 6,892 1,033
Other receivables................................................... 812 28
Inventories......................................................... 2,093 358
Prepaid and other current assets.................................... 240 154
------- ------
Total current assets........................................ 11,870 1,586
------- ------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Machinery and equipment............................................. 9,231 2,254
Leasehold improvements.............................................. 398 --
Furniture and fixtures.............................................. 1,145 92
Less -- Accumulated depreciation and amortization................... (2,831) (335)
------- ------
7,943 2,011
------- ------
$ 19,813 $ 3,597
======= ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank line of credit................................................. $ 4,323 $ 743
Note payable to stockholder......................................... 1,000 --
Accounts payable --
Trade............................................................ 7,226 1,780
Moduler Electronics.............................................. 9,546 366
Accrued payroll and bonus........................................... 978 249
Other accrued liabilities........................................... 2,523 540
Current portion of capitalized lease obligations and long-term
debt............................................................. 1,520 146
------- ------
Total current liabilities................................... 27,116 3,824
LONG-TERM LIABILITIES:
Capitalized lease obligations and long-term debt, net of current
portion.......................................................... 3,485 61
Convertible notes payable to related parties........................ -- 1,902
Convertible notes payable........................................... -- 3,219
------- ------
Total liabilities........................................... 30,601 9,006
------- ------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
REDEEMABLE SERIES A PREFERRED STOCK:
$.000001 par value; 31,200 shares authorized (increased to 70,000
shares in February 1996); 27,785 shares issued and outstanding in
1996, liquidation value of $29,716............................... 27,785 --
------- ------
STOCKHOLDERS' DEFICIT:
Common stock, $.000001 par value; 60,000 shares authorized
(increased to 90,000 shares in February 1996); 7,367 and 4,833
shares issued and outstanding in 1996 and 1995, respectively..... -- --
Additional paid-in capital.......................................... 6,004 --
Deferred compensation............................................... (4,320) --
Notes receivable from stockholders.................................. (623) --
Accumulated deficit................................................. (39,634) (5,409)
------- ------
Total stockholders' deficit................................. (38,573) (5,409)
------- ------
$ 19,813 $ 3,597
======= ======
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
F-20
<PAGE> 147
JTS CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
52 WEEKS ENDED FROM INCEPTION TO
JANUARY 28, 1996 JANUARY 29, 1995
---------------- -----------------
<S> <C> <C>
REVENUES:
Product sales............................................... $ 13,502 $ --
Technology license revenue.................................. 5,275 --
-------- -------
18,777 --
COST OF PRODUCT SALES......................................... 28,548 --
-------- -------
GROSS MARGIN (DEFICIT)........................................ (9,771) --
-------- -------
OPERATING EXPENSES:
Research and development.................................... 13,375 3,740
Selling, general and administrative......................... 5,579 1,495
Manufacturing start-up costs................................ 3,812 --
-------- -------
Total operating expenses............................ 22,766 5,235
-------- -------
OPERATING LOSS................................................ (32,537) (5,235)
OTHER INCOME (EXPENSE):
Interest income............................................. 108 --
Interest expense............................................ (589) (144)
Other, net.................................................. (32) (30)
-------- -------
NET LOSS...................................................... $(33,050) $(5,409)
======== =======
NET LOSS PER COMMON SHARE..................................... $ (7.17) $ (1.12)
======== =======
SHARES USED IN COMPUTING NET LOSS PER SHARE................... 4,611 4,833
======== =======
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-21
<PAGE> 148
JTS CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
--------------- PAID-IN DEFERRED FROM ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS DEFICIT TOTAL
------ ------ ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION,
FEBRUARY 3, 1994........ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock
to founders at
$.000001 per share... 4,350 -- -- -- -- -- --
Issuance of common stock
at $.000001 in
exchange for
technology license... 483 -- -- -- -- -- --
Net loss for the
period............... -- -- -- -- -- (5,409) (5,409)
----- --- ------ ------- ----- -------- --------
BALANCE, JANUARY 29,
1995.................... 4,833 -- -- -- -- (5,409) (5,409)
Exchange of common stock
for Redeemable Series
A preferred stock.... (483 ) -- -- -- -- (1,000) (1,000)
Issuance costs of
Redeemable Series A
preferred stock...... -- -- -- -- -- (175) (175)
Shares issued under the
stock option plan.... 17 -- 4 -- -- -- 4
Shares issued under
restricted stock
purchase
agreements........... 3,000 -- 6,000 (5,250) (623) -- 127
Amortization of deferred
compensation......... -- -- -- 930 -- -- 930
Net loss................ -- -- -- -- -- (33,050) (33,050)
----- --- ------ ------- ----- -------- --------
BALANCE, JANUARY 28,
1996.................... 7,367 $ -- $6,004 $ (4,320) $ (623) $ (39,634) $(38,573)
===== === ====== ======= ===== ======== ========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-22
<PAGE> 149
JTS CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
52 WEEKS ENDED FROM INCEPTION TO
JANUARY 28, 1996 JANUARY 29, 1995
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $(33,050) $(5,409)
Adjustments to reconcile net loss to net cash used in
operating activities --
Receivable from Moduler Electronics........................ (5,859) (1,033)
Payable to Moduler Electronics for finished goods
inventory................................................ 9,180 366
Depreciation and amortization expense...................... 2,496 551
Reserve for bad debts...................................... 726 4
Issuance of preferred stock for services rendered.......... 30 --
Payables converted to note payable and subsequently to
preferred stock.......................................... 300 1,902
Amortization of deferred compensation...................... 930 --
Changes in assets and liabilities:
Trade receivables........................................ (1,999) (17)
Other receivables........................................ (757) (28)
Inventories.............................................. (1,735) (312)
Prepaid and other current assets......................... (86) (154)
Accounts payable......................................... 5,446 1,780
Accrued liabilities...................................... 2,712 686
-------- -------
Net cash used in operating activities................. (21,666) (1,664)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................ (3,132) (1,984)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit............................. 3,580 743
Proceeds from issuance of common stock........................ 104 --
Proceeds from issuance of preferred stock..................... 18,556 --
Preferred stock issuance costs................................ (175) --
Payments on capital lease obligations......................... (408) (10)
Payments on long-term debt.................................... (90) (90)
Proceeds from notes payable................................... 3,778 3,005
-------- -------
Net cash provided by financing activities............. 25,345 3,648
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS......................... 547 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD............ -- --
-------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.................. $ 547 $ --
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest........................................ $ 449 $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Sale of common stock for notes................................ $ 750 $ --
Equipment purchased under capital leases...................... 5,296 82
Conversion of notes payable to preferred stock................ 9,199 --
Issuance of convertible debt upon Kalok acquisition........... -- 214
Equipment ($280) and inventory ($49) acquired net of related
accrued liabilities of $104 from Kalok..................... -- 225
Issuance of debt upon acquisition of Kalok.................... -- 225
Exchange of TEAC common stock to preferred stock.............. 1,000 --
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-23
<PAGE> 150
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
JTS Corporation (the "Company"), a Delaware corporation, formerly JT
Storage, Inc. (Note 12), was incorporated on February 3, 1994 to develop, market
and manufacture hard disk drives. The Company was a development stage company
prior to the commencement of production shipments in October 1995. Accordingly,
the Company ceased to be in the development stage at that time. Moduler
Electronics (India) Private Limited ("Moduler Electronics"), a company owned by
the family of a major stockholder manufactured, on a contract basis, all of the
Company's products. In April 1996, the Company acquired 90% of Moduler
Electronics (Note 10).
On February 4, 1994, as part of a settlement in United States Bankruptcy
Court, the Company acquired certain assets and assumed certain liabilities of
Kalok Corporation ("Kalok") in exchange for a note payable to the Kalok
Bankruptcy estate (Note 5) and a warrant to Kalok's unsecured creditors (Note
7). Liabilities assumed of $543,172 exceeded the fair market value of assets
acquired by approximately $215,000 which, due to uncertainties regarding its
realization, was expensed in the accompanying 1995 statement of operations. In
connection with the settlement agreement, the Company acquired certain
proprietary disk drive technology from TEAC Corporation ("TEAC") in exchange for
482,850 shares of common stock, which represented 10% of the outstanding Common
Stock of the Company. No value was assigned to the acquired technology as it had
no cost basis to TEAC and the common stock was deemed to have nominal value. On
February 3, 1995, the Company agreed to issue 1,000,000 shares of Redeemable
Series A preferred stock to TEAC in exchange for the return of the 482,850
shares of common stock and the cancellation of a shareholder agreement with TEAC
(Note 8).
The Company has continued to develop its technology and manufacturing
capabilities during fiscal 1996. This development has resulted in substantial
increases in accounts receivable, accounts payable, bank borrowings, and a net
working capital deficit of $15,246,000 as of January 28, 1996. Operations
subsequent to year end indicate the Company has continued to suffer losses and
its working capital deficit has continued to increase. These factors raise a
substantial doubt about the ability of the Company to continue as a going
concern. The Company's management is pursuing plans to merge with Atari
Corporation ("Atari"). In the opinion of management, the merger, if successful,
would raise cash adequate to fund operations for at least the next 12 months.
Thereafter, the Company will require additional funding. Subsequent to year end,
Atari extended a $25 million loan to the Company of which $19.7 million had been
used as of April 4, 1996. In the event the merger (Note 10) is not consummated,
the loan will, at Atari's option, either be due September 30, 1996 or converted
into the Company's preferred stock. In addition, Moduler Electronics received
approval of additional financing from another Indian bank resulting in total
unused credit facilities of approximately $12 million, subject to certain
conditions.
2. ACCOUNTING POLICIES:
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition and Product Warranty
Revenue from product sales is generally recognized upon shipment to
customers. The Company warrants its products against defects in design,
materials and workmanship generally for three years. A provision for estimated
future costs relating to warranty expense is recorded when products are shipped.
F-24
<PAGE> 151
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories include direct materials at third party component manufacturers
(other than Moduler Electronics) and are recorded at the lower of cost
(first-in, first-out) or market and consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Raw materials................................. $2,093 $309
Finished goods................................ -- 49
-----
--
-------
$2,093 $358
======= =======
</TABLE>
Equipment and Leasehold Improvements
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of three years. Repairs and
maintenance costs are expensed as incurred. Major renewals and betterments which
substantially extend the useful life of the asset are capitalized.
The Company had equipment with an historical cost of approximately
$4,400,000 and $530,000 located at Moduler Electronics at January 28, 1996 and
January 29, 1995, respectively.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of salaries, materials and supplies.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires
recognition of deferred tax assets for the expected future effects of all
deductible temporary differences, loss carryforwards and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with maturities of less than three
months to be cash equivalents.
Fiscal year
The fiscal year of the Company is a 52- or 53-week period ending on the
Sunday closest to January 31. The fiscal year for the year ended January 28,
1996 was a 52-week period.
Reclassifications
Certain reclassifications have been made to prior period financial
statements to conform to the current presentation.
Income from Technology License
In February 1995, the Company entered into a technology transfer and
perpetual license agreement. Under this agreement, the Company granted
non-exclusive, perpetual rights to manufacture and sell certain of its products.
In connection with the agreement, the Company was obligated to achieve certain
milestones
F-25
<PAGE> 152
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
regarding the successful completion of engineering tests, the delivery of
working models and the commencement of volume production. As of January 28, 1995
the Company had delivered a working prototype and accordingly, recognized income
of $5,275,000 in connection with achieving specified milestones in fiscal 1996.
The remaining income of $1,125,000 will be recognized as future milestones are
achieved. Funds received under this agreement are not reimbursable to the
licensee.
Net Loss Per Common Share
Net loss per common share is based on the weighted average number of shares
of common stock outstanding during the periods. The outstanding shares and
earnings per share have been restated for all periods presented to reflect the
impact of the stock split described in Note 7.
3. INCOME TAXES:
The significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves............................ $ 292 $ --
Inventory reserves...................................... 1,731 --
Items not currently deductible principally manufacturing
start-up costs related to Moduler Electronics........ 2,327 181
Net operating loss carryforwards........................ 9,930 1,819
Tax credit carryforwards................................ 600 135
--------- --------
Total deferred tax assets................................. 14,880 2,135
Valuation allowance....................................... (14,828) (2,135)
--------- --------
Deferred tax assets, net of valuation allowance........... 52 --
Deferred tax liabilities -- accelerated depreciation...... (52) --
--------- --------
Net deferred tax assets................................... $ -- $ --
========= ========
</TABLE>
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the net deferred tax assets such that a valuation allowance has been recorded to
completely offset the net deferred tax assets. Such factors include recurring
operating losses from inception, recent increases in expense levels to support
the Company's growth, and the fact that the market in which the Company competes
is intensely competitive and is characterized by rapidly changing technology.
For income tax reporting purposes, the Company has Federal and State net
operating loss carryforwards of approximately $27,000,000 and $13,500,000,
respectively, and Federal and State research and development tax credit
carryforwards of approximately $350,000 and $250,000, respectively, all of which
will expire on various dates through 2011.
The Internal Revenue Code contains provisions which may limit the amount of
tax carryforwards available to be used in any given year upon the occurrence of
certain events, including changes in ownership interests.
F-26
<PAGE> 153
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED PARTY TRANSACTIONS:
Moduler Electronics Transactions
As discussed in Note 1, the Company uses Moduler Electronics to manufacture
all of the Company's products. The Company purchased finished goods from Moduler
Electronics amounting to approximately $14 million in fiscal 1996 and the
majority of the accounts payable balance to Moduler Electronics at January 28,
1996 is a result of these purchases.
The Company made cash advances totalling approximately $2.5 million and
also sold fixed assets and inventory totalling approximately $8.3 million to
Moduler Electronics in fiscal 1996.
The advances were made to fund the manufacturing start-up of disk drives
for the Company. Because the Company intended to (and subsequently did) acquire
90% of Moduler Electronics (Note 10) and the ultimate realizability of these
advances is subject to the achievement by Moduler Electronics of successful
operations, the Company has expensed 90% of Moduler's Electronics' fiscal 1996
net loss in order to reflect its investment in Moduler Electronics' start-up
operations.
The Company entered into an agreement with Moduler Electronics whereby the
Company has undertaken to bear all inventory loss and the cost of any future
warranty claims, product return and rework charges. In fiscal 1996, the Company
assumed approximately $3,448,000 and $171,000 of inventory reserve and warranty
costs, respectively.
Notes Receivable From Stockholders
In January 1996, the Company loaned certain executive officers $750,000
which was used by the officers to purchase 3,000,000 shares of common stock
under restricted stock purchase agreements. The notes bear interest at an annual
rate of 5.91% and the principal and interest is payable in four annual
installments. The notes are with full recourse and are collateralized by the
stock purchased. As of February 28, 1996, $127,500 had been collected on these
notes. The remaining balance of $622,500 is included in stockholders' deficit in
the 1996 accompanying balance sheet.
Note Payable to Stockholders
In January and February 1996, the Company entered into unsecured loan
agreements totalling $1,965,000 with certain stockholders. The notes bear
interest at 10% per annum and the principal and interest are due on July 15,
1996.
Convertible Notes Payable
As of January 29, 1995, the Company had $5,121,186 outstanding under
certain convertible notes payable. These notes were converted into 5,121,186
shares of redeemable preferred stock in February 1995. The Company also had
$2,764,953 outstanding under certain convertible notes payable in June 1995
which were converted into 2,764,953 shares of redeemable preferred stock in
August 1995.
5. NOTES PAYABLE:
Bank Line of Credit
In December 1995, the Company established a line of credit for $5 million.
As of April 4, 1996, $4,323,000 was outstanding under the line. The line of
credit is collateralized by certain assets, bears interest at 9.5%, is due
monthly and the principal is due on June 30, 1996. The line of credit contains
certain financial covenants, among others, relating to minimum financial ratios
and minimum tangible net worth. The Company was not in compliance with these
covenants at January 28, 1996. The bank has waived compliance
F-27
<PAGE> 154
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
with these covenants until such time as the merger with Atari occurs (Note 10);
however, the Company may not draw further on the line.
Capitalized Lease Obligations and Long-Term Debt
In conjunction with the purchase of certain assets of Kalok (see Note 1),
the Company issued a non-interest bearing note payable to the Kalok bankruptcy
estate for $225,000. The note is payable in 10 equal quarterly installments of
$22,500, with the final payment due July 1, 1996.
In fiscal 1995, the Company entered into equipment lease agreements under
which it can lease up to $6.5 million of equipment through July 1996. Payments
are due in equal monthly installments over a 36 to 48 month period. As of
January 28, 1996, the cost of the leased assets was $5,377,588 and the related
accumulated depreciation was $1,087,644. The leases bear interest between 11.5%
and 18.2%.
The following is a schedule of future payments under the note payable to
Kalok and equipment leases together with the present value of the net minimum
lease payments at January 28, 1996:
<TABLE>
<CAPTION>
YEARS ENDING
----------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997........................................... $ 2,077
1998........................................... 2,021
1999........................................... 2,198
2000........................................... 285
--------
Total net minimum lease payments............... 6,581
Less -- Amount representing interest........... (1,576)
--------
Present value of net minimum lease payment..... 5,005
Less -- Current portion........................ (1,520)
--------
Long term portion.............................. $ 3,485
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Company leases its facilities and certain equipment under
non-cancelable operating leases. The future payments under these leases at
January 28, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
----------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997........................................... $ 583
1998........................................... 578
1999........................................... 553
2000........................................... 571
2001........................................... 243
------
$2,528
======
</TABLE>
Total rent expense for the periods ended January 29, 1995 and January 28,
1996 was approximately $180,000 and $425,000, respectively.
Royalty Obligation
As discussed in note 1 the Company licenses certain technology from TEAC.
In the event the Company commences selling certain products incorporating
certain TEAC Technology it will incur a royalty obligation of up to 2% of sales
for a certain period. The Company was not marketing any products incorporating
TEAC developed technology and accordingly, no royalties were due as of January
28, 1996.
F-28
<PAGE> 155
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMON STOCK:
Stock Split and Capitalization
In February 1995, the Board of Directors approved a 4,350-for-1 common
stock split. All share and per share amounts in the accompanying financial
statements have been restated to reflect this split. In February 1996 the
Company amended its certificate of incorporation and authorized 90,000,000 and
70,000,000 shares of common and Redeemable Series A Preferred Stock,
respectively.
Warrants
The Company has issued warrants to purchase 100,000 shares of common stock
to the unsecured creditors of Kalok Corporation in conjunction with the
Company's acquisition of Kalok's assets. The warrants may be exercised for a
one-year period commencing on the earlier of the closing of an initial public
offering or the public registration of the Company's stock. The exercise price
of the warrant is 25% of the initial public offering price or the fair market
value of the Company's stock if the Company becomes a public registrant absent
an initial public offering. Such warrants were deemed to have nominal value at
the issuance date and, accordingly, are carried at no value in the accompanying
financial statements.
The Company has also issued warrants to purchase 500,000 shares of common
stock at $1.00 and $3.00 to the equipment lease company and the bank with which
it has a line of credit, respectively. The warrants may be exercised at any time
before various dates through 2001. In the event of any acquisition, the warrant
to purchase 450,000 shares issued to the equipment lease company will terminate.
Restricted Stock Purchase Agreement
The Company issued 3,000,000 shares of its common stock to certain officers
in exchange for a $750,000 note receivable (Note 4). The Company has the right
to repurchase the unvested portion of the shares at the original purchase price.
The Company's right to repurchase these shares lapses over 48 months. Such
shares, however, will automatically vest in the event there are certain changes
of control of the Company. The merger (Note 10) constitutes a change of control.
As of January 28, 1996, 2,469,271 shares issued were subject to repurchase. In
connection with the issuance of the common stock the Company recorded deferred
compensation of $5,250,000 for the difference between the per share sales price
of $.25 and $2.00 (the per share fair market value at the date of grant for
financial reporting purposes). The Company will recognize the deferred
compensation as expense over the related vesting period.
Stock Option Plan
The Company has reserved 4,300,000 shares of common stock for issuance
under its 1995 Stock Option Plan. Under the plan, either incentive or
nonstatutory stock options may be granted to purchase shares of common stock.
Nonstatutory stock options may be granted to employees, nonemployee members of
the Board of Directors and consultants at prices not less than 85% of the fair
value of the stock at the date of the grant, as determined by the Board.
Incentive stock options may be granted only to employees at prices not lower
than the fair value of the stock at the date of grant, as determined by the
Board. Options granted under the plan are generally exercisable at any time, and
expire no later than ten years from the date of grant. Options granted vest at a
rate of 25% per annum.
The following table presents the option activity under the Option Plan for
the period from inception to January 28,1996.
F-29
<PAGE> 156
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE
OPTIONS PER SHARE
--------- ---------
<S> <C> <C>
Options outstanding at January 29, 1995..................... -- --
Granted..................................................... 3,996,675 $ .25
Exercised................................................... (16,729 ) $ .25
Forfeited................................................... (219,199 ) $ .25
--------- ----
Options outstanding at January 28, 1996..................... 3,760,747 $ .25
--------- ----
Exercisable at January 28, 1996............................. 627,193 $ .25
========= ====
</TABLE>
In February and March 1996, the Company issued options to purchase 486,000
shares of common stock to various employees. Such options are ratably
exercisable ranging from $.25 to $2.95 per share and vest ratably over a four
year period.
In March 1996, two officers purchased 1,000,000 shares of the Company's
Common Stock each at a purchase price of $1.00 per share. All of such shares are
subject to a right of repurchase which lapses after five years of service with
the Company provided, however, that the right of repurchase will lapse at the
rate of one-eighth in September 1996 and 1/48(th) per month thereafter if the
merger with Atari closes (Note 10).
Common Stock Reserved for Future Issuance
As of January 28, 1996, the Company has reserved the following shares of
common stock for issuance in connection with:
<TABLE>
<S> <C>
Conversion of redeemable preferred stock................. 27,785,370
Conversion of redeemable preferred stock expected to be
issued in connection with the Moduler Electronics
acquisition............................................ 1,911,000
Stock option plan........................................ 4,283,271
Warrants to purchase common stock........................ 600,000
----------
34,579,641
==========
</TABLE>
8. REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK:
In fiscal 1996, the Company issued 27.8 million shares of Series A
preferred stock at $1.00 per share for cash and conversion of certain notes
payable. The Company also issued 30,000 shares of Series A preferred stock to a
consultant for services. The Company also issued 1,000,000 shares of preferred
stock to TEAC in exchange for 482,850 shares of the Company's common stock and
the termination of the TEAC stockholder agreement. The exchange with TEAC was
accounted for as an equity transaction and the value of the preferred stock
issued was charged to accumulated deficit in the accompanying 1996 statement of
operations.
The rights, restrictions and preferences of the preferred stock are as
follows:
- Annual dividends of $.09 per share per annum, when and if declared by the
Board of Directors. Dividends are cumulative and are payable, at the
option of the Company, in cash or shares of common stock.
- In the event of any liquidation, dissolution or winding up of the
Company, the holders of preferred stock shall be entitled to receive
proceeds equal to $1.00 per share plus the greater of (i) all cumulative
unpaid dividends or (ii) any declared and unpaid dividends for preferred
stock then held by them. This distribution will occur prior to any
distribution to the common shareholders. At January 28, 1996, the
liquidation preference was $29,715,761.
F-30
<PAGE> 157
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- Upon the election of the holders of a majority of the outstanding shares
of preferred stock, 33%, 33% and 34% of the stock will be redeemed in
cash by the Company on February 4, 2000, February 4, 2001, and February
4, 2002, respectively. The redemption price shall be equal to $1.00 plus
all accrued but unpaid dividends.
- The following table represents the redemption amounts required under the
agreement:
<TABLE>
<CAPTION>
YEAR
--------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
2000......................................... $ 9,905
2001......................................... 9,905
2002......................................... 9,906
-------
$ 29,716
=======
</TABLE>
- At the option of the holder, each preferred share is convertible into one
share of common stock. The conversion rate is subject to change upon the
occurrence of certain events. The preferred stockholders have agreed to
convert each share of preferred stock into one share of common stock
prior to the closing of the merger with Atari (Note 10).
- The preferred stock converts automatically into common stock at the
earlier of (i) the closing of an underwritten public offering of the
Company's common stock at a price of not less than $5.00 per share and an
aggregate offering price of greater than $10,000,000, or (ii) upon the
affirmative election of the holders of at least 66.7% of the then
outstanding preferred stock.
- The holders of preferred stock are entitled to one vote for each share of
common stock into which such share may be converted.
9. EXPORT SALES AND SIGNIFICANT CUSTOMERS:
The Company operates in a single industry segment. The Company markets its
products in the United States and in foreign countries through its sales
personnel, independent sales representatives and original equipment
manufacturers. The Company's geographic sales as a percent of 1996 net revenues
are as follows:
<TABLE>
<S> <C>
United States.......................................... 19%
Europe................................................. 81%
---
100%
===
</TABLE>
Sales to major customers as a percentage of 1996 product sales are as
follows:
<TABLE>
<S> <C>
Olidata................................................. 34%
Connexe................................................. 12%
Liuski.................................................. 11%
Aashima................................................. 10%
</TABLE>
10. PROPOSED MERGER AND ACQUISITION:
Atari Corporation
On February 12, 1996, the Company entered into a merger agreement with
Atari providing for the merger of the Company and Atari. The merger requires
shareholder approval and is expected to be consummated in the second quarter of
calendar year 1996. In connection with the merger, Atari extended a bridge loan
to the Company in the amount of $25.0 million maturing on September 30, 1996
with a stated interest rate of 8 1/2% per annum. If the merger is not
consummated, the bridge loan is convertible at the option of Atari or the
F-31
<PAGE> 158
JTS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company into shares of the Company's Series A preferred stock and warrants to
acquire the Company's Series A preferred stock, subject to certain conditions.
Moduler Electronics
In March 1995, the Company agreed to acquire the hard disk drive division
of Moduler Electronics for 1,911,673 shares of the Company's Series A preferred
stock and a warrant to purchase 500,000 shares of the Company's common stock at
an exercise price of $.25 per share. The Company subsequently assumed
operational and management control of certain portions of the hard disk drive
business of Moduler Electronics. The verbal agreement contemplated that prior to
the Company's acquisition, Moduler Electronics would divest itself of certain
voice coil assembly and other operations not directly involved in its hard disk
drive business.
In April 1996, following Moduler Electronics' divestiture of its voice coil
business and businesses unrelated to its hard disk drive operations, the Company
acquired 90% of the outstanding capital stock of Moduler Electronics. Upon the
closing of the transaction, the Company acquired the stock in consideration for
1,911,673 shares of the Company's Series A preferred stock and a warrant to
purchase 750,000 shares of the Company's common stock at an exercise price of
$0.25 per share. The warrant is immediately exercisable as to 500,000 shares of
the Company's common stock and becomes exercisable with respect to the remaining
250,000 shares when there becomes available to Moduler Electronics certain
borrowings and credit facilities in the amount of $29,000,000. Subject to the
foregoing, the warrant may be exercised at any time until February 25, 2001.
11. RETIREMENT SAVING PLAN
In January 1996, the Company adopted the Employee 401(K) Saving Plan ("the
plan"). The plan covers substantially all of employees and allows participants
to defer a portion of their annual compensation on a pre-tax basis. The plan
permits, but does not require, additional matching contributions and profit
sharing contributions to the plan by the Company on behalf of all participants.
In fiscal 1996, the Company did not make any such contributions.
12. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
Change in Name
On June 18, 1996, the Company changed its name to JTS Corporation from JT
Storage, Inc.
Litigation
The Company has been served with a complaint filed in the Superior Court of
the State of California in and for the County of Santa Clara by Venture Lending
& Leasing, Inc. ("VLLI") relating to the relocation of certain leased equipment
from its initial location to Madras, India, in alleged violation of the lease
agreement. The complaint alleges fraud and breach of the lease agreement and
seeks damages of approximately $4.6 million.
F-32
<PAGE> 159
JTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 28,
1996
APRIL 28, -----------
1996
---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalent and restricted cash............................. $ 5,116 $ 547
Trade accounts receivable, less allowance for doubtful accounts of
$1,086 and $730, respectively....................................... 9,608 1,286
Receivable from Moduler Electronics................................... -- 6,892
Other receivables..................................................... 1,182 812
Inventories........................................................... 12,983 2,093
Prepaid and other current assets...................................... 1,585 240
------ ------
30,474 11,870
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net............................. 16,212 7,943
GOODWILL.............................................................. 185 --
------ ------
TOTAL....................................................... $ 46,871 $ 19,813
====== ======
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank line of credit................................................... $ 10,277 $ 4,323
Notes payable to stockholders......................................... 1,965 1,000
Note payable to Atari Corporation..................................... 25,000 --
Accounts payable --
Trade............................................................... 18,240 7,226
Moduler Electronics................................................. -- 9,546
Accrued liabilities................................................... 4,536 3,501
Current portion of capitalized lease obligation and long-term debt.... 1,651 1,520
------ ------
61,669 27,116
------ ------
LONG-TERM OBLIGATIONS................................................. 6,381 3,485
------ ------
REDEEMABLE SERIES A PREFERRED STOCK:
$.000001 par value -- authorized 70,000 shares; outstanding: 29,687
and 27,785 shares, respectively..................................... 29,697 27,785
------ ------
STOCKHOLDERS' DEFICIT:
Common stock, $.000001 par value -- authorized 90,000 shares;
outstanding: 9,421 and 7,367 shares, respectively................... -- --
Additional paid-in capital............................................ 8,213 6,004
Deferred compensation................................................. (3,990) (4,320)
Notes receivable from stockholders.................................... (2,610) (623)
Accumulated deficit................................................... (52,489) (39,634)
------ ------
(50,876) (38,573)
------ ------
TOTAL....................................................... $ 46,871 $ 19,813
====== ======
</TABLE>
See accompanying notes.
F-33
<PAGE> 160
JTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 28, 1996 APRIL 30, 1995
-------------- --------------
<S> <C> <C>
REVENUE:
Product sales................................................... $ 17,481 $ 48
Technology license revenue...................................... 100 2,029
-------------- -------
17,581 2,077
-------------- -------
COST AND EXPENSES:
Cost of sales................................................... 19,434 43
Research and development........................................ 7,406 1,758
Selling, general and administrative............................. 3,103 718
-------------- -------
29,943 2,519
-------------- -------
OPERATING LOSS (12,362) (442)
Interest income................................................... 105 --
Interest expense.................................................. (542) --
Other expense, net................................................ (56) (2)
-------------- -------
NET LOSS $(12,855) $ (444)
========== ==========
NET LOSS PER COMMON SHARE......................................... $ (1.47) $(0.10)
========== ==========
SHARES USED IN COMPUTING NET LOSS PER SHARE....................... 8,732 4,360
========== ==========
See accompanying notes.
</TABLE>
F-34
<PAGE> 161
JTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------
APRIL 28, 1996 APRIL 30, 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operations....................................... $(21,216) $ (3,228)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property purchases................................................ (1,763) (1,654)
Cash acquired from the Moduler acquisition........................ 1,634 --
-------- --------
Net cash used in investing activities............................. (129) (1,654)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock......................... -- 8,855
Proceeds from note payable -- Atari Corporation................... 25,000 --
Other............................................................. 914 (841)
-------- --------
Net cash provided by financing activities......................... 25,914 8,014
NET INCREASE IN CASH AND EQUIVALENTS.............................. 4,569 3,132
CASH AND EQUIVALENTS:
Beginning of period............................................... 547 --
-------- --------
End of period..................................................... $ 5,116 $ 3,132
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of preferred stock in connection with the Moduler
acquisition..................................................... $ 1,912 $ --
Assets of $17,296 acquired net of related liabilities of $15,449
assumed from Moduler............................................ 1,847 --
======== ========
</TABLE>
See accompanying notes.
F-35
<PAGE> 162
JTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, in the opinion of management, the accompanying
financial statements include all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles. The
condensed financial statements should be read in conjunction with the financial
statements and notes thereto for the full year included elsewhere in this
document.
The Company operates with a 52/53 week fiscal calendar. Both quarters
covered by this report have 13 weeks and for simplicity of presentation, the
calendar quarter date is used to represent the quarter end. The actual fiscal
closing date for the first quarter of 1996 and 1995 was April 28 and April 30,
respectively.
NOTE 2. ACQUISITION OF MODULER ELECTRONICS
In April 1996, the Company acquired 90% of the outstanding shares of
Moduler Electronics, a disk drive manufacturer. The Company acquired the stock
in consideration for 1,911,673 shares of the Company's Series A preferred stock
and a warrant to purchase 750,000 shares of the Company's common stock at an
exercise price of $0.25 per share. The acquisition was accounted for as a
purchase.
In connection with the acquisition, net assets acquired were as follows:
<TABLE>
<S> <C>
Inventories and other current assets.............................. $ 9,542
Equipment and leasehold improvements.............................. 7,754
Current liabilities assumed....................................... (12,681)
Long-term liabilities assumed..................................... (2,768)
--------
Net assets acquired..................................... $ 1,847
========
</TABLE>
The table below reflects condensed pro forma operating results of the
combined companies for the three months then ended as if the acquisition took
place at the beginning of each period.
<TABLE>
<CAPTION>
APRIL 28, APRIL 30,
1996 1995
--------- ---------
<S> <C> <C>
Revenues................................................ $ 17,581 $ 2,077
Net loss................................................ $ (12,820) $ (1,143)
</TABLE>
NOTE 3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 28, JANUARY 28,
1996 1996
--------- -----------
<S> <C> <C>
Raw materials.......................................... $ 9,355 $ 2,093
Work in process........................................ 3,353 --
Finished goods......................................... 275 --
------- ------
$ 12,983 $ 2,093
======= ======
</TABLE>
NOTE 4. MERGER WITH ATARI CORPORATION
On February 12, 1996, the Company entered into a merger agreement with
Atari providing for the merger of the Company and Atari. On April 8, 1996, the
merger agreement was amended and restated. The merger required shareholder
approval and is expected to be consummated in the second quarter of 1996. In
connection with the merger, Atari extended a bridge loan to the Company in the
amount of $25.0 million maturing on September 30, 1996 with a stated interest
rate of 8 1/2% per annum. If the merger is not consummated, the bridge loan is
convertible at the option of Atari or the Company into shares of the Company's
Series A preferred stock, subject to certain conditions.
F-36
<PAGE> 163
REPORT OF ARTHUR ANDERSEN LLP
To Moduler Electronics (India) Private Limited:
We have audited the accompanying statements of assets and liabilities of
The Hard Disk Drive Division of Moduler Electronics (India) Private Limited as
of January 28, 1996 and January 31, 1995, and the related statements of revenues
and expenses and cash flows for the year ended January 28, 1996. These financial
statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The financial statements referred to above have been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the joint proxy statement of Atari
Corporation and JTS Corporation, formerly JT Storage, Inc.) as described in Note
1, and are not intended to be a complete presentation of the assets,
liabilities, revenues, expenses and cash flows of Moduler Electronics (India)
Private Limited.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of The Hard Disk Drive
Division of Moduler Electronics (India) Private Limited as of January 28, 1996
and January 31, 1995, and the related revenues, expenses and cash flows for the
year ended January 28, 1996 in conformity with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Division will continue as a going concern. As discussed in Note 1 to the
financial statements, the Division has suffered a loss from operations and has
an excess of liabilities over assets that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
San Jose, California
April 4, 1996
F-37
<PAGE> 164
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
STATEMENTS OF ASSETS AND LIABILITIES
(CURRENCY: UNITED STATES DOLLAR, IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 488 $ 65
Restricted cash balances............................................ 380 197
Due from other business units, net.................................. -- 776
Advances to suppliers............................................... 249 12
Inventories......................................................... 5,983 1,296
Prepaid expenses and other current assets........................... 264 61
------- ------
Total current assets........................................ 7,364 2,407
PLANT AND EQUIPMENT, at cost, net of accumulated depreciation......... 5,603 1,645
------- ------
Total assets................................................ $12,967 $ 4,052
------- ------
LIABILITIES
CURRENT LIABILITIES:
Secured short term borrowings....................................... $ 6,085 $ 367
Current portion of long term loans and capital lease obligations.... 105 67
Due to related parties, net......................................... 1,168 1,261
Accounts payable.................................................... 6,268 1,494
Accrued liabilities................................................. 197 46
------- ------
Total current liabilities................................... 13,823 3,235
CAPITAL LEASE OBLIGATIONS, net of current portion..................... 21 --
SECURED LONG TERM LOANS, net of current portion....................... 2,742 200
------- ------
Total liabilities........................................... 16,586 3,435
------- ------
NET (LIABILITIES) ASSETS.............................................. $(3,619) $ 617
======= ======
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-38
<PAGE> 165
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
STATEMENT OF REVENUES AND EXPENSES
FOR THE PERIOD FROM FEBRUARY 1, 1995 TO JANUARY 28, 1996
(CURRENCY: UNITED STATES DOLLAR, IN THOUSANDS)
<TABLE>
<S> <C>
NET REVENUES...................................................................... $ 15,580
COST OF GOODS SOLD................................................................ (19,160)
--------
Gross margin (deficit)....................................................... (3,580)
OTHER INCOME/(EXPENSE):
Interest and other income....................................................... 141
Foreign currency loss........................................................... (333)
Interest expense................................................................ (464)
--------
Net loss........................................................................ $ (4,236)
========
</TABLE>
The accompanying notes to financial statements are
an integral part of this statement.
F-39
<PAGE> 166
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 1, 1995 TO JANUARY 28, 1996
(CURRENCY: UNITED STATES DOLLAR, IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $(4,236)
Adjustments to reconcile net loss to net cash used in operating activities --
Depreciation expense.......................................................... 667
Write-off of plant and equipment.............................................. 558
Decrease/(increase) in current assets --
Due from other business units, net.......................................... 776
Advances to suppliers....................................................... (237)
Inventories................................................................. (4,687)
Prepaid expenses and other current assets................................... (203)
Increase (decrease) in current liabilities --
Due to related parties, net................................................. (93)
Accounts payable............................................................ 4,774
Accrued liabilities......................................................... 151
--------
Net cash used in operating activities.................................... (2,530)
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment................................................. (2,491)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net secured short term borrowings................................................ 5,718
Principal payments under secured long term loan.................................. (91)
--------
Net cash provided by financing activities................................ 5,627
--------
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH......................... 606
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period.................... 262
--------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period.......................... $ 868
========
</TABLE>
The accompanying notes to financial statements are
an integral part of this statement.
F-40
<PAGE> 167
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS AND BASIS OF PRESENTATION:
BASIS OF STATEMENTS
The accompanying statements of assets and liabilities of the Hard Disk
Drive Division ("the Division") of Moduler Electronics (India) Private Limited
("the Company") as of January 31, 1995 and January 28, 1996 and the related
statements of revenues and expenses and of cash flows for the period from
February 1, 1995 to January 28, 1996 ("the statements") have been prepared in
conformity with generally accepted accounting principles in the United States of
America, from the accounting books and records maintained by the Company at
Madras, India. The statements have been prepared for the purpose of inclusion in
the registration statement on Form S-4 to be filed by JTS Corporation ("JTS",
formerly JT Storage, Inc.) in compliance with the rules and regulations of the
Securities and Exchange Commission. The Form S-4 filing of JTS is pursuant to
its proposed acquisition of Atari Corporation ("Atari"). In April 1996, JTS
acquired 90% of the outstanding equity shares of the Company. The Division is
likely to be the only remaining business of the Company after the transfer of
the Voice Coil Magnetic Assembly ("VCMA") business to an entity owned by the
Chairman of the Company and his family members. As of April 4, 1996, this
transfer had been made, subject to completion of legal documentation.
Although the Company began business in fiscal 1986, the Division first
began significant operations in fiscal 1996. Division operations prior to fiscal
1996 were insignificant; accordingly, the accompanying financial statements
include the Statements of Assets and Liabilities of the Division as of January
28, 1996 and January 31, 1995 and the related Statement of Revenues and Expenses
for the period from February 1, 1995 to January 28, 1996. These statements were
prepared from the Balance Sheet and the Income Statement, respectively, of the
total businesses of the Company, from which balances and transactions relating
to the businesses that are being divested were excluded.
The Division developed its disk drive manufacturing capabilities during
fiscal 1996 which has resulted in an operating loss and a working capital
deficit of $6,459,000. In addition, the Company will require additional capital
in order to achieve volume production. The Division's disk drive production is
dedicated exclusively to JTS and JTS has recently completed its acquisition of
90% of the Division. The auditors' report on the JTS financial statements dated
April 4, 1996 contains a paragraph regarding a substantial doubt regarding the
ability of JTS to continue as a going concern. These factors raise a substantial
doubt about the Division's ability to continue as a going concern. As discussed
above, JTS plans to merge with Atari. In the opinion of management, the Atari
merger, if successful, would raise capital adequate to fund operations for the
next 12 months.
Since the Company did not maintain separate accounting records for the
Division, certain estimates, which management believed to be reasonable, were
required in order to segregate the Division's account balances as of January 31,
1995 as well as to reflect the proposed divestiture of other businesses as of
January 28, 1996. The segregation of account balances relating to the Division
was made on the following bases:
- Identification basis -- Account balances relating to assets, liabilities,
revenues and expenses ("account balances") pertaining to the Division
were specifically identified and segregated.
- Agreed basis -- Account balances which have been specifically agreed to
be assumed by the Division were identified and segregated.
- Transfer basis -- Account balances pertaining to other businesses which
were being divested, were identified and excluded.
F-41
<PAGE> 168
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- Allocation basis -- Account balances related to expenses incurred by the
Company for the Division have been included in total as the Division was
the significant portion of the Company's operations for fiscal 1996.
INCORPORATION
The Company was incorporated on March 24, 1986 as a private company under
the Indian Companies Act, 1956 in the state of Maharashtra. The Company is owned
principally by Asperal Holdings, Inc. and Dexar Holdings, Inc., companies
registered in Panama, which have a 45% equity stake each. The remaining 10% of
the Company's outstanding equity shares are owned by the Chairman of the
Company, Mr. Manohar Lal Tandon, and his relatives ("the Tandon Family").
The Company was established to operate a 100 percent Export Oriented Unit
("EOU") in the Madras Export Processing Zone ("MEPZ"), a free trade zone
established by the Government of India at Madras, Tamil Nadu, India. The
Company's industrial unit is located in a government provided low cost standard
design factory within the MEPZ. The Company initially undertook the manufacture
of computer hard disk drive components such as Head Gimble Assemblies ("HGA")
and Head Stack Assemblies ("HSA"). During the first five years of operations,
the Company diversified its product line to include two other products, namely,
VCMA and Switch Mode Power Supplies ("SMPS").
During fiscal 1994, the Company closed its SMPS division and established
another EOU for the assembly of hard disk drives. Under the approval obtained
from the Government of India in September 1994, the Company was originally
licensed to manufacture, on an average, 286,000 hard disk drives annually. In
November 1995, the Company obtained a revised approval to manufacture, on an
average, 807,000 hard disk drives and 418,000 subassemblies (i.e., HGAs and
HSAs) annually. In December 1994, the Company discontinued production of HGAs
and HSAs for customers other than JTS, with which it began collaborations to
manufacture hard disk drives.
Though the Division started shipping nominal quantities in January 1995,
commercial production of hard disk drives commenced only in October 1995. The
Company continued to produce VCMAs until January 18, 1996 when the VCMA business
was transferred to a related party. Prior to its divestiture, a portion of the
voice coil assemblies produced by the VCMA business was used in the manufacture
of hard disk drives, while the rest were sold to a related party. Except for the
VCMA business, the Company operated as a captive manufacturer for JTS during
fiscal 1996. With its association, JTS has assumed operational and management
control of certain portions of the Division and has provided financing for the
hard disk drive business and corporate support in areas such as process
engineering, tooling, vendor selection and financial management. Since assuming
operational control, JTS has employed several expatriates consisting of disk
drive industry professionals who have filled senior positions in engineering,
manufacturing, quality control and materials management functions of the
Division.
Export Oriented Unit
In order to encourage export oriented businesses and foreign currency
inflows, the Government of India offers special incentives to EOUs established
in export processing zones such as state grants and subsidies, exemptions
relating to import licenses, exemptions from payment of customs duty on imported
inputs and excise duty on local material procurements, and allotment of low cost
factory space. Such EOUs are also exempted from payment of corporate income
taxes for a block of five years during the first eight years of operations,
subject to fulfillment of certain conditions. Currently, export earnings
received in convertible foreign currency continue to be exempt from tax, even
after the tax holiday period.
F-42
<PAGE> 169
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Current Operations
The Division currently manufactures hard disk drives with different
capacity points, based on technical know-how and designs provided by JTS. The
Division's products are marketed through JTS under the trade names Palladium and
Nordic, and are sold to original equipment manufacturers and system integrators
who incorporate the products into desktop and notebook computers. The Division
remained in development stage until October 1995 when it first started shipping
commercial quantities.
Sources of Supply
Many components incorporated in, or used in the manufacture of, the
Division's products are currently sourced from a single supplier. JTS procures
components for the Division, which it purchases from third party manufacturers
and in turn sells or consigns to the Division. JTS' customers have placed
certain restrictions on vendor and design changes.
The Division purchases all of its components and equipment pursuant to
purchase orders placed from time to time and has no guaranteed supply
arrangements. In the past, there have been certain instances of supply shortages
which had caused delays in manufacturing and loss of sales. Supply shortages
resulting from a change in suppliers could cause a delay in manufacturing and
possible loss of sales, which would have a material adverse impact on the
Division's operating results. Further, the Division produces in-house a number
of critical subassemblies incorporated in the final hard disk drive product.
Failure to produce these subassemblies in adequate quantity or quality could
also adversely impact the operating results of the Division.
Manufacturing Relationships
In the past, the Company has sold subassemblies and other components to
Xyratex in Havant, United Kingdom for the manufacture of hard disk drives under
a subcontract manufacturing agreement between Xyratex and JTS. With the
commencement of commercial production of hard disk drive products by the Company
in October 1995, the Division stopped supplying Xyratex.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Foreign Currency Translation
The Division has determined the United States ("US") dollar to be its
functional currency, in accordance with the Statement of Financial Accounting
Standards No 52, "Foreign Currency Translation", based on indicators such as
cash flows, sales market, sales price, expense, financing and inter-company
transactions and arrangements. Since the Division's books are maintained in
Indian rupees which is not its functional currency, account balances were first
remeasured in US dollar. Since the Division's functional and reporting
currencies are the same, the remeasurement process is intended to produce the
same result as if the Division's books had been maintained in the functional
currency, and obviates separate translation.
Nonmonetary assets and liabilities such as inventories, plant and equipment
and accumulated depreciation thereon have been remeasured using historical
currency exchange rates prevailing at the dates transactions relating to such
elements were recognized in the statements. Expenses related to such nonmonetary
assets and liabilities such as manufacturing overhead costs included in cost of
goods sold have been remeasured using average exchange rates for the period to
approximate remeasurement at the historical exchange rates prevailing at the
dates those elements were recognized in the statements.
All other monetary assets and liabilities that are not denominated in the
Division's functional currency have been translated at the current exchange
rates prevailing on the dates of the statements. Exchange gains
F-43
<PAGE> 170
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and losses from such translation of monetary assets and liabilities have been
recognized in determining net loss for the current period.
Certain expenses and cash flows have been translated at average exchange
rates for the period to approximate translation at the exchange rates prevailing
at the dates those elements were recognized in the statements.
Gains and losses on foreign currency transactions have been included in
determining net loss for the current period in the Statement of Revenues and
Expenses.
Pervasiveness of Estimates
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the dates of the statements and the
related amounts of revenues and expenses during the reporting period. The
Company has maintained its books of accounts in accordance with Indian
accounting standards and in the local currency, the Indian rupee. As discussed
above, the Division's statements have been remeasured into US dollar in
accordance with the Statement of Financial Accounting Standards No 52. As
discussed in Note 1, certain assumptions and estimates which, management
believed to be reasonable, were required to segregate the Division's account
balances from those relating to the rest of the Company's businesses as of
January 31, 1995 and to reflect the divestiture of other businesses as of
January 28, 1996. Actual results could have been different from these estimates
and remeasurements.
Revenue Recognition
Revenues on product sales are recognized at the time of shipment and
include incentives provided by the Government of India on export sales.
Substantially, all shipments are sent directly to JTS' end customers, but are
invoiced by the Division to JTS, which in turn bills and collects from the end
customers.
The Division's accounts receivables as of the dates of the statements
comprised of receivables outstanding from JTS arising from sale of hard disk
drives and receivables from a related party arising from sale of VCMAs. The
Company has not experienced bad debts associated with either of these customers
in the past, and accordingly, has not recorded an allowance for doubtful
accounts.
Due from Other Business Units, Net
As of January 31, 1995, due from other business units represent the excess
of assets over liabilities of the Company's businesses excluding the Division.
Such receivables are expected to be collected within the next twelve months.
Inventories
Inventories include direct materials, freight thereon, direct labor and
related manufacturing overhead costs. The Division values its inventories at
cost, determined on first in, first out ("FIFO") basis, or market value,
whichever is lower.
F-44
<PAGE> 171
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials......................................... $ 2,520 $ 1,225
Work-in-process....................................... 1,660 71
Finished goods........................................ 1,803 --
------ ------
$ 5,983 $ 1,296
====== ======
</TABLE>
JTS and the Division have an agreement whereby JTS has undertaken to bear
all inventory losses the Division might incur by repurchasing such inventories
from the Division at their carrying value. As of January 28, 1996, JTS assumed
inventory valued at $2,747,802, which is netted against the inventory balance
shown above.
Plant and Equipment
Plant and equipment is recorded at cost and depreciation is computed using
the straight line method over the estimated useful lives of the assets.
Plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE JANUARY 28, JANUARY 31,
(YEARS) 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Machinery and equipment............................ 2 - 7 $ 6,703 $ 2,237
Furniture, fixtures and miscellaneous assets....... 2 - 6 288 129
----- ------- ------
6,991 2,366
Less -- Accumulated depreciation................... (1,388) (721)
------- ------
$ 5,603 $ 1,645
======= ======
</TABLE>
Costs of normal repairs and maintenance are expensed as incurred. Major
replacements or betterments of plant and equipment are capitalized. When items
are sold or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in
determining net loss. The amount expensed for repairs and maintenance for the
period from February 1, 1995 to January 28, 1996 was $494,104.
The Division has certain specialized manufacturing equipment used in its
operations.
Income Tax
Under the Indian Income Tax Act, 1961, the Division, being an EOU located
in an export processing zone, is exempted from payment of corporate income taxes
for a block of five years during the first eight years of operations, subject to
fulfillment of certain conditions.
The Division continues to be exempt from income tax to the extent of income
attributable to the export sales of the Division. As the Division did not have
any taxable income for the period from February 1, 1995 to January 28, 1996, no
provision for income tax has been made.
F-45
<PAGE> 172
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warranty Costs
The Division manufactures disk drive products to customer specifications
and components for such disk drives are sourced from vendors specified by JTS.
JTS generally provides a three year limited warranty on the Palladium and Nordic
drives manufactured by the Division and has agreed to bear the costs of all
warranty claims, product returns and rework charges. Accordingly, no warranty
cost has been recorded in the Division's statements as of January 28, 1996 and
January 31, 1995.
Prior to the divestiture of the Company's VCMA business, voice coil
products were manufactured and sold principally to a related party which
provided product specifications and mandated specific component sources. No
provision has been provided for any warranty costs on the voice coils sold prior
to the divestiture since the related party, to which the VCMA business is being
sold, has agreed to assume any claims related to such products.
Supplemental Disclosure of Cash Flow Information
For the purposes of the Statement of Cash Flows, the Division considers all
highly liquid investments purchased with original maturities of 90 days or less
to be cash equivalents. The carrying amounts reported in the statements of
assets and liabilities for cash and cash equivalents approximate their fair
values. Cash paid for interest for the period from February 1, 1995 to January
28, 1996 was $404,522. During fiscal 1996, the Company entered into capital
lease obligations amounting to $36,170. The Company also financed the purchase
of equipment amounting to $2,657,145 with secured long-term loans (Note 5).
During the period from February 1, 1995 to January 28, 1996, the Division
received equipment and inventories amounting to $2,569,471 and $6,748,512,
respectively, from related parties. These were recorded as due to related
parties in the Statement of Cash Flows since they are non-cash transactions.
3. RESTRICTED CASH BALANCES:
Restricted cash balances comprise margin money deposits with banks
amounting to $380,013 and $197,578 as of January 28, 1996 and January 31, 1995
respectively. These deposits are maintained as security against letters of
credit issued by banks on behalf of the Division (see Note 4 below). During the
period from February 1, 1995 to January 28, 1996, rates of interest on these
deposits ranged from 9 to 12% per annum.
4. SECURED SHORT TERM BORROWINGS:
The Company has entered into an agreement with a consortium of three Indian
Government owned commercial banks to obtain working capital credit facilities.
The consortium was established in February 1995. While the three banks have
agreed to a total extension of credit and an allocation of participation, each
bank independently sanctions its portion of the participation. The lead bank in
the consortium, Indian Bank, has fully sanctioned its limit, while the other two
banks have only partially sanctioned their participation as of January 28, 1996.
The credit agreement with the consortium has four separate facilities,
namely, export sales accounts receivable bill discounting ("bill discounting"),
exports sales order based inventory packing credit ("packing credit"), foreign
letters of credit ("letters of credit" or "LC"), and letters of guarantee
("guarantee").
Bill discounting is a post-shipment credit facility used to finance export
receivables. Under the Company's bill discounting lines, export invoices are
presented to the bank, upon which the bank advances funds for the full value of
the invoice. Bills are typically discounted for ninety days. This facility is
self-
F-46
<PAGE> 173
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liquidating in nature whereby advances made by the bank to the Company against
bills discounted are settled through direct retirement of bills by the foreign
customers.
Under the packing credit advance which is a pre-shipment facility, the bank
finances procurement of inventories and other costs incurred for fulfillment of
the Division's export orders. The advances under this facility are liquidated
using the proceeds of bills discounted by the Division. The Division has been
fully utilizing its sanctioned credit limits on its bill discounting and packing
credit facilities, and therefore the total credit availed by the Division
facilitates a continuous rotation of its inventory and invoice financing
requirements.
Under the letter of credit facility, the bank guarantees timely payments to
the Division's foreign suppliers. Letter of credit is a non-funded limit which,
when issued, results in a contingent liability to the Division. The Division is
obligated to pay the bank at the time the bank remits money against documents
presented by the foreign supplier. Contingent liabilities arising from the use
of letters of credit have not been included in the Division's statements but
have been disclosed in Note 7 below.
Letters of guarantee are provided by the bank on behalf of the Division to
third parties with which it has business dealings, to guarantee due performance
of contracts as well as fulfillment of monetary obligations by the Division.
F-47
<PAGE> 174
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Following table summarizes details relating to the credit facilities
described above (in thousands):
<TABLE>
<CAPTION>
STATE BANK OF STATE BANK OF
INDIAN BANK TRAVANCORE HYDERABAD
--------------- ------------- -------------
PARTICULARS 1996 1995 1996 1995 1996 1995
- --------------------------------------------------- ------ ------ ------ ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1. Available lines of credit
(a) Bill Discounting............................. $3,925 $ 972 $1,389 $ -- $ 139 $ 222
(b) Packing Credit............................... 834 556 -- -- 83 --
(c) Letters of Credit............................ 2,431 1,111 1,216 -- 361 361
(d) Letters of Guarantee......................... 28 28 -- -- -- --
2. Amount outstanding
(a) Bill Discounting............................. 3,878 165 1,277 -- 143 --
(b) Packing Credit............................... 503 202 -- -- 80 --
(c) Advances for overdue letters of credit....... 204 -- -- -- -- --
(d) Letters of Credit............................ 2,268 -- 784 -- 279 --
(e) Letters of Guarantee......................... -- -- -- -- -- --
3. Amount by which sanctioned limits have been
exceeded
(a) Bill Discounting............................. -- -- -- -- 4 --
(b) Packing Credit............................... -- -- -- -- -- --
(c) Letters of Credit............................ -- -- -- -- -- --
(d) Letters of Guarantee......................... -- -- -- -- -- --
4. Interest rates
(a) Bill Discounting
--if availed in US Dollars................... 7.5% 6.5% 7.5% -- 7.5% 6.5%
--if availed in Indian Rupees................ 13-15% 13-15% 13-15% -- 13-15% 13-15%
(b) Packing Credit
--if availed in US Dollars................... 7.5% 6.5% -- -- 6.5% --
--if availed in Indian Rupees................ 13-15% 13-15% -- -- 13-15% --
5. Margin
(a) Packing Credit............................... 25% 10% -- -- 25% --
(b) Letters of Credit............................ 10% 10% 10% -- 10% 10%
(c) Letters of Guarantee......................... 10-50% 10-50% -- -- -- --
</TABLE>
Bill discounting agreements are secured by export receivables. Packing
credit agreements are secured by a first charge on the Company's stocks of raw
materials, work in process and finished goods inventories.
Outstanding letters of credit are secured by a charge on goods covered
under the letter of credit and a lien on deposits made by the Company with the
banks.
Letters of guarantee are secured by counter guarantees issued by the
Company and a lien on deposits made by the Company with the banks.
All the above agreements and facilities are fully covered by the personal
guarantee of the Chairman of the Company. The banks have sought for a second
collateral on the Company's plant and equipment, present and future, which have
already been used as collateral for the Company's secured long term loans (see
Note 5 below). As of the date of the statements, the Company was in the process
of fulfilling this requirement.
F-48
<PAGE> 175
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
According to the terms stipulated in the credit facility sanction letter of
Indian Bank, the Company's owners were required to contribute unsecured loans of
approximately $1.8 million and increase the paid-in capital of the Company to
$611,281 (from $69,463) before September 30, 1995. The Company has not fulfilled
this requirement as of the date of the statements. However, the Company has
obtained an undertaking from JTS, that advances made to the Division by JTS to
the extent of $2,558,650, will not be withdrawn or adjusted, either in part or
full, against the bills drawn by the Division, and, in due course, will be
converted into equity capital/unsecured loan.
5. SECURED LONG TERM LOANS:
The Company has entered into term loan agreements with the Industrial
Credit and Investment Corporation of India Limited ("ICICI"), a term lending
institution in India. In September 1992, the Company was sanctioned a rupee loan
of approximately $571,429 for the purpose of augmenting its existing
manufacturing facilities. Approximately $304,713 was available to the Company to
borrow as of January 31, 1995, subsequent to which the Company decided not to
fully avail of this loan before the last date of withdrawal, February 15, 1995.
The loan is repayable in Indian rupees in 12 equal quarterly installments of
approximately $19,450 each commencing from May 1995. Interest on outstanding
amounts are payable quarterly at the rate of 20% per annum.
In October 1994, the Company was sanctioned an additional loan by the
ICICI, for approximately $2,550,000, denominated in four foreign currencies, for
the import of capital equipment. The Division had not borrowed against the loan
as of January 31, 1995, and had utilized the loan for a US dollar equivalent
amount of $2,625,758 as of January 28, 1996. As of January 28, 1996 there were
immaterial unutilized balances in three of the four foreign currencies under the
loan, which were cancelled by ICICI on February 22, 1996 based on a written
request by the Company. The loan is repayable in US dollar in 13 equal quarterly
installments of $201,981 each commencing from April 1997. Interest on
outstanding amounts is payable quarterly at the rate of US dollar LIBOR plus
2.75% per annum. For the period from February 1, 1995 to January 28, 1996, the
interest rates on this loan ranged from 8.7 to 9.5% per annum.
Both loans are secured by all of the Company's property and equipment and
are fully covered by the personal guarantee of the Chairman of the Company.
According to the terms of the agreement for the foreign currency loan, the
Company's promoters were required to contribute unsecured loans of approximately
$1.8 million and increase the paid-in capital of the Company to $611,281 (from
$69,463). Though this amount has not been contributed by the owners as of the
date of the statements, the Company has obtained an undertaking from JTS, that
advances made to the Division by JTS to the extent of $2,558,650, will not be
withdrawn or adjusted, either in part or full, against the bills drawn by the
Division, and, in due course, will be converted into equity capital/unsecured
loan.
In addition to the ICICI term loans, the Company has entered into a term
loan agreement with Corporation Bank, a Government owned commercial bank in
India, for the purchase of automobiles. As of January 28, 1996, the Division had
utilized approximately $31,386 of the total sanctioned amount of $41,678. The
loan is secured by the automobiles and is repayable in thirty equal monthly
installments of $1,047 each.
F-49
<PAGE> 176
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future repayments under the Division's long-term loans are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING LOAN REPAYMENTS
--------------------------------------------- ---------------
<S> <C>
1997 (current portion of long term loans).... $ 90
1998......................................... 898
1999......................................... 834
2000......................................... 808
2001......................................... 202
------
$ 2,832
======
</TABLE>
6. DUE TO RELATED PARTIES, NET:
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Due from related parties
Ultra Tek Devices Limited.................................. $ 62 $ 80
Tantec Magnetics........................................... 318 --
Eastern Peripherals Limited................................ -- 65
Memory Electronics......................................... -- 18
Golden Computers Limited................................... -- 120
Advance Technology Devices................................. -- 92
------ ------
Total............................................ 380 375
------ ------
Due to related parties
JTS........................................................ 1,158 667
Nidec Corporation.......................................... 367 --
Tandon Family.............................................. 14 16
Tantec Magnetics........................................... -- 271
Tandon Associates, Inc..................................... -- 603
Reliable Consultancy Services Private Limited.............. -- 1
Tancom Electronics......................................... 9 78
------ ------
Total............................................ 1,548 1,636
------ ------
Net due to related parties................................. $1,168 $1,261
====== ======
</TABLE>
See Note 8 for a description of the relationships and the nature of
transactions between the Division and the above related parties.
F-50
<PAGE> 177
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
Capital Leases
The Company has purchased automobiles through certain capital lease
agreements. The gross amount of assets acquired under capital leases and
capitalized was $38,673 as of January 28, 1996. Following is a schedule of
aggregate future minimum lease payments under these capital leases together with
the present value of net minimum lease payments as of January 28, 1996 (in
thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM
YEAR ENDING LEASE PAYMENTS
--------------------------------------------------------------- --------------
<S> <C>
1997........................................................... $ 19
1998........................................................... 15
1999........................................................... 14
---
Total net minimum lease payments............................... 48
Less -- Amount representing interest........................... 12
---
Present value of net minimum lease payments.................... 36
Less -- Current portion........................................ 15
---
$ 21
===
</TABLE>
Purchases
Open letters of credit for import of raw materials in the normal course of
business amounted to $3,594,360 as of January 28, 1996 (see Note 4 above).
Obligations to Employees
The Company has made certain statutory minimum contributions towards
employee obligations as required by labor laws enacted by the Government of
India. These include, inter alia, minimum wages, provident fund, employee state
insurance, bonus, gratuity, earned leave and labor welfare fund.
8. RELATED PARTY TRANSACTIONS:
As discussed in Note 1 above, the Division has functioned as a
manufacturing arm of JTS since its association with JTS. Apart from JTS, the
Division's related parties include Xyratex (former subcontractor of JTS), Nidec
Corporation (supplier to the Company and an equity investee in JTS), and
entities which are owned and/or controlled by the Chairman of the Company or his
relatives.
JTS loaned manufacturing equipment with an historical cost of approximately
$4,400,000 and $530,000 located at the Division at January 28, 1996 and January
31, 1995.
The Division's related party transactions during the period from February
1, 1995 to January 28, 1996 primarily consist of transactions with JTS and
Xyratex. These transactions include, inter alia, purchase of fixed assets and
raw materials from JTS, receipt of certain fixed assets on loan basis from JTS,
receipt of certain raw material free of cost from JTS, sale of disk drives to
JTS, advances received from JTS, remittances made to JTS, assumption of obsolete
inventories and warranty costs by JTS, sale of subassemblies and raw material to
Xyratex, and purchase of tools from Xyratex. Since the VCMA business was part of
the Company until January 28, 1996, transactions between the Division and the
VCMA business have not been considered as related party transactions.
F-51
<PAGE> 178
THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net balances due from or to each related party as of January 28, 1996
and January 31, 1995 for sales, purchases, advances, transfers and sharing of
expenses are disclosed in Note 6 above. Summarized information relating to such
transactions for the period from February 1, 1995 to January 28, 1996 are
presented below (in thousands):
<TABLE>
<CAPTION>
NAME OF THE RELATED PARTY NATURE OF TRANSACTION AMOUNT
------------------------------------- -------------------------------------- -------
<S> <C> <C>
Nidec Corporation.................... Purchase of raw material $ 701
Payment for purchase of raw material 522
Tandon Associates, Inc............... Payment for purchases 957
Tancom Electronics................... Purchase of plant and equipment 42
Sale of raw material 41
Proceeds from sale of raw material 55
Charges for common expenses received 3
Advance to Tancom 10
JTS.................................. Purchase of plant and equipment 2,569
Purchase of raw material 6,621
Payment for purchase of raw material 1,052
Advance against export 2,559
Product sales 14,892
Receipt from product sales 8,495
Assumption of obsolete inventories and 2,919
warranty costs by JTS
Tantec Magnetics..................... Purchase of raw material 110
Product sales 465
</TABLE>
The Company has been capitalized since inception with 200,000 shares of
equity stock at a par value of Indian rupees 10 each and 5,000 shares of
preferred stock at a par value of Indian rupees 100 each. The Company's lone
preferred stock shareholder is the son of the Chairman of the Company. As part
of the transfer of the Company's VCMA business to a related party and the
proposed acquisition of the Division by JTS, it was decided in March 1995 to
retire the preferred stock of the Company. Effective January 28, 1996, all
preferred shares were retired for a consideration of Indian rupees 500,000
($13,893). As of January 28, 1996, this amount has been included in "Due to
related parties, net" (see Note 6 above).
F-52
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THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. OTHER MATTERS:
Technical Know-how and Collaboration Agreement
Foreign currency transactions with parties outside India are subject to
controls imposed by the Reserve Bank of India ("RBI"), India's central bank.
Funds can only be remitted for payments against specific invoices for receipt of
materials or equipment and certain additional limited uses. Except for payments
below $5,000, cash in advance or deposit payments are not freely permitted to
parties outside the country. As part of the Company's disk drive EOU project
approval, the Government has allowed the Company to pay $2 million to JTS for
technical know-how fees. The Company is yet to finalize its agreement with JTS
for the payment of technical know-how fees as of the date of the statements. The
Division has not recorded any liability for possible future payment of technical
know-how fees due to the anticipated acquisition of the Company by JTS. The
Company's term loan agreements with ICICI contains certain restrictions on the
timing and period of payment of technical know-how fees.
Divestiture of Voice Coil Business
The Company transferred the VCMA business, after write-offs of
approximately $350,000 of related party balances, to Tancom Electronics
("Tancom") as of January 28, 1996. Such transfer included plant and equipment
and inventories of the VCMA business, along with certain other assets and
liabilities.
Tancom is owned and controlled by the Chairman of the Company and his
family members and is therefore considered a related party. Retained earnings
attributable to the VCMA business since April 1, 1994 less advances made to
certain related parties were also transferred to Tancom. The Division expects to
continue to purchase voice coil assemblies from Tancom, provided their prices
remain competitive. The Division has not entered into any agreement mandating
the purchase of voice coil assemblies from Tancom.
As of January 28, 1996, the total value of assets transferred to Tancom was
$558,146 and the total value of liabilities transferred totalled $28,148.
Retained earnings of the VCMA business transferred to Tancom totalled $418,493.
Accounts receivable of $428,080 and accounts payable of $236,163 relating to the
voice coil business, outstanding as of January 28, 1996 has been included in the
Statement of Assets and Liabilities of the Division due to regulatory
constraints on transfer of foreign currency receivables and payables. All of the
accounts receivables of the VCMA business are owing from Tantec Magnetics, a
related party to the Company.
10. SUBSEQUENT EVENTS:
New Long Term Loan
On February 20, 1996, the Company was sanctioned an additional foreign
currency loan of $10 million, to be reduced to the extent of participation by
other institutions, by the ICICI for the proposed expansion of its disk drive
business. The Company had received a letter of intent ("letter") from the ICICI
the terms and conditions of which have to be agreed upon by the Company within
30 days before a formal foreign currency loan agreement ("loan agreement") could
be executed by both parties. Interest on this proposed loan shall be payable at
the lending rates of the ICICI prevailing on the date of execution of the loan
agreement. Lending rates of the ICICI are US dollar LIBOR, plus a fixed percent,
if the funds are provided out of the floating rate US dollar funds, and a fixed
rate per annum, if the funds are provided out of fixed rate US dollar funds.
According to the letter, this loan will be secured by a first charge on all of
the Company's equipment, both present and future, subject to any prior charge on
specified equipment in favor of the Company's banks. The Company is also
required to provide an irrevocable and unconditional guarantee from the Chairman
in favor of ICICI for due repayment of the loan along with all interest and any
other moneys. Further, for the loan to
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THE HARD DISK DRIVE DIVISION OF
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED
(CURRENCY: UNITED STATES DOLLAR)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
become effective, the Company would have to raise $5,584,885 by issue of equity
shares to promoters, obtain an unsecured loan of $3,601,000 and state subsidies
of $236,177 to meet a part of the cost of the project.
On March 18, 1996, the Company entered into a loan agreement with the ICICI
for $7 million towards their participation in the total sanctioned amount of $10
million. The loan is repayable in US dollar in 12 equal quarterly installments
of $583,333 each commencing form May 20, 1998. The Company has procured an
irrevocable and unconditional guarantee from the Chairman of the Company as
required by the letter of intent. The funding of this loan by ICICI is dependent
upon the Company's compliance with the pre-disbursement conditions relating to
raising of additional equity capital and obtaining of unsecured loans and state
subsidies, mentioned above. If the Company does not comply with these
pre-disbursement conditions, the previously obtained loans from ICICI (see Note
5) could be held in default and ICICI may have the right to recall the earlier
loans, besides not funding the current loan.
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<PAGE> 181
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND
PLAN OF REORGANIZATION
<PAGE> 182
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
ATARI CORPORATION
AND
JT STORAGE, INC.
APRIL 8, 1996
<PAGE> 183
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I -- THE MERGER............................................................. 1
1.1 The Merger....................................................................... 1
1.2 Closing; Effective Time.......................................................... 2
1.3 Effect of the Merger............................................................. 2
1.4 Certificate of Incorporation; Bylaws............................................. 2
1.5 Directors and Executive Officers................................................. 2
1.6 Effect on Capital Stock.......................................................... 2
1.7 Surrender of Certificates........................................................ 3
1.8 No Further Ownership Rights in Atari Stock....................................... 4
1.9 Lost, Stolen or Destroyed Certificates........................................... 4
1.10 Tax Consequences................................................................. 4
1.11 Taking of Necessary Action; Further Action....................................... 4
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF JTS................................. 4
2.1 Organization, Standing and Power................................................. 5
2.2 Capital Structure................................................................ 5
2.3 Authority........................................................................ 6
2.4 Financial Statements............................................................. 7
2.5 Absence of Certain Changes....................................................... 7
2.6 Absence of Undisclosed Liabilities............................................... 7
2.7 Litigation....................................................................... 7
2.8 Restrictions on Business Activities.............................................. 7
2.9 Governmental Authorization....................................................... 8
2.10 Title to Property................................................................ 8
2.11 Intellectual Property............................................................ 8
2.12 Environmental Matters............................................................ 8
2.13 Tax.............................................................................. 9
2.14 Employee Benefit Plans........................................................... 9
2.15 Certain Agreements Affected by the Merger........................................ 10
2.16 Employee Matters................................................................. 10
2.17 Interested Party Transactions.................................................... 10
2.18 Insurance........................................................................ 10
2.19 Compliance With Laws............................................................. 11
2.20 Minute Books..................................................................... 11
2.21 Complete Copies of Materials..................................................... 11
2.22 Brokers' and Finders' Fees....................................................... 11
2.23 Registration Statement; Proxy Statement/Prospectus............................... 11
2.24 Vote Required.................................................................... 11
2.25 Board Approval................................................................... 12
2.26 Underlying Documents............................................................. 12
2.27 Representations Complete......................................................... 12
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF ATARI.............................. 12
3.1 Organization, Standing and Power................................................. 12
3.2 Capital Structure................................................................ 12
3.3 Authority........................................................................ 13
3.4 SEC Documents; Financial Statements.............................................. 13
3.5 Absence of Certain Changes....................................................... 14
</TABLE>
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TABLE OF CONTENTS -- (CONTINUED)
<TABLE>
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3.6 Absence of Undisclosed Liabilities............................................... 14
3.7 Litigation....................................................................... 14
3.8 Restrictions on Business Activities.............................................. 14
3.9 Governmental Authorization....................................................... 15
3.10 Title to Property................................................................ 15
3.11 Intellectual Property............................................................ 15
3.12 Environmental Matters............................................................ 15
3.13 Tax.............................................................................. 16
3.14 Employee Benefit Plans........................................................... 16
3.15 Certain Agreements Affected by the Merger........................................ 17
3.16 Employee Matters................................................................. 17
3.17 Interested Party Transactions.................................................... 17
3.18 Insurance........................................................................ 17
3.19 Compliance With Laws............................................................. 18
3.20 Minute Books..................................................................... 18
3.21 Complete Copies of Materials..................................................... 18
3.22 Broker's and Finders' Fees....................................................... 18
3.23 Registration Statement; Proxy Statement/Prospectus............................... 18
3.24 Opinion of Financial Advisor..................................................... 18
3.25 Board Approval................................................................... 18
3.26 Vote Required.................................................................... 18
3.27 Underlying Documents............................................................. 18
3.28 Representations Complete......................................................... 19
ARTICLE IV -- CONDUCT PRIOR TO THE EFFECTIVE TIME................................... 19
4.1 Conduct of Business of JTS and Atari............................................. 19
4.2 Conduct of Business of JTS....................................................... 20
4.3 Conduct of Business of Atari..................................................... 20
4.4 No Other JTS Negotiations........................................................ 21
4.5 No Other Atari Negotiations...................................................... 22
ARTICLE V -- ADDITIONAL AGREEMENTS.................................................. 22
5.1 Proxy Statement/Prospectus; Registration Statement............................... 22
5.2 Meetings of Stockholders......................................................... 23
5.3 Access to Information............................................................ 23
5.4 Public Disclosure................................................................ 23
5.5 Consents; Cooperation............................................................ 23
5.6 Continuity of Interest Certificates.............................................. 24
5.7 Voting Agreements................................................................ 24
5.8 FIRPTA........................................................................... 24
5.9 Legal Requirements............................................................... 24
5.10 Blue Sky Laws.................................................................... 24
5.11 Atari Employee Benefit Plans..................................................... 24
5.12 Atari Debentures................................................................. 25
5.13 Form S-8......................................................................... 25
5.14 Tax-Free Reorganization; Tax Returns............................................. 25
5.15 Registration Rights.............................................................. 25
</TABLE>
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<PAGE> 185
TABLE OF CONTENTS -- (CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
5.16 Indemnification of Officers and Directors........................................ 25
5.17 Listing of JTS Common Stock...................................................... 25
5.18 Atari Consent to JTS Transaction with Moduler.................................... 25
5.19 Atari SEC Documents.............................................................. 25
5.20 Best Efforts and Further Assurances.............................................. 25
ARTICLE VI -- CONDITIONS TO THE MERGER.............................................. 26
6.1 Conditions to Obligations of Each Party to Effect the Merger..................... 26
6.2 Additional Conditions to Obligations of JTS...................................... 27
6.3 Additional Conditions to the Obligations of Atari................................ 28
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER.................................... 29
7.1 Termination...................................................................... 29
7.2 Effect of Termination............................................................ 29
7.3 Expenses......................................................................... 29
7.4 Amendment........................................................................ 30
7.5 Extension; Waiver................................................................ 30
ARTICLE VIII -- GENERAL PROVISIONS.................................................. 30
8.1 Non-Survival at Effective Time................................................... 30
8.2 Absence of Third Party Beneficiary Rights........................................ 30
8.3 Notices.......................................................................... 30
8.4 Interpretation................................................................... 31
8.5 Counterparts..................................................................... 31
8.6 Entire Agreement; Nonassignability; Parties in Interest.......................... 31
8.7 Severability..................................................................... 31
8.8 Remedies Cumulative.............................................................. 31
8.9 Governing Law.................................................................... 32
8.10 Rules of Construction............................................................ 32
8.11 Amendment and Restatement........................................................ 32
</TABLE>
iii
<PAGE> 186
SCHEDULES
JTS Disclosure Schedule
Atari Disclosure Schedule
<TABLE>
<S> <C>
Schedule 5.6(a) -- JTS Significant Stockholders
Schedule 5.6(b) -- Atari Significant Shareholders
Schedule 5.7(a) -- JTS Voting Agreement Signatories
Schedule 5.7(b) -- Atari Voting Agreement Signatories
Schedule 5.15 -- Registration Rights Holders
</TABLE>
iv
<PAGE> 187
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Amended and Restated Certificate of Incorporation
Exhibit B Form of Amended and Restated Bylaws
Exhibit C-1 Form of JTS Voting Agreement
Exhibit C-2 Form of Atari Voting Agreement
</TABLE>
v
<PAGE> 188
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made and entered into as of April 8, 1996, by and between Atari
Corporation, a Nevada corporation ("Atari"), and JT Storage, Inc., a Delaware
corporation ("JTS").
RECITALS
A. Atari is in the business of designing, manufacturing and selling
computers, computer peripheral products and video games.
B. JTS is in the business of designing, manufacturing and selling computer
peripheral products including mass storage computer disc drives.
C. The Boards of Directors of JTS and Atari believe it is in the best
interests of their respective companies and the stockholders of their respective
companies that JTS and Atari combine into a single company through the statutory
merger of Atari with and into JTS (the "Merger") and, in furtherance thereof,
have approved the Merger.
D. In connection with the Merger, among other things, the outstanding
shares of Atari Common Stock, $.01 par value ("Atari Common Stock"), shall be
converted into shares of JTS Common Stock, $.000001 par value ("JTS Common
Stock"), at the rate set forth herein.
E. JTS and Atari desire to make certain representations and warranties and
other agreements in connection with the Merger.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a)(1)(A) of the Code.
G. This Agreement amends and restates that certain Agreement and Plan of
Reorganization by and among Atari, JTS and JTS Acquisition Corporation dated as
of February 12, 1996.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, a Certificate of
Merger prepared in accordance with Delaware Law (as defined herein) and Nevada
Law (as defined herein) and reasonably acceptable to counsel to JTS and counsel
to Atari (the "Certificate of Merger"), and the applicable provisions of the
Delaware General Corporation Law ("Delaware Law") and Nevada General Corporation
Law ("Nevada Law"), Atari shall be merged with and into JTS, the separate
corporate existence of Atari shall cease and JTS shall continue as the surviving
corporation. JTS as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time as the parties hereto agree (the "Closing Date"). The
Closing shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
P.C., 650 Page Mill Road, Palo Alto, California, or at such other location as
the parties hereto agree. In connection with the Closing, the parties hereto
shall cause the Merger to be consummated by filing the Certificate of Merger
with (i) the Secretary of State of the State of Delaware and with the Recorder
of the County in which the registered office of JTS is located, in
<PAGE> 189
accordance with the relevant provisions of Delaware Law and (ii) the Secretary
of State of the State of Nevada, in accordance with the relevant provisions of
Nevada Law (the time of such filings being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law and Nevada Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Atari shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Atari shall
become the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of JTS, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Delaware Law and such Certificate of Incorporation; provided, however, that
the Certificate of Incorporation of the Surviving Corporation shall be amended
and restated in the form attached hereto as Exhibit A.
(b) The Bylaws of JTS, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended;
provided, however, that the Bylaws of the Surviving Corporation shall be amended
and restated in the form attached hereto as Exhibit B.
1.5 Directors and Executive Officers. At the Effective Time, the directors
of the Surviving Corporation shall be Sirjang Lal Tandon, David T. Mitchell,
Jean D. Deleage, Alan Azan, Roger W. Johnson, LipBu Tan, Jack Tramiel and
Michael Rosenberg. The executive officers of JTS immediately prior to the
Effective Time shall constitute the only executive officers of the Surviving
Corporation as of the Effective Time, unless otherwise designated by JTS.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of JTS, Atari or the holders of any of the following
securities:
(a) Conversion of Atari Common Stock. At the Effective Time, each
share of Atari Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Atari Common Stock to be canceled
pursuant to Section 1.6(b)) will be canceled and extinguished and be
converted automatically into the right to receive one (1) share of JTS
Common Stock (the "Exchange Ratio").
(b) Cancellation of Certain Stock. At the Effective Time, each share
of Atari Common Stock owned by JTS or any direct or indirect wholly-owned
subsidiary of JTS immediately prior to the Effective Time shall be canceled
and extinguished without any conversion thereof.
(c) Atari Stock Options. At the Effective Time, all options to
purchase Atari Common Stock then outstanding under the Atari Amended 1986
Stock Option Plan (the "Atari Stock Option Plan") shall be assumed by JTS
in accordance with Section 5.11.
(d) Atari Debentures. At the Effective Time, JTS shall assume all
obligations of Atari under Atari's 5 1/4% Convertible Subordinated
Debentures Due 2002 (the "Atari Debentures"), and such debentures shall be
convertible into shares of JTS Common Stock in accordance with Section
5.12.
(e) Federated Debentures. To the extent required by that certain
Indenture dated as of April 15, 1985 from the The Federated Group, Inc. to
Security Pacific National Bank, as trustee, together with the first
supplemental indenture thereto dated as of September 24, 1987, at the
Effective Time, JTS shall assume any obligations of Atari under the 7 1/2%
Convertible Subordinated Debentures due April 15, 2010 of The Federated
Group, Inc. (the "Federated Debentures").
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Atari
Common Stock or JTS Common Stock), reorganization, recapitalization or other
like change with
2
<PAGE> 190
respect to Atari Common Stock, JTS Common Stock or JTS Series A Preferred Stock,
$.000001 par value ("JTS Series A Preferred Stock"), occurring after the date
hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of JTS Common Stock will be
issued, but in lieu thereof each holder of shares of Atari Common Stock who
would otherwise be entitled to a fraction of a share of JTS Common Stock (after
aggregating all fractional shares of JTS Common Stock to be received by such
holder) shall receive from JTS an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, multiplied by (ii) the closing
price of a share of Atari Common Stock on the trading day immediately prior to
the Effective Time, as reported by the American Stock Exchange.
1.7 Surrender of Certificates.
(a) Exchange Agent. Registrar and Transfer Company, Cranford, NJ, shall
act as exchange agent (the "Exchange Agent") in the Merger.
(b) JTS to Provide Common Stock and Cash. Promptly after the Effective
Time, JTS shall make available to the Exchange Agent for exchange in accordance
with this Article I, through such procedures as JTS may reasonably adopt, (i)
the shares of JTS Common Stock issuable pursuant to Section 1.6(a) in exchange
for shares of Atari Common Stock outstanding immediately prior to the Effective
Time and (ii) cash in an amount sufficient to permit payment of cash in lieu of
fractional shares pursuant to Section 1.6(g).
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which immediately prior to the Effective
Time represented outstanding shares of Atari Common Stock, whose shares were
converted into the right to receive shares of JTS Common Stock (and cash in lieu
of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the
Exchange Agent, and shall be in such form and have such other provisions as JTS
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of JTS
Common Stock (and cash in lieu of fractional shares). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by JTS, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing the number of whole shares of JTS Common Stock and
payment in lieu of fractional shares which such holder has the right to receive
pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Atari Common Stock will be deemed from and
after the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of JTS Common
Stock into which such shares of Atari Common Stock shall have been so converted
and the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to JTS Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered Certificate
with respect to the shares of JTS Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of JTS
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of any such dividends or other distributions with a record
date after the Effective Time theretofore payable (but for the provisions of
this Section 1.7(d)) with respect to such shares of JTS Common Stock.
(e) Transfers of Ownership. If any certificate for shares of JTS Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to JTS or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
JTS
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<PAGE> 191
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of JTS or any agent
designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
1.7, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Atari Stock. All shares of JTS Common
Stock issued upon the surrender for exchange of shares of Atari Common Stock in
accordance with the terms hereof (including any cash paid in lieu of fractional
shares) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Atari Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Atari Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of JTS Common Stock
(and cash in lieu of fractional shares) as may be required pursuant to Section
1.6; provided, however, that JTS may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against JTS, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Atari, the officers and directors of Atari are fully
authorized in the name of the corporation or otherwise to take, and will take,
all such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
1.12 Dissenting JTS Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of JTS Common Stock or JTS Series A Preferred Stock held by a holder who
has exercised dissenters' rights for such shares in accordance with Delaware Law
or California General Corporation Law to the extent such law is applicable by
virtue of Section 2115 thereof ("California Law") and who, as of the Effective
Time, has not effectively withdrawn or lost such dissenters' rights ("Dissenting
Shares"), shall be entitled to such rights as are granted by Delaware Law or
California Law.
(b) JTS shall give Atari (i) prompt notice of any written demands received
by JTS for an appraisal of shares of capital stock of JTS pursuant to Section
262 of Delaware Law or Chapter 13 of California Law, withdrawals of such
demands, and any other related instruments served pursuant to Delaware Law or
California Law and received by JTS and (ii) the opportunity to participate in
all negotiations and proceedings with respect to such demands. JTS shall not,
except with the prior written consent of Atari, voluntarily make any payment
with respect to any such demands or offer to settle or settle any such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF JTS
In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any entity or group of entities means any
material event, change, condition or effect related to the condition
4
<PAGE> 192
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results
of operations or prospects of such entity or group of entities. In this
Agreement, any reference to a "Material Adverse Effect" with respect to any
entity or group of entities means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations, results of operations or prospects of such
entity and its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry.
Except as disclosed in a document of even date herewith and delivered by
JTS to Atari prior to the execution and delivery of this Agreement and referring
to the representations and warranties in this Agreement (the "JTS Disclosure
Schedule"), JTS represents and warrants to Atari as follows:
2.1 Organization, Standing and Power. Each of JTS and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of JTS and its subsidiaries has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on JTS
and its subsidiaries, taken as a whole. JTS has delivered a true and correct
copy of the Certificate of Incorporation and Bylaws or other charter documents,
as applicable, of JTS and each of its subsidiaries, each as amended to date, to
Atari. Neither JTS nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents. JTS is the owner of all outstanding shares of capital
stock of each of its subsidiaries and all such shares are duly authorized,
validly issued, fully paid and nonassessable. All of the outstanding shares of
capital stock of each such subsidiary are owned by JTS free and clear of all
liens, charges, claims or encumbrances or rights of others. There are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating JTS or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities.
Except as disclosed in the JTS Disclosure Schedule, JTS does not directly or
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
2.2 Capital Structure. The authorized capital stock of JTS consists of
90,000,000 shares of Common Stock, $.000001 par value, and 70,000,000 shares of
Preferred Stock, $.000001 par value, all of which is designated Series A
Preferred Stock, of which there were issued and outstanding as of the close of
business on April 5, 1996, 9,204,741 shares of Common Stock and 29,696,370
shares of Series A Preferred. The JTS Disclosure Schedule contains a true and
complete list of the holders of JTS Common Stock and JTS Series A Preferred
Stock and the number of shares held by each such holder on April 5, 1996. There
are no other outstanding shares of capital stock or voting securities. Each
outstanding share of JTS Series A Preferred Stock is convertible into one (1)
share of JTS Common Stock. All outstanding shares of JTS Common Stock and JTS
Series A Preferred Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to preemptive rights or rights of first refusal created by statute, the
Certificate of Incorporation or Bylaws of JTS or any agreement to which JTS is a
party or by which it is bound. As of the close of business on April 5, 1996, JTS
has reserved (i) 4,300,000 shares of JTS Common Stock for issuance to employees
and consultants pursuant to the JTS 1995 Stock Option Plan (the "JTS Stock
Option Plan"), of which 37,554 shares have been issued pursuant to option
exercises and 3,680,358 shares are subject to outstanding, unexercised options,
(ii) 600,000 shares of JTS Common Stock for issuance upon the exercise of
outstanding, unexercised JTS Warrants and (iii) 32,500,000 shares of JTS Series
A Preferred Stock and JTS Common Stock for issuance upon conversion of the note
issued to Atari on February 13, 1996 and upon exercise of the warrants issuable
to Atari pursuant to such note. Since April 5, 1996, JTS has not issued or
granted additional options under the JTS Stock Option Plan. Other than pursuant
to this Agreement, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which JTS is a party or by which
it is bound obligating JTS to issue, deliver, sell, repurchase or redeem, or
cause to be
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issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
JTS or obligating JTS to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. The terms of the JTS Stock Option Plan and the
JTS Warrants permit the assumption or substitution of options or warrants, as
applicable, to purchase Atari Common Stock as provided in this Agreement,
without the consent or approval of the holders of such securities, the JTS
stockholders, or otherwise. True and complete copies of all agreements and
instruments relating to or issued under the JTS Stock Option Plan or JTS
Warrants have been made available to Atari and such agreements and instruments
have not been amended, modified or supplemented, and there are no agreements to
amend, modify or supplement such agreements or instruments in any case from the
form made available to Atari. The shares of JTS Common Stock to be issued
pursuant to the Merger will be duly authorized, validly issued, fully paid, and
non-assessable.
2.3 Authority. JTS has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of JTS, subject only to the approval of the Merger
by JTS's stockholders as contemplated by Section 6.1(a). This Agreement has been
duly executed and delivered by JTS and constitutes the valid and binding
obligation of JTS. The execution and delivery of this Agreement by JTS does not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of JTS or any of its subsidiaries, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to JTS or
any of its subsidiaries or any of their properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity") is required by or with
respect to JTS or any of its subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided in
Section 1.2, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; (iii) such
filings as may be required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR"); and (iv) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on JTS and its subsidiaries, taken as a whole,
and would not prevent, alter or materially delay any of the transactions
contemplated by this Agreement. The JTS Disclosure Schedule sets forth a full
and complete list of all necessary consents, waivers and approvals of third
parties applicable to the operations of JTS that are required to be obtained by
JTS in connection with the execution and delivery of this Agreement or the
Merger Agreement by JTS or the consummation by JTS of the transactions
contemplated hereby or thereby, except any such consents, waivers and approvals,
which, if not obtained, would not have a Material Adverse Effect on JTS and its
subsidiaries, taken as a whole. Prior to the Closing Date, JTS will obtain all
such consents.
The Stock Purchase Agreement dated as of April 4, 1996 between JTS and
Lunenburg, S.A., a Panama corporation, together with all documents executed in
connection therewith (the "Moduler Agreement"), has been duly executed and
delivered by JTS, the transactions contemplated thereby have been consummated,
and the Moduler Agreement constitutes a valid and binding obligation of JTS. JTS
has provided to Atari a true, correct and complete copy of the Moduler
Agreement, and has performed all obligations required to be performed by it to
date under the Moduler Agreement. To JTS' best knowledge, (a) the other parties
to the Moduler Agreement have performed all obligations required to be performed
by them to date under such agreement, (b) as to such other parties, the Moduler
Agreement is valid, binding and enforceable in accordance with its terms and (c)
the Moduler Agreement is in full force and effect with no default or dispute or
basis therefor existing with respect thereto.
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2.4 Financial Statements. JTS has furnished to Atari its audited
consolidated balance sheet, consolidated statements of operations and
consolidated statements of stockholders equity and cash flows as of and for the
year ended January 28, 1996, and the audited statement of assets and
liabilities, statement of revenues and expenses and cash flows of The Hard Disk
Drive Division of Moduler as of and for the year ended January 28, 1996
(collectively, the "JTS Financial Statements"). The JTS Financial Statements,
including the notes thereto, were complete and correct in all material respects
as of their respective dates, complied as to form in all material respects with
applicable accounting requirements as of their respective dates, and have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto). The JTS Financial
Statements are in accordance with the books and records of JTS and fairly
present the consolidated financial condition and operating results of JTS and
its subsidiaries at the dates and during the periods indicated therein. There
has been no change in JTS accounting policies except as described in the notes
to the JTS Financial Statements.
2.5 Absence of Certain Changes. Since January 28, 1996, (the "JTS Balance
Sheet Date"), JTS has conducted its business in the ordinary course consistent
with past practice and there has not occurred: (i) any change, event or
condition (whether or not covered by insurance) that has resulted in, or might
reasonably be expected to result in, a Material Adverse Effect to JTS and its
subsidiaries, taken as a whole; (ii) any acquisition, sale or transfer of any
material asset of JTS or any of its subsidiaries other than in the ordinary
course of business and consistent with past practice; (iii) any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by JTS or any revaluation by JTS of any of its
or any of its subsidiaries' assets; (iv) any issuance or agreement to issue or
any commitment to issue any equity security, bond, note or other security of JTS
or any of its subsidiaries; (v) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of JTS, or any direct
or indirect redemption, purchase or other acquisition by JTS of any of its
shares of capital stock; (vi) any material contract entered into by JTS or any
of its subsidiaries, other than in the ordinary course of business and as
provided to Atari, or any amendment or termination of, or default under, any
material contract to which JTS or any of its subsidiaries is a party or by which
it is bound; or (vii) any negotiation or agreement by JTS or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Atari regarding the transactions
contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. JTS has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for in the JTS balance sheet and the
Moduler statement of assets and liabilities, each as included in the JTS
Financial Statements, and true, correct and complete copies of which have been
provided to Atari, (collectively, the "JTS Balance Sheet"), (ii) those incurred
in the ordinary course of business and not required to be set forth in the JTS
Balance Sheet under generally accepted accounting principles, and (iii) those
incurred in the ordinary course of business since the JTS Balance Sheet Date and
consistent with past practice.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of JTS or any of its
subsidiaries, threatened against JTS or any of its subsidiaries or any of their
respective properties or any of their respective officers or directors (in their
capacities as such) that, individually or in the aggregate, could have a
Material Adverse Effect on JTS and its subsidiaries, taken as a whole. There is
no judgment, decree or order against JTS or any of its subsidiaries, or, to the
knowledge of JTS and its subsidiaries, any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin, alter or
delay any of the transactions contemplated by this Agreement, or that could have
a Material Adverse Effect on JTS and its subsidiaries, taken as a whole.
2.8 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon JTS or any of its subsidiaries which
has or could have the effect of prohibiting or materially impairing any current
or future business practice of JTS or any of its subsidiaries, any acquisition
of property by JTS or any of its subsidiaries or the conduct of business by JTS
or any of its subsidiaries as currently conducted or as proposed to be conducted
by JTS or any of its subsidiaries.
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2.9 Governmental Authorization. JTS and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which JTS or any of its subsidiaries currently operates or holds any
interest in any of its properties or (ii) which is required for the operation of
JTS's or any of its subsidiaries' business or the holding of any such interest
(herein collectively called "JTS Authorizations"), and all of such JTS
Authorizations are in full force and effect, except where the failure to obtain
or have any of such JTS Authorizations could not reasonably be expected to have
a Material Adverse Effect on JTS and its subsidiaries, taken as a whole.
2.10 Title to Property. JTS and its subsidiaries have good and marketable
title to all of their respective properties, interests in properties and assets,
real and personal, reflected in the JTS Balance Sheet or acquired after the JTS
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the JTS Balance Sheet Date thereof in the
ordinary course of business), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or interfere with the
use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the JTS Balance Sheet. The plants, property
and equipment of JTS and its subsidiaries that are used in the operations of
their businesses are in good operating condition and repair. All properties used
in the operations of JTS and its subsidiaries are reflected in the JTS Balance
Sheet to the extent generally accepted accounting principles require the same to
be reflected. The JTS Disclosure Schedule identifies each parcel of real
property owned or leased by JTS or any of its subsidiaries.
2.11 Intellectual Property. JTS and its subsidiaries own, or are licensed
or otherwise possess legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, net lists, schematics, technology, know-how, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material ("Intellectual
Property") that are used or proposed to be used in the business of JTS and its
subsidiaries as currently conducted or as proposed to be conducted by JTS and
its subsidiaries. To the knowledge of JTS and its subsidiaries, there is no
material unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of JTS or any of its subsidiaries, any trade secret
material to JTS or any of its subsidiaries, or any Intellectual Property right
of any third party to the extent licensed by or through JTS or any of its
subsidiaries, by any third party, including any employee or former employee of
JTS or any of its subsidiaries. Neither JTS nor any of its subsidiaries has
entered into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
(i) listed on the JTS Disclosure Schedule or (ii) contained in purchase orders
arising in the ordinary course of business.
2.12 Environmental Matters.
(a) To the knowledge of JTS and its subsidiaries, no substance that is
regulated by any foreign, federal, state or local governmental authority or that
has been designated by any such authority to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment (herein a "Hazardous Material")
is present in, on or under any property that JTS or any of its subsidiaries has
at any time owned, operated, occupied or leased (herein a "JTS Facility"),
except to the extent that such presence has not had and could not reasonably be
expected to have a Material Adverse Effect on JTS and its subsidiaries, taken as
a whole.
(b) To the knowledge of JTS and its subsidiaries, neither JTS nor any of
its subsidiaries has transported, stored, used, disposed of, manufactured,
released or exposed its employees or any other person to Hazardous Materials
("Hazardous Materials Activity") in material violation of any applicable
foreign, federal, state or local statute, rule, regulation, order or law.
(c) To the knowledge of JTS and its subsidiaries, each of JTS and its
subsidiaries is and at all times has been in compliance with all foreign,
federal, state and local laws relating to emissions, discharges, releases or
threatened releases of Hazardous Materials, except to the extent noncompliance
with such laws has not had and could not reasonably be expected to have a
Material Adverse Effect on JTS and its subsidiaries, taken as a whole.
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(d) No action, proceeding, permit revocation, writ, injunction or claim is
pending, or to the knowledge of JTS and its subsidiaries threatened, concerning
the Hazardous Materials Activities of JTS or any of its subsidiaries and/or any
JTS Facilities. Neither JTS nor any of its subsidiaries is aware of any fact or
circumstance which could impose any material environmental liability upon JTS or
any of its subsidiaries.
2.13 Taxes. JTS and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which JTS or any of its
subsidiaries is or has been a member have timely filed all Tax Returns required
to be filed by it, have paid all Taxes shown thereon to be due and has provided
adequate accruals in accordance with generally accepted accounting principles in
its financial statements for any Taxes that have not been paid, whether or not
shown as being due on any Tax Returns. Except as disclosed in the JTS Disclosure
Schedule, (i) no material claim for Taxes has become a lien against the property
of JTS or any of its subsidiaries or is being asserted against JTS or any of its
subsidiaries other than liens for Taxes not yet due and payable, (ii) no audit
of any Tax Return of JTS or any of its subsidiaries is being conducted by a Tax
authority, (iii) no extension of the statute of limitations on the assessment of
any Taxes has been granted by JTS or any of its subsidiaries and is currently in
effect, and (iv) there is no agreement, contract or arrangement to which JTS or
any of its subsidiaries is a party that may result in the payment of any amount
that would not be deductible by reason of Sections 280G, 162 or 404 of the Code.
Neither JTS nor any of its subsidiaries is a party to any tax sharing or tax
allocation agreement nor does JTS or any of its subsidiaries owe any amount
under any such agreement. As used herein, "Taxes" shall mean all taxes of any
kind, including, without limitation, those on or measured by or referred to as
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein, "Tax Return" shall
mean any return, report or statement required to be filed with any governmental
authority with respect to Taxes. JTS and each of its subsidiaries are in full
compliance with all terms and conditions of any Tax exemptions or other Tax-
sharing agreement or order of a foreign government and the consummation of the
Merger shall not have any adverse effect on the continued validity and
effectiveness of any such Tax exemptions or other Tax-sharing agreement or
order.
2.14 Employee Benefit Plans.
(a) The JTS Disclosure Schedule lists, with respect to JTS, any trade or
business (whether or not incorporated) which is treated as a single employer
with JTS (an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m)
or (o) of the Code or any subsidiary of JTS (i) all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), (ii) all loans to employees in excess of $50,000, loans to
officers, and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, disability,
employee relocation, cafeteria (Code section 125), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, deferred
compensation or incentive plans, programs or arrangements, (iv) other material
fringe or employee benefit plans, programs or arrangements that apply to senior
management of JTS and that do not generally apply to all employees, and (v) any
current or former employment or executive compensation or severance agreements,
written or otherwise, as to which current or contingent obligations of JTS of
greater than $50,000 exist for the benefit of, or relating to, any current or
former employee, consultant or director of JTS (together, the "JTS Employee
Plans"), and a copy of each such JTS Employee Plan and each summary plan
description and annual report on the Form 5500 series required to be filed with
any government agency for each JTS Employee Plan for the three most recent Plan
years has been delivered to Atari.
(b) (i) None of the JTS Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any JTS Employee Plan, which could
reasonably be expected to have, in the aggregate, a Material Adverse Effect on
JTS or its subsidiaries; (iii) all JTS Employee Plans have been administered in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code, orders, or governmental rules and
regulations currently in effect with respect thereto and including all
applicable requirements for notification to participants
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or to the Department of Labor, Internal Revenue Service or Secretary of the
Treasury), except as would not have, in the aggregate, a Material Adverse Effect
on JTS or its subsidiaries, and JTS and each of its subsidiaries have performed
all obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the JTS Employee Plans; (iv)
each JTS Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has received a
favorable determination letter from the Internal Revenue Service (the "IRS") as
to such qualification, and nothing has occurred which could reasonably be
expected to cause the loss of such qualification or exemption; (v) all material
contributions required to be made by JTS or any of its subsidiaries to any JTS
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each JTS Employee Plan for the
current plan years; and (vi) no JTS Employee Plan is covered by, and neither JTS
nor any subsidiary has incurred or expects to incur any liability under Title IV
of ERISA or Section 412 of the Code.
(c) With respect to each JTS Employee Plan that constitutes a group health
plan within the meaning of Section 5000(b)(1) of the Code or Section 607(1) of
ERISA, JTS and each of its United States subsidiaries have complied with the
applicable health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and the
proposed regulations thereunder, except to the extent that such failure to
comply would not, in the aggregate, have a Material Adverse Effect on JTS and
its subsidiaries.
2.15 Certain Agreements Affected by the Merger. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of JTS or any of its subsidiaries, (ii) increase any
benefits otherwise payable by JTS or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
2.16 Employee Matters. Except as to matters which could not, in the
aggregate, have a Material Adverse Effect on JTS and its subsidiaries, taken as
a whole, JTS and each of its subsidiaries are in compliance in all respects with
all currently applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. There are no pending claims against JTS or any of
its subsidiaries under any workers compensation plan or policy or for long term
disability. Neither JTS nor any of its subsidiaries has any material obligations
under COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no controversies pending or, to the knowledge of JTS or
any of its subsidiaries, threatened, between JTS or any of its subsidiaries and
any of their respective employees, which controversies have or could have a
Material Adverse Effect on JTS and its subsidiaries, taken as a whole. Neither
JTS nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor unions contract nor does JTS nor any of its
subsidiaries know of any activities or proceedings of any labor union or
organize any such employees.
2.17 Interested Party Transactions. Except as disclosed in the JTS
Disclosure Schedule, neither JTS nor any of its subsidiaries is indebted to any
director, officer, employee or agent of JTS or any of its subsidiaries (except
for amounts due as normal salaries and in reimbursement of ordinary expenses),
and no such person is indebted to JTS or any of its subsidiaries. Except as
disclosed in the JTS Disclosure Schedule, no officer, director or stockholder of
JTS or any affiliate of such person has, either directly or indirectly, (i) an
interest in any corporation, partnership, firm or other person or entity which
furnishes or sells services or products which are similar to those furnished or
sold by JTS or (ii) a beneficial interest in a contract or agreement to which
JTS is a party or by which JTS may be bound. For purposes of this Section 2.17,
there shall be disregarded any interest which arose solely from the ownership of
less than a one percent (1%) equity interest in a corporation whose stock is
regularly traded on a national securities exchange or over-the-counter market.
2.18 Insurance. JTS and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of JTS and its
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subsidiaries. There is no claim pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and JTS and its subsidiaries are otherwise in compliance
with the terms of such policies and bonds. JTS has no knowledge of any
threatened termination of, or premium increase with respect to, any of such
policies.
2.19 Compliance With Laws. Each of JTS and its subsidiaries has complied
with, are not in violation of, and have not received any notices of violation
with respect to, any federal, state, local or foreign statute, law or regulation
with respect to the conduct of its business, or the ownership or operation of
its business, except for such violations or failures to comply as could not be
reasonably expected to have a Material Adverse Effect on JTS and its
subsidiaries, taken as a whole.
2.20 Minute Books. The minute books of JTS and its subsidiaries made
available to Atari contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of JTS and the respective subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
2.21 Complete Copies of Materials. JTS has delivered or made available
true and complete copies of each document which has been requested by Atari or
its counsel in connection with their legal and accounting review of JTS and its
subsidiaries.
2.22 Brokers' and Finders' Fees. JTS has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.23 Registration Statement; Proxy Statement/Prospectus. The information
supplied by JTS for inclusion in the registration statement on Form S-4 (or such
other or successor form as shall be appropriate, the "Registration Statement")
pursuant to which the shares of JTS Common Stock to be issued in the Merger will
be registered with the Securities and Exchange Commission (the "SEC") shall not
at the time the Registration Statement (including any amendments or supplements
thereto) is declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by JTS for inclusion in the proxy statement/prospectus to be sent to
the stockholders of JTS and Atari in connection with the meeting of JTS's
stockholders to consider the Merger (the "JTS Stockholders Meeting") and in
connection with the meeting of Atari's stockholders to consider the Merger (the
"Atari Stockholders Meeting") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement") shall not, on the
date the Proxy Statement is first mailed to JTS's stockholders and Atari's
stockholders, at the time of the JTS Stockholders Meeting, at the time of the
Atari Stockholders Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein not false
or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the JTS Stockholders Meeting or the Atari Stockholders Meeting which
has become false or misleading. If at any time prior to the Effective Time any
event or information should be discovered by JTS which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
JTS shall promptly inform Atari. Notwithstanding the fore going, JTS makes no
representation, warranty or covenant with respect to any information supplied by
Atari which is contained in any of the foregoing documents.
2.24 Vote Required. The affirmative votes of the holders of (i) a majority
of the shares of JTS Common Stock and JTS Series A Preferred Stock outstanding
on the record date set for the JTS Stockholders Meeting, voting together, (ii) a
majority of the shares of JTS Common Stock outstanding on the record date set
for the JTS Stockholders Meeting, voting separately as a class, and (iii) at
least two-thirds of the shares of JTS Series A Preferred outstanding on the
record date set for the JTS Stockholders Meeting, voting separately as a class,
are the only votes of the holders of any of JTS's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
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2.25 Board Approval. The Board of Directors of JTS has unanimously (i)
approved this Agreement and the Merger, (ii) determined that the Merger is in
the best interests of the stockholders of JTS and is on terms that are fair to
such stockholders and (iii) recommended that the stockholders of JTS approve
this Agreement and the Merger.
2.26 Underlying Documents. True and complete copies of all underlying
documents set forth on the JTS Disclosure Schedule or described as having been
disclosed or delivered to Atari pursuant to this Agreement have been furnished
to Atari.
2.27 Representations Complete. None of the representations or warranties
made by JTS herein or in any Schedule hereto, including the JTS Disclosure
Schedule, or certificate furnished by JTS pursuant to this Agreement, when all
such documents are read together in their entirety, contains or will contain at
the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ATARI
Except as disclosed in the Atari SEC Documents (as defined in Section 3.4)
or in a document of even date herewith and delivered by Atari to JTS prior to
the execution and delivery of this Agreement and referring to the
representations and warranties in this Agreement (the "Atari Disclosure
Schedule"), Atari represents and warrants to JTS as follows:
3.1 Organization, Standing and Power. The Atari Disclosure Schedule
identifies each subsidiary of Atari that is a "significant subsidiary" of Atari
as defined by Rule 1-02(v) of Regulation S-X (the "Significant Subsidiaries").
Atari and each of its Significant Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each of Atari and its Significant Subsidiaries has the corporate
power to own its properties and to carry on its business as now being conducted
and as proposed to be conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified and
in good standing would have a Material Adverse Effect on Atari and its
subsidiaries, taken as a whole. Atari has delivered a true and correct copy of
the Articles of Incorporation and Bylaws or other charter documents, as
applicable, of Atari and each of its Significant Subsidiaries, each as amended
to date, to JTS. Neither Atari nor any of its Significant Subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or Bylaws or
equivalent organizational documents. Atari is the owner of all outstanding
shares of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Atari free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Atari or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Atari SEC Documents (as defined in
Section 3.4), Atari does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
3.2 Capital Structure. The authorized capital stock of Atari consists of
100,000,000 shares of Common Stock, $.01 par value, and 10,000,000 shares of
Preferred Stock, $.01 par value, of which there were issued and outstanding as
of the close of business on March 29, 1996, 63,727,318 shares of Common Stock
and no shares of Preferred Stock. There are no other outstanding shares of
capital stock or voting securities of Atari, other than shares of Atari Common
Stock issued after March 29, 1996 upon the exercise of options issued under the
Atari 1986 Stock Option Plan (the "Atari Stock Option Plan"). All outstanding
shares of Atari have been duly authorized, validly issued, fully paid and are
nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to
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preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of Atari or any agreement to which Atari is a party or
by which it is bound. As of the close of business on March 29, 1996, Atari has
reserved 3,000,000 shares of Common Stock for issuance to employees, directors
and consultants pursuant to the Atari Stock Option Plan, of which 599,674 shares
have been issued pursuant to option exercises, and 899,125 shares are subject to
outstanding, unexercised options. Since March 29, 1996, Atari has not issued or
granted additional options under the Atari Stock Option Plan. There are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Atari is a party or by which it is bound obligating Atari to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of Atari or obligating
Atari to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement.
3.3 Authority. Atari has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Atari, subject only to the approval of the
Merger by the Atari stockholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by Atari and constitutes the
valid and binding obligations of Atari. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Articles of Incorporation or Bylaws of
Atari or any of its Significant Subsidiaries, as amended, or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Atari or any of its Significant
Subsidiaries or any of their properties or assets. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity, is required by or with respect to Atari or any of its
Significant Subsidiaries in connection with the execution and delivery of this
Agreement by Atari or the consummation by Atari of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided in
Section 1.2, (ii) the filing with the SEC and the American Stock Exchange of the
Proxy Statement relating to the Atari Stockholders Meeting, (iii) the filing of
a Form 8-K and Form 10-C with the SEC and the American Stock Exchange within 15
days and 10 days, respectively, after the Closing Date, (iv) any filings as may
be required under applicable state securities laws and the securities laws of
any foreign country, (v) such filings as may be required under HSR, (vi) such
filings as may be required under the rules and regulations of the American Stock
Exchange, and (vii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Atari and its subsidiaries, taken as a whole, and would not prevent,
alter or materially delay any of the transactions contemplated by this
Agreement. The Atari Disclosure Schedule sets forth a full and complete list of
all necessary consents, waivers and approvals of third parties applicable to the
operations of Atari that are required to be obtained by Atari in connection with
the execution and delivery of this Agreement or the Merger Agreement by Atari or
the consummation by Atari of the transactions contemplated hereby or thereby,
except any such consents, waivers and approvals, which, if not obtained, would
not have a Material Adverse Effect on Atari and its subsidiaries, taken as a
whole. Prior to the Closing Date, Atari will obtain all such consents.
3.4 SEC Documents; Financial Statements. Atari has furnished to JTS a true
and complete copy of each report, registration statement, definitive proxy
statement, and other filings filed with the SEC by Atari since January 1, 1993
(other than filings pursuant to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any registration statement on Form
S-8), and prior to the Effective Time, Atari will have furnished JTS with true
and complete copies of any additional documents (other than filings pursuant to
Section 16 of the Exchange Act, and any registration statement on Form S-8)
filed with the SEC by Atari prior to the Effective Time (collectively, the
"Atari SEC Documents"). As of their respective filing dates, the Atari SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Atari SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the
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extent corrected by a subsequently filed Atari SEC Document. The financial
statements of Atari, including the notes thereto, included in the Atari SEC
Documents (the "Atari Financial Statements") were complete and correct in all
material respects as of their respective dates, complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto as of their respective
dates, and have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Form 10-Qs,
as permitted by Form 10-Q of the SEC). The Atari Financial Statements are in
accordance with the books and records of Atari and fairly present the
consolidated financial condition and operating results of Atari and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments).
There has been no change in Atari accounting policies except as described in the
notes to the Atari Financial Statements.
3.5 Absence of Certain Changes. Since December 31, 1995 (the "Atari
Balance Sheet Date"), Atari has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Atari
and its subsidiaries, taken as a whole; (ii) any acquisition, sale or transfer
of any material asset of Atari or any of its subsidiaries other than in the
ordinary course of business and consistent with past practice; (iii) any change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Atari or any revaluation by Atari of any of
its assets; (iv) any issuance or agreement to issue or any commitment to issue
any equity security, bond, note or other security of Atari or any of its
subsidiaries; (v) any declaration, setting aside, or payment of a dividend or
other distribution with respect to the shares of Atari, or any direct or
indirect redemption, purchase or other acquisition by Atari of any of its shares
of capital stock; (vi) any material contract entered into by Atari, other than
in the ordinary course of business and as provided to JTS, or any amendment or
termination of, or default under, any material contract to which Atari is a
party or by which it is bound; or (vii) any negotiation or agreement by Atari or
any of its subsidiaries to do any of the things described in the preceding
clauses (i) through (vii) (other than negotiations with JTS regarding the
transactions contemplated by this Agreement).
3.6 Absence of Undisclosed Liabilities. Atari has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the Balance Sheet
included in Atari's Annual Report on Form 10-K for the period ended December 31,
1995 (the "Atari Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Atari Balance Sheet under
generally accepted accounting principles, and (iii) those incurred in the
ordinary course of business since the Atari Balance Sheet Date and consistent
with past practice.
3.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Atari or any of its
subsidiaries, threatened against Atari or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could have a
Material Adverse Effect on Atari and its subsidiaries, taken as a whole. There
is no judgment, decree or order against Atari or any of its subsidiaries or, to
the knowledge of Atari or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
alter or delay any of the transactions contemplated by this Agreement, or that
could have a Material Adverse Effect on Atari and its subsidiaries, taken as a
whole. The outcome of the matter In re The Federated Group, Inc. Alleged Debtor
U.S.B.C. (N.D.Cal. Div. 5) No. 92-50412-JRG Chapter 7, is not reasonably likely
to have a Material Adverse Effect on Atari and its subsidiaries, taken as a
whole.
3.8 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Atari or any of its subsidiaries which
has or could have the effect of prohibiting or materially impairing any current
or future business practice of Atari or any of its subsidiaries, any acquisition
of property by Atari or any of its subsidiaries or the conduct of business by
Atari or any of its subsidiaries as currently conducted or as proposed to be
conducted by Atari or any of its subsidiaries.
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3.9 Governmental Authorization. Atari and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Atari or any of its subsidiaries currently operates or holds
any interest in any of its properties or (ii) which is required for the
operation of Atari's or any of its subsidiaries' business or the holding of any
such interest (herein collectively called "Atari Authorizations"), and all of
such Atari Authorizations are in full force and effect, except where the failure
to obtain or have any of such Atari Authorizations could not reasonably be
expected to have a Material Adverse Effect on Atari and its subsidiaries, taken
as a whole.
3.10 Title to Property. Atari and its Significant Subsidiaries have good
and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Atari Balance Sheet
or acquired after the Atari Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Atari Balance
Sheet Date thereof in the ordinary course of business), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Atari
Balance Sheet. The plants, property and equipment of Atari and its Significant
Subsidiaries that are used in the operations of their businesses are in good
operating condition and repair. All properties used in the operations of Atari
and its Significant Subsidiaries are reflected in the Atari Balance Sheet to the
extent generally accepted accounting principles require the same to be
reflected. The Atari Disclosure Schedule identifies each parcel of real property
owned or leased by Atari or any of its Significant Subsidiaries
3.11 Intellectual Property. Atari and its Significant Subsidiaries own, or
are licensed or otherwise possess legally enforceable rights to use all
Intellectual Property that are used or proposed to be used in the business of
Atari and its Significant Subsidiaries as currently conducted or as proposed to
be conducted by Atari and its subsidiaries, except to the extent that the
failure to have such rights have not had and could not reasonably be expected to
have a Material Adverse Effect on Atari and its subsidiaries, taken as a whole.
To the knowledge of Atari and its Significant Subsidiaries, there is no material
unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of Atari or any of its subsidiaries, any trade
secret material to Atari or any of its subsidiaries, or any Intellectual
Property right of any third party to the extent licensed by or through Atari or
any of its subsidiaries, by any third party, including any employee or former
employee of Atari or any of its subsidiaries. Neither Atari nor any of its
subsidiaries has entered into any agreement to indemnify any other person
against any charge of infringement of any Intellectual Property, other than
indemnification provisions (i) listed on the Atari Disclosure Schedule or (ii)
contained in purchase orders arising in the ordinary course of business.
3.12 Environmental Matters.
(a) To the knowledge of Atari and its Significant Subsidiaries, no
Hazardous Material is present in, on or under any property that Atari or any of
its subsidiaries has at any time owned, operated, occupied or leased (herein an
"Atari Facility"), except to the extent that such presence has not had and could
not reasonably be expected to have a Material Adverse Effect on Atari and its
subsidiaries, taken as a whole.
(b) To the knowledge of Atari and its Significant Subsidiaries, neither
Atari nor any of its subsidiaries has engaged in a Hazardous Materials Activity
in material violation of any applicable foreign, federal, state or local
statute, rule, regulation, order or law.
(c) To the knowledge of Atari and its Significant Subsidiaries, each of
Atari and its subsidiaries is and at all times has been in compliance with all
foreign, federal, state and local laws relating to emissions, discharges,
releases or threatened releases of Hazardous Materials, except to the extent
noncompliance with such laws has not had and could not reasonably be expected to
have a Material Adverse Effect on Atari and its subsidiaries, taken as a whole.
(d) No action, proceeding, permit revocation, writ, injunction or claim is
pending, or to the knowledge of Atari and its subsidiaries threatened,
concerning the Hazardous Materials Activities of Atari or any of its
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subsidiaries and/or any Atari Facilities. Neither Atari nor any of its
Significant Subsidiaries is aware of any fact or circumstance which could impose
any material environmental liability upon Atari or any of its subsidiaries.
3.13 Taxes. Atari and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Atari or any of
its subsidiaries is or has been a member have timely filed all Tax Returns
required to be filed by it, have paid all Taxes shown thereon to be due and has
provided adequate accruals in accordance with generally accepted accounting
principles in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns. Except as disclosed in the
Atari SEC Documents, (i) no material claim for Taxes has become a lien against
the property of Atari or any of its subsidiaries or is being asserted against
Atari or any of its subsidiaries other than liens for Taxes not yet due and
payable, (ii) no audit of any Tax Return of Atari or any of its subsidiaries is
being conducted by a Tax authority, (iii) no extension of the statute of
limitations on the assessment of any Taxes has been granted by Atari or any of
its subsidiaries and is currently in effect, and (iv) there is no agreement,
contract or arrangement to which Atari or any of its subsidiaries is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G, 162 or 404 of the Code. Neither Atari nor any of its
subsidiaries is a party to any tax sharing or tax allocation agreement nor does
Atari or any of its subsidiaries owe any amount under any such agreement. As
used herein, "Taxes" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign. As used herein, "Tax Return" shall mean any return, report
or statement required to be filed with any governmental authority with respect
to Taxes. Atari and each of its subsidiaries are in full compliance with all
terms and conditions of any Tax exemptions or other Tax-sharing agreement or
order of a foreign government and the consummation of the Merger shall not have
any adverse effect on the continued validity and effectiveness of any such Tax
exemption or other Tax-sharing agreement or order.
3.14 Employee Benefit Plans.
(a) The Atari Disclosure Schedule lists, with respect to Atari, any ERISA
affiliate of Atari or any subsidiary of Atari (i) all employee benefit plans (as
defined in Section 3(3) of ERISA), (ii) all loans to employees in excess of
$50,000, loans to officers, and any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,
disability, employee relocation, cafeteria (Code section 125), life insurance or
accident insurance plans, programs or arrangements, (iii) all bonus, deferred
compensation or incentive plans, programs or arrangements, (iv) other material
fringe or employee benefit plans, programs or arrangements that apply to senior
management of Atari and that do not generally apply to all employees, and (v)
any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which current or contingent obligations
of Atari of greater than $50,000 exist for the benefit of, or relating to, any
current or former employee, consultant or director of Atari (together, the
"Atari Employee Plans"), and a copy of each such Atari Employee Plan and each
summary plan description and annual report on the Form 5500 series required to
be filed with any government agency for each Atari Employee Plan for the three
most recent Plan years has been delivered to JTS.
(b) (i) None of the Atari Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Atari Employee Plan, which could
reasonably be expected to have, in the aggregate, a Material Adverse Effect on
Atari or its subsidiaries; (iii) all Atari Employee Plans have been administered
in compliance with the requirements prescribed by any and all statutes, rules
and regulations (including ERISA and the Code, orders, or governmental rules and
regulations currently in effect with respect thereto and including all
applicable requirements for notification to participants or to the Department of
Labor, Internal Revenue Service or Secretary of the Treasury), except as would
not have, in the aggregate, a Material Adverse Effect on Atari or its
subsidiaries, and Atari and each of its subsidiaries have performed all
obligations required to be performed by them under, are not in any material
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respect in default under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the Atari Employee Plans;
(iv) each Atari Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code has
received a favorable determination letter from the IRS as to such qualification,
and nothing has occurred which could reasonably be expected to cause the loss of
such qualification or exemption; (v) all material contributions required to be
made by Atari or any of its subsidiaries to any Atari Employee Plan have been
made on or before their due dates and a reasonable amount has been accrued for
contributions to each Atari Employee Plan for the current plan years; and (vi)
no Atari Employee Plan is covered by, and neither Atari nor any subsidiary has
incurred or expects to incur any liability under Title IV of ERISA or Section
412 of the Code.
(c) With respect to each Atari Employee Plan that constitutes a group
health plan within the meaning of Section 5000(b)(1) of the Code or Section
607(1) of ERISA, Atari and each of its United States subsidiaries have complied
with the applicable health care continuation and notice provisions of COBRA and
the proposed regulations thereunder, except to the extent that such failure to
comply would not, in the aggregate, have a Material Adverse Effect on Atari and
its subsidiaries.
3.15 Certain Agreements Affected by the Merger. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Atari or any of its subsidiaries, (ii) increase any
benefits otherwise payable by Atari or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
3.16 Employee Matters. Except as to matters which could not, in the
aggregate, have a Material Adverse Effect on Atari and its subsidiaries, taken
as a whole, Atari and each of its Significant Subsidiaries are in compliance in
all respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. There are no pending claims against
Atari or any of its subsidiaries under any workers compensation plan or policy
or for long term disability. Neither Atari nor any of its subsidiaries has any
material obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder. There are no controversies pending or, to
the knowledge of Atari or any of its subsidiaries, threatened, between Atari or
any of its subsidiaries and any of their respective employees, which
controversies have or could have a Material Adverse Effect on Atari and its
subsidiaries, taken as a whole. Neither Atari nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor unions contract nor
does Atari nor any of its subsidiaries know of any activities or proceedings of
any labor union or organize any such employees.
3.17 Interested Party Transactions. Except as disclosed in the Atari
Disclosure Schedule or the Atari SEC Documents, neither Atari nor any of its
subsidiaries is indebted to any director, officer, employee or agent of Atari or
any of its subsidiaries (except for amounts due as normal salaries and in
reimbursement of ordinary expenses), and no such person is indebted to Atari or
any of its subsidiaries. Except as disclosed in the Atari Disclosure Schedule or
the Atari SEC Documents, no officer, director or shareholder of Atari or any
affiliate of such person has, either directly or indirectly, (i) an interest in
any corporation, partnership, firm or other person or entity which furnishes or
sells services or products which are similar to those furnished or sold by Atari
or (ii) a beneficial interest in a contract or agreement to which Atari is a
party or by which Atari may be bound. For purposes of this Section 3.17, there
shall be disregarded any interest which arose solely from the ownership of less
than a one percent (1%) equity interest in a corporation whose stock is
regularly traded on a national securities exchange or over-thecounter market.
3.18 Insurance. Atari and each of its Significant Subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses or owning assets similar to those of Atari and
its subsidiaries. There is no claim pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and Atari and its Significant Subsidiaries are
otherwise in compliance with the terms of such policies and bonds. Atari has no
knowledge of any threatened termination of, or premium increase with respect to,
any of such policies.
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3.19 Compliance With Laws. Each of Atari and its Significant Subsidiaries
has complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on Atari and
its subsidiaries, taken as a whole.
3.20 Minute Books. The minute books of Atari and its subsidiaries made
available to JTS contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of Atari and the respective subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
3.21 Complete Copies of Materials. Atari has delivered or made available
true and complete copies of each document which has been requested by JTS or its
counsel in connection with their legal and accounting review of Atari and its
subsidiaries.
3.22 Broker's and Finders' Fees. Atari has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.23 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Atari for inclusion in the Registration Statement shall not, at the
time the Registration Statement (including any amendments or supplements
thereto) is declared effective by the SEC, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The information supplied by Atari for inclusion in the Proxy
Statement shall not, on the date the Proxy Statement is first mailed to JTS's
stockholders and Atari's stockholders, at the time of the JTS Stockholders
Meeting, at the time of the Atari Stockholders Meeting and at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the JTS Stockholders Meeting or the Atari
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Atari
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Atari will promptly inform JTS.
Notwithstanding the foregoing, Atari makes no representation, warranty or
covenant with respect to any information supplied by JTS which is contained in
any of the foregoing documents.
3.24 Opinion of Financial Advisor. Atari has been advised in writing by
its financial advisor, Montgomery Securities, that in such advisor's opinion, as
of the date hereof, the consideration to be paid by Atari hereunder is fair,
from a financial point of view, to Atari.
3.25 Board Approval. The Board of Directors of Atari has unanimously (i)
approved this Agreement and the Merger, (ii) determined that the Merger is in
the best interests of its stockholders and is on terms that are fair to such
stockholders and (iii) recommended that its stockholders approve this Agreement
and the Merger.
3.26 Vote Required. The affirmative vote of the holders of a majority of
the shares of Atari Common Stock outstanding on the record date set for the
Atari Stockholders Meeting is the only vote of the holders of any of Atari's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby. No shareholder of Atari will be entitled to statutory
dissenters rights under Nevada Law as a result of the Merger.
3.27 Underlying Documents. True and complete copies of all underlying
documents set forth on the Atari Disclosure Schedule or described as having been
disclosed or delivered to JTS pursuant to this Agreement have been furnished to
JTS.
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3.28 Representations Complete. None of the representations or warranties
made by Atari herein or in any Schedule hereto, including the Atari Disclosure
Schedule, or certificate furnished by Atari pursuant to this Agreement, or the
Atari SEC Documents, when all such documents are read together in their
entirety, contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of JTS and Atari. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, each of JTS and Atari agrees (except to the
extent expressly contemplated by this Agreement or as consented to in writing by
the other), to carry on its and its subsidiaries' business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay and to cause its subsidiaries to pay debts and taxes when due (subject to
good faith disputes over such debts or taxes) and to pay or perform other
obligations when due. Each of JTS and Atari agrees to promptly notify the other
of any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which could have a Material Adverse
Effect on it and its subsidiaries, taken as a whole. Without limiting the
foregoing, except as expressly contemplated by this Agreement, neither JTS nor
Atari shall do, cause or permit any of the following, or allow, cause or permit
any of its subsidiaries to do, cause or permit any of the following, without the
prior written consent of the other:
(a) Charter Documents. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws (except as contemplated by Section
1.4 hereof);
(b) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares
of its Common Stock pursuant to the exercise of stock options, warrants or
other rights therefor outstanding as of the date of this Agreement;
provided, however, that in addition to any grants specifically described on
the JTS Disclosure Schedule, JTS may, in the ordinary course of business
consistent with past practice, grant options for the purchase of up to
250,000 shares of JTS Common Stock under the JTS Stock Option Plan and
issue shares of JTS Common Stock upon the exercise of such options; and
provided, further, that Atari may issue securities under the Atari Option
Plan.
(c) Dividends; Changes in Capital Stock. Declare or pay any dividends
on or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its
subsidiaries;
(d) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its and its parent's/subsidiaries'
business, taken as a whole;
(e) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Return or any
amendment to a material Return, enter into any closing agreement, settle
any claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in
respect of Taxes;
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(f) Stock Option Plans, Etc. Accelerate, amend or change the period
of exercisability of options, warrants or other rights granted under its
employee stock plans or authorize cash payments in exchange for any
options, warrants or other rights granted under any of such plans;
(g) Other. Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (f) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.2 Conduct of Business of JTS. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as expressly contemplated by this Agreement, JTS
shall not do, cause or permit any of the following, or allow, cause or permit
any of its subsidiaries to do, cause or permit any of the following, without the
prior written consent of Atari:
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its material contracts, other than in the ordinary course of
business consistent with past practice;
(b) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(c) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past
practice;
(d) Indebtedness. Incur any indebtedness for borrowed money (except
amounts borrowed under JTS's existing revolving credit line or drawdowns of
existing credit facilities for working capital or construction purposes
only) or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
(e) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business and other
than as disclosed in the JTS Disclosure Schedule;
(f) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $50,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the JTS Financial Statements;
(g) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(h) Employee Benefit Plans. Adopt or amend any employee benefit or
stock purchase or option plan;
(i) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with Atari prior
to the filing of such a suit, (iii) in such cases in which the damages or
legal fees are not reasonably expected to material, or (iv) for a breach of
this Agreement; or
(j) Other. Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (i) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.3 Conduct of Business of Atari. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as expressly contemplated
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by this Agreement, Atari shall not do, cause or permit any of the following, or
allow, cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of JTS:
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its material contracts, other than in the ordinary course of
business consistent with past practice;
(b) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(c) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past
practice;
(d) Indebtedness. Incur any indebtedness for borrowed money (except
amounts borrowed under JTS's existing revolving credit line or drawdowns of
existing credit facilities for working capital or construction purposes
only) or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
(e) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business and other
than as disclosed in the Atari Disclosure Schedule;
(f) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $50,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Atari Financial Statements;
(g) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business
and consistent with past practice, and in any event not to exceed $25,000
per quarter;
(h) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(i) Employee Benefit Plans. Adopt or amend any employee benefit or
stock purchase or option plan;
(j) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with JTS prior
to the filing of such a suit, (iii) in such cases in which the damages or
legal fees are not reasonably expected to material, or (iv) for a breach of
this Agreement; or
(k) Other. Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.3(a) through (j) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.4 No Other JTS Negotiations. From and after the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, JTS shall not, directly or indirectly (i) solicit,
initiate discussion or engage in negotiations with any person (whether such
negotiations are initiated by JTS or otherwise) or take any other action
intended or designed to facilitate the efforts of any person, other than Atari,
relating to the possible acquisition of JTS or any of its subsidiaries (whether
by way of merger, purchase of capital stock, purchase of assets of otherwise) or
any of its or their capital stock or any material portion of its or their assets
(with any such efforts by any such person, including a firm proposal to make
such an acquisition, to be referred to as a "JTS Acquisition Proposal") (ii)
provide non-public information with respect to JTS or any of its subsidiaries to
any person, other than Atari, relating to a possible
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JTS Acquisition Proposal by any person, other than Atari, (iii) enter into an
agreement with any person, other than Atari, providing for a possible JTS
Acquisition Proposal, or (iv) make or authorize any statement, recommendation or
solicitation in support of any possible JTS Acquisition Proposal by any person
other than Atari. If JTS or any of its subsidiaries receives any unsolicited
offer or proposal to enter negotiations relating to a JTS Acquisition Proposal,
JTS shall immediately notify Atari thereof, including information as to the
identity of the party making any such offer or proposal and the specific terms
of such offer or proposal, as the case may be. JTS recognizes and acknowledges
that a breach of this Section 4.4 may cause irreparable and material loss and
damage to Atari as to which Atari may not have an adequate remedy at law or in
damages and that, accordingly, JTS agrees that the issuance of an injunction or
other equitable remedy is the appropriate remedy for any such breach.
4.5 No Other Atari Negotiations. From and after the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, Atari shall not, directly or indirectly (i) solicit,
initiate discussion or engage in negotiations with any person (whether such
negotiations are initiated by Atari or otherwise) or take any other action
intended or designed to facilitate the efforts of any person, other than JTS,
relating to the possible acquisition of Atari (whether by way of merger,
purchase of capital stock, purchase of assets of otherwise) or any of its
capital stock or any material portion of its assets (with any such efforts by
any such person, including a firm proposal to make such an acquisition, to be
referred to as an "Atari Acquisition Proposal") (ii) provide non-public
information with respect to Atari to any person, other than JTS, relating to a
possible Atari Acquisition Proposal by any person, other than JTS, (iii) enter
into an agreement with any person, other than JTS, providing for a possible
Atari Acquisition Proposal, or (iv) make or authorize any statement,
recommendation or solicitation in support of any possible Atari Acquisition
Proposal by any person other than JTS. If Atari receives any unsolicited offer
or proposal to enter negotiations relating to an Atari Acquisition Proposal,
Atari shall immediately notify JTS thereof, including information as to the
identity of the party making any such offer or proposal and the specific terms
of such offer or proposal, as the case may be. Atari recognizes and acknowledges
that a breach of this Section 4.5 may cause irreparable and material loss and
damage to JTS as to which JTS may not have an adequate remedy at law or in
damages and that, accordingly, JTS agrees that the issuance of an injunction or
other equitable remedy is the appropriate remedy for any such breach.
Notwithstanding the foregoing, nothing contained in this Agreement (i) shall
prevent the Board of Directors of Atari from referring any third party to this
Section 4.5 or providing a copy of this Agreement (other than the JTS Disclosure
Schedule) to any third party, (ii) shall prevent the Board of Directors of Atari
from considering, negotiating, approving and recommending to the shareholders of
Atari an unsolicited bona fide written Atari Acquisition Proposal which the
Board of Directors of Atari determines in good faith (after consultation with
its financial advisors and after consultation with outside counsel as to whether
the Board of Directors is required to do so in order to discharge properly its
fiduciary duties to shareholders under applicable law) would result in a
transaction more favorable to the Company's shareholders from a financial point
of view than the transaction contemplated by this Agreement (any such Atari
Acquisition Proposal being referred to herein as a "Superior Atari Proposal").
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, JTS and Atari shall prepare,
and Atari shall file with the SEC, preliminary proxy materials relating to the
approval of the Merger and the transactions contemplated hereby by the
stockholders of each of JTS and Atari and, as promptly as practicable following
receipt of SEC comments thereon, JTS and Atari shall file with the SEC a
Registration Statement on Form S-4 (or such other or successor form as shall be
appropriate), which complies in form with applicable SEC requirements and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable. The Proxy Statement shall include
the recommendation of the Board of Directors of JTS in favor of the Merger;
provided that such recommendation may not be included or may be withdrawn if
previously included if JTS's Board of Directors, upon written advice of its
outside legal counsel, shall determine that to include such recommenda-
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tion or not withdraw such recommendation if previously included would constitute
a breach of the Board's fiduciary duty under applicable law. The Proxy Statement
shall include the recommendation of the Board of Directors of Atari in favor of
the Merger; provided that such recommendation may not be included or may be
withdrawn if previously included if Atari's Board of Directors, upon written
advice of its outside legal counsel, shall determine that to include such
recommendation or not withdraw such recommendation if previously included would
constitute a breach of the Board's fiduciary duty under applicable law.
5.2 Meetings of Stockholders.
(a) JTS shall promptly after the date hereof take all action necessary in
accordance with Delaware Law and its Certificate of Incorporation and Bylaws to
convene the JTS Stockholders Meeting on or prior to June 30, 1996 or as soon
thereafter as is practicable. JTS shall consult with Atari and use all
reasonable efforts to hold the JTS Stockholders Meeting on the same day as the
Atari Stockholders Meeting and shall not postpone or adjourn (other than for the
absence of a quorum) the JTS Stockholders Meeting without the consent of Atari.
JTS shall use its best efforts to solicit from stockholders of JTS proxies in
favor of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required to effect the Merger.
(b) Atari shall promptly after the date hereof take all action necessary in
accordance with Nevada Law and its Articles of Incorporation and Bylaws to
convene the Atari Stockholders Meeting on or prior to June 30, 1996 or as soon
thereafter as is practicable. Atari shall consult with JTS and shall use all
reasonable efforts to hold the Atari Stockholders Meeting on the same day as the
JTS Stockholders Meeting and shall not postpone or adjourn (other than for the
absence of a quorum) the Atari Stockholders Meeting without the consent of JTS.
Atari shall use its best efforts to solicit from stockholders of Atari proxies
in favor of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required to effect the Merger.
5.3 Access to Information. JTS shall afford Atari and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of JTS's and its
subsidiaries' properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of JTS
and its subsidiaries as Atari may reasonably request. JTS agrees to provide to
Atari and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request. Atari shall afford JTS and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of
Atari's and its subsidiaries' properties, books, contracts, commitments and
records, and (ii) all other information concerning the business, properties and
personnel of Atari and its subsidiaries as JTS may reasonably request. Atari
agrees to provide to JTS and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.4 Public Disclosure. Atari and JTS shall consult with each other before
issuing any press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure regarding the terms of this
Agreement and the transactions contemplated hereby, and neither shall issue any
such press release or make any such statement or disclosure without the prior
approval of the other (which approval shall not be unreasonably withheld),
except as may be required by law.
5.5 Consents; Cooperation. Each of Atari and JTS shall promptly apply for
or otherwise seek, and use its best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its best efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to HSR or any other federal or state antitrust or fair trade
law.
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5.6 Continuity of Interest Certificates.
(a) Schedule 5.6(a) sets forth those persons who hold one percent (1%) or
more of the outstanding shares of JTS capital stock (the "JTS Significant
Stockholders"). JTS shall provide Atari such information and documents as Atari
shall reasonably request for purposes of reviewing such list. JTS shall use its
best efforts to deliver or cause to be delivered to Atari, concurrently with the
execution of this Agreement (and in each case prior to the Effective Time) from
each of the JTS Significant Stockholders, an executed Continuity of Interest
Certificate in a form reasonably satisfactory to counsel to Atari. The Surviving
Company shall be entitled to place appropriate legends on the certificates
evidencing any JTS Common Stock held by such JTS Significant Stockholders, and
to issue appropriate stop transfer instructions to the transfer agent for JTS
Common Stock, consistent with the terms of such Continuity of Interest
Certificates.
(b) Schedule 5.6(b) sets forth those persons who hold five percent (5%) or
more of the outstanding shares of Atari capital stock (the "Atari Significant
Stockholders"). Atari shall provide JTS such information and documents as JTS
shall reasonably request for purposes of reviewing such list. Atari shall use
its best efforts to deliver or cause to be delivered to JTS, concurrently with
the execution of this Agreement (and in each case prior to the Effective Time)
from each of the Atari Significant Stockholders, an executed Continuity of
Interest Certificate in a form reasonably satisfactory to counsel to JTS. The
Surviving Company shall be entitled to place appropriate legends on the
certificates evidencing any JTS Common Stock to be received by such Atari
Significant Stockholders pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for JTS Common
Stock, consistent with the terms of such Continuity of Interest Certificates.
5.7 Voting Agreements.
(a) Prior to or concurrently with the execution of this Agreement, each JTS
stockholder named in Schedule 5.7(a) shall have executed and delivered to Atari
a Voting Agreement substantially in the form of Exhibit C-1 attached hereto.
(b) Prior to or concurrently with the execution of this Agreement, each
Atari stockholder named in Schedule 5.7(b) shall have executed and delivered to
JTS a Voting Agreement substantially in the form of Exhibit C-2 attached hereto.
5.8 FIRPTA. Promptly following the Closing, JTS and Atari shall deliver to
the IRS appropriate notices that their capital stock is not a "U.S. Real
Property Interest" as defined in and in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
5.9 Legal Requirements. Each of Atari and JTS will, and will cause their
respective subsidiaries to, take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on them with respect
to the consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.10 Blue Sky Laws. JTS shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the JTS Common Stock in connection with the
Merger. Atari shall use its best efforts to assist JTS as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of JTS Common Stock in connection
with the Merger.
5.11 Atari Employee Benefit Plans. At the Effective Time, each outstanding
option to purchase shares of Atari Common Stock under the Atari Stock Option
Plan whether vested or unvested, will be assumed by JTS. Each such option so
assumed by JTS under this Agreement shall continue to have, and be subject to,
the same terms and conditions set forth in the Atari Stock Option Plan
immediately prior to the Effective Time,
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except that (i) such option will be exercisable for that number of whole shares
of JTS Common Stock equal to the product of the number of shares of Atari Common
Stock that were issuable upon exercise of such option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of JTS Common Stock, and (ii) the per share exercise
price for the shares of JTS Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise price
per share of Atari Common Stock at which such option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent. It is the intention of the parties that the options so assumed by
JTS qualify following the Effective Time as incentive stock options as defined
in Section 422 of the Code to the extent such options qualified as incentive
stock options prior to the Effective Time.
5.12 Atari Debentures. Each Atari Debenture, upon its surrender to JTS at
any time at or following the Closing, shall be exchanged for a debenture in
substantially identical form (i) representing the right to convert into that
number of shares of JTS Common Stock equal to the number of shares of Atari
Common Stock for which such debenture was previously convertible multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of JTS
Common Stock, and (ii) with a per share conversion price for the shares of JTS
Common Stock issuable upon exercise of such assumed debenture equal to the
quotient determined by dividing the conversion price per share of JTS Common
Stock at which such debenture was convertible immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent.
5.13 Form S-8. JTS agrees to file, no later than five (5) days after the
Closing, a registration statement on Form S-8 covering the shares of JTS Common
Stock issuable pursuant to outstanding options under the Atari Stock Option Plan
assumed by JTS.
5.14 Tax-Free Reorganization; Tax Returns. Atari and JTS shall each use
its best efforts to cause the Merger to be treated as a "reorganization" within
the meaning of Section 368(a)(1)(A) of the Code and shall report the Merger as
such in all federal and, to the extent permitted, all state and local tax
returns filed after the Effective Time of the Merger.
5.15 Registration Rights. At or prior to the Closing, JTS shall provide to
the holders of Atari Common Stock listed on Schedule 5.15 hereto, the
registration rights set forth in that certain Registration Rights Agreement
dated as of February 3, 1995 by and among JTS and the entities listed on Exhibit
A thereto, by amending such agreement in a form reasonably acceptable to counsel
to Atari.
5.16 Indemnification of Officers and Directors. After the Effective Time,
the Surviving Corporation shall (to the extent not prohibited by law) indemnify
and hold harmless, and pay in advance expenses, costs, damages, settlements and
fees to each director or officer of Atari serving as such as of the date hereof
as provided in the Nevada law or the Articles of Incorporation or bylaws of
Atari or any indemnification agreement to which Atari and such officer or
director is a party, in each case as in effect at the date hereof, which
provisions shall survive the Merger and shall continue in full force and effect
after the Effective Time.
5.17 Listing of JTS Common Stock. Atari and JTS shall each use its best
efforts to cause the JTS Common Stock to be approved for listing on the Nasdaq
National Market or the American Stock Exchange, such that trading in JTS Common
Stock shall commence on the first trading day following the Closing.
5.18 Atari Consent to JTS Transaction with Moduler. JTS covenants and
agrees with Atari that JTS will not amend or modify the Moduler Agreement
without the prior written consent of Atari.
5.19 Atari SEC Documents. Atari covenants and agrees with JTS that from
and after the date hereof, Atari will timely file all reports which it is
required to file with the SEC pursuant to the Exchange Act.
5.20 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill or cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary
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or desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by (i) the holders of a majority of the shares of
JTS Common Stock and JTS Series A Preferred Stock outstanding as of the
record date set for the JTS Stockholders Meeting, voting together, (ii) a
majority of the shares of JTS Common Stock outstanding on the record date
set for the JTS Stockholders Meeting, voting separtely as a class, (iii)
the holders of at least two-thirds of the shares of JTS Series A Preferred
outstanding as of the record date set for the JTS Stockholders Meeting,
voting separately as a class, and (iv) the holders of a majority of the
shares of Atari Common Stock outstanding as of the record date set for the
Atari Stockholders Meeting.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Proxy Statement, shall have been initiated or threatened
by the SEC; and all requests for additional information on the part of the
SEC shall have been complied with to the reasonable satisfaction of the
parties hereto.
(c) Exchange Act Registration Statement Effective. JTS shall have
filed a Registration Statement on Form 8-A with the SEC pursuant to the
Exchange Act (the "Form 8-A"). The SEC shall have declared the Form 8-A
effective. No stop orders suspending the effectiveness of the Form 8-A or
any part thereof shall have been issued and no proceeding for that purpose,
shall have been initiated or threatened by the SEC.
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger, nor
shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, which makes the consummation of the
Merger illegal. In the event an injunction or other order shall have been
issued, each party agrees to use its reasonable diligent efforts to have
such injunction or other order lifted.
(e) Governmental Approval. Atari and JTS and their respective
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or
in connection with the Merger and the several transactions contemplated
hereby, including such approvals, waivers and consents as may be required
under the Securities Act, under state Blue Sky laws, and under HSR.
(f) Tax Opinion. Atari and JTS shall have received substantially
identical written opinions of Wilson Sonsini Goodrich & Rosati, P.C., and
Cooley Godward Castro Huddleson & Tatum, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinions shall not have been withdrawn. In rendering such opinions, counsel
shall be entitled to rely upon representations of Atari and JTS and certain
stockholders of Atari and JTS.
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(g) Listing of JTS Common Stock. The JTS Common Stock shall have been
approved for quotation on the Nasdaq National Market or the American Stock
Exchange.
(h) Limit on JTS Dissenting Shares. No more than 5.0% of the shares
of JTS Common Stock and JTS Series A Preferred Stock shall be Dissenting
Shares or entitled to exercise any dissenters or appraisal rights with
respect to the Merger.
(i) Continuity of Interest Certificates. Atari shall have received
from each of the JTS Significant Stockholders an executed Continuity of
Interest Certificate as contemplated by Section 5.6 hereof. JTS shall have
received from each of the Atari Significant Shareholders an executed
Continuity of Interest Certificate as contemplated by Section 5.6 hereof.
(j) Supplemental Indentures. To the extent required by the indenture
related to the Atari Debentures or the indenture related to the Federated
Debentures, Atari and JTS shall have entered into supplemental indentures
with the trustees for such debentures, such supplemental indentures to be
in a form reasonably satisfactory to counsel to Atari and counsel to JTS.
6.2 Additional Conditions to Obligations of JTS. The obligations of JTS to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by JTS:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Atari in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except to
the extent that the failure of such representations and warranties to be
true and accurate in such respects has not had and could not reasonably be
expected to have a Material Adverse Effect on Atari and its subsidiaries
and (ii) Atari shall have performed and complied in all respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time, except to the
extent that the failure to so perform or comply has not had and could not
reasonably be expected to have a Material Adverse Effect on Atari and its
subsidiaries.
(b) Certificate of Atari. JTS shall have been provided with a
certificate executed on behalf of Atari by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Atari under this
Agreement are true and complete in all respects except to the extent
that the failure of such representations and warranties to be true and
accurate in such respects has not had and could not reasonably be
expected to have a Material Adverse Effect on Atari and its
subsidiaries; and
(ii) all covenants, obligations and conditions of this Agreement to
be performed by Atari on or before such date have been so performed in
all respects except to the extent that the failure to so perform or
comply has not had and could not reasonably be expected to have a
Material Adverse Effect on Atari and its subsidiaries.
(c) Third Party Consents. JTS shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under
any material contract of Atari or any of its Significant Subsidiaries or
otherwise.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting JTS' conduct or operation of
the business of Atari and its subsidiaries, following the Merger shall be
in effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinions. JTS shall have received legal opinions from
Wilson Sonsini Goodrich & Rosati, P.C. and Atari's Nevada counsel, which
opinions shall be reasonably satisfactory to counsel to JTS.
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(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Atari and its
subsidiaries, taken as a whole.
6.3 Additional Conditions to the Obligations of Atari. The obligations of
Atari to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Atari:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of JTS in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except to
the extent that the failure of such representations and warranties to be
true and accurate in such respects has not had and could not reasonably be
expected to have a Material Adverse Effect on JTS and its subsidiaries and
(ii) JTS shall have performed and complied in all respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time, except to the
extent that the failure to so perform or comply has not had and could not
reasonably be expected to have a Material Adverse Effect on JTS and its
subsidiaries.
(b) Certificate of JTS. Atari shall have been provided with a
certificate executed on behalf of JTS by its Chief Executive Officer and
Chief Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by JTS under this
Agreement are true and complete in all respects; except to the extent
that the failure of such representations and warranties to be true and
accurate in such respects has not had and could not reasonably be
expected to have a Material Adverse Effect on JTS and its subsidiaries;
and
(ii) all covenants, obligations and conditions of this Agreement to
be performed by JTS on or before such date have been so performed in all
respects except to the extent that the failure to so perform or comply
has not had and could not reasonably be expected to have a Material
Adverse Effect on JTS and its subsidiaries.
(c) Third Party Consents. Atari shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger
under any material contract of JTS or any of its subsidiaries or otherwise.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting JTS' conduct or operation of
the business of JTS and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinion. Atari shall have received a legal opinion from
Cooley Godward Castro Huddleson & Tatum, which opinion shall be reasonably
satisfactory to counsel to Atari.
(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of JTS and its subsidiaries,
taken as a whole.
(g) Conversion of JTS Series A Preferred Stock. Each outstanding
share of JTS Series A Preferred Stock shall be converted into one (1) share
of JTS Common Stock.
(h) Right of First Refusal and Co-Sale Agreement. The provisions of
the Right of First Refusal and Co-Sale Agreement dated as of February 3,
1995 by and among JTS and certain other parties, as amended, shall have
terminated.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Notwithstanding approval of this Agreement by the
stockholders of JTS or Atari, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of JTS and Atari;
(b) by Atari if (i) it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
JTS, which has or can reasonably be expected to have a Material Adverse
Effect on JTS and its subsidiaries, taken as a whole, and such breach has
not been cured within five (5) days after written notice to JTS (provided
that, no cure period shall be required for a breach which by its nature
cannot be cured) or (ii) there shall be any final action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would prohibit
JTS's ownership or operation of all or a material portion of the business
of Atari or any of its subsidiaries, or compel Atari or any of Atari's
subsidiaries or JTS or any of JTS's subsidiaries to dispose of or hold
separate or otherwise relinquish all or a material portion of the business
or assets of JTS or any of JTS's subsidiaries or Atari or any of Atari's
subsidiaries as a result of the Merger.
(c) by JTS if (i) it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Atari, which has or can reasonably be expected to have a Material Adverse
Effect on Atari and its subsidiaries, taken as a whole, and such breach has
not been cured within five (5) days after written notice to Atari (provided
that, no cure period shall be required for a breach which by its nature
cannot be cured) or (ii) there shall be any final action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would prohibit
JTS's ownership or operation of all or a material portion of the business
of JTS or any of its subsidiaries, or compel Atari or any of Atari's
subsidiaries or JTS or any of JTS's subsidiaries to dispose of or hold
separate or otherwise relinquish all or a material portion of the business
or assets of JTS or any of JTS's subsidiaries or Atari or any of Atari's
subsidiaries as a result of the Merger.
(d) by any party hereto if: (i) the Closing has not occurred by July
31, 1996, (ii) there shall be a final, non-appealable order of a federal or
state court in effect preventing consummation of the Merger; (iii) there
shall be any final action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make consummation of the Merger illegal;
(iv) if JTS's stockholders do not approve the Merger and this Agreement by
the requisite vote at JTS Stockholders Meeting; (v) if Atari's stockholders
do not approve the Merger and this Agreement by the requisite vote at the
Atari Stockholders Meeting; or (vi) if the Atari Board of Directors shall
have accepted, approved or recommended to the shareholders of Atari a
Superior Atari Proposal.
Where action is taken to terminate this Agreement pursuant to this Section
7.1, it shall be sufficient for such action to be authorized by the Board of
Directors of the party taking such action and for such party to then notify the
other parties in writing of such action.
7.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Atari and JTS or their
respective officers, directors, stockholders or affiliates, except to the extent
that such termination results from the breach by a party hereto of any of its
representations, warranties or covenants set forth this Agreement; provided
that, the provisions of Section 7.3 (Expenses) and this Section 7.2 shall remain
in full force and effect and survive any termination of this Agreement.
7.3 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, except
that expenses incurred in connection with printing the Proxy Materials and the
S-4
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Registration Statement, registration and filing fees incurred in connection with
the S-4 Registration Statement and the Proxy Materials and fees, costs and
expenses associated with compliance with applicable state securities laws,
listing of the JTS Common Stock on the Nasdaq National Market or the American
Stock Exchange, and with HSR in connection with the Merger shall be shared
equally by JTS and Atari.
7.4 Amendment. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
JTS or Atari shall not (i) alter or change the amount or kind of consideration
to be received on conversion of the Atari Common Stock, (ii) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the holders
of Atari Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival at Effective Time. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Section 5.8 (FIRPTA), Section
5.11 (Employee Benefit Plans), Section 5.12 (Atari Debentures), Section 5.13
(Form S-8), Section 5.14 (Tax Free Reorganization; Tax Returns), Section 5.16
(Indemnification), Section 5.20 (Best Efforts and Further Assurances), 7.3
(Expenses), and this Article VIII shall survive the Effective Time.
8.2 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or employee of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.
8.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Atari, to:
Atari Corporation
455 South Mathilda Avenue
Sunnyvale, California 94086
Attention: Jack Tramiel
Facsimile No.: (408) 328-0909
Telephone No.: (408) 328-0900
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with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile No.: (415) 493-6811
Telephone No.: (415) 493-9300
(b) if to JTS, to:
JTS Corporation
166 Baypointe Parkway
San Jose, California 95134
Attention: David T. Mitchell
Facsimile No.: (408) 468-1619
Telephone No.: (408) 468-1800
with a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
Palo Alto, California 94306
Attention: Andrei M. Manoliu, Esq.
Facsimile No.: (415) 857-0663
Telephone No.: (415) 843-5000
8.4 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.5 Counterparts. This Agreement may be executed in counterparts, both of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
8.6 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the JTS Disclosure Schedule and the Atari Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise.
8.7 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.8 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
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8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law. Each of
the parties hereto irrevocably consents to the exclusive jurisdiction of any
court located in the County of Santa Clara, California, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of California for such persons and waives and covenants
not to assert or plead any objection which they might otherwise have to such
jurisdiction and such process.
8.10 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.11 Amendment and Restatement. The parties hereto hereby consent and
agree that this Agreement shall constitute an amendment and restatement of that
certain Agreement and Plan of Reorganization by and among Atari, JTS and JTS
Acquisition Corporation dated as of February 12, 1996.
IN WITNESS WHEREOF, JTS and Atari have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized, all as of
the date first written above.
JT STORAGE, INC.
By: /s/ David T. Mitchell
------------------------------------
President
ATARI CORPORATION
By: /s/ Sam Tramiel
------------------------------------
President
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APPENDIX B-1
FORM OF ATARI VOTING AGREEMENT
<PAGE> 221
APPENDIX B-1
ATARI CORPORATION
AMENDED AND RESTATED
VOTING AGREEMENT
This AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is made and
entered into as of April 8, 1996, by and among JT STORAGE, INC., a Delaware
corporation ("JTS"), and the undersigned stockholder ("Stockholder") of ATARI
CORPORATION, a Nevada corporation ("Atari").
RECITALS
A. Whereas JTS and the Stockholder desire to amend that certain Voting
Agreement, dated as of February 12, 1996, and related Irrevocable Proxy to Vote
Stock of Atari Corporation dated as of February 12, 1996.
B. Pursuant to an Amended and Restated Agreement and Plan of
Reorganization, dated as of April 8, 1996 (the "Reorganization Agreement") by
and among JTS and Atari, Atari is merging with and into JTS (the "Merger");
C. The Reorganization Agreement amends and restates that certain Agreement
and Plan of Reorganization dated as of February 12, 1996, by and among JTS,
Atari and JT Acquisition Corporation ("Newco");
D. Pursuant to Section 5.7 of the Reorganization Agreement, in order to
induce JTS to enter into the Reorganization Agreement, Atari has agreed to
solicit the proxy of certain significant stockholders of Atari on behalf of JTS
and to cause certain significant stockholders of Atari to execute and delivery
Voting Agreements to JTS;
E. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number
of shares of the outstanding Common Stock, $0.01 par value per share, of Atari
as is indicated on the signature page of this Agreement (the "Shares"); and
F. In consideration of the execution of the Reorganization Agreement by
JTS, Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Atari acquired by Stockholder
hereafter and prior to the Expiration Date (as defined in Section 1.1 below),
and agrees to vote the Shares and any other such shares of capital stock of
Atari so as to facilitate consummation of the Merger.
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE. Stockholder agrees not to transfer (except
as may be specifically required by court order), sell, exchange, pledge (except
in connection with a bona fide loan transaction, provided that any pledgee
agrees not to transfer, sell, exchange, pledge or otherwise dispose of or
encumber the Shares or any New Shares (as defined in Section 1.2) prior to the
Expiration Date and to be subject to the Proxy (as defined in Section 3)) or
otherwise dispose of or encumber the Shares or any New Shares, or to make any
offer or agreement relating thereto, at any time prior to the Expiration Date.
As used herein, the term ("Expiration Date") shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Reorganization Agreement, (ii) the close of
business on December 31, 1996 and (iii) the date of termination of the
Reorganization Agreement.
1.2 NEW SHARES. Stockholder agrees that any shares of capital stock of
Atari that Stockholder purchases or with respect to which Stockholder otherwise
acquires beneficial ownership after the date of this Agreement and prior to the
Expiration Date ("New Shares") shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of Atari
called with respect to any of the following, and at every adjournment thereof,
and on every action or approval by written consent of
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the stockholders of Atari with respect to any of the following, Stockholder
shall vote the Shares and any New Shares in favor of approval of the
Reorganization Agreement and the Merger and any matter that could reasonably be
expected to facilitate the Merger. This Agreement is intended to bind
Stockholder as a stockholder of Atari only with respect to the specific matters
set forth herein and shall not prohibit Stockholder from acting in accordance
with his or her fiduciary duties, if applicable, as an officer or director of
Atari.
3. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to JTS a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the extent provided in
Section 78.355 of the Nevada General Corporation Law, covering the total number
of Shares and New Shares beneficially owed or as to which beneficial ownership
is acquired (as such term is defined in Rule 13d-3 under the Exchange Act) by
Stockholder set forth therein.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. Stockholder
hereby represents, warrants and covenants to JTS that Stockholder (i) is the
beneficial owner of the Shares, which at the date of this Agreement are and at
all times up until the Expiration Date will be free and clear of any liens,
claims, options, charges or other encumbrances; (ii) does not beneficially own
any shares of capital stock of Atari other than the Shares (excluding shares as
to which Stockholder currently disclaims beneficial ownership in accordance with
applicable law); and (iii) has full power and authority to make, enter into and
carry out the terms of this Agreement and the Proxy.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of JTS, to carry out the purpose and intent of this
Agreement.
6. CONSENT AND WAIVER. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which Stockholder is a party or pursuant to any rights
Stockholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. MISCELLANEOUS.
8.1 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
8.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other.
8.3 AMENDMENT AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
8.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that JTS will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to JTS upon any such violation, JTS shall
have the right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to JTS at law or in equity.
8.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return
B-1-2
<PAGE> 223
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to JTS, to:
JTS Corporation
166 Baypointe Parkway
San Jose, California 95134
Attention: David T. Mitchell
Facsimile No.: (408) 468-1619
Telephone No.: (408) 468-1800
With a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Andrei M. Manoliu, Esq.
Facsimile No.: (415) 857-0663
Telephone No.: (415) 843-5000
(b) if to Stockholder, to the address set forth below.
8.6 GOVERNING LAW. This Agreement and the Proxy shall be governed by,
construed and enforced in accordance with the internal laws of the State of
Nevada.
8.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof and
supersede all prior negotiations and understandings between the parties with
respect to such subject matters.
8.8 COUNTERPART. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
8.9 EFFECT OF HEADINGS. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
B-1-3
<PAGE> 224
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
JT STORAGE, INC.
By:
--------------------------------------
Title:
--------------------------------------
STOCKHOLDER
By:
--------------------------------------
Title:
--------------------------------------
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
Shares beneficially owned:
------------------------------------------------------------
shares of Atari Common Stock
B-1-4
<PAGE> 225
EXHIBIT A
IRREVOCABLE PROXY TO VOTE STOCK OF
ATARI CORPORATION
The undersigned stockholder of Atari Corporation, a Nevada corporation
("Atari"), hereby irrevocably (to the full extent permitted by Section 78.355 of
the Nevada General Corporation Law) appoints the members of the Board of
Directors of JT Storage, Inc., a Delaware corporation ("JTS"), and each of them,
as the sole and exclusive attorneys and proxies of the undersigned, with full
power of substitution and resubstitution, to vote and exercise all voting and
related rights (to the full extent that the undersigned is entitled to do so)
with respect to all of the shares of capital stock of Atari that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Atari issued or issuable in respect thereof on or after
the date hereof (collectively, the "Shares") in accordance with the terms of
this Proxy. The Shares beneficially owned by the undersigned stockholder of
Atari as of the date of this Proxy are listed below. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration
Date (as defined below).
This Proxy is irrevocable (to the extent provided in Section 78.355 of the
Nevada General Corporation Law), is granted pursuant to that certain Amended and
Restated Voting Agreement dated as of the date hereof, by and among JTS and the
undersigned stockholder (the "Voting Agreement") which amends and restates that
certain Voting Agreement, dated as of February 12, 1996, by and among JTS and
the undersigned stockholder, and is granted in consideration of JTS entering
into that certain Amended and Restated Agreement and Plan of Reorganization by
and among JTS and Atari (the "Reorganization Agreement") which amends and
restates that certain Agreement and Plan of Reorganization by and among JTS,
Atari and JTS Acquisition Corporation dated as of February 12, 1996. The
Reorganization Agreement provides for the merger of Atari with and into JTS. As
used herein, the term "Expiration Date" shall mean the earlier to occur of (i)
such date and time as the Merger shall become effective in accordance with the
terms and provisions of the Reorganization Agreement, (ii) the close of business
on December 31, 1996 and (iii) the date of termination of the Reorganization
Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to Section 78.320 of the Nevada General Corporation Law), at
every annual, special or adjourned meeting of the stockholders of Atari and in
every written consent in lieu of such meeting in favor of approval of the Merger
and the Reorganization Agreement and in favor of any matter that could
reasonably be expected to facilitate the Merger. The attorneys and proxies named
above may not exercise this Proxy on any other matter except as provided above.
The undersigned stockholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. This Proxy is irrevocable to the
extent provided in Section 78.355 of the Nevada General Corporation Law.
Dated: April 8, 1996
(Signature of Stockholder)
Shares beneficially owned: (Print Name of Stockholder)
________ shares of Atari Common Stock
<PAGE> 226
APPENDIX B-2
FORM OF JTS VOTING AGREEMENT
<PAGE> 227
APPENDIX B-2
JT STORAGE, INC.
AMENDED AND RESTATED
VOTING AGREEMENT
This AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is made and
entered into as of April 8, 1996, by and among ATARI CORPORATION, a Nevada
corporation ("Atari"), and the undersigned stockholder ("Stockholder") of JT
STORAGE, INC., a Delaware corporation ("JTS").
RECITALS
A. Whereas Atari and the Stockholder desire to amend that certain Voting
Agreement, dated as of February 12, 1996, and related Irrevocable Proxy to Vote
Stock of JT Storage, Inc., dated as of February 12, 1996.
B. Pursuant to an Amended and Restated Agreement and Plan of
Reorganization, dated as of April , 1996 (the "Reorganization Agreement") by
and among JTS and Atari, Atari is merging with and into JTS (the "Merger");
C. The Reorganization Agreement amends and restates that certain Agreement
and Plan of Reorganization dated as of February 12, 1996, by and among JTS,
Atari and JT Acquisition Corporation;
D. Pursuant to Section 5.7 of the Reorganization Agreement, in order to
induce Atari to enter into the Reorganization Agreement, JTS has agreed to
solicit the proxy of certain significant stockholders of JTS on behalf of Atari
and to cause certain significant stockholders of JTS to execute and delivery
Voting Agreements to Atari;
E. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number
of shares of the outstanding Common Stock, $0.000001 par value per share, of JTS
as is indicated on the signature page of this Agreement (the "Shares"); and
F. In consideration of the execution of the Reorganization Agreement by
Atari, Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of JTS acquired by Stockholder
hereafter and prior to the Expiration Date (as defined in Section 1.1 below),
and agrees to vote the Shares and any other such shares of capital stock of JTS
so as to facilitate consummation of the Merger.
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE. Stockholder agrees not to transfer (except
as may be specifically required by court order), sell, exchange, pledge (except
in connection with a bona fide loan transaction, provided that any pledgee
agrees not to transfer, sell, exchange, pledge or otherwise dispose of or
encumber the Shares or any New Shares (as defined in Section 1.2) prior to the
Expiration Date and to be subject to the Proxy (as defined in Section 3)) or
otherwise dispose of or encumber the Shares or any New Shares, or to make any
offer or agreement relating thereto, at any time prior to the Expiration Date.
As used herein, the term ("Expiration Date") shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Reorganization Agreement, (ii) the close of
business on December 31, 1996 and (iii) the date of termination of the
Reorganization Agreement.
1.2 NEW SHARES. Stockholder agrees that any shares of capital stock of JTS
that Stockholder purchases or with respect to which Stockholder otherwise
acquires beneficial ownership after the date of this Agreement and prior to the
Expiration Date ("New Shares") shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
B-2-1
<PAGE> 228
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of JTS
called with respect to any of the following, and at every adjournment thereof,
and on every action or approval by written consent of the stockholders of JTS
with respect to any of the following, Stockholder shall vote the Shares and any
New Shares in favor of approval of the Reorganization Agreement and the Merger
and any matter that could reasonably be expected to facilitate the Merger. This
Agreement is intended to bind Stockholder as a stockholder of JTS only with
respect to the specific matters set forth herein and shall not prohibit
Stockholder from acting in accordance with his or her fiduciary duties, if
applicable, as an officer or director of Atari.
3. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Atari a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the extent provided in
Section 212 of the Delaware General Corporation Law, covering the total number
of Shares and New Shares beneficially owed or as to which beneficial ownership
is acquired (as such term is defined in Rule 13d-3 under the Exchange Act) by
Stockholder set forth therein.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. Stockholder
hereby represents, warrants and covenants to Atari that Stockholder (i) is the
beneficial owner of the Shares, which at the date of this Agreement are and at
all times up until the Expiration Date will be free and clear of any liens,
claims, options, charges or other encumbrances; (ii) does not beneficially own
any shares of capital stock of JTS other than the Shares (excluding shares as to
which Stockholder currently disclaims beneficial ownership in accordance with
applicable law); and (iii) has full power and authority to make, enter into and
carry out the terms of this Agreement and the Proxy.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Atari, to carry out the purpose and intent of this
Agreement.
6. CONSENT AND WAIVER. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which Stockholder is a party or pursuant to any rights
Stockholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. MISCELLANEOUS.
8.1 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
8.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other.
8.3 AMENDMENT AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
8.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Atari will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Atari upon any such violation, Atari
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Atari at law
or in equity.
8.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return
B-2-2
<PAGE> 229
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Atari, to:
Atari Corporation
455 South Mathilda Avenue
Sunnyvale, California 94086
Attention: Jack Tramiel
Facsimile No.: (408) 328-0909
Telephone No.: (408) 328-0900
With a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile No.: (415) 493-6811
Telephone No.: (415) 493-9300
(b) if to Stockholder, to the address set forth below.
8.6 GOVERNING LAW. This Agreement and the Proxy shall be governed by,
construed and enforced in accordance with the internal laws of the State of
Delaware.
8.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof and
supersede all prior negotiations and understandings between the parties with
respect to such subject matters.
8.8 COUNTERPART. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
8.9 EFFECT OF HEADINGS. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
B-2-3
<PAGE> 230
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
ATARI CORPORATION
By:
--------------------------------------
Title:
--------------------------------------
STOCKHOLDER
By:
--------------------------------------
Title:
--------------------------------------
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
Shares beneficially owned:
------------------------------------------------------
shares of JTS Common Stock
------------------------------------------------------
shares of JTS Series A Preferred Stock
B-2-4
<PAGE> 231
EXHIBIT A
IRREVOCABLE PROXY TO VOTE STOCK OF
JT STORAGE, INC.
The undersigned stockholder of JT Storage, Inc. a Delaware corporation
("JTS"), hereby irrevocably (to the full extent permitted by Section 212 of the
Delaware General Corporation Law) appoints the members of the Board of Directors
of Atari Corporation, a Nevada corporation ("Atari"), and each of them, as the
sole and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of JTS that now are or hereafter
may be beneficially owned by the undersigned, and any and all other shares or
securities of JTS issued or issuable in respect thereof on or after the date
hereof (collectively, the "Shares") in accordance with the terms of this Proxy.
The Shares beneficially owned by the undersigned stockholder of JTS as of the
date of this Proxy are listed below. Upon the undersigned's execution of this
Proxy, any and all prior proxies given by the undersigned with respect to any
Shares are hereby revoked and the undersigned agrees not to grant any subsequent
proxies with respect to the Shares until after the Expiration Date (as defined
below).
This Proxy is irrevocable (to the extent provided in Section 212 of the
Delaware General Corporation Law), is granted pursuant to that certain Amended
and Restated Voting Agreement dated as of the date hereof, by and among Atari
and the undersigned stockholder (the "Voting Agreement") which amends and
restates that certain Voting Agreement, dated as of February 12, 1996, by and
among Atari and the undersigned stockholder, and is granted in consideration of
Atari entering into that certain Amended and Restated Agreement and Plan of
Reorganization by and among JTS and Atari (the "Reorganization Agreement") which
amends and restates that certain Agreement and Plan of Reorganization by and
among JTS, Atari and JTS Acquisition Corporation dated as of February 12, 1996.
The Reorganization Agreement provides for the merger of Atari with and into JTS.
As used herein, the term "Expiration Date" shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Reorganization Agreement, (ii) the close of
business on December 31, 1996 and (iii) the date of termination of the
Reorganization Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to Section 228 of the Delaware General Corporation Law), at
every annual, special or adjourned meeting of the stockholders of JTS and in
every written consent in lieu of such meeting in favor of approval of the Merger
and the Reorganization Agreement and in favor of any matter that could
reasonably be expected to facilitate the Merger. The attorneys and proxies named
above may not exercise this Proxy on any other matter except as provided above.
The undersigned stockholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. This Proxy is irrevocable to the
extent provided in Section 212 of the Delaware General Corporation Law.
<TABLE>
<S> <C>
Dated: April 8, 1996
----------------------------------------------
(Signature of Stockholder)
----------------------------------------------
Shares beneficially owned: (Print Name of Stockholder)
______ shares of JTS Common Stock
______ shares of JTS Series A Preferred Stock
</TABLE>
<PAGE> 232
APPENDIX C
MONTGOMERY SECURITIES FAIRNESS OPINION
<PAGE> 233
APPENDIX D-1
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
<PAGE> 234
APPENDIX D-1
SECTION 262
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
Section 262 Appraisal Rights. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.sec. 251, 252, 254, 257, 258 or 263 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which, at
the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or (ii) held of record by more than 2,000 stockholders;
and further provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of sec. 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258 and 263 of this title to accept for such
stock anything except: a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation; b. Shares of stock of any
other corporation which at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
held of record by more than 2,000 stockholders; c. Cash in lieu of
fractional shares of the corporations described in the foregoing
subparagraphs a. and b. of this paragraph; or d. Any combination of the
shares of stock and cash in lieu of fractional shares described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof, that
D-1-1
<PAGE> 235
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (b) hereof, upon
written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting for the aggregate number of shares not voted in favor of the merger
or consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his
written request or such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by one or more publications at least one week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware, or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the
D-1-2
<PAGE> 236
stockholders who have demanded an appraisal for their shares and who hold
stock represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceeds until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholder of
record at a date which is prior to the effective date for the merger or
consolidation); provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting Corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
D-1-3
<PAGE> 237
APPENDIX D-2
CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW
<PAGE> 238
APPENDIX D-2
CHAPTER 13
GENERAL CORPORATION LAW OF CALIFORNIA
DISSENTERS RIGHTS
SECTION 1300. Right to Require Purchase; "Dissenting Shares" and
"Dissenting Shareholder" Defined.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) of Section 1201, each shareholder of such corporation entitled
to vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action. but adjusted for any stock split or share dividend which
becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (0) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to five percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger-. provided, however, that
subparagraph (A) rather than subparagraph (B) of this paragraph applies in
any case where the approval required by Section 1201 is sought by written
consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1301.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. Demand for Purchase.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within ten (10) days alter the date of such approval accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's fight under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any
D-2-1
<PAGE> 239
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within thirty (30) days after the
date on which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. Endorsement of Shares.
Within thirty (30) days after the date on which notice of the approval by
the outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder. the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
SECTION 1303. Agreed Price; Time for Payment.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within thirty (30) days after the
amount thereof has been agreed or within thirty (30) days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is later,
and in the case of certificated securities, subject to surrender of the
certificates therefor, unless provided otherwise by agreement.
SECTION 1304. Dissenter's Action to Enforce Payment.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six (6) months after the date on
which notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
D-2-2
<PAGE> 240
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. Appraiser's Report; Payment; Costs.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within ten (10) days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. Dissenting Shareholder's Status as Creditor.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. Dividends Paid as Credit Against Payment.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. Continuing Rights and Privileges of Dissenting Shareholders.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
D-2-3
<PAGE> 241
SECTION 1309. Termination of Dissenting Shareholder Status.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six (6) months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. Suspension of Proceedings for Payment Pending Litigation.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. Exempt Shares.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. Attacking Validity of Reorganization or Merger.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof, but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter, but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon ten (10)
days' prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
D-2-4
<PAGE> 242
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by or under common control with, another party
to the reorganization or short-form merger, in any action to attack the validity
of the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or
short-form merger shall have the burden of proving that the transaction is just
and reasonable as to the shareholders of the controlled party, and (2) a person
who controls two or more parties to a reorganization shall have the burden of
proving that the transaction is just and reasonable as to the shareholders of
any party so controlled.
D-2-5
<PAGE> 243
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Registrant
will have broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Bylaws will provide that the Registrant will indemnify its directors and
executive officers and may indemnify other officers to the fullest extent
permitted by law. Under its Bylaws, indemnified parties will be entitled to
indemnification for negligence, gross negligence and otherwise to the fullest
extent permitted by law. The Bylaws also will require the Registrant to advance
litigation expenses in the case of stockholder derivative actions or other
actions, against an undertaking by the indemnified party to repay such advances
if it is ultimately determined that the indemnified party is not entitled to
indemnification.
In addition, the Registrant's Certificate of Incorporation will provide
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty of care to the Registrant
and its stockholders. This provision in the Certificate of Incorporation will
not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant for acts or omissions not in good faith or involving intentional
misconduct, for knowing violation of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also will not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
directors and executive officers. Such indemnity agreements contain provisions
that are in some respects broader than the specific indemnification provisions
contained in Delaware law.
II-1
<PAGE> 244
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
2.1 -- Amended and Restated Agreement and Plan of Reorganization, dated April 8, 1996,
between JTS and Atari
2.2 -- Form of Agreement of Merger of JTS Corporation and Atari Corporation
3.1 -- Restated Certificate of Incorporation, as amended, JTS Corporation
3.2 -- Form of Amended and Restated Certificate of Incorporation to be filed immediately
prior to the consummation of the Merger of JTS Corporation
3.3 -- Bylaws of JTS Corporation
3.4 -- Form of Amended and Restated Bylaws of JTS Corporation
4.1 -- Form of Specimen Common Stock Certificate of JTS Corporation
4.2 -- Form of Amended and Restated Registration Rights Agreement
4.3 -- Atari and Security Pacific National Bank Indenture, dated April 29, 1987
4.4 -- Federated Group/Security Pacific National Bank Indenture, dated April 15, 1985
4.5 -- First Supplemental Federated Group/Security Pacific National Bank Indenture, dated
September 24, 1987
4.6 -- Warrant to Purchase 450,000 shares of JTS Common Stock, dated March 25, 1994,
issued to Venture Lending & Leasing, Inc.
4.7 -- Warrant to Purchase 50,000 shares of JTS Common Stock, dated December 18, 1995,
issued to Silicon Valley Bank
4.8 -- Warrant to Purchase up to 750,000 shares of JTS Common Stock, dated April 4, 1996,
issued to Lunenburg S.A.
5.1 -- Opinion of Cooley Godward Castro Huddleson & Tatum as to legality of securities
being registered
8.1 -- Form of Opinion of Cooley Godward Castro Huddleson & Tatum as to certain tax
matters
8.2 -- Form of Opinion of Wilson Sonsini Goodrich & Rosati as to certain tax matters
9.1 -- Forms of Voting Agreement and irrevocable proxy regarding the voting of shares
between JTS and certain stockholders of Atari
9.2 -- Forms of Voting Agreement and irrevocable proxy regarding the voting of shares
between Atari and certain stockholders of JTS
10.1 -- Amended and Restated 1995 Stock Option Plan and forms of stock option agreements
10.2 -- 1996 Non-Employee Directors' Plan and form of stock option agreement
10.3 -- 401(k) Plan, adopted March 15, 1996
10.4 -- Form of Indemnity Agreement
10.5 -- Employment Contract of Kenneth D. Wing, dated June 15, 1995
10.6 -- Consulting Agreement of Roger W. Johnson, dated April 1, 1996
10.7 -- Restricted Stock Purchase Agreement, dated January 2, 1996, between JTS and David
T. Mitchell and related Promissory Note
10.8 -- Restricted Stock Purchase Agreement, dated March 6, 1996, between JTS and David T.
Mitchell and related Promissory Note
10.9 -- Restricted Stock Purchase Agreement, dated March 6, 1996, between JTS and Sirjang
Lal Tandon and related Promissory Note
10.10 -- Restricted Stock Purchase Agreement, dated January 2, 1996, between JTS and
Kenneth D. Wing and related Promissory Note
10.11 -- Restricted Stock Purchase Agreement, dated January 5, 1996, between JTS and W.
Virginia Walker and related Promissory Note
</TABLE>
II-2
<PAGE> 245
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
10.12 -- Restricted Stock Purchase Agreement dated January 2, 1996, between JTS and David
Pearce and related Promissory Note
10.13 -- Form of convertible promissory note between JTS and certain principal stockholders
of JTS
10.14 -- Form of promissory note between JTS and certain principal stockholders of JTS
10.15 -- Subordinated Secured Convertible Promissory Note, dated February 13, 1996, and
related Security Agreement dated February 13, 1996, between JTS and Atari
10.16 -- Stock Purchase Agreement, dated April 4, 1996, between JTS and Lunenburg S.A.
10.17 -- Technical Know-How License Agreement, dated June 14, 1996, between JTS and Moduler
10.18 -- Lease, dated June 15, 1995, between JTS and Cilker Revocable Trust
10.19+ -- Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as Borrower and The
Industrial Credit and Investment Corporation of India Limited as Lenders, dated
September 15, 1992
10.20+ -- Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as Borrower and The
Industrial Credit and Investment Corporation of India Limited as Lenders, dated
October 11, 1994
10.21+ -- Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as Borrower and The
Industrial Credit and Investment Corporation of India Limited as Lenders, dated
March 18, 1996
10.22 -- Agreed Order Compromising Controversies, dated February 4, 1994, as amended
January 26, 1995
10.23 -- TEAC Master Agreement, dated February 4, 1994
10.24+ -- TEAC License Agreement, dated February 4, 1994, as amended on February 3, 1995
10.25+ -- Development Agreement, dated June 16, 1994, between JTS and Compaq, as amended on
February 3, 1995 and December 5, 1995
10.26+ -- Purchase Manufacturing Agreement, dated June 16, 1994, between JTS and Compaq
10.27+ -- Technology Transfer and License Agreement, dated February 3, 1995, between JTS and
Western Digital
10.28+ -- Agreement between JTS and Pont Peripherals Corporation, dated January 31, 1995,
between JTS and Pont
10.29+ -- Business Loan Agreement, Promissory Note and Collateral, Assignment, Patent
Mortgage and Security Agreement, dated December 18, 1995, between JTS and Silicon
Valley Bank
21.1 -- List of Subsidiaries
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Deloitte & Touche LLP
23.3 -- Consent of Counsel. Reference is made to Exhibits 5.1, 8.1 and 8.2
23.4 -- Consent of Montgomery Securities. Reference is made to Appendix C.
24.1 -- Powers of Attorney. Reference is made to page II-6.
27.1 -- Financial Data Schedule
99.1 -- Form of JTS Proxy
99.2 -- Form of Atari Proxy
</TABLE>
- ---------------
+ Exhibits for which confidential treatment has been requested
II-3
<PAGE> 246
(b) Financial Statement Schedules
JTS Corporation:
Schedule II: Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
No financial statement schedules are required of Atari Corporation.
(c) Item 4(b) Reports
See Appendix C to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS
(1) The Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filled as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Joint Proxy Statement/Prospectus
pursuant to Items 4,10(b), 11 or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(4) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the Certificate of
Incorporation and the Bylaws of the Registrant and the Delaware General
Corporation Law, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in a successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the question has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 247
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, JTS
Corporation has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
County of Santa Clara, State of California, on the 18th day of June, 1996.
JTS Corporation
By /s/ DAVID T. MITCHELL
David T. Mitchell
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David T. Mitchell and W. Virginia Walker,
and each or any one of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments and registration statements filed pursuant
to Rule 462 or otherwise) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------------- --------------
<C> <S> <C>
/s/ DAVID T. MITCHELL President, Chief Executive June 18, 1996
David T. Mitchell Officer and Director
(Principal Executive Officer)
/s/ W. VIRGINIA WALKER Executive Vice President, Finance June 18, 1996
W. Virginia Walker and Administration, Chief
Financial Officer and
Secretary (Principal
Financial and Accounting
Officer)
/s/ SIRJANG LAL TANDON Chairman of the Board and June 18, 1996
Sirjang Lal Tandon Corporate Technical Strategist
/s/ JEAN D. Director June 18, 1996
DELEAGE
Jean D. Deleage
______________ Director June 18, 1996
Lip-Bu Tan
/s/ ALAIN L. Director June 18, 1996
AZAN
Alain L. Azan
/s/ ROGER W. JOHNSON Director June 18, 1996
Roger W. Johnson
</TABLE>
II-5
<PAGE> 248
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the financial statements of JTS Corporation included in this registration
statement, and have issued our report thereon dated April 4, 1996. Our audit was
made for the purpose forming an opinion on those statements taken as a whole.
The schedule listed in the index above is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
April 4, 1996
S-1
<PAGE> 249
SCHEDULE II
JTS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JANUARY 28, 1996 AND
THE PERIOD FROM INCEPTION (FEBRUARY 3, 1994) TO JANUARY 29, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Period ended:
January 29, 1995.............................. $ -- $ 4 $ -- $ 4
January 28, 1996.............................. $ 4 $ 726 $ -- $ 730
SALES RETURN RESERVE:
Period ended:
January 29, 1995.............................. $ -- $ -- $ -- $ --
January 28, 1996.............................. $ -- $1,088 $ -- $1,088
ACCRUED WARRANTY:
Period ended:
January 29, 1995.............................. $ -- $ 328 $ -- $ 328
January 28, 1996.............................. $328 $ 306 $ -- $ 634
</TABLE>
S-2
<PAGE> 250
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
JTS CORPORATION
------------------------
VOLUME I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 251
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
JTS CORPORATION
------------------------
VOLUME II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 252
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
2.1 -- Amended and Restated Agreement and Plan of Reorganization, dated
April 8, 1996, between JTS and Atari
2.2 -- Form of Agreement of Merger of JTS Corporation and Atari
Corporation
3.1 -- Restated Certificate of Incorporation, as amended, JTS
Corporation
3.2 -- Form of Amended and Restated Certificate of Incorporation to be
filed immediately prior to the consummation of the Merger of JTS
Corporation
3.3 -- Bylaws of JTS Corporation
3.4 -- Form of Amended and Restated Bylaws of JTS Corporation
4.1 -- Form of Specimen Common Stock Certificate of JTS Corporation
4.2 -- Form of Amended and Restated Registration Rights Agreement
4.3 -- Atari and Security Pacific National Bank Indenture, dated April
29, 1987
4.4 -- Federated Group/Security Pacific National Bank Indenture, dated
April 15, 1985
4.5 -- First Supplemental Federated Group/Security Pacific National
Bank Indenture, dated September 24, 1987
4.6 -- Warrant to Purchase 450,000 shares of JTS Common Stock, dated
March 25, 1994, issued to Venture Lending & Leasing, Inc.
4.7 -- Warrant to Purchase 50,000 shares of JTS Common Stock, dated
December 18, 1995, issued to Silicon Valley Bank
4.8 -- Warrant to Purchase up to 750,000 shares of JTS Common Stock,
dated April 4, 1996, issued to Lunenburg S.A.
5.1 -- Opinion of Cooley Godward Castro Huddleson & Tatum as to
legality of securities being registered
8.1 -- Form of Opinion of Cooley Godward Castro Huddleson & Tatum as to
certain tax matters
8.2 -- Form of Opinion of Wilson Sonsini Goodrich & Rosati as to
certain tax matters
9.1 -- Forms of Voting Agreement and irrevocable proxy regarding the
voting of shares between JTS and certain stockholders of Atari
9.2 -- Forms of Voting Agreement and irrevocable proxy regarding the
voting of shares between Atari and certain stockholders of JTS
10.1 -- Amended and Restated 1995 Stock Option Plan and forms of stock
option agreements
10.2 -- 1996 Non-Employee Directors' Plan and form of stock option
agreement
10.3 -- 401(k) Plan, adopted March 15, 1996
10.4 -- Form of Indemnity Agreement
10.5 -- Employment Contract of Kenneth D. Wing, dated June 15, 1995
10.6 -- Consulting Agreement of Roger W. Johnson, dated April 1, 1996
10.7 -- Restricted Stock Purchase Agreement, dated January 2, 1996,
between JTS and David T. Mitchell and related Promissory Note
10.8 -- Restricted Stock Purchase Agreement, dated March 6, 1996,
between JTS and David T. Mitchell and related Promissory Note
10.9 -- Restricted Stock Purchase Agreement, dated March 6, 1996,
between JTS and Sirjang Lal Tandon and related Promissory Note
10.10 -- Restricted Stock Purchase Agreement, dated January 2, 1996,
between JTS and Kenneth D. Wing and related Promissory Note
10.11 -- Restricted Stock Purchase Agreement, dated January 5, 1996,
between JTS and W. Virginia Walker and related Promissory Note
10.12 -- Restricted Stock Purchase Agreement dated January 2, 1996,
between JTS and David Pearce and related Promissory Note
10.13 -- Form of convertible promissory note between JTS and certain
principal stockholders of JTS
</TABLE>
<PAGE> 253
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
10.14 -- Form of promissory note between JTS and certain principal
stockholders of JTS
10.15 -- Subordinated Secured Convertible Promissory Note, dated February
13, 1996, and related Security Agreement dated February 13,
1996, between JTS and Atari
10.16 -- Stock Purchase Agreement, dated April 4, 1996, between JTS and
Lunenburg S.A.
10.17 -- Technical Know-How License Agreement, dated June 14, 1996,
between JTS and Moduler
10.18 -- Lease, dated June 15, 1995, between JTS and Cilker Revocable
Trust
10.19+ -- Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as
Borrower and The Industrial Credit and Investment Corporation of
India Limited as Lenders, dated September 15, 1992
10.20+ -- Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as
Borrower and The Industrial Credit and Investment Corporation of
India Limited as Lenders, dated October 11, 1994
10.21+ -- Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as
Borrower and The Industrial Credit and Investment Corporation of
India Limited as Lenders, dated March 18, 1996
10.22 -- Agreed Order Compromising Controversies, dated February 4, 1994,
as amended January 26, 1995
10.23 -- TEAC Master Agreement, dated February 4, 1994
10.24+ -- TEAC License Agreement, dated February 4, 1994, as amended on
February 3, 1995
10.25+ -- Development Agreement, dated June 16, 1994, between JTS and
Compaq, as amended on February 3, 1995 and December 5, 1995
10.26+ -- Purchase Manufacturing Agreement, dated June 16, 1994, between
JTS and Compaq
10.27+ -- Technology Transfer and License Agreement, dated February 3,
1995, between JTS and Western Digital
10.28+ -- Agreement between JTS and Pont Peripherals Corporation, dated
January 31, 1995, between JTS and Pont
10.29+ -- Business Loan Agreement, Promissory Note and Collateral,
Assignment, Patent Mortgage and Security Agreement, dated
December 18, 1995, between JTS and Silicon Valley Bank
21.1 -- List of Subsidiaries
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Deloitte & Touche LLP
23.3 -- Consent of Counsel. Reference is made to Exhibits 5.1, 8.1 and
8.2
23.4 -- Consent of Montgomery Securities. Reference is made to Appendix
C.
24.1 -- Powers of Attorney. Reference is made to page II-6.
27.1 -- Financial Data Schedule
99.1 -- Form of JTS Proxy
99.2 -- Form of Atari Proxy
</TABLE>
- ---------------
+ Exhibits for which confidential treatment has been requested
<PAGE> 1
EXHIBIT 2.1
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
ATARI CORPORATION
AND
JT STORAGE, INC.
April 8, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - THE MERGER........................................................ 2
1.1 The Merger.................................................. 2
1.2 Closing; Effective Time..................................... 2
1.3 Effect of the Merger........................................ 2
1.4 Certificate of Incorporation; Bylaws........................ 2
1.5 Directors and Executive Officers............................ 3
1.6 Effect on Capital Stock..................................... 3
1.7 Surrender of Certificates................................... 4
1.8 No Further Ownership Rights in Atari Stock.................. 5
1.9 Lost, Stolen or Destroyed Certificates...................... 5
1.10 Tax Consequences............................................ 5
1.11 Taking of Necessary Action; Further Action.................. 5
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF JTS............................ 6
2.1 Organization, Standing and Power............................ 6
2.2 Capital Structure........................................... 7
2.3 Authority................................................... 8
2.4 Financial Statements........................................ 9
2.5 Absence of Certain Changes.................................. 9
2.6 Absence of Undisclosed Liabilities.......................... 9
2.7 Litigation.................................................. 10
2.8 Restrictions on Business Activities......................... 10
2.9 Governmental Authorization.................................. 10
2.10 Title to Property........................................... 10
2.11 Intellectual Property....................................... 11
2.12 Environmental Matters....................................... 11
2.13 Tax......................................................... 11
2.14 Employee Benefit Plans...................................... 12
2.15 Certain Agreements Affected by the Merger................... 13
2.16 Employee Matters............................................ 13
2.17 Interested Party Transactions............................... 14
2.18 Insurance................................................... 14
2.19 Compliance With Laws........................................ 14
2.20 Minute Books................................................ 14
2.21 Complete Copies of Materials................................ 14
2.22 Brokers' and Finders' Fees.................................. 15
2.23 Registration Statement; Proxy Statement/Prospectus.......... 15
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
2.24 Vote Required................................................ 15
2.25 Board Approval............................................... 15
2.26 Underlying Documents......................................... 15
2.27 Representations Complete..................................... 16
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF ATARI.......................... 16
3.1 Organization, Standing and Power............................. 16
3.2 Capital Structure............................................ 16
3.3 Authority.................................................... 17
3.4 SEC Documents; Financial Statements.......................... 18
3.5 Absence of Certain Changes................................... 18
3.6 Absence of Undisclosed Liabilities........................... 19
3.7 Litigation................................................... 19
3.8 Restrictions on Business Activities.......................... 19
3.9 Governmental Authorization................................... 19
3.10 Title to Property............................................ 19
3.11 Intellectual Property........................................ 20
3.12 Environmental Matters........................................ 20
3.13 Tax.......................................................... 21
3.14 Employee Benefit Plans....................................... 21
3.15 Certain Agreements Affected by the Merger.................... 22
3.16 Employee Matters............................................. 22
3.17 Interested Party Transactions................................ 23
3.18 Insurance.................................................... 23
3.19 Compliance With Laws......................................... 23
3.20 Minute Books................................................. 23
3.21 Complete Copies of Materials................................. 24
3.22 Broker's and Finders' Fees................................... 24
3.23 Registration Statement; Proxy Statement/Prospectus........... 24
3.24 Opinion of Financial Advisor................................. 24
3.25 Board Approval............................................... 24
3.26 Vote Required................................................ 24
3.27 Underlying Documents......................................... 24
3.28 Representations Complete..................................... 25
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME.............................. 25
4.1 Conduct of Business of JTS and Atari........................ 25
4.2 Conduct of Business of JTS.................................. 26
4.3 Conduct of Business of Atari................................ 27
4.4 No Other JTS Negotiations................................... 28
4.5 No Other Atari Negotiations................................. 29
ARTICLE V - ADDITIONAL AGREEMENTS............................................. 30
5.1 Proxy Statement/Prospectus; Registration Statement.......... 30
5.2 Meetings of Stockholders.................................... 30
5.3 Access to Information....................................... 31
5.4 Public Disclosure........................................... 31
5.5 Consents; Cooperation....................................... 31
5.6 Continuity of Interest Certificates......................... 31
5.7 Voting Agreements........................................... 32
5.8 FIRPTA...................................................... 32
5.9 Legal Requirements.......................................... 32
5.10 Blue Sky Laws............................................... 32
5.11 Atari Employee Benefit Plans................................ 33
5.12 Atari Debentures............................................ 33
5.13 Form S-8.................................................... 33
5.14 Tax-Free Reorganization; Tax Returns........................ 33
5.15 Registration Rights......................................... 33
5.16 Indemnification of Officers and Directors................... 33
5.17 Listing of JTS Common Stock................................. 34
5.18 Atari Consent to JTS Transaction with Moduler............... 34
5.19 Atari SEC Documents......................................... 34
5.20 Best Efforts and Further Assurances......................... 34
ARTICLE VI - CONDITIONS TO THE MERGER......................................... 34
6.1 Conditions to Obligations of Each Party to Effect the Merger 34
6.2 Additional Conditions to Obligations of JTS................. 36
6.3 Additional Conditions to the Obligations of Atari........... 37
-iii-
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER.............................. 38
7.1 Termination................................................ 38
7.2 Effect of Termination...................................... 39
7.3 Expenses................................................... 39
7.4 Amendment.................................................. 39
7.5 Extension; Waiver.......................................... 40
ARTICLE VIII - GENERAL PROVISIONS............................................ 40
8.1 Non-Survival at Effective Time............................. 40
8.2 Absence of Third Party Beneficiary Rights.................. 40
8.3 Notices.................................................... 40
8.4 Interpretation............................................. 41
8.5 Counterparts............................................... 41
8.6 Entire Agreement; Nonassignability; Parties in Interest.... 41
8.7 Severability............................................... 42
8.8 Remedies Cumulative........................................ 42
8.9 Governing Law.............................................. 42
8.10 Rules of Construction...................................... 42
8.11 Amendment and Restatement.................................. 42
</TABLE>
-iv-
<PAGE> 6
SCHEDULES
JTS Disclosure Schedule
Atari Disclosure Schedule
Schedule 5.6(a) - JTS Significant Stockholders
Schedule 5.6(b) - Atari Significant Shareholders
Schedule 5.7(a) - JTS Voting Agreement Signatories
Schedule 5.7(b) - Atari Voting Agreement Signatories
Schedule 5.15 - Registration Rights Holders
-v-
<PAGE> 7
EXHIBITS
Exhibit A Form of Amended and Restated Certificate of Incorporation
Exhibit B Form of Amended and Restated Bylaws
Exhibit C-1 Form of JTS Voting Agreement
Exhibit C-2 Form of Atari Voting Agreement
-vi-
<PAGE> 8
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made and entered into as of April 8, 1996, by and between Atari
Corporation, a Nevada corporation ("Atari"), and JT Storage, Inc., a Delaware
corporation ("JTS").
RECITALS
A. Atari is in the business of designing, manufacturing and selling
computers, computer peripheral products and video games.
B. JTS is in the business of designing, manufacturing and selling
computer peripheral products including mass storage computer disc drives.
C. The Boards of Directors of JTS and Atari believe it is in the best
interests of their respective companies and the stockholders of their respective
companies that JTS and Atari combine into a single company through the statutory
merger of Atari with and into JTS (the "Merger") and, in furtherance thereof,
have approved the Merger.
D. In connection with the Merger, among other things, the outstanding
shares of Atari Common Stock, $.01 par value ("Atari Common Stock"), shall be
converted into shares of JTS Common Stock, $.000001 par value ("JTS Common
Stock"), at the rate set forth herein.
E. JTS and Atari desire to make certain representations and warranties
and other agreements in connection with the Merger.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a)(1)(A) of the Code.
G. This Agreement amends and restates that certain Agreement and Plan
of Reorganization by and among Atari, JTS and JTS Acquisition Corporation dated
as of February 12, 1996.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
-1-
<PAGE> 9
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, a Certificate of
Merger prepared in accordance with Delaware Law (as defined herein) and Nevada
Law (as defined herein) and reasonably acceptable to counsel to JTS and counsel
to Atari (the "Certificate of Merger"), and the applicable provisions of the
Delaware General Corporation Law ("Delaware Law") and Nevada General Corporation
Law ("Nevada Law"), Atari shall be merged with and into JTS, the separate
corporate existence of Atari shall cease and JTS shall continue as the surviving
corporation. JTS as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the "Closing
Date"). The Closing shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, P.C., 650 Page Mill Road, Palo Alto, California, or at such other
location as the parties hereto agree. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger with (i) the Secretary of State of the State of Delaware
and with the Recorder of the County in which the registered office of JTS is
located, in accordance with the relevant provisions of Delaware Law and (ii) the
Secretary of State of the State of Nevada, in accordance with the relevant
provisions of Nevada Law (the time of such filings being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law and Nevada Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Atari shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Atari shall
become the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of JTS,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by Delaware Law and such Certificate of Incorporation; provided,
however, that the Certificate of Incorporation of the Surviving Corporation
shall be amended and restated in the form attached hereto as Exhibit A.
(b) The Bylaws of JTS, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended; provided, however, that the Bylaws of the Surviving
Corporation shall be amended and restated in the form attached hereto as Exhibit
B.
-2-
<PAGE> 10
1.5 Directors and Executive Officers. At the Effective Time, the
directors of the Surviving Corporation shall be Sirjang Lal Tandon, David T.
Mitchell, Jean D. Deleage, Alan Azan, Roger W. Johnson, LipBu Tan, Jack Tramiel
and Michael Rosenberg. The executive officers of JTS immediately prior to the
Effective Time shall constitute the only executive officers of the Surviving
Corporation as of the Effective Time, unless otherwise designated by JTS.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of JTS, Atari or the holders of any of the following
securities:
(a) Conversion of Atari Common Stock. At the Effective Time, each
share of Atari Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Atari Common Stock to be canceled
pursuant to Section 1.6(b)) will be canceled and extinguished and be converted
automatically into the right to receive one (1) share of JTS Common Stock (the
"Exchange Ratio").
(b) Cancellation of Certain Stock. At the Effective Time, each
share of Atari Common Stock owned by JTS or any direct or indirect wholly-owned
subsidiary of JTS immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Atari Stock Options. At the Effective Time, all options to
purchase Atari Common Stock then outstanding under the Atari Amended 1986 Stock
Option Plan (the "Atari Stock Option Plan") shall be assumed by JTS in
accordance with Section 5.11.
(d) Atari Debentures. At the Effective Time, JTS shall assume all
obligations of Atari under Atari's 5 1/4% Convertible Subordinated Debentures
Due 2002 (the "Atari Debentures"), and such debentures shall be convertible into
shares of JTS Common Stock in accordance with Section 5.12.
(e) Federated Debentures. To the extent required by that certain
Indenture dated as of April 15, 1985 from the The Federated Group, Inc. to
Security Pacific National Bank, as trustee, together with the first supplemental
indenture thereto dated as of September 24, 1987, at the Effective Time, JTS
shall assume any obligations of Atari under the 7 1/2% Convertible Subordinated
Debentures due April 15, 2010 of The Federated Group, Inc. (the "Federated
Debentures").
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Atari Common Stock or JTS Common Stock), reorganization, recapitalization or
other like change with respect to Atari Common Stock, JTS Common Stock or JTS
Series A Preferred Stock, $.000001 par value ("JTS Series A Preferred Stock"),
occurring after the date hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of JTS Common Stock
will be issued, but in lieu thereof each holder of shares of Atari Common Stock
who would otherwise be entitled to a fraction of a share of JTS Common Stock
(after aggregating all fractional shares of JTS Common Stock to be received by
such holder) shall receive from JTS an amount of cash (rounded to the nearest
whole
-3-
<PAGE> 11
cent) equal to the product of (i) such fraction, multiplied by (ii) the closing
price of a share of Atari Common Stock on the trading day immediately prior to
the Effective Time, as reported by the American Stock Exchange.
1.7 Surrender of Certificates.
(a) Exchange Agent. Registrar and Transfer Company, Cranford, NJ,
shall act as exchange agent (the "Exchange Agent") in the Merger.
(b) JTS to Provide Common Stock and Cash. Promptly after the
Effective Time, JTS shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such procedures as JTS may reasonably
adopt, (i) the shares of JTS Common Stock issuable pursuant to Section 1.6(a) in
exchange for shares of Atari Common Stock outstanding immediately prior to the
Effective Time and (ii) cash in an amount sufficient to permit payment of cash
in lieu of fractional shares pursuant to Section 1.6(g).
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Atari Common Stock, whose
shares were converted into the right to receive shares of JTS Common Stock (and
cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as JTS may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of JTS Common Stock (and cash in lieu of fractional shares).
Upon surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by JTS, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of JTS Common Stock and payment in lieu of fractional shares which such
holder has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Atari
Common Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the ownership of the
number of full shares of JTS Common Stock into which such shares of Atari Common
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions with respect to JTS Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered Certificate
with respect to the shares of JTS Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of JTS
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of any such dividends or other distributions with a
-4-
<PAGE> 12
record date after the Effective Time theretofore payable (but for the provisions
of this Section 1.7(d)) with respect to such shares of JTS Common Stock.
(e) Transfers of Ownership. If any certificate for shares of JTS
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to JTS or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
JTS Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of JTS or any agent
designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Atari Stock. All shares of JTS
Common Stock issued upon the surrender for exchange of shares of Atari Common
Stock in accordance with the terms hereof (including any cash paid in lieu of
fractional shares) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Atari Common Stock, and there shall be
no further registration of transfers on the records of the Surviving Corporation
of shares of Atari Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of JTS
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that JTS may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against JTS,
the Surviving Corporation or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Atari, the officers and directors of Atari are fully
authorized in the name of the corporation or otherwise to take, and will take,
all such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
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1.12 Dissenting JTS Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of JTS Common Stock or JTS Series A Preferred Stock held by
a holder who has exercised dissenters' rights for such shares in accordance with
Delaware Law or California General Corporation Law to the extent such law is
applicable by virtue of Section 2115 thereof ("California Law") and who, as of
the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("Dissenting Shares"), shall be entitled to such rights as are granted by
Delaware Law or California Law.
(b) JTS shall give Atari (i) prompt notice of any written demands
received by JTS for an appraisal of shares of capital stock of JTS pursuant to
Section 262 of Delaware Law or Chapter 13 of California Law, withdrawals of such
demands, and any other related instruments served pursuant to Delaware Law or
California Law and received by JTS and (ii) the opportunity to participate in
all negotiations and proceedings with respect to such demands. JTS shall not,
except with the prior written consent of Atari, voluntarily make any payment
with respect to any such demands or offer to settle or settle any such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF JTS
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations or prospects of such
entity or group of entities. In this Agreement, any reference to a "Material
Adverse Effect" with respect to any entity or group of entities means any event,
change or effect that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations, results of
operations or prospects of such entity and its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry.
Except as disclosed in a document of even date herewith and delivered
by JTS to Atari prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "JTS
Disclosure Schedule"), JTS represents and warrants to Atari as follows:
2.1 Organization, Standing and Power. Each of JTS and its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of JTS and its subsidiaries has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on JTS
and its subsidiaries, taken as a whole. JTS has delivered a true and
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correct copy of the Certificate of Incorporation and Bylaws or other charter
documents, as applicable, of JTS and each of its subsidiaries, each as amended
to date, to Atari. Neither JTS nor any of its subsidiaries is in violation of
any of the provisions of its Certificate of Incorporation or Bylaws or
equivalent organizational documents. JTS is the owner of all outstanding shares
of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by JTS free and clear
of all liens, charges, claims or encumbrances or rights of others. There are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating JTS or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities.
Except as disclosed in the JTS Disclosure Schedule, JTS does not directly or
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
2.2 Capital Structure. The authorized capital stock of JTS consists of
90,000,000 shares of Common Stock, $.000001 par value, and 70,000,000 shares of
Preferred Stock, $.000001 par value, all of which is designated Series A
Preferred Stock, of which there were issued and outstanding as of the close of
business on April 5, 1996, 9,204,741 shares of Common Stock and 29,696,370
shares of Series A Preferred. The JTS Disclosure Schedule contains a true and
complete list of the holders of JTS Common Stock and JTS Series A Preferred
Stock and the number of shares held by each such holder on April 5, 1996. There
are no other outstanding shares of capital stock or voting securities. Each
outstanding share of JTS Series A Preferred Stock is convertible into one (1)
share of JTS Common Stock. All outstanding shares of JTS Common Stock and JTS
Series A Preferred Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to preemptive rights or rights of first refusal created by statute, the
Certificate of Incorporation or Bylaws of JTS or any agreement to which JTS is a
party or by which it is bound. As of the close of business on April 5, 1996, JTS
has reserved (i) 4,300,000 shares of JTS Common Stock for issuance to employees
and consultants pursuant to the JTS 1995 Stock Option Plan (the "JTS Stock
Option Plan"), of which 37,554 shares have been issued pursuant to option
exercises and 3,680,358 shares are subject to outstanding, unexercised options,
(ii) 600,000 shares of JTS Common Stock for issuance upon the exercise of
outstanding, unexercised JTS Warrants and (iii) 32,500,000 shares of JTS Series
A Preferred Stock and JTS Common Stock for issuance upon conversion of the note
issued to Atari on February 13, 1996 and upon exercise of the warrants issuable
to Atari pursuant to such note. Since April 5, 1996, JTS has not issued or
granted additional options under the JTS Stock Option Plan. Other than pursuant
to this Agreement, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which JTS is a party or by which
it is bound obligating JTS to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
capital stock of JTS or obligating JTS to grant, extend, accelerate the vesting
of, change the price of, or otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. The terms of the JTS Stock Option
Plan and the JTS Warrants permit the assumption or substitution of options or
warrants, as applicable, to purchase Atari Common Stock as provided in this
Agreement, without the consent or approval of the holders of such securities,
the JTS stockholders, or otherwise. True and
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complete copies of all agreements and instruments relating to or issued under
the JTS Stock Option Plan or JTS Warrants have been made available to Atari and
such agreements and instruments have not been amended, modified or supplemented,
and there are no agreements to amend, modify or supplement such agreements or
instruments in any case from the form made available to Atari. The shares of JTS
Common Stock to be issued pursuant to the Merger will be duly authorized,
validly issued, fully paid, and non-assessable.
2.3 Authority. JTS has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of JTS, subject only to the approval of the Merger
by JTS's stockholders as contemplated by Section 6.1(a). This Agreement has been
duly executed and delivered by JTS and constitutes the valid and binding
obligation of JTS. The execution and delivery of this Agreement by JTS does not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of JTS or any of its subsidiaries, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to JTS or
any of its subsidiaries or any of their properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity") is required by or with
respect to JTS or any of its subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided in
Section 1.2, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; (iii) such
filings as may be required under the Hart- Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR"); and (iv) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on JTS and its subsidiaries, taken as a whole,
and would not prevent, alter or materially delay any of the transactions
contemplated by this Agreement. The JTS Disclosure Schedule sets forth a full
and complete list of all necessary consents, waivers and approvals of third
parties applicable to the operations of JTS that are required to be obtained by
JTS in connection with the execution and delivery of this Agreement or the
Merger Agreement by JTS or the consummation by JTS of the transactions
contemplated hereby or thereby, except any such consents, waivers and approvals,
which, if not obtained, would not have a Material Adverse Effect on JTS and its
subsidiaries, taken as a whole. Prior to the Closing Date, JTS will obtain all
such consents.
The Stock Purchase Agreement dated as of April 4, 1996 between JTS and
Lunenburg, S.A., a Panama corporation, together with all documents executed in
connection therewith (the "Moduler Agreement"), has been duly executed and
delivered by JTS, the transactions contemplated thereby have been consummated,
and the Moduler Agreement constitutes a valid and binding obligation of JTS. JTS
has provided to Atari a true, correct and complete copy of the Moduler
Agreement, and has performed all obligations required to be performed by it to
date under the Moduler Agreement. To JTS' best
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knowledge, (a) the other parties to the Moduler Agreement have performed all
obligations required to be performed by them to date under such agreement, (b)
as to such other parties, the Moduler Agreement is valid, binding and
enforceable in accordance with its terms and (c) the Moduler Agreement is in
full force and effect with no default or dispute or basis therefor existing with
respect thereto.
2.4 Financial Statements. JTS has furnished to Atari its audited
consolidated balance sheet, consolidated statements of operations and
consolidated statements of stockholders equity and cash flows as of and for the
year ended January 28, 1996, and the audited statement of assets and
liabilities, statement of revenues and expenses and cash flows of The Hard Disk
Drive Division of Moduler as of and for the year ended January 28, 1996
(collectively, the "JTS Financial Statements"). The JTS Financial Statements,
including the notes thereto, were complete and correct in all material respects
as of their respective dates, complied as to form in all material respects with
applicable accounting requirements as of their respective dates, and have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto). The JTS Financial
Statements are in accordance with the books and records of JTS and fairly
present the consolidated financial condition and operating results of JTS and
its subsidiaries at the dates and during the periods indicated therein. There
has been no change in JTS accounting policies except as described in the notes
to the JTS Financial Statements.
2.5 Absence of Certain Changes. Since January 28, 1996, (the "JTS
Balance Sheet Date"), JTS has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to JTS and
its subsidiaries, taken as a whole; (ii) any acquisition, sale or transfer of
any material asset of JTS or any of its subsidiaries other than in the ordinary
course of business and consistent with past practice; (iii) any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by JTS or any revaluation by JTS of any of its
or any of its subsidiaries' assets; (iv) any issuance or agreement to issue or
any commitment to issue any equity security, bond, note or other security of JTS
or any of its subsidiaries; (v) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of JTS, or any direct
or indirect redemption, purchase or other acquisition by JTS of any of its
shares of capital stock; (vi) any material contract entered into by JTS or any
of its subsidiaries, other than in the ordinary course of business and as
provided to Atari, or any amendment or termination of, or default under, any
material contract to which JTS or any of its subsidiaries is a party or by which
it is bound; or (vii) any negotiation or agreement by JTS or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Atari regarding the transactions
contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. JTS has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the JTS balance sheet and
the Moduler statement of assets and liabilities, each as included in the JTS
Financial Statements, and true, correct and complete copies of which have been
provided to Atari, (collectively, the "JTS Balance Sheet"), (ii) those incurred
in the ordinary course of business and not required to be set forth in the JTS
Balance Sheet under generally accepted accounting principles, and
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(iii) those incurred in the ordinary course of business since the JTS Balance
Sheet Date and consistent with past practice.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of JTS or any of its
subsidiaries, threatened against JTS or any of its subsidiaries or any of their
respective properties or any of their respective officers or directors (in their
capacities as such) that, individually or in the aggregate, could have a
Material Adverse Effect on JTS and its subsidiaries, taken as a whole. There is
no judgment, decree or order against JTS or any of its subsidiaries, or, to the
knowledge of JTS and its subsidiaries, any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin, alter or
delay any of the transactions contemplated by this Agreement, or that could have
a Material Adverse Effect on JTS and its subsidiaries, taken as a whole.
2.8 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon JTS or any of its
subsidiaries which has or could have the effect of prohibiting or materially
impairing any current or future business practice of JTS or any of its
subsidiaries, any acquisition of property by JTS or any of its subsidiaries or
the conduct of business by JTS or any of its subsidiaries as currently conducted
or as proposed to be conducted by JTS or any of its subsidiaries.
2.9 Governmental Authorization. JTS and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which JTS or any of its subsidiaries currently operates or holds any
interest in any of its properties or (ii) which is required for the operation of
JTS's or any of its subsidiaries' business or the holding of any such interest
(herein collectively called "JTS Authorizations"), and all of such JTS
Authorizations are in full force and effect, except where the failure to obtain
or have any of such JTS Authorizations could not reasonably be expected to have
a Material Adverse Effect on JTS and its subsidiaries, taken as a whole.
2.10 Title to Property. JTS and its subsidiaries have good and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the JTS Balance Sheet or acquired
after the JTS Balance Sheet Date (except properties, interests in properties and
assets sold or otherwise disposed of since the JTS Balance Sheet Date thereof in
the ordinary course of business), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the JTS Balance Sheet. The plants, property
and equipment of JTS and its subsidiaries that are used in the operations of
their businesses are in good operating condition and repair. All properties used
in the operations of JTS and its subsidiaries are reflected in the JTS Balance
Sheet to the extent generally accepted accounting principles require the same to
be reflected. The JTS Disclosure Schedule identifies each parcel of real
property owned or leased by JTS or any of its subsidiaries.
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2.11 Intellectual Property. JTS and its subsidiaries own, or are
licensed or otherwise possess legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material ("Intellectual
Property") that are used or proposed to be used in the business of JTS and its
subsidiaries as currently conducted or as proposed to be conducted by JTS and
its subsidiaries. To the knowledge of JTS and its subsidiaries, there is no
material unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of JTS or any of its subsidiaries, any trade secret
material to JTS or any of its subsidiaries, or any Intellectual Property right
of any third party to the extent licensed by or through JTS or any of its
subsidiaries, by any third party, including any employee or former employee of
JTS or any of its subsidiaries. Neither JTS nor any of its subsidiaries has
entered into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
(i) listed on the JTS Disclosure Schedule or (ii) contained in purchase orders
arising in the ordinary course of business.
2.12 Environmental Matters.
(a) To the knowledge of JTS and its subsidiaries, no substance
that is regulated by any foreign, federal, state or local governmental authority
or that has been designated by any such authority to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment (herein a
"Hazardous Material") is present in, on or under any property that JTS or any of
its subsidiaries has at any time owned, operated, occupied or leased (herein a
"JTS Facility"), except to the extent that such presence has not had and could
not reasonably be expected to have a Material Adverse Effect on JTS and its
subsidiaries, taken as a whole.
(b) To the knowledge of JTS and its subsidiaries, neither JTS nor
any of its subsidiaries has transported, stored, used, disposed of,
manufactured, released or exposed its employees or any other person to Hazardous
Materials ("Hazardous Materials Activity") in material violation of any
applicable foreign, federal, state or local statute, rule, regulation, order or
law.
(c) To the knowledge of JTS and its subsidiaries, each of JTS and
its subsidiaries is and at all times has been in compliance with all foreign,
federal, state and local laws relating to emissions, discharges, releases or
threatened releases of Hazardous Materials, except to the extent noncompliance
with such laws has not had and could not reasonably be expected to have a
Material Adverse Effect on JTS and its subsidiaries, taken as a whole.
(d) No action, proceeding, permit revocation, writ, injunction or
claim is pending, or to the knowledge of JTS and its subsidiaries threatened,
concerning the Hazardous Materials Activities of JTS or any of its subsidiaries
and/or any JTS Facilities. Neither JTS nor any of its subsidiaries is aware of
any fact or circumstance which could impose any material environmental liability
upon JTS or any of its subsidiaries.
2.13 Taxes. JTS and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which JTS or any of its
subsidiaries is or has been a member have
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timely filed all Tax Returns required to be filed by it, have paid all Taxes
shown thereon to be due and has provided adequate accruals in accordance with
generally accepted accounting principles in its financial statements for any
Taxes that have not been paid, whether or not shown as being due on any Tax
Returns. Except as disclosed in the JTS Disclosure Schedule, (i) no material
claim for Taxes has become a lien against the property of JTS or any of its
subsidiaries or is being asserted against JTS or any of its subsidiaries other
than liens for Taxes not yet due and payable, (ii) no audit of any Tax Return of
JTS or any of its subsidiaries is being conducted by a Tax authority, (iii) no
extension of the statute of limitations on the assessment of any Taxes has been
granted by JTS or any of its subsidiaries and is currently in effect, and (iv)
there is no agreement, contract or arrangement to which JTS or any of its
subsidiaries is a party that may result in the payment of any amount that would
not be deductible by reason of Sections 280G, 162 or 404 of the Code. Neither
JTS nor any of its subsidiaries is a party to any tax sharing or tax allocation
agreement nor does JTS or any of its subsidiaries owe any amount under any such
agreement. As used herein, "Taxes" shall mean all taxes of any kind, including,
without limitation, those on or measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign. As used herein, "Tax Return" shall mean any return, report
or statement required to be filed with any governmental authority with respect
to Taxes. JTS and each of its subsidiaries are in full compliance with all terms
and conditions of any Tax exemptions or other Tax-sharing agreement or order of
a foreign government and the consummation of the Merger shall not have any
adverse effect on the continued validity and effectiveness of any such Tax
exemptions or other Tax-sharing agreement or order.
2.14 Employee Benefit Plans.
(a) The JTS Disclosure Schedule lists, with respect to JTS, any
trade or business (whether or not incorporated) which is treated as a single
employer with JTS (an "ERISA Affiliate") within the meaning of Section 414(b),
(c), (m) or (o) of the Code or any subsidiary of JTS (i) all employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), (ii) all loans to employees in excess of $50,000,
loans to officers, and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, disability,
employee relocation, cafeteria (Code section 125), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, deferred
compensation or incentive plans, programs or arrangements, (iv) other material
fringe or employee benefit plans, programs or arrangements that apply to senior
management of JTS and that do not generally apply to all employees, and (v) any
current or former employment or executive compensation or severance agreements,
written or otherwise, as to which current or contingent obligations of JTS of
greater than $50,000 exist for the benefit of, or relating to, any current or
former employee, consultant or director of JTS (together, the "JTS Employee
Plans"), and a copy of each such JTS Employee Plan and each summary plan
description and annual report on the Form 5500 series required to be filed with
any government agency for each JTS Employee Plan for the three most recent Plan
years has been delivered to Atari.
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(b) (i) None of the JTS Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any JTS Employee Plan, which
could reasonably be expected to have, in the aggregate, a Material Adverse
Effect on JTS or its subsidiaries; (iii) all JTS Employee Plans have been
administered in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code, orders, or
governmental rules and regulations currently in effect with respect thereto and
including all applicable requirements for notification to participants or to the
Department of Labor, Internal Revenue Service or Secretary of the Treasury),
except as would not have, in the aggregate, a Material Adverse Effect on JTS or
its subsidiaries, and JTS and each of its subsidiaries have performed all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the JTS Employee Plans; (iv)
each JTS Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has received a
favorable determination letter from the Internal Revenue Service (the "IRS") as
to such qualification, and nothing has occurred which could reasonably be
expected to cause the loss of such qualification or exemption; (v) all material
contributions required to be made by JTS or any of its subsidiaries to any JTS
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each JTS Employee Plan for the
current plan years; and (vi) no JTS Employee Plan is covered by, and neither JTS
nor any subsidiary has incurred or expects to incur any liability under Title IV
of ERISA or Section 412 of the Code.
(c) With respect to each JTS Employee Plan that constitutes a
group health plan within the meaning of Section 5000(b)(1) of the Code or
Section 607(1) of ERISA, JTS and each of its United States subsidiaries have
complied with the applicable health care continuation and notice provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), and the proposed regulations thereunder, except to the extent that
such failure to comply would not, in the aggregate, have a Material Adverse
Effect on JTS and its subsidiaries.
2.15 Certain Agreements Affected by the Merger. Neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of JTS or any of its
subsidiaries, (ii) increase any benefits otherwise payable by JTS or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
2.16 Employee Matters. Except as to matters which could not, in the
aggregate, have a Material Adverse Effect on JTS and its subsidiaries, taken as
a whole, JTS and each of its subsidiaries are in compliance in all respects with
all currently applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. There are no pending claims against JTS or any of
its subsidiaries under any workers compensation plan or policy or for long term
disability. Neither JTS nor any of its subsidiaries has any material obligations
under COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no
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controversies pending or, to the knowledge of JTS or any of its subsidiaries,
threatened, between JTS or any of its subsidiaries and any of their respective
employees, which controversies have or could have a Material Adverse Effect on
JTS and its subsidiaries, taken as a whole. Neither JTS nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
unions contract nor does JTS nor any of its subsidiaries know of any activities
or proceedings of any labor union or organize any such employees.
2.17 Interested Party Transactions. Except as disclosed in the JTS
Disclosure Schedule, neither JTS nor any of its subsidiaries is indebted to any
director, officer, employee or agent of JTS or any of its subsidiaries (except
for amounts due as normal salaries and in reimbursement of ordinary expenses),
and no such person is indebted to JTS or any of its subsidiaries. Except as
disclosed in the JTS Disclosure Schedule, no officer, director or stockholder of
JTS or any affiliate of such person has, either directly or indirectly, (i) an
interest in any corporation, partnership, firm or other person or entity which
furnishes or sells services or products which are similar to those furnished or
sold by JTS or (ii) a beneficial interest in a contract or agreement to which
JTS is a party or by which JTS may be bound. For purposes of this Section 2.17,
there shall be disregarded any interest which arose solely from the ownership of
less than a one percent (1%) equity interest in a corporation whose stock is
regularly traded on a national securities exchange or over-the-counter market.
2.18 Insurance. JTS and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of JTS and its
subsidiaries. There is no claim pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and JTS and its subsidiaries are otherwise in compliance
with the terms of such policies and bonds. JTS has no knowledge of any
threatened termination of, or premium increase with respect to, any of such
policies.
2.19 Compliance With Laws. Each of JTS and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on JTS and
its subsidiaries, taken as a whole.
2.20 Minute Books. The minute books of JTS and its subsidiaries made
available to Atari contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of JTS and the respective subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
2.21 Complete Copies of Materials. JTS has delivered or made available
true and complete copies of each document which has been requested by Atari or
its counsel in connection with their legal and accounting review of JTS and its
subsidiaries.
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2.22 Brokers' and Finders' Fees. JTS has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.23 Registration Statement; Proxy Statement/Prospectus. The
information supplied by JTS for inclusion in the registration statement on Form
S-4 (or such other or successor form as shall be appropriate, the "Registration
Statement") pursuant to which the shares of JTS Common Stock to be issued in the
Merger will be registered with the Securities and Exchange Commission (the
"SEC") shall not at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by JTS for inclusion in the proxy statement/prospectus to
be sent to the stockholders of JTS and Atari in connection with the meeting of
JTS's stockholders to consider the Merger (the "JTS Stockholders Meeting") and
in connection with the meeting of Atari's stockholders to consider the Merger
(the "Atari Stockholders Meeting") (such proxy statement/prospectus as amended
or supplemented is referred to herein as the "Proxy Statement") shall not, on
the date the Proxy Statement is first mailed to JTS's stockholders and Atari's
stockholders, at the time of the JTS Stockholders Meeting, at the time of the
Atari Stockholders Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein not false
or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the JTS Stockholders Meeting or the Atari Stockholders Meeting which
has become false or misleading. If at any time prior to the Effective Time any
event or information should be discovered by JTS which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
JTS shall promptly inform Atari. Notwithstanding the fore going, JTS makes no
representation, warranty or covenant with respect to any information supplied by
Atari which is contained in any of the foregoing documents.
2.24 Vote Required. The affirmative votes of the holders of (i) a
majority of the shares of JTS Common Stock and JTS Series A Preferred Stock
outstanding on the record date set for the JTS Stockholders Meeting, voting
together, (ii) a majority of the shares of JTS Common Stock outstanding on the
record date set for the JTS Stockholders Meeting, voting separately as a class,
and (iii) at least two-thirds of the shares of JTS Series A Preferred
outstanding on the record date set for the JTS Stockholders Meeting, voting
separately as a class, are the only votes of the holders of any of JTS's capital
stock necessary to approve this Agreement and the transactions contemplated
hereby.
2.25 Board Approval. The Board of Directors of JTS has unanimously (i)
approved this Agreement and the Merger, (ii) determined that the Merger is in
the best interests of the stockholders of JTS and is on terms that are fair to
such stockholders and (iii) recommended that the stockholders of JTS approve
this Agreement and the Merger.
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2.26 Underlying Documents. True and complete copies of all underlying
documents set forth on the JTS Disclosure Schedule or described as having been
disclosed or delivered to Atari pursuant to this Agreement have been furnished
to Atari.
2.27 Representations Complete. None of the representations or
warranties made by JTS herein or in any Schedule hereto, including the JTS
Disclosure Schedule, or certificate furnished by JTS pursuant to this Agreement,
when all such documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ATARI
Except as disclosed in the Atari SEC Documents (as defined in Section
3.4) or in a document of even date herewith and delivered by Atari to JTS prior
to the execution and delivery of this Agreement and referring to the
representations and warranties in this Agreement (the "Atari Disclosure
Schedule"), Atari represents and warrants to JTS as follows:
3.1 Organization, Standing and Power. The Atari Disclosure Schedule
identifies each subsidiary of Atari that is a "significant subsidiary" of Atari
as defined by Rule 1-02(v) of Regulation S-X (the "Significant Subsidiaries").
Atari and each of its Significant Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each of Atari and its Significant Subsidiaries has the corporate
power to own its properties and to carry on its business as now being conducted
and as proposed to be conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified and
in good standing would have a Material Adverse Effect on Atari and its
subsidiaries, taken as a whole. Atari has delivered a true and correct copy of
the Articles of Incorporation and Bylaws or other charter documents, as
applicable, of Atari and each of its Significant Subsidiaries, each as amended
to date, to JTS. Neither Atari nor any of its Significant Subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or Bylaws or
equivalent organizational documents. Atari is the owner of all outstanding
shares of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Atari free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Atari or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Atari SEC Documents (as defined in
Section 3.4), Atari does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
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3.2 Capital Structure. The authorized capital stock of Atari consists
of 100,000,000 shares of Common Stock, $.01 par value, and 10,000,000 shares of
Preferred Stock, $.01 par value, of which there were issued and outstanding as
of the close of business on March 29, 1996, 63,727,318 shares of Common Stock
and no shares of Preferred Stock. There are no other outstanding shares of
capital stock or voting securities of Atari, other than shares of Atari Common
Stock issued after March 29, 1996 upon the exercise of options issued under the
Atari 1986 Stock Option Plan (the "Atari Stock Option Plan"). All outstanding
shares of Atari have been duly authorized, validly issued, fully paid and are
nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to preemptive rights or rights of first refusal created by statute, the Articles
of Incorporation or Bylaws of Atari or any agreement to which Atari is a party
or by which it is bound. As of the close of business on March 29, 1996, Atari
has reserved 3,000,000 shares of Common Stock for issuance to employees,
directors and consultants pursuant to the Atari Stock Option Plan, of which
599,674 shares have been issued pursuant to option exercises, and 899,125 shares
are subject to outstanding, unexercised options. Since March 29, 1996, Atari has
not issued or granted additional options under the Atari Stock Option Plan.
There are no other options, warrants, calls, rights, commitments or agreements
of any character to which Atari is a party or by which it is bound obligating
Atari to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Atari or obligating Atari to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
3.3 Authority. Atari has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Atari, subject only to the approval of the
Merger by the Atari stockholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by Atari and constitutes the
valid and binding obligations of Atari. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Articles of Incorporation or Bylaws of
Atari or any of its Significant Subsidiaries, as amended, or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Atari or any of its Significant
Subsidiaries or any of their properties or assets. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity, is required by or with respect to Atari or any of its
Significant Subsidiaries in connection with the execution and delivery of this
Agreement by Atari or the consummation by Atari of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided in
Section 1.2, (ii) the filing with the SEC and the American Stock Exchange of the
Proxy Statement relating to the Atari Stockholders Meeting, (iii) the filing of
a Form 8-K and Form 10-C with the SEC and the American Stock Exchange within 15
days and 10 days, respectively, after the Closing Date, (iv) any filings as may
be required under applicable state securities laws and the securities laws of
any foreign country, (v) such filings as may be required under HSR, (vi) such
filings as may be required under the rules and regulations of the American Stock
Exchange, and (vii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
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Effect on Atari and its subsidiaries, taken as a whole, and would not prevent,
alter or materially delay any of the transactions contemplated by this
Agreement. The Atari Disclosure Schedule sets forth a full and complete list of
all necessary consents, waivers and approvals of third parties applicable to the
operations of Atari that are required to be obtained by Atari in connection with
the execution and delivery of this Agreement or the Merger Agreement by Atari or
the consummation by Atari of the transactions contemplated hereby or thereby,
except any such consents, waivers and approvals, which, if not obtained, would
not have a Material Adverse Effect on Atari and its subsidiaries, taken as a
whole. Prior to the Closing Date, Atari will obtain all such consents.
3.4 SEC Documents; Financial Statements. Atari has furnished to JTS a
true and complete copy of each report, registration statement, definitive proxy
statement, and other filings filed with the SEC by Atari since January 1, 1993
(other than filings pursuant to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any registration statement on Form
S-8), and prior to the Effective Time, Atari will have furnished JTS with true
and complete copies of any additional documents (other than filings pursuant to
Section 16 of the Exchange Act, and any registration statement on Form S-8)
filed with the SEC by Atari prior to the Effective Time (collectively, the
"Atari SEC Documents"). As of their respective filing dates, the Atari SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Atari SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Atari SEC Document. The
financial statements of Atari, including the notes thereto, included in the
Atari SEC Documents (the "Atari Financial Statements") were complete and correct
in all material respects as of their respective dates, complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The Atari
Financial Statements are in accordance with the books and records of Atari and
fairly present the consolidated financial condition and operating results of
Atari and its subsidiaries at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments). There has been no change in Atari accounting policies except as
described in the notes to the Atari Financial Statements.
3.5 Absence of Certain Changes. Since December 31, 1995 (the "Atari
Balance Sheet Date"), Atari has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Atari
and its subsidiaries, taken as a whole; (ii) any acquisition, sale or transfer
of any material asset of Atari or any of its subsidiaries other than in the
ordinary course of business and consistent with past practice; (iii) any change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Atari or any revaluation by Atari of any of
its assets; (iv) any issuance or agreement to issue or any commitment to issue
any equity security, bond, note or other security of Atari or any of its
subsidiaries; (v) any declaration, setting aside, or payment of a dividend or
other distribution with respect to the shares
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of Atari, or any direct or indirect redemption, purchase or other acquisition by
Atari of any of its shares of capital stock; (vi) any material contract entered
into by Atari, other than in the ordinary course of business and as provided to
JTS, or any amendment or termination of, or default under, any material contract
to which Atari is a party or by which it is bound; or (vii) any negotiation or
agreement by Atari or any of its subsidiaries to do any of the things described
in the preceding clauses (i) through (vii) (other than negotiations with JTS
regarding the transactions contemplated by this Agreement).
3.6 Absence of Undisclosed Liabilities. Atari has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Atari's Annual Report on Form 10-K for the period
ended December 31, 1995 (the "Atari Balance Sheet"), (ii) those incurred in the
ordinary course of business and not required to be set forth in the Atari
Balance Sheet under generally accepted accounting principles, and (iii) those
incurred in the ordinary course of business since the Atari Balance Sheet Date
and consistent with past practice.
3.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Atari or any of its
subsidiaries, threatened against Atari or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could have a
Material Adverse Effect on Atari and its subsidiaries, taken as a whole. There
is no judgment, decree or order against Atari or any of its subsidiaries or, to
the knowledge of Atari or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
alter or delay any of the transactions contemplated by this Agreement, or that
could have a Material Adverse Effect on Atari and its subsidiaries, taken as a
whole. The outcome of the matter In re The Federated Group, Inc. Alleged Debtor
U.S.B.C. (N.D.Cal. Div. 5) No. 92-50412-JRG Chapter 7, is not reasonably likely
to have a Material Adverse Effect on Atari and its subsidiaries, taken as a
whole.
3.8 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Atari or any of its
subsidiaries which has or could have the effect of prohibiting or materially
impairing any current or future business practice of Atari or any of its
subsidiaries, any acquisition of property by Atari or any of its subsidiaries or
the conduct of business by Atari or any of its subsidiaries as currently
conducted or as proposed to be conducted by Atari or any of its subsidiaries.
3.9 Governmental Authorization. Atari and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Atari or any of its subsidiaries currently operates or holds
any interest in any of its properties or (ii) which is required for the
operation of Atari's or any of its subsidiaries' business or the holding of any
such interest (herein collectively called "Atari Authorizations"), and all of
such Atari Authorizations are in full force and effect, except where the failure
to obtain or have any of such Atari Authorizations could not reasonably be
expected to have a Material Adverse Effect on Atari and its subsidiaries, taken
as a whole.
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3.10 Title to Property. Atari and its Significant Subsidiaries have
good and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Atari Balance Sheet
or acquired after the Atari Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Atari Balance
Sheet Date thereof in the ordinary course of business), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Atari
Balance Sheet. The plants, property and equipment of Atari and its Significant
Subsidiaries that are used in the operations of their businesses are in good
operating condition and repair. All properties used in the operations of Atari
and its Significant Subsidiaries are reflected in the Atari Balance Sheet to the
extent generally accepted accounting principles require the same to be
reflected. The Atari Disclosure Schedule identifies each parcel of real property
owned or leased by Atari or any of its Significant Subsidiaries
3.11 Intellectual Property. Atari and its Significant Subsidiaries own,
or are licensed or otherwise possess legally enforceable rights to use all
Intellectual Property that are used or proposed to be used in the business of
Atari and its Significant Subsidiaries as currently conducted or as proposed to
be conducted by Atari and its subsidiaries, except to the extent that the
failure to have such rights have not had and could not reasonably be expected to
have a Material Adverse Effect on Atari and its subsidiaries, taken as a whole.
To the knowledge of Atari and its Significant Subsidiaries, there is no material
unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of Atari or any of its subsidiaries, any trade
secret material to Atari or any of its subsidiaries, or any Intellectual
Property right of any third party to the extent licensed by or through Atari or
any of its subsidiaries, by any third party, including any employee or former
employee of Atari or any of its subsidiaries. Neither Atari nor any of its
subsidiaries has entered into any agreement to indemnify any other person
against any charge of infringement of any Intellectual Property, other than
indemnification provisions (i) listed on the Atari Disclosure Schedule or (ii)
contained in purchase orders arising in the ordinary course of business.
3.12 Environmental Matters.
(a) To the knowledge of Atari and its Significant Subsidiaries, no
Hazardous Material is present in, on or under any property that Atari or any of
its subsidiaries has at any time owned, operated, occupied or leased (herein an
"Atari Facility"), except to the extent that such presence has not had and could
not reasonably be expected to have a Material Adverse Effect on Atari and its
subsidiaries, taken as a whole.
(b) To the knowledge of Atari and its Significant Subsidiaries,
neither Atari nor any of its subsidiaries has engaged in a Hazardous Materials
Activity in material violation of any applicable foreign, federal, state or
local statute, rule, regulation, order or law.
(c) To the knowledge of Atari and its Significant Subsidiaries,
each of Atari and its subsidiaries is and at all times has been in compliance
with all foreign, federal, state and local laws relating
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to emissions, discharges, releases or threatened releases of Hazardous
Materials, except to the extent noncompliance with such laws has not had and
could not reasonably be expected to have a Material Adverse Effect on Atari and
its subsidiaries, taken as a whole.
(d) No action, proceeding, permit revocation, writ, injunction or
claim is pending, or to the knowledge of Atari and its subsidiaries threatened,
concerning the Hazardous Materials Activities of Atari or any of its
subsidiaries and/or any Atari Facilities. Neither Atari nor any of its
Significant Subsidiaries is aware of any fact or circumstance which could impose
any material environmental liability upon Atari or any of its subsidiaries.
3.13 Taxes. Atari and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Atari or any of
its subsidiaries is or has been a member have timely filed all Tax Returns
required to be filed by it, have paid all Taxes shown thereon to be due and has
provided adequate accruals in accordance with generally accepted accounting
principles in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns. Except as disclosed in the
Atari SEC Documents, (i) no material claim for Taxes has become a lien against
the property of Atari or any of its subsidiaries or is being asserted against
Atari or any of its subsidiaries other than liens for Taxes not yet due and
payable, (ii) no audit of any Tax Return of Atari or any of its subsidiaries is
being conducted by a Tax authority, (iii) no extension of the statute of
limitations on the assessment of any Taxes has been granted by Atari or any of
its subsidiaries and is currently in effect, and (iv) there is no agreement,
contract or arrangement to which Atari or any of its subsidiaries is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G, 162 or 404 of the Code. Neither Atari nor any of its
subsidiaries is a party to any tax sharing or tax allocation agreement nor does
Atari or any of its subsidiaries owe any amount under any such agreement. As
used herein, "Taxes" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign. As used herein, "Tax Return" shall mean any return, report
or statement required to be filed with any governmental authority with respect
to Taxes. Atari and each of its subsidiaries are in full compliance with all
terms and conditions of any Tax exemptions or other Tax-sharing agreement or
order of a foreign government and the consummation of the Merger shall not have
any adverse effect on the continued validity and effectiveness of any such Tax
exemption or other Tax-sharing agreement or order.
3.14 Employee Benefit Plans.
(a) The Atari Disclosure Schedule lists, with respect to Atari,
any ERISA affiliate of Atari or any subsidiary of Atari (i) all employee benefit
plans (as defined in Section 3(3) of ERISA), (ii) all loans to employees in
excess of $50,000, loans to officers, and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, disability, employee relocation, cafeteria (Code section 125), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, deferred compensation or incentive plans, programs or arrangements,
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(iv) other material fringe or employee benefit plans, programs or arrangements
that apply to senior management of Atari and that do not generally apply to all
employees, and (v) any current or former employment or executive compensation or
severance agreements, written or otherwise, as to which current or contingent
obligations of Atari of greater than $50,000 exist for the benefit of, or
relating to, any current or former employee, consultant or director of Atari
(together, the "Atari Employee Plans"), and a copy of each such Atari Employee
Plan and each summary plan description and annual report on the Form 5500 series
required to be filed with any government agency for each Atari Employee Plan for
the three most recent Plan years has been delivered to JTS.
(b) (i) None of the Atari Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Atari Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect on Atari or its subsidiaries; (iii) all Atari Employee Plans have been
administered in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code, orders, or
governmental rules and regulations currently in effect with respect thereto and
including all applicable requirements for notification to participants or to the
Department of Labor, Internal Revenue Service or Secretary of the Treasury),
except as would not have, in the aggregate, a Material Adverse Effect on Atari
or its subsidiaries, and Atari and each of its subsidiaries have performed all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the Atari Employee Plans;
(iv) each Atari Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code has
received a favorable determination letter from the IRS as to such qualification,
and nothing has occurred which could reasonably be expected to cause the loss of
such qualification or exemption; (v) all material contributions required to be
made by Atari or any of its subsidiaries to any Atari Employee Plan have been
made on or before their due dates and a reasonable amount has been accrued for
contributions to each Atari Employee Plan for the current plan years; and (vi)
no Atari Employee Plan is covered by, and neither Atari nor any subsidiary has
incurred or expects to incur any liability under Title IV of ERISA or Section
412 of the Code.
(c) With respect to each Atari Employee Plan that constitutes a
group health plan within the meaning of Section 5000(b)(1) of the Code or
Section 607(1) of ERISA, Atari and each of its United States subsidiaries have
complied with the applicable health care continuation and notice provisions of
COBRA and the proposed regulations thereunder, except to the extent that such
failure to comply would not, in the aggregate, have a Material Adverse Effect on
Atari and its subsidiaries.
3.15 Certain Agreements Affected by the Merger. Neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Atari or any of its
subsidiaries, (ii) increase any benefits otherwise payable by Atari or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
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3.16 Employee Matters. Except as to matters which could not, in the
aggregate, have a Material Adverse Effect on Atari and its subsidiaries, taken
as a whole, Atari and each of its Significant Subsidiaries are in compliance in
all respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. There are no pending claims against
Atari or any of its subsidiaries under any workers compensation plan or policy
or for long term disability. Neither Atari nor any of its subsidiaries has any
material obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder. There are no controversies pending or, to
the knowledge of Atari or any of its subsidiaries, threatened, between Atari or
any of its subsidiaries and any of their respective employees, which
controversies have or could have a Material Adverse Effect on Atari and its
subsidiaries, taken as a whole. Neither Atari nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor unions contract nor
does Atari nor any of its subsidiaries know of any activities or proceedings of
any labor union or organize any such employees.
3.17 Interested Party Transactions. Except as disclosed in the Atari
Disclosure Schedule or the Atari SEC Documents, neither Atari nor any of its
subsidiaries is indebted to any director, officer, employee or agent of Atari or
any of its subsidiaries (except for amounts due as normal salaries and in
reimbursement of ordinary expenses), and no such person is indebted to Atari or
any of its subsidiaries. Except as disclosed in the Atari Disclosure Schedule or
the Atari SEC Documents, no officer, director or shareholder of Atari or any
affiliate of such person has, either directly or indirectly, (i) an interest in
any corporation, partnership, firm or other person or entity which furnishes or
sells services or products which are similar to those furnished or sold by Atari
or (ii) a beneficial interest in a contract or agreement to which Atari is a
party or by which Atari may be bound. For purposes of this Section 3.17, there
shall be disregarded any interest which arose solely from the ownership of less
than a one percent (1%) equity interest in a corporation whose stock is
regularly traded on a national securities exchange or over-the-counter market.
3.18 Insurance. Atari and each of its Significant Subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses or owning assets similar to those of Atari and
its subsidiaries. There is no claim pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and Atari and its Significant Subsidiaries are
otherwise in compliance with the terms of such policies and bonds. Atari has no
knowledge of any threatened termination of, or premium increase with respect to,
any of such policies.
3.19 Compliance With Laws. Each of Atari and its Significant
Subsidiaries has complied with, are not in violation of, and have not received
any notices of violation with respect to, any federal, state, local or foreign
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or failures
to comply as could not be reasonably expected to have a Material Adverse Effect
on Atari and its subsidiaries, taken as a whole.
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3.20 Minute Books. The minute books of Atari and its subsidiaries made
available to JTS contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of Atari and the respective subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
3.21 Complete Copies of Materials. Atari has delivered or made
available true and complete copies of each document which has been requested by
JTS or its counsel in connection with their legal and accounting review of Atari
and its subsidiaries.
3.22 Broker's and Finders' Fees. Atari has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.23 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Atari for inclusion in the Registration Statement shall
not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Atari for inclusion
in the Proxy Statement shall not, on the date the Proxy Statement is first
mailed to JTS's stockholders and Atari's stockholders, at the time of the JTS
Stockholders Meeting, at the time of the Atari Stockholders Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the JTS Stockholders Meeting or the Atari
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Atari
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Atari will promptly inform JTS.
Notwithstanding the foregoing, Atari makes no representation, warranty or
covenant with respect to any information supplied by JTS which is contained in
any of the foregoing documents.
3.24 Opinion of Financial Advisor. Atari has been advised in writing by
its financial advisor, Montgomery Securities, that in such advisor's opinion, as
of the date hereof, the consideration to be paid by Atari hereunder is fair,
from a financial point of view, to Atari.
3.25 Board Approval. The Board of Directors of Atari has unanimously
(i) approved this Agreement and the Merger, (ii) determined that the Merger is
in the best interests of its stockholders and is on terms that are fair to such
stockholders and (iii) recommended that its stockholders approve this Agreement
and the Merger.
3.26 Vote Required. The affirmative vote of the holders of a majority
of the shares of Atari Common Stock outstanding on the record date set for the
Atari Stockholders Meeting is the only vote of the holders of any of Atari's
capital stock necessary to approve this Agreement and the transactions
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contemplated hereby. No shareholder of Atari will be entitled to statutory
dissenters rights under Nevada Law as a result of the Merger.
3.27 Underlying Documents. True and complete copies of all underlying
documents set forth on the Atari Disclosure Schedule or described as having been
disclosed or delivered to JTS pursuant to this Agreement have been furnished to
JTS.
3.28 Representations Complete. None of the representations or
warranties made by Atari herein or in any Schedule hereto, including the Atari
Disclosure Schedule, or certificate furnished by Atari pursuant to this
Agreement, or the Atari SEC Documents, when all such documents are read together
in their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of JTS and Atari. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, each of JTS and Atari agrees (except to
the extent expressly contemplated by this Agreement or as consented to in
writing by the other), to carry on its and its subsidiaries' business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay and to cause its subsidiaries to pay debts and
taxes when due (subject to good faith disputes over such debts or taxes) and to
pay or perform other obligations when due. Each of JTS and Atari agrees to
promptly notify the other of any event or occurrence not in the ordinary course
of its or its subsidiaries' business, and of any event which could have a
Material Adverse Effect on it and its subsidiaries, taken as a whole. Without
limiting the foregoing, except as expressly contemplated by this Agreement,
neither JTS nor Atari shall do, cause or permit any of the following, or allow,
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of the other:
(a) Charter Documents. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws (except as contemplated by Section 1.4
hereof);
(b) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement; provided, however, that in
addition to any grants specifically described on the JTS Disclosure Schedule,
JTS may, in the ordinary course of business consistent with past practice, grant
options for the purchase of up to 250,000 shares of JTS Common Stock under the
JTS Stock Option Plan and issue shares of JTS Common Stock upon the
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exercise of such options; and provided, further, that Atari may issue securities
under the Atari Option Plan.
(c) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(d) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its parent's/subsidiaries' business, taken as a whole;
(e) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material Return or any amendment to a
material Return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(f) Stock Option Plans, Etc. Accelerate, amend or change the
period of exercisability of options, warrants or other rights granted under its
employee stock plans or authorize cash payments in exchange for any options,
warrants or other rights granted under any of such plans;
(g) Other. Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (f) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.2 Conduct of Business of JTS. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as expressly contemplated by this Agreement, JTS
shall not do, cause or permit any of the following, or allow, cause or permit
any of its subsidiaries to do, cause or permit any of the following, without the
prior written consent of Atari:
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(b) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
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(c) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually or in
the aggregate, to its and its subsidiaries' business, taken as a whole, except
in the ordinary course of business consistent with past practice;
(d) Indebtedness. Incur any indebtedness for borrowed money (except
amounts borrowed under JTS's existing revolving credit line or drawdowns of
existing credit facilities for working capital or construction purposes only) or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(e) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business and other than as
disclosed in the JTS Disclosure Schedule;
(f) Payment of Obligations. Pay, discharge or satisfy in an amount
in excess of $50,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the JTS Financial Statements;
(g) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(h) Employee Benefit Plans. Adopt or amend any employee benefit or
stock purchase or option plan;
(i) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Atari prior to the filing
of such a suit, (iii) in such cases in which the damages or legal fees are not
reasonably expected to material, or (iv) for a breach of this Agreement; or
(j) Other. Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.2(a) through (i) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.3 Conduct of Business of Atari. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Atari shall not do, cause or permit any of the following, or allow,
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of JTS:
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(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(b) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(c) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually or in
the aggregate, to its and its subsidiaries' business, taken as a whole, except
in the ordinary course of business consistent with past practice;
(d) Indebtedness. Incur any indebtedness for borrowed money (except
amounts borrowed under JTS's existing revolving credit line or drawdowns of
existing credit facilities for working capital or construction purposes only) or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(e) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business and other than as
disclosed in the Atari Disclosure Schedule;
(f) Payment of Obligations. Pay, discharge or satisfy in an amount
in excess of $50,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Atari Financial Statements;
(g) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business and
consistent with past practice, and in any event not to exceed $25,000 per
quarter;
(h) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(i) Employee Benefit Plans. Adopt or amend any employee benefit or
stock purchase or option plan;
(j) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with JTS prior to the filing
of such a suit, (iii) in such cases in which the damages or legal fees are not
reasonably expected to material, or (iv) for a breach of this Agreement; or
(k) Other. Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.3(a) through (j) above, or any action which
would make any of its representations or
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warranties contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
4.4 No Other JTS Negotiations. From and after the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with its terms, JTS shall not, directly or indirectly
(i) solicit, initiate discussion or engage in negotiations with any person
(whether such negotiations are initiated by JTS or otherwise) or take any other
action intended or designed to facilitate the efforts of any person, other than
Atari, relating to the possible acquisition of JTS or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets of
otherwise) or any of its or their capital stock or any material portion of its
or their assets (with any such efforts by any such person, including a firm
proposal to make such an acquisition, to be referred to as a "JTS Acquisition
Proposal") (ii) provide non-public information with respect to JTS or any of its
subsidiaries to any person, other than Atari, relating to a possible JTS
Acquisition Proposal by any person, other than Atari, (iii) enter into an
agreement with any person, other than Atari, providing for a possible JTS
Acquisition Proposal, or (iv) make or authorize any statement, recommendation or
solicitation in support of any possible JTS Acquisition Proposal by any person
other than Atari. If JTS or any of its subsidiaries receives any unsolicited
offer or proposal to enter negotiations relating to a JTS Acquisition Proposal,
JTS shall immediately notify Atari thereof, including information as to the
identity of the party making any such offer or proposal and the specific terms
of such offer or proposal, as the case may be. JTS recognizes and acknowledges
that a breach of this Section 4.4 may cause irreparable and material loss and
damage to Atari as to which Atari may not have an adequate remedy at law or in
damages and that, accordingly, JTS agrees that the issuance of an injunction or
other equitable remedy is the appropriate remedy for any such breach.
4.5 No Other Atari Negotiations. From and after the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with its terms, Atari shall not, directly or indirectly
(i) solicit, initiate discussion or engage in negotiations with any person
(whether such negotiations are initiated by Atari or otherwise) or take any
other action intended or designed to facilitate the efforts of any person, other
than JTS, relating to the possible acquisition of Atari (whether by way of
merger, purchase of capital stock, purchase of assets of otherwise) or any of
its capital stock or any material portion of its assets (with any such efforts
by any such person, including a firm proposal to make such an acquisition, to be
referred to as an "Atari Acquisition Proposal") (ii) provide non-public
information with respect to Atari to any person, other than JTS, relating to a
possible Atari Acquisition Proposal by any person, other than JTS, (iii) enter
into an agreement with any person, other than JTS, providing for a possible
Atari Acquisition Proposal, or (iv) make or authorize any statement,
recommendation or solicitation in support of any possible Atari Acquisition
Proposal by any person other than JTS. If Atari receives any unsolicited offer
or proposal to enter negotiations relating to an Atari Acquisition Proposal,
Atari shall immediately notify JTS thereof, including information as to the
identity of the party making any such offer or proposal and the specific terms
of such offer or proposal, as the case may be. Atari recognizes and acknowledges
that a breach of this Section 4.5 may cause irreparable and material loss and
damage to JTS as to which JTS may not have an adequate remedy at law or in
damages and that, accordingly, JTS agrees that the issuance of an injunction or
other equitable remedy is the appropriate remedy for any such breach.
Notwithstanding the foregoing, nothing contained in this Agreement (i) shall
prevent the Board of Directors of Atari from referring any third party to this
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Section 4.5 or providing a copy of this Agreement (other than the JTS Disclosure
Schedule) to any third party, (ii) shall prevent the Board of Directors of Atari
from considering, negotiating, approving and recommending to the shareholders of
Atari an unsolicited bona fide written Atari Acquisition Proposal which the
Board of Directors of Atari determines in good faith (after consultation with
its financial advisors and after consultation with outside counsel as to whether
the Board of Directors is required to do so in order to discharge properly its
fiduciary duties to shareholders under applicable law) would result in a
transaction more favorable to the Company's shareholders from a financial point
of view than the transaction contemplated by this Agreement (any such Atari
Acquisition Proposal being referred to herein as a "Superior Atari Proposal").
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, JTS and Atari shall prepare,
and Atari shall file with the SEC, preliminary proxy materials relating to the
approval of the Merger and the transactions contemplated hereby by the
stockholders of each of JTS and Atari and, as promptly as practicable following
receipt of SEC comments thereon, JTS and Atari shall file with the SEC a
Registration Statement on Form S-4 (or such other or successor form as shall be
appropriate), which complies in form with applicable SEC requirements and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable. The Proxy Statement shall include
the recommendation of the Board of Directors of JTS in favor of the Merger;
provided that such recommendation may not be included or may be withdrawn if
previously included if JTS's Board of Directors, upon written advice of its
outside legal counsel, shall determine that to include such recommendation or
not withdraw such recommendation if previously included would constitute a
breach of the Board's fiduciary duty under applicable law. The Proxy Statement
shall include the recommendation of the Board of Directors of Atari in favor of
the Merger; provided that such recommendation may not be included or may be
withdrawn if previously included if Atari's Board of Directors, upon written
advice of its outside legal counsel, shall determine that to include such
recommendation or not withdraw such recommendation if previously included would
constitute a breach of the Board's fiduciary duty under applicable law.
5.2 Meetings of Stockholders.
(a) JTS shall promptly after the date hereof take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene the JTS Stockholders Meeting on or prior to June 30, 1996
or as soon thereafter as is practicable. JTS shall consult with Atari and use
all reasonable efforts to hold the JTS Stockholders Meeting on the same day as
the Atari Stockholders Meeting and shall not postpone or adjourn (other than for
the absence of a quorum) the JTS Stockholders Meeting without the consent of
Atari. JTS shall use its best efforts to solicit from stockholders of JTS
proxies in favor of the Merger and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required to effect the
Merger.
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(b) Atari shall promptly after the date hereof take all action
necessary in accordance with Nevada Law and its Articles of Incorporation and
Bylaws to convene the Atari Stockholders Meeting on or prior to June 30, 1996 or
as soon thereafter as is practicable. Atari shall consult with JTS and shall use
all reasonable efforts to hold the Atari Stockholders Meeting on the same day as
the JTS Stockholders Meeting and shall not postpone or adjourn (other than for
the absence of a quorum) the Atari Stockholders Meeting without the consent of
JTS. Atari shall use its best efforts to solicit from stockholders of Atari
proxies in favor of the Merger and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required to effect the
Merger.
5.3 Access to Information. JTS shall afford Atari and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of JTS's and its
subsidiaries' properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of JTS
and its subsidiaries as Atari may reasonably request. JTS agrees to provide to
Atari and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request. Atari shall afford JTS and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of
Atari's and its subsidiaries' properties, books, contracts, commitments and
records, and (ii) all other information concerning the business, properties and
personnel of Atari and its subsidiaries as JTS may reasonably request. Atari
agrees to provide to JTS and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.4 Public Disclosure. Atari and JTS shall consult with each other
before issuing any press release or otherwise making any public statement or
making any other public (or non-confidential) disclosure regarding the terms of
this Agreement and the transactions contemplated hereby, and neither shall issue
any such press release or make any such statement or disclosure without the
prior approval of the other (which approval shall not be unreasonably withheld),
except as may be required by law.
5.5 Consents; Cooperation. Each of Atari and JTS shall promptly apply
for or otherwise seek, and use its best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its best efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to HSR or any other federal or state antitrust or fair trade
law.
5.6 Continuity of Interest Certificates.
(a) Schedule 5.6(a) sets forth those persons who hold one percent
(1%) or more of the outstanding shares of JTS capital stock (the "JTS
Significant Stockholders"). JTS shall provide Atari
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such information and documents as Atari shall reasonably request for purposes of
reviewing such list. JTS shall use its best efforts to deliver or cause to be
delivered to Atari, concurrently with the execution of this Agreement (and in
each case prior to the Effective Time) from each of the JTS Significant
Stockholders, an executed Continuity of Interest Certificate in a form
reasonably satisfactory to counsel to Atari. The Surviving Company shall be
entitled to place appropriate legends on the certificates evidencing any JTS
Common Stock held by such JTS Significant Stockholders, and to issue appropriate
stop transfer instructions to the transfer agent for JTS Common Stock,
consistent with the terms of such Continuity of Interest Certificates.
(b) Schedule 5.6(b) sets forth those persons who hold five percent
(5%) or more of the outstanding shares of Atari capital stock (the "Atari
Significant Stockholders"). Atari shall provide JTS such information and
documents as JTS shall reasonably request for purposes of reviewing such list.
Atari shall use its best efforts to deliver or cause to be delivered to JTS,
concurrently with the execution of this Agreement (and in each case prior to the
Effective Time) from each of the Atari Significant Stockholders, an executed
Continuity of Interest Certificate in a form reasonably satisfactory to counsel
to JTS. The Surviving Company shall be entitled to place appropriate legends on
the certificates evidencing any JTS Common Stock to be received by such Atari
Significant Stockholders pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for JTS Common
Stock, consistent with the terms of such Continuity of Interest Certificates.
5.7 Voting Agreements.
(a) Prior to or concurrently with the execution of this Agreement,
each JTS stockholder named in Schedule 5.7(a) shall have executed and delivered
to Atari a Voting Agreement substantially in the form of Exhibit C-1 attached
hereto.
(b) Prior to or concurrently with the execution of this Agreement,
each Atari stockholder named in Schedule 5.7(b) shall have executed and
delivered to JTS a Voting Agreement substantially in the form of Exhibit C-2
attached hereto.
5.8 FIRPTA. Promptly following the Closing, JTS and Atari shall deliver
to the IRS appropriate notices that their capital stock is not a "U.S. Real
Property Interest" as defined in and in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
5.9 Legal Requirements. Each of Atari and JTS will, and will cause
their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
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5.10 Blue Sky Laws. JTS shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the JTS Common Stock in connection with the
Merger. Atari shall use its best efforts to assist JTS as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of JTS Common Stock in connection
with the Merger.
5.11 Atari Employee Benefit Plans. At the Effective Time, each
outstanding option to purchase shares of Atari Common Stock under the Atari
Stock Option Plan whether vested or unvested, will be assumed by JTS. Each such
option so assumed by JTS under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Atari Stock Option
Plan immediately prior to the Effective Time, except that (i) such option will
be exercisable for that number of whole shares of JTS Common Stock equal to the
product of the number of shares of Atari Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of JTS
Common Stock, and (ii) the per share exercise price for the shares of JTS Common
Stock issuable upon exercise of such assumed option will be equal to the
quotient determined by dividing the exercise price per share of Atari Common
Stock at which such option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent. It is the
intention of the parties that the options so assumed by JTS qualify following
the Effective Time as incentive stock options as defined in Section 422 of the
Code to the extent such options qualified as incentive stock options prior to
the Effective Time.
5.12 Atari Debentures. Each Atari Debenture, upon its surrender to JTS
at any time at or following the Closing, shall be exchanged for a debenture in
substantially identical form (i) representing the right to convert into that
number of shares of JTS Common Stock equal to the number of shares of Atari
Common Stock for which such debenture was previously convertible multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of JTS
Common Stock, and (ii) with a per share conversion price for the shares of JTS
Common Stock issuable upon exercise of such assumed debenture equal to the
quotient determined by dividing the conversion price per share of JTS Common
Stock at which such debenture was convertible immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent.
5.13 Form S-8. JTS agrees to file, no later than five (5) days after
the Closing, a registration statement on Form S-8 covering the shares of JTS
Common Stock issuable pursuant to outstanding options under the Atari Stock
Option Plan assumed by JTS.
5.14 Tax-Free Reorganization; Tax Returns. Atari and JTS shall each use
its best efforts to cause the Merger to be treated as a "reorganization" within
the meaning of Section 368(a)(1)(A) of the Code and shall report the Merger as
such in all federal and, to the extent permitted, all state and local tax
returns filed after the Effective Time of the Merger.
5.15 Registration Rights. At or prior to the Closing, JTS shall provide
to the holders of Atari Common Stock listed on Schedule 5.15 hereto, the
registration rights set forth in that certain Registration Rights Agreement
dated as of February 3, 1995 by and among JTS and the entities listed on Exhibit
A thereto, by amending such agreement in a form reasonably acceptable to counsel
to Atari.
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5.16 Indemnification of Officers and Directors. After the Effective
Time, the Surviving Corporation shall (to the extent not prohibited by law)
indemnify and hold harmless, and pay in advance expenses, costs, damages,
settlements and fees to each director or officer of Atari serving as such as of
the date hereof as provided in the Nevada law or the Articles of Incorporation
or bylaws of Atari or any indemnification agreement to which Atari and such
officer or director is a party, in each case as in effect at the date hereof,
which provisions shall survive the Merger and shall continue in full force and
effect after the Effective Time.
5.17 Listing of JTS Common Stock. Atari and JTS shall each use its best
efforts to cause the JTS Common Stock to be approved for listing on the Nasdaq
National Market or the American Stock Exchange, such that trading in JTS Common
Stock shall commence on the first trading day following the Closing.
5.18 Atari Consent to JTS Transaction with Moduler. JTS covenants and
agrees with Atari that JTS will not amend or modify the Moduler Agreement
without the prior written consent of Atari.
5.19 Atari SEC Documents. Atari covenants and agrees with JTS that from
and after the date hereof, Atari will timely file all reports which it is
required to file with the SEC pursuant to the Exchange Act.
5.20 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill or cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by (i) the holders of a majority of the shares of JTS
Common Stock and JTS Series A Preferred Stock outstanding as of the record date
set for the JTS Stockholders Meeting, voting together, (ii) a majority of the
shares of JTS Common Stock outstanding on the record date set for the JTS
Stockholders Meeting, voting separtely as a class, (iii) the holders of at least
two-thirds of the shares of JTS Series A Preferred outstanding as of the record
date set for the JTS Stockholders Meeting, voting
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separately as a class, and (iv) the holders of a majority of the shares of Atari
Common Stock outstanding as of the record date set for the Atari Stockholders
Meeting.
(b) Registration Statement Effective. The SEC shall have declared
the Registration Statement effective. No stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the Proxy
Statement, shall have been initiated or threatened by the SEC; and all requests
for additional information on the part of the SEC shall have been complied with
to the reasonable satisfaction of the parties hereto.
(c) Exchange Act Registration Statement Effective. JTS shall have
filed a Registration Statement on Form 8-A with the SEC pursuant to the Exchange
Act (the "Form 8-A"). The SEC shall have declared the Form 8-A effective. No
stop orders suspending the effectiveness of the Form 8-A or any part thereof
shall have been issued and no proceeding for that purpose, shall have been
initiated or threatened by the SEC.
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(e) Governmental Approval. Atari and JTS and their respective
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act, under state Blue Sky laws, and under HSR.
(f) Tax Opinion. Atari and JTS shall have received substantially
identical written opinions of Wilson Sonsini Goodrich & Rosati, P.C., and Cooley
Godward Castro Huddleson & Tatum, in form and substance reasonably satisfactory
to them, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, and such opinions shall not have been
withdrawn. In rendering such opinions, counsel shall be entitled to rely upon
representations of Atari and JTS and certain stockholders of Atari and JTS.
(g) Listing of JTS Common Stock. The JTS Common Stock shall have
been approved for quotation on the Nasdaq National Market or the American Stock
Exchange.
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(h) Limit on JTS Dissenting Shares. No more than 5.0% of the shares
of JTS Common Stock and JTS Series A Preferred Stock shall be Dissenting Shares
or entitled to exercise any dissenters or appraisal rights with respect to the
Merger.
(i) Continuity of Interest Certificates. Atari shall have received
from each of the JTS Significant Stockholders an executed Continuity of Interest
Certificate as contemplated by Section 5.6 hereof. JTS shall have received from
each of the Atari Significant Shareholders an executed Continuity of Interest
Certificate as contemplated by Section 5.6 hereof.
(j) Supplemental Indentures. To the extent required by the
indenture related to the Atari Debentures or the indenture related to the
Federated Debentures, Atari and JTS shall have entered into supplemental
indentures with the trustees for such debentures, such supplemental indentures
to be in a form reasonably satisfactory to counsel to Atari and counsel to JTS.
6.2 Additional Conditions to Obligations of JTS. The obligations of JTS
to consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by JTS:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Atari in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except to the
extent that the failure of such representations and warranties to be true and
accurate in such respects has not had and could not reasonably be expected to
have a Material Adverse Effect on Atari and its subsidiaries and (ii) Atari
shall have performed and complied in all respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time, except to the extent that the
failure to so perform or comply has not had and could not reasonably be expected
to have a Material Adverse Effect on Atari and its subsidiaries.
(b) Certificate of Atari. JTS shall have been provided with a
certificate executed on behalf of Atari by its President and its Chief Financial
Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Atari under
this Agreement are true and complete in all respects except to the extent that
the failure of such representations and warranties to be true and accurate in
such respects has not had and could not reasonably be expected to have a
Material Adverse Effect on Atari and its subsidiaries; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Atari on or before such date have been so performed
in all respects except to the extent that the failure to so perform or comply
has not had and could not reasonably be expected to have a Material Adverse
Effect on Atari and its subsidiaries.
(c) Third Party Consents. JTS shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in
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connection with the Merger under any material contract of Atari or any of its
Significant Subsidiaries or otherwise.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting JTS' conduct or operation of the business of
Atari and its subsidiaries, following the Merger shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(e) Legal Opinions. JTS shall have received legal opinions from
Wilson Sonsini Goodrich & Rosati, P.C. and Atari's Nevada counsel, which
opinions shall be reasonably satisfactory to counsel to JTS.
(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Atari and its subsidiaries, taken as a whole.
6.3 Additional Conditions to the Obligations of Atari. The obligations
of Atari to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Atari:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of JTS in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except to the
extent that the failure of such representations and warranties to be true and
accurate in such respects has not had and could not reasonably be expected to
have a Material Adverse Effect on JTS and its subsidiaries and (ii) JTS shall
have performed and complied in all respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it as
of the Effective Time, except to the extent that the failure to so perform or
comply has not had and could not reasonably be expected to have a Material
Adverse Effect on JTS and its subsidiaries.
(b) Certificate of JTS. Atari shall have been provided with a
certificate executed on behalf of JTS by its Chief Executive Officer and Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by JTS under this
Agreement are true and complete in all respects; except to the extent that the
failure of such representations and warranties to be true and accurate in such
respects has not had and could not reasonably be expected to have a Material
Adverse Effect on JTS and its subsidiaries; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by JTS on or before such date have been so performed
in all respects except to the extent that
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the failure to so perform or comply has not had and could not reasonably be
expected to have a Material Adverse Effect on JTS and its subsidiaries.
(c) Third Party Consents. Atari shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
material contract of JTS or any of its subsidiaries or otherwise.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting JTS' conduct or operation of the business of
JTS and its subsidiaries, following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(e) Legal Opinion. Atari shall have received a legal opinion from
Cooley Godward Castro Huddleson & Tatum, which opinion shall be reasonably
satisfactory to counsel to Atari.
(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of JTS and its subsidiaries, taken as a whole.
(g) Conversion of JTS Series A Preferred Stock. Each outstanding
share of JTS Series A Preferred Stock shall be converted into one (1) share of
JTS Common Stock.
(h) Right of First Refusal and Co-Sale Agreement. The provisions of
the Right of First Refusal and Co-Sale Agreement dated as of February 3, 1995 by
and among JTS and certain other parties, as amended, shall have terminated.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Notwithstanding approval of this Agreement by the
stockholders of JTS or Atari, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of JTS and Atari;
(b) by Atari if (i) it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of JTS,
which has or can reasonably be expected to have a Material Adverse Effect on JTS
and its subsidiaries, taken as a whole, and such breach has not been cured
within five (5) days after written notice to JTS (provided that, no cure period
shall be required for a breach which by
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its nature cannot be cured) or (ii) there shall be any final action taken, or
any statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would prohibit JTS's
ownership or operation of all or a material portion of the business of Atari or
any of its subsidiaries, or compel Atari or any of Atari's subsidiaries or JTS
or any of JTS's subsidiaries to dispose of or hold separate or otherwise
relinquish all or a material portion of the business or assets of JTS or any of
JTS's subsidiaries or Atari or any of Atari's subsidiaries as a result of the
Merger.
(c) by JTS if (i) it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Atari, which has or can reasonably be expected to have a Material Adverse Effect
on Atari and its subsidiaries, taken as a whole, and such breach has not been
cured within five (5) days after written notice to Atari (provided that, no cure
period shall be required for a breach which by its nature cannot be cured) or
(ii) there shall be any final action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity, which would prohibit JTS's ownership or operation of all or
a material portion of the business of JTS or any of its subsidiaries, or compel
Atari or any of Atari's subsidiaries or JTS or any of JTS's subsidiaries to
dispose of or hold separate or otherwise relinquish all or a material portion of
the business or assets of JTS or any of JTS's subsidiaries or Atari or any of
Atari's subsidiaries as a result of the Merger.
(d) by any party hereto if: (i) the Closing has not occurred by
July 31, 1996, (ii) there shall be a final, non-appealable order of a federal or
state court in effect preventing consummation of the Merger; (iii) there shall
be any final action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity which would make consummation of the Merger illegal; (iv) if JTS's
stockholders do not approve the Merger and this Agreement by the requisite vote
at JTS Stockholders Meeting; (v) if Atari's stockholders do not approve the
Merger and this Agreement by the requisite vote at the Atari Stockholders
Meeting; or (vi) if the Atari Board of Directors shall have accepted, approved
or recommended to the shareholders of Atari a Superior Atari Proposal.
Where action is taken to terminate this Agreement pursuant to this
Section 7.1, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such action and for such party to then
notify the other parties in writing of such action.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Atari and JTS or
their respective officers, directors, stockholders or affiliates, except to the
extent that such termination results from the breach by a party hereto of any of
its representations, warranties or covenants set forth this Agreement; provided
that, the provisions of Section 7.3 (Expenses) and this Section 7.2 shall remain
in full force and effect and survive any termination of this Agreement.
7.3 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, except
that expenses incurred in connection with printing the Proxy Materials
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and the S-4 Registration Statement, registration and filing fees incurred in
connection with the S-4 Registration Statement and the Proxy Materials and fees,
costs and expenses associated with compliance with applicable state securities
laws, listing of the JTS Common Stock on the Nasdaq National Market or the
American Stock Exchange, and with HSR in connection with the Merger shall be
shared equally by JTS and Atari.
7.4 Amendment. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
JTS or Atari shall not (i) alter or change the amount or kind of consideration
to be received on conversion of the Atari Common Stock, (ii) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the holders
of Atari Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival at Effective Time. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Section 5.8 (FIRPTA), Section
5.11 (Employee Benefit Plans), Section 5.12 (Atari Debentures), Section 5.13
(Form S-8), Section 5.14 (Tax Free Reorganization; Tax Returns), Section 5.16
(Indemnification), Section 5.20 (Best Efforts and Further Assurances), 7.3
(Expenses), and this Article VIII shall survive the Effective Time.
8.2 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or employee of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.
8.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or
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certified mail (return receipt requested) or sent via facsimile (with
confirmation of receipt) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Atari, to:
Atari Corporation
455 South Mathilda Avenue
Sunnyvale, California 94086
Attention: Jack Tramiel
Facsimile No.: (408) 328-0909
Telephone No.: (408) 328-0900
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile No.: (415) 493-6811
Telephone No.: (415) 493-9300
(b) if to JTS, to:
JTS Corporation
166 Baypointe Parkway
San Jose, California 95134
Attention: David T. Mitchell
Facsimile No.: (408) 468-1619
Telephone No.: (408) 468-1800
with a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
Palo Alto, California 94306
Attention: Andrei M. Manoliu, Esq.
Facsimile No.: (415) 857-0663
Telephone No.: (415) 843-5000
8.4 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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8.5 Counterparts. This Agreement may be executed in counterparts, both
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
8.6 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the JTS Disclosure Schedule and the Atari Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise.
8.7 Severability. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.8 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
8.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any court located in the County of Santa Clara, California, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.
8.10 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
8.11 Amendment and Restatement. The parties hereto hereby consent and
agree that this Agreement shall constitute an amendment and restatement of that
certain Agreement and Plan of Reorganization by and among Atari, JTS and JTS
Acquisition Corporation dated as of February 12, 1996.
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IN WITNESS WHEREOF, JTS and Atari have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.
JT STORAGE, INC.
By: /s/David T. Mitchell
----------------------
President
ATARI CORPORATION
By: /s/Sam Tramiel
----------------------
President
<PAGE> 1
Exhibit 2.2
AGREEMENT OF MERGER
OF
JT STORAGE, INC.
AND
ATARI CORPORATION
This Agreement of Merger (the "AGREEMENT") is entered into as of
______________, 1996, by and between JT STORAGE, INC., a Delaware corporation
("JTS"), and ATARI CORPORATION, a Nevada corporation ("ATARI").
RECITALS
A. JTS and Atari have entered into an Amended and Restated
Agreement and Plan of Reorganization, dated as of April 8, 1996 (the "PLAN"),
providing for certain representations, warranties and agreements in connection
with the transactions contemplated hereby, in accordance with the General
Corporation Law of the State of Delaware (the "DELAWARE LAW").
B. The Boards of Directors of JTS and Atari deem it advisable
and in the respective best interests of JTS and Atari and their stockholders
that Atari be merged with and into JTS through a statutory merger of Atari into
JTS (the "MERGER") with JTS as the surviving corporation (the "SURVIVING
CORPORATION").
NOW THEREFORE, JTS and Atari agree as follows:
1. THE MERGER
1.1. EFFECTIVE TIME OF MERGER. The Merger will become
effective at 5:00 p.m., Eastern Standard Time, on ___________, 1996 (the
"EFFECTIVE TIME").
1.2. EFFECTS OF MERGER. At the Effective Time:
(A) Atari will be merged with and into JTS and the
separate corporate existence of Atari shall thereupon cease. JTS will be the
surviving corporation in the Merger, and the corporate existence of JTS, with
all its purposes, objects, rights, privileges, powers, immunities and
franchises, will continue unaffected and unimpaired by the Merger.
(B) The Certificate of Incorporation of JTS will be
amended to read as set forth on Exhibit A hereto (the "JTS Certificate of
Incorporation") and will be the Certificate of Incorporation of the Surviving
Corporation.
(C) The Bylaws of JTS will be the Bylaws of the
Surviving Corporation.
1.
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(D) Each share of JTS Common Stock, 0.000001 par value
("JTS COMMON STOCK"), outstanding immediately prior to the Effective Time will
continue to be an identical outstanding share of Common Stock of JTS as the
surviving corporation (with the changes set forth in the JTS Certificate of
Incorporation).
(E) The shares of Atari Common Stock, $0.01 par value
("ATARI COMMON STOCK"), outstanding immediately prior to the Effective Time will
be converted into shares of JTS Common Stock as provided in Section 2 of this
Agreement; outstanding options to purchase shares of Atari Common Stock
will be converted into outstanding options to purchase shares of JTS Common
Stock as provided in Section 2 of this Agreement; and each share of Atari
capital stock held in treasury will be canceled.
(F) Without further transfer, act or deed, JTS, as the
surviving corporation, will succeed to all the properties, assets, rights,
privileges, powers, immunities and franchises of Atari, and will be subject to,
and responsible for, all of the debts, liabilities and obligations of Atari,
with the effect set forth in the Delaware Law.
(G) All rights of creditors and all liens upon the
property of Atari will be preserved unimpaired following the Merger, provided
that such liens upon the property of Atari will be limited to the property
affected thereby immediately prior to the Effective Time.
2. CONVERSION OF ATARI COMMON STOCK; TREATMENT OF ATARI
OPTIONS; EXCHANGE OF CERTIFICATES
2.1. CONVERSION OF ATARI COMMON STOCK. Each share of Atari
Common Stock outstanding immediately prior to the Effective Time will be
converted into and represent a right to receive one (1) fully paid and
nonassessable share of issued and outstanding JTS Common Stock.
2.2. ASSUMPTION OF OUTSTANDING OPTIONS TO PURCHASE ATARI
COMMON STOCK. At the Effective Time, each then outstanding option (an "ATARI
OPTION") to purchase Atari Common Stock granted under the Atari 1986 Incentive
Stock Option Plan (the "ATARI PLAN") shall be assumed by JTS and the holder
thereof shall be entitled, in accordance with the terms of such Atari Option, to
purchase after the Effective Time that number of shares of JTS Common Stock
equal to the number of shares of Atari Common Stock subject to such Atari Option
at the Effective Time and the per share exercise price per full share of JTS
Common Stock for each such assumed option will equal the exercise price of the
Atari Option (per share of Atari Common Stock). Except as otherwise expressly
provided in the Atari Plan, the term, excercisability, vesting schedule, status
as an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended (the "CODE"), if applicable, and all other terms of the Atari
Options will otherwise be unchanged. Continuous employment with Atari prior to
the Effective Time will be credited to each holder of an Atari Option for
purposes of determining the number of shares subject to exercise after the
Effective Time and for other purposes under the Atari Plan.
2.
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2.3. EXCHANGE OF CERTIFICATES.
2.3.1. EXCHANGE AGENT. Prior to the Closing Date, JTS
shall appoint Registrar and Transfer Company, or such other bank or trust
company selected by JTS, to act as exchange agent (the "EXCHANGE AGENT") in the
Merger.
2.3.2. JTS TO PROVIDE SHARES. Promptly after the
Effective Time, but in no event later than five business days thereafter, JTS
shall make available for exchange in accordance with this Section 2.3, the
shares of JTS Common Stock issuable pursuant to Section 2.1 in exchange for
outstanding shares of Atari Common Stock.
2.3.3. EXCHANGE PROCEDURES. As soon as practicable
after the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate that, immediately prior to the Effective Time, represented
outstanding shares of Atari Common Stock (a "CERTIFICATE") whose shares are
being converted into JTS Common Stock pursuant to Section 2.1, the following:
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates duly endorsed as instructed to the Exchange Agent
and shall be in such form and have such other provisions as JTS may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for JTS Common Stock. Upon surrender of a Certificate
for cancellation to the Exchange Agent duly endorsed as instructed, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the number of shares of JTS
Common Stock to which the holder of Atari Common Stock is entitled pursuant to
Section 2.1 hereof and is represented by the Certificate so surrendered. The
Certificate so surrendered shall forthwith be cancelled. Until surrendered as
contemplated by this Section 2.3, each Certificate shall be deemed at any time
after the Effective Time to represent the right to receive upon such surrender
the number of shares of JTS Common Stock as provided by this Section 2.3 and the
provisions of the Delaware Law.
2.3.4. PAYMENT OF DIVIDENDS AND DISTRIBUTIONS WITH
RESPECT TO UNEXCHANGED SHARES. No dividends or distributions payable to holders
of record of JTS Common Stock after the Effective Time shall be paid to the
holder of any unsurrendered Certificate until the holder of such Certificate
shall surrender such Certificate. Subject to the effect, if any, of applicable
escheat and other laws, following surrender of any Certificate, there shall be
delivered to the person entitled thereto, without interest, the amount of
dividends theretofore paid with respect to JTS Common Stock so withheld as of
any date subsequent to the Effective Time and prior to such date of delivery.
2.3.5. NO FURTHER OWNERSHIP RIGHTS IN ATARI STOCK.
All JTS Common Stock delivered upon the surrender for exchange of shares of
Atari Common Stock in accordance with the terms hereof shall be deemed to have
been delivered in full satisfaction of all rights pertaining to such shares of
Atari Common Stock. There shall be no further registration of transfers on the
stock transfer books of Atari or its transfer agent of the shares of Atari
Common Stock that were outstanding immediately prior to the Effective Time. If,
after the Closing Date,
3.
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Certificates are presented for any reason, they shall be cancelled and exchanged
as provided in this Section 2.3.
3. TERMINATION AND AMENDMENT.
3.1. AGREEMENT SUBJECT TO TERMINATION BY MUTUAL CONSENT.
Notwithstanding the approval of this Agreement by the stockholders of JTS and
Atari, this Agreement may be terminated at any time prior to the Effective Time
by mutual agreement of JTS and Atari.
3.2. AGREEMENT SUBJECT TO TERMINATION ON TERMINATION OF PLAN.
Notwithstanding the approval of this Agreement by the stockholders of JTS and
Atari, this Agreement shall terminate forthwith in the event that the Plan shall
be terminated as therein provided.
3.3. EFFECT OF TERMINATION. In the event of the termination of
this Agreement as provided above, this Agreement shall forthwith become void and
there shall be no liability on the part of either JTS or Atari or their
respective officers and directors, except as otherwise provided in the Plan.
3.4. AMENDMENT. This Agreement may be amended by the parties
hereto at any time before or after approval by the stockholders of either JTS or
Atari, but, after such approval, no amendment shall be made which by applicable
law requires the further approval of stockholders without obtaining such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
4. MISCELLANEOUS.
4.1. PLAN. The Plan and this Agreement are intended to be
construed together in order to effectuate their purposes.
4.2. ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. Neither
party hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
4.3. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
4.4. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument.
4.5. TAX-FREE REORGANIZATION. The Merger contemplated hereby
is intended to be treated as a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Code.
4.
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5.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
JT STORAGE, INC.
Attest: ____________________ By: ____________________________________
W. Virginia Walker, David T. Mitchell,
Secretary President and Chief Executive Officer
ATARI CORPORATION
Attest: ___________________ By: ____________________________________
___________________, Sam Tramiel,
Secretary President and Chief Executive Officer
6.
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CERTIFICATE OF THE SECRETARY
OF
JT STORAGE, INC.
I, W. Virginia Walker, the Secretary of JT Storage, Inc., a Delaware
corporation (the "Corporation"), hereby certify as such Secretary, in accordance
with the General Corporation Law of the State of Delaware, that the Agreement of
Merger between Atari Corporation and the Corporation to which this certificate
is attached, after having first been duly adopted by the Corporation and
executed on its behalf by the President and Chief Executive Officer and the
Secretary of the Corporation, was then submitted to the stockholders of the
Corporation at a meeting duly called and held on June __, 1996, and at such
meeting a majority of the outstanding Common Stock and Series A Preferred Stock
(voting together as a class), a majority of the outstanding Common Stock (voting
separately as a class) and at least two-thirds of the outstanding Series A
preferred Stock (voting separately as a class) of the Corporation entitled to
vote on the Agreement of Merger were voted for the adoption of the Agreement of
Merger, thereby duly approving and adopting the Agreement of Merger.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
__th day of June, 1996.
_________________________
W. Virginia Walker
Secretary
JT Storage, Inc.
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CERTIFICATE OF THE SECRETARY
OF
ATARI CORPORATION
I, ____________________________, the Secretary of Atari Corporation, a
Nevada corporation (the "Corporation"), hereby certify as such Secretary, in
accordance with the General Corporation Law of the State of Delaware, that the
Agreement of Merger between JT Storage, Inc. and the Corporation to which this
certificate is attached, after having first been duly adopted by the Corporation
and executed on its behalf by the President and Chief Executive Officer and the
Secretary of the Corporation, was then submitted to the stockholders of the
Corporation at a meeting duly called and held on June __, 1996, and at such
meeting a majority of the outstanding Common Stock of the Corporation entitled
to vote on the Agreement of Merger were voted for the adoption of the Agreement
of Merger, thereby duly approving and adopting the Agreement of Merger.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
__th day of June, 1996.
_________________________
Secretary
Atari Corporation
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Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
JT STORAGE, INC.
(Originally incorporated on February 3, 1994)
JT Storage, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is JT Storage, Inc. JT Storage,
Inc. was originally incorporated under the same name, and the original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on February 3, 1994.
2. Pursuant to Section 241 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation.
3. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"CORPORATION") is:
JT Storage, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such 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 the State of Delaware.
<PAGE> 2
ARTICLE IV
(A) Classes of Stock. The total number of shares of stock which
the Corporation shall have authority to issue is 40,000,000 shares, consisting
of 24,000,000 shares of Common Stock having a par value of $0.000001 per share
("COMMON STOCK") and 16,000,000 shares of Preferred Stock, all of which shall
be designated Series A Preferred Stock, par value $0.000001 per share ("SERIES
A PREFERRED").
Upon the filing of this Restated Certificate of Incorporation, each
one (1) outstanding share of Common stock shall be split into four thousand
five hundred (4,500) shares of Common Stock.
(B) Rights, Preferences, Privileges and Restrictions of Preferred
Stock. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred are as follows:
1. Dividends.
(a) Dividends on Series A Preferred. The holders
of Series A Preferred shall be entitled to receive, when and as declared by the
Board of Directors (the "BOARD") out of funds legally available therefor,
dividends at the rate of $0.09 per share, per annum, payable in preference and
priority to any payment of any distribution on Common Stock of the Corporation,
appropriately adjusted for any stock split, stock dividend, stock combination
or other recapitalization (a "RECAPITALIZATION") of the Series A Preferred (as
so adjusted, the "DIVIDEND RATE"). Such dividends shall accrue on each share
of Series A Preferred from day to day, whether or not declared, and shall be
cumulative. Such cumulative dividends on the Series A Preferred may be paid, at
the option of the Corporation, in cash or shares of capital stock of the
Corporation, with any shares of capital stock to be valued at the per share
fair market of such capital stock, as determined in good faith by the
Corporation's Board of Directors at the time such dividends are declared.
(b) Dividends on Common Stock. No dividends or
other distributions shall be made with respect to the Common Stock until all
accrued and unpaid dividends on the Series A Preferred shall have been declared
and paid in full. In the event the Corporation shall at any time declare or
pay a dividend on the Common Stock, it shall, simultaneously therewith and as
part of such declaration or payment, declare and pay to each holder of Series A
Preferred a dividend equal to the dividend which would be payable to such
holder if the shares of Series A Preferred held by such holder had been
converted into Common Stock on the date of determination of holders of Common
Stock entitled to receive such dividend.
(c) Definition of Distribution. For purposes of
this Restated Certificate of Incorporation, unless the context otherwise
requires, a "DISTRIBUTION" shall mean the transfer of cash or other property
without consideration, whether by way of dividend or otherwise, payable
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other than in Common Stock, or the purchase or redemption of shares of
Corporation (other than repurchases of Common Stock issued to or held by
employees, directors or consultants of the Corporation or its subsidiaries upon
termination of their employment or services pursuant to agreements providing
for the right of said repurchase) for cash or property.
2. Liquidation Preference.
(a) Series A Preferred. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary (or the deemed occurrence of such event pursuant to subsection
(c)(i) of this Section 2) (collectively, a "LIQUIDATION"), the holders of
shares of the Series A Preferred shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, an amount equal to $1.00 per share of Series A Preferred then held by
them (as adjusted for any Recapitalization), plus the greater of (i) $0.09 per
share of Series A Preferred then held by them (as adjusted for any
Recapitalization with respect to such shares and for partial years) per annum
calculated from the original issue date of the shares of Series A Preferred
through the date of distribution, minus all dividends and other distributions
previously made in respect of any shares of Series A Preferred held by them or
(ii) any declared but unpaid dividends for Series A Preferred then held by
them.
All of the preferential amount to be paid to the holders of the Series
A Preferred under this Section 2(a) shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of Common Stock
in connection with any actual or deemed Liquidation. After the payment or the
setting apart for payment to the holders of the Series A Preferred of the
preferential amounts so payable to them, the remaining assets of the
Corporation available for distribution shall be distributed in accordance with
the provisions of Section 2(b), as applicable.
If the assets or surplus funds to be distributed are insufficient to
permit the payment to holders of the Series A Preferred of their full
preferential amount, then the entire assets of the Corporation legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred in such a manner that the preferential amount to be
distributed to each such holder shall equal the amount obtained by multiplying
the entire assets and funds of the Corporation legally available for
distribution hereunder by a fraction, the numerator of which shall be the
number of shares of Series A Preferred then held by such holder, and the
denominator of which shall be the total number of shares of Series A Preferred
then outstanding.
(b) Series A Preferred and Common Stock. After
payment has been made to the holders of the Series A Preferred of the full
amounts to which they shall be entitled as set forth in Section 2(a) above, the
entire remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed ratably among the holders of Series
A Preferred and the holders of Common Stock in a manner such that the amount so
distributed to each holder of Common Stock and/or Series A Preferred shall
equal the amount obtained by multiplying the
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entire assets and funds of the Corporation legally available for distribution
pursuant to this Section 2(b) by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock then held by the holder and the
number of shares of Common Stock issuable upon conversion of the shares of
Series A Preferred then held by the holder, and the denominator of which shall
be the sum of the total number of shares of Common Stock then outstanding and
the total number of shares of Common Stock issuable upon conversion of the
total number of shares of Series A Preferred then outstanding; provided,
however, that if each holder of Series A Preferred would receive a distribution
of at least an aggregate of $5.00 per share of Series A Preferred solely
pursuant to this Section 2(a) and without any distribution pursuant to Section
2(a), then Section 2(a) shall be of no force and effect and the Corporation's
assets available for distribution to its stockholders shall be distributed
among all holders of Series A Preferred and all holders of Common Stock solely
pursuant to this Section 2(b) in proportion to the number of shares of Common
Stock which would be held by each such holder if all shares of Series A
Preferred were converted into Common Stock at the then effective Conversion
Price (as defined in Section 4(a) below).
(c) Special Provisions.
(i) For purposes of this Section 2, upon the
election of the holders of at least a majority of the then outstanding shares
of Series A Preferred, a Liquidation shall be deemed to occur upon the sale or
transfer of all or substantially all of the Corporation's assets or the
acquisition of the Corporation by another entity, including any merger
consolidation with or into any other corporation and any other transaction or
series of related transactions resulting in the exchange of the outstanding
shares of the Corporation for securities or consideration issued or caused to
be issued by the acquiring entity as a result of which stockholders of the
Corporation immediately prior to the transaction or series of transactions own
less than fifty percent (50%) of the equity securities of the surviving
corporation immediately following the merger, consolidation, sale or transfer
of assets or other transaction or series of transactions.
(ii) If any assets distributed pursuant to
this Section 2 are other than cash, then the value of such noncash assets shall
be determined by the Board of Directors of the Corporation, acting in good
faith.
(iii) Each holder of an outstanding
share of Series A Preferred shall be deemed to have consented, for purposes of
Sections 502, 503 and 506 of the General Corporation Law of California, to
distributions made by the Corporation in connection with the repurchase of
shares of Common Stock issued to or held by employees or consultants upon
termination of their employment or services pursuant to agreements between the
Corporation and such persons providing for the corporation's right of said
repurchase.
3. Redemptions.
Redemption of Series A Preferred. The Series
A Preferred shall not be redeemable by the Corporation prior to January 10,
2000. On January 10, 2000, January 10,
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2001 and January 10, 2002, (each a "REDEMPTION DATE" and, collectively the
"REDEMPTION DATES"), the Corporation shall redeem, upon the election of a
majority of the holders of Series A Preferred, in cash out of any funds legally
available therefor, one-third (on a pro rata basis as to each stockholder),
one-half (on a pro rata basis as to each stockholder) and all of the
outstanding shares of Series A Preferred, respectively. Redemptions pursuant
to this Section 3 for the Series A Preferred shall be made at a price of $1.00
per share (appropriately adjusted for any Recapitalization) plus all accrued
but unpaid dividends on such shares as of each such Redemption Date (in each
case, the "REDEMPTION PRICE"). The Corporation need not establish any sinking
fund for the redemption of the Series A Preferred.
At least thirty days prior to each Redemption
Date, written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Series A Preferred at the address last
known on the records of the Corporation for such holder, notifying such holder
of the redemption to be effected, specifying the number of shares to be
redeemed from such holder, the Redemption Date, the Redemption Price, the place
at which payment may be obtained and calling upon such holder to surrender to
the Corporation, in the manner and at the place designated, his certificate or
certificates representing the shares to be redeemed (the "REDEMPTION NOTICE").
On or after each Redemption Date, each holder of Series A Preferred shall
surrender to the Corporation the certificate or certificates representing such
shares, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price for such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. Nothing herein
shall be deemed to prevent a holder of Series A Preferred from converting all
or part of such holder's Series A Preferred into Common Stock in accordance
with the terms of Section 4(a) hereof at any time prior to the date five (5)
days before each Redemption Date, in which case the provisions of this Section
3 shall not apply to any shares so converted; provided, however that shares so
converted shall be deemed to have been redeemed in the year of conversion,
solely for purposes of determining the Corporation's compliance with the
preceding paragraph.
From and after each Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of shares of Series A Preferred so redeemed shall cease with
respect to such shares (except the right to receive the Redemption Price
without interest upon surrender of the shareholder's certificate or
certificates), and such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any purpose whatsoever.
If the funds of the Corporation legally available for redemption of shares of
Series A Preferred on any Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred required to be redeemed on such
Redemption Date, those funds which are legally available for redemption shall
be used to redeem, on a pro rata basis, the maximum possible number of the
shares of Series A Preferred required to be redeemed on such Redemption Date.
The shares of Series A Preferred not redeemed on a Redemption Date shall remain
outstanding and remain entitled to all the rights and preferences provided
herein, including the rights of conversion set forth in Section 4 hereof. At
any time thereafter when additional funds
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of the Corporation are legally available for the redemption of shares of Series
A Preferred, such funds will immediately be used to redeem, on a pro rata
basis, the balance of the shares which the Corporation was obliged to redeem on
such Redemption Date, but which were not redeemed.
4. Conversion. The holders of Series A Preferred shall
have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) Optional Conversion. Each share of Series A
Preferred shall be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share at the office of the Corporation
or any transfer agent for the Series A Preferred, into that number of
fully-paid and non-assessable shares of Common Stock that is equal to $1.00
divided by the Conversion Price determined as hereinafter provided, in effect
at the time of conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of the Series A Preferred, without the payment of
any additional consideration by the holders thereof, (the "CONVERSION PRICE")
shall initially be $1.00 per share of Common Stock, and shall be subject to
adjustment as provided herein.
(b) Automatic Conversion. Each share of Series A
Preferred shall automatically be converted into shares of Common Stock at the
then effective Conversion Price as follows:
(i) Initial Public Offering. Upon the
closing ("CLOSING") of a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), covering the offer and sale of Common Stock of
the Corporation to the public at an offering price to the public of at least
Five Dollars ($5.00) per share (as adjusted for any Recapitalization) and in
which the aggregate gross proceeds received by the Corporation (net of
underwriting discounts) equal or exceed ten million dollars ($10,000,000) (an
"IPO"). In the event of the Closing of an IPO, the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Series A
Preferred shall not be deemed to have converted that Preferred Stock until
immediately prior to the Closing.
(ii) Two-Thirds Percent Vote. Upon the
affirmative election of the holders of not less than two-thirds of the then
outstanding shares of Series A Preferred. In the event of such an election,
the person(s) entitled to receive shares of Common Stock issuable upon such
conversion of the Series A Preferred shall not be deemed to have converted that
Series A Preferred until the election (duly approved by not less than
two-thirds of the Series A Preferred then outstanding) is received by the
Corporation.
(c) Mechanics of Conversion.
(i) No fractional shares of Common Stock
shall be issued upon conversion of Series A Preferred. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation at its election shall either pay cash equal to such fraction
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multiplied by the then fair market value of a share of Common Stock, as
determined by the Board, or issue one whole share of Common Stock for each
fraction of a share outstanding, after aggregating all fractional shares held
by each stockholder.
(ii) Before any holder of Series A
Preferred shall be entitled to convert the same into full shares of Common
Stock pursuant to Section 4(a) above, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred, and shall give
written notice to the Corporation at such office that such holder elects to
convert the same. In the event of an automatic conversion pursuant to
paragraph 4(b) above, the outstanding shares of Series A Preferred shall be
converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless either
the certificates evidencing such shares of Series A Preferred are delivered to
the Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and delivers to the Corporation a fully executed agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery
issue and deliver at such office to such holder of Series A Preferred, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid and a check payable to the holder in
the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock, if applicable. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(iii) In the event of the automatic conversion of
shares of Series A Preferred in accordance with Section 4(b) or any voluntary
conversion pursuant to Section 4(a) that occurs within ninety (90) days
immediately prior to the effective date of any automatic conversion, any and
all rights held by the holders of such converted shares of Series A Preferred
to receive any accrued but unpaid dividends in respect of such shares shall
terminate and be of no effect as of the date of such conversion.
(d) Adjustments to Conversion Price for Certain
Issues.
(i) Adjustments for Subdivisions, Stock
Dividends, or Combinations of Common. In the event the outstanding shares of
Common Stock shall be subdivided (by stock split, stock dividend or otherwise)
into a greater number of shares of Common Stock and the outstanding shares of
Series A Preferred are not identically subdivided, the Conversion Price in
effect immediately prior to such subdivision shall, concurrently with the
effectiveness of such
-7-
<PAGE> 8
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined (by reclassification, reverse stock split or
otherwise) into a lesser number of shares of Common Stock and the outstanding
shares of Series A Preferred are not identically combined, the Conversion Price
in effect immediately prior to such combination shall, concurrently with the
effectiveness of such combination, be proportionately increased.
(ii) Adjustments for Other Distributions.
In the event the Corporation at any time or from time to time makes or fixes a
record date for the determination of holders of Common Stock entitled to
receive any distribution payable in securities of the Corporation other than
shares of Common Stock and other than as otherwise adjusted in this Section 4,
then and in each such event provision shall be made so that the holders of
Series A Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of the Corporation which they would have received had their Series A Preferred
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 4 with respect to the rights of the holders of the
Series A Preferred.
(iii) Adjustments for Reclassification,
Exchange and Substitution. If the Common Stock issuable upon conversion of the
Series A Preferred shall be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for above), the Conversion Price then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Series A Preferred
shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock that would have been subject to
receipt by the holders of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred immediately before that change.
(iv) Reorganization, Mergers,
Consolidations or Sales of Assets. If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification, or exchange of shares provided for
elsewhere in this Section 4) or a merger or consolidation of this Corporation
with or into another corporation, or the sale of all or substantially all of
this Corporation's properties and assets to any other person (other than a
merger, consolidation or sale deemed to be a Liquidation as provided for in
Section 2(c)(i)), then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that the holders of the
Series A Preferred shall thereafter be entitled to receive upon conversion of
the Series A Preferred, the number of shares of stock or other securities or
property of this Corporation, or of the successor corporation resulting from
such merger or consolidation or sale, to which a holder of Common Stock
deliverable upon conversion of the Series A Preferred would have been entitled
to upon such capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the application
-8-
<PAGE> 9
of the provisions of this Section 4 with respect to the rights of the holders
of the Series A Preferred after such reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 4 (including adjustment of
the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred) shall be applicable after that event as
nearly equivalent as may be practicable.
(e) No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the
provisions of this Section (4) and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred against impairment.
(f) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series A Preferred a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Series A Preferred.
(g) Notices of Record Date. In the event that
the Corporation shall propose at any time:
(i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not out of
earnings or earned surplus;
(ii) to offer for subscription pro rata
to the holders of any class or series of its stock any additional shares of
stock of any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
-9-
<PAGE> 10
(iv) to merge with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up; then, in connection with each
such event, the Corporation shall send to the holders of the Series A Preferred
at least twenty (20) business days' prior written notice of the date on which a
record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the matters referred
to in (iii) and (iv) of this clause (g).
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Series A Preferred at the address for each
such holder as shown on the books of the Corporation.
(h) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all then outstanding shares of the Series A Preferred;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
5. Voting Rights of Series A Preferred. The holder of
each share of Series A Preferred shall have the right to one vote for each full
share of Common Stock into which each such share of Series A Preferred could
then be converted pursuant to Section 4(a). With respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the Bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote.
6. Special Voting Rights of Series A Preferred.
(a) The Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least two-thirds of the then outstanding shares of Series A
Preferred (voting in accordance with Section 5):
(i) create any new class or series of
stock having a preference over, or being on parity with, the Series A Preferred
with respect to dividends, redemption or upon liquidation or otherwise; or
(ii) sell, lease, convey or otherwise
dispose of all or substantially all of its property or business; or
-10-
<PAGE> 11
(iii) amend or repeal any provision of, or
add any provision to, the Certificate of Incorporation if such action would
adversely alter or change the rights, preferences, privileges or powers of the
Series A Preferred; or
(iv) increase the authorized number of
shares of its Preferred Stock or Common Stock; or
(v) undertake any transaction or series
of transactions involving a reorganization, consolidation or merger as a result
of which the holders of the voting stock of the Corporation prior thereto hold
less than 50% of the voting stock of the surviving or successor corporation or
entity; or
(vi) pay or declare any dividend other
than in Common Stock to the holders of Common Stock; or
(vii) repurchase or otherwise acquire,
directly or indirectly, through subsidiaries or otherwise, its securities,
other than repurchases from employees of, or consultants to, the Company upon
termination of employment or consultancy.
7. Status of Converted or Redeemed Stock. In the event
any shares of Series A Preferred shall be redeemed or converted pursuant to
Sections 3 or 4 hereof, respectively, the shares so redeemed or converted shall
be canceled and shall not be reissuable by the Corporation, and the Certificate
of Incorporation shall be appropriately amended to effect the corresponding
reduction in this Corporation's authorized capital stock.
(C) Rights of Common Stock. The rights and other matters relating
to the Common Stock are, unless otherwise expressly provided in this
Certificate of Incorporation, as set forth in this Article IV(C).
1. Voting Rights. Except as otherwise expressly
provided in this Certificate of Incorporation or as required by applicable law
which cannot be superseded by the provisions of this Certificate of
Incorporation, the holders of the outstanding shares of Common Stock shall
possess voting power for the election of directors and for all other purposes,
each holder of record of shares of Common Stock being entitled to one vote for
each share of Common Stock standing in such holder's name on the books of the
Corporation.
2. Residual Rights. All rights accruing to the
outstanding shares of the Corporation not expressly provided for to the
contrary herein shall be vested in the Common Stock.
ARTICLE V
The Board is expressly authorized to adopt, amend or repeal
the Bylaws of the Corporation. In addition to the powers and authority
hereinbefore or by statute expressly conferred
-11-
<PAGE> 12
upon them, the directors are hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the Corporation
(including the power to increase or decrease the size of the Board) subject,
nevertheless, to the provisions of the General Corporation Law of the State of
Delaware, this Certificate of Incorporation, and any Bylaws adopted by the
stockholders; provided, that no Bylaw hereafter adopted by the stockholders
shall invalidate any prior act of the directors which would have been valid if
such Bylaws had not been adopted.
ARTICLE VI
Elections of directors need not be done by written ballot unless the
Bylaws of the Corporation shall otherwise provide. The books of the
Corporation may be kept (subject to any provision contained in the General
Corporation Law of the State of Delaware) outside the State of Delaware at such
place or places as may be designated from time to time by the Board or in the
Bylaws of the Corporation.
ARTICLE VII
Until the closing of an IPO, at the election of directors of the
Corporation, each holder of stock of any class of series shall be entitled to
as many votes as shall equal the number of votes which (except for this
provision as to cumulative voting) he or she would be entitled to cast for the
election of directors with respect to his or her shares of stock multiplied by
the number of directors to be elected by him or her, and he or she may cast all
of such votes for a single director or may distribute them among the number to
be voted for, or for any two or more of them as he or she may see fit, so long
as the name of the nominee for director shall have been placed in nomination
prior to the voting and the stockholder, or any other holder of the same class
or series of stock, has given notice at the meeting prior to the voting of the
intention to cumulate votes. This Article VII shall terminate and be of no
legal effect upon the Closing of an IPO.
ARTICLE VIII
To the fullest extent permitted by the Delaware General Corporation
Law, as the same now exists or may hereafter be amended in a manner more
favorable to directors, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach
of any duty as a director.
ARTICLE IX
The Corporation shall indemnify to the fullest extent permitted by the
Delaware General Corporation Law, as the same now exists or may hereafter be
amended in a manner more favorable to directors, any person made or threatened
to be made a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he or she is or was
a director and/or officer of the Corporation.
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<PAGE> 13
ARTICLE X
The 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 by this Certificate of Incorporation,
and all rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
No holder of any shares of any class or series of capital stock of the
Corporation shall be entitled to any preemptive right to subscribe for or
otherwise acquire any additional shares of any class or series of capital stock
of the Corporation or any securities convertible into, or exercisable or
exchangeable for, any shares of any class or series of capital stock of the
Corporation, unless otherwise provided pursuant to any agreement with the
Corporation.
-13-
<PAGE> 14
IN WITNESS WHEREOF, this Restated Certificate of
Incorporation, which restates and integrates and further amends the provisions
of the Certificate of Incorporation of the Corporation, having been duly
adopted in accordance with Sections 241 and 245 of the Delaware General
Corporation Law, has been duly executed by its Chairman, and attested by its
Secretary, this 3rd day of February, 1995.
By: /s/ Sirjang Lal Tandon
---------------------------------
Sirjang Lal Tandon, Chairman
ATTEST:
By: /s/ David Pearce
------------------------------
David Pearce, Secretary
<PAGE> 15
<PAGE> 16
CERTIFICATE OF AMENDMENT OF RESTATED
CERTIFICATE OF INCORPORATION
OF JT STORAGE, INC.
A DELAWARE CORPORATION
JT Storage, Inc. (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: That at a regular meeting of the Board of Directors of this
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 amendments to be advisable, and calling for the
approval by written consent of the stockholders of this corporation upon
consideration thereof. The resolutions setting forth the proposed amendments
are as follows:
RESOLVED: That the Restated Certificate of Incorporation of this
corporation be amended by deleting Section (A) of Article IV in its
entirety and substituting in its place a new Section (A) of Article IV
so that, as amended hereby, Section (A) of Article IV shall be and
read as follows:
(A) Classes of Stock. The total number of shares of stock which the
Corporation shall have authority to issue is 91,200,000 shares, consisting of
60,000,000 shares of Common Stock having a par value of $0.000001 per share
("Common Stock") and 31,200,000 shares of Preferred Stock, all of which shall
be designated Series A Preferred Stock, par value $0.000001 per share ("Series
A Preferred").
SECOND: That thereafter, pursuant to a resolution of its Board of
Directors, the written consent of the stockholders of this corporation was duly
called for in accordance with Section 228(a) of the General Corporation Law of
the State of Delaware, and holders of the necessary number of shares as
required by statute consented to the adoption 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.
<PAGE> 17
IN WITNESS WHEREOF, JT Storage, Inc. has duly caused this
Certificate of Amendment of Restated Certificate of Incorporation to be signed
by David T. Mitchell, as President, and attested to by David Pearce, Secretary,
this 1 day of August, 1995.
JT STORAGE, INC.
A DELAWARE CORPORATION
/s/ D.T. Mitchell
-----------------------
David T. Mitchell
President
ATTEST:
/s/ David Pearce
- --------------------------------
David Pearce
Secretary
1.
<PAGE> 18
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/05/1996
960033260 - 2375722
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
JT Storage, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is JT Storage, Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is February 3,
1994.
THIRD: The Board of Directors of the Corporation consented to the
adoption of the following resolution in accordance with Section 242 of the
General Corporation Law of the State of Delaware, amending Section (A) of the
Article numbered "IV" of the Amended and Restated Certificate of Incorporation
of the Corporation to read in its entirety as follows:
(A) The total number of shares that this Corporation shall
have authority to issue is 160,000,000 shares,
consisting of 90,000,000 shares of Common Stock having a
par value of $0.000001 per share ("Common Stock") and
70,000,000 shares of Preferred Stock, all of which have
been designated Series A Preferred Stock, par value
$0.000001 per share ("Shares A Preferred").
FOURTH: Pursuant to a resolution of the Board of Directors of the
Corporation, the written consent of the stockholders of the Corporation was
duly called for in accordance with Section 228(a) of the General Corporation Law
of the State of Delaware, in lieu of a meeting and vote of the stockholders of
the Corporation, and holders of the necessary number of shares as required by
statute consented to the adoption of the above Amendment.
FIFTH: The above Amendment has been duly adopted in accordance with
the provisions of Section 228 and 242 of the General Corporation Law of the
State of Delaware.
SIXTH: All other provisions of the Amended and Restated Certificate of
Incorporation shall remain in full force and effect.
<PAGE> 19
IN WITNESS WHEREOF, JT Storage, Inc. has caused this Certificate of
Amendment to be signed by its President and attested to by its Secretary this
2nd day of February, 1996.
JT STORAGE, INC.
a Delaware corporation
/s/ D.T. MITCHELL
----------------------
David T. Mitchell
President
ATTEST:
/s/ W. VIRGINIA WALKER
- -----------------------
W. Virginia Walker
Secretary
<PAGE> 20
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
JT STORAGE, INC.
JT Storage, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is JT Storage, Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is February 3,
1994.
THIRD: The Board of Directors of the Corporation consented to the
adoption of the following resolution in accordance with Section 242 of the
General Corporation Law of the State of Delaware, amending the Article numbered
"I" of the Amended and Restated Certificate of Incorporation of the Corporation
to read in its entirety as follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to
as the "Corporation") is:
"JTS Corporation"
FOURTH: Pursuant to a resolution of the Board of Directors of the
Corporation, the written consent of the stockholders of the Corporation was
duly called for in accordance with Section 228(a) of the General Corporation
Law of the State of Delaware, in lieu of a meeting and vote of the stockholders
of the Corporation, and holders of the necessary number of shares as required
by statute consented to the adoption of the above Amendment.
FIFTH: The above Amendment has been duly adopted in accordance with
the provisions of Section 228 and 242 of the General Corporation Law of the
State of Delaware.
SIXTH: All other provisions of the Amended and Restated Certificate
of Incorporation of the Corporation shall remain in full force and effect.
<PAGE> 21
IN WITNESS WHEREOF, JT Storage, Inc. has caused this Certificate of
Amendment to be signed by its President and attested to by its Secretary this
17th day of June, 1996.
JT STORAGE, INC.
A DELAWARE CORPORATION
/s/ David T. Mitchell
--------------------------------------
David T. Mitchell
President
ATTEST:
/s/ W. Virginia Walker
- -------------------------------
W. Virginia Walker
Secretary
2.
<PAGE> 1
Exhibit 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
JTS CORPORATION
ARTICLE I
The name of this corporation is JTS Corporation.
ARTICLE II
The address of the registered office of the corporation in the State
of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
and the name of the registered agent of the corporation in the State of
Delaware at such address is The Corporation Trust Company.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
a. 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 the corporation is authorized to issue is One
Hundred Sixty Million (160,000,000) shares. One Hundred Fifty Million
(150,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($.001). Ten Million (10,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent ($.001)
b. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate (a "Preferred Stock Designation") pursuant to the Delaware General
Corporation Law, to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
1.
<PAGE> 2
ARTICLE V
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A.
I. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed exclusively by one or more resolutions adopted by the Board of
Directors.
II. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term of
one year. Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
III. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
IV. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full
term of the director for which the vacancy was created or occurred and until
such director's successor shall have been elected and qualified.
B.
I. Subject to paragraph (h) of Section 43 of the Bylaws,
the Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then-outstanding shares of the
2.
<PAGE> 3
Voting Stock. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
II. The directors of the corporation need not be elected
by written ballot unless the Bylaws so provide.
III. No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and no action shall be taken by the stockholders by
written consent.
IV. Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of
Directors pursuant to a resolution adopted by two (2) directors, and shall be
held at such place, on such date, and at such time as the Board of Directors
shall fix.
V. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.
ARTICLE VI
A. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director shall be eliminated or limited to the fullest
extent permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
ARTICLE VII
A. The 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, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
3.
<PAGE> 4
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI and VII.
4.
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
JT STORAGE, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETING. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Board of Directors, or
by a committee of the Board of Directors that has been duly designated by the
Board of Directors and whose powers and authority, as expressly provided in a
resolution of the Board of Directors, include the power to call such meetings,
but such special meetings may not be called by any other person or persons.
Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given that shall state the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
these by-laws, the written notice of any meeting shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such 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
which might have been transacted at the original meeting. If the adjournment
is for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, notice of
<PAGE> 2
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 1.5. QUORUM. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, at each meeting of stockholders
the presence in person or by proxy of the holders of a majority in voting power
of the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum. In the absence of a quorum,
the stockholders so present may, by majority vote, adjourn the meeting from time
to time in the manner provided in Section 1.4 of these by-laws until a quorum
shall attend. Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
corporation or any subsidiary of the corporation to vote stock, including but
not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his 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 absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of the
meeting shall announce at the meeting of stockholders the date and time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote.
Section 1.7. VOTING; PROXIES. Except as otherwise provided by the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the corporation. Voting
at meetings of stockholders need not be by written ballot. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law, the certificate of incorporation or
<PAGE> 3
these by-laws, be decided by the affirmative vote of the holders of a majority
in voting power of the shares of stock which are present in person or by proxy
and entitled to vote thereon.
Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders 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 a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date
upon which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than
sixty days prior to such other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is give, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
of the Board of Directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution
taking such prior action; and (3) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. 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.
Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
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
<PAGE> 4
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. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. Except as otherwise provided by law, the
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine the stock ledger, the list of stockholders or the books of the
corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 1.10. ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise
restricted by the certificate of incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents 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 and
shall be delivered (by hand or by certified or registered mail, return receipt
requested) to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of minutes of
stockholders are recorded. 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.
Section 1.11. INSPECTORS OF ELECTION. The corporation may, and shall
if required by law, in advance of any meeting of stockholders, appoint one or
more inspectors of election, who may be employees of the corporation, to act at
the meeting or any adjournment thereof and to make a written report thereof.
The corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. In the event that no inspector so
appointed or designated is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath to execute faithfully the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector or inspectors so appointed or designated shall (i)
ascertain the number of shares of capital stock of the corporation outstanding
and the voting power of each such share, (ii) determine the shares of capital
stock of the corporation represented at the meeting and the validity of proxies
and ballots, (iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares of capital stock of the corporation represented at the meeting
and such inspectors' count of all votes and ballots. Such certification and
report shall specify such other information as may be required by law. In
determining the validity and counting
<PAGE> 5
of proxies and ballots cast at any meeting of stockholders of the corporation,
the inspectors may consider such information as is permitted by applicable
law. No person who is a candidate for an office at an election may serve as an
inspector at such election.
Section 1.12. CONDUCT OF MEETINGS. The Board of Directors of the
corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not required to be held in
accordance with the rules of parliamentary procedure.
<PAGE> 6
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. NUMBER; QUALIFICATIONS. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time
to time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 2.2. ELECTION; RESIGNATION; REMOVAL; VACANCIES. The Board of
Directors shall initially consist of the persons named as directors in the
certificate of incorporation, and each director so elected shall hold office
until the first annual meeting of stockholders or until his successor is elected
and qualified. At the first annual meeting of stockholders and at each annual
meeting thereafter, the stockholders shall elect directors each of whom shall
hold office for a term of one year or until his successor is elected and
qualified. Any director may resign at any time upon written notice to the
corporation. Any newly created directorship or any vacancy occurring in the
Board of Directors for any cause may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum,
or by plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified.
Section 2.3. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
Section 2.4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, if any, the
Secretary, or by any member of the Board of Directors. Notice of a special
meeting of the Board of Directors shall be given by the person or persons
calling the meeting at least twenty-four hours before the special meeting.
Section 2.5. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 2.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business. Except in cases in which the
certificate of
<PAGE> 7
incorporation, these by-laws or applicable law otherwise provides, the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.7. ORGANIZATION. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his 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 absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8. INFORMAL ACTION BY DIRECTORS. Unless otherwise
restricted by the certificate of incorporation of these by-laws, 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 of Directors or such 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 of Directors or such committee.
<PAGE> 8
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more directors of the
corporation. The Board of Directors 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 or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and 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.
Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designed by the Board of Directors may make, alter and
repeal rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws.
<PAGE> 9
ARTICLE IV
OFFICERS
Section 4.1. EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF
OFFICE; RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board and a Vice Chairman of the Board from among its members. The Board
of Directors may also choose one or more Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers. Each such
officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding his election, and
until his successor is elected and qualified or until his earlier resignation
or removal. Any officer may resign at any time upon written notice to the
corporation. The Board of Directors may remove any officer with or without
cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the corporation. Any number
of offices may be held by the same person. Any vacancy occurring in any office
of the corporation by death, resignation, removal or otherwise may be filled
for the unexpired portion of the term by the Board of Directors at any regular
or special meeting.
Section 4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of
the corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performances of his duties.
<PAGE> 10
ARTICLE V
STOCK
Section 5.1. CERTIFICATES. Every holder of stock 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, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, if any, or the
Secretary or an Assistant Secretary, of the corporation certifying the number of
shares owned by him in the corporation. Any of or all the signatures on the
certificate may be a 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 he were such officer, transfer agent, or registrar at the date
of issue.
Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
<PAGE> 11
ARTICLE VI
INDEMNIFICATION
Section 6.1. RIGHT TO INDEMNIFICATION. The corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans (an "indemnitee"), against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
indemnitee. The corporation shall be required to indemnify an indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if the initiation of such proceeding (or part thereof) by the indemnitee was
authorized by the Board of Directors of the corporation.
Section 6.2. PREPAYMENT OF EXPENSES. The corporation shall pay the
expenses (including attorneys' fees) incurred by an indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
Section 6.3. CLAIMS. If a claim for indemnification or payment of
expenses under this Article is not paid in full within sixty days after a
written claim therefor by the indemnitee has been received by the corporation,
the indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the burden
of proving that the indemnitee was not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 6.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article VI shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 6.5. OTHER INDEMNIFICATION. The corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or
<PAGE> 12
nonprofit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise.
Section 6.6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
<PAGE> 13
ARTICLE VII
MISCELLANEOUS
Section 7.1. FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
Section 7.2. SEAL. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such a form as may be approved
from time to time by the Board of Directors.
Section 7.3. WAIVER OF NOTICE OF MEETING OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, 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 stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.4. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence or a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 7.5. FORM OF RECORDS. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account,
<PAGE> 14
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time.
Section 7.6. AMENDMENT OF BY-LAWS. These by-laws may be altered or
repealed, and new by-laws made, by the Board of Directors, but the stockholders
may make additional by-laws and may alter and repeal any by-laws whether
adopted by them or otherwise.
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
JTS CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . . . . . . . . . . . . . . . . . . 5
Section 10. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Joint Owners of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 12. List of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Number and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 17. Election of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 18. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 19. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 20. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 22. Quorum and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 24. Fees and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 27. Officers Designated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 28. Tenure and Duties of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Duties of Chairman of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Duties of President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Duties of Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Duties of Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(f) Duties of Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 29. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 31. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 32. Execution of Corporate Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 33. Voting of Securities Owned by the Corporation . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 34. Form and Execution of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 35. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 36. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 37. Fixing Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 38. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 39. Execution of Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 40. Declaration of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 42. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents 18
(a) Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Other Officers, Employees and Other Agents . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(e) Non-Exclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(f) Survival of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(h) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(i) Saving Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(j) Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 44. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Notice to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Notice to directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Affidavit of Mailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Time Notices Deemed Given . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Methods of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(f) Failure to Receive Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(g) Notice to Person with Whom Communication Is Unlawful . . . . . . . . . . . . . . . . . . . 22
(h) Notice to Person with Undeliverable Address . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XIII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 46. Loans to Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 47. Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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iv.
<PAGE> 6
BYLAWS
OF
JTS CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be fixed
by the Board of Directors, and 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
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of
a die bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of
the corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of Directors,
or, if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
1.
<PAGE> 7
SECTION 5. ANNUAL MEETING.
(A) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(B) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, 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 business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not later than the close of business on the sixtieth (60th) day nor earlier
than the close of business on the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to
such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on
the corporation's books, of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder, (iv) any material interest of the stockholder in such business
and (v) any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph (b),
and, if he
2.
<PAGE> 8
should so determine, he shall so declare at the meeting that any such business
not properly brought before the meeting shall not be transacted.
(C) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 5. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) 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 nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided
pursuant to paragraph (b) of this Section 5. At the request of the Board of
Directors, any person nominated by a stockholder for election as a director
shall furnish to the Secretary of the corporation that information required to
be set forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
(D) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(A) Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of
Directors pursuant to a resolution adopted by two (2)
3.
<PAGE> 9
directors, and shall be held at such place, on such date, and at such time as
the Board of Directors, shall fix.
(B) If a special meeting is called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may
be transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person
or persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders 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, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder 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. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except
where otherwise provided by statute or by the Certificate of Incorporation, or
by these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote
cast, excluding abstentions, at any meeting at which a quorum is present shall
be valid and binding upon the corporation; provided, however, that directors
shall be elected by
4.
<PAGE> 10
a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where
a separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case
of the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from time
to time either by the chairman of the meeting or by the vote of a majority of
the shares casting votes, excluding abstentions. When a meeting is adjourned
to another time or place, 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 which 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.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section 12
of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote shall have the right to do so either in person or
by an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (c) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the Secretary shows
that any such tenancy is held in unequal interests, a majority or even-split
for the purpose of subsection (c) shall be a majority or even-split in
interest.
5.
<PAGE> 11
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, 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 (10) 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
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by
the stockholders except at an annual or special meeting of stockholders called
in accordance with these Bylaws, and no action shall be taken by the
stockholders by written consent.
SECTION 14. ORGANIZATION.
(A) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by
a majority in interest of the stockholders entitled to vote, present in person
or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(B) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of
the meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
6.
<PAGE> 12
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.
SECTION 17. ELECTION OF DIRECTORS. Subject to the rights of the
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, directors shall be elected at each annual meeting of
stockholders for a term of one year. Each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES. Unless otherwise provided in the
Certificate of Incorporation, any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other causes and any
newly created directorships resulting from any increase in the number of
directors, shall unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by
stockholders, be filled only by the affirmative vote of a majority of the
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified. A vacancy in the Board of Directors shall be
deemed to exist under this Bylaw in the case of the death, removal or
resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until his successor shall have been duly elected and qualified.
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SECTION 20. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock, the Board of Directors or any individual director
may be removed from office at any time (i) with cause by the affirmative vote
of the holders of a majority of the voting power of all the then-outstanding
shares of voting stock of the corporation, entitled to vote at an election of
directors (the "Voting Stock") or (ii) without cause by the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all the then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(A) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(B) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the
office of the corporation required to be maintained pursuant to Section 2
hereof. Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of the Board of Directors may also be held at any place within
or without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
(C) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(D) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting by such means shall constitute presence in person at such meeting.
(E) NOTICE OF MEETINGS. Notice of the time and place of
all special meetings of the Board of Directors shall be orally or in writing,
by telephone, facsimile, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any director by attendance thereat, except when the director attends the
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.
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(F) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the directors not present shall sign a
written waiver of notice. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(A) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time in accordance with the Certificate
of Incorporation, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time by the Board
of Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for
the next regular meeting of the Board of Directors, without notice other than
by announcement at the meeting.
(B) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different
vote be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT 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
of Directors or committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled
to such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors,
a fixed sum and expenses of attendance, if any, for attendance at each regular
or special meeting of the Board of Directors and at any meeting of a committee
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(A) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to
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the extent permitted by law and 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,
including without limitation the power or authority to declare a dividend, to
authorize the issuance of stock and to adopt a certificate of ownership and
merger, 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 in reference to amending 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
fix the designations and 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 or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation.
(B) OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
(C) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Bylaw may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors 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, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they 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.
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(D) MEETINGS. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 25 shall be held at such times and
places as are determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the members
of such committee of the time and place of such special meeting given in the
manner provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors.
Notice of any special meeting of any committee may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends such special 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. A majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall be
the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer, the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents with such powers and duties as
it shall deem necessary. The Board of Directors may assign such additional
titles to one or more of the officers as it shall deem appropriate. Any one
person may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation
of the officers of the corporation shall be fixed by or in the manner
designated by the Board of Directors.
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SECTION 28. TENURE AND DUTIES OF OFFICERS.
(A) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
(B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. If there is no President, then
the Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 28.
(C) DUTIES OF PRESIDENT. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. Unless some other officer has been elected Chief Executive Officer of
the corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(D) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability of
the President or whenever the office of President is vacant. The Vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(E) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
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(F) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief
Financial Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of the
financial affairs of the corporation in such form and as often as required by
the Board of Directors or the President. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume
and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at
any time, either with or without cause, by the affirmative vote of a majority
of the directors in office at the time, or by the unanimous written consent of
the directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the corporation any corporate instrument or document, or to sign on behalf
of the corporation the corporate name without limitation, or
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to enter into contracts on behalf of the corporation, except where otherwise
provided by law or these Bylaws, and such execution or signature shall be
binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or endorsed
by the Chairman of the Board of Directors, or the President or any Vice
President, and by the Secretary or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the absence
of such authorization, by the Chairman of the Board of Directors, the Chief
Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. 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 of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares owned
by him in the corporation. Any or all of the signatures on the certificate may
be facsimiles. 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 with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. Each certificate
shall state upon the
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face or back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set
forth on the face or back a statement that the corporation will furnish without
charge to each stockholder 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. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder 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. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall 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. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a surety bond in such form and amount 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.
SECTION 36. TRANSFERS.
(A) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(B) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of stock
of the corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(A) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date
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upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting. If no record date is fixed
by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. 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.
(B) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders 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 record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
SECTION 38. 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
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 VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures
and other corporate securities of the corporation, other than stock
certificates (covered in Section 34), may be signed by the Chairman of the
Board of Directors, the President or any Vice President, or such other person
as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief
Financial Officer or Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature, or where permissible facsimile
signature, of a trustee under an indenture pursuant to which such bond,
debenture or other corporate security shall be issued, the signatures of the
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid,
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shall be signed by the Treasurer or an Assistant Treasurer of the corporation
or such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond,
debenture or other corporate security so signed or attested shall have been
delivered, such bond, debenture or other corporate security nevertheless may be
adopted by the corporation and issued and delivered as though the person who
signed the same or whose facsimile signature shall have been used thereon had
not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF 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 Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 41. DIVIDEND RESERVE. 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 Board of 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 purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
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ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS,
OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
(A) DIRECTORS AND EXECUTIVE OFFICERS. The corporation
shall indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to the fullest extent not prohibited by the
Delaware General Corporation Law; provided, however, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and executive officers; and, provided, further, that the corporation
shall not be required to indemnify any director or executive officer in
connection with any proceeding (or part thereof) initiated by such person
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the corporation,
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law or (iv) such indemnification is required to be made
under subsection (d).
(B) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
(C) EXPENSES. The corporation shall advance to any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director or executive officer, of the corporation, or is or was serving
at the request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor,
all expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such
18.
<PAGE> 24
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation.
(D) ENFORCEMENT. Without the necessity of entering into
an express contract, all rights to indemnification and advances to directors
and executive officers under this Bylaw shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. In connection with any claim
for indemnification, the corporation shall be entitled to raise as a defense to
any such action that the claimant has not met the standards of conduct that
make it permissible under the Delaware General Corporation Law for the
corporation to indemnify the claimant for the amount claimed. In connection
with any claim by an executive officer of the corporation (except in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct. In any suit brought by a
director or executive officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the director or
executive officer is not entitled to be indemnified, or to such advancement of
expenses, under this Article XI or otherwise shall be on the corporation.
(E) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
19.
<PAGE> 25
(f) SURVIVAL OF RIGHTS. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
director, officer, employee or other agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation, upon approval by the Board
of Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each director and executive
officer to the full extent not prohibited by any applicable portion of this
Bylaw that shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw,
the following definitions shall apply:
(i) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal
of, and the giving of testimony in, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(ii) The term "expenses" shall be broadly
construed and shall include, without limitation, court costs,
attorneys' fees, witness fees, fines, amounts paid in settlement or
judgment and any other costs and expenses of any nature or kind
incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw
with respect to the resulting or
20.
<PAGE> 26
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(iv) References to a "director," "executive
officer," "officer," "employee," or "agent" of the corporation shall
include, without limitation, situations where such person is serving
at the request of the corporation as, respectively, a director,
executive officer, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
(v) References to "other enterprises" shall
include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any
provisions of these Bylaws, notice is required to be given to any stockholder,
it shall be given in writing, timely and duly deposited in the United States
mail, postage prepaid, and addressed to his last known post office address as
shown by the stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given
to any director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, or director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
21.
<PAGE> 27
(d) TIME NOTICES DEEMED GIVEN. All notices given by
mail, as above provided, shall be deemed to have been given as at the time of
mailing, and all notices given by facsimile, telex or telegram shall be deemed
to have been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that
the same method of giving notice be employed in respect of all directors, but
one permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other or
others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation
of time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS.
Whenever notice is required to be given, under any provision of law or the
Certificate of Incorporation or Bylaws of the corporation, to any stockholder
to whom (i) notice of two consecutive annual meetings, and all notices of
meetings or of the taking of action by written consent without a meeting to
such person during the period between such two consecutive annual meetings, or
(ii) all, and at least two, payments (if sent by first class mail) of dividends
or interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required. Any action or meeting which shall be taken
or held without notice to such person shall have the same force and effect as
if such notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General
22.
<PAGE> 28
Corporation Law, the certificate need not state that notice was not given to
persons to whom notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43
of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by
the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever, in
the judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute.
23.
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK [JTS CORPORATION LOGO] COMMON STOCK
[LOGO] [LOGO]
SEE REVERSE FOR CERTAIN
DEFINITIONS AND A
STATEMENT AS TO THE
RIGHTS, PREFERENCES,
PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP 466251 10 5
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $.001 PAR VALUE
PER SHARE OF
JTS CORPORATION
TRANSFERRABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE
SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
[SIGNATURE] [SIGNATURE]
EXECUTIVE VICE PRESIDENT, PRESIDENT AND CHIEF EXECUTIVE
FINANCE AND ADMINISTRATION CHIEF OFFICER
FINANCIAL OFFICER AND SECRETARY
[JTS CORPORATION SEAL]
<PAGE> 2
A STATEMENT OF 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, AS ESTABLISHED, FROM TIME TO TIME, BY THE
CERTIFICATE OF INCORPORATION OF THE CORPORATION AND BY ANY CERTIFICATE OF
DETERMINATION, THE NUMBER OF SHARES CONSTITUTING EACH CLASS AND SERIES, AND THE
DESIGNATIONS THEREOF, MAY BE OBTAINED BY THE HOLDER HEREOF UPON REQUEST AND
WITHOUT CHARGE FROM THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL OFFICE OF
THE CORPORATION.
THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF THIS
CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY WERE WRITTEN OUT IN FULL
ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
TEN COM - AS TENANTS IN COMMON
TEN___NT - AS TENANTS BY THE
JT TEN - AS JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP AND NOT ________
__________________ IN COMMON
COMP PROP - AS COMMUNITY PROPERTY
UNIF__________ - ______________________ CUSTODIAN __________________________
UNDER UNIFORM GIFTS TO ___________________________________
A ______ ____________________________________.
(___________)
___________________________ CUSTODIAN (UNTIL AGE ______)
_____________________, UNDER UNIFORM TRANSFERS TO
MINORS ACT ___________________________________________
ADDITIONAL ABBREVIATIONS __________________________________ BE USED THROUGHOUT
IN THE ABOVE LIST.
FOR VALUE RECEIVED, __________________________ HEREBY SELL, ASSIGN AND
TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
________________________________________
____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_____________________________________________________________________________
_____________________________________________________________________________
___________________________________________________________ SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED _________________________
X ____________________________________
X ____________________________________
THE ________________________________
NOTICE: ____________________OR ANY CHANGE
____________________________________
SIGNATURE(S) GUARANTEED
BY ____________________________________________
THE SIGNATURES SHOULD BY GUARANTEED BY........
AMERICAN BANK NOTE COMPANY MAY 13, 1996
_604 ATLANTIC AVENUE
SUITE 18
LONG BEACH, CA 90807 043980bk
(310) ____-_____________
FAX (310) ____-_____________ NEW
<PAGE> 1
Exhibit 4.2
JTS CORPORATION
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is entered into as of the ___ day ___________, 1996, by and among
JTS Corporation, a Delaware corporation (the "Company") and the persons listed
on the attached Schedule A who become signatories to this Agreement
(collectively referred to hereinafter as the "Investors" and each individually
as an "Investor") who hereby amend and restate that certain Registration Rights
Agreement, dated as of February 3, 1995, by and among the Company and certain
Investors, as amended (the "Prior Agreement").
RECITALS
WHEREAS, the Company and Atari Corporation, a Nevada corporation
("Atari"), are parties to that certain Amended and Restated Agreement and Plan
of Reorganization (the "Merger Agreement"), dated as of April 8, 1996, pursuant
to which Atari will merger with and into the Company (the "Merger");
WHEREAS, it is a condition to the closing of the Merger that certain
affiliates of Atari will be extended the registration rights set forth herein
with respect to the shares of Company common stock, $.001 par value ("Common
Stock"), issued to such affiliates in the Merger; and
WHEREAS, Section 14(b) of the Prior Agreement provides that the Prior
Agreement may be amended with the consent of the Holders of at least two-thirds
of the Registrable Securities voting as a class;
NOW THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Merger Agreement the parties mutually agree that the Prior
Agreement is amended and restated to read in full as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"AFFILIATE" of any person or entity shall mean any other
person or entity which, directly or indirectly, controls, is controlled by or is
under common control with such person or entity.
"COMMISSION" shall mean the Securities and Exchange Commission
of the United States or any other U.S. federal agency at the time administering
the Securities Act.
<PAGE> 2
"HOLDER" shall mean each of the Investors (and their
transferees as permitted by Section 11) holding Registrable Securities or
securities convertible into or exercisable for Registrable Securities.
"INITIATING HOLDERS" shall mean Holders who in the aggregate
hold at least twenty percent (20%) of the Registrable Securities and join in a
request referred to in Section 2(a).
"OTHER HOLDERS" shall mean holders of Company securities,
other than Holders, proposing to distribute their securities pursuant to a
registration under this Agreement.
"REGISTRABLE SECURITIES" means (i) the Common Stock issued or
issuable upon conversion of the Company's Series A Preferred Stock, (ii) the
Common Stock issued or issuable upon conversion of the JTS Shares and upon
exercise of the JTS Warrant (as such terms are defined in that certain Stock
Purchase Agreement, dated April 4, 1996, by and between the Company and
Lunenburg S.A.), (iii) the Common Stock to be issued to certain affiliates of
Atari identified on Schedule A in connection with the Merger, (iv) the Common
Stock issued or issuable upon exercise of that certain Warrant to Purchase
Shares of Common Stock dated March 24, 1995 issued by the Company to Venture
Lending & Leasing, Inc. (the "Warrant Stock"), solely to the extent required to
provide the registration rights set forth in Section 3 below to Venture Lending
& Leasing, Inc. as a Holder with respect to the Warrant Stock, (v) any shares of
Common Stock issued or issuable in respect of such Common Stock upon any stock
split, stock dividend, recapitalization, or similar event, and (vi) Registrable
Shares (as such term is defined in that certain Warrant to Purchase Shares of
Series A Preferred Stock, dated as of February 13, 1996, issued by the Company
to Atari). Shares of Common Stock or other securities shall only be treated as
Registrable Securities if they have not been (A) sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, or (B) sold in a single transaction exempt from the registration
and prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale."
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, excluding
Selling Expenses (as defined below) except as otherwise stated below, incurred
by the Company in complying with Sections 2, 3 and 4 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company and reasonable
fees and disbursements of one counsel for the Holders selected by the Holders
and approved by the Company (which consent shall not be unreasonably withheld),
Blue Sky fees and expenses and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
2.
<PAGE> 3
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, or any
similar United States federal statute.
"SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by Holders. Such expenses shall be borne by Holders.
"SELLING HOLDERS" shall mean each Holder who holds Registrable
Securities included in a registration statement under the Securities Act
pursuant to this Agreement.
2. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to not less than ten
percent (10%) of the then-outstanding Registrable Securities with an anticipated
aggregate offering price, net of any underwriting discounts and commissions, in
excess of $5,000,000 (a "Registration Notice"), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts
to effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable Blue Sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder joining in such request as are specified in a written
request received by the Company from the Holder within twenty (20) days after
receipt of such written notice from the Company. Notwithstanding the foregoing,
the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 2:
(A) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(B) During the period starting with the
date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company sold by the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective;
3.
<PAGE> 4
(C) After the Company has effected
three (3) registrations pursuant to this paragraph 2, and such registrations
have been declared or ordered effective; or
(D) If the Company shall furnish to
such Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 2 shall be deferred
for a period not to exceed ninety (90) days from the date of receipt of written
request from the Initiating Holders, provided, however, that the Company shall
not utilize this right more than once in any twelve (12) month period.
Subject to the foregoing clauses (A) through (D), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, after receipt of the request
or requests of the Initiating Holders.
(b) UNDERWRITING. In the event that a registration pursuant to
this Section 2 is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as part of the notice given pursuant to
Section 2(a)(i). In such event, the right of any Holder to registration pursuant
to Section 2 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 2, and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein. The Company shall (together with
all Holders and Other Holders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Company, but
subject to the reasonable approval of the Holders holding a majority of the
Registrable Securities held by all Holders participating in the Offering.
Notwithstanding any other provision of this Section 2, if the managing
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Holders and Other Holders, and the number of shares
that may be included in the registration and underwriting shall be allocated,
FIRST, among all participating Holders in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement and, SECOND, among any Other Holders
in proportion to the number of shares proposed to be included in such
registration by such Other Holders. No Registrable Securities or other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any holder to the
nearest one hundred (100) shares. If any Holder or Other Holder disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration and shall not be transferred in a public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto, or such other shorter period of
time as the underwriters may require pursuant to Section 12.
4.
<PAGE> 5
3. COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders, other than (i) a
registration relating solely to stock option or other employee benefit plans or
(ii) a registration relating solely to a Commission Rule 145 transaction, the
Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any
related qualification under Blue Sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within twenty (20) days after receipt of such
written notice from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall, together with the
Company and Other Holders, enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 3, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities and other securities to be included in such registration. The Company
shall so advise all Holders and Other Holders, and the number of shares that may
be included in the registration and underwriting shall be allocated, FIRST, to
the Company (if the registration has been initiated by the Company) or to such
Other Holders as have initiated such registration, SECOND, among all the
participating Holders in proportion to the respective amounts of Registrable
Securities held by such Holders at the time of filing of the registration
statement, and, THIRD, among the Other Holders (other than those shares included
in the registration under "FIRST" above, if applicable) in proportion to the
number of shares proposed to be included in such registration by such Other
Holders; provided, however, that in a registered public offering, no less than
twenty-five percent (25%) of the number of shares that may be included in such
offering shall be allocated among the Holders of Registrable Securities. To
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to any Holder or Other Holder
to the nearest one hundred (100) shares. If any Holder or Other Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto, or such other shorter period of
time as the underwriters may require pursuant to Section 12.
5.
<PAGE> 6
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 3 prior to the effectiveness of such registration whether or not any
Holder has elected to include Registrable Securities in such registration;
provided, however, if the Holders elect to use one of their demand registration
rights, pursuant to Section 2 hereof, then such registration shall be governed
by Section 2 and it shall not be terminated.
4. REGISTRATION ON FORM S-3.
(a) REQUEST FOR REGISTRATION. If at any time or from time to
time any Holder or Holders request that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities with a reasonably anticipated aggregate
price to the public of at least $500,000, and the Company is a registrant
entitled to use Form S-3 to register the Registrable Securities for such an
offering, the Company shall use its best efforts to cause such Registrable
Securities to be registered for the offering on such form and to cause such
Registrable Securities to be qualified in such jurisdictions as the Holder or
Holders may reasonably request. The substantive provisions of Section 2(b) shall
be applicable to each such registration initiated under this Section 4 involving
an underwriting.
(b) LIMITATIONS. Notwithstanding the foregoing, the Company
shall not be obligated to take any action pursuant to this Section 4:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within ten (10) days of the
receipt of the request of the Initiating Holders requesting registration under
this Section 4, gives notice of its bona fide intention to effect the filing of
a registration statement with the Commission within ninety (90) days of receipt
of such request (other than with respect to a registration statement relating to
a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities);
(iii) within a six (6) month period immediately
following the effective date of any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to a stock option or other employee benefit plan);
(iv) if the Company shall furnish to such Holder
a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for registration statements to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed sixty (60)
days from the
6.
<PAGE> 7
receipt of the request to file such registration by such Holder; provided,
however, that the Company shall not utilize this right more than once in any
twelve (12) month period.
5. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date hereof, the Company will not, without the prior written consent of holders
of at least eighty percent (80%) of the then outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which allows such holder or prospective holder of any securities
of the Company to include such securities in any registration filed under
Sections 2, 3 or 4 hereof, unless, under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
diminish the amount of Registrable Securities which are included.
6. EXPENSES OF REGISTRATION.
(a) REGISTRATION EXPENSES. The Company shall bear all
Registration Expenses incurred in connection with all registrations pursuant to
Sections 2, 3 and 4. In the event any Initiating Holders withdraw a Registration
Notice, abandon a registration statement or, following an effective registration
pursuant to Section 2 hereof, does not sell Registrable Securities, then all
Registration Expenses in respect of such Registration Notice shall be borne, at
the Initiating Holders' option, either by the Initiating Holders or by the
Company (in which case, if borne by the Company, such withdrawn or abandoned
registration shall be deemed to be an effective registration for purposes of
Section 2(a)(ii)(D) hereof).
(b) SELLING EXPENSES. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders and Other
Holders shall be borne by the Holders and Other Holders pro rata on the basis of
the number of shares so registered.
7. REGISTRATION AND QUALIFICATION. If and whenever the Company
is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act pursuant to this Agreement, the
Company will as promptly as is practicable:
(a) prepare and file with the Commission, as soon as
practicable, and use its best efforts to cause to become effective, a
registration statement under the Securities Act relating to the Registrable
Securities to be offered on such form as the Initiating Holders, or if not filed
pursuant to Section 2 or Section 4 hereof, the Company, determines and for which
the Company then qualifies;
(b) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
until the earlier of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of ninety (90) days after such
registration statement becomes effective; provided that such ninety (90) day
period shall be extended in the case of a
7.
<PAGE> 8
registration pursuant to Section 2 hereof for such number of days that equals
the number of days elapsing from (i) the date the written notice contemplated by
Section 7(f) hereof is given by the Company to (ii) the date on which the
Company delivers to the Selling Holders the supplement or amendment contemplated
by Section 7(f) hereof;
(c) furnish to the Selling Holders and to any underwriter
of Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as the Selling Holders or such underwriter
may reasonably request;
(d) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of such registration statement at the
earliest possible moment;
(e) if requested by an Initiating Holder, (i) furnish to
each Selling Holder an opinion of counsel for the Company addressed to each
Selling Holder and dated the date of the closing under the underwriting
agreement (if any) (or if such offering is not underwritten, dated the effective
date of the registration statement), and (ii) use its best efforts to furnish to
each Selling Holder a "comfort" or "special procedures" letter addressed to each
Selling Holder and signed by the independent public accountants who have audited
the Company's financial statements included in such registration statement, in
each such case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Selling Holders may reasonably request and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(f) immediately notify the Selling Holders in writing (i)
at any time when a prospectus relating to a registration hereunder is required
to be delivered under the Securities Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) of any request by the Commission or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of a Selling Holder prepare and
furnish to such Selling Holders a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
8.
<PAGE> 9
(g) use its best efforts to list all such Registrable
Securities covered by such registration statement on each securities exchange
and inter-dealer quotation system on which a class of common equity securities
of the Company is then listed, and to pay all fees and expenses in connection
therewith; and
(h) upon the transfer of shares by a Selling Holder in
connection with a registration hereunder, furnish unlegended certificates
representing ownership of the Registrable Securities being sought in such
denominations as shall be requested by the Selling Holders or the underwriters.
8. INDEMNIFICATION.
(a) BY COMPANY. The Company will indemnify each Holder,
each of its officers and directors and partners, and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act or any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers, directors
and partners, each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein. If the Holders are represented by
counsel other than counsel for the Company, the Company will not be obligated
under this Section 8(a) to reimburse legal fees and expenses of more than one
separate counsel for Holders.
(b) BY HOLDERS. Each Selling Holder will indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other Selling Holder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such
9.
<PAGE> 10
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Selling Holders, such directors, officers,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Selling Holder
and stated to be specifically for use therein. Notwithstanding the foregoing,
the liability of each Selling Holder under this subsection (b) shall be limited
in an amount equal to the net proceeds of the shares sold by such Selling
Holder, unless such liability arises out of or is based on willful misconduct by
such Selling Holder.
(c) PROCEDURE FOR INDEMNIFICATION. Each party indemnified
under paragraph (a) or (b) of this Section 8 (the "Indemnified Party") shall,
promptly after receipt of notice of any claim or the commencement of any action
against such Indemnified Party in respect of which indemnity may be sought,
notify the party required to provide indemnification (the "Indemnifying Party")
in writing of the claim or the commencement thereof; provided that the failure
of the Indemnified Party to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability which it may have to an Indemnified Party
on account of the indemnity agreement contained in paragraph (a) or (b) of this
Section 8, unless the Indemnifying Party was materially prejudiced by such
failure, and in no event shall relieve the Indemnifying Party from any other
liability which it may have to such Indemnified Party. If any such claim or
action shall be brought against an Indemnified Party, it shall notify the
Indemnifying Party thereof and the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable
(except to the extent the proviso to this sentence is applicable, in which event
it will be so liable) to the Indemnified Party under this Section 8 for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that each Indemnified Party shall have the right to
employ separate counsel to represent it and assume its defense (in which case,
the Indemnifying Party shall not represent it) if (i) upon the advice of
counsel, the representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them, or
(ii) in the event the Indemnifying Party has not assumed the defense thereof
within ten (10) days of receipt of notice of such claim or commencement of
action, and in which case the fees and expenses of one such separate counsel
shall be paid by the Indemnifying Party. If any Indemnified Party employs such
separate counsel it will not enter into any settlement agreement which is not
approved by the Indemnifying Party, such approval not to be unreasonably
withheld. If the Indemnifying Party so assumes the defense thereof, it may not
agree to any settlement of any such claim or action as the result of which any
remedy or relief, other than monetary damages for which the Indemnifying Party
shall be responsible hereunder, shall be
10.
<PAGE> 11
applied to or against the Indemnified Party, without the prior written consent
of the Indemnified Party. In any action hereunder as to which the Indemnifying
Party has assumed the defense thereof with counsel reasonably satisfactory to
the Indemnified Party, the Indemnified Party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the Indemnifying Party shall not be obligated hereunder to
reimburse the Indemnified Party for the costs thereof.
If the indemnification provided for in this Section 8 shall
for any reason be unavailable to an Indemnified Party in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each Indemnifying Party shall, in lieu of indemnifying such
Indemnified Party, contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, claim, damage or liability, or action in respect
thereof, in such proportion as shall be appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and the Indemnified Party on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party on the one hand or the Indemnified Party on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission,
but not by reference to any Indemnified Party's stock ownership in the Company.
In no event, however, shall a Holder of Registrable Securities be required to
contribute in excess of the amount of the net proceeds received by such Holder
in connection with the sale of Registrable Securities in the offering which is
the subject of such loss, claim, damage or liability. The amount paid or payable
by an Indemnified Party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this paragraph shall be deemed
to include, for purposes of this paragraph, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. INFORMATION BY HOLDER. Holders including any Registrable
Securities in any registration shall furnish to the Company such information
regarding such Holders as shall be necessary to enable the Company to comply
with the provisions hereof in connection with any registration, qualification or
compliance referred to in this Agreement.
10. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
11.
<PAGE> 12
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) Furnish to any Holder forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time after ninety (90) days after the effective
date of the first registration statement filed by the Company for an offering of
its securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as such
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such Holder to sell any such securities without
registration.
11. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Holders under Sections 2, 3 and 4 may be
assigned in connection with any transfer or assignment by a Holder of
Registrable Securities provided that: (a) such transfer may otherwise be
effected in accordance with applicable securities laws; (b) such transfer is
effected in compliance with the restrictions on transfer contained in this
Agreement and in any other agreement between the Company and the Holder; and (c)
such assignee or transferee agrees to be bound by the terms of this Agreement
and assumes all of the obligations of the transferring Holder hereunder. No
transfer or assignment will divest a Holder or any subsequent owner of such
rights and powers unless all Registrable Securities are transferred or assigned.
12. STANDOFF AGREEMENT. Each Holder agrees that if in connection
with the first two public offerings by the Company of its securities after the
date hereof, whether for the account of the Company or any Holder or Other
Holder, the underwriters managing the offering so request, the Holders shall not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of such underwriters, for
such period of time (not to exceed one hundred eighty (180) days in the case of
the first offering and ninety (90) days in the case of the second offering) from
the effective date of such registration (or offering) as may be requested by
such underwriters; provided that each officer and director of the Company also
agrees with such restrictions. The provisions of this Section 12 shall terminate
and have no further force or effect on or after December 31, 1997.
13. TERMINATION. This Agreement shall terminate, with respect to
each Holder, at such time as all Registrable Securities held by such Holder
constitute less than one percent (1.0%) of the voting securities of the Company
and can be sold pursuant to Rule 144 or Rule 144(k), within a consecutive three
(3) month period without compliance with the registration requirements of the
Securities Act. The respective indemnities, representations and warranties of
the Investors and the Company shall survive such termination.
12.
<PAGE> 13
14. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the State of California without given effect to the
conflicts of law principles thereof.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
at least eighty percent (80%) of the Registrable Securities, voting as a class.
Any amendment or waiver effected in accordance with this paragraph will be
binding upon the Company, each holder of any securities purchased under this
Agreement at the time outstanding (including securities into which such
securities are convertible), and any transferee of such securities.
(c) SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, invalid, unenforceable or void, this Agreement shall continue in full
force and effect without said provision. In such event, the parties shall
negotiate, in good faith, a legal, valid and binding substitute provision which
most nearly effects the intent of the parties in entering into this Agreement.
(d) NOTICES. All notices and other communications
required or permitted hereunder shall be in writing (or in the form of a telex
or telecopy (confirmed in writing) to be given only during the recipient's
normal business hours unless arrangements have otherwise been made to receive
such notice by telex or telecopy outside of normal business hours) and shall be
mailed by registered or certified mail, postage prepaid, or otherwise delivered
by hand, messenger, or telex or telecopy (as provided above) addressed (a) if to
a Purchaser, at such address as such Purchaser shall have furnished to the
Company in writing or (b) if to any other Holder of Common Stock, at such
address as such Holder shall have furnished the Company in writing or, until any
such Holder so furnishes an address to the Company, then to and at the address
of the last holder of such shares who has so furnished an address to the Company
or (c) if to the Company, one copy should be sent to its principal executive
offices and addressed to the attention of the Corporate Secretary, or at such
other address as the Company shall have furnished to the Investors.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or, if
by telex or telecopy pursuant to the above, when received.
(e) FACSIMILE SIGNATURES. Any signature page delivered by
a fax machine or telecopy machine shall be binding to the same extent as an
original signature page, with regard to any agreement subject to the terms
hereof or any amendment thereto. Any party who delivers
13.
<PAGE> 14
such a signature page agrees to later deliver an original counterpart to any
party which requests it.
(f) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together will constitute one and the same instrument.
(g) TITLES, SUBTITLES AND TABLE OF CONTENTS. The titles,
subtitles and table of contents used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
14.
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY" "INVESTOR"
JTS CORPORATION, -----------------------------------
a Delaware corporation Name of Investor
By:
----------------------------------- -----------------------------------
Name: Signature
Title:
-----------------------------------
Title, if applicable
15.
<PAGE> 16
EXHIBIT A
SCHEDULE OF INVESTORS
Advanced Technology Ventures III
Advanced Technology Ventures IV
Alta V Limited Partnership
Atherton Ventures
BI Walden Ventures
Kedua Sdn Bhd
Brentwood Associates VI, L.P.
C.V. Sofinnova Ventures Partners II
C.V. Sofinnova Ventures Partners III
Customs House Partners
DPI 1995 Investment Partners
Roger C. Davisson and Marjorie Davisson,
Trustees of the Davisson Family Trust Dated
November 20, 1994
Richard C. DeGolia
Richard C. DeGolia and Sallie V.D. DeGolia,
Trustees of the DeGolia Family Trust
Robert Easton
William Elmore
Dr. Richard Emori
Gilde IV B.V.
Gilde Investment Fund B.V.
Teddy Hadiono
B. Kipling and Mary Ann Hagopian, Trustees
UTD 3/25/88
Marie-Helene Habert-Dassault
High Street Partners
1.
<PAGE> 17
International Venture Capital Investment
Corporation
Steven L. Kaczeus, Sr.
Greg Kudo
Lunenburg S.A.
David T. Mitchell
Needham Capital Partners, L.P.
Needham Capital SBIC, L.P.
OCBC, Wearnes & Walden Investments
(Singapore) Ltd.
O, W & W Pacrim Investments Ltd.
One Liberty Fund III, L.P.
Timothy M. Pennington III and Melissa J.
Pennington, Trustees of the Pennington Family
Revocable Trust DTD 5/23/84
R&M Investors 1995
SBCB Holdings
Seed Ventures II Limited
Sofinnova Ventures III
S.N. Venture Capital, Inc.
Devinder L. Tandon, M.D. and Usha Tandon,
Trustees of The Devinder and Usha Tandon
Family Trust Dated 06/10/94
Jawahar L. Tandon, Trustee of The Jawahar L.
Tandon Irrevocable Trust
D. & U. Tandon, LLC, a California limited
liability company
J. & S. Tandon, LLC, a California limited
liability company
2.
<PAGE> 18
Sirjang Lal Tandon
TEAC Corporation
Richard J. Testa
Jack Tramiel
WS Investment Company 94A
WS Investment Company 95B
D.M. Laurice and M.M. Rosati, Trustees WSGR
Retirement Plan U/A DTD 02/01/88, FBO Rick
DeGolia
Venture Lending & Leasing, Inc.
Walden Capital Partners II, L.P.
Walden Investors
Walden Technology Ventures II, L.P.
Walden Ventures
Wallia, Perry
Jasper A. Welch
Western Digital Corporation
3.
<PAGE> 1
Exhibit 4.3
ATARI CORPORATION
AND
SECURITY PACIFIC NATIONAL BANK
Trustee
INDENTURE
Dated as of
April 29, 1987
$75,000,000
5-1/4% Convertible Subordinated Debentures Due 2002
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture Section
<S> <C>
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10; 11.02
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.05
(b) 12.03
(c) 12.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(c) 12.02
(d) 7.06
314(a) 4.02; 11.02
(b) N.A.
(c)(1) 12.04
(c)(2) 12.04
(c)(3) N.A.
(d) N.A.
(e) 12.05
(f) N.A.
315(a) 7.01(b)
(b) 7.05; 11.02
(c) 7.01(a)
(d) 7.01(c)
(e) 6.11
316(a)(last sentence) 2.09
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.04
318(a) 12.01
</TABLE>
N.A. means not applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 Definitions and Incorporation by Reference
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Other Definitions . . . . . . . . . . . . . . . . . . . . 4
1.03 Incorporation by Reference of Trust Indenture Act . . . . . 4
1.04 Rules of Construction . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2 The Securities
SECTION 2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . 5
2.02 Execution and Authentication . . . . . . . . . . . . . . . 5
2.03 Registrar, Paying Agent and Conversion Agent . . . . . . . 6
2.04 Paying Agent to Hold Money in Trust . . . . . . . . . . . . 7
2.05 Securityholder Lists . . . . . . . . . . . . . . . . . . . 7
2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . 7
2.07 Replacement Securities . . . . . . . . . . . . . . . . . . 9
2.08 Outstanding Securities . . . . . . . . . . . . . . . . . . 10
2.09 Treasury Securities . . . . . . . . . . . . . . . . . . 10
2.10 Temporary Global Security; Exchange, Conversion or
Redemption of Temporary Global Security . . . . . 11
2.11 Cancelation . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . 14
2.13 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 3 Redemption
SECTION 3.01 Notices to Trustee . . . . . . . . . . . . . . . . . . . . 14
3.02 Selection of Securities to Be Redeemed . . . . . . . . . . 14
3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . 15
3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . 16
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . 16
3.06 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . 16
ARTICLE 4 Covenants
SECTION 4.01 Payment of Securities . . . . . . . . . . . . . . . . . . . . 16
4.02 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.03 Certificate as to Default . . . . . . . . . . . . . . . . . . 17
ARTICLE 5 Successors
SECTION 5.01 When Corporation May Merge, etc. . . . . . . . . . . . . . . 17
ARTICLE 6 Defaults and Remedies
SECTION 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . 18
6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 20
6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 21
6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . 21
6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . . 21
6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . 21
6.07 Rights of Holders to Receive Payment . . . . . . . . . . . . 22
6.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . 22
6.09 Trustee May File Proofs of Claim . . . . . . . . . . . . . . 22
6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 7 Trustee
SECTION 7.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . 23
7.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . 24
7.03 Individual Rights of Trustee, etc. . . . . . . . . . . . . . . 25
7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . 25
7.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . 25
7.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . . 25
7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . 26
7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C> <C>
7.09 Successor Trustee by Merger, etc. . . . . . . . . . . . . . . 28
7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . 28
7.11 Preferential Collection of Claims Against Corporations . . . 28
ARTICLE 8 Repayment to Corporation
SECTION 8.01 Repayment to Corporation . . . . . . . . . . . . . . . . . . 28
ARTICLE 9 Amendments, Supplements and Waivers
SECTION 9.01 Without Consent of Holders . . . . . . . . . . . . . . . . . 28
9.02 With Consent of Holders . . . . . . . . . . . . . . . . . . . 29
9.03 Compliance with Trust Indenture Act . . . . . . . . . . . . . 30
9.04 Revocation and Effect of Consents . . . . . . . . . . . . . . 30
9.05 Notation on or Exchange of Securities . . . . . . . . . . . . 30
9.06 Trustee Protected . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 10 Conversion
SECTION 10.01 Conversion Privilege . . . . . . . . . . . . . . . . . . . . 30
10.02 Conversion Procedure . . . . . . . . . . . . . . . . . . . . 31
10.03 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 32
10.04 Taxes on Conversion . . . . . . . . . . . . . . . . . . . . . 32
10.05 Corporation to Provide Stock . . . . . . . . . . . . . . . . 32
10.06 Adjustment for Change in Capital Stock . . . . . . . . . . . 33
10.07 Adjustment for Rights Issue . . . . . . . . . . . . . . . . . 33
10.08 Adjustment for Other Distributions . . . . . . . . . . . . . 34
10.09 Current Market Price . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C> <C>
10.10 When Adjustment May Be Deferred . . . . . . . . . . . . . . . 35
10.11 When No Adjustment Required . . . . . . . . . . . . . . . . . 35
10.12 Notice of Adjustment . . . . . . . . . . . . . . . . . . . . 36
10.13 Voluntary Reduction . . . . . . . . . . . . . . . . . . . . . 36
10.14 Notice of Certain Transactions . . . . . . . . . . . . . . . 36
10.15 Reorganization of Corporation . . . . . . . . . . . . . . . . 37
10.16 Corporation Determination Final . . . . . . . . . . . . . . . 37
10.17 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 11 Subordination
SECTION 11.01 Agreement to Subordinate . . . . . . . . . . . . . . . . . . 38
11.02 Certain Definitions . . . . . . . . . . . . . . . . . . . . . 38
11.03 Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . 39
11.04 Default on Senior Debt . . . . . . . . . . . . . . . . . . . 39
11.05 Acceleration of Securities . . . . . . . . . . . . . . . . . 40
11.06 When Distribution Must Be Paid Over . . . . . . . . . . . . . 40
11.07 Notice by Corporation . . . . . . . . . . . . . . . . . . . . 40
11.08 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.09 Relative Rights . . . . . . . . . . . . . . . . . . . . . . . 40
11.10 Subordination May Not Be Impaired by Corporation . . . . . . 41
11.11 Distribution or Notice to Representative . . . . . . . . . . 41
11.12 Rights of Trustee and Paying Agent . . . . . . . . . . . . . 41
ARTICLE 12 Miscellaneous
SECTION 12.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . 42
12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.03 Communications by Holders with Other Holders . . . . . . . . 43
12.04 Certificate and Opinion as to Conditions Precedent . . . . . 43
12.05 Statements Required in Certificate or Opinion . . . . . . . . 44
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Page
<S> <C> <C>
12.06 Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . 44
12.07 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 44
12.08 No Recourse Against Others . . . . . . . . . . . . . . . . . 44
12.09 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . 45
12.10 Variable Provisions . . . . . . . . . . . . . . . . . . . . . 45
12.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
<TABLE>
<S> <C>
Signatures
Exhibit A -- Form of Registered Security
Exhibit B -- Form of Bearer Security
Exhibit C -- Form of Coupon
Exhibit D -- Form of Global Debenture
Exhibit E -- Form of Certificate of Non-U.S. Ownership
Exhibit F -- Form of Investment Letter
Exhibit G -- Form of Certificate of U.S. Institutional
Investor
Exhibit H-1 -- Form of Clearance System Certificate
Exhibit H-2 -- Form of Clearance System Certificate
Exhibit H-3 -- Form of Clearance System Certificate
</TABLE>
-e-
<PAGE> 8
INDENTURE dated as of April 29, 1987, between ATARI
CORPORATION, a Nevada corporation (the "Corporation"), and SECURITY PACIFIC
NATIONAL BANK, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Corporation's
5-1/4% Convertible Subordinated Debentures Due 2002 (the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Affiliate" means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Corporation.
"Agent" means any Registrar, Paying Agent, Conversion Agent
or co-registrar.
"Authorized Newspaper" means a newspaper of general
circulation in the place of publication, printed in the official language of
the country of publication and customarily published on each Business Day,
whether or not published on Legal Holidays. Whenever successive weekly
publications in an Authorized Newspaper are authorized or required by this
Indenture, they may be made (unless otherwise expressly provided) on the same
or different days of the week and in the same or different Authorized
Newspapers.
"Bearer Security" means any Security except a Registered
Security.
"Board of Directors" means the Board of Directors of the
Corporation or the Executive Committee of the Board.
"CEDEL" means Centrale de Livraisons de Valeurs Mobilieres,
S.A.
"Clearance Systems" means Euro-Clear and CEDEL.
"Common Depository" means Morgan Guaranty Trust Company of New
York, London Office, as common depositary for Euro-Clear and CEDEL.
<PAGE> 9
2
"Corporation" means the party named as such in this Indenture
until a successor replaces it and after that means the successor.
"Coupon" means a Coupon in the form of Exhibit C.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"definitive Securities" means Registered Securities in the
form of Exhibit A and Bearer Securities in the form of Exhibit B.
"Dollar", "dollar", or "$" means a dollar in the currency of
the United States as at the time shall be legal tender for the payment of
public and private debts.
"Euro-Clear" means the Euro-Clear System.
"Exchange Date" means the date which is the later of 90 days
after the distribution of the Securities has been completed, as determined by
PaineWebber International Capital Inc, and the effectiveness of registration of
the Debentures for resale under the United States Securities Act of 1933 (the
"Securities Act"); provided, however, that if the Company shall furnish the
Trustee with an Opinion of Counsel that registration of the Debentures for
resale under the Securities Act is not necessary for distribution of the
Securities to comply with the requirements of the Securities Act, the Exchange
Date shall be the later of the date 90 days after the distribution of the
Securities has been completed, as determined by PaineWebber International
Capital Inc., and the date of receipt of such Opinion of Counsel by the
Trustee.
"Global Security" means a temporary Global Security in bearer
form without interest coupons, portions of which may be converted, as provided
in Section 2.10, for Securities of such series in definitive form.
"Holder" or "Securityholder" means a person in whose name a
Registered Security is registered on the Registrar's books and the bearer of a
Bearer Security.
"Indenture" means this Indenture as amended from time to time.
"Officers' Certificate" means a certificate signed by two
Officers, one of whom must be the President, the
<PAGE> 10
3
Treasurer or a Vice President of the Corporation. See Sections 12.04 and
12.05.
"Opinion of Counsel" means a written opinion from legal counsel
who is acceptable to the Trustee. The counsel may be an employee of or counsel
to the Corporation or the Trustee. See Sections 12.04 and 12.05.
"principal" of a debt security means the principal of the
security plus the premium, if any, on the security.
"Registered Holder" means the person in whose name a Registered
Security is registered on the Registrar's books.
"Registered Security"' means any Security registered on the
Registrar's books as to the principal and interest, if any.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under
this Indenture, including both Bearer Securities and Registered Securities.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sec.
77aaa-77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such above until a successor
replaces it and after that means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"U.S. Institutional Investors" means certain United States
institutional investors to whom sales can be made exempt from the registration
requirements of the United States Securities Act of 1933.
<PAGE> 11
4
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Bankruptcy Law" 6.01
"Common Stock" 10.01
"Conversion Agent" 2.03
"Custodian" 6.01
"Event of Default" 6.01
"Legal Holiday" 12.07
"Officer" 12.10
"Paying Agent" 2.03
"Quoted Price" 12.10
"Registrar" 2.03
"Representative" 11.02
"Senior Debt" 11.02
"U.S. Government Obligations" 8.01
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Corporation.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings assigned to them.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires,
(1) a term has the meaning assigned to it,
<PAGE> 12
5
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with generally
accepted accounting principles,
(3) "or" is not exclusive,
(4) words in the singular include the plural, and
in the plural include the singular, and
(5) provisions apply to successive events and
transactions.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. The Registered Securities will
be substantially in the form of Exhibit A and the Bearer Securities and the
coupons will be substantially in the form of Exhibit B and Exhibit C,
respectively, all of which are part of this Indenture. The Securities and the
coupons may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Registered Security will be dated the date of its
authentication. Each Bearer Security and the Global Security will be dated as
of the date of this Indenture.
SECTION 2.02. Execution and Authentication. An Officer will
sign the Securities and the coupons for the Corporation by manual or facsimile
signature. The Corporation's seal will be impressed, affixed, imprinted or
reproduced on the Securities and the coupons.
If an Officer whose signature is on a Security or a coupon no
longer holds that office at the time the Trustee authenticates the Security or
the coupon, the Security or the coupon will nevertheless be valid.
A Security will not be valid until authenticated by the manual
signature of the Trustee. The signature will be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee will authenticate Securities for original issue up
to the total principal amount of U.S. $75,000,000 on a written order of the
Corporation signed by two Officers. The total principal amount of Securities
outstanding at any time may not exceed that
<PAGE> 13
6
amount except as provided in Section 2.07 (Replacement Securities).
The Trustee may appoint an authenticating agent acceptable to
the Corporation to authenticate Securities. An authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
Agent. An authenticating agent has the same rights as an Agent to deal with
the Corporation or an Affiliate.
SECTION 2.03. Registrar, Paying Agent and Conversion Agent. The
Corporation shall maintain an office or agency where Registered Securities may
be presented for registration of transfer or for exchange ("Registrar" and
"Transfer Agent"), an office or agency where Securities and coupons may be
presented for payment ("Paying Agent") and an office where Securities may be
presented for conversion ("Conversion Agent"). The Registrar shall keep a
register of the Registered Securities and of their transfer and exchange. The
Corporation may appoint one or more co-registrars, one or more additional
paying agents and one or more additional conversion agents. The term "Paying
Agent" includes any additional paying agent, and the term "Conversion Agent"
includes any additional conversion agent. Initially, the Trustee with its
corporate trust office at 127 John Street, New York, New York 10038, will act
as Registrar and Transfer, Paying and Conversion Agent; Credit Suisse (France),
92, Avenue des Champs-Elysees, F-75008, Paris, France, and Credit Suisse
(Luxembourg) SA, 23, Avenue Monterey, B.P. 40, Luxembourg, Grand Duchy of
Luxembourg, will act as Transfer, Paying and Conversion Agents; Schweizerische
Kreditanstalt (Deutschland) AG, P.O. Box 100529, D-6000 Frankfurt a/M 1,
Federal Republic of Germany, and Credit Suisse, 24, Bishopsgate, London EC2N
4BQ, Great Britain, will act as Paying and Conversion Agents; and Credit
Suisse, P.O. Box 590, CH-8021, Zurich, Switzerland will act as Paying Agent.
The Corporation reserves the right to vary or terminate the appointment of the
Registrar or any Transfer, Paying or Conversion Agent, or to appoint additional
or other Registrars or Transfer, Paying or Conversion Agents, or to approve any
change in the office through which the Registrar or any such agent acts,
provided that there will at all times be a Transfer Agent or Registrar, and,
with respect to the Registered Securities, a Paying Agent and Conversion Agent
in New York, New York and, with respect to Bearer Securities and coupons, a
Paying Agent and Conversion Agent in a European city which, so long as the
Securities are listed on the Luxembourg Stock Exchange
<PAGE> 14
7
and so long as the Luxembourg Stock Exchange so requires, shall be Luxembourg.
If the Corporation fails to maintain a Registrar, Paying Agent or Conversion
Agent within the United States, the Trustee will act as such. Except as
otherwise provided in paragraph 2 of the Bearer Securities, Bearer Securities
may only be paid or converted at offices outside the United States.
SECTION 2.04. Paying Agent to Hold Money in Trust. The
Corporation will require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities and the coupons and will
notify the Trustee of any default by the Corporation in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. If the Corporation acts as
Paying Agent, it will segregate and hold as a separate trust fund all money
held by it as Paying Agent. The Corporation at any time may require a Paying
Agent to pay all money held by it to the Trustee. On payment over to the
Trustee, the Paying Agent will have no further liability for the money.
SECTION 2.05. Securityholder Lists. The Trustee will preserve in
as current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Registered Securityholders. If the Trustee is
not the Registrar, the Corporation will furnish to the Trustee within two
business days after each record date and at such other times as the Trustee may
request in writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Registered Securityholders.
SECTION 2.06. Transfer and Exchange. Where Registered Securities
are presented to the Registrar or a co-registrar with a request to register a
transfer or to exchange them for an equal principal amount of Registered
Securities of other denominations, the Registrar will register the transfer or
make the exchange as requested if its requirements for such transactions are
met. To permit registrations of transfers and exchanges, the Trustee will
authenticate Registered Securities at the Registrar's request.
Subject to the provisions of this Section 2.06 and such
reasonable regulations as the Trustee, the Registrar
<PAGE> 15
8
and the Corporation may prescribe, a Bearer Security or Bearer Securities may,
at the option of the Holder, be exchanged at any time for a Registered Security
or Registered Securities. The Corporation initially appoints the Transfer
Agents (but not the Registrar), with their offices in Paris, France, and
Luxembourg, Grand Duchy of Luxembourg as its agents to effect such exchanges
and may appoint other Transfer Agents pursuant to Section 2.03. Any Bearer
Security surrendered for exchange shall be accompanied by all unmatured coupons
and all matured coupons in default and the Holder of the Registered Security or
Registered Securities issued in exchange for any Bearer Security will be
entitled to any such defaulted interest, provided that any Bearer Security so
surrendered between the close of business on a Record Date for any payment of
interest and the date on which such interest is to be paid need not have
attached the coupon with respect to which such interest payment is to be made.
If the Holder is unable to produce any such coupon, the surrender of any such
coupon or coupons may be waived by the Corporation and the Trustee, if there be
furnished to them, in the case of a matured coupon, a cash payment to the
Corporation equal to the amount of interest on presentation, and in the case of
an unmatured coupon, such security or indemnity as the Corporation and the
Trustee may require to save each of them and any agent of each of them and any
Paying Agent harmless. If thereafter, the Holder of such Security shall
surrender to any Paying Agent outside the United States any such missing
coupon, the amount of interest paid on the missing coupon shall be repaid to
the Holder.
The exchange of Bearer Securities for Registered Securities
shall be subject to the provisions of United States income tax laws and
regulations in effect at the time of such exchange, and the Registrar shall not
make such exchange if it has received written notice from the Corporation that
as a result of such exchange the Corporation would suffer adverse consequences
under United States tax laws or be required to pay any additional amounts with
respect to the Securities.
Registered Securities may not be exchanged for Bearer
Securities.
In the event of a redemption in part, the Company will not be
required (i) to register the transfer of or exchange Registered Securities or
to exchange Bearer Securities for Registered Securities for a period of 15 days
immediately preceding the date notice is given identifying
<PAGE> 16
9
the serial numbers of Securities called for such redemption; (ii) to register
the transfer of or exchange any Registered Security, or portion thereof, called
for redemption; or (iii) to exchange any Bearer Security called for redemption,
provided, however, that a Bearer Security called for redemption may be
exchanged for a Registered Security which is simultaneously surrendered to the
Registrar or Transfer Agent making such exchange with written instruction for
payment consistent with the provisions of Paragraph 2 of the Registered
Securities.
Subject to the foregoing, whenever one or more Bearer Securities
or Registered Securities shall be surrendered at the office of the Registrar or
Transfer Agent for exchange for one or more Registered Securities, together
with an executed instrument of assignment and transfer and a written request
for the exchange, the Trustee shall authenticate and deliver or cause to be
delivered a Registered Security or Registered Securities in a like aggregate
principal amount and in such authorized denomination or denominations as may be
requested, at such office of the Registrar or Transfer Agent or by mail (at the
request, risk and expense of the Holder) to the address reflected in the books
maintained by the Registrar for such purpose. No Bearer Security will be
mailed to an address located in the United States. The Corporation may charge
a reasonable fee for any registration of transfer or exchange but not for any
exchange pursuant to Section 2.10 (Temporary Global Security; Exchange,
Conversion or Redemption of Temporary Global Security), 3.06 (Securities
Redeemed in Part), 9.05 (Notation on or Exchange of Securities) or 10.02
(Conversion Procedure).
SECTION 2.07. Replacement Securities. If any Security is
mutilated, defaced, destroyed, lost or stolen, and in the absence of notice to
the Trustee that such Security has been acquired by a bona fide purchaser, the
Trustee, if the Trustee's requirements are met, is authorized to authenticate
and deliver a new Security of like principal amount with, in the case of a
Bearer Security, coupons corresponding to the coupons, if any, appertaining to
the mutilated, defaced, destroyed, lost or stolen Bearer Security. If a coupon
is mutilated, defaced, destroyed, lost or stolen, the Trustee is authorized to
authenticate and deliver a new Bearer Security in substitution for, and upon
surrender of, the Bearer Security with respect to which the coupons have become
so mutilated, defaced, destroyed, lost or stolen (with coupons corresponding to
the coupons on such Bearer Security including those which were mutilated,
<PAGE> 17
10
defaced, destroyed, lost or stolen). In each such case the applicant for a
substitute Security or coupon shall furnish such evidence of destruction, loss
or theft and such security and indemnity as the Corporation and the Trustee,
the Paying Agent, the Transfer Agent or the Registrar may require to save each
of them and any agent of each of them and any Paying Agent harmless, including,
if required by the Trustee or the Corporation, an indemnity bond sufficient in
the judgment of both to protect the Corporation, the Trustee, any Paying or
Transfer Agent or any authenticating agent from any loss that any of them may
suffer if a Security is replaced. Mutilated Securities and coupons must be
surrendered before new ones will be issued. In case any Security or any coupon
shall become mutilated, defaced, destroyed, lost or stolen, the Corporation may
pay or authorize payment of the same (in the case of a Bearer Security or
coupon, only outside the United States, except as otherwise provided in
paragraph 2 of the Bearer Securities) without issuing a substitute Security.
The Corporation may charge for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. Outstanding Securities. The Securities
outstanding at any time are all Securities authenticated by the Trustee except
for those canceled by it, those delivered to it for cancelation and those
described in this Section as not outstanding.
If a Security is replaced pursuant to the foregoing Section, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.01 (Payment of
Securities), they cease to be outstanding and interest on them ceases to
accrue.
A Security does not cease to be outstanding because the
Corporation or an Affiliate holds the Security.
SECTION 2.09. Treasury Securities. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or an Affiliate
shall be disregarded, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only
<PAGE> 18
11
Securities which the Trustee knows are so owned shall be so disregarded.
SECTION 2.10. Temporary Global Security; Exchange, Conversion or
Redemption of Temporary Global Security. The Securities shall initially be
represented by the Global Security in substantially the form of Exhibit D,
without coupons, which the Trustee shall, upon written order of the
Corporation, authenticate and deposit with the Common Depositary outside the
United States for the respective accounts of Euro-Clear, and CEDEL for credit,
directly or through Euro-Clear or CEDEL, as the case may be, to the respective
accounts of the beneficial owners of the Securities.
Not before the Exchange Date, the Global Security shall be
surrendered outside the United States by the Common Depositary to the Trustee
and the Global Security shall become exchangeable outside the United States,
subject to the conditions below, by the beneficial owners of interests in the
Global Security for definitive Securities in substantially the form of Exhibits
A and B in an amount equal to the aggregate principal amount of the Global
Security. PaineWebber International Capital Inc. shall provide written notice
of such completion of distribution and effectiveness of registration to the
Trustee, with copies to the Corporation, the Paying Agent, the Registrar, the
Common Depositary and the Clearance Systems. On a date not later than three
business days prior to the Exchange Date, the Corporation shall deliver the
definitive Securities to the Trustee for issuance upon exchange of the Global
Security. The Global Security shall, however, be exchangeable for definitive
Securities, upon reasonable notice, as soon as practicable after the date of
issuance of the Securities, but only for Registered Securities for the account
of beneficial owners who are United States Institutional Investors. Such
exchange shall be made free of charge by the Corporation to the holders and
beneficial owners of the Securities, except that any person receiving
definitive Securities must bear the cost of insurance, postage, transportation
and the like in the event that such person does not receive such definitive
Securities at the office of one of the Clearance Systems or the Registrar.
A beneficial owner of Securities desiring to exchange its
beneficial interest in the Global Security for Bearer Securities shall instruct
one of the Clearance Systems to request such exchange on its behalf, but shall
be entitled to receive Bearer Securities only after it shall
<PAGE> 19
12
have delivered or caused to be delivered to such Clearance System a certificate
of non-U.S. ownership substantially in the form of Exhibit E. A beneficial
owner of Securities desiring to exchange its beneficial interest in the Global
Security for Registered Securities shall instruct one of the Clearance Systems
to request such exchange on its behalf, but shall be entitled to receive
Registered Securities only (i) if it shall have delivered or caused to be
delivered to one of the Clearance Systems a certificate of non-U.S. ownership
as described above or (ii) if such beneficial owner is a U.S. Institutional
Investor and shall have delivered to the Representative a letter (addressed to
PaineWebber International Capital Inc. and the Corporation) substantially in
the form of Exhibit F and there shall have been delivered to one of the
Clearance Systems a certificate stating that the beneficial owner is a U.S.
Institutional Investor substantially in the form of Exhibit G.
Three business days prior to the Exchange Date (or the exchange
of Securities by a U.S. Institutional Investor), the Corporation shall execute
and deliver to the Trustee definitive Securities for authentication and
delivery by it. If, however, Securities shall have been called for redemption
prior to the Exchange Date (or the exchange of Securities by a U.S.
Institutional Investor), then the Corporation shall not be required to deliver
definitive Securities representing the Securities so called for redemption. On
or after the Exchange Date (or the exchange of Securities by a U.S.
Institutional Investor), unless the Securities shall have been called for
redemption on or before such date, the Trustee shall, upon the request of a
Clearance System, acting on behalf of beneficial owners of such Securities,
authenticate and deliver to such Clearance System, for the accounts of such
beneficial owners, in exchange for the portion of the Global Security
beneficially owned by such owners, definitive Securities in an aggregate
principal amount equal to the aggregate principal amount of the Securities
beneficially owned by such owners. Delivery of the Bearer Securities shall be
made at the office of the Transfer Agent in London, Great Britain, and
Luxembourg, Grand Duchy of Luxembourg, and delivery of the Registered
Securities shall be made at the corporate trust office of the Registrar in New
York, New York. The Trustee shall so deliver the definitive Securities only if
such request is accompanied by the delivery by such Clearance System, acting on
behalf of such beneficial owners, to the Trustee and the Transfer Agents at
their offices in London, Great Britain, and Luxembourg, Grand Duchy of
Luxembourg, of a certificate, dated no earlier than the Exchange Date (or the
date of
<PAGE> 20
13
issuance of the Securities with respect to Registered Securities for the
account of U.S. Institutional Investors), substantially in the form of Exhibit
H-1 or H-2, a copy of which shall be delivered by the Transfer Agent to the
Corporation.
The delivery to the Transfer Agent by a Clearance System of any
certificate referred to above may be relied upon by the Corporation, the
Trustee and the Registrar as conclusive evidence that the corresponding
certificates of non-U.S. ownership or certificates of U.S. Institutional
Investors have been delivered to such Clearance System.
Upon any exchange of a part of the Global Security for
definitive Securities, the Global Security shall be endorsed by the Trustee to
reflect the reduction of its principal amount. Until exchanged in full for
definitive Securities, the Global Security shall in all respects be entitled to
the same benefits under this Indenture as authenticated and delivered
definitive Securities, provided that neither the holder nor the beneficial
owners of any part of the Global Security shall (i) be entitled to receive
payment of the principal or interest except in the case of a redemption prior
to the Exchange Date (or the exchange by a U.S. Institutional Investor) and
except that if any interest payment date occurs before the Exchange Date, the
interest payment due on such date may be made upon certification of non-U.S.
ownership substantially in the form of Exhibits E and H-3 (with appropriate
modification) with respect to the relevant Securities, or (ii) be entitled to
convert such interest in the Global Security into Common Stock, as defined in
Section 10.01, until such interest in the Global Security is exchanged for
definitive Securities.
SECTION 2.11. Cancelation. The Corporation at any time may
deliver Securities and coupons to the Trustee for cancelation. The Registrar
and Transfer, Paying and Conversion Agents will forward to the Trustee any
Securities and coupons surrendered to them for registration of transfer,
exchange or payment. The Trustee will cancel all Securities and coupons
surrendered for registration of transfer, exchange, payment, conversion or
cancelation and will dispose of canceled Securities and coupons as the
Corporation directs. The Corporation may not issue new Securities and coupons
to replace Securities and coupons it has paid or delivered to the Trustee for
cancelation or that any Securityholder has converted pursuant to this
Indenture.
<PAGE> 21
14
SECTION 2.12. Defaulted Interest. If the Corporation defaults
in a payment of interest on any Securities, it will pay the defaulted interest
in any lawful manner. It may pay the defaulted interest, plus any interest
payable on the defaulted interest, to the persons who are Registered
Securityholders on a subsequent special record date. The Corporation will fix
the special record date and payment date. At least 15 days before the special
record date, the Corporation will mail to Registered Securityholders a notice
that states the special record date, the payment date, and the amount of
defaulted interest to be paid.
SECTION 2.13. Title. Title to the temporary Global Security,
the Bearer Securities and the coupons will pass by delivery. The Corporation,
the Trustee, the Registrar, any transfer agent, any paying agent and any
conversion agent may treat the holder of any Bearer Security and the holder of
any coupon and the registered owner of any Registered Security as the absolute
owner thereof (whether or not such Security or coupon shall be overdue and
notwithstanding any notice of ownership or writing thereon, or any notice of
previous loss or theft or other interest therein) for the purpose of making
payment and for all other purposes.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Corporation wants to
redeem Securities pursuant to paragraph 5 (Optional Redemption) of the
Securities, it will notify the Trustee of the redemption date and the principal
amount of Securities to be redeemed.
The Corporation will give the notice provided for in this
Section at least 65 days before the redemption date.
SECTION 3.02. Selection of Securities to Be Redeemed. If less
than all the Securities are to be redeemed, the Trustee will select the
Securities to be redeemed pro rata or by lot. The Trustee will make the
selection from outstanding Securities not previously called for redemption.
The Trustee may select for redemption portions of the principal of Securities
that have a denomination larger than $5,000. Securities and portions of them
it selects will be in amounts of $5,000 or an integral multiple of $5,000.
Provisions of this Indenture that apply to Securities called
<PAGE> 22
15
for redemption also apply to portions of Securities called for redemption.
SECTION 3.03. Notice of Redemption. In the case of a partial
redemption, notice will be given twice, the first such notice to be given not
more than 75 nor less than 60 days prior to the date fixed for redemption and
the second such notice to be given at least 30 days thereafter but not less
than 30 days prior to the date fixed for redemption. In the case of a full
redemption, notice shall be given at least 30, but not more than 60 days prior
to the date fixed for redemption.
The notice will identify the Securities to be redeemed and will state
(1) the redemption date,
(2) the redemption price,
(3) the conversion price,
(4) the name and address of the Paying Agent and the
Conversion Agent (which, in the case of Bearer Securities, shall
be outside the United States, except as provided in paragraph 2
of Bearer Securities),
(5) that payment for Bearer Securities will only be made
upon presentation and surrender of the Bearer Security, together
with any coupons appertaining thereto maturing subsequent to the
redemption date,
(6) that Securities called for redemption may be
converted at any time before the close of business on the
redemption date,
(7) that Holders who want to convert the Securities must
satisfy the requirements in paragraph 8 of the Securities,
(8) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price,
(9) that interest on Securities called for redemption
ceases to accrue on and after the redemption date, and
(10) if less than the full principal amount of Securities
outstanding is to be redeemed, the portion
<PAGE> 23
16
of Securities to be redeemed and the aggregate principal amount
of Securities to remain outstanding after the redemption and
such other information as may be required pursuant to paragraph
5 of the Securities.
At the Corporation's request, the Trustee will give the notice
of redemption in the Corporation's name and at its expense.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is given in accordance with Section 12.02, Securities called for
redemption become due and payable on the redemption date and at the redemption
price stated in the notice.
SECTION 3.05. Deposit of Redemption Price. Before the
redemption date, the Corporation will deposit with the Paying Agent money
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date. The Paying Agent will return to the
Corporation any money not required for that purpose because of conversion of
Securities.
SECTION 3.06. Securities Redeemed in Part. On surrender of a
Security that is redeemed in part, the Trustee will authenticate for the Holder
a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Corporation will pay
the principal of and interest on the Securities and the coupons on the dates
and in the manner provided in the Securities and the coupons. Principal and
interest will be considered paid on the date due if the Paying Agent holds on
that date money sufficient to pay all principal and interest then due.
The Corporation will pay interest on overdue principal at the
rate borne by the Securities, and it will pay interest on overdue installments
of interest and coupons at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. The Corporation will file with the
Trustee within 15 days after it files them
<PAGE> 24
17
with the SEC copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) that the Corporation is required to
file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. The Corporation also will comply with the other provisions of TIA
Sec. 314(a).
SECTION 4.03. Certificate as to Defaults. The Corporation will
deliver to the Trustee within 120 days after the end of each fiscal year of the
Corporation an officers' Certificate stating whether or not the signers know of
any Default that occurred during the fiscal year. If they do know of such a
default, the certificate will describe the Default and its status. The
certificate need not comply with Section 12.05. See Section 12.10.
ARTICLE 5
Successors
SECTION 5.01. When Corporation May Merge, etc. The Corporation
will not consolidate or merge into, or transfer or lease all or substantially
all of its assets to, any other entity unless
(1) the other entity assumes by supplemental
indenture all the obligations of the Corporation under the
Securities, the coupons and this Indenture, except that it
need not assume the obligations of the Corporation as to
conversion of Securities if pursuant to Section 10.15
(Reorganization of Corporation) the Corporation or another
person enters into a supplemental indenture obligating it to
deliver securities, cash or other assets on conversion of
Securities,
(2) immediately after the transaction no Default
exists, and
(3) the Corporation delivers to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating
that such consolidation, merger or transfer or lease and such
supplemental indenture comply with this Indenture.
(4) immediately after such consolidation, merger,
transfer or lease, the Securities will not be subject to
United States Federal estate tax as a result thereof
<PAGE> 25
18
if held by a person who at the time of death is not a citizen
or resident of the United States of America unless the
successor Corporation shall have agreed, by supplemental
agreement, to indemnify the persons liable therefor for the
amount of United States Federal estate tax attributable to and
payable in respect of any Securities includable in the gross
estate of the person who at the time of death is not a citizen
or resident of the United States of America. The amount of
any such estate tax attributable to any Securities for
purposes of this paragraph (4) shall be calculated in
accordance with the provisions of the Internal Revenue Code of
1986 and any successor thereto.
The surviving, transferee or lessee entity will be the
successor Corporation, and the obligations of the predecessor Corporation in
the case of a transfer or lease will be terminated.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if
(1) the Corporation defaults in the payment of
interest on any Security when the interest becomes due and
payable and the default continues for 30 days,
(2) the Corporation defaults in the payment of
the principal of any Security when the principal becomes due
and payable at maturity, upon redemption or otherwise,
(3) the Corporation fails to comply with any of
its other agreements in the Securities or this Indenture and
the Default continues for the period and after the notice
specified below in this Section,
(4) the Corporation pursuant to or within the
meaning of any Bankruptcy Law,
(A) commences a voluntary case,
(B) consents to the entry of an order
for relief against it in an involuntary case,
<PAGE> 26
19
(C) consents to the appointment of a
Custodian of it or for any substantial part of its
property, or
(D) makes a general assignment for the
benefit of its creditors or
(5) a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that
(A) is for relief against the
Corporation in an involuntary case,
(B) appoints a Custodian of the
Corporation or for any substantial part of its
property or
(C) orders the winding up or liquidation
of the Corporation,
and the order or decree remains unstayed and in effect for 60
days, or
(6) an event of default as defined in any
mortgage, indenture or instrument, under which there may be
issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money of the Corporation or any
subsidiary (other than non-recourse indebtedness), whether
such indebtedness now exists or shall be created after the
date of this Indenture, shall happen and shall result in such
indebtedness in excess of an aggregate of $5,000,000 becoming
or being declared due and payable prior to the date on which
it would otherwise become due and payable, and within 30 days
after there has been given, by registered or certified mail to
the Corporation by the Trustee or to the Corporation and the
Trustee by the Holders of at least 25% in principal amount of
the then outstanding Securities, a written notice specifying
such event of default and requiring the Corporation to cause
such acceleration to be rescinded or annulled, such
acceleration shall not have been rescinded or annulled; if,
however, such event of default and such acceleration under
such mortgage, indenture or instrument shall be remedied or
cured whether by payment or otherwise by the Corporation, or
waived by the holders of such indebtedness, prior to
<PAGE> 27
20
acceleration of the maturity of the Securities, then the Event
of Default under this Indenture by reason of such acceleration
shall be deemed likewise to have been remedied, cured or
waived without further action upon the part of either the
Trustee or any of the Holders of the Securities; the Trustee
shall not be charged with knowledge of any such event of
default unless either (i) the Trustee shall have actual
knowledge of such default or (ii) written notice of such event
of default shall have been given to the Trustee by the
Corporation, by the holder or an agent of the holder of any
such indebtedness, by the Trustee then acting under any
indenture or other instrument under which such default shall
have occurred, or by the Holders of not less than 25% in
aggregate principal amount of outstanding Securities.
The term "Bankruptcy Law" means Title 11, United States Code
or any similar Federal or State law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (3) is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the
Securities notify the Corporation of the default and the Corporation does not
cure the default within 60 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default."
SECTION 6.02. Acceleration. If an Event of Default occurs and
is continuing, the Trustee by notice to the Corporation or the Holders of at
least 25% in principal amount of the Securities by notice to the Corporation
and the Trustee may declare the principal of and accrued interest on all the
Securities to be due and payable. Upon a declaration the principal and
interest will be due and payable immediately. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may rescind an
acceleration and its consequences if all existing
<PAGE> 28
21
Events of Default have been cured or waived (except nonpayment of principal or
interest that has become due solely because of the acceleration) and if the
rescission would not conflict with any judgment or decree.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing on an Event of Default will not impair
the right or remedy or constitute a waiver of or acquiescence in the Event of
Default. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
waive an existing Default and its consequences except a default in the payment
of the principal or interest on any Securities or a Default under Article 10.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture, is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability.
SECTION 6.06. Limitation on Suits. A Securityholder may
pursue a remedy with respect to this Indenture or the Securities only if
(1) the Holder gives to the Trustee notice of
a continuing Event of Default,
(2) the Holders of at least 25% in principal
amount of the Securities make a request to the Trustee to
pursue the remedy,
<PAGE> 29
22
(3) such Holder or Holders offer to the
Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense,
(4) the Trustee does not comply with the
request within 60 days after receipt of the request and the
offer of indemnity and
(5) no direction inconsistent with such
written request has been given to the Trustee during such
60-day period by the Holders of a majority in principal amount
of the outstanding Securities.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over the
other Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Security to receive payment of principal of and interest on the Security
and the coupons on or after the respective due dates expressed in the Security
and the coupons, or to bring suit for the enforcement of any such payment on or
after such respective dates, will not be impaired or affected without the
consent of the Holder.
Notwithstanding any other provision of this Indenture, the
right of any holder of a Security to bring suit for the enforcement of the
right to convert the Security will not be impaired or affected without the
consent of the Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(l) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Corporation for the whole amount of principal and interest
remaining unpaid.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its property.
<PAGE> 30
23
SECTION 6.10. Priorities. If the Trustee collects any money
pursuant to this Article, it will pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07
(Compensation and Indemnity).
Second: to holders of Senior Debt to the extent required by
Article 11.
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on such Securities for
principal and interest, respectively.
Fourth: to the Corporation.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 (Rights
of Holders to Receive Payment) or a suit by Holders of more than 10% in
principal amount of the Securities.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee will exercise its rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
<PAGE> 31
24
(b) Except during the continuance of an Event of
Default,
(1) the Trustee need perform only those duties that
are specifically set forth in this Indenture and no others,
and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, on certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture.
However, the Trustee will examine the certificates and
opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from
liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that
(1) this paragraph does not limit the effect of
paragraph (b) of this Section,
(2) the Trustee will not be liable for any error
of judgment made in good faith by a Trust Officer, unless it
is proved that the Trustee was negligent in ascertaining the
pertinent facts, and
(3) the Trustee will not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.05 (Control by Majority).
(d) Every provision of this Indenture that in any
way relates to the Trustee is subject to paragraphs (a), (b)
and (c) of this Section.
(e) The Trustee may refuse to perform any duty or
exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee will not be liable for interest
on any money received by it except as the Trustee may
agree with the Corporation. Money held in trust by the
Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on
any document reasonably believed by it
<PAGE> 32
25
to be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel. The Trustee
will not be liable for any action it takes or omits to take in good faith in
reliance on the Officers' Certificate or opinion.
(c) The Trustee may act through non-employee agents and
will not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee will not be liable for any action it
takes or omits to take in good faith that it believes to be authorized or
within its rights or powers.
SECTION 7.03. Individual Rights of Trustee, etc. The Trustee
in its individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Corporation or an Affiliate with the
same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee must comply with Sections 7.10
(Eligibility; Disqualification) and 7.11 (Preferential Collection of Claims
Against Corporations).
SECTION 7.04. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it will not be accountable for the Corporation's use of the
proceeds from the Securities, and it will not be responsible for any statement
in the Securities other than its certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee will give
Securityholders notice in accordance with Section 12.02 of the Default within
90 days after it occurs. Except in the case of a Default in payment on any
Security, the Trustee may withhold the notice if and so long as a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interests of such Securityholders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days
after the reporting date stated in Section 12.10, the Trustee will give to each
Securityholder in accordance with Section 12.02 a brief report dated as of
<PAGE> 33
26
such reporting date that complies with TIA Sec. 313(a). The Trustee also will
comply with TIA Sec. 313(b)(2).
A copy of each report at the time of its mailing to Registered
Securityholders will be filed with the SEC and each stock exchange on which the
Securities are listed. The Corporation will notify the Trustee when the
Securities are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity. The Corporation
will pay to the Trustee from time to time reasonable fees for its services.
The Corporation will reimburse the Trustee on request for all reasonable
out-of-pocket expenses incurred by it. Such expenses will include the
reasonable fees and expenses of the Trustee's agents and counsel.
The Corporation will indemnify the Trustee against any loss or
liability incurred by it in connection with the administration of this
Indenture and its duties under it. The Trustee will notify the Corporation
promptly of any claim for which it may seek indemnity. The Corporation will
defend the claim and the Trustee will cooperate in the defense. The Trustee
may have separate counsel and the Corporation will pay the reasonable fees and
expenses of such counsel. The Corporation need not pay for any settlement made
without its consent. The Corporation need not reimburse any expense or
indemnify against any loss or liability incurred by the Trustee through
negligence or bad faith.
To secure the Corporation's payment obligations in this
Section, the Trustee will have a lien prior to the Securities on all money or
property held or collected by the Trustee, except that held in trust to pay
principal of and interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(4) or (5) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. A resignation or
removal of the Trustee and appointment of a successor Trustee will become
effective only on the successor Trustee's acceptance of appointment as provided
in this Section.
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27
The Trustee may resign by so notifying the Corporation. The
Holders of a majority in principal amount of the Securities may remove the
Trustee by so notifying the removed Trustee and the Corporation. The
Corporation may remove the Trustee if
(1) the Trustee fails to comply with Section 7.10
(Eligibility; Disqualification),
(2) the Trustee is adjudged a bankrupt or an insolvent,
(3) a receiver or other public officer takes charge of
the Trustee or its property or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of trustee for any reason, the Corporation shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the
Corporation.
A successor Trustee will deliver a written acceptance of its
appointment to the retiring Trustee and to the Corporation. Immediately after
that, the retiring Trustee will transfer all property held by it as Trustee,
the resignation or removal of the retiring Trustee will then become effective,
and the successor Trustee will have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee will give notice of its
succession to the Holders of the Securities in accordance with the provisions
of Section 12.02.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Corporation or the Holders of at least 10% in principal amount of the
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 (Eligibility,
Disqualification), any Securityholder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
<PAGE> 35
28
SECTION 7.09. Successor Trustee by Merger, etc. If the
Trustee consolidates with, merges or converts into or transfers all or
substantially all its corporate trust assets to another corporation, the
successor corporation without any further act will be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification. This Indenture
will always have a Trustee that satisfies the requirements of TIA Section
310(a)(1). Such Trustee must have a combined capital and surplus of at least
$25,000,000 as set forth in its most recent published annual report of
condition. Such Trustee will comply with TIA Section 310(b), including the
optional provision permitted by the second sentence of TIA Section 310(b)(9).
SECTION 7.11. Preferential Collection of Claims Against
Corporations. The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed is subject to TIA Section 311(a) to the extent indicated.
ARTICLE 8
Repayment to Corporation
SECTION 8.01. Repayment to Corporation. The Trustee and the
Paying Agent will promptly pay or deliver to the Corporation on request any
excess money or securities held by them at any time. The Trustee and the
Paying Agent will pay to the Corporation on request any money held by them for
the payment of principal or interest that remains unclaimed for two years.
Securityholders entitled to the money must look to the Corporation for payment
as general creditors unless an applicable abandoned property law designates
another person.
ARTICLE 9
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders. The Corporation and
the Trustee may amend this Indenture or the Securities without the consent of
any Securityholder
(1) to cure any ambiguity, defect or inconsistency,
<PAGE> 36
29
(2) to comply with Section 5.01 (When Corporation may
merge, etc.),
(3) to provide for uncertificated Registered Securities
in addition to or in place of certificated
Registered Securities, or
(4) to make any change that does not adversely affect the
rights of any Securityholder.
SECTION 9.02. With Consent of Holders. The Corporation and
the Trustee may amend this Indenture or the Securities or coupons with the
written consent of the Holders of at least 66-2/3% in principal amount of the
Securities. However, without the consent of each Securityholder affected, an
amendment under this Section may not
(1) reduce the amount of Securities whose Holders must
consent to an amendment,
(2) reduce the rate of or change the time for payment of
interest on any Registered Security or coupon,
(3) reduce the principal of or extend the fixed maturity
of any Security,
(4) make any Security or interest payable in money other
than that stated in the Security or coupon,
(5) make any change that adversely affects the right to
convert any Security,
(6) make any change in Section 6.04 (Waiver of Past
Defaults), 6.07 (Rights of Holders to Receive
Payment) or this sentence,
(7) make any change in Article 11 that adversely affects
the rights of any Securityholders,
(8) make any change to the right of the Securityholder to
receive additional amounts as provided in paragraph 7
of the Securities (except as otherwise permitted in
this Indenture or the Securities), or
(9) modify the obligation of the Corporation to maintain
offices or agencies in New York, New York and in
a city outside of the United States.
<PAGE> 37
30
An amendment under this Section may not make any change that
adversely affects the rights under Article 11 of any holder of an issue of
Senior Debt unless the holders of the issue pursuant to its terms consent to
the change.
After an amendment under this Section becomes effective, the
Company will publish in an Authorized Newspaper and mail to Registered
Securityholders a notice briefly describing the amendment.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities will be set forth in a
supplemental indenture that complies with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents. Until an
amendment or waiver becomes effective, a consent to it by a Holder of a
Security is a continuing consent by the Holder and every subsequent Holder of
that Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of the Security if the Trustee receives
the notice of revocation before the date the amendment or waiver becomes
effective. An amendment or waiver becomes effective in accordance with its
terms and thereafter binds every Securityholder.
SECTION 9.05. Notation on or Exchange of Securities. The
Trustee may place an appropriate notation about an amendment or waiver on any
Security thereafter authenticated. The Corporation in exchange for all
Securities may issue and the Trustee will authenticate new Securities that
reflect the amendment or waiver.
SECTION 9.06. Trustee Protected. The Trustee need not sign
any supplemental indenture that adversely affects its rights.
ARTICLE 10
Conversion
SECTION 10.01. Conversion Privilege. A Holder of a Security
may convert it into Common Stock at any time during the period stated in
paragraph 8 of the Securities. The number of shares issuable upon conversion
of a Security
<PAGE> 38
31
is determined as follows: Divide the principal amount to be converted by the
conversion price in effect on the conversion date. Round the result to the
nearest 1/100th of a share.
The initial conversion price is stated in paragraph 8 of the
Securities. The conversion price is subject to adjustment.
A Holder may convert a portion of a Registered Security if the
portion is U.S. $5000 or a whole multiple of U.S. $5000. Provisions of this
Indenture that apply to conversion of all of a Security also apply to
conversion of a portion of it.
"Common Stock" means Common Stock of the Corporation as it
exists on the date of this Indenture as originally signed.
SECTION 10.02. Conversion Procedure. To convert a Security a
Holder must satisfy the requirements in paragraph 8 of the Securities. The
date on which the Holder satisfies all those requirements is the conversion
date. As soon as practical, the Corporation will deliver through the
Conversion Agent a certificate for the number of full shares of Common Stock
issuable upon the conversion and a check for any fractional share. The person
in whose name the certificate is registered will be treated as a stockholder of
record on and after the conversion date.
Registered Securities surrendered for conversion during any
period from the close of business on any Record Date (as stated on the face of
the Securities) next preceding any interest payment date to the opening of
business on such interest payment date (except Registered Securities or
portions thereof called for redemption on a redemption date within such period)
must be accompanied by payment in clearing house funds or other funds
acceptable to the Corporation of an amount equal to the interest payable on
such interest payment date on the principal amount of Securities then being
converted which the registered holder is to receive. Bearer Securities
surrendered for conversion must have all unmatured coupons appurtenant thereto.
Except where Securities surrendered for conversion must be accompanied by
payment as described above, no interest on converted Securities will be payable
by the Corporation on any interest payment date subsequent to the date of
conversion. No other payment or adjustment will be made for accrued interest
on a converted Security.
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If a Holder converts more than one Security at the same time,
the number of full shares issuable upon the conversion will be based on the
total principal amount of the Securities converted.
On surrender of a Security that is converted in part, the
Trustee will authenticate for the Holder a new Security equal in principal
amount to the unconverted portion of the Security surrendered.
If the last day on which a Security may be converted is a
Legal Holiday in a place where a Conversion Agent is located, the Security may
be surrendered to that Conversion Agent on the next succeeding day that is not
a Legal Holiday.
SECTION 10.03. Fractional Shares. The Corporation will not
issue a fractional share of Common Stock on conversion of a Security. Instead
the Corporation will deliver its check for the current market value of the
fractional share. The current market value of a fraction of a share is
determined as follows: Multiply the current market price of a full share by the
fraction. Round the result to the nearest cent.
The current market price of a share of Common Stock is the
Quoted Price of the Common Stock on the last trading day before the conversion
date. In the absence of such a quotation, the Company will determine the
current market price on the basis of such quotations as it considers
appropriate.
SECTION 10.04. Taxes on Conversion. If a Holder of a Security
converts it, the Corporation shall pay any documentary, stamp or similar issue
or transfer tax due on the issue of shares of Common Stock on the conversion.
However, the Holder shall pay any such tax which is due because the shares are
issued in a name other than the Holder's name.
SECTION 10.05. Corporation to Provide Stock. The Corporation
will reserve out of its authorized but unissued Common Stock or its Common
Stock held in treasury enough shares of Common Stock to permit the conversion
of the Securities.
All shares of Common Stock which may be issued on conversion
of the Securities will be fully paid and non-assessable.
<PAGE> 40
33
The Corporation will endeavor to comply with all securities
laws regulating the offer and delivery of shares of Common Stock on conversion
of Securities and will endeavor to list such shares on each national securities
exchange on which the Common Stock is listed.
SECTION 10.06. Adjustment for Change in Capital Stock. If the
Corporation
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock,
(2) subdivides its outstanding shares of Common Stock
into a greater number of shares,
(3) combines its outstanding shares of Common Stock into
a smaller number of shares,
(4) makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock or
(5) issues by reclassification of its Common Stock any
shares of its capital stock,
then the conversion privilege and the conversion price in effect immediately
before such action will be adjusted so that the Holder of a Security thereafter
converted may receive the number of shares of capital stock of the Corporation
which the holder would have owned immediately following such action if the
holder had converted the Security immediately before such action.
The adjustment will become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security on conversion of
it may receive shares of two or more classes of capital stock of the
Corporation, the Corporation will determine the allocation of the adjusted
conversion price between the classes of capital stock. After such allocation,
the conversion privilege and the conversion price of each class of capital
stock will thereafter be subject to adjustment on terms comparable to those
applicable to Common Stock in this Article.
SECTION 10.07. Adjustment for Rights Issue. If the
Corporation distributes any rights or warrants to all
<PAGE> 41
34
holders of its Common Stock entitling them for a period expiring within 60 days
after the record date mentioned below to purchase shares of Common Stock at a
price per share less than the current market price per share on that record
date, the conversion price shall be adjusted in accordance with the following
formula:
N x P
C' = C x 0 + M
0 + N
where
C' = the adjusted conversion price.
C = the current conversion price.
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the
record date.
The adjustment will become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights or warrants.
SECTION 10.08. Adjustment for Other Distributions. If the
Corporation distributes to all holders of its Common Stock any of its assets or
debt securities or any rights or warrants to purchase securities of the
Corporation, the conversion price will be adjusted in accordance with the
formula:
M - F
C' = C X M
where
C' = the adjusted conversion price.
C = the current conversion price.
M = the current market price per share of Common Stock
on the record date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share
of Common Stock. The Corporation will determine the
fair market value.
<PAGE> 42
35
The adjustment will become effective immediately after the
record date for the determination of stockholders entitled to receive the
distribution.
This Section does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Corporation. Also, this Section does not apply to rights or
warrants referred to in the foregoing Section.
SECTION 10.09. Current Market Price. In the foregoing two
Sections the current market price per share of Common Stock on any date is the
average of the Quoted Prices of the Common Stock for 30 consecutive trading
days commencing 45 trading days before the date in question. In the absence of
one or more such quotations, the Corporation will determine the current market
price on the basis of such quotations as it considers appropriate.
SECTION 10.10. When Adjustment May Be Deferred. No adjustment
in the conversion price need be made unless the adjustment would require an
increase or decrease of at least 1% in the conversion price. Any adjustments
that are not made will be carried forward and taken into account in any
subsequent adjustment.
All calculations under this Article will be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
SECTION 10.11. When No Adjustment Required. No adjustment
need be made for a transaction referred to in Section 10.06, 10.07 or 10.08 if
Securityholders are to participate in the transaction on a basis and with
notice that the Board of Directors determines to be fair and appropriate in
light of the basis and notice on which holders of Common Stock participate in
the transaction.
No adjustment need be made for rights to purchase Common Stock
pursuant to a Corporation plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no
par value of the Common Stock.
To the extent the Securities become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
<PAGE> 43
36
SECTION 10.12. Notice of Adjustment. Whenever the conversion
price is adjusted, the Corporation will promptly provide to Securityholders a
notice of the adjustment in the manner provided for in Section 12.02. The
Corporation will file with the Trustee a certificate from the Corporation's
independent public accountants briefly stating the facts requiring the
adjustment and the manner of computing it. The certificate will be conclusive
evidence that the adjustment is correct.
SECTION 10.13. Voluntary Reduction. The Corporation from time
to time may reduce the conversion price by any amount for any period of time if
the period is at least 20 days and if the reduction is irrevocable during the
period.
Whenever the conversion price is reduced, the Corporation will
give Securityholders, the Trustee and Conversion Agents a notice of the
reduction, in accordance with the provisions of Section 12.02. The Corporation
will mail the notice at least 15 days before the date the reduced conversion
price takes effect. The notice will state the reduced conversion price and the
period it will be in effect.
A reduction of the conversion price does not change or adjust
the conversion price otherwise in effect for purposes of Sections 10.06 through
10.08.
SECTION 10.14. Notice of Certain Transactions. If
(1) the Corporation takes any action that would require an
adjustment in the conversion price pursuant to Section 10.06, 10.07 or
10.08 and if the Corporation does not let Securityholders participate
pursuant to Section 10.11,
(2) the Corporation takes any action that would require a
supplemental indenture pursuant to Section 10.15 or
(3) there is a liquidation or dissolution of the
Corporation,
the Corporation shall give Securityholders, the Trustee and Conversion Agents a
notice stating the proposed record date for a dividend or distribution or the
proposed effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or
<PAGE> 44
37
dissolution. The Corporation shall give the notice in accordance with the
provisions of Section 12.02 at least 15 days before such date. Failure to give
the notice or any defect in it shall not affect the validity of the transaction.
SECTION 10.15. Reorganization of Corporation. If the
Corporation is a party to a transaction subject to Section 5.01 or a merger
which reclassifies or changes its outstanding Common Stock, the person obligated
to deliver securities, cash or other assets on conversion of Securities will
enter into a supplemental indenture. If the issuer of securities deliverable on
conversion of Securities is an affiliate of the surviving, transferee or lessee
corporation, that issuer will join in the supplemental indenture.
The supplemental indenture will provide that the Holder of a
Security may convert it into the kind and amount of securities, cash or other
assets which the Holder would have owned immediately after the consolidation,
merger, transfer or lease if the Holder had converted the Security immediately
before the effective date of the transaction if the Holder failed to exercise
such Holder's right of election, if any, as to the kind or amount of securities,
cash or other property receivable on such transaction or, if such kind or amount
is not the same for each share of non-electing Common Stock, the kind and amount
receivable per share by a plurality of the non-electing shares. The supplemental
indenture will provide for adjustments which will be as nearly equivalent as may
be practical to the adjustments provided for in this Article. The successor
Corporation will mail to Securityholders a notice briefly describing the
supplemental indenture.
If this Section applies, Section 10.06 does not apply.
SECTION 10.16. Corporation Determination Final. Any
determination that the Corporation or the Board of Directors must make pursuant
to Section 10.03, 10.06, 10.08, 10.09 or 10.11 is conclusive.
SECTION 10.17. Trustee's Disclaimer. The Trustee has no duty
to determine when an adjustment under this Article should be made, how it should
be made or what it should be. The Trustee has no duty to determine whether any
provisions of a supplemental indenture under Section 10.15 are correct. The
Trustee makes no representation as to the validity or value of any securities or
assets issued on conver-
<PAGE> 45
38
sion of Securities. The Trustee will not be responsible for the Corporation's
failure to comply with this Article. Each Conversion Agent other than the
Corporation will have the same protection under this Section as the Trustee.
ARTICLE 11
Subordination
SECTION 11.01. Agreement to Subordinate. The Corporation
agrees, and each Securityholder by accepting a Security or a beneficial interest
in Security agrees, that the indebtedness evidenced by the Securities is
subordinated in right of payment, to the extent and in the manner provided in
this Article, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
SECTION 11.02. Certain Definitions.
"Representative" means the indenture trustee or other trustee,
agent or representative for an issue of Senior Debt.
"Senior Debt" (a) the principal of, premium, if any, and
accrued and unpaid interest on (1) indebtedness of the Corporation for money
borrowed, whether outstanding on the date of this Indenture or created, incurred
or assumed after that date, (2) guaranties by the Corporation of indebtedness
for money borrowed by any other person, whether outstanding on the date of this
Indenture or created, incurred or assumed after that date, (3) indebtedness
evidenced by notes, debentures, bonds or other instruments of indebtedness for
the payment of which the Corporation is responsible or liable, by guaranty, or
otherwise, whether outstanding on the date of this Indenture or created,
incurred, or assumed after that date, and (4) obligations of the Corporation
under any agreement to lease, or lease of any real or personal property, whether
outstanding on the date of this Indenture or created, incurred or assumed after
that date, (b) any other indebtedness, liability or obligation, contingent or
otherwise, of the Corporation and any guaranty, endorsement or other contingent
obligation in respect thereof, whether outstanding on the date of the Indenture
or created, incurred or assumed after that date, and (c) modifications,
renewals, extensions and refundings of any such indebtedness, liabilities or
obligations, unless, in the instrument creating or evidencing the same or
<PAGE> 46
39
pursuant to which the same is outstanding, it is provided that such
indebtedness, liabilities or obligations, or such modification, renewal,
extension or refunding, or the obligations of the Corporation pursuant to such
guaranty, are not superior in right of payment to the Debentures. Senior Debt
will not include any obligation of the Corporation to any other corporation a
majority of the outstanding voting stock of which is owned by the Corporation.
Senior Debt may be further defined in Section 12.10.
A distribution may consist of cash, securities or other
property.
SECTION 11.03. Liquidation; Dissolution; Bankruptcy. On any
distribution to creditors of the Corporation in a liquidation or dissolution of
the Corporation or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Corporation or its property,
(1) holders of Senior Debt will be entitled to receive
payment in full in cash of the principal of and interest (including
interest accruing after the commencement of any such proceeding) to
the date of payment on the Senior Debt before Securityholders will be
entitled to receive any payment of principal of or interest on
Securities, and
(2) until the Senior Debt is paid in full in cash, any
distribution to which Securityholders would be entitled but for this
Article will be made to holders of Senior Debt as their interests may
appear, except that Securityholders may receive securities that are
subordinated to Senior Debt to at least the same extent as the
Securities.
SECTION 11.04. Default on Senior Debt. The Corporation may
not pay principal of or interest on the Securities and coupons and may not
acquire any Securities for cash or property other than capital stock of the
Corporation if
(1) a default on Senior Debt occurs, and
(2) the default is the subject of judicial proceedings or
the Corporation receives a notice of the default from a person who may
give it pursuant to Section 11.12.
<PAGE> 47
40
The Corporation may resume payments on the Securities and may
acquire them when
(a) the default is cured or waived or
(b) 120 days pass after the notice is given if the default
is not the subject of judicial proceedings,
if this Article otherwise permits the payment or acquisition at that time.
SECTION 11.05. Acceleration of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Corporation will
promptly notify holders of Senior Debt of the acceleration. The Corporation
may pay the Securities when 120 days pass after the acceleration occurs if this
Article permits the payment at that time.
SECTION 11.06. When Distribution Must Be Paid Over. If a
distribution is made to Securityholders that because of this Article should not
have been made to them, the Securityholders who receive the distribution will
hold it in trust for holders of Senior Debt and pay it over to them as their
interests may appear.
SECTION 11.07. Notice by Corporation. The Corporation will
promptly notify the Trustee and the Paying Agent of any facts known to the
Corporation that would cause a payment of principal of or interest on the
Securities to violate this Article.
SECTION 11.08. Subrogation. After all Senior Debt is paid in
full and until the Securities are paid in full, Securityholders will be
subrogated to the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
the Securityholders have been applied to the payment of Senior Debt. A
distribution made under this Article to holders of Senior Debt which otherwise
would have been made to Securityholders is not, as between the Corporation and
Securityholders, a payment by the Corporation on Senior Debt.
SECTION 11.09. Relative Rights. This Article defines the
relative rights of Securityholders and holders of Senior Debt. Nothing in this
Indenture will
(1) impair, as between the Corporation and
Securityholders, the obligation of the Corporation, which
<PAGE> 48
41
is absolute and unconditional, to pay principal of and interest on the
Securities and coupons in accordance with their terms,
(2) affect the relative rights of Securityholders and
creditors of the Corporation other than holders of Senior Debt or
(3) prevent the Trustee or any Securityholder from
exercising its available remedies upon a Default, subject to the
rights of holders of Senior Debt to receive distributions otherwise
payable to Securityholders.
If the Corporation fails because of this Article to pay
principal of or interest on a Security on the due date, the failure is still a
Default.
SECTION 11.10. Subordination May Not Be Impaired by
Corporation. No right of any holder of Senior Debt to enforce the
subordination of the indebtedness evidenced by the Securities will be impaired
by any act or failure to act by the Corporation or by its failure to comply
with this Indenture.
SECTION 11.11. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Debt, the distribution may be made and the notice given to their
Representative.
SECTION 11.12. Rights of Trustee and Paying Agent. The
Trustee or Paying Agent may continue to make payments on the Securities until
it receives notice of facts that would cause a payment of principal of or
interest on the Securities to violate this Article. Only the Corporation, a
Representative or a holder of an issue of Senior Debt that has no
Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
<PAGE> 49
42
ARTICLE 12
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision that is
required to be included in this Indenture by the TIA, the required provision
will control.
SECTION 12.02. Notices. Any notice or communication by the
Corporation or the Trustee to the other is duly given if in writing and
delivered in person or mailed by first-class mail to the other's address in
Section 12.10. The Corporation or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Where this Indenture provides for notice to Holders of
Securities of any event,
(1) such notice shall be sufficiently given to Holders of
Bearer Securities if published in an Authorized Newspaper in London,
England, and, so long as the Securities are listed on the Luxembourg
Stock Exchange and such stock exchange shall so require, in
Luxembourg, or, if publication in either London or Luxembourg is not
practicable, in Europe on a business day at least twice, each such
publication to be not earlier than the earliest date, and not later
than the latest date, prescribed for the giving of such notice; and
(2) such notice shall be sufficiently given to Holders of
Registered Securities if in writing and mailed, first-class postage
prepaid, to each Holder of a Registered Security affected by such
event, at the address of such Holder as it appears on the registration
books of the Registrar, not earlier than the earliest date, and not
later than the latest date, prescribed for the giving of such notice.
Failure to give notice by publication to Holders of Bearer
Securities or any defect in any notice so published shall not affect the
sufficiency of any notice mailed to Holders of Registered Securities. In case
by reason of the suspension of publication of any Authorized Newspaper or
Authorized Newspapers or by reason of any other cause it shall be impracticable
to publish any notice to Holders of
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43
Bearer Securities as provided above, then notification to Holders of Bearer
Securities as given with the approval of the Trustee shall constitute
sufficient notice to such Holders for every purpose under this Indenture and
under the Securities.
Failure to mail a notice or communication to a Registered
Securityholder or any defect in it will not affect its sufficiency with respect
to other Registered Securityholders or Bearer Securityholders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
If the Corporation mails a notice or communication to
Registered Securityholders, it will mail a copy to the Trustee and each Agent
at the same time.
All other notices or communications will be in writing.
For purposes of this Section, the term "Holders of Bearer
Securities" includes account holders with CEDEL or Euro-Clear who are
beneficial owners of Securities.
The Corporation will also comply with TIA Sec. 313(c)(2) and
(3).
SECTION 12.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Corporation, the Trustee, the Registrar and anyone else will
have the protection of TIA Sec. 312(c).
SECTION 12.04. Certificate and Opinion as to Conditions
Precedent. On any request or application by the Corporation to the Trustee to
take any action under this Indenture, the Corporation shall furnish to the
Trustee
(1) an Officers' Certificate stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with, and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
<PAGE> 51
44
SECTION 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include
(1) a statement that the person making such certificate
or opinion has read such covenant or condition,
(2) a brief statement as to the nature and scope of the
examination or investigation on which the statements or opinions
contained in such certificate or opinion are based,
(3) a statement that, in the opinion of such person, the
person has made such examination or investigation as is necessary to
enable the person to express an informed opinion as to whether such
covenant or condition has been complied with and
(4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
SECTION 12.06. Rules by Trustee, Paying Agent, Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders
and for the proving of holdings by Holders of Bearer Securities. The Paying
Agent, Conversion Agent, Transfer Agent or Registrar may make reasonable rules
and set reasonable requirements for its functions.
SECTION 12.07. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday, a legal holiday or a day on which banking institutions in
any city in which a Paying Agent is located are not required to be open. If a
payment date is a Legal Holiday at a place of payment, payment shall be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest will accrue for the intervening period.
SECTION 12.08. No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Corporation will not have any
liability for any obligation of the Corporation under the Securities or Coupons
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. All liability described in the Securities of
any director, officer,
<PAGE> 52
45
employee or stockholder, as such, of the Corporation is waived and released.
SECTION 12.09. Duplicate Originals. The parties may sign any
number of copies of this Indenture. One signed copy is enough to prove this
Indenture.
SECTION 12.10. Variable Provisions.
"Officer" means the Chairman, President, any Vice-President,
the Treasurer, the Secretary, any Assistant Treasurer or any Assistant
Secretary of the Corporation.
"Quoted Price" of the Common Stock means the last reported
sales price of the Common Stock on the American Stock Exchange.
The first certificate pursuant to Section 4.03 will be for the
fiscal year ending on December 31, 1987.
The reporting date for Section 7.06 is May 15 of each year.
The first reporting date is May 15, 1988.
The Company's address is:
1196 Borregas Avenue
Sunnyvale, California 94088-3427
The Trustee's address is:
127 John Street
New York, New York 10038
<PAGE> 53
46
SECTION 12.11. Governing Law. The laws of the State of New
York shall govern this Indenture and the Securities.
SIGNATURES
ATARI CORPORATION
By [SIG]
------------------------------
SECURITY PACIFIC NATIONAL BANK
By [SIG]
------------------------------
<PAGE> 54
EXHIBIT A
(Face of Registered Security)
No. R- U.S. $
ATARI CORPORATION
promises to pay to , or registered assigns, the
principal sum of United States Dollars on
April 29, 2002.
5-1/4% Convertible Subordinated Debenture Due 2002
Interest Payment Dates: April 29
Record Dates: April 14
Dated:
Authenticated:
SECURITY PACIFIC NATIONAL BANK
as Trustee
By By
Authorized Officer
OR By
, as Authenticating
Agent
By
Authorized Officer
(SEAL)
(Back of Registered Security)
5-1/4% Convertible Subordinated Debenture Due 2002
1. Interest. Atari Corporation ("Corporation"), a Nevada
corporation, promises to pay interest on the principal amount of this Security
at the rate per annum
<PAGE> 55
A-2
shown above. The Corporation will pay interest annually on April 29 of each
year, commencing April 29, 1988. Interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has
been paid, from April 29, 1987. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Corporation will pay interest
on the Registered Securities (except defaulted interest) to the persons who are
registered holders of Registered Securities at the close of business on the
record date for the next interest payment date even though Registered
Securities are canceled after the record date and on or before the interest
payment date. Holders must surrender Registered Securities to a Paying Agent
which is also a Transfer Agent to collect principal payments. The Corporation
will pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts. However,
the Corporation may pay principal and interest by check payable in such money
drawn on a bank in New York or for payment of principal, and interest upon
application by a Holder with principal amount of $100,000 or more of Registered
Securities to the Register not later than the record date in which payment is
to be received, by transfer to a dollar account located in New York, New York.
It may mail an interest check to a holder's registered address.
3. Paying Agent, Registrar, Conversion Agent. Initially,
Security Pacific National Bank (the "Trustee"), New York, New York, will act as
Paying Agent, Registrar and Conversion Agent; Credit Suisse (France), Paris,
France, Credit Suisse (Luxembourg) SA, Luxembourg, Grand Duchy of Luxembourg;
Schweizerische Kreditanstalt (Deutschland) AG, Frankfurt, Germany, and Credit
Suisse, London, Great Britain, will serve as Paying and Conversion Agents and
Credit Suisse, Zurich, Switzerland, will serve as Paying Agent. The Corporation
may change any Paying Agent, Registrar, Conversion Agent or co-registrar
without notice. The Corporation may act in any such capacity.
4. Indenture. The Corporation issued the Securities
under an Indenture dated as of April 29, 1987 ("Indenture"), between the
Corporation and the Trustee. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-7bbbb) as in effect on the
date of the Indenture. The Securities are subject to all such terms, and
Securityholders are referred
<PAGE> 56
A-3
to the Indenture and the Act for a statement of such terms. The Securities are
unsecured general obligations of the Corporation limited to U.S. $75,000,000 in
total principal amount.
5. Optional Redemption. The Corporation may redeem all
the Securities at any time or some of them from time to time after the
expiration of 30 days from the Exchange Date at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date.
If redeemed during the 12-month period beginning April 29,
<TABLE>
<CAPTION>
Year Percentage Year Percentage
------ ------------ ------ ----------
<S> <C> <C> <C>
1987 106% 1990 103%
1988 105% 1991 102%
1989 104% 1992 101%
</TABLE>
and thereafter of a redemption price equal to 100% of the principal amount plus
accrued interest to the date of redemption.
The Securities may not, however, be redeemed before April
29, 1990, unless the closing price of the Common Stock for any 20 trading days
during a period of 30 consecutive trading days ending within 10 days before the
date notice of redemption is given equals or exceeds 130% of the conversion
price then in effect or unless the Securities may be redeemed at 100% of their
principal amount in the circumstances described below.
The Securities may also be redeemed in whole, but not in part,
at 100% of their principal amount, together with interest accrued to the date
fixed for redemption, at the option of the Corporation if, at any time, the
Corporation determines, based on an opinion of independent legal counsel of
recognized standing, that as a result of any change in or amendment to the laws
(or any regulations or rulings promulgated thereunder) of the United States or
any political subdivision or taxing authority thereof or therein affecting
taxation, or any change in the application or official interpretation of such
laws, regulations or rulings, which change or amendment becomes effective on or
after April 6, 1987, there is a substantial probability that the Corporation
has or will become obligated to pay additional amounts in respect of the
Securities as described under Section 7 below. The Corporation may exercise
this
<PAGE> 57
A-4
redemption option at any time so long as the conditions specified in this
Section 5 continue to exist at the time the notice of redemption is made.
If the Corporation shall determine (the "Determination"), based
upon an opinion of independent legal counsel of recognized standing, that any
payment made outside the United States by the Corporation or any of its paying
agents of the full amount of the next scheduled payment of principal, premium,
if any, or interest due in respect of any Bearer Security or coupon
appertaining thereto would, under any current or future laws or regulations of
the United States affecting taxation or otherwise, be subject to any
certification, information, documentation or other reporting requirement of any
kind, the effect of which requirement is the disclosure to the Corporation, a
paying agent or any United States government authority of the nationality,
residence or identity of a beneficial owner of such Bearer Security or coupon
who is a United States Alien (other than such a requirement that (i) would not
be applicable to a payment made to a custodian, nominee or other agent of the
beneficial owner or which can be satisfied by such a custodian, nominee or
other agent certifying to the effect that such beneficial owner is a United
States Alien, provided, however, in each case, that payment by such custodian,
nominee or agent to such beneficial owner is not otherwise subject to any
requirement referred to in this sentence, (ii) is applicable only to a payment
by a custodian, nominee or other agent of the beneficial owner to such
beneficial owner or (iii) would not be applicable to a payment made by any
other paying agent of the Corporation), the Corporation shall either (x) redeem
the Securities, as a whole, but not in part, at a price equal to 100% of the
principal amount thereof, together with accrued interest to the date fixed for
redemption, on such date, not later than one year after the publication of
notice of the Determination, as the Corporation shall elect by at least 60 days
prior notice to the Trustee, unless shorter notice is acceptable to the
Trustee, or (y) if the conditions of the next succeeding paragraph are
satisfied, pay the additional amounts specified in such paragraph. The
Corporation shall make the Determination as soon as practicable and shall give
prompt notice thereof to the Trustee, stating in the notice the effective date
of such certification, information, documentation or other reporting
requirement and the date by which the redemption shall take place. Upon
receipt of such notice from the Corporation, the Trustee shall cause notice
thereof to be duly given as provided in Section 6 below. Notwithstanding the
foregoing, the Corporation shall not so
<PAGE> 58
A-5
redeem the Securities if the Corporation shall subsequently determine, not less
than 30 days prior to the date fixed for redemption, that subsequent payments
would not be subject to any such requirement, in which case the Corporation
shall give prompt notice of such determination to the Trustee, and the Trustee
shall give notice in accordance with Section 6 and any earlier redemption
notice shall be revoked and of no further effect.
Notwithstanding the foregoing, if and so long as the
certification, information, documentation or other reporting requirement
referred to in the preceding paragraph would be fully satisfied by payment of a
backup withholding tax or similar charge, the Corporation may elect, prior to
publication of the notice of the Determination, to have the provisions of this
paragraph apply in lieu of the provisions of the preceding paragraph. In such
event, the Corporation will pay as additional amounts such amounts as may be
necessary so that every net payment made following the effective date of such
requirement outside the United States by the Corporation or any of its paying
agents of principal, premium, if any, or interest due in respect of any Bearer
Security or any coupon appertaining thereto of which the beneficial owner is a
United States Alien (but without any requirement that the nationality,
residence or identity of the beneficial owner of such Security or coupon be
disclosed to the Corporation, any paying agent or any governmental authority)
after deduction or withholding for or on account of such backup withholding tax
or similar charge (other than a backup withholding tax or similar charge that
(i) would not be applicable in the circumstances referred to in the second
parenthetical of the first sentence of the preceding paragraph or (ii) is
imposed as a result of presentation of such Bearer Security or coupon for
payment more than 15 days after the date on which such payment became due and
payable or on which payment thereof is duly provided for, whichever occurs
later), will not be less than the amount provided for in such Bearer Security
or such coupon to be then due and payable. If the Corporation elects to pay
such additional amounts and as long as it is obligated to pay such additional
amounts, the Corporation may subsequently redeem the Securities, in whole but
not in part, subject to the last sentence of the preceding paragraph, at any
time, at 100% of their principal amount, plus accrued interest and additional.
amounts to the date fixed for redemption.
Notice of intention to redeem Securities will be given in
accordance with Section 6 below. In the case of a partial redemption, notice
will be given twice, the first
<PAGE> 59
A-6
such notice to be given not more than 75 nor less than 60 days prior to the
date fixed for redemption and the second such notice to be given at least 30
days thereafter but not less than 30 days prior to the date fixed for
redemption. In the case of a full redemption, notice shall be given at least
30, but not more than 60 days prior to the date fixed for redemption.
Notices of redemption will specify the date fixed for
redemption, the applicable redemption price and, in the case of a partial
redemption, the aggregate principal amount of Securities to be redeemed and the
aggregate principal amount of the Securities which will be outstanding after
such partial redemption. In addition, in the case of a partial redemption, the
first notice will specify the last date on which exchanges or transfers of
Securities may be made pursuant to the provisions of Section 10 below and the
second notice will specify the serial numbers of the Bearer Securities called
for redemption or, in the case of Registered Securities, the serial numbers and
the portions thereof called for redemption, which shall have been selected for
redemption pro rata or by lot.
Any Registered Security that is to be redeemed only in part
shall be surrendered at the principal corporate trust office of the Trustee in
New York, New York, or, subject to applicable laws and regulations, any paying
agent which is also a transfer agent (with, if the Corporation, the Trustee or
such paying agent so requires with respect to a Registered Security, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Corporation and the Registrar or such paying agent duly executed by, the Holder
thereof or his attorney duly authorized in writing), and, subject to the
restrictions contained herein, the Corporation shall execute, and the Trustee
shall authenticate and deliver to the Securityholder without service charge, a
new Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
6. Notice of Redemption. Notice of redemption will be
mailed to each holder of Registered Securities to be redeemed at his registered
address. Registered Securities in denominations larger than U.S. $5,000 may be
redeemed in, part but only in whole multiples of U.S. $5,000. On and after the
redemption date interest ceases to accrue on Securities or portions of them
called for redemption.
<PAGE> 60
A-7
7. Payment of Additional Amounts. The Corporation,
subject to the limitations and exceptions set forth below, will pay to the
holder of any Security or coupon who is a United States Alien such amounts as
may be necessary in order that every net payment of principal of or premium, if
any, or interest on such Security or coupon, after deduction or withholding for
or on account of any present or future tax, assessment or other governmental
charge imposed upon or as a result of such payment by the United States or any
political subdivision or taxing authority thereof or therein, will not be less
than the amount provided for in such Security or coupon to be then due and
payable; provided, however that the foregoing obligation to pay additional
amounts shall not apply to:
(a) any tax, assessment or other governmental charge
which would not have been so imposed but for (i) the existence
of any present or former connection between such holder (or
between a fiduciary, settlor, beneficiary, member or shareholder
of, or possessor of a power over, such holder, if such holder is
an estate, trust, partnership or corporation) and the United
States, including without limitation, such holder (or such
fiduciary, settlor, beneficiary, member, shareholder or
possessor) being or having been a citizen or resident thereof or
being or having been engaged in a trade or business therein or
being or having been present therein or having or having had a
permanent establishment therein, (ii) the failure of such holder
or the beneficial owner of such Security or coupon to comply
with any requirements under United States income tax laws and
regulations, without regard to any tax treaty, to establish
entitlement to exemption from deduction or withholding as a
United States Alien, or (iii) such holder's present or former
status as a personal holding company or a foreign personal
holding company with respect to the United States, as a
controlled foreign corporation with respect to the United
States, as a private foundation or other tax-exempt
organization, or as a corporation which accumulates earnings to
avoid United States federal income tax;
(b) any tax, assessment or other governmental charge
which would not have been so imposed but for the presentation
by the holder of such Security or coupon for payment on a date
more than 15 days after the date on which such payment became
due and payable or the date on which payment thereof is duly
provided for, whichever occurs later;
<PAGE> 61
A-8
(c) any estate, inheritance, gift, sales, transfer,
capital, personal property or any similar tax, assessment or
governmental charge;
(d) any tax, assessment or other governmental charge
which is payable otherwise than by deduction and withholding
from payments of principal of, premium, if any, or interest on
such Security or coupon;
(e) any tax, assessment or other governmental charge
imposed by reason of the holder's present or former status as
the actual or constructive owner of 10% or more of the total
combined voting power of all classes of stock of the Corporation
entitled to vote;
(f) any tax, assessment or other governmental charge
required to be withheld by any paying agent from any payment of
principal of, premium, if any, or interest on such Security or
coupon, if such payment could be paid without withholding by any
other paying agent;
(g) any combination of items (a), (b), (c), (d), (e)
and (f);
nor shall additional amounts be paid with respect to any payment of principal,
premium, if any, or interest to any United States Alien who is a fiduciary or
partnership or other than the sole beneficial owner of a Security or coupon to
the extent a beneficiary or settlor with respect to such fiduciary or a member
of such partnership or a beneficial owner of the Security or coupon would not
have been entitled to payment of the additional amounts had such beneficiary,
settlor, member or beneficial owner been the holder of the Security or coupon.
"United States Alien", as used in this Security, means any
corporation, partnership, individual or fiduciary that, is for United States
federal income tax purposes (i) a foreign corporation, (ii) a foreign
partnership one or more of the members of which is for United States federal
income tax purposes, a foreign corporation, a nonresident alien individual or a
nonresident alien fiduciary of a foreign estate or trust, (iii) a nonresident
alien individual or (iv) a nonresident alien fiduciary of a foreign estate or
trust.
8. Conversion. A holder of a Security may convert it
into Common Stock of the Corporation at any time.
<PAGE> 62
A-9
on or after the date on which definitive Securities are issued in exchange for
the Global Security and before the close of business on April 29, 2002. If the
Security is called for redemption, the holder may convert it at any time before
the close of business on the redemption date. The initial conversion price is
U.S. $32-5/8 per share, subject to adjustment in certain events. To determine
the number of shares issuable upon conversion of a Security, divide the
principal amount to be converted by the conversion price in effect on the
conversion date. Registered Securities surrendered for conversion during any
period from the close of business on any record date (as stated above) next
preceding any interest payment date to the opening of business on such interest
payment date (except Registered Securities or portions thereof called for
redemption on a redemption date within such period) must be accompanied by
payment in clearing house funds or other funds acceptable to the Corporation of
an amount equal to the interest payable on such interest payment date on the
principal amount of Securities then being converted which the registered holder
is to receive. Except where Securities surrendered for conversion must be
accompanied by payment as described above, no interest on converted Securities
will be payable by the Corporation on any interest payment date subsequent to
the date of conversion. On conversion no payment or adjustment for interest
will be made. The Corporation will deliver a check for any fractional share.
To convert a Security a holder must (1) complete and sign the
conversion notice on the back of the Security, (2) surrender the Security to a
Conversion Agent, (3) furnish appropriate endorsements and transfer documents if
required by the Registrar or Conversion Agent, and (4) pay any transfer or
similar tax if required. A holder may convert a portion of a Security if the
portion is U.S. $5000 or a whole multiple of U.S. $5000.
The conversion price will be adjusted for dividends or
distributions on Common Stock payable in Company stock; subdivisions,
combinations or certain reclassifications of Common Stock; distributions to all
holders of Common Stock of certain rights to purchase Common Stock at less than
the current market price at the time; distributions to such holders of assets or
debt securities of the Company or certain rights to purchase securities of the
Company (excluding cash dividends or distributions from current or retained
earnings). However, no adjustment need be made if Securityholders may
participate in the transaction or in certain other cases. The Company from
time to
<PAGE> 63
A-10
time may voluntarily reduce the conversion price for a period of time.
If the Company is a party to a consolidation or merger or a transfer
or lease of all or substantially all of its assets, the right to convert a
Security into Common Stock may be changed into a right to convert it into
securities, cash or other assets of the Company or another.
9. Subordination. The Securities are subordinated to
all existing and future Senior Debt of the Corporation. To the extent provided
in the Indenture, Senior Debt must be paid before the Securities may be paid.
There are no restrictions in the Indenture on the amount of Senior Debt the
Corporation may have outstanding. The Corporation agrees, and each
Securityholder by accepting a Security agrees, to the subordination and
authorizes the Trustee to give it effect.
10. Denominations, Transfer, Exchange. The Registered
Securities are in registered form without coupons in denominations of U.S.
$5,000 and whole multiples of U.S. $5,000. The transfer of Registered
Securities may be registered and Registered Securities may be exchanged as
provided in the Indenture. The Registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not exchange or register the transfer of any Security or portion
of a Security selected for redemption. Also, it need not exchange or register
the transfer of any Securities for a period of 15 days before a selection of
Securities to be redeemed.
Registered Securities may not be exchanged for Bearer Securities.
11. Persons Deemed Owners. The registered holder of a
Registered Security may be treated as its owner for all purposes.
12. Amendments and Waivers. Subject to certain
exceptions, the Indenture or the Securities may be amended with the consent of
the holders of at least 66-2/3% in principal amount of the Securities, and any
existing default may be waived with the consent of the holders of a majority in
principal amount of the Securities. Without the consent of any Securityholder,
the Indenture or the Securities may be amended to cure any ambiguity, defect or
inconsistency,
<PAGE> 64
A-11
to provide for assumption of Corporation obligations to Securityholders or to
make any change that does not adversely affect the rights of any
Securityholder.
13. Defaults and Remedies. An Event of Default is
default for 30 days in payment of interest on the Securities, default in
payment of principal on them, acceleration of any indebtedness for borrowed
money of the Corporation exceeding U.S. $5,000,000 in the aggregate if such
acceleration is not cured or waived within 30 days after notice to the
Corporation from the Trustee or the holders of 25% in principal amount of the
Securities, failure by the Corporation for 60 days after notice to it to comply
with any of its other agreements in the Indenture or the Securities, and
certain events of bankruptcy or insolvency. If an Event of Default occurs and
is continuing, the Trustee or the holders of at least 25% in principal amount
of the Securities may declare all the Securities to be due and payable
immediately.
14. Trustee Dealings with Corporation. Security Pacific
National Bank, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Corporation or its Affiliates, and may otherwise deal with the Corporation or
its Affiliates, as if it were not Trustee.
15. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Corporation will not have any
liability for any obligations of the Corporation under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
16. Authentication. This Security will not be valid
until authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used
in the name of a Securityholder or an assignee, such as: TEN COM (=tenants in
common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with
right of survivorship and not as tenants in common), CUST (=Custodian), and
UGMA (=Uniform Gifts to Minors Act).
<PAGE> 65
A-12
CONVERSION NOTICE
The undersigned holder of this Security hereby irrevocably
exercises the option to convert this Security, or portion hereof (which is U.S.
$5,000 or an integral multiple thereof) below designated, into Common Stock in
accordance with the terms of the Indenture referred to in this Security,
delivers herewith the amount of interest payable on the next interest payment
date if this conversion is made between the record date for such interest
payment date and such interest payment date, and directs that such shares,
together with a check in payment for any fractional share and any Securities
representing any unconverted principal amount hereof, be delivered to and be
registered in the name of the undersigned unless a different name has been
indicated below. If the Common Stock is to be registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto.
Dated:
If Common Stock or Securities are to be registered in the name of a Person
other than the Securityholder, please print such Person's name and address, and
taxpayer identification number, if applicable:
- ------------------------------------
- ------------------------------------
- ------------------------------------
/s/
- ------------------------------------
(Signature must be guaranteed by a bank or stockbroker who is a member of a
national stock exchange)
If only a portion of the Securities is to be converted, please indicate:
1. Principal Amount to be converted: U.S.$
2. Amount and denomination of Registered Securities representing
unconverted principal amount to be issued:
Amount: U.S.$
Denominations: U.S.$
(U.S. $5,000 or an integral multiple thereof)
<PAGE> 66
EXHIBIT B
(Face Of Bearer Security)
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE
SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE
LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE
CODE.
No. BV U.S.$
ATARI CORPORATION
promises to pay to bearer upon presentation and surrender of this Security the
principal sum of Five Thousand United States Dollars on April 29, 2002.
5 1/4% Convertible Subordinated Debenture Due 2002 Interest Payment Dates:
April 29
Dated:
Authenticated:
SECURITY PACIFIC NATIONAL BANK
as Trustee
By By
Authorized Officer
OR By
, as Authenticating
Agent
By
Authorized Officer
(SEAL)
(Back of Bearer Security)
5 1/4% Convertible Subordinated Debenture Due 2002
1. Interest. Atari Corporation ("Corporation"), a Nevada
corporation, promises to pay interest oh the principal amount of this Security
at the rate per annum
<PAGE> 67
B-2
shown above. The Corporation will pay interest annually on April 29 of each
year, commencing April 29, 1988. Interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has
been paid, from April 29, 1987. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. Bearer holders must surrender
Bearer Securities or the attached coupons as they mature to a Paying Agent to
collect principal and interest payments. The Corporation will pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Corporation may
pay principal and interest by check payable in such money.
Payments of principal, premium, if any, and interest shall be
made at offices of the Paying Agents, as stated in Section 3 or as the
Corporation may otherwise designate, located outside the United States, subject
to the laws and regulations applicable to such Paying Agents. Payments may be
made, at the option of the Holder, by transfer of a United States dollar check
drawn on a bank in New York, New York, or by transfer of United States dollars
to a dollar account maintained by the payee with a bank in a European city. If
such payment at the offices of the Paying Agents outside the United States,
become illegal or effectively precluded because of the imposition of exchange
controls or similar restrictions on the full payment or receipt of such amounts
in dollars, the Corporation may instruct such payments to be made at an office
or agency within the United States.
3. Paying and Conversion Agents. Initially, Security
Pacific National Bank (the "Trustee"), New York, New York, will act as Paying
Agent, Registrar and Conversion Agent; Credit Suisse (France), Paris, France,
Credit Suisse (Luxembourg) SA, Luxembourg, Grand Duchy of Luxembourg;
Schweizerische Kreditanstalt (Deutschland) AG, Frankfurt, Germany, and Credit
Suisse, London, Great Britain, will serve as Paying and Conversion Agents and
Credit Suisse, Zurich, Switzerland, will serve as Paying Agent. The
Corporation may change any Paying or Conversion Agent without notice. The
Corporation may act in any such capacity. Except as provided in Paragraph 2,
Bearer Securities may only be paid or converted at offices outside the United
States.
<PAGE> 68
B-3
4. Indenture. The Corporation issued the Securities
under an Indenture dated as of April 29, 1987 ("Indenture"), between the
Corporation and the Trustee. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-7bbbb) as in effect on the
date of the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
such terms. The Securities are unsecured general obligations of the Corporation
limited to U.S. $75,000,000 in total principal amount.
5. Optional Redemption. The Corporation may redeem all
the Securities at any time or some of them from time to time after the
expiration of 30 days from the Exchange Date at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date.
If redeemed during the 12-month period beginning April 29,
<TABLE>
<CAPTION>
Year Percentage Year Percentage
---- ---------- ---- ----------
<S> <C> <C> <C>
1987 106% 1990 103%
1988 105% 1991 102%
1989 104% 1992 101%
</TABLE>
and thereafter at a redemption price equal to 100% of the principal amount plus
accrued interest at the date of redemption.
The Securities may not, however, be redeemed before April 29,
1990, unless the closing price of the Common Stock for any 20 trading days
during a period of 30 consecutive trading days ending within 10 days before the
date notice of redemption is given equals or exceeds 130% of the conversion
price then in effect or unless the Securities may be redeemed at 100% of their
principal amount in the circumstances described below.
The Securities may also be redeemed in whole, but not in part,
at 100% of their principal amount, together with interest accrued to the date
fixed for redemption, at the option of the Corporation if, at any time, the
Corporation determines, based on an opinion of independent legal counsel of
recognized standing, that as a result of any change in or amendment to the laws
(or any regulations or rulings promulgated thereunder) of the United States or
any
<PAGE> 69
B-4
political subdivision or taxing authority thereof or therein affecting
taxation, or any change in the application or official interpretation of such
laws, regulations or rulings, which change or amendment becomes effective on or
after April 6, 1987, there is a substantial probability that the Corporation
has or will become obligated to pay additional amounts in respect of the
Securities as described under Section 7 below. The Corporation may exercise
this redemption option at any time so long as the conditions specified in this
Section 5 continue to exist at the time the notice of redemption is made.
If the Corporation shall determine (the "Determination"), based
upon an opinion of independent legal counsel of recognized standing, that any
payment made outside the United States by the Corporation or any of its paying
agents of the full amount of the next scheduled payment of principal, premium,
if any, or interest due in respect of any Bearer Security or coupon
appertaining thereto would, under any current or future laws or regulations of
the United States affecting taxation or otherwise, be subject to any
certification, information, documentation or other reporting requirement of any
kind, the effect of which requirement is the disclosure to the Corporation, a
paying agent or any United States government authority of the nationality,
residence or identity of a beneficial owner of such Bearer Security or coupon
who is a United States Alien (other than such a requirement that (i) would not
be applicable to a payment made to a custodian, nominee or other agent of the
beneficial owner or which can be satisfied by such a custodian, nominee or
other agent certifying to the effect that such beneficial owner is a United
States Alien, provided, however, in each case, that payment by such custodian,
nominee or agent to such beneficial owner is not otherwise subject to any
requirement referred to in this sentence, (ii) is applicable only to a payment
by a custodian, nominee or other agent of the beneficial owner to such
beneficial owner or (iii) would not be applicable to a payment made by any
other paying agent of the Corporation), the Corporation shall either (x) redeem
the Security, as a whole, but not in part, at a price equal to 100% of the
principal amount thereof, together with accrued interest to the date fixed for
redemption, on such date, not later than one year after the publication of
notice of the Determination, as the Corporation shall elect by at least 60 days
prior notice to the Trustee, unless shorter notice is acceptable to the
Trustee, or (y) if the conditions of the next succeeding paragraph are
satisfied, pay the additional amounts specified in such paragraph. The
Corporation shall make the
<PAGE> 70
B-5
Determination as soon as practicable and shall give prompt notice thereof to
the Trustee, stating in the notice the effective date of such certification,
information, documentation or other reporting requirement and the date by which
the redemption shall take place. Upon receipt of such notice from the
Corporation, the Trustee shall cause notice thereof to be duly published as
provided in Section 6 below. Notwithstanding the foregoing, the Corporation
shall not so redeem the Securities if the Corporation shall subsequently
determine, not less than 30 days prior to the date fixed for redemption, that
subsequent payments would not be subject to any such requirement, in which case
the Corporation shall give prompt notice of such determination to the Trustee,
and the Trustee shall publish notice in accordance with Section 6 and any
earlier redemption notice shall be revoked and of no further effect.
Notwithstanding the foregoing, if and so long as the
certification, information, documentation or other reporting requirement
referred to in the preceding paragraph would be fully satisfied by payment of a
backup withholding tax or similar charge, the Corporation may elect, prior to
publication of the notice of the Determination, to have the provisions of this
paragraph apply in lieu of the provisions of the preceding paragraph. In such
event, the Corporation will pay as additional amounts such amounts as may be
necessary so that every net payment made following the effective date of such
requirement outside the United States by the Corporation or any of its paying
agents of principal, premium, if any, or interest due in respect of any Bearer
Security or any coupon appertaining thereto of which the beneficial owner is a
United States Alien (but without any requirement that the nationality,
residence or identity of the beneficial owner of such Security or coupon be
disclosed to the Corporation, any paying agent or any governmental authority)
after deduction or withholding for or on account of such backup withholding tax
or similar charge (other than a backup withholding tax or similar charge that
(i) would not be applicable in the circumstances referred to in the second
parenthetical of the first sentence of the preceding paragraph or (ii) is
imposed as a result of presentation of such Bearer Security or coupon for
payment more than 15 days after the date on which such payment became due and
payable or on which payment thereof is duly provided for, whichever occurs
later), will not be less than the amount provided for in such Bearer Security
or such coupon to be then due and payable. If the Corporation elects to pay
such additional amounts and as long as it is obligated to pay such additional
amounts, the Corporation may subsequently redeem the
<PAGE> 71
B-6
Securities, in whole but not in part, subject to the last sentence of the
preceding paragraph, at any time, at 100% of their principal amount, plus
accrued interest and additional amounts to the date fixed for redemption.
Notice of intention to redeem Securities will be given in
accordance with Section 6 below. In the case of a partial redemption, notice
will be given twice, the first such notice to be given not more than 75 nor
less than 60 days prior to the date fixed for redemption and the second such
notice to be given at least 30 days thereafter but not less than 30 days prior
to the date fixed for redemption. In the case of a full redemption, notice
shall be given at least 30, but not more than 60 days prior to the date fixed
for redemption.
Notices of redemption will specify the date fixed for
redemption, the applicable redemption price and, in the case of a partial
redemption, the aggregate principal amount of Securities to be redeemed and the
aggregate principal amount of the Securities which will be outstanding after
such partial redemption. In addition, in the case of a partial redemption, the
first notice will specify the last date on which exchanges or transfers of
Securities may be made pursuant to the provisions of Section 10 below and the
second notice will specify the serial numbers of the Bearer Securities called
for redemption or, in the case of Registered Securities, the serial numbers and
the portions thereof called for redemption, which shall have been selected for
redemption pro rata or by lot.
Any Bearer Security that is redeemed must be presented for
payment together with all unmatured coupons failing which the amount of any
missing unmatured coupons will be deducted from the sum due for payment. Each
amount so deducted will be paid against surrender of the relevant missing
coupon.
6. Notice of Redemption. Notice of redemption as
required by Section 5 above will be published in an Authorized Newspaper, in
London, England, and, so long as the Securities are listed on the Luxembourg
Stock Exchange and such stock exchange shall so require, in Luxembourg, or, if
publication in either London or Luxembourg is not practicable, in Europe on a
business day at least twice, the first such publication to be not earlier than
the earliest date, and not later than the latest date, prescribed for the
giving of such notice. On and after the redemption date
<PAGE> 72
B-7
interest ceases to accrue on Securities called for redemption.
7. Payment of Additional Amounts. The Corporation,
subject to the limitations and exceptions set forth below, will pay to the
holder of any Security or coupon who is a United States Alien such amounts as
may be necessary in order that every net payment of principal of or premium, if
any, or interest on such Security or coupon, after deduction or withholding for
or on account of any present or future tax, assessment or other governmental
charge imposed upon or as a result of such payment by the United States or any
political subdivision or taxing authority thereof or therein, will not be less
than the amount provided for in such Security or coupon to be then due and
payable; provided, however, that the foregoing obligation to pay additional
amounts shall not apply to:
(a) any tax, assessment or other governmental charge
which would not have been so imposed but for (i) the existence of any
present or former connection between such holder (or between a
fiduciary, settlor, beneficiary, member or shareholder of, or
possessor of a power over, such holder, if such holder is an estate,
trust, partnership or corporation) and the United States, including
without limitation, such holder (or such fiduciary, settlor,
beneficiary, member, shareholder or possessor) being or having been a
citizen or resident thereof or being or having been engaged in a trade
or business therein or being or having been present therein or having
or having had a permanent establishment therein, (ii) the failure of
such holder or the beneficial owner of such Security or coupon to
comply with any requirements under United States income tax laws and
regulations, without regard to any tax treaty, to establish
entitlement to exemption from deduction or withholding as a United
States Alien, or (iii) such holder's present or former status as a
personal holding company or a foreign personal holding company with
respect to the United States, as a controlled foreign corporation with
respect to the United States, as a private foundation or other
tax-exempt organization, or as a corporation which accumulates
earnings to avoid United States federal income tax;
(b) any tax, assessment or other governmental charge
which would not have been so imposed but for the presentation by the
holder of such Security or coupon for payment on a date more than 15
days after the date
<PAGE> 73
B-8
on which such payment became due and payable or the date on which
payment thereof is duly provided for, whichever occurs later;
(c) any estate, inheritance, gift, sales, transfer,
capital, personal property or any similar tax, assessment or
governmental charge;
(d) any tax, assessment or other governmental charge
which is payable otherwise than by deduction and withholding from
payments of principal of, premium, if any, or interest on such
Security or coupon;
(e) any tax, assessment or other governmental charge
imposed by reason of the holder's present or former status as the
actual or constructive owner of 10% or more of the total combined
voting power of all classes of stock of the Corporation entitled to
vote;
(f) any tax, assessment or other governmental charge
required to be withheld by any paying agent from any payment of
principal of, premium, if any, or interest on such Security or coupon,
if such payment could be paid without withholding by any other paying
agent;
(g) any combination of items (a), (b), (c), (d), (e)
and (f);
nor shall additional amounts be paid with respect to any payment of principal,
premium, if any, or interest to any United States Alien who is a fiduciary or
partnership or other than the sole beneficial owner of a Security or coupon to
the extent a beneficiary or settlor with respect to such fiduciary or a member
of such partnership or a beneficial owner of the Security or coupon would not
have been entitled to payment of the additional amounts had such beneficiary,
settlor, member or beneficial owner been the holder of the Security or coupon.
"United States Alien", as used in this Security, means any
corporation, partnership, individual or fiduciary that, is for United States
federal income tax purposes (i) a foreign corporation, (ii) a foreign
partnership one or more of the members of which is for United States federal
income tax purposes, a foreign corporation, a non-resident alien individual or
a non-resident alien fiduciary of a foreign estate or trust, (iii) a
non-resident alien
<PAGE> 74
B-9
individual or (iv) a non-resident alien fiduciary of a foreign estate or trust.
8. Conversion. A holder of a Security may convert it
into Common Stock of the Corporation at any time on or after the date on which
definitive Securities are issued in exchange for the Global Security and before
the close of business on April 29, 2002. If the Security is called for
redemption, the holder may convert it at any time before the close of business
on the redemption date. The initial conversion price is U.S. $32-5/8 per
share, subject to adjustment in certain events. To determine the number of
shares issuable upon conversion of a Security, divide the principal amount to
be converted by the conversion price in effect on the conversion date. No
interest on converted Bearer Securities will be payable by the Corporation on
any interest payment date subsequent to the date of conversion. On conversion
no payment or adjustment for interest will be made. The Corporation will
deliver a check for any fractional share.
Surrender of Bearer Securities must occur in the offices of
the Conversion Agents in Section 3 above which are located outside the United
States. Each Bearer Security must be delivered with all unmatured coupons
appurtenant thereto.
To convert a Security a holder must (1) complete and sign the
conversion notice on the back of the Security, (2) surrender the Security to a
Conversion Agent, (3) furnish appropriate endorsements and transfer documents
if required by the Registrar or Conversion Agent, and (4) pay any transfer or
similar tax if required.
The conversion price will be adjusted for dividends or
distributions on Common Stock payable in Company stock; subdivisions,
combinations or certain reclassifications of Common Stock; distributions to all
holders of Common Stock of certain rights to purchase Common Stock at less than
the current market price at the time; distributions to such holders of assets
or debt securities of the Company or certain rights to purchase securities of
the Company (excluding cash dividends or distributions from current or retained
earnings). However, no adjustment need be made if Securityholders may
participate in the transaction or in certain other cases. The Company from
time to time may voluntarily reduce the conversion price for a period of time.
<PAGE> 75
B-10
If the Company is a party to a consolidation or merger or a transfer
or lease of all or substantially all of its assets, the right to convert a
Security into Common Stock may be changed into a right to convert it into
securities, cash or other assets of the Company or another.
9. Subordination. The Securities are subordinated to all
existing and future Senior Debt of the Corporation. To the extent provided in
the Indenture, Senior Debt must be paid before the Securities may be paid.
There are no restrictions in the Indenture on the amount of Senior Debt the
Corporation may have outstanding. The Corporation agrees, and each
Securityholder by accepting a Security agrees, to the subordination and
authorizes the Trustee to give it effect.
10. Denominations, Transfer, Exchange. The Bearer
Securities are in bearer form with coupons in denominations of U.S. $5,000.
The transfer of Securities may be by delivery and Securities may be exchanged
for Registered Securities as provided in the Indenture.
11. Persons Deemed Owners. The holder of a Bearer
Security may be treated as its owner for all purposes.
12. Amendments and Waivers. Subject to certain
exceptions, the Indenture or the Securities may be amended with the consent of
the holders of at least 66-2/3% in principal amount of the Securities, and any
existing default may be waived with the consent of the holders of a majority in
principal amount of the Securities. Without the consent of any Securityholder,
the Indenture or the Securities may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of Corporation obligations to
Securityholders or to make any change that does not adversely affect the rights
of any Securityholder.
13. Defaults and Remedies. An Event of Default is
default for 30 days in payment of interest on the Securities, default in
payment of principal on them, acceleration of any indebtedness for borrowed
money of the Corporation exceeding U.S. $5,000,000 in the aggregate if such
acceleration is not cured or waived within 30 days after notice to the
Corporation from the Trustee or the holders of 25% in principal amount of the
Securities, failure by the Corporation for 60 days after notice to it to comply
with any of its other agreements in the Indenture or the Securities, and
certain events of bankruptcy or insolvency. If an Event of Default occurs and
is continuing, the Trustee or the holders
<PAGE> 76
B-11
of at least 25% in principal amount of the Securities may declare all the
Securities to be due and payable immediately. Securityholders may not enforce
the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, holders of a
majority in principal amount of the Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their interests. The
Corporation must furnish an annual compliance certificate to the Trustee.
14. Trustee Dealings with Corporation. Security Pacific
National Bank, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Corporation or its Affiliates, and may otherwise deal with the Corporation or
its Affiliates, as if it were not Trustee.
15. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Corporation will not have any
liability for any obligations of the Corporation under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
16. Authentication. This Security will not be valid
until authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used
in the name of a Securityholder or an assignee, such as: TEN COM (=tenants in
common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with
right of survivorship and not as tenants in common), CUST (=Custodian), and
UGMA (=Uniform Gifts to Minors Act).
CONVERSION NOTICE
The undersigned Holder of this Security hereby irrevocably
exercises the option to convert this Security
<PAGE> 77
B-12
into Common Stock in accordance with the terms of the Indenture referred to in
this Security and directs that such shares be registered in the name of and
delivered, together with a check in payment for any fractional share, to the
undersigned unless a different name has been indicated below. If shares are to
be registered in the name of a Person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. Pursuant
to the provisions of the Indenture and Security, the undersigned surrenders all
outstanding coupons appertaining to this Security.
Dated:
If shares are to be registered in the name of and delivered to a Person other
than the Holder, please print such Person's name and address, and taxpayer
identification number, if applicable:
----------------------------
----------------------------
----------------------------
- --------------------------
HOLDER
Please print name and address, and taxpayer identification number, if
applicable, of Holder:
----------------------------
----------------------------
----------------------------
<PAGE> 78
EXHIBIT C
[FORM OF FACE OF COUPON)
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE
SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE
LIMITATIONS PROVIDED IN SECTION 165(j) AND 1287(a) OF THE INTERNAL REVENUE
CODE.
ATARI CORPORATION
No.
U.S. $
Due
5-1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2002
Unless the Debenture to which this coupon appertains shall have been
called for previous redemption with payment duly provided for or converted, on
the date set forth above, Atari Corporation (the "Company") will pay to bearer,
upon presentation and surrender of this coupon, the amount shown above
(together with any additional amounts which the Company may be required to pay
according to the terms of the Debenture and the Indenture for the Debenture) at
the Paying Agents set out on the reverse hereof or at such other places (which,
except as otherwise provided in the Debenture to which this coupon appertains,
shall be located outside the United States of America (including the States and
the District of Columbia), its territories, its possessions or other areas
subject to its jurisdictions (the "United States")) as the Company may
determine from time to time, by United States dollar check drawn on a bank in
New York, New York, or by transfer of United States dollars to a dollar account
maintained by the payee with a bank in a European city, being one year's
interest then payable on the Debenture.
ATARI CORPORATION,
By
Chief Financial Officer
<PAGE> 79
2
[Reverse of Coupon]
<TABLE>
<S> <C> <C>
CREDIT SUISSE (FRANCE) CREDIT SUISSE (LUXEMBOURG) SA
92, Avenue des Champs-Elysees 23, Avenue Monterey, B.P. 40
F-75008 Paris Luxembourg
France Grand Duchy of Luxembourg
SCHWEIZERISCHE KREDITANSTALT CREDIT SUISSE
(Deutschland) AG 24, Bishopsgate
P. 0. Box 100529 London EC2N 4BQ
D-6000 Frankfurt a/M 1 Great Britain
Federal Republic of Germany
CREDIT SUISSE
P. 0. Box 590
CH-8021 Zurich
Switzerland
</TABLE>
<PAGE> 80
EXHIBIT D
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (the "SECURITIES ACT"). NEITHER THIS SECURITY NOR ANY
INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED DIRECTLY OR INDIRECTLY IN THE
UNITED STATES OF AMERICA (INCLUDING THE STATES AND THE DISTRICT OF COLUMBIA),
ITS TERRITORIES, ITS POSSESSIONS OR OTHER AREAS SUBJECT TO ITS JURISDICTION
(THE "UNITED STATES"), OR TO ANY CITIZEN OR RESIDENT THEREOF OR TO ANY
CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED IN OR UNDER THE
LAWS OF THE UNITED STATES OR TO ANY ESTATE OR TRUST THE INCOME OF WHICH IS
SUBJECT TO UNITED STATES FEDERAL INCOME TAXATION REGARDLESS OF ITS SOURCE
("U.S. PERSON") EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE
SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE
LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE
CODE.
U.S. $75,000,000
ATARI CORPORATION
5-1/4% Convertible Subordinated Debentures Due 2002
TEMPORARY GLOBAL DEBENTURE
ATARI CORPORATION (the "Corporation") promises to pay to
bearer upon presentation and surrender of this Global Debenture the principal
sum of Seventy Five Million United States Dollars on April 29, 2002, and to pay
interest from April 29, 1987, annually in arrears on April 29 in each year,
commencing April 29, 1988, at the rate of 5-1/4% per annum, until the principal
of this Global Debenture is paid or made available for payment. Interest,
however, on this Global Debenture shall be payable only after the issuance of
the definitive Debentures for which this Global Debenture is exchangeable
(except that if any interest payment date occurs before the Exchange Date, the
interest payment due on such date may be made upon certification that the
beneficial owners of the relevant Debentures are not U.S. Persons or persons
who have purchased for resale to U.S. Persons) and, in the case of definitive
Debentures in bearer form, only
<PAGE> 81
D-2
upon presentation and surrender (at an office or agency outside the United
States, except as otherwise provided in the Indenture referred to below) of the
interest coupons attached as they mature.
This Global Debenture is one of a duly authorized issue of
Debentures of the Corporation designated as specified in the above title,
issued and to be issued under the Indenture dated as of April 29, 1987 (the
"Indenture"), between the Corporation and the Security Pacific National Bank,
as trustee (the "Trustee"). It is a temporary debenture and is exchangeable in
whole or from time to time in part without charge upon request to the holder of
this Global Debenture for definitive Debentures in bearer form, with interest
coupons attached, or in registered form, without coupons, of authorized
denominations, (a) not before the later of 90 days after the date on which the
distribution of the Debentures has been completed, as PaineWebber International
Capital Inc. shall have advised the Trustee in writing, and the effectiveness
of the registration of the Debentures for resale under the Securities Act, and
(b) as promptly as practicable following presentation of certification, in the
form set forth in the Indenture for this purpose, that the beneficial owner or
owners of this Global Debenture (or, if such exchange is only for a part of
this Global Debenture, of such part) are not U.S. Persons or persons who have
purchased for resale to any U.S. Person. If, however, a beneficial owner of
any Debenture is a sophisticated United States institutional investor (a "U.S.
Institutional Investor"), the Trustee will exchange the portion of the
temporary Global Debenture owned by such U.S. Institutional Investor for
definitive Registered Debentures as soon as practicable after issuance of the
Debentures, upon certification that such Debentures have been sold to such U.S.
Institutional Investor in a private sale of Registered Debentures only to
certain U.S. Institutional Investors to whom the sale of the Registered
Debentures would be exempt from the registration requirements of the Securities
Act. Such Registered Debentures, if and when sold, will be sold subject to
such restrictions as to preclude a distribution prior to the effectiveness of
registration of the Debentures for resale under the Securities Act. Such
Registered Debentures will be issued in registered form only and will not be
exchangeable at any time for Bearer Debentures. Definitive Debentures in
bearer form to be delivered in exchange for any part of this Global Debenture
shall be delivered only outside the United States. Upon any exchange of a part
of this Global Debenture for definitive Debentures, the portion of the
principal amount
<PAGE> 82
D-3
of this Global Debenture so exchanged shall be endorsed by the Trustee on the
schedule attached to this Global Debenture, and the principal amount of this
Global Debenture shall be reduced for all purposes by the amount so exchanged.
Until exchanged in full for definitive Debentures, this Global
Debenture shall in all respects be entitled to the same benefits under, and
subject to the same terms and conditions of, the Indenture as authenticated and
delivered definitive Debentures, except that neither the Holder of nor the
beneficial owners of this Global Debenture shall be entitled to receive payment
of interest (except as provided above) or to convert this Global Debenture into
Common Shares of the Company or any other security, cash or other property.
This Global Debenture shall be governed by and construed in
accordance with the laws of the State of New York.
All terms used in this Global Debenture which are defined in
the Indenture shall have the meanings assigned to them in the Indenture.
Unless the certificate of authentication has been executed by
the Trustee by the manual signature of one of its authorized officers, this
Global Debenture shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
<PAGE> 83
D-4
IN WITNESS WHEREOF, the Company has caused this Global Debenture
to be duly executed.
Dated: April 29, 1987
ATARI CORPORATION
By
Title:
Authenticated:
SECURITY PACIFIC NATIONAL BANK,
as Trustee
By
Authorized Officer
<PAGE> 84
D-5
SCHEDULE OF EXCHANGES
<TABLE>
<CAPTION>
Principal Remaining
amount principal
exchanged for amount
definitive Debentures following
or converted into such exchange Notation made by or
Date Common Shares or conversion on behalf of the
made or redeemed or redemption Trustee
- -------- ----------------------- ------------- -------------------
<S> <C> <C> <C>
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
........ ....................... ............ .................
</TABLE>
<PAGE> 85
EXHIBIT E
[Form of Certificate of Non-U.S. Ownership]
CERTIFICATE OF NON-U.S. OWNERSHIP
ATARI CORPORATION
5-1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
(the "Securities")
CEDEL S.A.
67 Boulevard Grande-Duchesse Charlotte
Luxembourg-Ville
Luxemboug l/
Morgan Guaranty Trust Company of
New York, Brussels Office
Operator of the Euro-clear System
Euro-clear Operations Centre
Rue de la Regence, 4
B-1000 Brussels, Belgium l/
This is to certify that, except as provided in the second
paragraph, none of the principal amount of the Securities
credited to you for our account is beneficially owned by U.S. persons or
persons who have purchased the Securities for resale to U.S. persons. We
undertake to advise you by telex if the above statement as to beneficial
ownership is not correct on any interest payment date occurring prior to the
Exchange Date (as defined in the Indenture dated as of April 29, 1987 between
Atari Corporation and Security Pacific National Bank, as Trustee) and also
immediately prior to the Exchange Date with respect to such of said Securities
as then appear in your books as being held for our account. We understand that
this certificate is required in connection with United States securities and
tax laws. We irrevocably authorize you to produce this certificate or a copy
hereof to any interest party in any administrative or legal proceedings with
respect to the matters covered by this certificate. "U.S. person", in this
Certificate, shall mean a citizen or resident of the United States of America
(including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction (the "United States"),
a corporation, partnership or other entity
l/ Delete inappropriate reference.
<PAGE> 86
2
created or organized in or under the laws of the United States, or an estate or
trust the income of which is subject to United States Federal income taxation
regardless of its source.
This certificate excepts and does not relate to $ principal amount
of Securities credited to you for our account as to which we are not now able to
make the certification set forth above. We understand that definitive
certificates cannot be delivered and interest cannot be paid until we are able
to so certify, or to deliver Certificates of U.S. Institutional Investors, with
respect to such principal amount of Securities.
[We hereby request that the Trustee deliver Registered Securities in
the following denominations and registered in the following name(s) at the
corporate trust office of the Registrar in New York City.
Denominations:
----------------------------------------
Name of Registered Owner:
-----------------------------
Registered Owner's Address:
---------------------------
]2/
----------------------------------------------------
[Name]
Dated: 3/
By:
----------------------------------
Signature
as, or as agent for, the beneficial
owner(s) of the Security or Securities
to which this certificate relates.
- ------------------------
2/ To be inserted only if Registered Securities are requested.
3/ Not prior to 15 days before the earlier of the Exchange Date or the first
interest payment date occurring prior to the Exchange Date.
<PAGE> 87
EXHIBIT F
[Date)
PaineWebber International Capital Inc.
1 Finsbury Avenue
London EC2M 2PA
England
Atari Corporation
1196 Borregas Avenue
Sunnyvale, California 94088-3427
Re: $75,000,000 principal amount 5-1/4% Convertible Subordinated
Debentures Due 2002 (the "Securities") of Atari Corporation
(the "Issuer")
Dear Sirs:
In connection with our purchase of $ principal amount of
the Securities, we confirm that:
(1) We have received (a) the Offering Circular dated
April 7, 1987, relating to the Securities and (b) such other information as we
deem necessary in order to make our investment decision.
(2) We acknowledge that the distribution of the
Securities has not been registered under the Securities Act of 1933. As a
purchaser of the Securities in a private placement not registered under the
Securities Act of 1933, we represent that we are (a) a sophisticated
institutional investor and (b) an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933, and are purchasing such
Securities for our own account for investment and (subject, to the extent
necessary, to the disposition of our property being at all times within our
control) not with a view to any distribution or other disposition thereof, and
we are proceeding on the assumption that we must bear the economic risk of the
investment for an indefinite period since the Securities may not be sold except
as provided below.
(3) We agree that, if in the future we should decide to
dispose of any of the Securities (which we do not presently contemplate), we
will not offer, sell or deliver any such Securities, directly or indirectly,
unless:
(a) (i) the sale is of at least $50,000 principal
amount of Securities to an Eligible Purchaser (as
<PAGE> 88
2
defined below), (ii) a letter to substantially the same effect as
paragraphs (1)(b), (2), (3), (4), (5) and (7) of this letter is
executed prior to such sale by such Eligible Purchaser and (iii) all
offers or solicitations in connection with such sale, whether directly
or through any agent acting on our behalf, are limited only to
Eligible Purchasers and are not made by means of any form of general
solicitation or general advertising whatsoever; or
(b) the Securities are sold pursuant to Rule 144 under
the Securities Act of 1933 by us after we have held them for not less
than three years, provided that we are not an "affiliate" of the
Issuer (as defined by such Rule 144) at the time of such sale and have
not been such an affiliate during the preceding three months; or
(c) the Securities are sold pursuant to a registration
statement in effect under the Securities Act of 1933, it being
understood that the Issuer shall have no obligation to us to effect
any such registration; or
(d) the Securities are sold in any other transaction that
is made in compliance with the Securities Act of 1933 and we
heretofore have furnished to the Issuer a satisfactory opinion to such
effect.
(4) The Securities that we have purchased, when issued in
definitive form, shall be issued in Registered form, as will any Securities
issued in exchange or substitution for or on registration of transfer of such
Securities. Such Securities (and, unless the Issuer shall otherwise agree on
the basis of an opinion of the nature set forth in paragraph (5) below, any
Securities so issued) shall bear the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AND ACCORDINGLY MAY NOT BE OFFERED, SOLD OR
DELIVERED UNLESS SUCH OFFER, SALE OR DELIVERY IS EITHER REGISTERED
PURSUANT TO OR IS EXEMPT FROM REGISTRATION UNDER SAID ACT. THE
TRANSFER OR EXCHANGE OF THIS SECURITY IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN AN INVESTMENT LETTER FROM THE HOLDER TO THE
ISSUER INCLUDING THE RIGHT OF THE ISSUER TO REQUIRE AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER PRIOR TO ANY TRANSFER OR EXCHANGE
OF THIS SECURITY."
<PAGE> 89
3
(5) In addition to the requirements of paragraph (3)(d)
above, we understand that, in connection with any proposed transfer of
Securities or exchange of Securities for Securities of other authorized
denominations, an opinion of counsel experienced in giving opinions with
respect to questions relating to the securities laws of the United States may
be required to the effect that such transfer or exchange will be in compliance
with the Securities Act of 1933.
(6) We request that the definitive Securities we have
purchased be registered [in our name] [in the name of , our nominee,]
*/ and that such Securities be delivered to [insert address] by registered mail,
which delivery shall be for our sole risk and expense.
(7) As used in this letter, the term "United States"
means the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction, and "Eligible Purchaser" means a corporation, partnership or
other entity which we have reasonable grounds to believe and do believe can
make representations with respect to itself to the effect set forth in
paragraphs (1)(b) and (2) of this letter.
Very truly yours,
[Name of U.S. Institutional
Investor]
By:
------------------------------
Authorized Signature
- --------------------
*/ Delete inappropriate reference.
<PAGE> 90
EXHIBIT G
[Form of Certificate of U.S. Institutional Investor]
CERTIFICATE OF U.S. INSTITUTION INVESTOR
ATARI CORPORATION
5-1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
(the "Securities")
CEDEL S.A.
67 Boulevard Grande-Duchesse Charlotte
Luxembourg-Ville
Luxembourg 1/
Morgan Guaranty Trust Company of
New York, Brussels Office
Operator of the Euro-clear System
Euro-clear Operations Centre
Rue de le Regence, 4
B-1000 Brussels, Belgium l/
This certificate is delivered in connection with the Securities
credited to you for our account. This is to certify that (i) we have received
from (name of U.S. Institutional Investor] a letter in the form required by the
Indenture under which the Securities are issued, to the effect that it is
purchasing for its own account for investment and without a view to any
distribution or other disposition, $ principal amount of the Securities
credited to you for our account and agreeing to certain restrictions on any
disposition of such Securities, (ii) one of our registered broker-dealer
affiliates offered Securities for sale to such investor and (iii) we and our
affiliate believe that such investor has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment and we and our affiliate believes that such investor
(and any account or accounts as to which such investor exercises investment
discretion and for which such investor may be purchasing Securities) is able to
bear the economic risk of investment in the Securities.
We understand that this certificate is required in connection
with United States law. We irrevocably authorize
- --------------------
1/ Delete inappropriate reference.
<PAGE> 91
2
you to produce this certificate or a copy hereof to any interested party in any
administrative or legal proceedings or official inquiry with respect to the
matters covered by this certificate.
The definitive Securities to be issued in respect of this
certificate are to be issued in registered form and shall bear the following
legend:
"A REGISTRATION STATEMENT FOR THIS SECURITY HAS NOT YET BEEN
DECLARED EFFECTIVE UNDER THE UNITED STATES SECURITIES ACT OF 1933 AND
ACCORDINGLY THIS SECURITY MAY NOT BE OFFERED, SOLD OR DELIVERED UNLESS SUCH
OFFER, SALE OR DELIVERY IS EITHER REGISTERED PURSUANT TO OR IS EXEMPT FROM
REGISTRATION UNDER SAID ACT. THE TRANSFER OR EXCHANGE OF THIS SECURITY IS
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN AN INVESTMENT LETTER FROM THE
HOLDER TO ATARI CORPORATION INCLUDING THE RIGHT OF ATARI CORPORATION TO REQUIRE
AN OPINION OF COUNSEL SATISFACTORY TO ATARI CORPORATION PRIOR TO ANY TRANSFER
OR EXCHANGE OF THIS SECURITY BEFORE THE EFFECTIVENESS OF REGISTRATION OF THE
SECURITIES ACT OF 1933."
We request that the Trustee deliver Registered Securities in the
following denominations and registered in the following names to the
undersigned at the corporate trust office of the Registrar in New York, New
York:
<TABLE>
<CAPTION>
Registered
Registered Owner's
Registered Registered Owner's Taxpayer
Denomination Owner Address I.D. Number
- ------------ ---------- ---------- -----------
<S> <C> <C> <C>
</TABLE>
PaineWebber International Capital Inc.
Dated: 2/
By
----------------------------------
Signature
- --------------------
2/ Not prior to the date established for exchange of the Global
Security for Registered Securities for the account of U.S. Institutional
Investors.
<PAGE> 92
EXHIBIT H-1
[Form of Clearance System Certificate For Exchange for
Bearer Security]
CLEARANCE SYSTEM CERTIFICATE
ATARI CORPORATION
5-1/4% Convertible Subordinated Debentures Due 2002
We refer to that portion, U.S. $ principal
amount, of the Global Security representing the above issue that is submitted
to be exchanged for Bearer Securities (the "Submitted Portion"). This is to
certify (i) that we have received from each of the persons appearing in our
records as being entitled to a beneficial interest in the Submitted Portion a
certificate of non-U.S. ownership with respect to such person's beneficial
interest in the form attached to this Certificate and (ii) that the Submitted
Portion includes no part of the Global Security which was excepted in such a
certificate of non-U.S. ownership.
We further notify that as of the date hereof we have not
received any notification from any of the persons giving such certificates to
the effect that the statements made by them with respect to any part of the
Submitted Portion are no longer true and cannot be relied on.
Dated: 1/
[CEDEL S.A.] [Morgan Guaranty Trust
Company of New York, Brussels Office, as
Operator of the Euro-clear System] 2/
By
-------------------------------
- --------------------
1/ Not prior to the Exchange Date.
2/ Delete inappropriate reference.
<PAGE> 93
EXHIBIT H-2
[Form of Clearance System Certificate For Exchange
for Registered Security]
CLEARANCE SYSTEM CERTIFICATE
ATARI CORPORATION
5-1/4% Convertible Subordinated Debentures Due 2002
We refer to that portion, U.S. $ principal amount,
of the Global Security representing the above issue which is submitted to be
exchanged for Registered Securities (the "Submitted Portion"). This is to
certify that we have received from each of the persons appearing in our records
as being entitled to a beneficial interest in the Submitted Portion either (a)
a certificate of U.S. Institutional Investor with respect to such person's
beneficial interest in the form attached to this Certificate or (b) a
certificate of non-U.S. ownership with respect to such person's beneficial
interest in the form attached to this Certificate.
We hereby request that you deliver to the corporate trust
office of the Registrar in New York City Registered Securities in the
denominations and registered in the names appearing on the attached
certificates of U.S. Institutional Investor and certificates of non-U.S.
ownership.
We further certify that as of the date hereof we have not
received any notification from any of the persons giving such certificates to
the effect that the statements made by them with respect to any part of the
Submitted Portion are no longer true and cannot be relied on.
Dated: 1/
[CEDEL S.A.] [Morgan Guaranty Trust
Company of New York, Brussels Office, as
Operator of the Euro-clear System] 2/
By
-------------------------------------
- --------------------
1/ Not prior to the Exchange Date.
2/ Delete inappropriate reference.
<PAGE> 94
EXHIBIT H-3
[Form of Clearance System Certificate
For Payment of Interest Prior to Exchange Date]
CLEARANCE SYSTEM CERTIFICATE
ATARI CORPORATION
5-1/4% Convertible Subordinated Debentures Due 2002
We refer to that portion, U.S. $ principal amount,
of the Global Security representing the above issue, the beneficial owners of
which have requested payment of the interest payment due on (the
"Submitted Portion"). This is to certify that we have received from each of the
persons appearing in our records as being entitled to a beneficial interest in
the Submitted Portion a certificate of non-U.S. ownership with respect to such
person's beneficial interest in the form attached to this Certificate.
We further certify that as of the date hereof we have not
received any notification from any of the persons giving such certificates to
the effect that the statements made by them with respect to any part of the
Submitted Portion are no longer true and cannot be relied on.
Dated: 1/
[CEDEL S.A.] [Morgan Guaranty Trust
Company of New York, Brussels Office, as
Operator of the Euro-clear System] 2/
By
-------------------------------------
- --------------------
1/ Not prior to the the relevant interest payment date.
2/ Delete inappropriate reference.
<PAGE> 1
Exhibit 4.4
===============================================================================
THE FEDERATED GROUP, INC.
TO
SECURITY PACIFIC
NATIONAL BANK
Trustee
----------------
INDENTURE
Dated as of April 15, 1985
----------------
7 1/2% Convertible Subordinated Debentures
due April 15, 2010
<PAGE> 2
THE FEDERATED GROUP, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND
INDENTURE, DATED AS OF APRIL 15, 1985
<TABLE>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . 608
610
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . 613(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . 613( b)
(b)(2) . . . . . . . . . . . . . . . . . . . . . . 703(a)(2)
703(b)
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . 701
702(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . 702(c)
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . 703(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . 703(a).703(b)
(d) . . . . . . . . . . . . . . . . . . . . . . . 703(c)
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . 704
(b) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . 601(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . 602
703(a)(6)
(c) . . . . . . . . . . . . . . . . . . . . . . . 601(b)
(d) . . . . . . . . . . . . . . . . . . . . . . . 601(c)
(d)(1) . . . . . . . . . . . . . . . . . . . . . . 601(a)(1)
(d)(2) . . . . . . . . . . . . . . . . . . . . . . 601(c)(2)
(d)(3) . . . . . . . . . . . . . . . . . . . . . . 601(c)(3)
(e) . . . . . . . . . . . . . . . . . . . . . . . 514
Section 316(a) . . . . . . . . . . . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . 502
512
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . 508
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . 107
</TABLE>
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate; control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Company Request; Company Order . . . . . . . . . . . . . . . . . . . . . . 4
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Debenture Register, Debenture Registrar . . . . . . . . . . . . . . . . . 4
Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Predecessor Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
NOTE: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE> 4
ii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Redemption Notice Date . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . 8
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . 8
SECTION 104. Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . . . . . . . . . 10
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 11
SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . 11
SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE TWO
DEBENTURE FORM
SECTION 201. Form Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 202. Form of Face of Debenture . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 203. Form of Reverse of Debenture . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 204. Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . 19
SECTION 205. Form of Notice of Election to Convert . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 5
iii
ARTICLE THREE
THE DEBENTURES
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . 22
SECTION 304. Temporary Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 305. Registration, Registration of Transfer and Exchange . . . . . . . . . . . 23
SECTION 306. Mutilated, Destroyed, Lost and Stolen Debentures . . . . . . . . . . . . . 24
SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . 25
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . 28
SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 502. Acceleration of Maturity, Rescission and Annulment . . . . . . . . . . . . 32
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . 34
SECTION 505. Trustee May Enforce Claims Without Possession of Debentures . . . . . . . 35
SECTION 506. Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<TABLE>
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<S> <C>
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . 37
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . 40
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 604. Not Responsible for Recitals or Issuance of Debentures . . . . . . . . . . 43
SECTION 605. May Hold Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 608. Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . 44
(a) Elimination of Conflicting Interest or Resignation . . . . . . . . . 44
(b) Notice of Failure to Eliminate Conflicting Interest . . . . . . . . 44
(c) "Conflicting Interest" Defined . . . . . . . . . . . . . . . . . . . 44
(d) Definitions of Certain Terms Used in This Section . . . . . . . . . 48
(e) Calculation of Percentages of Securities . . . . . . . . . . . . . . 49
SECTION 609. Corporate Trustee Required. Eligibility . . . . . . . . . . . . . . . . . 50
SECTION 610. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . 50
SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . 52
SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . 53
</TABLE>
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<TABLE>
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<S> <C> <C>
SECTION 613. Preferential Collection of Claims Against Company . . . . . . . . . . . . 53
(a) Segregation and Apportionment of Certain Collections by Trustee;
Certain Exceptions . . . . . . . . . . . . . . . . . . . . . . . 53
(b) Certain Creditor Relationships Excluded from Segregation and
Apportionment . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(c) Definitions of Certain Terms Used in This Section. . . . . . . . . . 57
SECTION 614. Appointment of Authenticating Agent . . . . . . . . . . . . . . . . . . . 58
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. . . . . . . . . 60
SECTION 702. Preservation of information; Communications to Holders . . . . . . . . . . 61
SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms . . . . . . . . . . . 65
SECTION 802. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . 65
ARTICLE NINE
SUPPLEMENTAL INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . 66
SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . 66
SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . 68
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . 68
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . 68
SECTION 906. Reference in Debentures to Supplemental Indentures . . . . . . . . . . . . 68
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . 69
</TABLE>
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<TABLE>
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<S> <C>
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . 69
SECTION 1003. Money for Debenture Payments to be Held in Trust . . . . . . . . . . . . . 70
SECTION 1004. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 1005. Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . 71
SECTION 1006. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . 72
SECTION 1007. Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . 72
ARTICLE ELEVEN
REDEMPTION OF DEBENTURES
SECTION 1101. Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . 73
SECTION 1104. Selection by Trustee of Debentures to be Redeemed . . . . . . . . . . . . 74
SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 1107. Debentures Payable on Redemption Date . . . . . . . . . . . . . . . . . . 75
SECTION 1108. Debentures Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE TWELVE
SINKING FUND
SECTION 1201. Sinking Fund Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 1202. Satisfaction of Sinking Fund Payments with Debentures . . . . . . . . . . 77
SECTION 1203. Redemption of Debentures for Sinking Fund . . . . . . . . . . . . . . . . 77
ARTICLE THIRTEEN
CONVERSION OF DEBENTURES
SECTION 1301. Conversion Privilege and Conversion Price . . . . . . . . . . . . . . . . 78
SECTION 1302. Exercise of Conversion Privileges . . . . . . . . . . . . . . . . . . . . 78
SECTION 1303. Fractions of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 1304. Adjustment of Conversion Price . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 1305. Notice of Adjustments of Conversion Price . . . . . . . . . . . . . . . . 83
SECTION 1306. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . . . . . 83
SECTION 1307. Company to Reserve Common Stock . . . . . . . . . . . . . . . . . . . . . 84
SECTION 1308. Taxes on Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 1309. Covenant as to Common Stock . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 1310. Cancellation of Converted Debentures . . . . . . . . . . . . . . . . . . . 85
SECTION 1311. Provisions in Case of Consolidation. Merger, or Sale of Assets . . . . . . 85
SECTION 1312. Disclaimer by Trustee for Responsibility for Certain Matters . . . . . . . 86
</TABLE>
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ARTICLE FOURTEEN
SUBORDINATION OF DEBENTURES
<TABLE>
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SECTION 1401. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 1402. Payment Prohibited If Senior Indebtedness in Default . . . . . . . . . . . 87
SECTION 1403. Priority of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . 87
SECTION 1404. Subrogation of Holders of Debentures . . . . . . . . . . . . . . . . . . . 88
SECTION 1405. Subordination of Debentures Not Affected by Changes in
Provisions of Senior Indebtedness . . . . . . . . . . . . . . . . . . . 89
SECTION 1406. Subordination Provisions for Benefit of Holders of Senior Indebtedness . . 89
SECTION 1407. Rights of Trustee as Holder of Senior Indebtedness . . . . . . . . . . . . 89
SECTION 1408. Obligation of Company to Holders of Debentures Not impaired . . . . . . . 89
SECTION 1409. Reliance Upon Court Order or Decree . . . . . . . . . . . . . . . . . . . 90
SECTION 1410. Subordination Rights Not Impaired by Acts or Omissions of
Company or Holders of Senior Indebtedness . . . . . . . . . . . . . . . 90
SECTION 1411. Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . 91
SECTION 1412. Trustee Not Charged With Knowledge of Senior Indebtedness . . . . . . . . 91
SECTION 1413. Events of Default Not Prevented . . . . . . . . . . . . . . . . . . . . . 91
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SIGNATURES AND SEALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
</TABLE>
<PAGE> 10
INDENTURE, dated as of April 15, 1985, between The Federated Group,
Inc., a Delaware corporation (hereinafter called the "Company"), having its
principal office at 5655 E. Union Pacific Avenue, City of Commerce, California
90022, and Security Pacific National Bank, a national banking association with
its principal offices in Los Angeles, California (hereinafter called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 7 1/2%
Convertible Subordinated Debentures (hereinafter called the "Debentures") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Debentures, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Debentures, as
follows:
ARTICLE ONE
DEFINITIONS, AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular:
<PAGE> 11
2
(2) all other terms used herein which are defined in the
Trust Indenture Act either directly or by reference therein, have the
meanings assigned to them therein:
(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally
accepted accounting principles and, except as otherwise herein
expressly provided, the term "generally accepted accounting
principles" with respect to any computation required or permitted
hereunder shall mean such accounting principles as are generally
accepted at the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act" when used with respect to any Holder has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise:
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Debentures.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
<PAGE> 12
3
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the City of Los
Angeles, California are authorized or obligated by law or executive order to
close.
"Closing Price" means with respect to the Common Stock of the Company
on any day, (i) the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange,
Inc. or (ii) if the Common Stock is not listed or admitted to trading on such
Exchange, the last reported sales price regular way, or in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, on the principal national securities exchange on
which the Common Stock is Listed or admitted to trading, or (iii) if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the average of the closing bid and asked prices as furnished by any New York
Stock Exchange member firm selected from time to time by the Company for that
purpose.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934,
or, if at any time after the execution of this instrument such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 1311, shares issuable on conversion of Debentures shall
include only shares of the class designated as Common Stock of the Company at
the date of this Indenture or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be
<PAGE> 13
4
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares
of all such classes resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President
or a Vice President, and by its Senior Financial Officer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered; said principal office at the date of the execution of this
Indenture is located at 333 South Hope Street, Los Angeles, California, 90071.
"Corporation" includes corporations, associations, companies and
business trusts.
"Debenture Register" and "Debenture Registrar" have the respective
meanings specified in Section 305.
"Defaulted Interest" has the meaning specified in Section 307.
"Event of Default" has the meaning specified in Section 501.
"Holder" means a Person in whose name a Debenture is registered in the
Debenture Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an Installment of
interest on the Debentures.
"Maturity" when used with respect to any Debenture means the date on
which the principal of such Debenture becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
<PAGE> 14
5
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Senior Financial
Officer, the Secretary or an Assistant Secretary, of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding" when used with respect to Debentures means, as of the
date of determination, all Debentures theretofore authenticated and delivered
under this Indenture, except:
(i) Debentures theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation:
(ii) Debentures or portion thereof for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of
such Debentures; provided that, if such Debentures are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made; and
(iii) Debentures in exchange for or in lieu of which other
Debentures have been authenticated and delivered pursuant to this
Indenture:
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Debentures have given any request, demand,
authorization, direction, notice, consent or waiver hereunder. Debentures
owned by the Company or any other obligor upon the Debentures or any Affiliate
of the Company or of such other obligor shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Debentures which the Trustee knows to be so
owned shall be so disregarded. Debentures so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Debentures and that the pledgee is not the Company or any other obligor upon
the Debentures or any Affiliate of the Company or of such other obligor.
<PAGE> 15
6
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Debentures on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
" Predecessor Debenture" of any particular Debenture means every
previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture; and, for the purposes of this
definition, any Debenture authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Debenture.
"Redemption Date", when used with respect to any Debenture to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Notice Date", when used with respect to any Debenture to
be redeemed, means the date on which the notice of such redemption is mailed.
"Redemption Price", when used with respect to any Debenture to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the April 1 or October 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or
any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or, any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular
<PAGE> 16
7
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Senior Indebtedness" has the meaning specified in Section 1401.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Debenture or any
installment of interest thereon, means the date specified in such Debenture as
the fixed date on which the principal of such Debenture or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 905.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
<PAGE> 17
8
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate
or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such. Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters to one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be
<PAGE> 18
9
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of the Company stating that
the information with respect to such factual matters is in the possession of
the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duty
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and (subject to Section 601 ) conclusive in favor of the Trustee
and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by any reasonable method. The fact and
date of the execution of any such instrument or writing, or the authority of
the Person executing the same, may also be proved in any reasonable manner.
(c) The ownership of Debentures shall be proved by the Debenture
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Debenture shall bind every
future Holder of the same Debenture and the Holder of every Debenture issued
<PAGE> 19
10
upon the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee any Debenture Registrar, any Paying Agent or the Company in reliance
thereon, whether or not notation of such action is made upon such Debenture.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Department, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its
principal office specified in the first paragraph of this instrument
or at any other address previously furnished in writing to the Trustee
by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event at his address as it appears in the Debenture Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
<PAGE> 20
11
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing In this Indenture or in the Debentures, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders of Debentures,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 112. Governing Law.
This indenture and the Debentures shall be governed by and construed
in accordance with the laws of the State of California.
<PAGE> 21
12
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Debenture or any date on which a payment is required to be made
to the sinking fund or the last date on which a Holder has the right to convert
his Debentures shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Debentures) payment of interest or
principal (and premium, if any) or conversion of the Debentures need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date or Redemption
Date, or at the Stated Maturity, or on such last day for conversion, provided
that no interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date or Stated Maturity, or sinking fund payment date,
or on such last day for conversion as the case may be.
ARTICLE TWO
DEBENTURE FORM
SECTION 201. Form Generally.
The Debentures and the Trustee's certificates of authentication shall
be in substantially the form set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Debentures,
as evidenced by their execution of the Debentures.
The definitive Debentures shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or
may be produced in any other manner permitted by the rules of any securities
exchange on which the Debentures may be listed, all as determined by the
officers executing such Debentures, as evidenced by their execution of such
Debentures.
<PAGE> 22
13
SECTION 202. Form of Face of Debenture.
THE FEDERATED GROUP, INC.
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE APRIL 15, 2010
No. $
------------------- ----------------
THE FEDERATED GROUP, INC., a Delaware corporation (herein called the
"Company"), for value received, hereby promises to pay to or
registered assigns, the principal sum of DOLLARS on April 15,
2010 and to pay interest thereon from April 15, 1985, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semiannually on April 15 and October 15 in each year, commencing October 15,
1985, at the rate of 7 1/2% per annum (computed on the basis of a 360-day year
consisting of 12 30-day months), until the principal hereof is paid or duly
provided for. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture
hereinafter referred to, be paid to the Person in whose name this Debenture (or
one or more Predecessor Debentures) is registered at the close of business on
the Regular Record Date for such interest, which shall be the April 1 or October
1 (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Debenture
(or one or more Predecessor Debentures) is registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest to be fixed
by the Trustee, notice whereof shall be given to Holders of Debentures not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture. Payment
of the principal of (and premium, if any) on this Debenture will be made at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City and State of New York, or in the City of Los Angeles,
California or at any other office or agency maintained by the Company for such
purpose. Payment of interest on the Debentures will be made by the Trustee in
Los
<PAGE> 23
14
Angeles, California by check or draft mailed to the address of the Person
entitled thereto as such address shall appear in the Debenture Register.
Payment will be made in such currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts. The
term "Company" under the Indenture includes any successor corporation.
Reference is hereby made to the further provisions of this Debenture
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if sat forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof (directly or through an
Authenticating Agent) by manual signature, this Debenture shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
[SEAL]
THE FEDERATED GROUP, INC.
Attest: By
--------------------------------
[Title]
- ---------------------------------
[Title]
SECTION 203. Form of Reverse of Debenture.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 7 1/2% Convertible Subordinated Debentures due April
15, 2010 (herein called the "Debentures"), limited in aggregate principal
amount to $40,000,000, issued and to be issued under an Indenture, dated as of
April 15, 1985 (herein called the "Indenture"), between the Company and
Security Pacific National Bank (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the Holders of Senior Indebtedness and the Holders of
the Debentures and of the terms upon which the Debentures are, and are to be,
authenticated and delivered.
<PAGE> 24
15
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Debenture is entitled at his option, at any time on or
before the close of business on April 15, 2010, or in case this Debenture or a
portion hereof is called for redemption, then in respect of this Debenture or
such portion hereof until and including, but (unless the Company defaults in
making the payment due upon redemption) not after, the close of business on the
fifth day prior to the Redemption Date, to convert this Debenture (or any
portion of the principal amount hereof which is $1,000 or an integral multiple
thereof), at the principal amount hereof, or of such portion, into fully paid
and nonassessable shares (calculated as to each conversion to the nearest 1/100
of a share) of Common Stock, $.10 par value ("Common Stock") of the Company at
a conversion price equal to $35 aggregate principal amount of Debentures for
each share of Common Stock (or at the current adjusted conversion price if an
adjustment has been made as provided in the Indenture) by surrender of this
Debenture, duly endorsed or assigned to the Company or in blank, to the Company
at its office or agency maintained for such purpose in the Borough of
Manhattan, The City and State of New York, or the City of Los Angeles,
California, accompanied by written notice to the Company that the Holder hereof
elects to convert this Debenture, or if less than the entire principal amount
hereof is to be converted, the portion hereof to be converted, and, in case
such surrender shall be made during the period from the close of business on
any Regular Record Date next preceding any Interest Payment Date to the opening
of business on such Interest Payment Date (unless this Debenture or the portion
thereof being converted has been called for redemption during such period),
also accompanied by payment in New York clearing house funds or Los Angeles
clearing house funds, as the case may be, or other funds acceptable to the
Company and the Trustee of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of this Debenture then being
converted. Subject to the aforesaid requirement for payment and, in the case
of a conversion after the Regular Record Date next preceding any Interest
Payment Date and on or before such Interest Payment Date, to the right of the
Holder of this Debenture (or any Predecessor Debenture) of record at such
Regular Record Date to receive an installment of interest (with certain
exceptions provided in the Indenture), no payment or adjustment is to be made
on conversion for interest accrued hereon or for dividends on the Common Stock
issued on conversion. No fractions of shares or scrip representing fractions
of shares will be issued on conversion, but instead of any fractional interest
the Company shall pay a
<PAGE> 25
16
cash adjustment as provided in the Indenture. The conversion price is subject
to adjustment as provided in the Indenture. In addition, the Indenture provides
that in case of certain consolidations or mergers to which the Company is a
party or the sale or transfer of all or substantially all of the assets of the
Company, the Indenture shall be amended, without the consent of any Holders of
Debentures, so that this Debenture, if then outstanding, will be convertible
thereafter, during the period this Debenture shall be convertible as specified
above, only into the kind and amount of securities, cash and other property
receivable upon the consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock of the Company into which this Debenture might
have been converted immediately prior to such consolidation, merger, sale or
transfer. Any Holder of a Debenture who surrenders his Debenture or any portion
thereof for conversion prior to the close of business on May 2, 1985 shall
receive a due bill representing the right to receive on or after May 3, 1985 the
additional number of shares which such Holder would have been entitled to
receive if such Debenture or portion thereof were surrendered for conversion on
May 3, 1985, computed in accordance with the third paragraph of Section 1301 of
the Indenture.
The Debentures are not redeemable on or prior to April 15, 1987, unless
the last reported sale price for the Common Stock on each of any 20 trading days
within the period of 30 consecutive trading days ending within five Business
Days of the date on which the notice of such redemption is given, equals or
exceeds 140% of the conversion price then in effect as provided in the
Indenture. With respect to redemptions in that event on or prior to April 15,
1987, and with respect to redemptions after April 15, 1987, Debentures are
subject to redemption upon not less than 30 nor more than 60 days notice by
first-class mail, postage prepaid. The redemption may be made in whole, or from
time to time in part, at the option of the Company at a redemption price equal
to the percentage of the principal amount set forth below if redeemed during the
twelve-month period beginning April 15 in each of the years indicated, plus
accrued interest to the date fixed for redemption (provided that, if the date
fixed for redemption (including through the operation of the Sinking Fund
hereinafter provided for) is an Interest Payment Date, the interest payable on
such date shall, subject to exceptions provided in the Indenture, be paid to the
person in whose name this Debenture, or the Debenture or Debentures in exchange
or substitution for which this Debenture shall have been issued, shall have been
registered at the close of business on the April 1 or October 1, as the case may
be, next
<PAGE> 26
17
preceding such Interest Payment Date, whether or not such April 1 or October 1
is a Business Day), all as provided in the Indenture:
<TABLE>
<CAPTION>
Year Percentage Year Percentage
<S> <C> <C> <C>
1985 . . . . . . . . 107.50 1991 . . . . . . . . . 103.00
1986 . . . . . . . . 106.75 1992 . . . . . . . . . 102.25
1987 . . . . . . . . 106.00 1993 . . . . . . . . . 101.50
1988 . . . . . . . . 105.25 1994 . . . . . . . . . 100.75
1989 . . . . . . . . 104.50 1995 or thereafter . . 100.00
1990 . . . . . . . . 103.75
</TABLE>
Notice to the holders of Debentures to be redeemed shall be given by
mailing to such holders a notice of such redemption at their last addresses as
they shall appear on the books maintained for the registration of the
Debentures, all as provided in the Indenture. Any notice which is mailed in the
manner provided in the Indenture shall be conclusively presumed to have been
duly given, whether or not the holder receives such notice, and failure duly to
give such notice by mail, or any defect in such notice, to the holder of any
Debenture designated for redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other Debenture.
The sinking fund provides for the redemption on April 15 in each year
beginning with the year 1996 to and including the year 2009 of $2,000,000
aggregate principal amount of the Debentures. Debentures acquired by the
Company or redeemed otherwise than through the sinking fund or converted may be
credited against subsequent sinking fund requirements.
In the event of redemption or conversion of this Debenture in part
only, a new Debenture or Debentures for the unredeemed or unconverted portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The indebtedness evidenced by the Debentures is, to the extent and in
the manner provided in the Indenture, expressly subordinate and subject in right
of payment to the prior payment in full of any Senior Indebtedness of the
Company or provision for such payment, whether outstanding at the date of the
indenture or thereafter incurred, and each Holder of this Debenture, by his
acceptance hereof, agrees to and shall be bound by such
<PAGE> 27
18
provisions of the Indenture and authorizes and directs the Trustee in his
behalf to take such action as may be necessary or appropriate to effectuate such
subordination and appoints the Trustee his attorney-in-fact for any and all
such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Debentures may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debentures under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of 66
2/3% in aggregate principal amount of the Debentures at the time Outstanding.
The Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Debentures at the time
Outstanding, on behalf of the Holders of all the Debentures, to waive certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Debenture shall be conclusive and binding upon
such Holder and upon all future Holders of this Debenture and of any Debenture
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon
this Debenture.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Debenture at the times, place and rate,
and in the coin or currency, herein prescribed or to convert this Debenture at
the rate and upon the terms provided in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Debenture is registrable in the
Debenture Register upon surrender of this Debenture for registration of
transfer at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan. The City and State of New York or the City of Los
Angeles, California duty endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Debenture Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or move new Debentures, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
<PAGE> 28
19
The Debentures are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof, As provided in the
Indenture and subject to certain limitations therein set forth, Debentures are
exchangeable for a like aggregate principal amount of Debentures of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Debenture for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Debenture is registered as the owner
hereof for all purposes, whether or not this Debenture be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Debentures referred to in the within mentioned
Indenture.
SECURITY PACIFIC NATIONAL BANK,
as Trustee
By
------------------------------------
Authorized Officer
SECTION 205. Form of Notice of Election to Convert.
TO THE FEDERATED GROUP, INC.:
The undersigned owner of this Debenture hereby: (i) irrevocably
exercises the option to convert this Debenture, or the portion hereof below
designated (which shall be $1,000 or an integral multiple thereof) into
<PAGE> 29
20
shares of Common Stock of the Company, in accordance with the terms of the
Indenture referred to in this Debenture, and (ii) directs that the shares and
any due bills issuable and deliverable upon conversion, together with any check
in payment for fractional shares and any Debenture(s) representing any
unconverted principal amount hereof, be issued in the name of and delivered to
the undersigned, unless a different name has been indicated below. If shares or
other securities are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Debenture.
Dated:
-------------------------------
----------------------------------------
Signature
Fill in for registration of shares of Common Stock and Debentures if to be
issued otherwise than to and in the name of the registered holder.
- ---------------------------------------
(Name)
- --------------------------------------- -----------------------------------
(Address) Social Security or Other
Taxpayer Identifying Number
- ---------------------------------------
Please print name and address
(including zip code)
Principal Amount to be Converted:
$
-------------------
<PAGE> 30
21
ARTICLE THREE
THE DEBENTURES
SECTION 301. Title and Terms.
The aggregate principal amount of Debentures which may be
authenticated and delivered under this Indenture is limited to $40,000,000,
except for Debentures authenticated and delivered upon registration of transfer
of or in exchange for, or in lieu of, other Debentures pursuant to Section 304,
305, 306, 906, 1108 or 1302.
The Debentures shall be known and designated as the "7 1/2%
Convertible Subordinated Debentures due April 15, 2010," of the Company. Their
Stated Maturity shall be April 15, 2010, and they shall bear interest at the
rate of 7 1/2% per annum, from April 15, 1985 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, payable semi-annually on April 15 and October 15, commencing October
15, 1985, until the principal thereof is paid or made available for payment.
The principal of, and premium (if any) on the Debentures shall be
payable at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan, The City and State of New York or the City of Los
Angeles, California and at any other office or agency maintained by the Company
for such purpose. Payment of interest on the Debentures will be made by the
Trustee in Los Angeles, California by check or draft mailed to the address of
the Person entitled thereto as such address shall appear in the Debenture
Register.
The Debentures shall be redeemable as provided in Article Eleven.
The Debentures shall be entitled to the benefits, and be redeemable
through operation, of the sinking fund as provided in Article Twelve.
The Debentures shall be convertible into shares of Common Stock as
provided in Article Thirteen.
The Debentures shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Fourteen.
SECTION 302. Denominations.
The Debentures shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
<PAGE> 31
22
SECTION 303. Execution, Authentication, Delivery and Dating.
The Debentures shall be executed on behalf of the Company by one or
more of its Chairman of the Board, its President or its Vice Presidents, under
its corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the
Debentures may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the dates of such Debentures.
At any time and from time to time after the execution and delivery of
this Indenture. the Company may deliver Debentures executed by the Company to
the Trustee for authentication.
Each Debenture shall be dated the date of its authentication.
No Debenture shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature of one of its authorized officers
and such certificate upon any Debenture shall be conclusive evidence, and the
only evidence, that such Debenture has been duly authenticated and delivered
hereunder.
SECTION 304. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Debentures which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Debentures in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Debentures may determine, as evidenced by their
execution of such Debentures.
If temporary Debentures are issued, the Company will cause definitive
Debentures to be prepared without unreasonable delay. After the prepara-
<PAGE> 32
23
tion, of definitive Debentures, the temporary Debentures shall be exchangeable
for definitive Debentures upon surrender of the temporary Debentures at any
office or agency of the Company designated pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Debentures, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Debentures of authorized denominations. Until so exchanged the
temporary Debentures shall in all respects be entitled to the same benefits
under this Indenture as definitive Debentures.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at one of its offices or agencies
designated pursuant to Section 1002 (initially such office shall be the
Corporate Trust Office) a register (the register maintained in such office or
agency being herein sometimes collectively referred to as the "Debenture
Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Debentures and of
transfers of Debentures. Said office or agency is hereby initially appointed
"Debenture Registrar" For the purpose of registering Debentures and transfers
of Debentures as herein provided.
Upon surrender for registration of transfer of any Debenture at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees. one or more
now Debentures of any authorized denominations, of a like aggregate principal
amount.
At the option of the Holder, Debentures may be exchanged for other
Debentures of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Debentures to be exchanged at such office or
agency. Whenever any Debentures are so surrendered For exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Debentures
which the Holder making the exchange is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Debentures
surrendered upon such registration of transfer or exchange.
<PAGE> 33
24
Every Debenture presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Debenture Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Debentures, but the Company may require payment of a sum sufficient
to cover any tax or other governmental, charge that may be imposed in
connection with any registration of transfer or exchange of Debentures, other
than exchanges pursuant to Section 304, 906, 1108 or 1302 not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Debenture during a period beginning at the opening of
business IS days before the day of the mailing of a notice of redemption of
Debentures selected for redemption under Section 1104 and ending at the dose of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Debenture so selected for redemption in whole or in part, except
the unredeemed portion of any Debenture being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Debentures.
If any mutilated Debenture is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Debenture of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Debenture and (d) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee chat such Debenture has been acquired by a
bona fide purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Debenture, a new Debenture of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Debenture, pay such Debenture.
<PAGE> 34
25
Upon the issuance of any new Debenture under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
destroyed, lost or stolen Debenture shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Debenture shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures.
SECTION 307. Payment of Interest, Interest Rights Preserved.
Interest on any Debenture which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Debenture (or one or more Predecessor Debentures) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Debenture which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest) shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Debentures (or their
respective Predecessor Debentures) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Debenture and the method of calculation
<PAGE> 35
26
thereof and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder at his address as it appears in the
Debenture Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Debentures (or
their respective Predecessor Debentures) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Debentures may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Debenture shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Debenture.
In the case of any Debenture which is converted after any Regular
Record Date and on or prior to the next succeeding Interest Payment Date
<PAGE> 36
27
(other than any Debenture whose Maturity is prior to such Interest Payment
Date), interest whose Stated Maturity is on such Interest Payment Date shall be
payable on such Interest Payment Date notwithstanding such conversion, and such
interest (whether or not punctually paid or duly provided for) shall be paid to
the Person in whose name that Debenture (or one or more Predecessor Debentures)
is registered at the close of business on such Regular Record Date.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Debenture for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Debenture is registered as the owner of such
Debenture for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 307) interest on such Debenture, for the purpose of
the conversion thereof and for all other purposes whatsoever, whether or not
such Debenture be overdue, and neither the Company, the Trustee, nor any agent
Of the Company, or the Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Debentures surrendered for payment, redemption, exchange,
registration of transfer or conversion or for credit against any sinking fund
payment pursuant to Section 1202 shall, if surrendered to any Person other than
the Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any
Debentures previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Debentures so delivered
shall be promptly cancelled by the Trustee. No Debentures shall be
authenticated in lieu of or in exchange for any Debentures cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Debentures held by the Trustee shall be destroyed and certification of their
destruction delivered to [he Company unless by a Company Order the Company shall
direct that canceled Debentures be returned to it.
<PAGE> 37
28
SECTION 310. Computation of Interest.
Interest on the Debentures shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion of Debentures herein expressly provided for), and
the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
(1) either
(A) all Debentures theretofore authenticated and
delivered (other than (i) Debentures which have been destroyed,
lost or stolen and which have been replaced or paid as provided
in Section 306 and (ii) Debentures for whose payment money has
theretofore been deposited in Trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
Discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee for cancellation or
(B) all such Debentures not theretofore delivered
to the Trustee for cancellation.
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption
within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the
Company,
<PAGE> 38
29
and the Company, in the case of (i), (ii) or (iii)
above, has deposited or caused to be deposited with
the Trustee as trust funds (which shall be immediately
due and payable) in trust for the purpose an amount
sufficient to pay and discharge the entire
indebtedness on such Debentures not theretofore
delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the
date of such deposit (in the case of Debentures which
have become due and payable) or to the Stated Maturity
or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and the obligations
of the Trustee to any Authenticating Agent under Section 614 shall survive.
SECTION 402. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 401 shall be
held in trust and applied by it, in accordance with the provisions of the
Debentures and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee; but such money need not be segregated from other funds except
to the extent required by law. All moneys deposited with the Trustee pursuant
to Section 401 (and held by it or any Paying Agent) for the payment of
Debentures subsequently converted shall be returned to the Company upon Company
Request.
<PAGE> 39
30
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
Following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Fourteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any
Debenture when it becomes due and payable, and continuance of such
default for a period of 30 days; or
(2) default in the payment of the principal of (or
premium, if any, on) any Debenture at its Maturity; or
(3) default in the deposit of any sinking fund payment,
when and as due by the terms of Article Twelve; or
(4) default in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 10% in
principal amount of the Outstanding Debentures a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder, or
(5) one or more defaults under any bond, debenture, note
or other evidence of indebtedness for money borrowed by the Company or
under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness
<PAGE> 40
31
for money borrowed by the Company, whether such indebtedness now
exists or shall hereafter be created, which default or defaults shall
have resulted in indebtedness, aggregating $1,000,000 or more,
becoming or being declared due and payable prior to the date on which
it would otherwise have become due and payable, without such
acceleration having been rescinded or annulled, or such indebtedness
having been discharged, within a period of 10 days after there shall
have been given, by registered or certified mail to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least
10% in principal amount of the Outstanding Debentures a written notice
specifying such default and requiring the Company to cause such
acceleration to be rescinded or annulled or cause such indebtedness to
be discharged and stating that such notice is a "Notice of Default"
hereunder, provided, however, that, subject to the provisions of
Sections 601 and 602, the Trustee shall not be deemed to have
knowledge of such default unless either (A) a Responsible Officer of
the Trustee assigned to its Corporate Trust Department shall have
actual knowledge of such default or (B) the Trustee shall have
received written notice thereof from the Company, from any Holder,
from the holder of any such indebtedness or from the trustee under any
such mortgage, indenture or other instruments; or
(6) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Company
in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or
(B) a decree or order adjudging the Company a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the
Company under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of any substantial part of
its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period of
90 consecutive days; or
(7) the commencement by the Company of a voluntary case
or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case
or
<PAGE> 41
32
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable Federal or State law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance of any
such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debentures may declare the principal of all the Debentures to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal,
plus interest, if any, accrued on such Debentures to the date of such
declaration, shall become immediately due and payable. Upon payment (i) of (A)
such aggregate principal amount and (B) interest and (ii) of interest on any
overdue principal and overdue interest (in each case to the extent that the
payment of such interest shall be legally enforceable), all of the Company's
obligations in respect of the payment of the principal of (and premium, if any)
and interest on the Debentures shall terminate.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Debentures, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a
sum sufficient to pay
<PAGE> 42
33
(A) all overdue installments of interest on all
Debentures.
(B) the principal of (and premium, if any, on)
any Debentures which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Debentures,
(C) to the extent that payment of such interest
is lawful, interest upon overdue installments of interest at
the rate borne by the Debentures, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default, other than the non-payment of
the principal of Debentures which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any installment of
interest on any Debenture when such interest becomes due and payable
and such default continues for a period of 30 days,
(2) default is made in the payment of the principal of
(or premium, if any, on) any Debenture at the Maturity thereof, or
(3) default is made in the deposit of any sinking fund
payment when and as due by the terms of Article Twelve,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Debentures, the whole amount then due and payable on such
Debentures for principal (and premium, if any) and interest, with interest upon
the overdue principal (and premium, if any) and, to the extent that payment of
such interest shall be legally enforceable, upon overdue
<PAGE> 43
34
installments of interest, at the rate borne by the Debentures; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute
a judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Debentures and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Debentures, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Debentures or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Debentures
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise.
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Debentures and to file such other papers or documents
as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation,
expenses,
<PAGE> 44
35
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures
may be prosecuted and enforced by the Trustee without the possession of any of
the Debentures or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Debentures in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Debentures and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
<PAGE> 45
36
FIRST: To the payment of all amounts due the Trustee under
Sections 607;
SECOND: Subject to Article 14, to the payment of the amounts
then due and unpaid for principal of (and premium, if any) and
interest on the Debentures in respect of which or for the benefit of
which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such
Debentures for principal (and premium, if any) and interest,
respectively; and
THIRD: Subject to Article 14, the remainder, if any, to the
Company, its successors or assigns, or to whomsoever may be lawfully
entitled to receive such remainder or as a court of competent
jurisdiction shall direct.
SECTION 507. Limitation on Suits.
No Holder of any Debenture shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default:
(2) the Holders of not less than 25% in principal amount
of the Outstanding Debentures shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer, of indemnity has failed to institute any
such proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders
of a majority in principal amount of the Outstanding Debentures;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any
<PAGE> 46
37
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of
any Debenture shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Debenture on the respective Stated Maturities
expressed in such Debenture (or, in the case of redemption, on the Redemption
Date) and to convert such Debenture in accordance with Article Thirteen and to
institute suit for the enforcement of any such payment and right to exchange,
and such rights shall nor be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
<PAGE> 47
38
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Debenture
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Debentures shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule
of law or with this Indenture, and
(2) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction, and
(3) the Trustee shall have the right to decline to follow
such direction if the Trustee in good faith shall determine that such
would be prejudicial to the Holders not joining in such direction or
would involve the Trustee in personal liability.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Debentures may on behalf of the Holders of all the Debentures waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if
any) or interest on any Debenture, or
(2) in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent
of the Holder of each Outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
<PAGE> 48
39
purpose of this Indenture, but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Debenture
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in
principal amount of the Outstanding Debentures, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of (or premium,
if any) or interest on any Debenture on or after the respective Stated
Maturities expressed in such Debenture (or, in, the case of redemption, on or
after the Redemption Date) or for the enforcement of the right to convert any
Debenture in accordance with Article Thirteen.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter la force, which may affect the covenants
or the performance of this Indenture, and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
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ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) The Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture: but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture.
(b) In case an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve
The Trustee from liability for its own negligent action, its own negligent
failure to act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section,
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of a majority in principal amount of
the
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Outstanding Debentures relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(4) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it.
(d) Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct or affecting, the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Debenture Register, notice of such default hereunder known to the
Trustee, unless such default shall have been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest on any Debenture or in the payment of any
sinking fund installment, the Trustee shall be protected in withholding such
notice if and so long, as the board of directors, the executive committee or a
trust committee of directors or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the interest of the
Holders; and provided, further, that in the case of any default of the
character specified in Section 501(4), no such notice to Holders shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Except as otherwise provided in Section 601:
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
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instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party
or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this Indenture,
unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note or other paper or
document but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct
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or negligence on the part of any agent or attorney appointed with due
care by it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Debentures.
The recitals contained herein and in the Debentures, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of Debentures or the proceeds thereof.
SECTION 605. May Hold Debentures.
The Trustee, any Authenticating Agent, any Paying Agent, any Debenture
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Debentures and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Debenture Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any
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provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
The obligations of the Company under this Section shall not be
subordinated to the payment of Senior Indebtedness pursuant to Article 14. As
security for the performance of those obligations the Trustee shall have a lien
prior to the Debentures upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of principal of
(and premium, if any) or interest on particular Debentures.
SECTION 608. Disqualification; Conflicting Interests.
(a) If the Trustee has or shall acquire any conflicting interest,
as defined in this Section, it shall, within 90 days after ascertaining that it
has such conflicting interest, either eliminate such conflicting interest or
resign in the manner and with the effect hereinafter specified in this Article.
(b) In the event that the Trustee shall fail to comply with the
provisions of Subsection (a) of this Section, the Trustee shall, within 10 days
after the expiration of such 90-day period, transmit by mail to all Holders, as
their names and addresses appear in the Debenture Register, notice of such
failure.
(c) For the purposes of this Section, the Trustee shall be deemed
to have a conflicting interest if
(1) the Trustee is trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the Company are outstanding,
unless such other indenture is a collateral trust indenture under
which the only collateral consists of Debentures issued under this
Indenture, provided that there shall be excluded from the operation of
this paragraph any indenture or
<PAGE> 54
45
indentures under which other securities, or certificates of interest
or participation in other securities, of the Company are outstanding,
if
(i) this Indenture and such other indenture or
indentures are wholly unsecured and such other indenture or
indentures are hereafter qualified under the Trust Indenture
Act, unless the Commission shall have found and declared by
order pursuant to Section 305(b) or Section 307(c) of the
Trust Indenture Act that differences exist between the
provisions of this Indenture and the provisions of such other
indenture or indentures which are so likely to involve a
material conflict of interest as to make it necessary in the
public interest or for the protection of investors to
disqualify the Trustee from acting as such under this
Indenture and such other indenture or indentures, or
(ii) the Company shall have sustained the burden
of proving, on application to the Commission and after
opportunity for hearing thereon, that trusteeship under this
Indenture and such other indenture or indentures is not so
likely to involve a material conflict of interest as to make
it necessary in the public interest or for the protection of
investors to disqualify the Trustee from acting as such under
one of such indentures:
(2) the Trustee or any of its directors or executive
officers is an obligor upon the Debentures or an underwriter for the
Company;
(3) the Trustee directly or indirectly controls or is
directly or indirectly controlled by or is under direct or indirect
common control with the Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive
officers is a director, officer, partner, employee, appointee or
representative of the Company, or of an underwriter (other than the
Trustee itself) for the Company who is currently engaged in the
business of underwriting, except that (i) one individual may be a
director or an executive officer, or both, of the Trustee and a
director or an executive officer, or both, of the Company but may not
be at the same time an executive officer of both the Trustee and the
Company; (ii) if and so long as the number of directors of the Trustee
in office is more than nine, one additional individual may be a
director or an executive officer, or both, of the Trustee and a
director of the Company; and (iii) the Trustee may be
<PAGE> 55
46
designated by the Company or by any underwriter for the Company to act
in the capacity of transfer agent, registrar, custodian, paying agent,
fiscal agent, escrow agent or depositary, or in any other similar
capacity, or, subject to the provisions of paragraph (1) of this
Subsection, to act as trustee, whether under an indenture or
otherwise;
(5) 10% or more of the voting securities of the Trustee
is beneficially owned either by the Company or by any director,
partner or executive officer thereof, or 20% or more of such voting
securities is beneficially owned, collectively, by any two or more of
such persons; or 10% or more of the voting securities of the Trustee
is beneficially owned either by an underwriter for the Company or by
any director, partner or executive officer thereof, or is beneficially
owned, collectively, by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), (i) 5% or more of the voting
securities, or 10% or more of any other class of security, of the
Company not including the Debentures issued under this Indenture and
securities issued under any other indenture under which the Trustee is
also trustee, or (ii) 10% or more of any class of security of an
underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), 5% or more of the voting
securities of any person who, to the knowledge of the Trustee, owns
10% or more of the voting securities of, or controls directly or
indirectly or is under direct or indirect common control with, the
Company;
(8) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), 10% or more of any class of
security of any person who, to the knowledge of the Trustee, owns 50%
or more of the voting securities of the Company; or
(9) the Trustee owns, on May 15 in any calendar year, in
the capacity of executor, administrator, testamentary or inter vivos
trustee, guardian, committee or conservator, or in any other similar
capacity, an aggregate of 25% or more of the voting securities, or of
any class of
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security, of any person, the beneficial, ownership of a specified
percentage of which would have constituted a conflicting interest under
paragraph (6), (7) or (8) of this Subsection. As to any such
securities of which the Trustee acquired ownership through becoming
executor, administrator or testamentary trustee of an estate which
included them, the provisions of the preceding sentence shall not
apply, for a period of two years from the date of such acquisition, to
the extent that such securities included in such estate do not exceed
25% of such voting securities or 25% of any such class of security.
Promptly after May 15 in each calendar year, the Trustee shall make a
check of its holdings of such securities in any of the above-mentioned
capacities as of such May 15. If the Company fails to make payment in
full of the principal of (or premium, if any) or interest on any of
the Debentures when and as the same becomes due and payable, and such
failure continues for 30 days thereafter, the Trustee shall make a
prompt check of its holdings of such securities in any of the
above-mentioned capacities as of the date of the expiration of such
30-day period, and after such date, notwithstanding the foregoing
provisions of this paragraph, all such securities so held by the
Trustee, with sole or joint control over such securities vested in it,
shall, but only so long as such failure shall continue, be considered
as though beneficially owned by the Trustee for the purposes of
paragraphs (6), (7) and (8) of this Subsection.
The specification of percentages in paragraphs (5) to (9), inclusive,
of this Subsection shall not be construed as indicating that the ownership of
such percentages of the securities of a person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of
paragraph (3) or (7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this
Subsection only, (i) the terms "security" and "securities" shall include only
such securities as are generally known as corporate securities, but shall not
include any note or other evidence of indebtedness issued to evidence an
obligation to repay moneys lent to a person by one or more banks, trust
companies or banking firms, or any certificate of interest or participation in
any such note or evidence of indebtedness; (ii) an obligation shall be deemed
to be "in default" when a default in payment of principal shall have continued
for 30 days or more and shall not have been cured; and (iii) the Trustee shall
not be deemed to be the owner or holder of (A) any security
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which it holds as collateral security, as trustee or otherwise, for an
obligation which is not in default as defined in clause (ii) above, or (B) any
security which it holds as collateral security under this Indenture,
irrespective of any default hereunder, or (C) any security which it holds as
agent for collection, or as custodian, escrow agent or depositary, or in any
similar representative capacity.
(d) For the purposes of this Section:
(1) The term "underwriter", when used with reference to
the Company, means every person who, within three years prior to the
time as of which the determination is made, has purchased from the
Company with a view to, or has offered or sold for the Company in
connection with, the distribution of any security of the Company
outstanding at such time, or has participated or has had a direct or
indirect participation in any such undertaking, or has participated or
has had a participation in the direct or indirect underwriting of any
such undertaking, but such term shall not include a person whose
interest was limited to a commission from an underwriter or dealer not
in excess of the usual and customary distributors' or sellers'
commission.
(2) The term "director" means any director of a
corporation or any individual performing similar functions with
respect to any organization, whether incorporated or unincorporated.
(3) The term "person" means an individual, a corporation,
a partnership, an association, a joint-stock company, a trust, an
unincorporated organization or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include
only a trust where the interest or interests of the beneficiary or
beneficiaries are evidenced by a security.
(4) The term "voting security" means any security
presently entitling the owner or holder thereof to vote in the
direction or management of the affairs of a person, or any security
issued under or pursuant to any trust agreement or arrangement whereby
a trustee or trustees or agent or agents for the owner or holder of
such security are presently entitled to vote in the direction or
management of the affairs of a person.
(5) The term "Company" means any obligor upon the
Debentures.
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(6) The term "executive officer" means the president,
every vice president, every trust officer, the cashier, the
secretary and the treasurer of a corporation, and any individual
customarily performing similar functions with respect to any
organization whether incorporated or unincorporated, but shall not
include the chairman of the board of directors.
(e) The percentages of voting securities and other securities
specified in this Section shall be calculated in accordance with the following
provisions:
(1) A specified percentage of the voting securities of
the Trustee, the Company or any other person referred to in this
Section (each of whom is referred to as a "person" in this paragraph)
means such amount of the outstanding voting securities of such person
as entitles the holder or holders thereof to cast such specified
percentage of the aggregate votes which the holders of all the
outstanding voting securities of such person are entitled to cast in
the direction or management of the affairs of such person.
(2) A specified percentage of a class of securities of a
person means such percentage of the aggregate amount of securities of
the class outstanding.
(3) The term "amount", when used in regard to securities,
means the principal amount if relating to evidences of indebtedness,
the number of shares if relating to capital shares and the number of
units i relating to any other kind of security.
(4) The term "outstanding" means issued and not held by
or for the account of the issuer. The following securities shall not
be deemed outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking
fund relating to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking
fund relating to another class of securities of the issuer, if
the obligation evidenced by such other class of securities is
not in default as to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as
security for an obligation of the issuer not in default as to
principal or interest or otherwise; and
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(iv) securities held in escrow if placed in escrow
by the issuer thereof;
provided, however, that any voting securities of an issuer shall be
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as
another security if both securities confer upon the holder or holders
thereof substantially the same rights and privileges; provided,
however, that, in the case of secured evidences of indebtedness, all
of which are issued under a single indenture, differences in the
interest rates or maturity dates of various series thereof shall not
be deemed sufficient to constitute such series different classes and
provided, further, that, in the case of unsecured evidences of
indebtedness, differences in the interest rates or maturity dates
thereof shall not be deemed sufficient to constitute them securities
of different classes, whether or not they are issued under a single
indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $25,000,000 and subject to supervision or examination by Federal,
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
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(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders
of a majority in principal amount of the Outstanding Debentures, delivered to
the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608(a) after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Debenture for at least six months, or
(2) the Trustee shall cease to be eligible under Section
609 and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation.
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Debenture for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Debentures
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appoint-
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ment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Debenture
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail postage prepaid, to all
Holders as their names and addresses appear in the Debenture Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee; but, on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its
charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder, subject nevertheless to its
lien, if any, provided for in Section 607. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Debentures shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Debentures so authenticated with the same
effect as if such successor Trustee had itself authenticated such Debentures.
SECTION 613. Preferential Collection of Claims Against Company.
(a) Subject to Subsection (b) of this Section, if the Trustee
shall be or shall become a creditor, directly or indirectly, secured or
unsecured, of the Company within four months prior to a default, as defined in
Subsection (c) of this Section, or subsequent to such a default, then, unless
and until such default shall be cured, the Trustee shall set apart and hold in
a special account for the benefit of the Trustee individually, the Holders of
the Debentures and the holders of other indenture securities, as defined in
Subsection (c) of this Section:
(1) an amount equal to any and all reductions in the
amount due and owing upon any claim as such creditor in respect of
principal or interest, effected after the beginning of such four
months' period and valid as against the Company and its other
creditors, except any such reduction resulting from the receipt or
disposition of any property described in paragraph (2) of this
Subsection, or from the exercise of any right of set-off which the
Trustee could have exercised if a petition in bankruptcy had been filed
by or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of
any claims as such creditor, either as security therefor, or in
satisfaction or composition thereof, or otherwise, after the beginning
of such four months'
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period, or an amount equal to the proceeds of any such property, if
disposed of, subject, however, to the rights, if any, of the Company
and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on
account of any such claim by any Person (other than the Company) who
is liable thereon, and (ii) the proceeds of the bona fide sale of any
such claim by the Trustee to a third Person, and (iii) distributions
made in cash, securities or other property in respect of claims filed
against the Company in bankruptcy or receivership or in proceedings
for reorganization pursuant to the Federal Bankruptcy Code or
applicable State law;
(B) to realize, for its own account, upon any property
held by it as security for any such claim, if such property was so
held prior to the beginning of such four months' period;
(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon any property held by
it as security for any such claim, if such claim was created after the
beginning of such four months' period and such property was received
as security therefor simultaneously with the creation thereof, and if
the Trustee shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause to
believe that a default, as defined in Subsection (c) of this Section,
would occur within four months; or
(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any property held as
security for such claim as provided in paragraph (B) or (C), as the
case may be, to the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted
after the beginning of such four months' period for property held as security
at the time of such substitution shall, to the extent of the fair value of the
property released, have the same status as the property released, and, to the
extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
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If the Trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be apportioned
among the Trustee, the Holders and the holders of other indenture securities in
such manner that the Trustee, the Holders and the holders of other indenture
securities realize, as a result of payments from such special account and
payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Act or applicable State law, the same percentage of their respective
claims, figured before crediting to the claim of the Trustee anything on
account of the receipt by it from the Company of the funds and property in such
special account and before crediting to the respective claims of the Trustee
and the Holders and the holders of other indenture securities dividends on
claims filed against the Company in bankruptcy or receivership or in proceedings
for reorganization pursuant to the Federal Bankruptcy Code or applicable State
law, but after crediting thereon receipts on account of the indebtedness
represented by their respective claims from all sources other than from such
dividends and from the funds and property so held in such special account. As
used in this paragraph, with respect to any claim, the term "dividends" shall
include any distribution with respect to such claim, in bankruptcy or
receivership or proceedings for reorganization pursuant to the Federal
Bankruptcy Code or applicable State law, whether such distribution is made in
cash, securities or other property, but shall not include any such distribution
with respect to the secured portion, if any, of such claim. The court in which
such bankruptcy, receivership or proceedings for reorganization is pending
shall have jurisdiction (i) to apportion among the Trustee, the Holders and the
holders of other indenture securities, in accordance with the provisions of
this paragraph, the funds and property held in such special account and
proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part,
to give to the provisions of this paragraph due consideration in determining the
fairness of the distributions to be made to the Trustee and the Holders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to
apply the provisions of this paragraph as a mathematical formula.
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Any Trustee which has resigned or been removed after the beginning of
such four months' period shall be subject to the provisions of this Subsection
as though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such four months' period, it
shall be subject to the provisions of this Subsection if and only if the
following conditions exist:
(i) the receipt of property or reduction of claim, which
would have given rise to the obligation to account, if such Trustee
had continued as Trustee, occurred after the beginning of such four
months' period: and
(ii) such receipt of property or reduction of claim
occurred within four months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a)
of this Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under
any indenture, or any security or securities having a maturity of one
year or more at the time of acquisition by the Trustee,
(2) advances authorized by a receivership or bankruptcy
court of competent jurisdiction or by this Indenture, for the purpose
of preserving any property which shall at any time be subject to the
lien of this Indenture or of discharging tax liens or other prior
liens or encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the Holders
at the time and in the manner provided in this Indenture;
(3) disbursements made in the ordinary course of business
in the capacity of trustee under an indenture, transfer agent,
registrar, custodian, paying agent, fiscal agent or depositary, or
other similar capacity;
(4) an indebtedness created as a result of services
rendered or premises rented, or an indebtedness created as a result of
goods or securities sold in a cash transaction, as defined in
Subsection (c) of this Section;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve
<PAGE> 66
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Act, as amended which is directly or indirectly a creditor of the
Company; or
(6) the acquisition, ownership, acceptance or negotiation
of any drafts, bills of exchange, acceptances or obligations which
fall within the classification of self-liquidating paper, as defined
in Subsection (c) of this Section.
(c) For the purposes of this Section only:
(1) the term "default" means any failure to make payment in
full of the principal of or interest on any of the Debentures or upon
the other indenture securities when and as such principal or interest
becomes due and payable;
(2) the term "other indenture securities" means
securities upon which the Company is an obligor outstanding under any
other indenture (i) under which the Trustee is also trustee, (ii)
which contains provisions substantially similar to the provisions of
this Section, and (iii) under which a default exists at the time of
the apportionment of the funds and property held in such special
account;
(3) the term "cash transaction" means any transaction in
which full payment for goods or securities sold is made within seven
days after delivery of the goods or securities in currency or in
checks or other orders drawn upon banks or bankers and payable upon
demand;
(4) the term "self-liquidating paper" means any draft,
bill of exchange, acceptance or obligation which is made, drawn,
negotiated or incurred by the Company for the purpose of financing the
purchase, processing, manufacturing, shipment, storage or sale of
goods, wares or merchandise and which is secured by documents
evidencing title to, possession of, or a lien upon, the goods, wares
or merchandise or the receivables or proceeds arising from the sale of
the goods, wares or merchandise previously constituting the security,
provided the security is received by the Trustee simultaneously with
the creation of the creditor relationship with the Company arising
from the making, drawing, negotiating or incurring of the draft, bill
of exchange, acceptance or obligation;
(5) the term "Company" means any obligor upon the
Debentures; and
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(6) the term "Federal Bankruptcy Code" means Title 11 of
the United States Code as amended from time to time.
SECTION 614. Appointment of Authenticating Agent.
At any time when any of the Debentures remain Outstanding the Trustee
may appoint an Authenticating Agent or Agents which shall be authorized to act
on behalf of the Trustee to authenticate Debentures issued upon exchange,
except for authentication upon original issue pursuant to Section 303 and in
connection with lost, stolen or destroyed Debentures pursuant to Section 306,
registration of transfer or partial redemption or exchange thereof. Debentures
so authenticated shall be entitled to the benefits of this Indenture and shall
be valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Debentures by the Trustee or the Trustee's certificate of
authentication such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $25,000,000 and subject to supervision or
examination by Federal, State or District of Columbia authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate
<PAGE> 68
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agency or corporate trust business of an Authenticating Agent, shall continue
to be an Authenticating Agent, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or
any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Debenture Register in accordance with Section
106. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Trustee agrees
(1) to pay to each Authenticating Agent from time to time
reasonable compensation for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to
reimburse the Authenticating Agent upon its request for all reasonable
expenses, disbursements and advances incurred or made by the
Authenticating Agent in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or
bad faith; and
(3) to indemnify the Authenticating Agent for, and to
hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
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Such payments by the Trustee shall be reimbursable expenses, Subject
to the provisions of Section 607.
If an appointment is made pursuant to this Section, the Debentures may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Debentures described in the within-mentioned
Indenture.
-------------------------------
As Trustee
By
-----------------------------
As Authenticating Agent
By
-----------------------------
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each
Regular Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of
such Regular Record Date, and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished;
provided no such list need be furnished if the Trustee shall be the Debenture
Registrar.
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SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Holders received by the Trustee in its capacity as
Debenture Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee reasonable proof
that each such applicant has owned a Debenture for a period of at least six
months preceding the date of such application, and such application states that
the applicants desire to communicate with other Holders with respect to their
rights under this Indenture or under the Debentures and is accompanied by a
copy of the form of proxy or other communication which such applicants propose
to transmit, then the Trustee shall, within five Business Days after the receipt
of such application, at its election, either
(i) afford such applicants access to the information
preserved at the time by the Trustee in accordance with Section
702(a), or
(ii) inform such applicants as to the approximate number
of Holders whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with Section
702(a), and as to the approximate cost of mailing to such Holders the
form of proxy or other communication, if any, specified in such
application.
If the Trustee shall elect not to afford such applicants access to
such information the Trustee shall, upon the written request of such
applicants, mail to each Holder whose name and address appear in the information
preserved at the time by the Trustee in accordance with Section 702(a) a copy
of the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable expenses
of mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion
of the Trustee, such mailing would be contrary to the best interest of the
Holders or would be in violation of applicable law. Such
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written statement shall specify the basis of such opinion. If the Commission,
after opportunity for a hearing upon the objections specified in the written
statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such material to all such
Holders with reasonable promptness after the entry of such order and the
renewal of such tender, otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(c) Every Holder of Debentures, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with Section 702(b), regardless of the source from which
such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
Section 702(b).
SECTION 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the
year 1986, the Trustee shall transmit by mail to all Holders, as their names
and addresses appear in the Debenture Register, a brief report dated as of such
May 1 with respect to:
(1) its eligibility under Section 609 and its
qualifications under Section 608, or in lieu thereof, if to the best
of its knowledge it has continued to be eligible and qualified under
said Sections, a written statement to such effect;
(2) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date
of such report, and for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Debentures, on any
property or funds held or collected by it as Trustee, except that the
Trustee shall not be required (but may elect) to report such advances
if such advances so remaining unpaid aggregate not more than 1/2 of 1%
of the principal amount of the Debentures Outstanding on the date of
such report;
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(3) the amount, interest rate and maturity date of all
other indebtedness owing by the Company (or by any other obligor on
the Debentures) to the Trustee in its individual capacity, on the date
of such report, with a brief description of any property held as
collateral security therefor, except an indebtedness based upon a
creditor relationship arising any manner described in Section
613(b)(2), (3), (4) or (6);
(4) the property and funds, if any, physically in the
possession of the Trustee as such on the date of such report;
(5) any additional issue of Debentures which the Trustee
has not previously reported; and
(6) any action taken by the Trustee in the performance of
its duties hereunder which it has not previously reported and which in
its opinion materially affects the Debentures, except action in
respect of a default, notice of which has been or is to be withheld by
the Trustee in accordance with Section 602.
(b) The Trustee shall transmit by mail to all Holders, as their
names and addresses appear in the Debenture Register, a brief report with
respect to the character and amount of any advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) since the date of the last report transmitted pursuant to
Subsection (a) of this Section (or if no such report has yet been so
transmitted, since the date of execution of this instrument for the
reimbursement of which it claims or may claim a lien or charge, prior to that of
the Debentures, on property or funds held or collected by it as Trustee and
which it has not previously reported pursuant to this Subsection, except that
the Trustee shall not be required (but may elect) to report such advances if
such advances remaining unpaid at any time aggregate 10% or less of the
principal amount of the Debentures Outstanding at such time, such report to be
transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Debentures are listed, with the Commission and with the Company. The
Company, will notify the Trustee when the Debentures are listed on any stock
exchange.
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(d) Notwithstanding paragraphs (a)-(c) of this Section, if
subsequent to the date hereof, Section 313 of the Trust Indenture Act is
amended to eliminate the requirement of such report, no such report need be
mailed or filed.
SECTION 704. Reports by Company.
The Company shall:
(1) file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of
the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission
may from time to time by rules and regulations prescribe) which the
Company may be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934,
or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with
the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such of
the supplementary and periodic information documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act
of 1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such
rules and regulations;
(2) file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by
the Commission, such additional information, documents and reports
with respect to compliance by the Company with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(3) transmit by mail to all Holders, as their names and
addresses appear in the Debenture Register, within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
<PAGE> 74
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other
corporation or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless:
(1) the corporation formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or,
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation organized and
existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the due and punctual payment of
the principal of (and premium, if any) and interest on all the
Debentures and the performance of every covenant of this Indenture on
the part of the Company to be performed or observed and shall have
provided for conversion rights in accordance with Section 1311;
(2) immediately after giving effect to such transaction
and creating any indebtedness which becomes an obligation of the
Company or a Subsidiary as a result of such transaction as having been
by the Company or such Subsidiary at the time of such transaction, no
Event of Default, and no event which, after notice or lapse of time or
both, would become an Event of Default, shall have happened and be
continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such
supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 802. Successor Corporation Substituted.
Upon any consolidation or merger or any conveyance, transfer or lease
of the properties and assets of the Company substantially as an entirety to
<PAGE> 75
66
any Person in accordance with Section 801, the successor corporation formed by
such consolidation or into which the Company is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor corporation had been named as the
Company herein, and thereafter, except in the case of a lease to another
Person, the predecessor corporation shall be relieved of all obligations and
covenants under this Indenture and the Debentures.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to
the Company and the assumption by any such successor of the covenants
of the Company herein and in the Debentures; or
(2) to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power herein
conferred upon the Company; or
(3) to comply with the requirements of Section 1311; or
(4) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided such
other provisions shall not adversely affect the interests of the
Holders in any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than 66 2/3% in principal
amount of the Outstanding Debentures, by Act of said Holders delivered to
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the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall without the
consent of the Holder of each Outstanding Debenture affected thereby,
(1) change the Stated Maturity of the principal of, or
any installment of interest on, any Debenture, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or
the coin or currency in which, any Debenture or any premium or the
interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption
Date), or adversely affect the right to convert any Debenture as
provided in Article Thirteen or modify the provisions of this
Indenture with respect to the subordination of the Debentures in a
manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the
Outstanding Debentures, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section or
Section 513, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Debenture
affected thereby.
It shall not be necessary For any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
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SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Debentures theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Debentures so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplement indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Debentures.
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Debentures in accordance with the terms of
the Debentures and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City and
State of New York, and the City of Los Angeles, California, an office or agency
where Debentures may be presented or surrendered for payment, where Debentures
may be surrendered for registration of transfer or exchange for other
Debentures, where Debentures may be surrendered for conversion, where due bills
issued pursuant to Section 1301 may be presented for exchange for shares of
Common Stock and where notices and demands to or upon the Company in respect of
the Debentures and this Indenture may be served. The Company hereby initially
appoints the Trustee, its office or agency, for each of such purposes. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive
all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City and
State of New York and the City of Los Angeles, California) where the
Debentures may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The
City and State of New York and the City of Los Angeles, California for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
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SECTION 1003. Money for Debenture Payments to Be Held in Trust.
If the Company shall at any time act as its own paying agent, it will,
on or before each due date of the principal of (and premium, if any) or
interest on any of the Debentures, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Debentures, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of (and premium, if any) or interest on Debentures in trust
for the benefit of the Persons entitled thereto until such sums shall
be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company
(or any other obligor upon the Debentures) in the making of any
payment of principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held
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by the Company or such Paying Agent; and, upon such payment by any Paying Agent
to the Trustee, such Paying Agent shall be released from all further liability
with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Debenture and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Debenture
shall thereafter, as an unsecured general creditor, look only to the Company
for payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be mailed to Holders at last known address, or
to be published once, in a newspaper published in the English language,
customarily published on each Business Day and of general circulation in The
Borough of Manhattan, The City of New York, or mailed to each Holder, or both,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
publication, or mailing, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and rights (charter and statutory).
SECTION 1005. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary, in each case which are material
to the Company and its Subsidiaries taken as a whole, to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements
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thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien with respect to the Company and its Subsidiaries taken as a
whole; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings or other appropriate action.
SECTION 1007. Statement by Officers as to Default.
The Company shall notify the Trustee within 5 days after the
occurrence thereof of any acceleration which with the giving of notice and the
lapse of Lime could become an Event of Default under Section 501(5). The
Company will deliver to the Trustee, within 120 days after the end of each
fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers
thereof the Company is in default in the performance and observance of any of
the terms, provisions and conditions of this indenture, and if the Company
shall be in default, specifying all such defaults and the nature and status
thereof of which they may have knowledge.
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ARTICLE ELEVEN
REDEMPTION OF DEBENTURES
SECTION 1101. Right of Redemption.
The Debentures are not redeemable on or prior to April 15, 1987,
unless the last reported sale price for the Common Stock on each of any 20
trading days within the period of 30 consecutive trading days ending within
five business days of the date on which the notice of such redemption is given
to the Trustee equals or exceeds 140% of the conversion price then in effect as
provided in Sections 1301 and 1304. With respect to redemptions in that event
on or prior to April 15, 1987, and with respect to redemptions after April 15,
1987, the redemption may be made in whole, or from time to time in part, at the
option of the Company at the Redemption Price then applicable thereto as
specified in the form of Debenture hereinabove recited together with accrued
interest to the date fixed for redemption; provided, that if the date fixed for
redemption (including through the operation of the Sinking Fund hereinafter
provided for) is an Interest Payment Date, the interest payable on such date
shall, subject to exceptions provided in this Indenture, be paid to the person
in whose name the Debenture shall have been registered at the close of business
on the April 1 or October 1, as the case may be, next preceding such Interest
Payment Date, whether or not such April or October 1 is a Business Day.
SECTION 1102. Applicability of Article.
Redemption of Debentures at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of The Company to redeem any Debentures pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all of the Debentures,
the Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Debentures
to be redeemed.
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SECTION 1104. Selection by Trustee of Debentures to Be Redeemed.
If less than all the Debentures are to be redeemed, the particular
Debentures to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Debentures not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
Debentures of a denomination larger than $1,000.
If any Debenture selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Debenture so selected, the converted portion of such Debenture shall be deemed
(so far as may be) to be the portion selected for redemption. Debentures which
have been converted during a selection of Debentures to be redeemed shall be
treated by the Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and the Debenture
Registrar in writing of the Debentures selected for redemption and, in the case
of any Debenture selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Debentures shall relate,
in the case of any Debenture redeemed or to be redeemed only in part, to the
portion of the principal amount of such Debenture which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Debentures to be redeemed, at his address appearing in
the Debenture Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Debentures are to be
redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Debentures to be redeemed,
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(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Debenture to be redeemed and
that interest thereon will cease to accrue on and after said date,
(5) the conversion price, the date on which the right to
convert the principal of the Debentures to be redeemed will terminate
and the place or places where such Debentures may be surrendered for
conversion,
(6) the place or places where such Debentures are to be
surrendered for payment of the Redemption Price, and
(7) that the redemption is for the sinking fund, if such
is the case.
Notice of redemption of Debentures to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Debentures
which are to be redeemed on that date other than any Debentures called for
redemption on that date which have been converted prior to the date of such
deposit.
If any Debenture called for redemption is so converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held
in trust for the redemption of such Debenture shall (subject to any right of
the Holder of such Debenture or any Predecessor Debenture to receive interest
as provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1107. Debentures Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Debentures so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date
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(unless the Company shall default in the payment of the Redemption Price and
accrued interest) such Debentures shall cease to bear interest. Upon surrender
of any such Debenture for redemption in accordance with said notice, such
Debenture shall be paid by the Company at the Redemption Price, together with
accrued interest to the redemption date; provided, however, that installments
of interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Debentures, or one or more Predecessor
Debentures, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 307.
If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Debenture.
SECTION 1108. Debentures Redeemed in Part.
Any Debenture which is to be redeemed only in part shall be
surrendered at the office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute and the Trustee
shall authenticate and deliver to the Holder of such Debenture, without service
charge, a new Debenture or Debentures, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Debentures so
surrendered.
ARTICLE TWELVE
SINKING FUND
SECTION 1201. Sinking Fund Payments.
As and for a sinking fund for the retirement of the Debentures, the
Company will until all Debentures are paid or payment thereof provided for,
deposit in accordance with Section 1106, on or prior to April 15 in each
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year, commencing in 1996 and ending in 2009, an amount in cash sufficient to
redeem on such April 15 $2,000,000 in aggregate principal amount of Debentures
in each case at the Redemption Price specified in the form of Debenture
hereinbefore set forth for redemption through operation of the sinking fund.
The amount of the sinking fund payment as specified in this Section is herein
referred to as a "mandatory sinking fund payment." The cash amount of any
mandatory sinking fund payment is subject to reduction as provided in Section
1202 and the Company shall specify the amount of such reduction in the
Officers' Certificate delivered pursuant to Section 1203. Each sinking fund
payment shall be applied to the redemption of Debentures on such April 15, as
herein provided.
SECTION 1202. Satisfaction of Sinking Fund Payments with Debentures.
The Company (1) may deliver Outstanding Debentures (other than any
previously called for redemption) for a mandatory sinking fund payment and (2)
may apply as a credit Debentures which have been redeemed at the election of
the Company pursuant to Section 1101, or converted or otherwise acquired and
not previously credited in each case in satisfaction of all or any part of any
mandatory sinking fund payment required to be made pursuant to Section 1201,
provided that such Debentures have not been previously so credited. Each such
Debenture shall be received and credited for such purpose by the Trustee at the
Redemption Price specified in the form of Debenture hereinbefore set forth for
redemption through operation of the sinking fund and the amount of such
mandatory sinking fund payment shall be reduced accordingly.
SECTION 1203. Redemption of Debentures for Sinking Fund.
On or before March 1 in each year commencing with the year 1996 and
ending in 2009, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment
pursuant to Section 1201, the portion thereof, if any, which is to be satisfied
by payment of cash and the portion thereof, if any, which is to be satisfied by
delivering and crediting Debentures pursuant to Section 1202 and will also
deliver to the Trustee any Debentures to be so delivered. Before March 15 in
each such year the Trustee shall select the Debentures to be redeemed upon the
next ensuing April 15 in the manner specified in Section 1104 and cause notice
of the redemption thereof to be given in the name of and at the
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expense of the Company in the manner provided in Section 1105. Such notice
having been duly given, the redemption of such Debentures shall be made upon
the terms and in the manner stated in Sections 1107 and 1108.
ARTICLE THIRTEEN
CONVERSION OF DEBENTURES
SECTION 1301. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Debenture or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000 may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company, at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on April 15, 2010.
In case a Debenture or portion thereof is called for redemption, such
conversion right in respect of the Debenture or portion so called shall expire
at the close of business on the fifth day prior to the Redemption Date, unless
the Company defaults in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $35 per
share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (1), (2), (3), (4), (7), (8) and (9) of
Section 1304.
Notwithstanding the foregoing, in addition to the shares of Common
Stock issued in connection with the conversion of any Debenture or portion
thereof surrendered prior to the close of business on May 2, 1985, the Trustee
shall deliver to the holder of such Debenture a due bill evidencing such
Holder's right to receive on May 3, 1985 a number of shares of Common Stock
equal to the number of additional shares of Common Stock which such Holder
would be entitled to receive if such Debenture or portion thereof were
converted on May 3, 1985 (without giving effect to any adjustment of the
conversion price pursuant to this Article other than the adjustment referred to
in paragraph (9) of Section 1304). Any such due bill may be presented at any
office or agency of the Company maintained for that purpose pursuant to Section
1002 on or after May 3, 1985 for exchange for the shares of Common Stock
covered thereby.
SECTION 1302. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any
Debenture to be converted shall surrender such Debenture, duly endorsed or
assigned to the Company or in blank, at any office or agency of the Company
maintained for that purpose pursuant to Section 1002, accompanied by written
notice to the Company at such office or agency that the Holder elects to
convert such Debenture or, if less than the entire principal amount thereof is
to be converted, the portion thereof to be converted. Such notice shall also
state the name or names (with address and social security number or other
taxpayer identification number) in which said certificate or certificates
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are to be issued. Debentures surrendered for conversion during the period from
the close of business on any Regular Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date shall
(except in the case of Debentures or portions thereof which have been called
for redemption on a Redemption Date within such period) be accompanied by
payment in New York clearing house funds or other funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment
Date on the principal amount of Debentures being surrendered for conversion.
Except as provided in the preceding sentence and subject to the fourth
paragraph of Section 307, no payment or adjustment shall be made upon any
conversion on account of any interest accrued on the Debentures surrendered for
conversion or on account of any dividends on the Common Stock issued upon
conversion.
Debentures shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Debentures for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Debentures as Holders shall cease, and the person or persons
entitled to receive the Common Stock or due bills referred to in Section 1301
issuable upon conversion shall be treated for all purposes as the record holder
or holders of such Common Stock or due bills, as the case may be, at such time.
As promptly as practicable on or after the conversion date, the Company shall
issue and shall deliver at such office or agency to or upon the written order
of the Holder of the Debenture or Debentures surrendered a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion (but excluding any shares issuable in respect of any such due bill),
together with payment in lieu of any fraction of a share, as provided in
Section 1303. On May 3, 1985, or as promptly thereafter as possible the
Company shall issue and shall deliver at such office or agency, to or upon the
written order of the holder of the due bills surrendered, a certificate or
certificates for the number of full shares of Common Stock issuable upon
exchange for such due bill or due bills, together with payment in lieu of any
fraction of a share as provided in Section 1303.
In the case of any Debenture which is converted in part only, upon
such conversion the Company shall execute and the Trustee shall authenticate
and deliver to the Holder thereof, at the expense of the Company, a new
Debenture or Debentures of authorized denominations in aggregate principal
amount equal to the unconverted portion of the principal amount of such
Debenture.
SECTION 1303. Fractions of Shares.
No fractional shares of Common Stock shall be issued upon conversion
of Debentures. If more than one Debenture shall be surrendered for conversion
at one time by the same Holder, the number of full shares which shall be
issuable upon conversion thereof shall be computed on the basis of
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the aggregate principal amount of the Debentures (or specified portions
thereof) so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any Debenture or Debentures (or
specified portions thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the market price
per share of Common Stock (as determined by the Board of Directors or in any
manner prescribed by the Board of Directors) at the close of business on the day
of conversion.
SECTION 1304. Adjustment of Conversion Price.
(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in Common Stock
(other than the dividend referred to in paragraph (9) of this Section 1304),
the conversion price in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such conversion
price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination. For the purposes of
this paragraph (1) and paragraph (9) of this Section 1304, the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock. The
Company will not pay any dividend or make any distribution on shares of Common
Stock held in the treasury of the Company.
(2) In case the Company shall issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the current market price per
share (determined as provided in paragraph (6) of this Section) of the Common
Stock on the date fixed for the determination of stockholders entitled to
receive such rights or warrants, the conversion price in effect at the opening
of business on the day following the date fixed for such determination shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such
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determination plus the number of shares of Common Stock which the aggregate of
the offering price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
paragraph (2), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company will not issue any rights or warrants in
respect of shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(4) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding any rights or warrants referred to
in paragraph (2) of this Section, any dividend or distribution paid in cash out
of the retained earnings of the Company and any dividend or distribution
referred to in paragraph (1) or paragraph (9) of this Section), the conversion
price shall be adjusted so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in paragraph (6) of this
Section) of the Common Stock on the
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date fixed for such determination less the then fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution filed with the Trustee) of the portion of
the assets or evidences of indebtedness so distributed applicable to one share
of Common Stock and the denominator shall be such current market price per
share of the Common Stock, such adjustment to become effective immediately prior
to the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution.
(5) The reclassification of Common Stock into securities other
than Common Stock (other than any reclassification upon a consolidation or
merger to which Section 1311 applies) shall be deemed to involve (a) a
distribution of such securities other than Common Stock to all holders of
Common Stock (and the effective date of such reclassification shall be deemed to
be "the date fixed for the determination of stockholders entitled to receive
such distribution" and "the date fixed for such determination" within the
meaning of paragraph (4) of this Section), and (b) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of
shares of Common Stock outstanding immediately thereafter (and the effective
date of such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such combination becomes
effective", as the case may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning of paragraph (3) of this
Section).
(6) For the purpose of any computation under paragraphs (2) and
(4) of this Section, the current market price per share of Common Stock on any
date shall be deemed to be the average of the Closing Prices for the 15
consecutive Business Days selected by the Company commencing not less than 20
nor more than 30 Business Days before the day in question.
(7) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustment which by reason of this paragraph
(7) is not required to be made shall be carried forward and taken into account
in any subsequent adjustment; and provided, further, that adjustment shall be
required and shall be made in accordance with the provisions of this Section
(other than this paragraph (7)) not later than
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such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of any Debenture. All calculations under this
paragraph (7) shall be made to the nearest cent.
(8) The Company may make such reductions in the conversion price,
in addition to those required by paragraphs (1), (2), (3) and (4) of this
Section, as it considers to be advisable in order than any event created for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(9) As of the opening of business on May 3, 1985, the conversion
price will be reduced by multiplying such conversion price by 2/3 to reflect a
three-for-two stock split in the form of a fifty percent stock dividend on each
share of outstanding Common Stock of the Company payable on May 3, 1985 to all
stockholders of record on April 10, 1985.
SECTION 1305. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion
price in accordance with Section 1304 and shall prepare a certificate
signed by the Treasurer of the Company setting forth the adjusted
conversion price and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith be
filed at each office or agency maintained for the purpose of
conversion of Debentures pursuant to Section 1002; and
(b) a notice stating that the conversion price has been
adjusted and setting forth the adjusted conversion price shall
forthwith be required, and as soon as practicable after it is
required, such notice shall be mailed by the Company to the Trustee
and all Holders at their last addresses as they shall appear in the
Debenture Register.
SECTION 1306. Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in cash out
of its earned surplus (other than the dividend referred to in
paragraph (9) of Section 1304); or
(b) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(c) of any reclassification of the Common Stock of the
Company (other than a subdivision or, combination of its outstanding
shares of
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Common Stock), or of any consolidation or merger to which the Company
is a party and for which approval of any stockholders of the Company
is required, or of the sale or transfer of all or substantially all of
the assets of the Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Debentures pursuant to Section 1002, and shall
cause to be mailed to all Holders at their last addresses as they shall appear
in the Debenture Register, at least 20 days (or 10 days in any case specified
in clause (a) or (b) above) prior to the applicable record date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
SECTION 1307. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
pre-emptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Debentures, the full number of shares of
Common Stock then issuable upon the conversion of all Outstanding Debentures
including shares issuable upon presentation of any due bill issued pursuant to
Section 1301.
SECTION 1308. Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Debentures
or in exchange for any due bills pursuant hereto. The Company shall nor
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of
<PAGE> 94
85
Common Stock a name other than that of the Holder of the Debenture or
Debentures to be converted, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Company the amount
of any such tax, or has established to the satisfaction of the Company that
such tax has been paid.
SECTION 1309. Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Debentures or in exchange for any due bills will upon
issue be fully paid and, nonassessable and, except as provided in Section 1308,
the Company will pay all taxes, liens and charges with respect to the issue
thereof.
SECTION 1310. Cancellation of Converted Debentures.
All Debentures delivered for conversion shall be delivered to The
Trustee to be cancelled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1311. Provisions in Case of Consolidation, Merger or Sale of Assets.
(1) In case of any consolidation of the Company with, or merger of
the Company into, any other corporation, or in case of any merger of another
corporation into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company), or in case of any sale or transfer of all or
substantially all of the assets of the Company, the corporation formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, shall execute and deliver to The Trustee a supplemental
indenture providing that the Holder of each Debenture then outstanding shall
have the right thereafter, during the period such Debenture shall be
convertible as specified in Section 1301, to convert such Debenture only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company into which such Debenture might have been converted
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
<PAGE> 95
86
Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, sales or transfers.
(2) The Trustee shall not be under any responsibility to determine
the correctness of any provisions contained in any such supplemental indenture
relating either to the kind or amount of shares of stock or securities or
property receivable by Holders upon the conversion of their Debentures after
any such reclassification, change, consolidation, merger, sale or conveyance or
to any adjustment to be made with respect thereto.
SECTION 1312. Disclaimer by Trustee of Responsibility for Certain Matters.
The Trustee shall not at any time be under any duty or responsibility
to any Holder of Debentures to determine whether any facts exist which may
require any adjustment of the conversion price, or with respect to the nature
or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed,
in making the same. The Trustee shall not be accountable with respect to the
validity, value, kind or amount of any shares of Common Stock, or of any
securities or property, which may at any time be issued or delivered upon the
conversion of any Debenture: and it makes no representation with respect
thereto. The Trustee shall not be responsible for any failure of the Company
to issue, transfer or deliver any shares of Common Stock or stock certificates
or other securities or property upon the surrender of any Debenture for the
purpose of conversion or, subject to Section 601, to comply with any of the
covenants of the Company contained in this Article.
ARTICLE FOURTEEN
SUBORDINATION OF DEBENTURES
SECTION 1401. Agreement to Subordinate.
The Company covenants and agrees, and each Holder of Debentures, by
his acceptance thereof, likewise covenants and agrees, that the indebtedness
represented by the Debentures and the payment of the principal of (and premium,
if any) and interest on each and all of the Debentures is hereby expressly
subordinated and subject in right of payment, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all Senior Indebtedness,
or provision for such payment.
<PAGE> 96
87
For the purposes of this Article the term "Senior Indebtedness" means
principal of (and premium, if any) and unpaid interest on (a) indebtedness
(secured or unsecured) incurred, assumed or guaranteed by the Company either
before, on or after the date of this Indenture and which is for money borrowed,
or which is evidenced by notes, debentures, bonds or other similar securities
whether or not for money borrowed, and (b) renewals, extensions or refundings
of any such indebtedness, unless it is provided by the instrument creating,
evidencing, renewing, extending or refunding the same or pursuant to which the
same is outstanding, that such indebtedness is not senior in right of payment
to the Debentures.
SECTION 1402. Payment Prohibited If Senior Indebtedness in Default.
No payment on account of principal, premium (if any) or interest on,
or sinking fund payments for, the Debentures shall be made, nor shall any
property or assets be applied to the purchase or other acquisition or
retirement of the Debentures, unless full payment of amounts due for principal,
premium (if any), sinking funds, and interest on Senior Indebtedness has been
made or duly provided for in money or money's worth, provided, however, that
nothing in this Article Fourteen shall prevent the conversion of Debentures or
the giving of any notice of redemption of Debentures required pursuant to
Section 1203 or the credit of Debentures against any sinking fund payment
pursuant to Section 1202.
SECTION 1403. Priority of Senior Indebtedness.
Upon any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or total or partial liquidation, rehabilitation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, rehabilitation, receivership or other proceedings, all
principal premium (if any) and interest due upon all Senior Indebtedness shall
first be paid in full, or payment thereof provided for in money or money's
worth, before the Holders of the indebtedness evidenced by the Debentures or
the Trustee on their behalf shall be entitled to receive or retain any assets
so paid or distributed in respect thereof (for principal, premium (if any) or
interest) or of this Indenture; and upon any such dissolution or winding up or
liquidation, rehabilitation or reorganization, any payment or distribution of
assets of the Company of any kind or
<PAGE> 97
88
character, whether in cash, property or securities, to which the Holders of the
Debentures or the Trustee on their behalf would be entitled, except for the
provisions of this Article, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the Holders of the Debentures or by the Trustee
on their behalf if received by them or it, direct to the holders of Senior
Indebtedness (pro rata to each such holder on the basis of the respective
amounts of Senior Indebtedness held by such holder) or their representatives,
to the extent necessary to pay all Senior Indebtedness in full, in money or
money's worth, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness, before any payment or distribution
is made to the Holders of the indebtedness evidenced by the Debentures or to
the Trustee on their behalf.
SECTION 1404. Subrogation of Holders of Debentures.
No payment or distribution of assets of the Company to which the
Holders of the Debentures or the Trustee on their behalf would have been
entitled except for the provisions of this Article and which shall have been
received by the holders of Senior Indebtedness or their representative or
representatives, or by the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness may have been
issued, shall, as between the Company, its creditors, and the Holders of
Debentures, be deemed to be a payment by the Company to holders of the Senior
Indebtedness or on account thereof, and, subject to the payment in full of all
Senior Indebtedness, or provisions for payment thereof in cash, the Holders of
the Debentures shall be subrogated to the rights of the Holders of Senior
indebtedness to receive payments or distributions of assets of tile Company
applicable to Senior Indebtedness until the principal of (and premium if any)
and interest on the Debentures shall be paid in full, and no such payments or
distributions to the Holders of the Debentures of cash, property or securities,
which otherwise would be payable or distributable to holders of Senior
Indebtedness shall, as between the Company, its creditors other than the
holders of Senior Indebtedness, and the Holders of Debentures, be deemed to be
a payment by the Company to the Holders of Debentures or on account of the
Debentures.
<PAGE> 98
89
SECTION 1405. Subordination of Debentures Not Affected by Changes in
Provisions of Senior Indebtedness.
The subordination of the Debentures in accordance with this Article
shall not be affected or released by any amendment, modification, change,
consent or waiver with respect to any Senior Indebtedness or any agreement
under which any Senior Indebtedness may be issued, or by any extension or
indulgence or surrender, substitution, alteration, or discharge of any
security.
SECTION 1406. Subordination Provisions for Benefit of Holders of Senior
Indebtedness.
The foregoing provisions are solely for the purpose of defining the
relative rights of the holders of Senior Indebtedness on the one hand and the
Holders of Debentures on the other hand, and such provisions shall be for the
benefit of such Persons and may be enforced directly by them against the
Holders of Debentures or the Trustee; provided, however, that the Trustee,
shall not be deemed to owe any fiduciary duty to holders of Senior
Indebtedness, and shall not be liable to any such Person if it shall mistakenly
pay over or distribute to Holders of Debentures or the Company or any other
Person moneys or assets to which any such holder of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise.
SECTION 1407. Rights of Trustee as Holder of Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in this
Article in respect of any Senior Indebtedness which may be at any time held by
it to the same extent as any other holder of Senior Indebtedness and nothing in
Section 613 or elsewhere in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.
SECTION 1408. Obligation of the Company to Holders of Debentures Not Impaired.
Nothing contained in this Article or elsewhere in this Indenture or in
the Debentures is intended to or shall impair, as between the Company, its
creditors, other than holders of Senior Indebtedness, and the Holders of the
Debentures, the obligation of the Company, which is absolute and unconditional
to pay to the Holders of the Debentures the principal of (and premium if any)
and interest on the Debentures as and when the same shall
<PAGE> 99
90
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders of the Debentures and creditors
of the Company, other than holders of Senior Indebtedness, nor shall anything
herein or therein prevent the Trustee or the Holder of any Debenture from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of
holders of Senior Indebtedness in respect of cash, property or securities of
the Company received upon the exercise of any such remedy.
SECTION 1409. Reliance Upon Court Order or Decree.
Upon any distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 601, and the Holders
of the Debentures shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such dissolution, winding up,
liquidation, rehabilitation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other Person making such
distribution, delivered to the Trustee or to the Holders of the Debentures, for
the purpose of ascertaining the Persons entitled to participate in such
distribution, including the holders of Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon, and all other facts pertinent thereto
or to this Article.
SECTION 1410. Subordination Rights Not Impaired by Acts or Omissions of
Company or Holders of Senior Indebtedness.
No right of any present or future holder of Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such older may have or
be otherwise charged with.
<PAGE> 100
91
SECTION 1411. Trustee to Effectuate Subordination.
Each Holder of the Debentures by his acceptance thereof authorizes and
directs the Trustee in his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1412. Trustee Not Charged With Knowledge of Senior Indebtedness.
Subject to the provisions of Section 601, the Trustee shall not be
charged with knowledge of the existence of any facts or conditions which would
prohibit the making of any payment of moneys to or by the Trustee, unless and
until the Trustee shall have received written notice thereof from the Company
or from one or more holders of Senior Indebtedness, or from a representative
for such holder, nor shall the Trustee be charged with knowledge of the curing
of any such default or of the elimination of the fact or condition preventing
any such payment unless and until the Trustee shall have received an Officers'
Certificate to such effect, provided, that, if prior to the opening of business
on the Business Day next prior to the date upon which by the terms hereof any
such moneys may become payable for any purpose (including, without limitation,
the payment of either the principal (or premium, if any) or interest on any
Debenture) the Trustee shall not have received with respect to such moneys the
notice provided for in this Section 1412, then, anything herein contained to
the contrary notwithstanding, the Trustee shall have full power and authority
to receive such moneys and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such date.
SECTION 1413. Events of Default Not Prevented.
The provisions of this Article, and reference in the Debentures to the
subordination provisions herein contained, shall not be construed as preventing
the occurrence of any Event of Default under Section 501.
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
<PAGE> 101
93
[OFFICIAL SEAL]
State of California )
) ss.:
County of Los Angeles )
On the 24th day of April, 1985, before me personally came Merrill Lyons,
to me known, who, being by me duly sworn, did depose and say that he is a Senior
Vice President, Secretary and Chief Financial Officer of The Federated Group
Inc., one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
/s/ DONNA M. SIEFERT
-----------------------
Notary Public
[OFFICIAL SEAL]
State of California )
) ss.:
County of Los Angeles )
On the 25th day of April, 1985, before me personally came Cynthia
Dillard, to me known, who, being by me duly sworn, did depose and say that she
is Assistant Vice President of Security Pacific National Bank, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ SHARON L. JACOBSON
-------------------------
Notary Public
<PAGE> 102
92
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
THE FEDERATED GROUP, INC.
By /s/ Merrill Lyons
--------------------------------
Senior Vice President Finance
Attest:
SECURITY PACIFIC NATIONAL BANK
AS TRUSTEE
By /s/ Cynthia Dillard
--------------------------------
Assistant Vice President
<PAGE> 1
EXHIBIT 4.5
The Federated Group, Inc.
and
Security Pacific National Bank
As Trustee
--------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 24, 1987
--------------------
Supplementing the Indenture, Dated as of April 15, 1985
between The Federated Group, Inc., and
Security Pacific National Bank
--------------------
7-1/2% Convertible Subordinated Debentures
Due April 15, 2010
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of September 24, 1987, between
The Federated Group, Inc., a corporation duly organized and existing under the
laws of the State of Delaware (hereinafter called the "Company"), and Security
Pacific National Bank, a national banking association existing under the laws
of the United States (hereinafter called the "Trustee"), as Trustee under the
Indenture hereinafter referred to.
WHEREAS, the Company has duly issued its 7-1/2% Convertible
Subordinated Debentures Due April 15, 2010 (hereinafter called the
"Debentures"), in the aggregate principal amount of $40,000,000 pursuant to an
Indenture between the Company and the Trustee dated as of April 15, 1985
(herein called the "Indenture"); and
WHEREAS, Atari Corporation, a corporation duly organized and existing
under the laws of the State of Nevada (hereinafter called "Atari"), its wholly
owned subsidiary, FAC Delaware Corporation, a corporation duly organized and
existing under the laws of the State of Delaware (hereinafter called "FAC"),
and the Company have entered into an Agreement and Plan of Merger dated as of
August 23, 1987 (hereinafter called the "Merger Agreement") pursuant to which,
at the effective date of the Merger (as defined in the Merger Agreement), FAC
will be merged with and into the Company (hereinafter called the "Merger")
which shall be the Surviving Corporation (as so defined in the Agreement) as a
wholly-owned subsidiary of Atari and each share of the Company's
-2-
<PAGE> 3
outstanding Common Stock par value $.10 per share (hereinafter called "Company
Common Stock") shall be converted into the right to receive $6.25 in cash; and
WHEREAS, Section 1311 of the Indenture provides that in case of any
merger of another corporation into the Company (other than a merger which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company), the Company shall execute
with the Trustee a supplemental indenture providing that the holder of each
Debenture then outstanding shall have the right to convert such Debenture into
the kind and amount of property receivable upon such merger by a holder of the
number of shares of Company Common Stock into which such Debenture might have
been converted immediately prior to such merger; and
WHEREAS, pursuant to Section 1311 of the Indenture, the Company agrees
to pay all holders of Debentures duly surrendering Debentures to the Company
for conversion after the effective date of the merger (as defined in the Merger
Agreement) $6.25 in cash for every share of Company Common Stock for which such
Debenture could have been converted into immediately prior to the effective
date of the Merger, for all Debentures so surrendered; and
WHEREAS, all acts and things prescribed by law and by the Certificate
of Incorporation and the By-Laws (each as now in effect) of the Company
necessary to make this First Supplemental Indenture a valid instrument legally
binding the Company for the
-3-
<PAGE> 4
purposes herein expressed, in accordance with its terms, have been duly done
and performed.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH THAT THE
PARTIES HERETO HAVE AGREED AS FOLLOWS;
ARTICLE ONE
Amendments To Indenture
On the effective date of the Merger, the Indenture shall be amended as
follows:
Article Thirteen of the Indenture shall be amended to add the
following Section 1313:
SECTION 1313. Cash In Lieu of Common Stock.
Notwithstanding any provision of this Indenture to the contrary, in
the event holders of Debentures duly surrender Debentures to the Company for
conversion after the effective date of the merger between FAC Delaware
Corporation ("FAC") and the Company (as described in that certain Agreement and
Plan of Merger between the Company, FAC and Atari Corporation dated August 23,
1987), in lieu of the shares of Common Stock issuable in connection with the
conversion of any Debenture or portion thereof described above, such holders
shall receive $6.25 in cash for every share of Common Stock which such
Debenture could have been converted into immediately prior to the effective
date of the merger.
-4-
<PAGE> 5
ARTICLE TWO
Assumption of Covenants
The Company, as the Surviving Corporation (as that term is described
in the aforementioned merger Agreement), hereby confirms that it remains liable
for the due and punctual payment of the principal of (and premium if any) on
all the Debentures and the performance of every covenant of the Indenture on
the part of the Company to be performed or observed, except as modified hereby.
ARTICLE THREE
Miscellaneous
SECTION 3.01. All of the provisions of the Indenture with respect to
the rights, privileges, immunities, powers and duties of the Trustee shall be
applicable in respect hereof as fully and with like effect as if set forth
herein in full.
SECTION 3.02. All recitations or recitals contained in this First
Supplemental Indenture are only made by and on behalf of the Company, and the
Trustee is in no way responsible therefor. The Trustee makes no
representations, as to the validity or sufficiency of this First Supplemental
Indenture, except the due and valid execution hereof by the Trustee.
-5-
<PAGE> 6
SECTION 3.03. This First Supplemental Indenture and each and every
provision hereof shall be deemed to be a contract made under the laws of the
State of California and for all purposes shall be construed in accordance with
the laws of such State.
SECTION 3.04. This First Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, The Federated Group, Inc. has caused this First
Supplemental Indenture to be signed and acknowledged by its Chairman of the
Board, its President or one of its Vice Presidents, and its corporate seal to
be affixed hereunto and the same to be attested by its Secretary or an
Assistant Secretary; and Security Pacific National Bank has caused this First
Supplemental Indenture to be signed and acknowledged by one of its duly
-6-
<PAGE> 7
authorized officers, and its corporate seal to be affixed hereunto, and the
same to be attested by one of its Assistant Secretaries.
Executed as of the day and year first above written.
THE FEDERATED GROUP, INC.
By /s/ KEITH L. POWELL
----------------------------------
Keith L. Powell, President
ATTEST:
/s/ MERRILL LYONS
- -------------------------------------
Merrill Lyons, Secretary
SECURITY PACIFIC NATIONAL BANK
By [SIG]
----------------------------------
Title: Assistant Vice President
ATTEST:
By [SIG]
-----------------------------------
Title:
-7-
<PAGE> 8
OFFICERS' CERTIFICATE
The undersigned, Keith L. Powell, President and Chief Operating
officer, and Merrill Lyons, Senior Vice President, Treasurer and Secretary of
The Federated Group, Inc. (the "Company"), do hereby certify that, in
connection with the Indenture, dated as of April 15, 1985, between the Company
and Security Pacific National Bank, as Trustee, relating to the Company's 7 1/2%
Convertible Subordinated Debentures due April 15, 2010 (the "Indenture"), and
the First Supplemental Indenture, dated as of September 24, 1987, between the
Company and the Trustee (the "Supplemental Indenture"), supplementing the
Indenture, all conditions precedent provided for in the Indenture relating to
the execution and delivery of the Supplemental Indenture by the Company have
been complied with, and such execution and delivery complies with the
requirements and conditions contained in Article Nine of the Indenture. The
undersigned further certify that there is not now existing an Event of Default
(as that term is defined in the Indenture) under the Indenture. As a basis for
rendering this certificate, the undersigned have read the Indenture, including,
without limitation, Article Nine therein and the definitions relating to terms
contained in such Article Nine, and the Supplemental Indenture, and have
examined such other documents and records of the Company as we have deemed
necessary to enable us to express an informed opinion as to whether the
conditions contained in Article Nine of the Indenture have been complied with
in connection with the execution and delivery of the Supplemental Indenture.
IN WITNESS WHEREOF, we have hereunto set our hands this 24th day of
September 1987.
/s/ KEITH L. POWELL
-------------------------------------
Keith L. Powell, President
and Chief Operating Officer
/s/ MERRILL LYONS
-------------------------------------
Merrill Lyons, Senior Vice
President, Treasurer and Secretary
<PAGE> 1
EXHIBIT 4.6
WARRANT TO PURCHASE
SHARES OF COMMON STOCK OF
JT STORAGE, INC.
(Void after March 2, 2002)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from JT STORAGE, INC., Delaware corporation (the "Company"), Four
Hundred Fifty Thousand (450,000) fully paid and nonassessable shares of the
Company's Common Stock ("Common Stock") for cash at a price of One Dollar
($1.00) per share (the "Stock Purchase Price") at any time or from time to time
up to and including 5:00 p.m. (Pacific time) on March 2, 2002 (the "Expiration
Date"), upon surrender to the company at its principal office at 1289 Anvilwood
Avenue, Sunnyvale, California 94089 (or at such other location as the Company
may advise Holder in writing) of this Warrant properly endorsed with the Form
of Subscription attached hereto duly filled in and signed and upon payment in
cash or by check of the aggregate Stock Purchase Price for the number of shares
for which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares
purchasable hereunder are subject to adjustment as provided in Section 4 of
this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or any
portion of the shares of Common Stock (but not for a fraction of a share) which
may be purchased hereunder for the Stock Purchase Price multiplied by the
number of shares to be purchased. The Company agrees that the shares of Common
Stock purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered and payment made for
such shares. Subject to the provisions of Section 2, certificates for the
shares of Common Stock so purchased, together with any other securities or
property to which the Holder hereof is entitled upon such exercise, shall be
delivered to the Holder hereof by the Company at the Company's expense within a
reasonable time after the rights represented by this
<PAGE> 2
warrant have been so exercised. Except as provided in clause (b) of this
Section 1, in case of a purchase of less than all the shares which may be
purchased under this Warrant, the Company shall cancel this Warrant and execute
and deliver a new Warrant or Warrants of like tenor for the balance of the
shares purchasable under the Warrant surrendered upon such purchase to the
Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Common Stock as may be requested by the
Holder hereof and shall be registered in the name of such Holder or such other
name as shall be designated by such Holder, subject to the limitations
contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment
of the Stock Purchase Price pursuant to clause (a) of this Section 1, may
elect, at any time on or before the Expiration Date, to receive, through
conversion of this Warrant or any portion hereof into that number of shares of
Common Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Common Stock, less (B) the Stock
Purchase Price then in effect, multiplied by the number of shares of Common
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as
the Holder may designate in the case of a partial exercise of this Warrant);
over (ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share
Price" means: (i) if the Company's Common Stock is then listed or admitted to
trading on any national securities exchange or traded on any national market
system, the average of the closing bid and asked prices of the Company's Common
Stock as reported on such exchange or market system for the ten (10)
consecutive trading days prior to the date of the Holder's election to convert
hereunder; (ii) if this Warrant is being converted in conjunction with a public
offering of stock, the price to the public per share pursuant to the offering;
or (iii) if no shares of the Company's Common Stock are listed or admitted to
trading on any national securities exchange or traded on any national market
system, the price per share which the Company would obtain from a willing buyer
for shares sold by the Company from authorized but unissued shares as such
price shall be agreed upon by the Holder and the Company or, if agreement
cannot be reached within ten (10) business days of the Holder's election
hereunder, as such price shall be determined by a panel of three (3)
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the event either party fails to choose an appraiser
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<PAGE> 3
within 30 days of the Holder's election hereunder, then the appraisal of the
sole appraiser shall constitute the Per Share Price. Each party shall bear the
cost of the appraiser selected by such party and the cost of the third
appraiser shall be borne one-half by each party. In the event either party
fails to choose an appraiser, the cost of the sole appraiser shall be borne
one-half by each party.
2. Limitation on Transfer.
(a) The Warrant and the Common Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Common Stock issuable hereunder will cause any
proposed transferee of the Warrant or Common Stock to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Section 2.
(b) Each certificate representing this Warrant or the Common Stock
shall (unless otherwise permitted by the provisions of this Section 2 or unless
such securities have been registered under the Securities Act or sold under
Rule 144) be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement under
the Securities Act was in effect with respect to such securities at the time of
issuance thereof) except pursuant to (i) an effective registration statement
under the Securities Act, (ii) Rule 144 under the Securities Act (or any
similar rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel
for the Company, that an exemption from such registration is available.
3. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly
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<PAGE> 4
issued, fully paid and nonassessable and free from all preemptive rights of any
shareholder and free of all taxes, liens and charges with respect to the issue
thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant, a sufficient number of shares of authorized but unissued Common Stock,
or other securities and property, when and as required to provide for the
exercise of the rights represented by this Warrant. The Company will take all
such action as may be necessary to assure that such shares of Common Stock may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Common Stock may be listed. The company will not take any action
which would result in any adjustment of the Stock Purchase Price (as defined in
Section 4 hereof) (i) if the total number of shares of Common Stock issuable
after such action upon exercise of all outstanding warrants, together with all
shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of
shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 4. Upon each adjustment
of the Stock Purchase Price, the Holder of this Warrant shall thereafter be
entitled to purchase, at the Stock Purchase Price resulting from such
adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the
Company shall at any time subdivide its outstanding shares of Common Stock into
a greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock of the Company shall be combined
into a smaller number of shares, the Stock Purchase Price in effect immediately
prior to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property,
Reclassification. If at any time or from time to time
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<PAGE> 5
the holders of Common Stock (or any shares of stock or other securities at the
time receivable upon the exercise of this Warrant) shall have received or
become entitled to receive, without payment therefor,
(a) by way of dividend or other distribution, any
shares of stock or other securities, whether or not such securities are at any
time directly or indirectly convertible into or exchangeable for Common Stock,
or any rights or options to subscribe for, purchase or otherwise acquire any of
the foregoing, or
(b) any cash paid or payable otherwise than as a
cash dividend, or
(c) additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Common Stock issued as a stock split, adjustments in respect of which shall be
covered by the terms of Section 4.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including
cash in the cases referred to in clauses (b) and (c) above) which such Holder
would hold on the date of such exercise had he been the holder of record of
such Common Stock as of the date on which holders of Common Stock received or
became entitled to receive such shares and/or all other additional stock and
other securities and property.
4.3 Reorganization, Reclassification, Consolidation,
Merger or Sale. In the event of an anticipated Acquisition or Dissolution (as
such terms are defined below), the Company shall provide the holder of this
Warrant with at least thirty (30) days' prior notice of such anticipated event
and this Warrant shall be exercisable for such 30-day period ending upon such
Acquisition or Dissolution, and shall, upon the expiration of such 30-day
period, terminate if not exercised; provided, however, that if such Acquisition
or Dissolution does not in fact occur, any purported exercise of this Warrant
prior thereto shall be deemed automatically void and this Warrant shall remain
in effect, unexercised and otherwise unaffected by the anticipation of such
event. For purposes of this Section 4.3, (a) an "Acquisition" means the sale
or transfer of all or substantially all of the Company's assets or the
acquisition of the Company by another entity, including any merger or
consolidation with or into any other corporation and any other transaction or
series of related transactions resulting in the exchange of the outstanding
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<PAGE> 6
shares of the Company for securities or consideration issued or caused to be
issued by the acquiring entity as a result of which stockholders of the Company
immediately prior to the transaction or series of transactions own less than
fifty (50%) of the equity securities of the surviving corporation immediately
following the merger, consolidation, sale or transfer of assets or other
transaction or series of transactions and (b) a "Liquidation" means the
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary.
If any capital reorganization of the capital stock of the Company, or
any consolidation or merger of the Company with another corporation, or other
reorganization, other than an Acquisition as defined above, shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as
a condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive (in lieu of the shares
of the Common Stock of the Company immediately theretofore Purchasable and
receivable upon the exercise of the rights represented hereby) such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such
case, appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Stock
Purchase Price and of the number of shares purchasable and receivable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly as may be
possible, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
4.4 Notice of Adjustment. Upon any adjustment of the
Stock Purchase Price, and/or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant the Company shall give written
notice thereof, by first class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as shown on the
books of the Company. The notice shall be signed by the Company's chief
financial officer and shall state the Stock Purchase Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
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4.5 Other Notices. If at any time:
(a) the Company shall declare any cash dividend
upon any of its stock;
(b) the Company shall declare any dividend upon
its stock payable in stock, or make any special dividend or other distribution
to the holders of its stock;
(c) the Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation;
(e) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any
other action, notice of which is actually provided to holders of the Common
Stock;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address
of such holder as shown on the books of the Company, (i) at least 5 business
day's prior written notice of the date on which the books of the Company shall
close or a record shall be taken for establishing the right to receive such
dividend, distribution or subscription rights and (ii) with respect to any
other action, notice of which is given to holders of the Common Stock, such
notice as is actually provided to such holders. The foregoing shall not apply
with respect to an Acquisition or Dissolution, notice of which shall be given
in accordance with Section 4.3 above. Any notice given in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of stock
shall be entitled thereto. Any notice given in accordance with the foregoing
clause (ii) shall, if applicable, also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon any reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, or other
action as the case may be.
Notwithstanding the foregoing, with respect to any matter as to which
the consent of stockholders is solicited by the Company in lieu of a meeting in
accordance with Section 228 of the Delaware Corporation Law, the obligation of
the Company to
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<PAGE> 8
provide notice to the holder of this Warrant shall be solely as follows:
(a) if the Company solicits the written consent of all
stockholders, notice thereof shall be given to the holder of this Warrant at
the same time that such written consent is solicited from all stockholders, and
(b) if the Company does not solicit such written consent
from all stockholders, then notice of the taking of the corporate action
without a meeting shall be given to the holder of this Warrant no later than it
is given to those stockholders who have not consented in writing.
5. Issue Tax. The issuance of certificates for shares of
Preferred Stock upon the exercise of the Warrant shall be made without charge
to the Holder of the Warrant for any issue tax in respect thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the then Holder of the Warrant being
exercised.
6. Closing of Books. The Company will at no time close its
transfer books against the transfer of any Warrant or of any shares of Common
Stock issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. No voting or Dividend Rights; Limitation of Liability.
Nothing contained in this Warrant shall be construed as conferring upon the
Holder hereof the right to vote or to consent as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or any
other matters or any rights whatsoever as a shareholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until, and
only to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares
of Common Stock, and no mere enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the
Stock Purchase Price or as a shareholder of the Company, whether such liability
is asserted by the Company or by its creditors.
8. Registration Rights. The Company hereby grants to the holder
hereof a single "demand" registration right equivalent to the demand
registration rights of the "Purchasers" who are parties to that certain
Registration Rights Agreement dated as of February 3, 1995 among the Company
and the purchasers of its Series A Preferred Stock (the "Registration Rights
Agreement"),
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<PAGE> 9
as provided in Section 2 thereof, such that the terms and conditions of the
Registration Rights Agreement are incorporated herein by reference (for
purposes of such single demand registration right) with the Holder of this
warrant being deemed the sole "Holder" or "Initiating Holder" (as used in the
Registration Rights Agreement) and with the shares of Common Stock issuable
upon exercise of this Warrant being deemed to constitute all of the
"Registrable Securities" (as used in the Registration Rights Agreement);
provided however, that (1) it is the intention of the Company to hereby grant
an independent demand registration right to the Holder of this Warrant pursuant
to the foregoing references to certain provisions of the Registration Rights
Agreement, and the Holder of this Warrant shall not be deemed a party to the
Registration Rights Agreement pursuant to this paragraph, (2) there shall be no
$5,000,000 minimum requirement or 15% minimum requirement with respect to the
amount of securities registered pursuant to such demand registration, and (3)
the Company shall not be required to effect more than one such registration at
the demand of the holder hereof, nor shall it be required to effect such
registration prior to six (6) months after the effective date of the Company's
first registered public offering of its stock. In all other respects the terms
and conditions of the Registration Rights Agreement applicable to the
registration of shares pursuant to Section 2 thereof shall also be applicable
to the Holder of this Warrant and the shares of Common Stock issued upon
exercise hereof included in any registration pursuant to this paragraph.
Notwithstanding the foregoing, the Company shall use its best efforts to cause
the Registration Rights Agreement to be amended to permit the Holder of this
Warrant to become a party thereto (and thus a "Holder" as defined therein) and
to cause the shares of Common Stock issuable upon exercise of this Warrant to
be included in the definition of "Registrable Securities" therein for the
purpose of providing that the Holder of this Warrant shall have the piggyback
registration rights afforded to "Holders" upon Section 3 of the Registration
Rights Agreement on a parity with all other "Holders" as defined therein (as
opposed to "Other Holders" as defined therein) and, effective upon such
amendment of the Registration Rights Agreement, the Company and the Holder of
this Warrant agree that the foregoing provisions of this Section 8 shall be
deemed automatically terminated and superseded by the Registration Rights
Agreement.
9. Rights and Obligations Survive Exercise of Warrant. The
rights and obligations of the Company, of the Holder of this Warrant and of the
holder of shares of Common Stock issued upon exercise of this Warrant,
contained in Sections 6, 8 and 9 shall survive the exercise of this Warrant.
10. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated
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<PAGE> 10
only by an instrument in writing signed by the party against which enforcement
of the same is sought.
11. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by
courier, (ii) upon confirmation of receipt if by telecopy, or (iii) three
business days after deposit in the U.S. mail, with postage prepaid and
certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in the
first paragraph of this Warrant.
12. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to the
benefit of the successors and assign of the holder hereof. The Company will,
at the time of the exercise of this Warrant, in whole or in part, upon request
of the Holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the Holder hereof in respect of any rights (including,
without limitation, any right to registration of the shares of Common Stock) to
which the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the Holder hereof in respect of such rights.
13. Descriptive Headings and Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted
for convenience only and do not constitute a part of this Warrant. This
Warrant shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the State of California.
14. Lost Warrants or Stock Certificates. The Company represents
and warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
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15. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
17. Representations of Holder. With respect to this Warrant,
Holder represents and warrants to the Company as follows:
17.1 Experience. It is experienced in evaluating and
investing in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services, its
officers and its personnel; the officers of the Company have made available to
Holder any and all written information it has requested; the officers of the
Company have answered to Holder's satisfaction all inquiries made by it; in
making this investment it has relied upon information made available to it by
the Company; and it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and it is able to bear the economic risk of that investment.
17.2 Investment. It is acquiring the Warrant for
investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof. It understands that the Warrant,
the shares of Common Stock issuable upon exercise thereof, have not been
registered under the Securities Act of 1933, as amended, nor qualified under
applicable state securities Laws.
17.3 Rule 144. It acknowledges that the Warrant and the
Common Stock must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
It has been advised or is aware of the provisions of Rule 144 promulgated under
the Securities Act.
17.4 Access to Data. It has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the company's facilities.
18. Additional Representations and Covenants of the Company. The
Company hereby represents, warrants and agrees as follows:
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18.1 Corporate Power. The Company has all requisite
corporate power and corporate authority to issue this Warrant and to carry out
and perform its obligations hereunder.
18.2 Authorization. All corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 Offering. Subject in part to the truth and accuracy
of Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Common Stock upon exercise of
the Warrant will be exempt from the registration requirements of the Securities
Act, and are exempt from the qualification requirements of any applicable state
securities laws; and neither the Company nor anyone acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance. Upon exercise of the Warrant, the
Company will use its best efforts to cause stock certificates representing the
shares of Common Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise.
18.5 Articles and By-Laws. The Company has provided
Holder with true and complete copies of the Company's Articles or Certificate
of Incorporation, By-Laws, and each Certificate of Determination or other
charter document setting, forth any rights, preferences and privileges of
Company's capital stock, each as amended and in effect on the date of issuance
of this Warrant.
18.6 Financial and Other Reports. From time to time up to
the earlier of the Expiration Date or the complete exercise of this Warrant,
the Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes in
financial position at and as of the end of such fiscal year, together with an
audited statement of income for such fiscal year; (ii) within 45 days after the
close of each fiscal quarter of the Company, an unaudited balance sheet and
statement of cash flows at and as of the end of such quarter, together with an
unaudited statement of income for such quarter; and (iii) promptly after
sending, copies of all reports, proxy statements,and financial statements that
the Company sends to its shareholders.
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IN WITNESS WHEREOF, the company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 24th of March, 1995.
JT STORAGE, INC.
By: David B. Pearce
--------------------------------
DAVID B. PEARCE
President
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: _____________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____________________ (__________) (1) shares of Common
Stock of __________________________ and herewith makes payment of
__________________ Dollars ($___________) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
________________________ whose address is ________________________________.
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof (subject, however, to any requirement of law that
the disposition thereof shall at all times be within its control.
DATED: _______________________
_________________________________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant)
-----------------------------------------
-----------------------------------------
(Address)
- ----------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to
which the Warrant is being exercised), in either case without making
any adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock
covered thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: ______________________
_________________________________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant)
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EXHIBIT 4.7
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: JT Storage, Inc., a Delaware Corporation
Number of Shares: 50,000
Class of Stock: Common
Initial Exercise Price: $3.00 per share
Issue Date: December 18, 1995
Expiration Date: December 18, 2000
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant Section 1.4.
1.3 INTENTIONALLY OMITTED.
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. if the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has
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not been fully exercised or converted and has not expired, a new Warrant
representing the Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company
1.7.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property
as would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be
adjusted accordingly.
1.7.3. Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4. Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of
this Warrant for cash upon the closing of any Acquisition for an amount equal
to (a) the fair market value of any consideration that would have been received
by Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common
2
<PAGE> 3
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting issuances (as defined on
Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder's rights under this Article against impairment.
If the Company takes any action affecting the Shares or its common stock other
than as described above that adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a
manner that the aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full
Shares.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish Holder a
certificate setting forth the Warrant Price in effect upon the date thereof and
the series of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
3
<PAGE> 4
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the Company's
securities for cash, then, in connection with each such event, the Company
shall give Holder (1) at least 20 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event);
and (3) in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then
within forty-five (45) days after the end of each of the first three quarters
of each fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS
4.1 Term; Notice of Expiration. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
rights to exercise this Warrant in the form attached as Appendix 2 not more
than 90 days and not less than 30 days before the Expiration Date. If the
notice is not so given, the Expiration Date shall automatically be extended
until 30 days after the date the Company delivers the notice to Holder.
4
<PAGE> 5
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon the exercise of this Warrant (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) may
not be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, as reasonably requested by the Company). The Company shall not
require Holder to provide an opinion of counsel if the transfer is to an
affiliate of Holder or if there is no material question as to the availability
of current information as referenced in Rule 144(c). Holder represents that it
has complied with Rule 144(d) and (e) in reasonable detail, the selling broker
represents that it has complied with Rule 144(f), and the Company is provided
with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the Securities and
Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934,
the Company shall have the right to refuse to transfer any portion of this
Warrant to any person who directly competes with the Company.
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when
given personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought.
4.7 Attorneys' Fees. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party
all costs incurred in such dispute, including reasonable attorneys' fees.
5
<PAGE> 6
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _______ shares of the
Common/Series __________ Preferred [strike one] Stock of ________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ______________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below;
__________________________
(Name)
__________________________
(Address)
__________________________
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
_______________________________
(Signature)
______________________
(Date)
___________________________________________
7
<PAGE> 7
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_________________________
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear:
This is to advise you that the Warrant issued to you described below
will expire on
______________________, 19___.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
__________________________
(Name of Issuer)
By: ____________________________
Name: __________________________ ______________________________________
Title: _________________________
8
<PAGE> 8
EXHIBIT A
Anti-Dilution Provisions
In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of securities at a price per share less
than the Warrant Price, or, if the Shares are common stock, less than the then
conversion price of the Company's Series A Preferred Stock, then the number of
shares of common stock issuable upon conversion of the Shares, or if the Shares
are common stock, the number of Shares issuable upon exercise of the Warrant,
shall be adjusted as a result of Diluting Issuances in accordance with the
Holder's standard form of Anti-Dilution Agreement in effect on the Issue Date.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
10
<PAGE> 9
EXHIBIT B
Registration Rights
The Shares (if common stock), or the common stock issuable upon
conversion of the Shares, shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of the
following agreement (the "Agreement") between the Company and its investor(s):
Registration Rights Agreement dated 2/3/95 and amended 8/7/95
-------------------------------------------------------------
Identify Agreement by date, title and parties. If no Agreement exists,
indicate by "none".
The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holder's registration rights thereunder
without the consent of Holder. By acceptance of the Warrant to which this
Exhibit B is attached. Holder shall be deemed to be a party to the Agreement.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
11
<PAGE> 1
EXHIBIT 4.8
EXHIBIT A
THE SECURITIES EVIDENCED BY THIS WARRANT OR ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE
ENCUMBERED OR DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Warrant No. 3 April 4, 1996
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Lunenburg S.A., a Panama
corporation and permitted assigns, is entitled to purchase from JT Storage,
Inc., a Delaware corporation (the "Company"), up to Seven Hundred Fifty
Thousand (750,000) shares of the Company's Common Stock, par value $.000001 per
share (the "Common Stock"), during the period, and at the price and upon the
other terms and conditions, hereinafter set forth.
1. EXERCISABILITY OF WARRANT; PURCHASE PRICE. This Warrant has
been issued in connection with the acquisition by the Company of an indirect
ownership interest in 90% of the outstanding capital stock of Moduler
Electronics (India) Pvt. Ltd., a corporation organized and existing under the
laws of India ("Moduler"). This Warrant shall, upon issuance, be exercisable
only as to Five Hundred Thousand (500,000) shares of Common Stock. This
Warrant shall become exercisable as to an additional Two Hundred Fifty Thousand
(250,000) shares of Common Stock only when, and only if such occurs by
September 30, 1996, there becomes available to Moduler, on commercially
reasonable and customary terms and conditions, borrowing and credit facilities
from banks and/or other institutional lenders within India in the aggregate
amount of U.S.$29,000,000, which borrowings are available unconditionally to
Moduler subject only to formal request by Moduler and customary procedural
draw-down conditions, but without further requirements with respect to either
the creditworthiness of Moduler or the value or amount of collateral (except
such as Moduler is in fact able to provide) available to the lenders (it being
acknowledged and agreed that, although the Company shall use commercially
reasonable efforts to assist Moduler in implementing such credit facilities, it
shall be incumbent upon the holder of this Warrant to take such actions, or
provide or cause to be provided to such lenders such assurances, guarantees or
collateral, as such lenders may require to implement such credit facilities and
thus cause this Warrant to become exercisable as to such additional 250,000
shares). Subject to the immediately preceding sentence (with respect to the
contingency applicable to 250,000 shares covered by this Warrant), this Warrant
may be
1.
<PAGE> 2
exercised until the close of business on April 4, 2001. The exercise price to
be paid upon exercise of this Warrant shall be U.S.$0.25 per share of Common
Stock.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT; TRANSFER
AND EXCHANGE. This Warrant may be exercised by the holder hereof, in whole or
in part, by the surrender of this Warrant, properly endorsed, at the principal
office of the Company and by (a) the payment to the Company of the then
applicable Warrant Price of the Common Stock being purchased ("Warrant Price"
shall mean the price specified in the first paragraph of this Warrant and such
other prices as shall result from the adjustments specified in Section 5
hereof), and (b) delivery to the Company of a customary investment letter
executed by the holder, confirming that the shares of Common Stock being
purchased are being acquired for the holder's own account and acknowledging
securities law restrictions applicable to such shares, and agreeing that
certificates evidencing such shares shall bear a legend accordingly restricting
the transfer of such shares. In addition, if this Warrant is exercised
concurrent with the closing of an initial public offering ("IPO"), the holder,
in lieu of exercising this Warrant by the payment of the Warrant Price pursuant
to the preceding sentence of this Section 2, may elect to receive that number
of shares of Common Stock equal to the quotient obtained by dividing (A) the
difference between (i) the IPO Price (as hereinafter defined) of the Common
Stock, less (ii) the Warrant Price then in effect, multiplied by the number of
shares of Common Stock the holder would otherwise have been entitled to
purchase hereunder (or such lesser number of shares as the holder may designate
in the case of a partial exercise of this Warrant), by (B) the IPO Price. In
the event of any exercise of the rights represented by this Warrant,
certificates for the shares of Common Stock so purchased shall be delivered to
the holder hereof within a reasonable time after the rights represented by this
Warrant shall have been so exercised, and unless this Warrant has expired, a
new Warrant representing the number of shares of Common Stock, if any, with
respect to which this Warrant shall not then have been exercised, shall also be
issued to the holder hereof within such time. Notwithstanding the foregoing,
in the event that escrow instructions are pending pursuant to that certain
Escrow Agreement, of even date herewith, between Lunenburg S.A. and the Company
(the "Escrow Agreement"), then the shares of Common Stock issued upon exercise
of this Warrant shall be delivered to the party specified in the Escrow
Agreement in accordance with the terms thereof.
For purposes of this Section 2, "IPO Price" means the gross
sales price of one share of the Company's Common Stock to the public in the
IPO.
3. STOCK FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be duly and validly
issued, fully paid and nonassessable and free from all liens. The Company
further covenants and agrees that, at all times during the period within which
the rights represented by this Warrant may be exercised, it will reserve for
the purpose of issuance upon exercise of the purchase rights evidenced by this
Warrant, at least the maximum number of shares of Common Stock as are issuable
at such time upon the exercise of the rights represented by this Warrant.
2.
<PAGE> 3
4. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH
SECURITIES ACT.
(a) RESTRICTIONS ON TRANSFERABILITY. This Warrant and
the shares of Common Stock issuable hereunder shall not be transferable except
upon the conditions specified in this Section, which conditions are intended to
insure compliance with the provisions of the Securities Act of 1933, as amended
(the "Securities Act"). Each holder of this Warrant or the Common Stock
issuable hereunder will cause any proposed transferee of the Warrant or such
Common Stock to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section.
(b) RESTRICTIVE LEGEND. Each certificate representing
(i) this Warrant, (ii) the shares of Common Stock issued upon exercise of the
Warrant and (iii) any other securities issued in respect of such shares of
Common Stock upon any stock split, stock dividend or similar event
(collectively, the "Restricted Securities"), shall (unless otherwise permitted
by the provisions of Section 4(c) below or unless such securities have been
registered under the Securities Act) be imprinted with the following legend, in
addition to any legend required under applicable state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend therefrom or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Company shall
have received either the opinion referred to in Section 4(c)(i) or the
"no-action" letter referred to in Section 4(c)(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will be
exempt from the registration and/or qualification requirements of, and that
such legend is not required in order to establish compliance with the
Securities Act, and if applicable, any state securities laws under which
transfer restrictions on such securities had been previously imposed.
(c) NOTICE OF PROPOSED TRANSFERS. The holder of each
certificate representing Restricted Securities by acceptance thereof agrees to
comply in all respects with the provisions of this Section 4(c). Prior to any
proposed transfer of any Restricted Securities occurring prior to such time as
the Company's Common Stock becomes listed on a national securities exchange or
quoted in the National Association of Securities Dealers' Automated Quotation
System, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer. Each such notice shall describe
the manner and circumstances of the proposed transfer in sufficient detail,
and, except for transfers to any trustee appointed in a pending bankruptcy
3.
<PAGE> 4
case or any distributing agent or trustee appointed pursuant to a plan of
reorganization in any bankruptcy case, shall be accompanied by either (i) an
unqualified written legal opinion addressed to the Company from counsel who
shall be reasonably satisfactory to the Company, which opinion shall be
reasonably satisfactory in form and substance to the Company's legal counsel,
to the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act and any applicable state
securities laws, or (ii) a "no-action" letter from the Securities and Exchange
Commission (and any necessary state securities administrator) to the effect
that the distribution of such securities without registration will not result
in a recommendation by the staff of the Commission (or such administrators)
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 4(b) above.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON
STOCK. The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
(a) CONSOLIDATION, MERGER, REORGANIZATION, ETC. If the
Company at any time while this Warrant remains outstanding and unexpired shall
consolidate with or merge into any other corporation, reorganize, or
reclassify, or in any manner change the securities then purchasable upon the
exercise of this Warrant, then upon consummation thereof this Warrant shall
thereafter represent the right of the holder to receive, to the extent this
Warrant is exercisable as provided above in Section 1, in lieu of shares of
Common Stock, the cash or securities to which such holder would have been
entitled upon consummation thereof if such holder had exercised this Warrant
immediately prior thereto. The Company agrees that the rights set forth herein
shall be preserved in any such merger or consolidation. Upon any such event,
an appropriate adjustment shall be made to the Warrant Price, if necessary in
the good faith judgment of the Board of Directors of the Company, to preserve
the economic benefit intended to be conferred upon the holder of this Warrant
hereunder in accordance with its terms.
(b) SUBDIVISION OR COMBINATION OF SHARES; DIVIDENDS AND
DISTRIBUTION OF COMMON STOCK. If the Company at any time shall subdivide or
combine its Common Stock, or take a record of the holders of its Common Stock
for the purpose of entitling them to receive without payment a dividend payable
in, or other distribution of, Common Stock or other securities, then the number
of shares of Common Stock purchasable hereunder shall be adjusted to that
number determined by multiplying the number of shares purchasable upon the
exercise of this Warrant immediately prior to such adjustment by a fraction (i)
the numerator of which shall
4.
<PAGE> 5
be the total number of shares of Common Stock outstanding immediately after
such subdivision, combination, dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such subdivision, combination, dividend or
distribution. Additionally, the Warrant Price shall be adjusted to that price
determined by multiplying the Warrant Price in effect immediately prior to such
subdivision, combination, dividend or distribution by a fraction (x) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such subdivision, combination, dividend or
distribution, and (y) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such subdivision,
combination, dividend or distribution.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will
be issued in connection with any exercise hereunder but in lieu of such
fractional shares, the Company shall make a cash payment therefor upon the
basis of the fair market value of the Common Stock.
7. GOVERNING LAW. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of California.
5.
<PAGE> 6
IN WITNESS WHEREOF, this Warrant has been executed and issued by the
officer or officers thereunto duly authorized as of the day and year first
written above.
JT STORAGE, INC.
By:_____________________________________
David T. Mitchell, President and
Chief Executive Officer
ACCEPTED AND AGREED TO:
LUNENBURG S.A.
By:________________________________________
Its:_______________________________________
6.
<PAGE> 7
FORM OF EXERCISE
(To be signed only upon exercise of Warrant)
To JT Storage, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____________________ (______) of the number of shares of
Common Stock purchasable under this Warrant and herewith makes payment of
____________ _____________ Dollars ($_________) therefor, and requests that a
certificate(s) for such shares be issued in the name of, and delivered to, ____
________________________________, whose address is_____________________________
______________________________.
The undersigned represents that he is acquiring such shares of Common
Stock for its own account for investment purposes only and not with a view to
or for sale in connection with any distribution thereof.
Dated:____________________________ _______________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
_______________________________________
_______________________________________
(Address)
7.
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD CASTRO HUDDLESON & TATUM LETTERHEAD]
June 20, 1996
JTS Corporation
166 Baypoint Parkway
San Jose, CA 95134
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing on June 20, 1996 by JTS Corporation (the "Company") of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission, with respect to the offer and sale of
63,727,318 shares of the Company's Common Stock, $.001 par value (the "Common
Stock") in connection with the merger of Atari Corporation ("Atari") with and
into the Company as set forth in the Agreement and Plan of Reorganization, by
and among the Company and Atari, dated as of April 8, 1996 (the "Merger
Agreement").
In connection with this opinion, we have examined and relied upon the
Registration Statement; the Company's Certificate of Incorporation, as amended,
and Bylaws, the Merger Agreement and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the shares of Common Stock, when sold and issued in accordance with the
terms of the Registration Statement and Related Prospectus (including the
filing by the Company of its Restated Certificate of Incorporation) will be
validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Registration Statement and to the filing of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
By: /s/ Andrei M. Manoliu
_____________________
Andrei M. Manoliu
<PAGE> 1
Exhibit 8.1
[Form of Cooley Godward Tax Opinion]
June 20, 1996
[WEBB B. MORROW LETTERHEAD]
JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section 6.1(f) of
the Amended and Restated Agreement and Plan of Reorganization dated April 8,
1996 (the "Reorganization Agreement") by and between JT Storage, Inc., a
Delaware corporation ("JTS") and Atari Corporation, a Nevada corporation (the
"Company"). Atari will merge into JTS (the "Merger") pursuant to the
Reorganization Agreement and related Certificate of Merger to be filed by JTS
and Atari with the Secretaries of State of Delaware and Nevada on the Closing
Date (collectively, including the exhibits to each, the "Agreements").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Reorganization Agreement or in certificates dated
June 14, 1996 delivered to us by JTS and Atari containing certain
representations of JTS and Atari (the "Certificates of Representations"). All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
We have acted as counsel to JTS in connection with the Merger. As such, and for
the purpose of rendering this opinion, we have examined originals, certified
copies or copies otherwise identified to our satisfaction as being true copies
of the original of the following documents (including all exhibits and schedules
attached thereto):
(a) the Agreements;
(b) the Certificates of Representations;
(c) Continuity of Interest Certificates executed and delivered by
certain shareholders of Atari (the "Continuity of Interest Certificates"); and
(d) such other instruments and documents related to the formation,
organization and operation of JTS and Atari and related to the consummation of
the Merger and the transactions contemplated thereby as we have deemed necessary
or appropriate.
<PAGE> 2
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
will be prior to the Closing) due execution and delivery of all documents where
due execution and delivery are a prerequisite to the effectiveness thereof;
2. The truth and accuracy at all relevant times, of all
representations, warranties and statements made or agreed to by JTS and Atari,
their managements, employees, officers, directors and shareholders in connection
with the Merger, including but not limited to those set forth in the Agreements
(including the exhibits) and in the Certificates of Representations and in the
Continuity of Interest Certificates; and that all covenants contained in such
agreements are performed without waiver or breach of any material provision
thereof;
3. There is no plan or intention on the part of Atari's shareholders to
engage in a sale, exchange, transfer, distribution, pledge or other disposition
(including a distribution by a corporation to its shareholders) or any
transaction which would result in a reduction of risk of ownership, or a direct
or indirect disposition (a "Sale") of shares of JTS Common Stock to be received
in the Merger that would reduce Atari shareholders' ownership of JTS Common
Stock to a number of shares having an aggregate fair market value, as of the
Effective Time, of less than fifty percent (50%) of the aggregate fair market
value of all of the capital stock of Atari outstanding immediately prior to the
consummation of the Merger. Shares of Atari capital stock (a) with respect to
which dissenters' rights are exercised in the Merger (b) which are exchanged for
cash in lieu of fractional shares of JTS Common Stock or (c) which are sold,
redeemed or disposed of in a transaction that is in contemplation of or related
to the Merger, shall be considered shares of capital stock of Atari which are
exchanged in the Merger for shares of JTS Common Stock which are then disposed
of pursuant to a plan.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that for federal income tax purposes:
1. The merger of Atari into JTS will be a reorganization within the meaning of
Section 368(a)(1)(A) of the Code.
In addition, we have reviewed the discussion contained in the Prospectus/Proxy
Statement included in the Registration Statement on the Form S-4 under "THE
MERGER - Certain Federal
<PAGE> 3
Page 3
Income Tax Matters (the "Tax Discussion") and we believe that, subject to the
qualifications and limitations contained in the Tax Discussion, the matters
stated in the Tax Discussion, to the extent they represent matters of law or
legal conclusions, are fairly presented.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger except as
specifically set forth herein and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as described
in the Agreements or to any other transaction whatsoever including the Merger if
all the transactions described in the Agreements are not consummated in
accordance with the terms of the Agreements and without waiver of any material
provision thereof. To the extent any of the representations, warranties,
statements and assumptions material to our opinion and upon which we have relied
are not complete, correct, true and accurate in all material respects at all
relevant times, our opinion would be adversely affected and should not be relied
upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
the courts. The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, by rendering
this opinion, we undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws.
This opinion has been delivered to you solely for the purposes set forth in
Section 7.1(f) of the Reorganization Agreement and may not be relied upon or
utilized for any other purpose or by any other person or entity, and may not be
distributed or otherwise made available to any other person or entity without
our prior written consent, except for the filing of this opinion as an Exhibit
to the Form S-4 and the references to this firm in the Tax Discussion.
Sincerely,
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
- -------------------------
Webb B. Morrow III
<PAGE> 1
Exhibit 8.2
Atari Corporation
June , 1996
Page 1
[Form of Wilson Sonsini Goodrich & Rosati Tax Opinion]
June 20, 1996
Atari Corporation
455 South Mathilda Avenue
Sunnyvale, California 94086
Ladies and Gentlemen:
We have acted as counsel for Atari Corporation, a Nevada corporation
("Atari") in connection with the preparation and execution of the Amended and
Restated Agreement and Plan of Merger dated as of April 8, 1996 and related
Certificate of Merger (the "Merger Agreement") among JT Storage, Inc., a
Delaware corporation ("JTS") and Atari. Pursuant to the Merger Agreement, Atari
will merge with and into JTS (the "Merger"). Unless otherwise defined,
capitalized terms referred to herein have the meanings set forth in the Merger
Agreement. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon the facts, statements, descriptions and representations
set forth in the Registration Statement on Form S-4 filed by Atari and JTS with
the Securities and Exchange Commission (which contains a joint proxy
statement/prospectus) (the "Registration Statement"), the Merger Agreement
(including Exhibits) and such other documents pertaining to the Merger as we
have deemed necessary or appropriate. We have also relied upon certificates of
officers of Atari and JTS respectively (the "Officers' Certificates") as well as
continuity of interest certificates executed and delivered by certain
shareholders of Atari (the "Continuity of Interest Certificates").
In connection with rendering this opinion, we have also assumed
(without any independent investigation) that:
Original documents (including signatures) are authentic,
documents submitted to
<PAGE> 2
us as copies conform to the original documents, and there has been (or will be
by the Effective Time) due execution and delivery of all documents where due
execution and delivery are prerequisites to effectiveness thereof;
Any statement made in any of the documents referred to herein,
"to the best of the knowledge" of any person or party is correct without such
qualification;
1 All statements, descriptions and representations contained in
any of the documents referred to herein or otherwise made to us are true and
correct in all material respects and no actions have been (or will be) taken
which are inconsistent with such representations; and
1 The Merger will be reported by Atari and JTS on their respective
federal income tax returns in a manner consistent with the opinion set forth
below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and the statements set forth in the Officers' Certificates and the
Continuity of Interest Certificates are true and correct as of the date hereof,
on the Effective Date of the Registration Statement and at the Effective Time,
then:
(a) For federal income tax purposes, the Merger will qualify
as a "reorganization" as defined in Section 368(a) of the Code; and
(b) The discussion entitled "THE PROPOSED MERGER AND RELATED
TRANSACTIONS - Certain Federal Income Tax Considerations" in the Registration
Statement insofar as it relates to the statements of law or legal conclusions is
correct in all material respects.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger). Furthermore, this opinion relates only to the
holders of JTS stock who hold such stock as a capital asset. No opinion is
expressed as to the Federal income tax treatment that may be relevant to a
particular investor in light of personal circumstances or to certain types of
investors subject to special treatment under the Federal income tax laws (for
example, life insurance companies, dealers in securities, taxpayers subject
<PAGE> 3
to the alternative minimum tax banks, tax-exempt organizations, non-United
States persons, and stockholders who acquired their shares of Atari stock
pursuant to the exercise of options or otherwise as compensation).
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
This opinion has been delivered to you for the purposes of being
included as an exhibit to the Registration Statement and satisfying the
requirements of Section 6.1(f) of the Merger Agreement. It may not be relied
upon for any other purpose or by any other person or entity, and may not be made
available to any other person or entity without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Certain Federal Income
Tax Matters" in the Registration Statement.
Very truly yours,
----------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 9.1
ATARI CORPORATION
AMENDED AND RESTATED
VOTING AGREEMENT
This AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is made
and entered into as of April ___, 1996, by and among JT STORAGE, INC., a
Delaware corporation ("JTS"), and the undersigned stockholder ("Stockholder")
of ATARI CORPORATION, a Nevada corporation ("Atari").
RECITALS
A. Whereas JTS and the Stockholder desire to amend that certain
Voting Agreement, dated as of February ___, 1996, and related Irrevocable Proxy
to Vote Stock of Atari Corporation dated as of February ___, 1996.
B. Pursuant to an Amended and Restated Agreement and Plan of
Reorganization, dated as of April ___, 1996 (the "Reorganization Agreement") by
and among JTS and Atari, Atari is merging with and into JTS (the "Merger");
C. The Reorganization Agreement amends and restates that certain
Agreement and Plan of Reorganization dated as of February 12, 1996, by and
among JTS, Atari and JT Acquisition Corporation ("Newco");
D. Pursuant to Section ___ of the Reorganization Agreement, in
order to induce JTS to enter into the Reorganization Agreement, Atari has
agreed to solicit the proxy of certain significant stockholders of Atari on
behalf of JTS and to cause certain significant stockholders of Atari to execute
and delivery Voting Agreements to JTS;
E. Stockholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
such number of shares of the outstanding Common Stock, $0.01 par value per
share, of Atari as is indicated on the signature page of this Agreement (the
"Shares"); and
F. In consideration of the execution of the Reorganization
Agreement by JTS, Stockholder agrees not to transfer or otherwise dispose of
any of the Shares, or any other shares of capital stock of Atari acquired by
Stockholder hereafter and prior to the Expiration Date (as defined in Section
1.1 below), and agrees to vote the Shares and any other such shares of capital
stock of Atari so as to facilitate consummation of the Merger.
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE. Stockholder agrees not to transfer
(except as may be specifically required by court order), sell, exchange, pledge
(except in connection with a bona fide loan transaction, provided that any
pledgee agrees not to transfer, sell, exchange, pledge or otherwise dispose of
or encumber the Shares or any New Shares (as defined in Section 1.2) prior to
the Expiration Date and to be subject to the Proxy (as defined in Section 3))
or otherwise dispose of or encumber the Shares or any New Shares, or to make
any offer or agreement relating thereto, at any time prior to the Expiration
Date. As used herein, the term ("Expiration Date") shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Reorganization Agreement, (ii)
the close of business on December 31, 1996 and (iii) the date of termination of
the Reorganization Agreement.
1.2 NEW SHARES. Stockholder agrees that any shares of capital
stock of Atari that Stockholder purchases or with respect to which Stockholder
otherwise acquires beneficial ownership after the date of this
1.
<PAGE> 2
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
Atari called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Atari with respect to any of the following, Stockholder shall vote the
Shares and any New Shares in favor of approval of the Reorganization Agreement
and the Merger and any matter that could reasonably be expected to facilitate
the Merger. This Agreement is intended to bind Stockholder as a stockholder of
Atari only with respect to the specific matters set forth herein and shall not
prohibit Stockholder from acting in accordance with his or her fiduciary
duties, if applicable, as an officer or director of Atari.
3. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to JTS a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the extent provided in
Section 78.355 of the Nevada General Corporation Law, covering the total number
of Shares and New Shares beneficially owed or as to which beneficial ownership
is acquired (as such term is defined in Rule 13d-3 under the Exchange Act) by
Stockholder set forth therein.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. Stockholder
hereby represents, warrants and covenants to JTS that Stockholder (i) is the
beneficial owner of the Shares, which at the date of this Agreement are and at
all times up until the Expiration Date will be free and clear of any liens,
claims, options, charges or other encumbrances; (ii) does not beneficially own
any shares of capital stock of Atari other than the Shares (excluding shares as
to which Stockholder currently disclaims beneficial ownership in accordance
with applicable law); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement and the Proxy. Certain of the
Stockholder's Shares are pledged to secure a loan payable to Jack Tramiel.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of JTS, to carry out the purpose and intent of this
Agreement.
6. CONSENT AND WAIVER. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which Stockholder is a party or pursuant to any rights
Stockholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. MISCELLANEOUS.
8.1 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
8.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by
either of the parties without the prior written consent of the other.
8.3 AMENDMENT AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
8.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that JTS will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or
2.
<PAGE> 3
agreements of Stockholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to JTS upon any such
violation, JTS shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to JTS
at law or in equity.
8.5 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to JTS, to:
JTS Corporation
166 Baypointe Parkway
San Jose, California 95134
Attention: David T. Mitchell
Facsimile No.: (408) 468-1619
Telephone No.: (408) 468-1800
With a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Andrei M. Manoliu, Esq.
Facsimile No.: (415) 857-0663
Telephone No.: (415) 843-5000
(b) if to Stockholder, to the address set forth below.
8.6 GOVERNING LAW. This Agreement and the Proxy shall be governed
by, construed and enforced in accordance with the internal laws of the State of
Nevada.
8.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter hereof and
supersede all prior negotiations and understandings between the parties with
respect to such subject matters.
8.8 COUNTERPART. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
8.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
3.
<PAGE> 4
IN WITNESS WHEREOF,the parties have caused this Agreement to be duly
executed on the day and year first above written.
JT STORAGE, INC.
By:_________________________________
Title:______________________________
STOCKHOLDER
By:_________________________________
Title:______________________________
Stockholder's Address for Notice:
____________________________________
____________________________________
Shares beneficially owned:
_______ shares of Atari Common Stock
4.
<PAGE> 5
EXHIBIT A
IRREVOCABLE PROXY TO VOTE STOCK OF
ATARI CORPORATION
The undersigned stockholder of Atari Corporation, a Nevada corporation
("Atari"), hereby irrevocably (to the full extent permitted by Section 78.355
of the Nevada General Corporation Law) appoints the members of the Board of
Directors of JT Storage, Inc., a Delaware corporation ("JTS"), and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to vote and exercise all voting
and related rights (to the full extent that the undersigned is entitled to do
so) with respect to all of the shares of capital stock of Atari that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Atari issued or issuable in respect thereof on or after
the date hereof (collectively, the "Shares") in accordance with the terms of
this Proxy. The Shares beneficially owned by the undersigned stockholder of
Atari as of the date of this Proxy are listed below. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned
with respect to any Shares are hereby revoked and the undersigned agrees not to
grant any subsequent proxies with respect to the Shares until after the
Expiration Date (as defined below).
This Proxy is irrevocable (to the extent provided in Section 78.355 of
the Nevada General Corporation Law), is granted pursuant to that certain
Amended and Restated Voting Agreement dated as of the date hereof, by and among
JTS and the undersigned stockholder (the "Voting Agreement") which amends and
restates that certain Voting Agreement, dated as of February ___, 1996, by and
among JTS and the undersigned stockholder, and is granted in consideration of
JTS entering into that certain Amended and Restated Agreement and Plan of
Reorganization by and among JTS and Atari (the "Reorganization Agreement")
which amends and restates that certain Agreement and Plan of Reorganization by
and among JTS, Atari and JTS Acquisition Corporation dated as of February 12,
1996. The Reorganization Agreement provides for the merger of Atari with and
into JTS. As used herein, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Reorganization Agreement, (ii)
the close of business on December 31, 1996 and (iii) the date of termination of
the Reorganization Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and other rights of the undersigned with
respect to the Shares (including, without limitation, the power to execute and
deliver written consents pursuant to Section 78.320 of the Nevada General
Corporation Law), at every annual, special or adjourned meeting of the
stockholders of Atari and in every written consent in lieu of such meeting in
favor of approval of the Merger and the Reorganization Agreement and in favor
of any matter that could reasonably be expected to facilitate the Merger. The
attorneys and proxies named above may not exercise this Proxy on any other
matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. This Proxy is irrevocable to the
extent provided in Section 78.355 of the Nevada General Corporation Law.
Dated: April ___, 1996
_______________________________________
(Signature of Stockholder)
_______________________________________
Shares beneficially owned: (Print Name of Stockholder)
_________ shares of Atari Common Stock
1.
<PAGE> 1
EXHIBIT 9.2
JT STORAGE, INC.
AMENDED AND RESTATED
VOTING AGREEMENT
This AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is made
and entered into as of April ___, 1996, by and among ATARI CORPORATION, a
Nevada corporation ("Atari"), and the undersigned stockholder ("Stockholder")
of JT STORAGE, INC., a Delaware corporation ("JTS").
RECITALS
A. Whereas Atari and the Stockholder desire to amend that certain
Voting Agreement, dated as of February ___, 1996, and related Irrevocable Proxy
to Vote Stock of JT Storage, Inc., dated as of February ___, 1996.
B. Pursuant to an Amended and Restated Agreement and Plan of
Reorganization, dated as of April ___, 1996 (the "Reorganization Agreement") by
and among JTS and Atari, Atari is merging with and into JTS (the "Merger");
C. The Reorganization Agreement amends and restates that certain
Agreement and Plan of Reorganization dated as of February 12, 1996, by and
among JTS, Atari and JT Acquisition Corporation;
D. Pursuant to Section ___ of the Reorganization Agreement, in
order to induce Atari to enter into the Reorganization Agreement, JTS has
agreed to solicit the proxy of certain significant stockholders of JTS on
behalf of Atari and to cause certain significant stockholders of JTS to execute
and delivery Voting Agreements to Atari;
E. Stockholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
such number of shares of the outstanding Common Stock, $0.000001 par value per
share, of JTS as is indicated on the signature page of this Agreement (the
"Shares"); and
F. In consideration of the execution of the Reorganization
Agreement by Atari, Stockholder agrees not to transfer or otherwise dispose of
any of the Shares, or any other shares of capital stock of JTS acquired by
Stockholder hereafter and prior to the Expiration Date (as defined in Section
1.1 below), and agrees to vote the Shares and any other such shares of capital
stock of JTS so as to facilitate consummation of the Merger.
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE. Stockholder agrees not to transfer
(except as may be specifically required by court order), sell, exchange, pledge
(except in connection with a bona fide loan transaction, provided that any
pledgee agrees not to transfer, sell, exchange, pledge or otherwise dispose of
or encumber the Shares or any New Shares (as defined in Section 1.2) prior to
the Expiration Date and to be subject to the Proxy (as defined in Section 3))
or otherwise dispose of or encumber the Shares or any New Shares, or to make
any offer or agreement relating thereto, at any time prior to the Expiration
Date. As used herein, the term ("Expiration Date") shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Reorganization Agreement, (ii)
the close of business on December 31, 1996 and (iii) the date of termination of
the Reorganization Agreement.
1.2 NEW SHARES. Stockholder agrees that any shares of capital
stock of JTS that Stockholder purchases or with respect to which Stockholder
otherwise acquires beneficial ownership after the date of this Agreement and
1.
<PAGE> 2
prior to the Expiration Date ("New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of JTS
called with respect to any of the following, and at every adjournment thereof,
and on every action or approval by written consent of the stockholders of JTS
with respect to any of the following, Stockholder shall vote the Shares and any
New Shares in favor of approval of the Reorganization Agreement and the Merger
and any matter that could reasonably be expected to facilitate the Merger.
This Agreement is intended to bind Stockholder as a stockholder of JTS only
with respect to the specific matters set forth herein and shall not prohibit
Stockholder from acting in accordance with his or her fiduciary duties, if
applicable, as an officer or director of Atari.
3. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Atari a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the extent provided in
Section 212 of the Delaware General Corporation Law, covering the total number
of Shares and New Shares beneficially owed or as to which beneficial ownership
is acquired (as such term is defined in Rule 13d-3 under the Exchange Act) by
Stockholder set forth therein.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. Stockholder
hereby represents, warrants and covenants to Atari that Stockholder (i) is the
beneficial owner of the Shares, which at the date of this Agreement are and at
all times up until the Expiration Date will be free and clear of any liens,
claims, options, charges or other encumbrances; (ii) does not beneficially own
any shares of capital stock of JTS other than the Shares (excluding shares as
to which Stockholder currently disclaims beneficial ownership in accordance
with applicable law); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement and the Proxy.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Atari, to carry out the purpose and intent of this
Agreement.
6. CONSENT AND WAIVER. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which Stockholder is a party or pursuant to any rights
Stockholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. MISCELLANEOUS.
8.1 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
8.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by
either of the parties without the prior written consent of the other.
8.3 AMENDMENT AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
8.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Atari will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or
2.
<PAGE> 3
agreements of Stockholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to Atari upon any such
violation, Atari shall have the right to enforce such covenants and agreements
by specific performance, injunctive relief or by any other means available to
Atari at law or in equity.
8.5 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Atari, to:
Atari Corporation
455 South Mathilda Avenue
Sunnyvale, California 94086
Attention: Jack Tramiel
Facsimile No.: (408) 328-0909
Telephone No.: (408) 328-0900
With a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile No.: (415) 493-6811
Telephone No.: (415) 493-9300
(b) if to Stockholder, to the address set forth below.
8.6 GOVERNING LAW. This Agreement and the Proxy shall be governed
by, construed and enforced in accordance with the internal laws of the State of
Delaware.
8.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter hereof and
supersede all prior negotiations and understandings between the parties with
respect to such subject matters.
8.8 COUNTERPART. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
8.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
3.
<PAGE> 4
IN WITNESS WHEREOF,the parties have caused this Agreement to be duly
executed on the day and year first above written.
ATARI CORPORATION
By:___________________________________
________________________________
STOCKHOLDER
By:___________________________________
Title:________________________________
Stockholder's Address for Notice:
_____________________________________
_____________________________________
Shares beneficially owned:
______________ shares of JTS Common Stock
______________ shares of JTS Series A
Preferred Stock
4.
<PAGE> 5
EXHIBIT A
IRREVOCABLE PROXY TO VOTE STOCK OF
JT STORAGE, INC.
The undersigned stockholder of JT Storage, Inc. a Delaware corporation
("JTS"), hereby irrevocably (to the full extent permitted by Section 212 of the
Delaware General Corporation Law) appoints the members of the Board of
Directors of Atari Corporation, a Nevada corporation ("Atari"), and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to vote and exercise all voting
and related rights (to the full extent that the undersigned is entitled to do
so) with respect to all of the shares of capital stock of JTS that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of JTS issued or issuable in respect thereof on or after
the date hereof (collectively, the "Shares") in accordance with the terms of
this Proxy. The Shares beneficially owned by the undersigned stockholder of
JTS as of the date of this Proxy are listed below. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned
with respect to any Shares are hereby revoked and the undersigned agrees not to
grant any subsequent proxies with respect to the Shares until after the
Expiration Date (as defined below).
This Proxy is irrevocable (to the extent provided in Section 212 of
the Delaware General Corporation Law), is granted pursuant to that certain
Amended and Restated Voting Agreement dated as of the date hereof, by and among
Atari and the undersigned stockholder (the "Voting Agreement") which amends and
restates that certain Voting Agreement, dated as of February ___, 1996, by and
among Atari and the undersigned stockholder, and is granted in consideration of
Atari entering into that certain Amended and Restated Agreement and Plan of
Reorganization by and among JTS and Atari (the "Reorganization Agreement")
which amends and restates that certain Agreement and Plan of Reorganization by
and among JTS, Atari and JTS Acquisition Corporation dated as of February 12,
1996. The Reorganization Agreement provides for the merger of Atari with and
into JTS. As used herein, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Reorganization Agreement, (ii)
the close of business on December 31, 1996 and (iii) the date of termination of
the Reorganization Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and other rights of the undersigned with
respect to the Shares (including, without limitation, the power to execute and
deliver written consents pursuant to Section 228 of the Delaware General
Corporation Law), at every annual, special or adjourned meeting of the
stockholders of JTS and in every written consent in lieu of such meeting in
favor of approval of the Merger and the Reorganization Agreement and in favor
of any matter that could reasonably be expected to facilitate the Merger. The
attorneys and proxies named above may not exercise this Proxy on any other
matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. This Proxy is irrevocable to the
extent provided in Section 212 of the Delaware General Corporation Law.
Dated: April ___, 1996
_______________________________________
(Signature of Stockholder)
_______________________________________
Shares beneficially owned: (Print Name of Stockholder)
_________ shares of JTS Common Stock
_________ shares of JTS Series A Preferred Stock
1.
<PAGE> 1
EXHIBIT 10.1
JT STORAGE, INC.
1995 STOCK OPTION PLAN
AMENDED AND RESTATED ON MARCH 19, 1996
APPROVED BY STOCKHOLDERS ON ____________, 1996
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to purchase common stock of the
Company.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either Incentive Stock Options or Nonstatutory Stock Options. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
1.
<PAGE> 2
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means JT Storage, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board, in its
sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i) any
leave of absence approved by the Board, including sick leave, military leave,
or any other personal leave; or (ii) transfers between the Company, Affiliates
or their successors.
(h) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(i) "DIRECTOR" means a member of the Board.
(j) "DISINTERESTED PERSON" means a Director who either (i) was not
during the one (1)-year period prior to service as an administrator of the Plan
granted or awarded equity
2.
<PAGE> 3
securities pursuant to the Plan or any other plan of the Company or any
affiliate entitling the participants therein to acquire equity securities of
the Company or any affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows:
(1) If the common stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market of The Nasdaq Stock Market, 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;
(2) If the common stock is quoted on The Nasdaq Stock
Market (but not on the National Market thereof) or is 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 bid and
asked prices for the common stock on the last market trading day prior to
3.
<PAGE> 4
the day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the
common stock, the Fair Market Value shall be determined in good faith by the
Board.
For Options granted prior to the date of the first registration of an
equity security of the Company under Section 12 of the Exchange Act, Fair
Market Value shall also be determined in a manner consistent with Section
260.140.50 of Title 10 of the California Code of Regulations.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(s) "OPTIONEE" means a person who holds an outstanding Option.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or
4.
<PAGE> 5
an "affiliated corporation" (within the meaning of the Treasury regulations
promulgated under Section 162(m) of the Code), is not a former employee of the
Company or an "affiliated corporation" receiving compensation for prior
services (other than benefits under a tax qualified pension plan), was not an
officer of the Company or an "affiliated corporation" at any time, and is not
currently receiving direct or indirect remuneration from the Company or an
"affiliated corporation" for services in any capacity other than as a Director;
or (ii) is otherwise considered an "outside director" for purposes of Section
162(m) of the Code.
(u) "PLAN" means this JT Storage, Inc. 1995 Stock Option Plan.
(v) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option
shall be granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need
not be identical), including the time or times such Option may be exercised in
whole or in part; and the number of shares for which an Option shall be granted
to each such person.
(2) To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any
5.
<PAGE> 6
Option Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(3) To amend the Plan or an Option as provided in
Section 11.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be Disinterested Persons and may also be,
in the discretion of the Board, Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee of two (2) or more Outside
Directors any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such a subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of the Plan. Additionally, prior to the date
of the first registration of an equity security of the Company under Section 12
of the Exchange Act, and notwithstanding anything to the contrary contained
herein, the Board may delegate administration of the Plan to any person or
persons and the term "Committee" shall apply to any person or persons to whom
such authority has been delegated. Notwithstanding anything in this Section 3
to the contrary, the Board or the Committee may delegate to a committee of one
or more members of the Board the authority to grant Options to eligible persons
who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are
either (i) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Option, or
(ii)
6.
<PAGE> 7
not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
Options shall not exceed in the aggregate nine million (9,000,000) shares of
the Company's common stock. Such share reserve is comprised of (i) the four
million (4,000,000) shares in the aggregate reserved for issuance under the
Plan prior to this March 1996 amendment and restatement plus (ii) an additional
five million (5,000,000) shares reserved pursuant to this March 1996 amendment
and restatement of the Plan. If any Option shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in
full, the stock not purchased under such Option shall revert to and again
become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
7.
<PAGE> 8
(b) A Director shall in no event be eligible for the benefits of
the Plan unless at the time discretion is exercised in the selection of the
Director as a person to whom Options may be granted, or in the determination of
the number of shares which may be covered by Options granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b)
shall not apply (i) prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, or (ii) if the
Board or Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Option is not exercisable after the expiration of
five (5) years from the date of grant. Prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, the provisions of this subsection 5(c) shall also apply to the
grant of a Nonstatutory Stock Option made to a ten percent (10%) stockholder as
described in the preceding sentence.
(d) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, no person shall be eligible to be granted
Options covering more than one million (1,000,000) shares of the Company's
common stock in any calendar year.
8.
<PAGE> 9
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted; the exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option
(whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner satisfying the provisions of Section 424(a) of
the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised; or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment arrangement, except that payment of the
common stock's "par value" (as defined in the Delaware General Corporation Law)
shall not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of
9.
<PAGE> 10
the foregoing, the use of other common stock of the Company) with the person to
whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board. In the case of any deferred payment arrangement,
interest shall be payable at least annually and shall be charged at the minimum
rate of interest necessary to avoid the treatment as interest, under any
applicable provisions of the Code, of any amounts other than amounts stated to
be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order satisfying the requirements
of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable
during the lifetime of the person to whom the Option is granted only by such
person or any transferee pursuant to a QDRO. The person to whom the Option is
granted may, by delivering written notice to the Company in a form satisfactory
to the Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The
10.
<PAGE> 11
Option may be subject to such other terms and conditions on the time or times
when it may be exercised (which may be based on performance or other criteria)
as the Board may deem appropriate. The vesting provisions of individual
Options may vary; provided, however, that Options granted prior to the date of
the first registration of an equity security of the Company under Section 12 of
the Exchange Act will in each case provide for vesting of at least twenty
percent (20%) per year of the total number of shares subject to the Option.
The provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any
Optionee, or any person to whom an Option is transferred under subsection 6(d),
as a condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise of the Option has been registered
under a then currently-effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may
11.
<PAGE> 12
require the Optionee to provide such other representations, written assurances
or information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities and other laws as a condition
of granting an Option to such Optionee or permitting the Optionee to exercise
such Option. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period specified in
the Option Agreement, which period shall be no less than thirty (30) days for
Options granted prior to the date of the first registration statement of an
equity security of the Company under Section 12 of the Exchange Act), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionee does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise
12.
<PAGE> 13
it as of the date of termination), but only within such period of time ending
on the earlier of (i) the date twelve (12) months following such termination
(or such longer or shorter period specified in the Option Agreement, which
period shall be no less than six (6) months for Options granted prior to the
date of the first registration statement of an equity security of the Company
under Section 12 of the Exchange Act), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period specified in the Option Agreement, which
period shall be no less than six (6) months for Options granted prior to the
date of the first registration statement of an equity security of the Company
under Section 12 of the Exchange Act for Options granted prior to the date of
the first registration statement of an equity security of the Company under
Section 12 of the Exchange Act), or (ii) the expiration of the term of such
13.
<PAGE> 14
Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased shall be subject to a repurchase right in favor of
the Company or to any other restriction the Board determines to be appropriate.
With respect to Options granted prior to the date of the first registration of
an equity security of the Company under Section 12 of the Exchange Act, the
right of the Company under this subsection 6(i) to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Option was granted, and (ii) such right
shall be exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant, or
(B) such longer period as may be agreed to by the Company and the Optionee (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), and (iii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares. Should the right of repurchase be assigned by the
Company, the assignee shall pay the Company cash equal to the difference
between the original purchase price and the stock's Fair Market Value if the
original purchase price is less than the stock's Fair Market Value.
14.
<PAGE> 15
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following
means or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the common stock
otherwise issuable to the Optionee as a result of the exercise of the Option;
or (3) delivering to the Company owned and unencumbered shares of the common
stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Options;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Option or any stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
15.
<PAGE> 16
9. MISCELLANEOUS.
(a) From and after the first registration of an equity security of
the Company under Section 12 of the Exchange Act, the Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest pursuant to
subsection 6(e), notwithstanding the provisions in the Option stating the time
at which it may first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
(c) Throughout the term of any Option, the Company shall deliver
to the holder of such Option, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the Option term, a
balance sheet and an income statement. This section shall not apply (i) when
issuance is limited to key employees whose duties in connection with the
Company assure them access to equivalent information; or (ii) after first
registration of an equity security of the Company under Section 12 of the
Exchange Act.
(d) Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or Optionee any right to continue in the employ of the Company or any Affiliate
(or to continue acting as a Director or Consultant) or shall affect the right
of the Company or any Affiliate to terminate the employment of any Employee,
with or without cause, to remove any Director as provided in the Company's
By-Laws and the provisions of the Delaware General Corporation Law or to
terminate the
16.
<PAGE> 17
relationship of any Consultant in accordance with the terms of that
Consultant's agreement with the Company or Affiliate to which such Consultant
is providing services.
(e) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(f) (1) The Board or the Committee shall have the authority
to effect, at any time and from time to time (i) the repricing of any
outstanding Options under the Plan and/or (ii) with the consent of the affected
holders of Options, the cancellation of any outstanding Options and the grant
in substitution therefor of new Options under the Plan covering the same or
different numbers of shares of common stock, but having an exercise price per
share not less than eighty-five percent (85%) of the Fair Market Value (one
hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of an Incentive Stock Option granted to a ten
percent (10%) stockholder (as defined in subsection 5(c)), not less than one
hundred and ten percent (110%) of the Fair Market Value) per share of common
stock on the new grant date. Prior to the date of the first registration of an
equity security of the Company under Section 12 of the Exchange Act, a new
Nonstatutory Stock Option granted to a ten percent (10%) stockholder (as
defined in subsection 5(c)) in substitution for the cancellation of an
outstanding option pursuant to the provisions of this subsection 9(f) shall
have an exercise price per share not less than one hundred and ten percent
(110%) of the Fair Market Value per share of common stock on the new grant
date.
17.
<PAGE> 18
(2) Shares subject to an Option canceled under this
subsection 9(f) shall continue to be counted against the maximum number of
shares that may be covered by Options granted to a person pursuant to
subsection 5(d) of the Plan. The repricing of an Option under this subsection
9(f), resulting in a reduction of the exercise price, shall be deemed to be a
cancellation of the original Option and the grant of a substitute Option; in
the event of such repricing, both the original Option and the substituted
Option shall be counted in the applicable year against the maximum specified in
subsection 5(d) of the Plan. The provisions of this subsection 9(f) shall be
applicable only to the extent required by Section 162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the maximum number of shares subject to award to any person
during any calendar year pursuant to subsection 5(d), and the outstanding
Options will be appropriately adjusted in the class(es) and number of shares
and price per share of stock subject to such outstanding Options. Such
adjustments shall be made by the Board or Committee, the determination of which
shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company.")
(b) Upon the occurrence of certain corporate events, Options then
outstanding under the Plan shall be subject to the following provisions:
18.
<PAGE> 19
(i) In the event, after the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, of: (1) a dissolution, liquidation or sale of substantially all
of the assets of the Company; (2) a merger or consolidation in which the
Company is not the surviving corporation; or (3) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then, to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options for those outstanding under the Plan, or (ii) such
Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute
similar options for such Options outstanding under the Plan, then, with respect
to Options held by persons then performing services as Employees, Directors or
Consultants, the time during which such Options may be exercised shall be
accelerated and the Options terminated if not exercised prior to such event.
(ii) In the event, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, of: (1) a merger or consolidation in which the Company is not
the surviving corporation or (2) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then, to
the extent permitted by applicable law: (i) any surviving corporation or an
Affiliate of such surviving corporation shall assume any Options outstanding
under the Plan or shall substitute similar Options for such Options outstanding
under the Plan, or (ii) such Options shall continue in full force and effect.
19.
<PAGE> 20
In the event any surviving corporation and its Affiliates refuse to assume or
continue such Options, or to substitute similar Options for such Options
outstanding under the Plan, then such Options shall be terminated if not
exercised prior to such event. In the event of a dissolution or liquidation of
the Company, any such Options outstanding under the Plan shall terminate if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for Options
under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of
the Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
20.
<PAGE> 21
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Optionees with
the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under
it into compliance therewith.
(d) Rights and obligations under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Options; provided, however, that the rights and
obligations under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the last business day of
February, 2006. No Options may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the written consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan was adopted in March 1995. In March 1996 the Board adopted
this amendment and restatement of the Plan (the "1996 Amendment"). The 1996
Amendment became effective upon adoption by the Board, but no Options granted
from and after the 1996 Amendment shall
21.
<PAGE> 22
be exercised unless and until the 1996 Amendment has been approved by the
stockholders of the Company. Such approval shall be within twelve (12) months
before or after the date of the 1996 Amendment was adopted by the Board, and,
if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.
22.
<PAGE> 23
IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
INCENTIVE STOCK OPTION
_________________________, Optionee:
JT Storage, Inc. (the "Company"), pursuant to its 1995 Stock Option
Plan (the "Plan"), has granted to you, the optionee named above, an option to
purchase shares of the Company's common stock ("Common Stock"). This option is
intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers), directors or consultants and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "1933
Act"). Defined terms not explicitly defined in this agreement but defined in
the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total
number of shares of Common Stock subject to this option is ____________________
(______).
2. VESTING. Subject to the limitations contained herein, ___ of
the shares will vest (become exercisable) on ____________, 19__ and the
remaining shares will then vest equally over the next _______________ ( )
months thereafter until either (i) you cease to provide services to the Company
for any reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
___________________ ($______) per share, being not less than the Fair Market
Value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per
share is due in full upon exercise of all or any part of each installment which
has accrued to you. You may
1.
<PAGE> 24
elect, to the extent permitted by applicable statutes and regulations, to make
payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per
share in cash (including check) at the time of exercise;
(ii) Payment pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board which,
prior to the issuance of Common Stock, results in either the receipt of cash
(or check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds; or
(iii) Payment by a combination of the
methods of payment permitted by subparagraph 3(b)(i) and 3(b)(ii) above.
4. WHOLE SHARES. This option may not be exercised for any number
of shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the 1933 Act
or, if such shares are not then so registered, the Company has determined that
such exercise and issuance would be exempt from the registration requirements
of the 1933 Act.
6. TERM. The term of this option commences on _______________,
19__, the date of grant, and expires on ______________________ (the "Expiration
Date"), which date shall be no more than ten (10) years from date this option
is granted, unless this option expires sooner as set forth below or in the
Plan. In no event may this option be exercised on or after the Expiration
Date. This option shall terminate prior to the Expiration Date as follows:
three (3) months after the termination of your Continuous Status as an
Employee, Director or Consultant with the Company or an Affiliate of the
Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your disability. This option will then expire
on the earlier of the Expiration Date set forth above or twelve (12) months
following such termination of Continuous Status as an Employee, Director or
Consultant. You should be aware that if your disability is not considered a
permanent and total disability within the meaning of Section 422(c)(6) of the
Code, and you exercise this option more than three (3) months following the
date of your termination of employment, your exercise will be treated for tax
purposes as the exercise of a "nonstatutory stock option" instead of an
"incentive stock option" under the federal tax laws.
(b) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your death occurs within three
(3) months following your termination of Continuous Status as an Employee,
Director or Consultant for any other reason.
2.
<PAGE> 25
This option will then expire on the earlier of the Expiration Date set forth
above or eighteen (18) months after your death.
(c) If during any part of such three (3) month period you
paragraph 5 above, then your option will not expire until the earlier of the
Expiration Date set forth above or until this option shall have been
exercisable for an aggregate period of three (3) months after your termination
of Continuous Status as an Employee, Director or Consultant.
(d) If your exercise of the option within three (3)
months after termination of your Continuous Status as an Employee, Director or
Consultant with the Company or with an Affiliate of the Company would result in
liability under Section 16(b) of the Securities Exchange Act of 1934, as
amended, then your option will expire on the earlier of (i) the Expiration Date
set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your Continuous Status as an Employee, Director
or Consultant with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions
of paragraph 2 of this option.
In order to obtain the federal income tax advantages associated with
an "incentive stock option," the Code requires that at all times beginning on
the date of grant of the option and ending on the day three (3) months before
the date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or exercise your option more than three (3) months
after the date your employment with the Company and all Affiliates of the
Company terminates.
7. EXERCISE.
(a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to subsection 6(f) of the Plan.
(b) By exercising this option you agree that:
3.
<PAGE> 26
(i) as a precondition to the completion
of any exercise of this option, the Company may require you to enter an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
this option; (2) the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise; or (3) the disposition of shares
acquired upon such exercise;
(ii) you will notify the Company in
writing within fifteen (15) days after the date of any disposition of any of
the shares of the Common Stock issued upon exercise of this option that occurs
within two (2) years after the date of this option grant or within one (1) year
after such shares of Common Stock are transferred upon exercise of this option;
and
(iii) the Company (or a representative of
the underwriters) may, in connection with the first underwritten registration
of the offering of any securities of the Company under the 1933 Act, require
that you not sell or otherwise transfer or dispose of any shares of Common
Stock or other securities of the Company during such period (not to exceed one
hundred eighty (180) days) following the effective date of the registration
statement of the Company filed under the 1933 Act as may be requested by the
Company or the representative of the underwriters. You further agree that the
Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice
to the Company, in a form satisfactory to the Company, you may designate a
third party who, in the event of your death, shall thereafter be entitled to
exercise this option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an
employment contract and nothing in this option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in this option shall obligate the Company or any Affiliate of
the Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt
or, in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
address specified below or at such other address as you hereafter designate by
written notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
4.
<PAGE> 27
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
_______________________________________
By_____________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
JT Storage, Inc. 1995 Stock Option Plan
Regulation 260.141.11
Notice of Exercise
5.
<PAGE> 28
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:
NONE _________________
(Initial)
OTHER ___________________________________________________
___________________________________________________
___________________________________________________
(c) Acknowledges receipt of a copy of Section 260.141.11 of Title
10 of the California Code of Regulations.
___________________________________________
OPTIONEE
Address: __________________________________
__________________________________
6.
<PAGE> 29
IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
NONSTATUTORY STOCK OPTION
_________________________, Optionee:
JT Storage, Inc. (the "Company"), pursuant to its 1995 Stock Option
Plan (the "Plan"), has granted to you, the optionee named above, an option to
purchase shares of the Company's common stock ("Common Stock"). This option is
not intended to qualify and will not be treated as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers), directors or consultants and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "1933
Act"). Defined terms not explicitly defined in this agreement but defined in
the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total
number of shares of Common Stock subject to this option is ____________________
(______).
2. VESTING. Subject to the limitations contained herein, ___ of
the shares will vest (become exercisable) on ____________, 19__ and the
remaining shares will then vest equally over the next _______________ ( )
months thereafter until either (i) you cease to provide services to the Company
for any reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
___________________ ($______) per share, being not less than 85% of the Fair
Market Value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per
share is due in full upon exercise of all or any part of each installment which
has accrued to you. You may
1.
<PAGE> 30
elect, to the extent permitted by applicable statutes and regulations, to make
payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per
share in cash (including check) at the time of exercise;
(ii) Payment pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board which,
prior to the issuance of Common Stock, results in either the receipt of cash
(or check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds; or
(iii) Payment by a combination of the
methods of payment permitted by subparagraph 3(b)(i) and 3(b)(ii) above.
4. WHOLE SHARES. This option may not be exercised for any number
of shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the 1933 Act
or, if such shares are not then so registered, the Company has determined that
such exercise and issuance would be exempt from the registration requirements
of the 1933 Act.
6. TERM. The term of this option commences on ____________,
19__, the date of grant, and expires on _________________ (the "Expiration
Date"), which date shall be no more than ten (10) years from date this option
is granted, unless this option expires sooner as set forth below or in the
Plan. In no event may this option be exercised on or after the Expiration
Date. This option shall terminate prior to the Expiration Date as follows:
three (3) months after the termination of your Continuous Status as an
Employee, Director or Consultant with the Company or an Affiliate of the
Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your disability. This option will then expire
on the earlier of the Expiration Date set forth above or twelve (12) months
following such termination of Continuous Status as an Employee, Director or
Consultant.
(b) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your death occurs within three
(3) months following your termination of Continuous Status as an Employee,
Director or Consultant for any other reason. This option will then expire on
the earlier of the Expiration Date set forth above or eighteen (18) months
after your death.
(c) If during any part of such three (3) month period you
may not exercise your option solely because of the condition set forth in
paragraph 5 above, then your option will
2.
<PAGE> 31
not expire until the earlier of the Expiration Date set forth above or until
this option shall have been exercisable for an aggregate period of three (3)
months after your termination of Continuous Status as an Employee, Director or
Consultant.
(d) If your exercise of the option within three (3)
months after termination of your Continuous Status as an Employee, Director or
Consultant with the Company or with an Affiliate of the Company would result in
liability under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), then your option will expire on the earlier of
(i) the Expiration Date set forth above, (ii) the tenth (10th) day after the
last date upon which exercise would result in such liability or (iii) six (6)
months and ten (10) days after the termination of your Continuous Status as an
Employee, Director or Consultant with the Company or an Affiliate of the
Company.
However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions
of paragraph 2 of this option.
7. EXERCISE.
(a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to subsection 6(f) of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion
of any exercise of this option, the Company may require you to enter an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
this option; (2) the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise; or (3) the disposition of shares
acquired upon such exercise. You also agree that any exercise of this option
has not been completed and that the Company is under no obligation to issue any
Common Stock to you until such an arrangement is established or the Company's
tax withholding obligations are satisfied, as determined by the Company; and
(ii) the Company (or a representative of
the underwriters) may, in connection with the first underwritten registration
of the offering of any securities of the Company under the 1933 Act, require
that you not sell or otherwise transfer or dispose of any shares of Common
Stock or other securities of the Company during such period (not to exceed one
hundred eighty (180) days) following the effective date of the registration
statement of the Company filed under the 1933 Act as may be requested by the
Company or the representative of the underwriters. You further agree that the
Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
3.
<PAGE> 32
8. TRANSFERABILITY. This option is not transferable, except by
will or by the laws of descent and distribution, or pursuant to a qualified
domestic relations order satisfying the requirements of Rule 16b-3 of the
Exchange Act (a "QDRO"), and is exercisable during your life only by you or a
transferee pursuant to a QDRO. Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise this option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an
employment contract and nothing in this option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in this option shall obligate the Company or any Affiliate of
the Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt
or, in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
address specified below or at such other address as you hereafter designate by
written notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
_______________________________________
By_____________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
JT Storage, Inc. 1995 Stock Option Plan
Regulation 260.141.11
Notice of Exercise
4.
<PAGE> 33
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:
NONE _________________
(Initial)
OTHER ___________________________________________________
___________________________________________________
___________________________________________________
(c) Acknowledges receipt of a copy of Section 260.141.11 of Title
10 of the California Code of Regulations.
______________________________________
OPTIONEE
Address: _____________________________
_____________________________
5.
<PAGE> 1
EXHIBIT 10.2
JT STORAGE, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON MARCH 19, 1996
APPROVED BY STOCKHOLDERS ON ______________, 1996
1. PURPOSE.
(a) The purpose of the 1996 Non-Employee Directors' Stock Option
Plan (the "Plan") is to provide a means by which each director of JT Storage,
Inc. (the "Company") who is not otherwise at the time of grant an employee of
or consultant to the Company or of any Affiliate of the Company (each such
person being hereafter referred to as a "Non-Employee Director") will be given
an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now serving as Non-Employee Directors of the Company, to
secure and retain the services of persons capable of serving in such capacity,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of
the Company (the "Board") unless and until the Board delegates administration
to a committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated
1.
<PAGE> 2
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may
be adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate five hundred
thousand (500,000) shares of the Company's common stock. If any option granted
under the Plan shall for any reason expire or otherwise terminate without
having been exercised in full, the stock not purchased under such option shall
again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the
Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who, after the date of adoption of the Plan by the
Board (the "Adoption Date"), is elected by the Board or the stockholders of the
Company for the first time to be a Non-Employee Director (other than (i) a
compensated Chairman of the Board) or (ii) any person appointed to the Board in
connection with the merger of Atari Corporation ("Atari") and the Company
pursuant to the Amended and Restated Agreement and Plan of Reorganization dated
April 8, 1996 between the Company and Atari (the "Merger
2.
<PAGE> 3
Agreement")) shall automatically be granted, on the date of such initial
election, an option to purchase fifty thousand (50,000) shares of common stock
of the Company on the terms and conditions set forth herein.
(b) Each person who, is either (i) a Non-Employee Director (other
than a compensated Chairman of the Board) on the Adoption Date or (ii) first
appointed to the Board in connection with the merger of Atari and the Company
pursuant to the Merger Agreement, and who is re-elected as a Non-Employee
Director at or after the 1998 annual meeting of stockholders shall
automatically be granted, on the date of such re-election, an option to
purchase fifty thousand (50,000) shares of common stock of the Company on the
terms and conditions set forth herein. No more than one grant shall be made
under this subparagraph 5(b) to any individual Non-Employee Director.
(c) Each person who, after the date of his or her initial election
or re-election to the Board as described in subparagraph 5(a) or 5(b), is a
Non-Employee Director (other than a compensated Chairman of the Board) on the
date any and all previously granted Company options, Company stock purchases or
other similar rights to acquire stock of the Company, pursuant to the Plan or
otherwise, have become fully vested shall automatically be granted, on the date
of such full vesting, an option to purchase fifty thousand (50,000) shares of
common stock of the Company on the terms and conditions set forth herein. The
persons receiving grants under this subparagraph 5(c) shall include a Non-
Employee Director who was a compensated Chairman of the Board at the time of
his or her initial election or re-election as described above but is not
serving as such on the applicable date of full vesting.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted
and, unless sooner terminated as set forth herein, expires on the date
("Expiration Date") ten (10) years from the date of grant. If the optionee's
service as a Non-Employee Director or employee of or consultant to the Company
or any Affiliate terminates for any reason or for no reason, the option shall
terminate on the earlier of the Expiration Date or the date twelve (12) months
following
3.
<PAGE> 4
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable as of
the date of termination of all such service under the provisions of
subparagraph 6(e).
(b) The exercise price of each option shall be equal to one
hundred percent (100%) of the Fair Market Value of the stock (as such term is
defined in subsection 9(e)) subject to such option on the date such option is
granted.
(c) The optionee may elect to make payment of the exercise price
under one of the following alternatives:
(i) Payment of the exercise price per share in
cash at the time of exercise; or
(ii) Provided that at the time of the exercise the
Company's common stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of shares of common stock of the Company
already owned by the optionee, held for the period required to avoid a charge
to the Company's reported earnings, and owned free and clear of any liens,
claims, encumbrances or security interest, which common stock shall be valued
at its Fair Market Value on the date preceding the date of exercise; or
(iii) Payment by a combination of the methods of
payment specified in subparagraph 6(c)(i) and 6(c)(ii) above.
4.
<PAGE> 5
Notwithstanding the foregoing, this option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company either
prior to the issuance of shares of the Company's common stock or pursuant to
the terms of irrevocable instructions issued by the optionee prior to the
issuance of shares of the Company's common stock.
(d) An option shall not be transferable except by will or by the
laws of descent and distribution, or pursuant to a qualified domestic relations
order satisfying the requirements of Rule 16b-3 under the Securities Exchange
Act of 1934 ("Rule 16b-3") and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person (or by his guardian or
legal representative) or transferee pursuant to such an order. Notwithstanding
the foregoing, the optionee may, by delivering written notice to the Company in
a form satisfactory to the Company, designate a third party who, in the event
of the death of the optionee, shall thereafter be entitled to exercise the
option.
(e) The option shall become exercisable over a period of two (2)
years from the date of grant in equal annual installments, commencing on the
date one (1) year after the date of grant of the option, provided that the
optionee has, during the entire period prior to such vesting installment date,
continuously served as a Non-Employee Director or employee of or consultant to
the Company or any Affiliate of the Company, whereupon such option shall become
fully exercisable in accordance with its terms with respect to that portion of
the shares represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience
5.
<PAGE> 6
in financial and business matters; and (ii) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. These requirements,
and any assurances given pursuant to such requirements, shall be inoperative if
(i) the issuance of the shares upon the exercise of the option has been
registered under a then currently-effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may require any optionee to provide such other
representations, written assurances or information which the Company shall
determine is necessary, desirable or appropriate to comply with applicable
securities laws as a condition of granting an option to the optionee or
permitting the optionee to exercise the option. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
6.
<PAGE> 7
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option
granted under the Plan, or any stock issued or issuable pursuant to any such
option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant
thereto shall confer upon any Non-Employee Director any right to continue in
the service of the Company or any Affiliate in any capacity or shall affect any
right of the Company, its Board or stockholders or
7.
<PAGE> 8
any Affiliate, to remove any Non-Employee Director pursuant to the Company's
Bylaws and the provisions of the Delaware General Corporation Law.
(c) No Non-Employee Director, individually or as a member of a
group, and no beneficiary or other person claiming under or through him, shall
have any right, title or interest in or to any option reserved for the purposes
of the Plan except as to such shares of common stock, if any, as shall have
been reserved for him pursuant to an option granted to him.
(d) In connection with each option made pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or transfer
shares to a Non-Employee Director, or to evidence the removal of any
restrictions on transfer, that such Non-Employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal, state or
local withholding tax required to be withheld with respect to such sale or
transfer, or such removal or lapse, is made available to the Company for timely
payment of such tax.
(e) As used in this Plan, "Fair Market Value" means, as of any
date, the value of the common stock of the Company 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 of the Nasdaq Stock Market, 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 Nasdaq Stock
Market (but not on the National Market thereof) or is regularly quoted by a
recognized securities dealer but
8.
<PAGE> 9
selling prices are not reported, the Fair Market Value of a share of common
stock shall be the mean between the bid and 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;
(iii) In the absence of an established market for
the common stock, the Fair Market Value shall be determined in good faith by
the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board,
the determination of which shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of
all or substantially all of the assets of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation; (3) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity or
group within the meaning of Section
9.
<PAGE> 10
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
Affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then to
the extent not prohibited by applicable law, the time during which options
outstanding under the Plan may be exercised shall be accelerated prior to such
event and the options terminated if not exercised after such acceleration and
at or prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan and/or some or all outstanding options granted under the Plan, provided,
however, that the Board shall not amend the Plan more than once every six (6)
months, with respect to the provisions of the Plan which relate to the amount,
price and timing of grants, other than to comport with changes in the Code or
the regulations thereunder. Except as provided in paragraph 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares which may be
issued under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to comply with the requirements of Rule 16b-3);
or
10.
<PAGE> 11
(iii) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to comply with
the requirements of Rule 16b-3.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on March 18, 2006. No
options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any option granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the
events described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors of the Company.
(b) No option granted under the Plan shall be exercised or become
exercisable unless and until the Plan is approved by the stockholders of the
Company.
11.
<PAGE> 12
JT STORAGE, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
___________________________________________, Optionee:
On __________________, 19___, an option was automatically granted to
you (the "optionee") pursuant to the JT Storage, Inc. (the "Company") 1996
Non-Employee Directors' Stock Option Plan (the "Plan") to purchase shares of
the Company's common stock ("Common Stock"). This option is not intended to
qualify and will not be treated as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for Non-Employee Directors (as defined in
the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this
option is fifty thousand (50,000).
2. The exercise price of this option is
______________________________ ($________) per share, such amount being equal
to the Fair Market Value (as defined in the Plan) of the Common Stock on the
date of grant of this option.
3. Subject to the limitations contained herein, this option shall
become exercisable (i.e., vest) in two (2) equal annual installments with the
first installment becoming exercisable one (1) year after the grant date;
provided however, that you have, during the period from the grant date to such
vesting date, continuously served as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate (as defined in the Plan), whereupon
this option shall become fully exercisable with respect to that portion of the
shares represented by that installment. Notwithstanding the foregoing, this
option shall not be exercisable in whole or in part unless and until the Plan
has been approved by the Company's stockholders.
4. (a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to Section 6 of the Plan. This option may not be exercised for any
number of shares which would require the issuance of anything other than whole
shares.
(b) You may elect to pay the exercise price under one of
the following alternatives:
(i) Payment of the exercise price per share in
cash at the time of exercise;
1.
<PAGE> 13
(ii) Provided that at the time of the exercise the
Common Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of shares of Common Stock already owned by you,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interest, which Common Stock shall be valued at its Fair Market Value
on the date preceding the date of exercise; or
(iii) Payment by a combination of the methods of
payment specified in subparagraphs (i) and (ii) above.
Notwithstanding the foregoing, this option may be exercised
pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board which results in the receipt of cash (or check) by the
Company either prior to the issuance of shares of the Common Stock or pursuant
to the terms of irrevocable instructions issued by you prior to the issuance of
shares of the Common Stock.
(c) By exercising this option you agree that the Company
may require you to enter an arrangement providing for the cash payment by you
to the Company of any tax withholding obligation of the Company arising by
reason of the exercise of this option.
5. The term of this option is ten (10) years measured from the
grant date, subject, however, to earlier termination upon your termination of
service, as set forth in Section 6 of the Plan.
6. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
7. This option is subject to all the provisions of the Plan, a
copy of which is attached hereto and its provisions are hereby made a part of
this option, including without limitation the provisions of Section 6 of the
Plan relating to option provisions, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of this option and those of the Plan, the provisions of
the Plan shall control.
Dated the _______ day of __________________________________, 19__.
Very truly yours,
JT Storage, Inc.
By:____________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
1996 Non-Employee Directors' Stock Option Plan
2.
<PAGE> 14
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of Common Stock in the
Company and supersedes all prior oral and written agreements on that subject
with the exception of (i) the options and any other stock awards previously
granted and delivered to the undersigned under stock award plans of the
Company, and (ii) the following agreements only:
NONE: ____________________________________________
(Initial)
OTHER: ____________________________________________
____________________________________________
____________________________________________
______________________________________________
Optionee
______________________________________________
Address
______________________________________________
______________________________________________
3.
<PAGE> 1
Exhibit 10.3
PUTNAM STREAMLINED STANDARD 401(k) AND PROFIT SHARING PLAN
PLAN AGREEMENT #001
By executing this Plan Agreement, the Employer establishes a 401(k) and profit
sharing plan and trust upon the terms and conditions of Putnam Basic Plan
Document #06, as supplemented and modified by the provisions elected by the
Employer in this Plan Agreement. Please consult a tax or legal advisor and
review this entire form before you sign it. If you fail to fill out this Putnam
Plan Agreement properly, the Plan may be disqualified. THIS PLAN AGREEMENT MUST
BE ACCEPTED BY PUTNAM IN ORDER FOR THE EMPLOYER TO RECEIVE FUTURE AMENDMENTS TO
THE PUTNAM STREAMLINED STANDARD 401(k) AND PROFIT SHARING PLAN.
* * * * *
1. Employer Information. The Employer adopting this Plan is:
A. Employer Name: JT STORAGE, INC.
B. Employer Identification Number: 77-0364572
C. Employer Address: 166 BAYPOINTE PARKWAY
SAN JOSE, CA 95134
D. SIC Code: _______
E. Employer Contact: Name: MARGARET CAREY
Title: MGR/HR Phone #: 408-468-1701
F. Fiscal Year: February 1st through January 31st
------------ ------------
(month/day) (month/day)
G. Type of Entity (check one):
X Corporation Partnership Subchapter S Corporation
--- --- ---
Sole proprietorship Other
--- --- ---------------------------
H. Plan Name: JTS CORPORATION EMPLOYEE 401(k) SAVINGS PLAN
I. Plan Number: 001
-1-
<PAGE> 2
2. Plan Information
A. Plan Year. Check one:
X (1) The Calendar Year
-----
(2) The Plan Year will be the same as the Fiscal Year
----- of the Employer shown in 1.F. above. If the Fiscal
Year of the Employer changes, the Plan Year will
change accordingly.
(3) The Plan Year will be the period of 12 months
----- beginning on the first day of ________ (month) and
ending on the last day of ________________ (month).
B. Effective Date of Adoption of Plan.
(1) Are you adopting this Plan to replace an existing plan?
a. Yes X b. No
----- -----
(2) If you answered Yes in 2.B.(1) above, please complete
the following:
a. Effective Date of Existing Plan: ______________.
b. Effective Date of Replacement Plan:
_____ (i) The first day of the Plan Year in which
this Replacement Plan is adopted.
_____ (ii) The day as of which this Replacement Plan
is adopted.
If you answered No in 2.B.(1) above, the Effective Date of your
adoption of this Plan will be the first day of the current Plan
Year.
3. Eligibility for Plan Participation (Plan Section 3.1). Employees will
be eligible to participate in the Plan when they complete the
requirements you select in A, B, C and D below.
A. Classes of Eligible Employees. The Plan shall cover all
employees who have met the age and service requirements with
the following exclusions:
X (1) No exclusions. All job classifications will be
----- eligible.
X (2) The Plan shall exclude employees in a unit of
----- Employees covered by a collective bargaining
agreement with respect to which retirement
benefits were the subject of good faith
bargaining, with the exception of the following
collective bargaining units, which shall be
included: _________________.
X (3) The Plan shall exclude employees who are
----- non-resident aliens without U.S. source income.
2
<PAGE> 3
B. Age Requirement (check and complete (1) or (2) below):
X (1) No minimum age required for participation
-----
(2) Employees must reach age 21 (not over 21) to
----- participate
C. Service Requirements.
To become eligible, an employee must complete (choose one):
(1) No minimum service required. Skip to 4.A below.
-----
(2) One 6-month Eligibility Period
-----
(3) One 12-month Eligibility Period
-----
X (4) One 3-month Eligibility Period (must be less than
----- 12)
D. (For New Plans Only) Will all eligible Employees be required
to meet the age and service requirements specified in B and C
above?
X (1) Yes
-----
(2) No; all Employees who meet the age requirement on
----- the Effective Date will be eligible as of the
Effective Date, even if they have not met the
service requirements.
4. Contributions
A. Elective Deferrals (Plan Section 4.2).
Your Plan will allow employees to elect pre-tax contributions
under Section 401(k) of the Code. Indicate below the maximum
percentage of Earnings that a Participant may elect as Elective
Deferrals for each year:
15% of Earnings
3
<PAGE> 4
B. Employer Matching Contributions (Plan Section 4.8).
Will you make matching contributions to the Plan?
(1) No
-----
X (2) Yes (if Yes, check a or b)
-----
X a. discretionary matching contributions
-----
b. fixed matching contributions (check and
----- complete i, ii or iii)
(i) ___% of Elective Deferrals
-----
(ii) ___% of Elective Deferrals that
----- do not exceed ___% of Earnings
(iii) ___% of Elective Deferrals that
----- do not exceed $________
C. Employer Profit Sharing Contributions (Plan Section 5.1). Will
you make Employer Profit Sharing Contributions to the Plan?
X (1) Yes (2) No
----- -----
5. Top-Heavy Minimum Contributions (Plan Section 14.3). Skip paragraphs A
and B below if you do not maintain any other qualified plan that is not
being replaced by this Plan.
A. For any Plan Year in which the Plan is Top-Heavy, the Top-Heavy
minimum contribution (or benefit) for Non-Key Employees
participating both in this Plan and another qualified plan
maintained by the Employer will be provided in (check (1)
or (2)):
(1) This Plan (2) The other qualified plan
----- -----
B. If you maintain a defined benefit plan in addition to this
Plan, and the Top-Heavy Ratio (as defined in Plan Section
14.2(c)) for the combined plans is between 60% and 90%, you may
elect to provide an increased minimum allocation or benefit
pursuant to Plan Section 14.4. Specify your election by
completing the statement below:
The employer will provide and increased (specify contribution
or benefit) __________________________________________in its
(specify defined contribution or defined benefit ____________
plan as permitted under Plan Section 14.4.
4
<PAGE> 5
6. Other Plans. You must complete this section if you maintain or ever
maintained a defined benefit plan in which any Participant in this Plan
is (or was) a participant or could become a participant. If a
Participant in the Plan is or has ever been a participant in a defined
benefit plan maintained by you, the plans will meet the limits of
Article 6 in the manner you describe below:
---------------------------------------------------------------
---------------------------------------------------------------
If you have ever maintained a defined benefit plan, state below
the interest rate and mortality table to be used in
establishing the present value of any benefit under the defined
benefit plan for purposes of computing the top-heavy ratio:
Interest rate: %___________________
Mortality Table: ___________________
7. Compensation (Plan Section 2.7).
Compensation for purposes of the Plan will be the amount of the
following that is actually paid by your Business to an employee during
the Plan Year (check (1) or (2)):
(1) Form W-2 earnings as defined in Section 2.7 of the Plan.
-----
X (2) Form W-2 earnings as defined in Section 2.7 of the Plan, plus
----- any amounts withheld from the employee under a 401(k) plan,
cafeteria plan, SARSEP, tax sheltered 403(b) arrangement, or
Code Section 457 deferred compensation plan, and
contributions described in Code Section 414(h)(2) that are
picked up by a governmental employer.
8. Distributions and Withdrawals.
A. Retirement Distributions.
1. Normal Retirement Age (Plan Section 7.1). Normal
retirement age will be 65 (not over age 65).
2. Early Retirement (Plan Section 7.1). Select one:
X a. No Early Retirement will be permitted.
-----
b. Early Retirement will be permitted at age 55.
-----
c. Early Retirement will be permitted at age
----- ___ with at least ________ Years of Service.
5
<PAGE> 6
3. Annuities (Plan Section 9.3). This Plan will permit
distributions in the form of a life annuity only if this
Plan replaces or serves as a transferee plan for an
existing Plan that permits distributions in a life
annuity form.
Did your prior plan offer a life annuity form of
distribution?
a. Yes b. No
---- ----
B. Hardship Distributions (Plan Section 12.2). Will your Plan
permit hardship distributions?
(1) No
----
X (2) Yes. Indicate below from which Accounts hardship
---- withdrawals will be permitted:
X a. Elective Deferral Account
-----
X b. Rollover Account
-----
c. Employer Matching Account
-----
d. Employer Profit Sharing Account
-----
C. Loans. (Plan Section 12.4). Will your Plan permit loans to
employees from the vested portion of all their Accounts?
X (1) Yes (2) No
----- -----
9. Vesting (Plan Article 8).
A. Time of Vesting (select (1) or (2) below and complete vesting
schedule).
X (1) Single Vesting Schedule:
----
The vesting schedule selected below will apply to both
Employer Matching Contributions and Employer Profit
Sharing Contributions.
(2) Dual Vesting Schedules:
----
The vesting schedule marked with an "MC" below will
apply to Employer Matching Contributions and the
vesting schedule marked with a "PS" below will apply
to Employer Profit Sharing Contributions.
6
<PAGE> 7
(3) Vesting Schedules:
X a. 100% vesting immediately upon participation
----- in the Plan.
b. Five-Year Graded Schedule:
-----
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 1 2 3 4 5
c. Six-Year Graded Schedule:
-----
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 2 3 4 5 6
d. Seven-Year Graded Schedule:
-----
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 3 4 5 6 7
e. Three-Year Cliff Schedule:
-----
Vested Percentage 0% 100%
--- ----
Years of Service 0-2 3
f. Five-Year Cliff Schedule:
-----
Vested Percentage 0% 100%
--- ----
Years of Service 0-4 5
g. Other Schedule (must be at least as favorable
----- as Seven-Year Graded Schedule or Five-Year
Cliff Schedule):
(i) Vested Percentage __% __% __% __% __%
(ii) Years of Service
--- --- --- --- ---
7
<PAGE> 8
(4) Top Heavy Schedule:
If you selected above an "Other Schedule," specify in the
space below the schedule that will apply after the Plan
is top-heavy. The schedule you specify must be at least
as favorable to employees, at all years of service, as
either the Six-Year Graded Schedule or the Three-Year
Cliff Schedule. The top-heavy vesting schedule will be:
(i) the same "Other Schedule" selected above
----
(ii) the following schedule.
----
(i) Vested Percentage __% __% __% __% __%
(ii) Years of Service
--- --- --- --- ---
(iii) Six-Year Graded Schedule
----
(iv) Three-Year Cliff Schedule
----
B. Service for Vesting (select (1) or (2)).
X (1) All of an employee's service will be used to determine his
---- Years of Service for purposes of vesting
(2) An employee's Years of Service for vesting will include
---- all years except:
--- a. (New plan) service before the effective date of the
plan
--- b. (Existing plan) service before the effective date of
the existing plan
10. Investments (Plan Sections 12.2 and 13.3).
A. Available Investment Products (Plan Section 13.2). The investment
options available under the Plan are identified in the Service
Agreement or such other written instructions between the Employer
and Putnam, as the case may be. All Investment Products must be
sponsored, underwritten, managed or expressly agreed to in writing
by Putnam. If there is any amount in the Trust Fund for which no
instructions or unclear instructions are delivered, it will be
invested in the default option selected by the Employer in its
Service Agreement with Putnam until instructions are received in
good order, and the Employer will be deemed to have selected the
option indicated in its Service Agreement, or such other written
instruction as the case may be, as an available Investment Product
for that purpose.
8
<PAGE> 9
B. Employer Stock. (Skip this paragraph if you did not designate
Employer Stock as an investment under the Service Agreement.)
1. Voting. Employer Stock will be voted as follows:
a. In accordance with the Employer's
------- instructions.
b. In accordance with the Participant's
------- instructions. Participants are hereby
appointed named fiduciaries for the purpose
of the voting of Employer Stock in
accordance with Section 13.8.
2. Tendering. Employer stock will be tendered as follows:
a. In accordance with the Employer's
------- instructions.
b. In accordance with the Participant's
------- instructions. Participants are hereby
appointed named fiduciaries for the purpose
of the tendering of Employer Stock in
accordance with Section 13.8.
11. Administration.
Plan Administrator (Plan Section 15.1). You may appoint a person or a
committee to serve as Plan Administrator. If you do not appoint a Plan
Administrator, the Plan provides that the Employer will be the Plan
Administrator. The initial Plan Administrator will be (check one):
X (1) This person: JT STORAGE, INC.
-------
(2) A committee composed of these people:
-------
-----------------------------------------
-----------------------------------------
-----------------------------------------
12. Reliance on Opinion Letter. If you ever maintained or you later adopt
any plan in addition to this Plan (including a welfare benefit fund, as
defined in Section 419(e) of the Code, which provides post-retirement
medical benefits allocated to separate accounts for key employees, as
defined in Section 419A(d)(3) of the Code; or an individual medical
account, as defined in Section 415(1)(2) of the Code), you may not rely
on an opinion letter issued to Putnam by the National Office of the
Internal Revenue Service as evidence that the Plan is qualified under
Section 401 of the Internal Revenue Code. If you maintain or adopt
multiple plans, in order to obtain reliance with respect to plan
qualification of the Plan, you must receive a determination letter from
the appropriate Key District Office of Internal Revenue. Putnam will
prepare an application for such a letter upon your request at a fee
agreed upon by the parties. It is the responsibility of the Employer to
ascertain whether a determination letter is required with respect to
qualification of the Plan and to request Putnam to prepare the
application for such determination letter if such service is desired.
Putnam will inform you of all amendments it makes to the prototype plan.
Putnam will also inform you if it discontinues or abandons the prototype
plan. This Plan Agreement #001 may be used only in conjunction with
Putnam's Basic Plan Document #06.
9
<PAGE> 10
* * * * *
If you have any questions regarding this Plan Agreement, contact
Putnam at:
Putnam Defined Contribution Plans
One Putnam Place B2B
859 Willard Street
Quincy, MA 02269
Phone: 1-800-752-5766
10
<PAGE> 11
* * * * *
EMPLOYER'S ADOPTION OF
PUTNAM STREAMLINED STANDARD 401(k) AND
PROFIT SHARING PLAN
The Employer named below hereby adopts a PUTNAM STREAMLINED STANDARD 401(k) AND
PROFIT SHARING PLAN, and appoints PUTNAM FIDUCIARY TRUST COMPANY to serve as
Trustee of the Plan. The Employer acknowledges that it has received copies of
the current prospectus for each Investment Product available under the Plan,
and represents that it will deliver copies of the then current prospectus for
each such Investment Product to each Participant before each occasion on which
the Participant makes an investment instruction as to his Account. The
Employer further acknowledges that the Plan will be recognized by Putnam as a
Putnam Streamlined Standard 401(k) and Profit Sharing Plan only upon Putnam's
acceptance of this Plan Agreement.
Investment Options
The Employer hereby elects the following as the investment options available
under the Plan:
PUTNAM MONEY MARKET FUND PUTNAM NEW OPPORTUNITIES FUND
PUTNAM DIVERSIFIED INCOME TRUST PUTNAM OVERSEAS GROWTH FUND
PUTNAM GROWTH AND INCOME FUND II PUTNAM VISTA FUND
The following investment option shall be the default option: PUTNAM MONEY
MARKET FUND (select the default option from among the investment options
listed above).
Employer Signature
Employer signature(s) to adopt Plan: Date of signature:
/s/ W. VIRGINIA WALKER 1/22/96
- ------------------------------------------- ---------------------
- ------------------------------------------- ---------------------
Please print name(s) of authorized person(s) signing above:
W. Virginia Walker
- -------------------------------------------
- -------------------------------------------
A new Plan Agreement must be signed by the last day of the Plan Year in which
the Plan is to be effective.
11
<PAGE> 12
* * * * *
ACCEPTANCE OF PUTNAM FIDUCIARY TRUST COMPANY
AS TRUSTEE
The Trustee accepts appointment in accordance with the terms and conditions of
the Plan, effective as of the date of execution by the Employer set forth above.
Putnam Fiduciary Trust Company, Trustee
By:
----------------------------------------------------------------------------
12
<PAGE> 13
* * * * *
ACCEPTANCE BY PUTNAM
Putnam hereby accepts this Employer's Plan as a prototype established under
Putnam Basic Plan Document #06.
Putnam Mutual Funds Corp.
By:
-----------------------------------
13
<PAGE> 14
* * * * *
ACCEPTANCE OF OTHER TRUSTEE
Complete this part only if you have appointed a Trustee other than Putnam
Fiduciary Trust Company. (Note: You may appoint a trustee other than Putnam
Fiduciary Trust Company only with Putnam's express permission.) Note: Putnam
may impose an annual maintenance fee as a condition of its acceptance of this
plan as a Putnam Streamlined Standard 401(k) and Profit Sharing Plan.
, Trustee
- ----------------------------
By: Trustee's Tax I.D. Number
--------------------------- ----------------
(Trustee)
- --------------------------------------------------------------------------
Address of Trustee
Person for Putnam to Contact: Telephone:
------------------ ----------------
14
<PAGE> 15
PUTNAM BASIC PLAN DOCUMENT #06
<PAGE> 16
PUTNAM BASIC PLAN DOCUMENT #06
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Affiliated Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3. Authorized Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5. CODA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6. Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8. Date of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9. Deductible Employee Contribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10. Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11. Disabled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.12. Earned Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13. Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.15. Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.16. Elective Deferral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.17. Eligibility Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18. Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.19. Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.20. Employer Matching Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.21. Employer Matching Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.22. Employer Profit Sharing Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.23. Employer Profit Sharing Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.24. Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.25. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.26. Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.27. Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.28. Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.29. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.30. Investment Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.31. Investment Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.32. Leased Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.33. Non-Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.34. One-Year Eligibility Break . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
-i-
<PAGE> 17
<TABLE>
<S> <C> <C>
2.35. One-Year Vesting Break . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.36. Owner-Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.37. Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.38. Participant Contribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.39. Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.40. Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.41. Plan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.42. Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.43. Putnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.44. Qualified Domestic Relations Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.45. Qualified Matching Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.46. Qualified Matching Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.47. Qualified Nonelective Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.48. Qualified Nonelective Contribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.49. Qualified Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.50. Recordkeeper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.51. Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.52. Rollover Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.53. Self-Employed Individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.54. Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.55. Shareholder-Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.56. Trust and Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.57. Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.58. Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.59. Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3. PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3. 1. Initial Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2. Resumed Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3. Benefits for Owner-Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4. Changes in Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 4. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401(k)
(CODA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1. General Provisions Applicable to Contributions Under Both Articles 4 and 5 . . . . . . . . . . . 17
4.2. CODA Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3. Annual Limit on Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4. Distribution of Certain Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5. Satisfaction of ADP and ACP Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6. Actual Deferral Percentage Test Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7. Distribution of Excess Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8. Employer Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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4.9. Average Contribution Percentage Test Limit and Aggregate Limit . . . . . . . . . . . . . . . . . 23
4.10. Distribution of Excess Aggregate Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.11. Qualified Nonelective Contributions; Qualified Matching
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.12. Restriction on Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.13. Forfeitures of Employer Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.14. Special Effective Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 5. OTHER CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5. 1. Employer Profit Sharing Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.2. Forfeitures of Employer Profit Sharing Contributions . . . . . . . . . . . . . . . . . . . . . . 28
5.3. Rollover Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.4. No After-Tax Participant Contributions or Deductible Employee
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 6. LIMITATIONS ON ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6. 1. No Additional Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2. Additional Master or Prototype Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3. Additional Non-Master- or Non-Prototype Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4. Additional Defined Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.5. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 7. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7. 1. Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.2. Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.3. Other Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 8. VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.1. Vested Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.2. Vesting of Accounts of Returned Former Employees . . . . . . . . . . . . . . . . . . . . . . . . 37
8.3. Forfeiture of Non-Vested Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.4. Special Rule in the Event of a Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.5. Vesting Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 9. PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1. Distribution of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2. Restriction on Immediate Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3. Optional Forms of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4. Distribution Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5. Lost Distributee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6. Direct Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.7. Distributions Required by a Qualified Domestic Relations Order . . . . . . . . . . . . . . . . . 43
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ARTICLE 10. JOINT AND SURVIVOR ANNUITY REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.2. Qualified Joint and Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.3. Qualified Preretirement Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.4. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.5. Notice Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.6. Transitional Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 11. MINIMUM DISTRIBUTION REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.1. General Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.2. Required Beginning Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.3. Limits on Distribution Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.4. Determination of Amount to Be Distributed Each Year . . . . . . . . . . . . . . . . . . . . . . 53
11.5. Death Distribution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.6. Transitional Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE 12. WITHDRAWALS AND LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.1. Withdrawals from Participant Contribution Accounts . . . . . . . . . . . . . . . . . . . . . . . 57
12.2. Withdrawals on Account of Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.3. Withdrawals After Reaching Age 59 1/2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.4. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.5. Procedure; Amount Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.6. Protected Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.7. Restrictions Concerning Transferred Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 13. TRUST FUND AND INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.1. Establishment of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.2. Management of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.3. Investment Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.4. Valuation of the Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.5. Distributions on Investment Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.6. Registration and Voting of Investment Company Shares . . . . . . . . . . . . . . . . . . . . . . 65
13.7. Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.8. Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.9. Insurance Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
13.10. Registration and Voting of Non-Putnam Investment Company
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 14. TOP-HEAVY PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
14.1. Superseding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
14.2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
14.3. Minimum Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
14.4. Adjustment of Fractions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
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14.5. Minimum Vesting Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE 15. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
15.1. Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
15.2. Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
15.3. Employer's Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
15.4. Recordkeeper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
15.5. Prototype Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE 16. TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
16.1. Powers and Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
16-2. Limitation of Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
16.3. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
16.4. Reliance on Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
16.5. Action Without Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
16.6. Advice of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
16.7. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
16.8. Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
16.9. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
16.10. Persons Dealing with Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
16.11. Resignation and Removal; Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
16.12. Action of Trustee Following Resignation or Removal . . . . . . . . . . . . . . . . . . . . . . . 82
16.13. Effect of Resignation or Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
16.14. Fiscal Year of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
16.15. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
16.16. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE 17. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
17.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
17.2. Delegation of Amendment Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE 18. TERMINATION OF THE PLAN AND TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
18.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
18.2. Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
18.3. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
18.4. Approval of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE 19. TRANSFERS TO OR FROM OTHER QUALIFIED PLANS;
MERGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
19.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
19.2. Amounts Transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
19.3. Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
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ARTICLE 20. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.1. Notice of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.2. No Employment Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.3. Distributions Exclusively From Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.4. No Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.5. Provision of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.6. No Prohibited Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
20.8. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
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PUTNAM BASIC PLAN DOCUMENT #06
ARTICLE 1. INTRODUCTION
By executing the Plan Agreement, the Employer has established a
retirement plan (the "Plan") according to the terms and conditions of the Plan
Agreement and this Putnam Basic Plan Document #06, for the purpose of providing
a retirement fund for the benefit of Participants and Beneficiaries. A Plan
established hereunder pursuant to a Plan Agreement is intended to qualify under
section 401 (a) and section 401(k) of the Code.
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ARTICLE 2. DEFINITIONS
The terms defined in Sections 2.1 through 2.59 appear generally
throughout the document. Article 4 contain additional definitions of terms
related to the cash or deferred arrangement (CODA) contained in this Plan and
Section 10.4 contains additional definitions related to distributions from the
Plan. Articles 6 and 11 contain additional definitions of terms used only in
those Articles.
2.1. Account means any of, and Accounts means all of, a
Participant's Elective Deferral Account, Employer Matching Account, Qualified
Nonelective Contribution Account, Qualified Matching Account, Employer Profit
Sharing Account, Participant Contribution Account, Rollover Account, and
Deductible Employee Contribution Account.
2.2. Affiliated Employer for purposes of the Plan other than
Article 6, means the Employer and a trade or business, whether or not
incorporated, which is any of the following:
(a) A member of a group of controlled corporations
(within the meaning of Section 414(b) of the Code) which includes the
Employer; or
(b) A trade or business under common control (within the
meaning of Section 414(c) of the Code) with the Employer; or
(c) A member of an affiliated service group (within the
meaning of Section 414(m) of the Code) which includes the Employer; or
(d) An entity otherwise required to be aggregated with
the Employer pursuant to Section 414(o) of the Code.
In determining an Employee's service for vesting and for eligibility
to participate in the Plan, all employment with Affiliated Employers will be
treated as employment by the Employer.
For purposes of Article 6 only, the definitions in paragraphs (a) and
(b) of this Section 2.2 shall be modified by adding at the conclusion of the
parenthetical phrase in each such paragraph the words "as modified by Section
415(h) of the Code."
2.3. Authorized Leave of Absence means a leave of absence from
employment granted in writing by an Affiliated Employer. Authorized Leave of
Absence shall be granted on account of military service for any period during
which an Employee's right to re-employment is guaranteed by law, and for such
other reasons and periods as an Affiliated Employer shall consider proper,
provided that Employees in similar situations shall be similarly treated.
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2.4. Beneficiary means a person entitled to receive benefits under
the Plan upon the death of a Participant, in accordance with Section 7.2 and
Articles 10 and 11
2.5. CODA means the cash or deferred arrangement that meets the
requirements of Section 401(k) of the Code, as described in Article 4.
2.6. Code means the Internal Revenue Code of 1986, as amended.
2.7. Compensation means all of an Employee's compensation
determined in accordance with the definition elected by the Employer in the
Plan Agreement. For purposes of that election, 'Form W-2 earnings" means
"wages" as defined in Section 3401 (a) of the Code in connection with income
tax withholding at the source, and all other compensation paid to the Employee
by the Employer in the course of its trade or business, for which the Employer
is required to furnish the Employee with a written statement under Sections
6041 (d), 6051(a)(3) and 6052 of the Code, determined without regard to
exclusions based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in Section 3401(a)(2)
of the Code). Compensation shall include only amounts actually paid to the
Employee during the Plan Year. In addition, if the Employer so elects in the
Plan Agreement, Compensation shall include any amount which is contributed to
an employee benefit plan for the Employee by the Employer pursuant to a salary
reduction agreement, and which is not includible in the gross income of the
Employee under Section 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code. (For
a self-employed person, the relevant term is Earned Income, as defined in
Section 2.12.)
2.8. Date of Employment means the first date on which an Employee
performs an Hour of Service; or, in the case of an Employee who has incurred
one or more One-Year Eligibility Breaks and who is treated as a new Employee
under the rules of Section 3.2, the first date on which he performs an Hour of
Service after his return to employment.
2.9. Deductible Employee Contribution Account means an account
maintained on the books of the Plan on behalf of a Participant, in which are
recorded amounts contributed by him to the Plan on a tax-deductible basis under
prior law, and the income, expenses, gains and losses thereon.
2.10. Deferral Agreement means an Employee's agreement to make one
or more Elective Deferrals in accordance with Section 4.2.
2.11. Disabled means unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less am 12 months. The
permanence and degree of such impairment shall be supported by medical
evidence.
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<PAGE> 25
2.12. Earned Income means a Self-Employed Individual's net earnings
from self-employment in the trade or business with respect to which the Plan is
established, excluding items not included in gross income and the deductions
allocable to such items, and reduced by (i) contributions by the Employer to
qualified plans, to the extent deductible under Section 404 of the Code, and
(ii) the deduction allowed to the taxpayer under Section 164(f) of the Code for
taxable years beginning after December 31, 1989.
2.13. Earnings, for determining all benefits provided under the Plan
for all Plan Years beginning after December 31, 1988, means the first $200,000
(as adjusted by the Secretary of the Treasury at the same time and in the same
manner as under Section 415(d) of the Code, except that the dollar increase
effective on any January 1 is effective for ALL Plan Years beginning in the
calendar year in which that January 1 occurs, and the first such dollar
increase is effective on January 1, 1990) of the sum of the Compensation and
the Earned Income received by an Employee during a Plan Year. Notwithstanding
the foregoing, for Plan Years beginning after December 31, 1993, Earnings means
the first $150,000 (as adjusted periodically by the Secretary of the Treasury
for inflation) of the sum of the Compensation and Earned Income received by an
Employee during a Plan Year. To calculate an allocation to a Participant's
Account for any Plan Year shorter than 12 months, the dollar limit on Earnings
must be multiplied by a fraction of which the denominator is 12 and the
numerator is the number of months in the Plan Year. In determining the
Earnings of a Participant, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying those rules the term "family" shall include only
the Participant's spouse and the Participant's lineal descendants who have not
reached age 19 by the last day of the Plan Year. If, as a result of the
application of such rules, the applicable Earnings limitation described above
is exceeded, then the limitation shall be prorated among the affected
individuals in proportion to each such individual's Earnings as determined
under this Section prior to the application of this limitation.
2.14. Effective Date means the first day of the Plan Year in which
the Plan is adopted, provided that, if the Employer is adopting the Plan as an
amendment to an existing plan, the Effective Date will be the date elected by
the Employer in the Plan Agreement, which date shall be no earlier than the
first day of the Plan Year in which the Plan is adopted. If the Plan Agreement
indicates that the Employer is adopting the Plan as an amendment of an existing
plan, the provisions of the existing plan apply to all events preceding the
Effective Date, except as to specific provisions of the Plan which set forth a
retroactive effective date in accordance with Section 1140 of the Tax Reform
Act of 1986.
2.15. Elective Deferral means any contribution made to the Plan by
the Employer at the election of a Participant, in lieu of cash compensation,
including contributions made pursuant to a Deferral Agreement or other deferral
mechanism.
2.16. Elective Deferral Account means an account maintained on the
books of the Plan, in which are recorded a Participant's Elective Deferrals and
the income, expenses, gains and losses incurred thereon.
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2.17. Eligibility Period means a period of service with the Employer
which an Employee is required to complete in order to commence participation in
the Plan. A 12-month Eligibility Period is a period of 12 consecutive months
beginning on an Employee's most recent Date of Employment or any anniversary
thereof, in which he is credited with at least 1,000 Hours of Service. A
6-month Eligibility Period is a period of 6 consecutive months beginning on an
Employee's most recent Date of Employment or any anniversary thereof, or on the
6-month anniversary of such Date of Employment or any anniversary thereof, in
which he is credited with at least 500 Hours of Service. If the Employer has
selected another period of service as the Eligibility Period under the Plan,
Eligibility Period means the period so designated in the Plan Agreement in
which the Employee is credited with a number of Hours of Service equal to the
product of 1,000 multiplied by a fraction having a numerator equal to the
number of months in the Eligibility Period designated in the Plan Agreement and
a denominator of 12. Notwithstanding the foregoing, if an Employee is credited
with 1,000 Hours of Service during a 12-consecutive-month period following his
Date of Employment or any anniversary thereof, he shall be credited with an
Eligibility Period. In the case of an Employee in a seasonal industry (as
defined under regulations prescribed by the Secretary of Labor) in which the
customary extent of employment during a calendar year is fewer than 1,000 Hours
of Service in the case of a 12-month Eligibility Period, the number specified
in any regulations prescribed by the Secretary of Labor dealing with years of
service shall be substituted for 1,000.
2.18. Employee means a common law Employee of an Affiliated
Employer; in the case of an Affiliated Employer which is a sole proprietorship,
the sole proprietor thereof, in the case of an Affiliated Employer which is a
partnership, a partner thereof, and a Leased Employee of an Affiliated
Employer. The term "Employee" includes an individual on Authorized Leave of
Absence, a Self-Employed Individual and an Owner-Employee.
2.19. Employer means the Employer named in the Plan Agreement and
any successor to all or the major portion of its assets or business which
assumes the obligations of the Employer under the Plan Agreement.
2.20. Employer Matching Account means an account maintained on the
books of the Plan, in which are recorded the Employer Matching Contributions
made on behalf of a Participant and the income, expenses, gains and losses
incurred thereon.
2.21. Employer Matching Contribution means a contribution made by
the Employer (i) to the Plan pursuant to Section 4.8, or (ii) to another
defined contribution plan on account of a Participant's "elective deferrals" or
"employee contributions," as those terms are used in Section 401(m)(4) of the
Code
2.22. Employer Profit Sharing Account means an account maintained on
the books of the Plan on behalf of a Participant, in which are recorded the
amounts allocated for his benefit
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<PAGE> 27
from contributions by the Employer under Section 5.1 and the income, expenses,
gains and losses incurred thereon.
2.23. Employer Profit Sharing Contribution means a contribution made
for the benefit of a Participant by the Employer pursuant to Section 5.1.
2.24. Employer Stock means securities constituting "qualifying
employer securities" of an Employer within the meaning of Section 407(d)(5) of
ERISA.
2.25. ERISA means the Employee Retirement Income Security Act of
1974, as amended.
2.26. Forfeiture means a nonvested amount forfeited by a former
Participant, pursuant to Section 8.3, or an amount forfeited by a former
Participant or Beneficiary who cannot be located, pursuant to Section 9.5.
2.27. Highly Compensated Employee means an Employee if (i) the
Employee is a 5 % owner during the Plan Year; (ii) the Employee's compensation
for the Plan Year exceeds $75,000 (as adjusted pursuant to Section 415(d) of
the Code); (iii) the Employee's compensation for the Plan Year exceeds $50,000
(as adjusted pursuant to Section 415(d) of the Code) and the Employee is in the
top-paid group of Employees; or (iv) the Employee is an officer of the Employer
and received compensation during the Plan Year that is greater than 50% of the
dollar limitation under Code Section 415(b)(1)(A).
The lookback provisions of Code Section 414(q) do not apply to
determining Highly Compensated Employees. An Employer may choose to apply this
test on the basis of the Employer's workforce as of a single day during the
Plan Year ("snapshot day"). In applying this test on a snapshot basis, the
Employer shall determine who is a Highly Compensated Employee on the basis of
the data as of the snapshot day. If the determination of who is a Highly
Compensated Employee is made earlier than the last day of the Plan Year, the
Employee's compensation that is used to determine an Employee's status must be
projected for the Plan Year under a reasonable method established by the
Employer.
Notwithstanding the foregoing, in addition to those Employees who are
determined to be highly compensated on the Plan's snapshot day, as described
above, where there are Employees who are not employed on the snapshot day but
who are taken into account for purposes of testing under Section 4.6 or 4.9,
the Employer must treat as a Highly Compensated Employee any Eligible Employee
for the Plan Year who:
(a) terminated prior to the snapshot day and was a Highly
Compensated Employee in the prior year;
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<PAGE> 28
(b) terminated prior to the snapshot day and was a 5 %
owner, (ii) had compensation for the Plan Year greater than or equal
to the projected compensation of any Employee who is treated as a
Highly Compensated Employee on the snapshot day (except for Employees
who are Highly Compensated Employees solely because they are 5 %
owners or officers), or (iii) was an officer and had compensation
greater than or equal to the projected compensation of any other
officer who is a Highly Compensated Employee on the snapshot day
solely because that person is an officer; or
(c) becomes employed subsequent to the snapshot day and
(i) is a 5 % owner, (ii) has compensation for the Plan Year greater
than or equal to the projected compensation of any Employee who is
treated as a Highly Compensated Employee on the snapshot day (except
for Employees who are Highly Compensated Employees solely because they
are 5 % owners or officers), or (iii) is an officer and has
compensation greater than or equal to the projected compensation of
any other officer who is a Highly Compensated Employee on the snapshot
day solely because that person is an officer.
If during a Plan Year an Employee is a family member of either a 5 %
owner who is an Employee, or a Highly Compensated Employee who is one of the
ten most highly paid Highly Compensated Employees ranked on the basis of
compensation paid by the Employees during the year, then the family member and
the 5 % owner or top-ten-Highly-Compensated-Employee shall be treated as a
single Employee receiving compensation and Plan contributions or benefits equal
to the sum of the compensation and contributions or benefits of the family
member and the 5 % owner or top-ten-Highly-Compensated-Employee. For purposes
of this Section 2.27, family members include the spouse, lineal ascendants and
descendants of the Employee and the spouses of such lineal ascendants and
descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the top-paid
group, the number of Employees treated as officers and the compensation that is
considered, will be made in accordance with Section 414(q) of the Code and the
regulations thereunder. The Plan Administrator is responsible for identifying
the Highly Compensated Employees and reporting such data to the Recordkeeper.
2.28. Hour of Service means each hour described in paragraphs (a),
(b), (c), (d) or (e) below, subject to paragraphs (f) and (g) below.
(a) Each hour for which an Employee is paid, or entitled
to payment, for the performance of duties for an Affiliated Employer.
These hours shall be credited to the Employee for the computation
period or periods in which the duties are performed.
(b) Each hour for which an Employee is paid, or entitled
to payment, by an Affiliated Employer on account of a period of time
during which no duties are
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<PAGE> 29
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than 501 Hours of Service shall be credited under this paragraph
for any single continuous period of absence (whether or not such
period occurs in a single computation period) unless the Employee's
absence is not an Authorized Leave of Absence. Hours under this
paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations, which are
incorporated herein by this reference.
(c) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by an Affiliated
Employer. The same Hours of Service shall not be credited under both
paragraph (a) or paragraph (b), as the case may be, and under this
paragraph (c); and no more than 501 Hours of Service shall be credited
under this paragraph (c) with respect to payments of back pay, to the
extent that such pay is agreed to or awarded for a period of time
described in paragraph (b) during which the Employee did not perform
or would not have performed any duties. These hours shall be credited
to the Employee for the computation period or periods to which the
award or agreement pertains rather than the computation period in
which the award, agreement or payment is made.
(d) Each hour during an Authorized Leave of Absence.
Such hours shall be credited at the rate of a customary full work week
for an Employee.
(e) Solely for purposes of determining whether a One-Year
Vesting Break or a One-Year Eligibility Break has occurred, each hour
which otherwise would have been credited to an Employee but for an
absence from work by reason of: the pregnancy of the Employee, the
birth of a child of the Employee, the placement of a child with the
Employee in connection with the adoption of the child by the Employee,
or caring for a child for a period beginning immediately after its
birth or placement. If the Plan Administrator cannot determine the
hours which would normally have been credited during such an absence,
the Employee shall be credited with eight Hours of Service for each
day of absence. No more than 501 Hours of Service shall be credited
under this paragraph by reason of any pregnancy or placement. Hours
credited under this paragraph shall be treated as Hours of Service
only in the Plan Year or Eligibility Period or both, as the case may
be, in which the absence from work begins, if necessary to prevent the
Participant's incurring a One-Year Vesting Break or One-Year
Eligibility Break in that period, or, if not, in the period
immediately following that in which the absence begins. The Employee
must timely furnish to the Employer information reasonably required to
establish (i) that an absence from work is for a reason specified
above, and (ii) the number of days for which the absence continued.
(f) Hours of Service shall be determined on the basis of
actual hours for which an Employee is paid or entitled to payment.
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<PAGE> 30
(g) If the Employer maintains the plan of a predecessor
Employer, service for the predecessor Employer shall be treated as
service for the Employer. If the Employer does not maintain the plan
of a predecessor Employer, service for the predecessor Employer shall
not be treated as service for the Employer.
(h) Hours of Service shall be credited to a Leased
Employee as though he were an Employee.
2.29. Investment Company means an open-end registered investment
company for which Putnam Mutual Funds Corp., or its affiliate acts as principal
underwriter, or for which Putnam Investment Management, Inc. or its affiliate
serves as an investment adviser; provided that its prospectus offers its shares
under the Plan.
2.30. Investment Company Shares means shares issued by an Investment
Company.
2.31. Investment Products means any of the investment products
specified by the Employer in accordance with Section 13.2, from the group of
those products sponsored, underwritten or managed by Putnam as shall be made
available by Putnam under the Plan, and such other products as shall be
expressly agreed to in writing by Putnam for availability under the Plan.
2.32. Leased Employee means any person (other than an Employee of
the recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or
for the recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period of at
least one year, and such services are of a type historically performed by
Employees in the business field of the recipient Employer. The compensation of
a Leased Employee for purposes of the Plan means the Compensation (as defined
in Section 2-7) of the Leased Employee attributable to services performed for
the recipient Employer. Contributions or benefits provided to a leased
Employee by the leasing organization which are attributable to services
performed for the recipient Employer shall be treated as provided by the
recipient Employer. Provided that leased Employees do not constitute more than
20% of the recipient's nonhighly compensated workforce, a leased Employee shall
not be considered an Employee of the recipient if he is covered by a money
purchase pension plan providing: (1) a nonintegrated Employer contribution rate
of at least 10% of compensation (as defined in Section 415(c)(3) of the Code,
but including amounts contributed pursuant to a salary reduction agreement
which are excludable from the Employee's gross income under Section 125,
Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code), (2)
immediate participation, and (3) full and immediate vesting.
2.33. Non-Highly Employee means an Employee who is not a Highly
Compensated Employee.
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<PAGE> 31
2.34. One-year Eligibility Break means a 12-month Eligibility Period
during which an individual is not credited with more than 500 Hours of Service;
provided, however, that in the case of an Employee in a seasonal industry,
there shall be substituted for 500 the number of Hours of Service specified in
any regulations of the Secretary of Labor dealing with breaks in service.
2.35. One-Year Vesting Break means a Plan Year during which an
individual is not credited with more than 500 Hours of Service; provided,
however, that in the case of an Employee in a seasonal industry, there shall be
substituted for 500 the number of Hours of Service specified in any regulations
of the Secretary of Labor dealing with breaks in service.
2.36. Owner-Employee means the sole proprietor of an Affiliated
Employer that is a sole proprietorship, or a partner owning more than 1O % of
either the capital or profits interest of an Affiliated Employer that is a
partnership. The Plan Administrator shall be responsible for identifying
Owner-Employees to the Recordkeeper.
2.37. Participation means each Employee who has met the requirement
for participation in Article 3. An Employee is not a Participant for any period
before the entry date applicable to him.
2.38. Participant Contribution Account means an account maintained
on the books of the Plan, in which are recorded after-tax contributions made by
a Participant under a predecessor plan to which this Plan serves as an
amendment or successor and any income, expenses, gains or losses incurred on
such Contributions. No additional after-tax contributions may be made under
the Plan or credited to this Account. All Participant Contribution Accounts
will be fully vested at all times.
2.39. Plan means the form of defined contribution retirement plan
and trust agreement adopted by the Employer, consisting of the Plan Agreement
and the Putnam Basic Plan Document #06 as set forth herein, together with any
and all amendments and supplements thereto.
2.40. Plan Administrator means the Employer or its appointee
pursuant to Section 15.1.
2.41. Plan Agreement means the separate agreement entered into
between the Employer and the Trustee and accepted by Putnam, under which the
Employer adopts the Plan and selects among its optional provisions.
2.42. Plan Year means the period of 12 consecutive months specified
by the Employer in the Plan Agreement, as well as any initial short plan year
period specified by the Employer in the Plan Agreement.
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<PAGE> 32
2.43. Putnam means (i) Putnam Mutual Funds Corp., or a company
affiliated with it which Putnam Mutual Funds Corp. has designated as its agent,
performing specified actions or procedures in its capacity as sponsor of this
prototype Plan, and (ii) Putnam Fiduciary Trust Company when performing in the
capacity as Recordkeeper or Trustee.
2.44. Qualified Domestic Relations Order means any judgment, decree
or order (including approval of a property settlement agreement) which
constitutes a "qualified domestic relations order" within the meaning of Code
Section 414(p). A judgment, decree or order shall not fail to be a Qualified
Domestic Relations Order merely because it requires a distribution to an
alternate payee (or the segregation of accounts pending distribution to an
alternate payee) before the Participant is otherwise entitled to a distribution
under the Plan.
2.45. Qualified Matching Account means an account maintained on the
books of the Plan, in which are recorded the Qualified Matching Contributions
made on behalf of a Participant and the income, expense, gain and loss
attributable thereto.
2.46. Qualified Matching Contribution means a contribution made by
the Employer that: (i) is allocated with respect to Elective Deferrals of a
Participant who is a Non-Highly Compensated Employee, (ii) is fully vested at
all times and (iii) is distributable only in accordance with Section 4.12.
2.47. Qualified Nonelective Contribution means a contribution (other
than an Employer Matching Contribution or Qualified Matching Contribution) made
by the Employer on behalf of a Participant who is a Non-Highly Compensated
Employee, that: (i) a Participant may not elect to receive in cash until, it is
distributed from the Plan; (ii) is fully vested at all times; and (iii) is
distributable only in accordance with Section 4.12.
2.48. Qualified Nonelective Contribution Account means an account
maintained on the books of the Plan, in which are recorded the Qualified
Nonelective Contributions made on behalf of a Participant and the income,
expense, gain and loss attributable thereto.
2.49. Qualified Participant means any Participant who is an active
Employee on the last day of the Plan Year in question or who is credited with
more than 500 Hours of Service during the Plan Year in question or whose
Retirement, death or disability occurred during the Plan Year in question.
2.50. Recordkeeper means Putnam and any successor thereto designated
by the Employer to perform the duties described in Section 15.4. The terms and
conditions of Putnam's service in the capacity as Recordkeeper will be as
specified in the Service Agreement.
2.51. Retirement means ceasing to be an Employee in accordance with
Section 7. 1.
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<PAGE> 33
2.52. Rollover Account means an account established for an Employee
who makes a rollover contribution to the Plan pursuant to Section 5.3.
2.53. Self-Employed Individual means an individual whose personal
services are a material income-producing factor in the trade or business for
which the Plan is established, and who has Earned Income for the taxable year
from that trade or business, or would have Earned Income but for the fact that
the trade or business had no net profits for the taxable year.
2.54. Service Agreement means the service agreement entered into
between the Employer and Putnam or its successor as Recordkeeper.
2.55. Shareholder-Employee means any officer or Employee of an
electing small business corporation, within the meaning of Section 1362 of the
Code, who on any day during a taxable year of the Employer owns (or is
considered as owning under Section 318(a)(1) of the Code) more than 5 % of the
outstanding stock of the Employer. The Plan Administrator shall be responsible
for identifying Shareholder-Employees to the Recordkeeper.
2.56. Trust and Trust Fund mean the trust fund established under
Section 13. 1.
2.57. Trustee means the person, or the entity with trustee powers,
named in the Plan Agreement as trustee, and any successor thereto.
2.58. Valuation Date means each day when the New York Stock Exchange
is open, or such other date or dates as the Employer may designate by written
agreement with the Recordkeeper.
2.59. Year of Service means a Plan Year in which an Employee is
credited with at least 1,000 Hours of Service; provided, however, that in the
case of an Employee in a seasonal industry (as defined under regulations
prescribed by the Secretary of Labor) in which the customary extent of
employment during a calendar year is fewer than 1,000 Hours of Service, the
number specified in any regulations prescribed by the Secretary of Labor
dealing with years of service shall be substituted for 1,000. An Employee's
Years of Service shall include service credited prior to the Effective Date
under any predecessor plan. If the initial Plan Year is shorter than 12
months, each Employee who is credited with at least 1,000 Hours of Service in
the 12-month period ending on the last day of the initial Plan Year shall be
credited with a Year of Service with respect to the initial Plan Year.
If the Employer has so elected in the Plan Agreement, Years of Service
for vesting shall not include service completed during a period in which the
Employer did not maintain the' Plan or any predecessor plan (as defined under
regulations prescribed by the Secretary of the Treasury).
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<PAGE> 34
Years of Service for vesting shall include service in any plan Year
(or comparable period prior to the Effective Date) completed before the
Employee reached age 18.
Years of Service for eligibility and vesting shall not include service
for an employer that is not an Affiliated Employer, provided, however, Years of
Service for eligibility and vesting shall include employment by a business
acquired by the Employer, before the date of the acquisition, if the Plan is
the amendment of a predecessor plan maintained by such acquired business.
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<PAGE> 35
ARTICLE 3. PARTICIPATION
3.1. Initial Participation. Upon completion of the eligibility for
Plan participation requirements specified in the Plan Agreement, an Employee
shall begin participation in the Plan as of the later of (i) the first day of
the first, fourth, seventh or tenth month of the Plan Year, whichever next
follows or coincides with the date of completion of such eligibility
requirements, or (ii) the Effective Date; provided, however, that:
(a) if the Plan is adopted as an amendment of a
predecessor plan of the Employer, every Employee who was participating
under the predecessor plan when it was so amended shall become a
Participant in the Plan as of the Effective Date, whether or not he
has satisfied the age and service requirements specified in the Plan
Agreement; and
(b) if the Employer so specifies in the Plan Agreement,
any individual who is (i) a nonresident alien receiving no earned
income from an Affiliated Employer which constitutes income from
sources within the United States, or (ii) included in a unit of
Employees covered by a collective bargaining agreement between the
Employer and Employee representatives (excluding from the term
"Employee representatives" any organization of which more than half of
the members are Employees who are owners, officers, or executives of
an Affiliated Employer), if retirement benefits were the subject of
good faith bargaining and no more than 2 % of the Employees covered by
the collective bargaining agreement are professionals as defined in
Section 1.410(b)-9 of the Income Tax Regulations, shall not
participate in the Plan until the later of the date on which he ceases
to be described in clause (i) or (ii), whichever is applicable, or the
entry date specified by the Employer in the Plan Agreement; and
(c) if the Plan is not adopted as an amendment of a
predecessor plan of the Employer, all Employees on the Effective Date
who have satisfied the age requirement (versus the service
requirement) designated in the Plan Agreement shall begin
participation on the Effective Date, if the Employer so elects in the
Plan Agreement; and
(d) a Participant shall cease to participate in the Plan
when he becomes a member of a class of Employees ineligible to
participate in the Plan, and shall resume participation immediately
upon his return to a class of Employees eligible to participate in the
Plan.
3.2. Resumed Participation. A former Employee who incurs a
One-Year Eligibility Break after having become a Participant shall participate
in the Plan as of the date on which he again becomes an Employee, if (i) his
Accounts had become partially or fully vested before he incurred a One-Year
Vesting Break, or (ii) he incurred fewer than five consecutive One-Year
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<PAGE> 36
Eligibility Breaks. In any other case, when he again becomes an Employee he
shall be treated as a new Employee under Section 3. 1.
3.3. Benefits for Owner-Employees. If the Plan provides
contributions or benefits for one or more Owner-Employees who control both the
trade or business with respect to which the Plan is established and one or more
other trades or businesses, the Plan and plans established with respect to such
other trades or businesses must, when looked at as a single plan, satisfy
Sections 401(a) and (d) of the Code with respect to the Employees of this and
all such other trades or businesses. If the Plan provides contributions or
benefits for one or more Owner- Employees who control one or more other trades
or businesses, the Employees of each such other trade or business must be
included in a plan which satisfies Sections 401(a) and (d) of the Code and
which provides contributions and benefits not less favorable than those
provided for such Owner-Employees under the Plan. If an individual is covered
as an Owner-Employee under the PH-INS of two or more trades or businesses which
he does not control and such individual controls a trade or business, then the
contributions or benefits of the Employees under the plan of the trade or
business which he does control must be as favorable as those provided for him
under the most favorable plan of the trade or business which he does not
control. For purposes of this Section 3.3, an Owner-Employee, or two or more
Owner-Employees, shall be considered to control a trade or business if such
Owner-Employee, or such two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade
or business, or
(b) in the case of a partnership, own more than 50% of
either the capital interest or the profits interest in such
partnership.
For purposes of the preceding sentence, an Owner-Employee or two or
more Owner-Employees shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such
Owner-Employee or such two or more Owner-Employees are considered to control
within the meaning of the preceding sentence.
3.4. Changes in Classification. If a Participant ceases to be a
member of a classification of Employees eligible to participate in the Plan,
but does not incur a One-Year Eligibility Break, he will continue to be
credited with Years of Service for vesting while he remains an Employee, and he
will resume participation as of the date on which he again becomes a member of
a classification of Employees eligible to participate in the Plan. If such a
Participant incurs a One-Year Eligibility Break, Section 3.2 will apply. If a
Participant who ceases to be a member of a classification of Employees eligible
to participate in the Plan becomes a member of a classification of Employees
eligible to participate in another plan of the Employer, his Account, if any,
under the Plan shall, upon the Administrator's direction, be transferred to the
plan in which he has become eligible to participate, if such plan permits
receipt of such Account.
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If an Employee who is not a member of a classification of Employees
eligible to participate in the Plan satisfies the age and service requirements
specified in the Plan Agreement, he will begin to participate immediately upon
becoming a member of an eligible classification. If such an Employee has
account balances under another plan of the Employer, such account balances
shall be transferred to the Plan upon the Employee's commencement of
participation in the Plan, if such other plan permits such transfer.
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ARTICLE 4. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401 (k) (CODA)
4.1. General Provisions A Contributions Under Both Articles 4 and
5.
(a) Payment and Crediting of Contributions. The Employer
may specify that contributions will be made to the Plan only under the
CODA, or that Employer Profit Sharing Contributions described in
Section 5.1 may also be made. The Employer shall pay to the order of
the Trustee the aggregate contributions to the Trust Fund for each
Plan Year. Each contribution shall be accompanied by instructions
from the Employer, in the manner prescribed by Putnam. Neither the
Trustee nor Putnam shall be under any duty to inquire into the
correctness of the amount or the timing of any contribution, or to
collect any amount if the Employer fails to make a contribution as
provided in the Plan.
(b) Time for Payment. Elective Deferrals will be
transferred to the Trustee as soon as such contributions can
reasonably be segregated from the general assets of the Employer, but
in any event within 90 days after the date on which the Compensation
to which such contributions relate is paid. The aggregate of all
other contributions with respect to a Plan Year shall be transferred
to the Trustee no later than the due date (including extensions) for
filing the Employer's federal income tax return for that Plan Year.
(c) Allocations under CODA. Allocations to Participants'
Accounts of contributions made pursuant to this Article 4 shall be
made as soon as administratively feasible after their receipt by the
Trustee, but in any case shall not be allocated as of a day later than
the last day of the Plan Year for which the contributions were made.
(d) Limitations on Allocations. All allocations shall be
subject to the limitations in Article 6.
(e) Establishment of Accounts. The Employer will
establish and maintain (or cause to be established and maintained) for
each Participant individual accounts adequate to disclose his interest
in the Trust Fund, including such of the following separate accounts
as shall apply to the Participant: Elective Deferral Account, Employer
Matching Account, Qualified Nonelective Account, Qualified Matching
Account, Employer Profit Sharing Account, Participant Contribution
Account, Deductible Employee Contribution Account, and Rollover
Account. The maintenance of such accounts shall be only for
recordkeeping purposes, and the assets of separate accounts shall not
be required to be segregated for purposes of investment. For purposes
of the Plan, a Participant is treated as benefiting under the Plan for
any Plan Year during which the Participant received or is deemed to
receive an allocation to an Account in accordance with Treasury
Regulation Section 1.410(b)-3(a).
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<PAGE> 39
(f) Restoration of Accounts. Notwithstanding any other
provision of the Plan, for any Plan Year in which it is necessary to
restore any portion of a Participant's Account pursuant to Section
8.3(b) or 9.5, to the extent that the amount of Forfeitures available
is insufficient to accomplish such restoration, the Employer shall
contribute the amount necessary to eliminate the insufficiency,
regardless of whether the contribution is currently deductible by the
Employer under Section 404 of the Code.
4.2. CODA Participation. Each Employee who has met the eligibility
requirements of Article 3 may make Elective Deferrals to the Plan by completing
and returning to the Plan Administrator a Deferral Agreement which provides
that the Participant's cash compensation from the Employer will be reduced by
the amount indicated in the Deferral Agreement, and that the Employer will
contribute an equivalent amount to the Trust on behalf of the Participant. The
following rules will govern Elective Deferrals:
(a) Subject to the limits specified in the Plan Agreement
and set forth in Section 4.3, a Deferral Agreement may apply to any
amount or percentage of the Earnings payable to a Participant in each
year, including any bonuses payable to a Participant from TIME to
TIME.
(b) In accordance with such reasonable rules as the Plan
Administrator shall specify, a Deferral Agreement will become
effective as soon as is administratively feasible after the Deferral
Agreement is returned to the Plan Administrator, and will remain
effective until it is modified or terminated. No Deferral Agreement
may become effective retroactively.
(c) A Participant may modify his Deferral Agreement by
completing and returning to the Plan Administrator a new Deferral
Agreement as of the first business day of any of the first, fourth,
seventh and tenth months of the Plan Year, and any such modification
will become effective as described in paragraph (b).
(d) A Participant may terminate his Deferral Agreement at
any time upon advance written notice to the Plan Administrator, and
any such termination will become effective as described in paragraph
(b).
4.3. Annual Limit on Elective Deferrals. During any taxable year
of a Participant, his Elective Deferrals under the Plan and any other qualified
plan of an Affiliated Employer shall not exceed the dollar limit contained in
Section 402(g) of the Code in effect at the beginning of the taxable year.
With respect to any taxable year, a Participant's Elective Deferrals for
purposes of this Section 4.3 include all Employer contributions made on his
behalf pursuant to an election to defer under any qualified CODA as described
in Section 401(k) of the Code, any simplified employee pension cash or deferred
arrangement (SARSEP) as described in Section 402(h)(1)(B) of the Code, any
eligible deferred compensation plan under Section 457 of the
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<PAGE> 40
Code, any plan described under Section 501(c)(18) of the Code, and any Employer
contributions made on behalf of the Participant for the purchase of an annuity
contract under Section 403(b) of the Code pursuant to a salary reduction
agreement. The limit under Section 402(g) of the Code on the amount of
Elective Deferrals of a Participant who receives a hardship withdrawal pursuant
to Section 12.2 shall be reduced, for the taxable year next following the
withdrawal, by the amount of Elective Deferrals made in the taxable year of the
hardship withdrawal.
4.4. Distribution of Certain Elective Deferrals. "Excess Elective
Deferrals" means those Elective Deferrals described in Section 4.3 that are
includible in a Participant's gross income under Section 402(g) of the Code, to
the extent that the Participant's aggregate elective deferrals for a taxable
year exceed the dollar limitation under that Code Section. Excess Elective
Deferrals shall be treated as Annual Additions under the Plan, whether or not
they are distributed under this Section 4.4. A Participant may designate to the
Plan any Excess Elective Deferrals made during his taxable year by notifying
the Employer on or before the following March 15 of the amount of the Excess
Elective Deferrals to be so designated. A Participant who has Excess Elective
Deferrals for a taxable year, taking into account only his Elective Deferrals
under the Plan and any other plans of the Affiliated Employers, shall be deemed
to have designated the entire amount of such Excess Elective Deferrals.
Notwithstanding any other provision of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto, shall be
distributed no later than April 15 to any Participant to whose Account Excess
Elective Deferrals were so designated or deemed designated for the preceding
year. The income or loss allocable to Excess Elective Deferrals is the income
or loss allocable to the Participant's Elective Deferral Account for the
taxable year multiplied by a fraction, the numerator of which is the
Participant's Excess Elective Deferrals for the year and the denominator of
which is the Participant's Account balance attributable to Elective Deferrals
without regard to any income or loss occurring during the year.
To the extent that the return to a Participant of his Elective
Deferrals would reduce an Excess Amount (as defined in Section 6.5(f)), such
Excess Deferrals shall be distributed to the Participant in accordance with
Article 6.
4.5. Satisfaction of ADP and ACP Tests. In each Plan Year, the
Plan must satisfy the ADP test described in Section 4.6 and the ACP test
described in Section 4.9. The Employer may cause the Plan to satisfy the ADP or
ACP test or both tests for a Plan Year by any of the following methods or by
any combination of them:
(a) By the distribution of Excess Contributions in
accordance with Section 4.7, or the distribution of Excess Aggregate
Contributions in accordance with Section 4.10, or both; or
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<PAGE> 41
(b) By making Qualified Nonelective Contributions or
Qualified Matching Contributions or both, in accordance with Section
4.11.
4.6. Actual Deferral Percentage Test Limit. The Actual Deferral
Percentage (hereinafter "ADP") for Participants who are Highly Compensated
Employees for each Plan Year and the ADP for Participants who are Non-Highly
Compensated Employees for the same Plan Year must satisfy one of the following
tests:
(a) The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
(b) The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by 2.0, provided that the ADP for Participants who are
Highly Compensated Employees does not exceed the ADP for Participants
who are Non-Highly Compensated Employees by more than two percentage
points.
The following special rules shall apply to the computation of the ADP:
(c) "Actual Deferral Percentage" means, for a specified
group of Participants for a Plan Year, the average of the ratios
(calculated separately for each Participant in the group) of (1) the
amount of Employer contributions actually paid over to the Trust on
behalf of the Participant for the Plan Year to (2) the Participant's
Earnings for the Plan Year. Employer contributions on behalf of any
Participant shall include: (i) his Elective Deferrals, including
Excess Elective Deferrals of Highly Compensated Employees, but
excluding (A) Excess Elective Deferrals of Non-Highly Compensated
Employees that arise solely from Elective Deferrals made under the
Plan or another plan maintained by an Affiliated Employer, and (B)
Elective Deferrals that are taken into account in the Average
Contribution Percentage test described in Section 4.9 (provided the
ADP test is satisfied both with and without exclusion of these
Elective Deferrals), and excluding Elective Deferrals returned to a
Participant to reduce an Excess Amount as defined in Section 6.5(f);
(ii) such amount of Qualified Nonelective Contributions, if any, as
shall be necessary to enable the Plan to satisfy the ADP test and not
used to satisfy the ACP test; and (iii) such amount of Qualified
Matching Contributions, if any, as shall be necessary to enable the
Plan to satisfy the ADP test and not used to satisfy the ACP test.
For purposes of computing Actual Deferral Percentages, an Employee who
would be a Participant but for his failure to make Elective Deferrals
shall be treated as a Participant on whose behalf no Elective
Deferrals are made.
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<PAGE> 42
(d) In the event that the Plan satisfies the requirements
of Sections 401 (k), 401(a)(4), or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more other plans
satisfy the requirements of such Sections of the Code only if
aggregated with the Plan, then this Section 4.6 shall be applied by
determining the ADP of Employees as if all such plans were a single
plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Section 401(k) of the Code only if they
have the same Plan Year.
(e) The ADP for any Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have
Elective Deferrals allocated to his Accounts under two or more CODAs
described in Section 401(k) of the Code that are maintained by the
Affiliated Employers shall be determined as if such Elective Deferrals
were made under a single CODA. If a Highly Compensated Employee
participates in two or more CODAs that have different Plan Years, all
CODAs ending with or within the same calendar year shall be treated as
a single CODA, except that CODAs to which mandatory disaggregation
applies in accordance with regulations issued under Section 401(k) of
the Code shall be treated as separate CODAs.
(f) For purposes of determining the ADP of a Participant
who is a 5 % owner or one of the ten most highly-paid Highly
Compensated Employees, the Elective Deferrals and the Earnings of such
a Participant shall include the Elective Deferrals and Earnings for
the Plan Year of his Family Members (as defined in Section 414(q)(6)
of the Code). Family Members of such Highly Compensated Employees
shall be disregarded as separate employees in determining the ADP both
for Participants who are Non-Highly Compensated Employees and for
Participants who are Highly Compensated Employees.
(g) For purposes of the ADP test, Elective Deferrals,
Qualified Nonelective Contributions and Qualified Matching
Contributions must be made before the last day of the 12-month period
immediately following the Plan Year to which those contributions
relate.
(h) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both, used in satisfying the test.
(i) The determination and treatment of the ADP amounts of
any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
4.7. Distribution of Excess Contributions. "Excess Contributions"
means, with respect to any Plan Year, the excess of:
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(a) The aggregate amount Of Employer contributions
actually taken into account in computing the ADP of Highly Compensated
Employees for the Plan Year, over
(b) The maximum amount of Employer contributions
permitted by the ADP test, determined by reducing contributions made
on behalf of Highly Compensated Employees in order of their ADPs,
beginning with the highest of such percentages.
Notwithstanding any other provision of the Plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed no
later than the last day of each Plan Year to Participants to whose Accounts
Excess Contributions were allocated for the preceding Plan Year. The income or
loss allocable to Excess Contributions is the income or loss allocable to the
Participant's Elective Deferral Account for the Plan Year multiplied by a
fraction, the numerator of which is the Participant's Excess Contributions for
the year and the denominator is the Participant's account balance attributable
to Elective Deferrals without regard to any income or loss occurring during the
Plan Year. If such excess amounts are distributed more than 2 1/2 months after
the last day of the Plan Year in which the excess amounts arose, an excise tax
equal to 10% of the excess amounts will be imposed on the Employer maintaining
the Plan. Such distributions shall be made to Highly Compensated Employees on
the basis of the respective portions of the Excess Contributions attributable
to each of them. Excess Contributions shall be allocated to a Participant who
is a family member subject to the family member aggregation rules of Section
414(q)(6) of the Code in the proportion that the Participant's Elective
Deferrals bear to the combined Elective Deferrals (and other amounts treated as
Elective Deferrals) of all of the Participants aggregated to determine his
family members' combined ADP. Excess Contributions shall be treated as Annual
Additions under the Plan.
4.8. Employer Matching Contributions. If so specified in the Plan
Agreement, the Employer will make Employer Matching Contributions to the Plan
in accordance with the Plan Agreement, but no Employer Matching Contribution
shall be made with respect to an Elective Deferral that is returned to a
Participant because it represents an Excess Elective Deferral, an Excess
Contribution, an Excess Aggregate Contribution or an Excess Amount (as defined
in Section 6.5(f)); and if an Employer Matching Contribution has nevertheless
been made with respect to such an Elective Deferral, the Employer Matching
Contribution shall be forfeited, notwithstanding any other provision of the
Plan. Employer Matching Contributions will be allocated among the Employer
Matching Accounts of Participants in proportion to their Elective Deferrals as
specified by the Employer in the Plan Agreement. Employer Matching Accounts
shall become vested according to the vesting schedule specified in the Plan
Agreement, but regardless of that schedule shall be fully vested upon the
Participant's Retirement, or, if earlier, attainment of the normal retirement
age specified in the Plan Agreement, his death during employment with an
Affiliated Employer, and in accordance with Section 18.3.
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<PAGE> 44
4.9. Average Contribution Percentage Test Limit and Aggregate
Limit. The Average Contribution Percentage (hereinafter "ACP") for
Participants who are Highly Compensated Employees for each Plan Year and the
ACP for Participants who are Non-Highly Compensated Employees for the same Plan
Year must satisfy one of the following tests:
(a) The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
(b) The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by two (2), provided that the ACP for Participants who are
Highly Compensated Employees does not exceed the ACP for Participants
who are Non-Highly Compensated Employees by more than two percentage
points.
The following rules shall apply to the computation of the ACP:
(c) "Average Contribution Percentage" means the average
of the Contribution Percentages of the Eligible Participants in a
group.
(d) "Contribution Percentage" means the ratio (expressed
as a percentage) of a Participant's Contribution Percentage Amounts to
the Participant's Earnings for the Plan Year.
(e) "Contribution Percentage Amounts" means the sum of
the Participant Contributions, Employer Matching Contributions, and
Qualified Matching Contributions (to the extent not taken into account
for purposes of the ADP test) made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage Amounts
shall include Forfeitures of Excess Aggregate Contributions or
Employer Matching Contributions allocated to the Participant's
Account, taken into account in the year in which the allocation is
made. Qualified Nonelective Contributions, if any, necessary to
enable the Plan to satisfy the ACP test and not used to satisfy the
ADP test shall be included in the Contribution Percentage Amounts.
Elective Deferrals shall also be included in the Contribution
Percentage Amounts to the extent, if any, needed to enable the Plan to
satisfy the ACP test, so long as the ADP test is met before the
Elective Deferrals are used in the ACP test, and continues to be met
following the exclusion of those Elective Deferrals that are used to
meet the ACP test.
(f) "Eligible Participant" means any Employee who is
eligible to make an Elective Deferral, if Elective Deferrals are taken
into account in the calculation of the
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<PAGE> 45
Contribution Percentage, or to receive an Employer Matching
Contribution (or a Forfeiture thereof) or a Qualified Matching
Contribution.
(g) "Aggregate Limit" means the sum of (i) 125% of the
greater of the ADP of the Non-Highly Compensated Employees for the
Plan Year, or the ACP of Non-Highly Compensated Employees under the
Plan subject to Code Section 401(m) for the Plan Year beginning with
or within the Plan Year of the CODA, and (ii) the lesser of 200% of,
or two plus, the lesser of the ADP or ACP. "Lesser" is substituted
for 'greater" in clause (i) of the preceding sentence, and "greater"
is substituted for "lesser" after the phrase "two plus the" in clause
(ii) of the preceding sentence, if that formulation will result in a
larger Aggregate Limit.
(h) If one or more Highly Compensated Employees
participate in both a CODA and a plan subject to the ACP test
maintained by an Affiliated Employer, and the sum of the ADP and ACP
of those Highly Compensated Employees subject to either or both tests
exceeds the Aggregate Limit, then the ACP of those Highly Compensated
Employees who also participate in a CODA will be reduced (beginning
with the Highly Compensated Employee whose ACP is the highest) so that
the Aggregate Limit is not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage Amount is reduced shall
be treated as an Excess Aggregate Contribution. In determining the
Aggregate Limit, the ADP and ACP of Highly Compensated Employees are
determined after any corrections required to meet the ADP and ACP
tests. The Aggregate Limit will be considered satisfied if both the
ADP and ACP of the Highly Compensated Employees does not exceed 1.25
multiplied by the ADP and ACP of the Non-Highly Compensated Employees.
(i) For purposes of this section, the Contribution
Percentage for any Participant who is a Highly Compensated Employee
and who is eligible to have Contribution Percentage Amounts allocated
to his account under two or more plans described in Section 401 (a) of
the Code, or CODAs described in Section 401(k) of the Code, that are
maintained by an Affiliated Employer, shall be determined as if the
total of such Contribution Percentage Amounts was made under each
plan. If a Highly Compensated Employee participates in two or more
CODAs that have different plan years, all CODAs ending with or within
the same calendar year shall be treated as a single CODA, except that
CODAs to which mandatory disaggregation applies in accordance with
regulations issued under Section 401(k) of the Code shall be treated
as separate CODAs.
(j) In the event that the Plan satisfies the requirements
of Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy
the requirements of such Sections of the Code only if aggregated with
the Plan, then this Section 4.9 shall be applied by determining the
Contribution Percentage of Employees as if all such plans were a
single plan. For Plan
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Years beginning after December 31, 1989, plans may BE aggregated in
order to satisfy Section 401(m) of the Code only if they have the same
Plan Year.
(k) For purposes of determining the Contribution
Percentage of a Participant who is a 5 % owner or one of the ten most
highly-paid Highly Compensated Employers, the Contribution Percentage
Amounts and Earnings of the Participant shall include the Contribution
Percentage Amounts and Earnings for the Plan Year of Family Members
(as defined in Section 414(q)(6) of the Code). Family Members of such
Highly Compensated Employees shall be disregarded as separate
employees in determining the Contribution Percentage both for
Participants who are Non-Highly Compensated Employees and for
Participants who are Highly Compensated Employees.
(l) For purposes of the ACP test, Matching Contributions,
Qualified Matching Contributions and Qualified Nonelective
Contributions will be considered made for a Plan Year if made no later
than the end of the 12-month period beginning on the day after the
close of the Plan Year.
(m) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both, used in the ACP test.
(n) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
4.10. Distribution of Excess AGGREGATE Contributions.
Notwithstanding any other provision of the Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall be
forfeited if forfeitable, or if not forfeitable, distributed no later than the
last day of each Plan Year to Participants to whose Accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year. The income
or loss allocable to Excess Aggregate Contributions is the income or loss
allocable to the Participant's Employer Matching Account, QUALIFIED Matching
Account (IF any, and IF all amounts therein are not used in the ADP test), and,
if applicable, Qualified Nonelective Contribution Account, Participant
Contribution Account and Elective Deferral Account for the Plan Year,
multiplied by a fraction, the numerator of which is the Participant's Excess
Aggregate Contributions for the year and the denominator of which is the
Participant's account balance(s) attributable to Contribution Percentage
Amounts without regard to any income or loss occurring during the Plan Year.
Excess Aggregate Contributions shall be allocated to a Participant who is
subject to the family member aggregation rules of Section 414(q)(6) of the Code
in the proportion that the Participant's Employer Matching Contributions (and
other amounts treated as his Employer Matching Contributions) bear to the
combined Employer Matching Contributions (and other amounts treated as Employer
Matching Contributions) of all of the Participants aggregated to determine its
family members' combined ACP. If excess amounts attributable to Excess,
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<PAGE> 47
Aggregate contributions are distributed more than 21/2 months after the last
day of the Plan Year in which such excess amounts arose, an excise tax equal to
10% of the excess amounts will be imposed on the Employer maintaining the Plan.
Excess Aggregate Contributions shall be treated as Annual Additions under the
Plan.
Excess Aggregate Contributions shall be forfeited if forfeitable, or
distributed on a pro-rata basis from the Participant's Participant Contribution
Account, Employer Matching Account, and Qualified Matching Account (and, if
applicable, the Participant's Qualified Nonelective Account or Elective
Deferral Account, or both).
Excess Aggregate Contributions means, with respect to any Plan Year,
the excess of:
(a) The aggregate Contribution Percentage Amounts taken
into account in computing the numerator of the Contribution Percentage
and actually made on behalf of Highly Compensated Employees for the
Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted
by the ACP test and the Aggregate Limit (determined by reducing
contributions made on behalf of Highly Compensated Employees in order
of their Contribution Percentages, beginning with the highest of such
percentages).
Such determination shall be made after first determining Excess
Elective Deferrals pursuant to Section 4.4, and then determining Excess
Contributions pursuant to Section 4.7.
4.11. Qualified Nonelective Contributions - Qualified Matching
Contributions. The Employer may make Qualified Nonelective Contributions for a
Plan Year which, if made, shall be allocated to the Qualified Nonelective
Contribution Accounts of Qualified Participants who are Non-Highly Compensated
Employees, in proportion to the Earnings of such Qualified Participants for the
Plan Year. The Employer may make Qualified Matching Contributions for a Plan
Year which, if made shall be allocated to the Qualified Matching Accounts of
Participants who are Non-Highly Compensated Employees, in proportion to the
Elective Deferrals of such Participants for the Plan Year.
4.12. Restriction on Distributions. Except as provided in Sections
4.4, 4.7 and 4.10, no distribution may be made from a Participant's Elective
Deferral Account, Qualified Nonelective Account or Qualified Matching Account
until the occurrence of one of the following events:
(a) The Participant's Disability, death or termination of
employment with the Affiliated Employers;
(b) Termination of the Plan without the establishment of
another defined contribution plan other than an employee stock
ownership plan as defined in Section
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<PAGE> 48
4975(e) or Section 409 of the Code, or a simplified employee pension
plan as defined in Section 408(k) of the Code;
(c) The Participant's attainment of age 59 1/2; or
(d) In the case of an Employer that is a corporation, the
disposition by the Employer to an unrelated entity of (i)
substantially all of the assets (within the meaning of Section
409(d)(2) of the Code) used in a trade or business of the Employer, if
the Employer continues to maintain the Plan after the disposition, but
only with respect to Employees who continue employment with the entity
acquiring such assets; or (ii) the Employer's interest in a subsidiary
(within the meaning of Section 409(d)(3) of the Code), if the Employer
continues to maintain the Plan after the disposition, but only with
respect to Employees who continue employment with such subsidiary.
In addition, if the Employer has elected in the Plan Agreement to permit
such distributions, a distribution may be made from a Participant's Elective
Deferral Account in the event of his financial hardship as described in Section
12.2. All distributions upon any of the events listed above are subject to the
conditions of Article 10, Joint and Survivor Annuity Requirements. In
addition, distributions made after March 31, 1988, on account of an event
described in subsection (b) or (d) above must be made in a lump sum.
4.13. Forfeitures of Employer Matching Contributions. Forfeitures
of Employer Matching Contributions, other than Excess Aggregate Contributions,
shall be made in accordance with Section 8.3. Forfeitures of Employer Matching
Contributions in a Plan Year shall be applied to reduce other contributions
required of the Employer.
4.14. Special Effective Dates. If the Plan is adopted as an
amendment of an existing plan, the provisions of Sections 4.3 and Section 4.7
through 4. 1 1 are effective as of the first day of the first Plan Year
beginning after December 31, 1986.
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ARTICLE 5. OTHER CONTRIBUTIONS
5.1. Employer Profit Sharing Contributions.
(a) Amount of Annual Contribution. If the Employer so
elects in the Plan Agreement, the Employer may in each Plan Year
contribute an amount to the Trust Fund determined in the Employer's
own discretion, which contribution plus any amount reapplied for the
Plan Year under Section 6. 1 (d) shall not exceed the amount
deductible under Section 404 of the Code. Employer Profit Sharing
Contributions may be made in any Plan Year whether or not the Employer
has current or accumulated profits for that Plan Year.
(b) Allocation of Employer Profit Sharing Contributions.
The Employer Profit Sharing Contribution (and any amounts reapplied
under Section 6. 1 (d)) for the Plan Year shall be allocated as of the
last day of each Plan Year to the Employer Profit Sharing Accounts of
each Qualified Participant in proportion to the Earnings of each such
Qualified Participant for the Plan Year.
5.2. Forfeitures of Employer Profit Sharing Contributions.
Forfeitures of Employer Profit Sharing Contributions shall be made in
accordance with Section 8.3. Forfeitures of Employer Profit Sharing
Contributions shall be applied to reduce other contributions required of the
Employer.
5.3. Rollover Contributions. An Employee in an eligible class may
contribute at any time cash or other property (which is not a collectible
within the meaning of Section 408(m) of the Code) acceptable to the Trustee
representing qualified rollover amounts under Sections 402, 403, or 408 of the
Code. Amounts so contributed shall be credited to a Rollover Account for the
Participant.
5.4. No After-Tax Participant Contributions or Deductible Employee
Contributions. The Plan Administrator shall not accept either after-tax
Participant Contributions or deductible employee contributions, other than
those held in a Participant Contribution Account or a Deductible Employee
Contribution Account transferred from a predecessor plan of the Employer.
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ARTICLE 6. LIMITATIONS ON ALLOCATIONS
6.1. No Additional Plan. If the Participant does not participate
in and has never participated in another qualified plan, or a welfare benefit
fund (as defined in Section 419(e) of the Code), or an individual medical
account (as defined in Section 415(l)(2) of the Code) which provides an Annual
Addition as defined in Section 6.5(a), maintained by an Affiliated Employer:
(a) The amount of Annual Additions (as defined in Section
6.5(a)) which may be credited to the Participant's Accounts for any
Limitation Year will not exceed the lesser of the Maximum Annual
Additions or any other limitation contained in this Plan. If the
Employer contribution that would otherwise be contributed or allocated
to the Participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Annual Additions, the amount
contributed or allocated will be reduced so that the Annual Additions
for the Limitation Year will equal the Maximum Annual Additions.
(b) Before determining a Participant's actual Section 415
Compensation for a Limitation Year, the Employer may determine the
Maximum Annual Additions for the Participant on the basis of a
reasonable estimation of the Participant's Section 415 Compensation
for the Limitation Year, uniformly determined for all Participants
similarly situated.
(c) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Annual Additions for the
Limitation Year will be determined on the basis of the Participant's
actual Section 415 Compensation for the Limitation Year.
(d) If pursuant to paragraph (c), or as a result of a
reasonable error in determining the amount of Elective Deferrals that
may be made by a Participant, the Annual Additions exceed the Maximum
Annual Additions, the Excess Amount will be disposed of as follows:
(1) Elective Deferrals, to the extent they would
reduce the Excess Amount, will be returned to the Participant.
(2) If after the application of (1) above an
Excess Amount still exists, and the Participant is covered by
the Plan at the end of the Limitation Year, the Excess Amount
in the Participant's Accounts will be used to reduce Employer
contributions (including any allocation of Forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary.
(3) If after the application of (1) above an
Excess Amount still exists, and the Participant is not covered
by the Plan at the end of a Limitation Year,
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the Excess Amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce
future Employer contributions (including allocation of any
Forfeitures) for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year if
necessary.
(4) If a suspense account is in existence at any
time during a Limitation Year pursuant to this Section 6.l(d),
it will participate in the allocation of the Trust's
investment gains and losses. If a suspense account is in
existence at any time during a particular Limitation Year, all
amounts in the suspense account must be allocated and
reallocated to Participants' Accounts before any Employer or
any Employee contributions may be made to the Plan for that
Limitation Year. Excess amounts may not be distributed to
Participants or former Participants.
6.2. Additional Master or Prototype Plan. If in addition to this
Plan a Participant is covered under another qualified Master or Prototype
defined contribution plan or a welfare benefit fund (as defined in Section
419(e) of the Code), or an individual medical account (as defined in Section
415(l)(2) of the Code) which provides an Annual Addition as defined in Section
6.5(a), maintained by an Affiliated Employer during any Limitation Year:
(a) The Annual Additions which may be credited to a
Participant's Accounts under this Plan for any such Limitation Year
will not exceed the Maximum Annual Additions reduced by the Annual
Additions credited to a Participant's accounts under the other plans
and welfare benefit funds for the same Limitation Year. If the Annual
Additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by an
Affiliated Employer are less than the Maximum Annual Additions, and
the Employer contribution that would otherwise be contributed or
allocated to the Participant's Accounts under this Plan would cause
the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated to this Plan will be
reduced so that the Annual Additions under all such plans and funds
for the Plan Year will equal the MAXIMUM Annual Additions. If the
Annual Additions with respect to the Participant under such other
defined contribution plans and welfare benefit funds in the aggregate
are equal to or greater than the Maximum Annual Additions, no amount
will be contributed or allocated to the Participant's Accounts under
this Plan for the Limitation Year.
(b) Before determining a Participant's actual Section 415
Compensation for a Limitation Year, the Employer may determine the
Maximum Annual Additions for the Participant in the manner described
in Section 6. 1 (b)
(c) As soon as is administratively feasible after the end
of the Plan Year, the Maximum Annual Additions for the Plan Year will
be determined on the basis of the Participant's actual Section 415
Compensation for the Plan Year.
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(d) If, pursuant to Section 6.2(c) or as a result of the
allocation of Forfeitures, or of a reasonable error in determining the
amount of Elective Deferrals that may be made by him, a Participant's
Annual Additions under this Plan and such other plans would result in
an Excess Amount for a Limitation Year, the Excess Amount will be
deemed to consist of the Annual Additions last allocated under any
qualified Master or Prototype defined contribution plan, except that
Annual Additions to any welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless of the
actual allocation date.
(e) If an Excess Amount was allocated to a Participant on
an allocation date of this Plan which coincides with an allocation
date of another plan, the Excess Amount attributed to this Plan will
be the product of X and Y, where (X) is the total Excess Amount
allocated as of such date, and (Y) is the ratio of: (1) the Annual
Additions allocated to the Participant for the Limitation Year as of
such date under this Plan to (2) the total Annual Additions allocated
to the Participant for the Limitation Year as of such date under this
and all the other qualified Master or Prototype defined contribution
plans.
(f) Any Excess Amount attributed to this Plan will be
disposed of in the manner described in Section 6.1(d)
6.3. Additional Non-Master or Non-Prototype Plan. If the
Participant is covered under another qualified defined contribution plan
maintained by an Affiliated Employer which is not a Master or Prototype plan,
Annual Additions which may be credited to the Participant's Accounts under this
Plan for any Limitation Year will be limited in accordance with Section 6.2 as
though the other plan were a Master or Prototype plan.
6.4. Additional Defined Benefit Plan. If an Affiliated Employer
maintains, or at any time maintained, a qualified defined benefit plan covering
any Participant in this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. The Annual Additions which may be credited to the
Participant's Accounts under this Plan for any Limitation Year will be limited
in accordance with the Plan Agreement.
6.5. Definitions.
(a) Annual Additions means the sum of the following
amounts credited to a, Participant's Accounts for the Limitation Year:
(1) Employer contributions;
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(2) For any Limitation Year beginning after
December 31, 1986, Participant Contributions;
(3) Forfeitures;
(4) Amounts allocated after March 31, 1984, to
any individual medical account, as defined in Section
415(l)(2) of the Code, which is part of a pension or annuity
plan maintained by an Affiliated Employer;
(5) Amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after
such date, which are attributable to postretirement medical
benefits allocated to the separate account of a key Employee,
as defined in Section 419A(d)(3) of the Code, under a welfare
benefit fund as defined in Section 419(e) of the Code,
maintained by an Affiliated Employer; and
(6) Excess Elective Deferrals, Excess
Contributions (including recharacterized Elective Deferrals)
and Excess Aggregate Contributions.
For this purpose, any Excess Amount applied under Sections 6.
1 (d) or 6.2(e) in the Limitation Year to reduce Employer
contributions will be considered Annual Additions for such Limitation
Year. Any rollover contribution will not be considered an Annual
Addition.
(b) Section 415 Compensation means, for a Self-Employed
Individual, his Earned Income; and for any other Participant, his
"Form W-2 earnings" as defined in Section 2.7.
For purposes of applying the limitations of this Article 6, Section
415 Compensation for a Limitation Year is the Section 415 Compensation
actually paid or made available during such Limitation Year.
(c) Defined Benefit Fraction means a fraction, the
numerator of which is the sum of the Participant's Projected Annual
Benefits under all the defined benefit plans (whether or not
terminated) maintained by the Affiliated Employers, and the
denominator of which is the lesser of 125 % of the dollar limitation
in effect for the Limitation Year under Sections 415(b) and (d) of the
Code, or 140% of the Participant's Highest Average Compensation
including any adjustments under Section 415(b) of the Code.
Notwithstanding the foregoing, if the Participant was a Participant as
of the first day of the first Limitation Year beginning after December
31, 1986, in one or more defined benefit plans maintained by an
Affiliated Employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than 125 % of the sum of
the annual benefits under such plans which the Participant had accrued
as
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of the close of the last Limitation Year beginning before January 1,
1987, disregarding any change in the terms and conditions of the Plan
after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the
requirements of Section 415 of the Code for all Limitation Years
beginning before January 1, 1987.
(d) Defined Contribution Dollar Limitation means $30,000
or if greater, one-fourth of the defined benefit dollar limitation set
forth in Section 415(b)(1) of the Code as in effect for the Limitation
Year.
(e) Defined Contribution Fraction means a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's accounts under all the defined contribution plans
(whether or not terminated) maintained by Affiliated Employers for the
current and all prior Limitation Years (including the Annual Additions
attributable. to the Participant's nondeductible Employee
contributions to all defined benefit plans, whether or not terminated,
maintained by the Affiliated Employers, and the Annual Additions
attributable to all welfare benefit funds, as defined in Section
419(e) of the Code, and individual medical accounts, as defined in
Section 415(l)(2) of the Code), and the denominator of which is the
sum of the Maximum Annual Additions for the current and all prior
Limitation Years of service with the Affiliated Employers (regardless
of whether a defined contribution plan was maintained by any
Affiliated Employer). The Maximum Annual Additions in any Plan Year
is the lesser of 125 % of the dollar limitation determined under
Sections 415(b) and (d) of the Code in effect under Section
415(c)(1)(A) of the Code, or 35 % of the Participant's Section 415
Compensation for such year. If the Employee was a Participant as of
the end of the first day of the first Limitation Year beginning after
December 31, 1986 in one or more defined contribution plans maintained
by an Affiliated Employer which were in existence on May 6, 1986, the
numerator of this fraction will be adjusted if the SUM of this
fraction and the Defined Benefit Fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment, an amount equal
to product of the excess of the sum of the fractions over 1.0,
multiplied by the denominator of THIS fraction, will be permanently
subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of THE end
of the last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan after
May 5, 1986, but using the Section 415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987. The
Annual Addition for any Limitation Year beginning before January 1,
1987, shall not be recomputed to treat 100% of nondeductible Employee
contributions as Annual Additions.
(f) Excess Amount means, with respect to any Participant,
the amount by which Annual Additions exceed the Maximum Annual
Additions.
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(g) Highest Average Compensation means the average
compensation for the three consecutive Years of Service with the
Employer that produces the highest average. A Year of Service with
the Employer is determined based on the Plan Year.
(h) Limitation Year means the Plan Year. All qualified
plans maintained by the Employer must use the same Limitation Year.
If the Limitation Year is amended to a different period of 12
consecutive months, the new Limitation Year must begin on a date
within the Limitation Year in which the amendment is made.
(i) Master or Prototype plan means a plan the form of
which is the subject of a favorable opinion letter from the Internal
Revenue Service.
(j) Maximum Annual Additions, which is the maximum annual
addition that may be contributed or allocated to a Participant's
account under the plan for any Limitation Year, means an amount not
exceeding the lesser of (a) the Defined Contribution Dollar Limitation
or (b) 25 % of the Participant's Section 415 Compensation for the
Limitation Year. The compensation limitation referred to in (b) shall
not apply to any contribution for medical benefits (within the meaning
of Section 401(h) or Section 419A(f)(2) of the Code) which is
otherwise treated as an Annual Addition under Section 415(l)(1) or
Section 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different period of 12 consecutive
months, the Maximum Annual Additions will not exceed the Defined
Contribution Dollar Limitation multiplied by the following fraction:
number of months in the
short Limitation Year
-----------------------
12
(k) Projected Annual Benefit means the annual retirement
benefit (adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight life
annuity or Qualified Joint and Survivor Annuity) to which the
Participant would be entitled under the terms of the Plan assuming:
(1) The Participant win continue employment until
normal retirement age under the Plan (or current age, if
later), and
(2) The Participant's Section 415 Compensation
for the current Limitation Year and all other relevant factors
used to determine benefits under the plan will remain constant
for all future Limitation Years.
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ARTICLE 7. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS
7.1. Retirement. After his Retirement, the amount credited to a
Participant's Accounts will be distributed to him in accordance with Article 9.
The termination of a Participant's employment with the Affiliated Employers
after he has (i) attained the normal retirement age specified in the Plan
Agreement, (ii) fulfilled the requirements for early retirement (if any)
specified in the Plan Agreement, or (iii) become Disabled will constitute his
Retirement. Upon a Participant's Retirement (or, if earlier, his attainment of
the normal retirement age specified in the Plan Agreement or fulfillment of the
requirements for early retirement, if any, specified in the Plan Agreement),
the Participant's Accounts shall become fully vested, regardless of the vesting
schedule specified by the Employer in the Plan Agreement. A Participant who
separates from service with any vested balance in his Accounts, after
satisfying the service requirements for early retirement (if any is specified
in the Plan Agreement) but before satisfying the age requirement for early
retirement (if any is specified in the Plan Agreement), shall be entitled to a
fully vested early retirement benefit upon his satisfaction of such age
requirement.
7.2. Death. If a Participant dies before the distribution of his
Accounts has been completed, his Beneficiary will be entitled to distribution
of benefits in accordance with Article 9. A Participant's Accounts will become
My vested upon his death before termination of his employment with the
Affiliated Employers, regardless of the vesting schedule specified by the
Employer in the Plan Agreement.
A Participant may designate a Beneficiary by completing and returning
to the Plan Administrator a form provided for this purpose. The form most
recently completed and returned to the Plan Administrator before the
Participant's death shall supersede any earlier form. If a Participant has not
designated any Beneficiary before his death, or if no Beneficiary so designated
survives the Participant, his Beneficiary shall be his surviving spouse, or if
there is no surviving spouse, his estate. A married Participant may designate
a Beneficiary other than his spouse only if his spouse consents in writing to
the designation, and the spouse's consent acknowledges the effect of the
consent and is witnessed by a notary public or a representative of the Plan.
The beneficiary or beneficiaries named in the designation to which the spouse
has so consented may not be changed without further written spousal consent
unless the terms of the spouse's original written consent expressly permit such
a change, and acknowledge that the spouse voluntarily relinquishes the right to
limit the consent to a specific beneficiary. The marriage of a Participant
shall nullify any designation of a beneficiary previously executed by the
Participant. If it is established to the satisfaction of the Plan
Administrator that the Participant has no spouse or that the spouse cannot be
located, the requirement of spousal consent shall not apply. Any spousal
consent, or establishment that spousal consent cannot be obtained, shall apply
only to the particular spouse involved.
7.3. Other Termination of Employment. A Participant whose
employment terminates for any reason other than his Retirement or death will be
entitled to distribution, in accordance
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with Article 9, or benefits equal to the amount of the vested balance of his
Accounts as determined under Article 8.
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ARTICLE 8. VESTING
8.1. Vested Balance. The vested balance of a Participant's
Accounts will be determined as follows:
(a) General Rule. A Participant's Elective Deferral
Account, Qualified Nonelective Contribution Account, Qualified
Matching Account, Participant Contribution Account and Rollover
Account shall be fully vested at all times. The vested portion of his
Employer Matching Account and Employer Profit Sharing Account shall be
equal to the percentage that corresponds, in the vesting schedule
specified in the Plan Agreement, to the number of Years of Service
credited to the Participant as of the end of the Year of Service in
which his employment terminates.
(b) Retirement. All of a Participant's Accounts shall
become fully vested upon his Retirement or his earlier attainment of
the normal retirement age elected by the Employer in the Plan
Agreement.
For so long as a former Employee does not receive a distribution (or a
deemed distribution) of the vested portion of his Accounts, the undistributed
portion shall be held in a separate account which shall be invested pursuant to
Section 13.3 and shall share in earnings and losses of the Trust Fund pursuant
to Section 13.4 in the same manner as the Accounts of active Participants
8.2. Vesting of Accounts of Returned Former Employees. The
following rules apply in determining the vested portion of the Accounts of a
Participant who incurs one or more consecutive One-Year Vesting Breaks and then
returns to employment with an Affiliated Employer:
(a) If the Participant incurred fewer than five
consecutive One-Year Vesting Breaks, then all of his Years of Service
will be taken into account in determining the vested portion of his
Accounts, as soon as he has completed one Year of Service following
his return to employment.
(b) If the Participant incurred five or more consecutive
One-Year Vesting Breaks,then:
(1) no Year of Service completed after his return
to employment will be taken into account in determining the
vested portion of his Accounts as of any time before he
incurred the first One-Year Vesting Break;
(2) years of Service completed before he incurred
the first One-Year Vesting Break will not be taken into
account in determining the vested portion of his Accounts as
of any time after his return to employment (i) unless some
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portion of his Employer Contribution Account or Employer
Matching Account had become vested before he incurred the
first One- Year Vesting Break, and (ii) until he has completed
one Year of Service following his return to employment; and
(3) separate sub-accounts will be maintained for
the Participant's pre-break and post-break Employer
Contribution Account and Employer Matching Account, until both
sub-accounts become fully vested. Both sub-accounts will
share in the earnings and losses of the Trust Fund.
8.3. Forfeiture of Non-Vested Amounts. The portion of a former
Employee's Accounts that has not become vested under Section 8. 1 shall become
a Forfeiture in accordance with the following rules, and shall be applied in
accordance with Section 4.13 or Section 5.2.
(a) If Distribution Is Made. If any or all of the vested
portion of a Participant's Accounts is distributed in accordance with
Section 9.1 or 9.2 before the Participant incurs five consecutive
One-Year Vesting Breaks, the nonvested portion of his Accounts shall
become a Forfeiture in the Plan Year in which the distribution occurs.
For purposes of this Section 8.3, if the value of the vested portion
of A Participant's Accounts is zero, the Participant shall be deemed
to have received a distribution of the entire vested balance of his
Accounts on the day his employment terminates. If the Participant
elects to have distributed less than the entire vested portion of his
Employer Contribution Account or Employer Matching Accounts, the part
of the nonvested portion that will become a Forfeiture is the total
nonvested portion multiplied by a fraction, the numerator of which is
the amount of the distribution and the denominator of which is the
total value of the entire vested portion of such Accounts.
(b) Right of Repayment. If a Participant who receives a
distribution pursuant to paragraph (a) returns to employment with an
Affiliated Employer, the balance of his Employer Contribution Account
and Employer Matching Account will be restored to the amount of such
balance on the date of distribution, if he repays to the Plan the full
amount of the distribution, before the earlier of (i) the fifth
anniversary of his return to employment or (ii) the date he incurs
five consecutive One-Year Vesting Breaks following the date of
distribution. If an Employee is deemed to receive a distribution
pursuant to this Section 8.3, and he resumes employment covered under
this Plan before the date he incurs five consecutive One-Year Vesting
Breaks, upon his reemployment the Employer-derived account balance of
the Employee will be restored to the amount on the date of such deemed
distribution. Such restoration will be made, first, from the amount
of any Forfeitures available for reallocation as of the last day of
the Plan Year in which repayment is made, to the extent thereof; and
to the extent that
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Forfeitures are not available or are insufficient to restore the
balance, from contributions made by the Employer pursuant to Section
4.1(f).
(c) If No Distribution Is Made. If no distribution (nor
deemed distribution) is made to a Participant before he incurs five
consecutive One-Year Vesting Breaks, the nonvested portion of his
Accounts shall become a Forfeiture at the end of the Plan Year that
constitutes his fifth consecutive One-Year Vesting Break.
(d) Adjustment of Accounts. Before a Forfeiture is
incurred, a Participant's Accounts shall share in earnings and losses
of the Trust Fund pursuant to Section 13.4 in the same manner as the
Accounts of active Participants.
(e) Accumulated Deductible Contributions. For Plan Years
be before January 1, 1989, a Participant's vested Account balance
shall not include accumulated deductible contributions within the
meaning of Section 72(o)(5)(B) of the Code.
8.4. Special Rule in the Event of a Withdrawal. If a withdrawal
pursuant to Section 12.2 or 12.3 is made from a Participant's Employer Profit
Sharing Account or Employer Matching Account before the Account is fully
vested, and the Participant may subsequently increase the vested percentage in
the Account, then a separate account will be established at the time of the
withdrawal, and at any relevant time after the withdrawal the vested portion of
the separate account will be equal to the amount "X" determined by the
following formula:
X = P(AB + D) - D
For purposes of the formula, P is the Participant's vested percentage at the
relevant time, AB is the account balance at the relevant time, and D is the
amount of the withdrawal.
8.5. Vesting Election. If the Plan is amended to change any
vesting schedule, or is amended in any way that directly or indirectly affects
the computation of a Participant's vested percentage, each Participant who has
completed not less than three Years of Service may elect, within a reasonable
period after the adoption of the amendment or change, in a writing filed with
the Employer to have his vested percentage computed under the Plan without
regard to such amendment. For a Participant who is not credited with at least
one Hour of Service in a Plan Year beginning after December 31, 1988, the
preceding sentence shall be applied by substituting 'five Years of Service' for
"three Years of Service". The period during which the election may be made
shall commence with the date the amendment is adopted, or deemed to be made,
and shall end on the latest of (a) 60 days after the amendment -is adopted; (b)
60 days after the amendment becomes effective; or (c) 60 days after the
Participant is issued written notice of the amendment by the Employer.
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ARTICLE 9. PAYMENT OF BENEFITS
9.1. Distribution of Accounts. A Participant or Beneficiary who
has become eligible for a distribution of benefits pursuant to Article 7 may
elect to receive such benefits at any time, subject to the terms and conditions
of this Article 9, Article 10 and Article 11. Unless a Participant or
Beneficiary elects otherwise, distribution of benefits will begin no later than
the 60th day after the end of the Plan Year in which the latest of the
following events occurs:
(a) The Participant attains age 65 (or if earlier, the
normal retirement age specified by the Employer in the Plan
Agreement); or
(b) The tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(c) The Participant's employment with the Affiliated
Employers terminates.
A Beneficiary who is the surviving spouse of a Participant may elect to have
distribution of benefits begin within the 90-day period following the
Participant's death.
For purposes of this Section 9. 1, the failure of a Participant (and
his spouse, if spousal consent is required pursuant to Article 10) to consent
to a distribution while a benefit is 'immediately distributable" within the
meaning of Section 9.2 shall be considered an election to defer commencement of
payment. The vested portion of a Participant's Accounts will be distributed in
a lump slim in cash no later than 60 days after the end of the Plan Year in
which his employment terminates, if at the time the Participant first became
entitled to a distribution the value of such vested portion derived from
Employer and Employee contributions does not exceed $3,500. Commencement of
distributions in any case shall be subject to Section 9.4.
9.2. Restriction on Immediate Distributions. A Participant's
account balance is considered "immediately distributable" if any part of the
account balance could be distributed to the Participant (or his surviving
spouse) before the Participant attains, or would have attained if not deceased,
the later of the normal retirement age specified in the Plan Agreement or age
62.
(a) If the value of a Participant's vested account
balance derived from Employer and Employee contributions exceeds (or
at the time of any prior distribution exceeded) $3,500, and the
account balance is immediately distributable, the Participant and his
spouse (or where either the Participant or the spouse has died, the
survivor) must consent to any such distribution, unless an exception
described in paragraph (b) applies. The consent of the Participant
and his spouse shall be obtained in writing within the 90-day period
ending on the annuity starting date, which is the first day of the
first period for which an amount is paid as an annuity (or any other
form). The Plan Administrator shall notify the Participant and the
spouse, no less than 30 days and
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no more than 90 days before the annuity starting date, of the right to
defer any distribution until the Participant's account balance is no
longer immediately distributable. Such notification shall include a
general description of the material features of the optional forms of
benefit available under the Plan and an explanation of their relative
values, in a manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code. If a distribution is one to which
Sections 401(a)(11) and 417 of the Code do not apply, such
distribution may commence less than 30 days after the required
notification is given, provided that:
(1) the Plan Administrator clearly informs the
Participant that the Participant has a right to a period of at
least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option); and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution.
(b) Notwithstanding paragraph (a), only the Participant
need consent to the commencement of a distribution in the form of a
Qualified Joint and Survivor Annuity while the account balance is
immediately distributable. Furthermore, if payment in the form of a
Qualified Joint and Survivor Annuity is not required with respect to
the Participant pursuant to Section 1 0. I (b) of the Plan, only the
Participant need consent to the distribution of an account balance
that is immediately distributable. Neither the consent of the
Participant nor the spouse shall be required to the extent that a
distribution is required to satisfy Section 401(a)(9) or Section 415
of the Code. In addition, upon termination of the Plan, if the Plan
does not offer an annuity option purchased from a commercial provider,
and no Affiliated Employer maintains another defined contribution plan
(other than an employee stock ownership plan as defined in Section
4975(e)(7) of the Code), a Participant's account balance shall be
distributed to the Participant without his consent. If any Affiliated
Employer maintains another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the
Code), a Participant's account balance shall be transferred to that
defined contribution plan without his consent, unless he consents to
an immediate distribution. For purposes of determining the
applicability of the foregoing consent requirements to distributions
made before the first day of the first Plan Year beginning after
December 31, 1988, the Participant's vested account balance shall not
include amounts attributable to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the Code.
9.3. Optional Forms of Distribution. If at the time a Participant
first becomes entitled to a distribution the value of his vested Account
balance derived from Employer and Employee contributions does not exceed
$3,500, distribution shall be made in a lump SUM in cash. Subject to the
preceding sentence and to the rules of Article 10 concerning joint and survivor
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annuities, a Participant or Beneficiary may elect to receive benefits in any of
the following optional forms:
(a) A lump sum payment in cash or in kind or in a
combination of both;
(b) A series of installments over a period certain that
meets the requirements of Article II; or
(c) In the event that the Plan is adopted as an amendment
to an existing plan, any optional form of distribution available under
the existing plan. Such optional forms of distribution may be made
available where necessary through the purchase by the Plan
Administrator of an appropriate annuity contract from a commercial
provider, with terms complying with the requirements of Article 11.
If the Plan is a direct or indirect transferee of a defined benefit
plan, money purchase plan, target benefit plan, stock bonus plan, or
profit sharing plan which is subject to the survivor annuity
requirements of Sections 40 1 (a)(11) and 417 of the Code, the
provisions of Article 1O shall apply.
9.4. Distribution Procedure. The Trustee shall make or commence
distributions to or for the benefit of Participants only on receipt of an
instruction from the Employer in writing or by such other means as shall be
acceptable to the Trustee, certifying that a distribution of a Participant's
benefits is payable pursuant to the Plan, and specifying the time and manner of
payment. The amount to be distributed shall be determined as of the Valuation
Date coincident with or next following the Employer's order. The Trustee shall
be fully protected in acting upon the directions of the Employer in making
benefit distributions, and shall have no duty to determine the rights or
benefits of any person under the Plan or to inquire into the right or power of
the Employer to direct any such distribution. The Trustee shall be entitled to
assume conclusively that any determination by the Employer with respect to a
distribution meets the requirements of the Plan. The Trustee shall not be
required to make any payment hereunder in excess of the net realizable value of
the assets of the Account in question at the time of such payment, nor to make
any payment in cash unless the Employer has furnished instructions as to the
assets to be converted to cash for the purposes of making payment.
9.5. Lost Distributee. In the event that the Plan Administrator is
unable with reasonable effort to locate a person entitled to distribution under
the Plan, the Accounts distributable to such A person shall become a Forfeiture
at the end of the third Plan Year after the Plan Administrator's efforts to
locate such person began; provided, however, that the amount of the Forfeiture
shall be restored in the event that such person thereafter submits a claim for
benefits under the Plan. Such restoration will be made, first, from the amount
of Forfeitures available for reallocation as of the last day of the Plan Year
in which the claim is made, to the extent thereof-, and to the extent that
Forfeitures are not available or are insufficient to restore the balance, from
contributions made by the Employer pursuant to Section 4.1 (f). A Forfeiture
occurring under this Section 9.5 shall be used to reduce the
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amount of contributions required of the Employer as described in Section 4.13
and Section 5.2.
9.6. Direct Rollovers. This Section 9.6 applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner prescribed by
the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For purposes of this Section 9.6, the
following definitions shall apply:
(a) Eligible Rollover Distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance
to the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the
distributees and the distributee's Designated Beneficiary (as defined
in Section 11. 3), or for a specified period of ten years or more, any
distribution to the extent such distribution is required under section
401(a)(9) of the Code, and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
(b) Eligible Retirement Plan. An eligible retirement
plan is an individual retirement account described in section 408(a)
of the Code, an individual retirement annuity described in section
408(b) of the Code, an annuity plan described in section 403(a) of the
Code, or a qualified trust described in section 401(a) of the Code,
that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(c) Distributee. A distributee includes an Employee or
former Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse or
former spouse who is the alternate payee under a Qualified Domestic
Relations Order are distributees with regard to the interest of the
spouse or former spouse.
(d) Direct Rollover. A direct rollover is a payment by
the Plan to the eligible retirement plan specified by the distributee.
9.7. Distributions Required by a Qualified Domestic Relations
Order. To the extent required by a Qualified Domestic Relations Order, the
Plan Administrator shall make distributions from a Participant's Accounts to
any alternate payee named in such order in a
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manner consistent with the distribution options OTHERWISE AVAILABLE under the
Plan, regardless of whether the Participant is otherwise entitled to A
distribution at such time under the Plan.
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ARTICLE 10. JOINT AND SURVIVOR ANNUITY REQUIREMENTS
10.1. Applicability.
(a) Generally. The provisions of Sections 10.2 through
10.5 shall generally apply to a Participant who is credited with at
least one Hour of Service on or after August 23, 1984, and such other
Participants as provided in Section 10.6.
(b) Exception for Certain Plans. The provisions of
Sections 10.2 through 10.5 shall not apply to a Participant if: (i)
the Participant does not or cannot elect payment of benefits in the
form of a life annuity, and (ii) on the death of the Participant, his
Vested Account Balance will be paid to his surviving spouse (unless
there is no surviving spouse, or the surviving spouse has consented to
the designation of another Beneficiary in a manner conforming to a
Qualified Election) and the surviving spouse may elect to have
distribution of the Vested Account Balance (adjusted in accordance
with Section 13.4 for gains or losses occurring after the
Participant's death) commence within the 90-day period following the
date of the Participant's death. The Participant may waive the spousal
death benefit described in this paragraph (b) at any time, provided
that no such waiver shall be effective unless it satisfies the
conditions applicable under Section 10-4(c) to a Participant's waiver
of a Qualified Preretirement Survivor Annuity. The exception in this
paragraph (b) shall not be operative with respect to a Participant if
the Plan:
(1) is a direct or indirect transferee of a
defined benefit plan, money purchase pension plan, target
benefit plan, stock bonus plan, or profit sharing plan which
is subject to the survivor annuity requirements of Sections
401 (a)(11) and 417 of the Code; or
(2) is adopted as an amendment of a plan that did
not qualify for the exception in this paragraph (b) before the
amendment was adopted.
For purposes of this paragraph (b), Vested Account Balance
shall have the meaning provided in Section 10.4(f). The provisions of
Sections 10.2 through 10.6 set forth the survivor annuity requirements
of Sections 401 (a)(11) and 417 of the Code.
(c) Exception for Certain Amounts. The provisions of
Sections 10.2 through 10.5 shall not apply to any distribution made on
or after the first day of the first Plan Year beginning after December
31, 1988, from or under a separate account attributable solely to
accumulated deductible employee contributions as defined in Section
72(o)(5)(B) of the Code, and maintained on behalf of a Participant in
a money purchase pension plan or a target benefit plan, provided that
the exceptions applicable to certain profit sharing plans under
paragraph (b) are applicable with respect to the separate account (for
this purpose, Vested Account Balance means the Participant's
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separate account balance attributable solely to accumulated deductible
employee -contributions within the meaning of Section 72(o)(5)(B) of
the Code).
10.2. Qualified Joint and Survivor Annuity. Unless an optional form
of benefit is selected pursuant to a Qualified Election within the go-day
period ending on the Annuity Starting Date, a married Participant's Vested
Account Balance will be paid in the form of A Qualified Joint and Survivor
Annuity and an unmarried Participant's Vested Account Balance will be paid in
the form of a life annuity. In either case, the Participant may elect to have
such an annuity distributed upon his attainment of the Earliest Retirement Age
under the Plan.
10.3. Qualified Preretirement Survivor Annuity. Unless an optional
form of benefit has been selected within the Election Period pursuant to a
Qualified Election, the Vested Account Balance of a Participant who dies before
the Annuity Starting Date shall be applied toward the purchase of an annuity
for the life of his surviving spouse (a "Qualified Preretirement Survivor
Annuity"). The surviving spouse may elect to have such an annuity distributed
within a reasonable period after the Participant's death. For purposes of this
Article 10, the term "spouse" means the current spouse or surviving spouse of a
Participant, except that a former spouse will be treated as the spouse or
surviving spouse (and a current spouse will not be treated as the spouse or
surviving spouse) to the extent provided under A qualified domestic relations
order as described in Section 414(p) of the Code.
10.4. Definitions. The following definitions apply:
(a) "Election Period" means the period beginning on the
first day of the Plan Year in which a Participant attains age 35 and
ending on the date of the Participant's death. If a Participant
separates from service before the first day of the Plan Year in which
he reaches age 35, the Election Period with respect to his account
balance as of the date of separation shall begin on the date of
separation. A Participant who will not attain age 35 as of the end of
a Plan Year may make a special Qualified Election to waive the
Qualified Preretirement Survivor Annuity for the period beginning on
the date of such election and ending on the first day of the Plan Year
in which the Participant will attain age 35. Such an election shall
not be valid unless the Participant receives a written explanation of
the Qualified Preretirement Survivor Annuity in such terms as are
comparable to the explanation required under Section 10.5. Qualified
Preretirement Survivor Annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the
Participant attains age 35. Any new waiver on or after that date
shall be subject to the full requirements of this article.
(b) "Earliest Retirement Age" means the earliest date on
which the Participant could elect to receive Retirement benefits under
the Plan.
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(c) "Qualified Election" means a waiver of a Qualified
Joint and Survivor Annuity or a Qualified Preretirement Survivor
Annuity. Any such waiver shall not be effective unless: (1) the
Participant's spouse consents in writing to the waiver; (2) the waiver
designates a specific Beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (unless the spouse's consent expressly
permits designations by the Participant without any further spousal
consent); (3) the spouse's consent acknowledges the effect of the
waiver; and (4) the spouse's consent is witnessed by a plan
representative or notary public. Additionally, a Participant's waiver
of the Qualified Joint and Survivor Annuity shall not be effective
unless the waiver designates a form of benefit payment which may not
be changed without spousal consent (unless the spouse's consent
expressly permits designations by the Participant without any further
spousal consent). If it is established to the satisfaction of a plan
representative that there is no spouse or that the spouse cannot be
located, a waiver will be deemed a Qualified Election. Any consent by
a spouse obtained under these provisions (and any establishment that
the consent of a spouse may not be obtained) shall be effective only
with respect to the particular spouse involved. A consent that
permits designations by the Participant without any requirement of
further consent by the spouse must acknowledge that the spouse has the
right to limit the consent to a specific Beneficiary and a specific
form of benefit where applicable, and that the spouse voluntarily
elects to relinquish either or both of those rights. A revocation of
a prior waiver may be made by a Participant without the consent of the
spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as
provided in Section 10.5.
(d) "Qualified Joint and Survivor Annuity" means an
immediate annuity for the life of a Participant, with a survivor
annuity for the life of the spouse which is not less than 50% and not
more than 100% of the amount of the annuity which is payable during
the joint lives of the Participant and the spouse, and which is the
amount of benefit that can be purchased with the Participant's Vested
Account Balance. The percentage of the survivor annuity under the
Plan shall be 50%.
(e) "Annuity Starting Date" means the first day of the
first period for which an amount is paid as an annuity (or any other
form).
(f) "Vested Account Balance" means the aggregate value of
the Participant's vested account balance derived from Employer and
Employee contributions (including rollovers), whether vested before or
upon death, including the proceeds of insurance contracts, if any, on
the Participant's life. The provisions of this Article 10 shall apply
to a Participant who is vested in amounts attributable to Employer
contributions, Employee contributions or both at the time of death or
distribution.
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(g) "Straight life annuity" means an annuity payable in
equal installments for the life of the Participant that terminates
upon the Participant's death.
10.5. Notice Requirements. In the case of a Qualified Joint and
Survivor Annuity, no less than 30 days and no more than 90 days before a
Participant's Annuity Starting Date the Plan Administrator shall provide to him
a written explanation of (i) the terms and conditions of a Qualified Joint and
Survivor Annuity, (ii) the Participant's right to make, and the effect of, an
election to waive the Qualified Joint and Survivor Annuity form of benefit,
(iii) the rights of the Participant's spouse, and (iv) the right to make, and
the effect of, a revocation of a previous election to waive the Qualified Joint
and Survivor Annuity.
In the case of a Qualified Preretirement Survivor Annuity, within the
applicable period for a Participant the Plan Administrator shall provide to him
a written explanation of the Qualified Preretirement Survivor Annuity, in terms
and manner comparable to the requirements applicable to the explanation of a
Qualified Joint and Survivor Annuity as described in the preceding paragraph.
The applicable period for a Participant is whichever of the following periods
ends last: (i) the period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close -of the Plan
Year preceding the Plan Year in which the Participant attains age 35; (ii) a
reasonable period ending after an individual becomes a Participant; (iii) a
reasonable period ending after this Article 10 first applies to the
Participant. Notwithstanding the foregoing, in the case of a Participant who
separates from service before attaining age 35, notice must be provided within
a reasonable period ending after his separation from service.
For purposes of applying the preceding paragraph, a reasonable period
ending after the enumerated events described in (ii) and (iii) is the end of
the two-year period beginning one year before the date the applicable event
occurs, and ending one year after that date. In the case of a Participant who
separates from service before the Plan Year in which he reaches age 35, notice
shall be provided within the two-year period beginning one year before the
separation and ending one year after the separation. If such a Participant
thereafter rearm to employment with the Employer, the applicable period for the
Participant shall be redetermined.
10.6. Transitional Rules.
(a) Any living Participant not receiving benefits on August
23, 1984, who would otherwise not receive the benefits prescribed by
the preceding Sections of this Article 10, must be given the
opportunity to elect to have those Sections apply if the Participant
is credited with at least one Hour of Service under the Plan or a
predecessor plan in a Plan Year beginning on or after January 1, 1976,
and the Participant had at least ten years of vesting service when he
or she separated from service.
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(b) Any living Participant not receiving benefits on
August 23, 1984, who was credited with at least one Hour of Service
under the Plan or a predecessor plan on or after September 2, 1974,
and who is not otherwise credited with any service in a Plan Year
beginning on or after January 1, 1976, must be given the opportunity
to have his benefits paid in accordance with paragraph (d) of this
Section 10-6.
(c) The respective opportunities to elect (as described
in paragraphs (a) and (b) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to be paid to
those Participants.
(d) Any Participant who has so elected pursuant to
paragraph (b) of this Section 10. 6, and any Participant who does not
elect under paragraph (a), or who meets the requirements of paragraph
(a) except that he does not have at least ten years of vesting service
when he separates from service, shall have his benefits distributed in
accordance with all of the following requirements, if his benefits
would otherwise have been payable in the form of a life annuity:
(1) Automatic joint and survivor annuity. If
benefits in the form of a life annuity become payable to a
married Participant who:
(A) begins to receive payments under the
Plan on or after normal retirement age; or
(B) dies on or after normal retirement
age while still working for the Employer; or
(C) begins to receive payments on or
after the qualified early retirement age; or
(D) separates from service on or after
attaining normal retirement age (or the qualified
early retirement age) and after satisfying the
eligibility requirements for the payment of benefits
under the Plan and thereafter dies before beginning
to receive such benefits;
then such benefits will be received under the Plan in the form
of a Qualified Joint and Survivor Annuity, unless the
Participant has elected otherwise during the election period,
which must begin at least six months before the Participant
attains qualified early retirement age and end not more than
90 days before the commencement of benefits. Any election
hereunder will be in writing and may be changed by the
Participant at any time.
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(2) Election of early survivor annuity. A
Participant who is employed after attaining the qualified
early retirement age will be given the opportunity to elect
during the election period to have a survivor annuity payable
on death. If the Participant elects the survivor annuity,
payments under such annuity must not be less than the payments
which would have been made to the spouse under the Qualified
Joint and Survivor Annuity if the Participant had retired on
the day before his death. Any election under this provision
will be in writing and may be changed by the Participant at
any time. The election period begins on the later of (i) the
90th day before the Participant attains the qualified early
retirement age, or (ii) the date on which participation
begins, and ends on the date the Participant terminates
employment.
(3) For purposes of this Section 10.6, qualified
early retirement age is the latest of the earliest date under
the Plan on which the Participant may elect to receive
Retirement benefits, the first day of the 120th month
beginning before the participant reaches normal retirement
age, or the date the Participant begins participation.
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ARTICLE 11. MINIMUM DISTRIBUTION REQUIREMENTS
11.1. General Rules. Subject to Article 10, Joint and Survivor
Annuity Requirements, the requirements of this Article I I shall apply to any
distribution of a Participant's interest and will take precedence over any
inconsistent provisions of the Plan. All distributions required under this
Article I I shall be determined and made in accordance with the Income Tax
Regulations issued under Section 401(a)(9) of the Code (including proposed
regulations, until the adoption of final regulations), including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the
proposed regulations.
11.2. Required BEGINNING Date. The entire interest of a Participant
must be distributed, or begin to be distributed, no later than the
Participant's required beginning date, determined as follows.
(a) General Rule. The required beginning date of a
Participant is the first day of April of the calendar year following
the calendar year in which the Participant attains age 70 1/2.
(b) Transitional Rules. The required beginning date of a
Participant who attains age 70 1/2 before January 1, 1988, shall be
determined in accordance with (1) or (2) below:
(1) Non-5 % owners. The required beginning date
of a Participant who is not a 5 % owner is the first day of
April of the calendar year following the calendar year in
which the later of his Retirement or his ATTAINMENT of age 70
1/2 occurs.
(2) 5 % owners. The required beginning date of a
Participant who is a 5 % owner during any year beginning after
December 31, 1979, is the first day of April following the
later of.
(A) the calendar year in which the
Participant attains age 70 1/2, or
(B) the earlier of the calendar year
with or within which ends the Plan Year in which the
Participant becomes a 5 % owner, or the calendar year
in which the Participant retires.
The required beginning date of a Participant who is not a 5 %
owner, who attains age 70 1/2 during 1988 and who has not retired as
of January 1, 1989, is April 1, 1990.
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(c) Rules for 5 % Owners. A Participant is treated as a
5 % owner for purposes of this Section 11. 2 if he is a 5 % owner as
defined in Section 416(i) of the Code (determined in accordance with
Section 416 but without regard to whether the Plan is top heavy) at
any time during the Plan Year ending with or within the calendar year
in which he attains age 66 1/2, or any subsequent Plan Year. Once
distributions have begun to a 5 % owner under this Section 11. 2, they
must continue, even if the Participant ceases to be a 5 % owner in a
subsequent year.
11.3. Limits on Distribution Periods. As of the first Distribution
Calendar Year, distributions not made in a single sum may be made only over one
or a combination of the following periods:
(a) the life of the Participant,
(b) the life of the Participant and his Designated
Beneficiary,
(c) a period certain not extending beyond the Life
Expectancy of the Participant, or
(d) a period certain not extending beyond the Joint and
Last Survivor Expectancy of the Participant and his Designated
Beneficiary.
"Designated Beneficiary" means the individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) of the Code and
the regulations issued thereunder (including proposed regulations, until the
adoption of final regulations) and Section 7.2.
"Distribution Calendar Year' means a calendar year for which a minimum
distribution is required under Section 401(a)(9) of the Code and this Section
11.3. For distributions beginning before the Participant's death, the first
Distribution Calendar Year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first Distribution
Calendar Year is the calendar year in which distributions are required to begin
pursuant to Section 11.5.
"Life Expectancy" and 'Joint and Last Survivor Expectancy" are
computed by use of the expected return multiples in Tables V and VI of Section
1.72-9 of the Income Tax Regulations. Unless otherwise elected by the
Participant (or his spouse, in the case of distributions described in Section
11.5(b)) by the time distributions are required to begin, Life Expectancies
shall be recalculated annually. Any such election shall be irrevocable as to
the Participant (or spouse) and shall apply to all subsequent years. The Life
Expectancy of a nonspouse beneficiary may not be recalculated.
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11.4. Determination of Amount to Be Distributed Each Year. interest
is to be distributed in other than a single sum, the following minimum
distribution rules shall apply on or after the required beginning date.
paragraphs (a) through (d) apply to distributions in forms other than the
purchase of an annuity contract.
(a) If a Participant's Benefit (as defined below) is to
be distributed over (1) a period not extending beyond the Life
Expectancy of the Participant or the Joint Life and Last Survivor
Expectancy of the Participant and his Designated Beneficiary, or (2) a
period not extending beyond the Life Expectancy of the Designated
Beneficiary, the amount required to be distributed for each calendar
year, beginning with distributions for the first Distribution Calendar
Year, must at least equal the quotient obtained by dividing the
Participant's Benefit by the Applicable Life Expectancy (as defined
below).
(b) For calendar years beginning before January 1, 1989,
if the Participant's spouse is not the Designated Beneficiary, the
method of distribution selected must assure that at least 50% of the
present value of the amount available for distribution is paid within
the Life Expectancy of the Participant.
(c) For calendar years beginning after December 31, 1988,
the amount to be distributed each year, beginning with distributions
for the first Distribution Calendar Year, shall not be less than the
quotient obtained by dividing the Participant's Benefit by the lesser
of (1) the Applicable Life Expectancy or (2) if the Participant's
spouse is not the Designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of Section 1.4 01(a)(9)-2
of the Proposed Income Tax Regulations. Distributions after the death
of the Participant shall be distributed using the Applicable Life
Expectancy in paragraph (a) above as the relevant divisor, without
regard to Proposed Regulations Section 1.401(a)(9)-2.
(d) The minimum distribution required for the
Participant's first Distribution Calendar Year must be made on or
before the Participant's required beginning date. The minimum
distribution for other calendar years, including the minimum
distribution for the Distribution Calendar Year in which the
Employee's required beginning date occurs, must be made on or before
December 31 of that Distribution Calendar Year.
(e) If the Participant's Benefit is distributed in the
form of an annuity contract purchased from an insurance company,
distributions thereunder shall be in accordance with the requirements
of Section 401(a)(9) of the Code and the regulations issued thereunder
(including proposed regulations, until the adoption of final
regulations).
"Applicable Life Expectancy" means the Life Expectancy (or Joint and
Last Survivor Expectancy) calculated using the attained age of the Participant
(or Designated Beneficiary) as
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of the Participant's (or Designated Beneficiary's) birthday in the applicable
calendar year, reduced by one for each calendar year which has elapsed since
the date Life Expectancy was first calculated. If Life Expectancy is being
recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so
recalculated. The applicable calendar year shall be the first Distribution
Calendar Year, and if Life Expectancy is being recalculated such succeeding
calendar year. If annuity payments commence in accordance with Section 11.4(e)
before the required beginning date, the applicable calendar year is the year
such payments commence. If distribution is in the form of an immediate annuity
purchased after the Participant's death with the Participant's remaining
interest in the Plan, the applicable calendar year is the year of purchase.
"Participant's Benefit" means the account balance as of the last
valuation date in the calendar year immediately preceding the Distribution
Calendar Year (valuation calendar year), increased by the amount of any
contributions or Forfeitures allocated to the account balance as of dates in
the valuation calendar year after the valuation date and decreased by
distributions made in the valuation calendar year after the valuation date.
For purposes of the preceding sentence, if any portion of the minimum
distribution for the first Distribution Calendar Year is made in the second
Distribution Calendar Year on or before the required beginning date, the amount
of the minimum distribution made in the second Distribution Calendar Year shall
be treated as if it had been made in the immediately preceding Distribution
Calendar Year.
11.5. Death Distribution Provisions.
(a) Distribution Beginning before Death. If the
Participant dies after distribution of his interest has begun, the
remaining portion of his interest will continue to be distributed at
least as rapidly as under the method of distribution being used before
the Participant's death.
(b) Distribution Beginning after Death. If the
Participant dies before distribution of his interest begins,
distribution of his entire interest shall be completed by December 31
of the calendar year containing the fifth anniversary of the
Participant's death, except to the extent that an election is made to
receive distributions in accordance with (1) or (2) below:
(1) If any portion of the Participant's interest
is payable to a Designated Beneficiary, distributions may be
made over the Designated Beneficiary's life, or over a period
certain not greater than the Life Expectancy of the Designated
Beneficiary, commencing on or before December 31 of the
calendar year immediately following the calendar year in which
the Participant died; or
(2) If the Designated Beneficiary is the
Participant's surviving spouse, the date distributions are
required to begin in accordance with (1) above
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shall not be earlier than the later of (i) December 31 of the
calendar Year immediately following the calendar year in which
the Participant died, and (ii) December 31 of the calendar
year in which the Participant would have attained age 70 1/2
If the Participant has not made an election pursuant to this
Section 11.5 by the time of his death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the
earlier of (i) December 31 of the calendar year in which distributions
would be required to begin under this Section 11.5, or (ii) December
31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not
elect a method of distribution, distribution of the Participant's
entire interest must be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death.
(c) For purposes of paragraph (b), if the surviving
spouse dies after the Participant, but before payments to the spouse
begin, the provisions of paragraph (b), with the exception of
subparagraph (2) therein, shall be applied as if the surviving spouse
were the Participant.
(d) For purposes of this Section 11.5, any amount paid to
a child of the Participant will be treated as if it had been paid to
the surviving spouse of the Participant if the amount becomes payable
to the surviving spouse when the child reaches the age of majority.
(e) For the purposes of this Section 11.5, distribution
of a Participant's interest is considered to begin on the
Participant's required beginning date (or, if paragraph (c) above is
applicable, the date distribution is required to begin to the
surviving spouse pursuant to paragraph (b) above). If distribution in
the form of an annuity contract described in Section 11.4(e)
irrevocably commences to the Participant before the required beginning
date, the date distribution is considered to begin is the date
distribution actually commences.
11.6. Transitional Rule. Notwithstanding the other requirements of
this Article 11, and subject to the requirements of Article 10, Joint and
Survivor Annuity Requirements, distribution on behalf of any Participant,
including a 5 % owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(a) The distribution is one which would not have
disqualified the Trust under Section 401(a)(9) of the Internal Revenue
Code of 1954 as in effect before its amendment by the Deficit
Reduction Act of 1984.
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(b) The distribution is in accordance with a method of
distribution -designated by the Employee whose interest in the Trust
is being distributed or, if the Employee is deceased, by a Beneficiary
of the Employee.
(c) The designation specified in paragraph (b) was in
writing, was signed by the Employee or the Beneficiary, and was made
before January 1, 1984.
(d) The Employee had accrued a benefit under the Plan as
of December 31, 1983.
(e) The method of distribution designated by the Employee
or the Beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made, and in the
case of any distribution upon the Employee's death, the Beneficiaries
of the Employee listed in order of priority.
A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be made upon
the death of the Employee. For any distribution which commences before January
1, 1984, but continues after December 31, 1983, the Employee or the Beneficiary
to whom such distribution is being made will BE presumed to have designated the
method of distribution under which the distribution is being made, if the
method of distribution was specified in writing and the distribution satisfies
the requirements in paragraphs (a) and (e).
If a designation is revoked, any subsequent distribution must satisfy
the requirements of Section 401(a)(9) of the Code and the regulations
thereunder. If a designation is revoked after the date distributions are
required to begin, the Trust must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been distributed to
satisfy Section 401(a)(9) of the Code and the regulations thereunder, but for
the designation described in paragraphs (b) through (e). For calendar years
beginning after December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section 1.401(a)(9)-2 of the
Proposed Income Tax Regulations. Any changes in the designation generally will
be considered to be a revocation of the designation, but the mere substitution
or addition of another beneficiary (one not named in the designation) under the
designation will not be considered to be A revocation of the designation, so
long as the substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or indirectly (for
example, by altering the relevant measuring life). In the case of an amount
transferred or rolled over from one plan to another plan, the rules in Q&A J-2
and Q&A J-3 of Section 1.401(a)(9)-l of the Proposed Income Tax Regulations
shall apply.
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ARTICLE 12. WITHDRAWALS AND LOANS
12.1. Withdrawals from Participant Contribution Accounts. Subject
to the requirements of Article 10, a Participant may upon written notice (or in
such other manner as shall be made available and agreed upon by the Employer
and Putnam) to the Employer withdraw any amount from his Participant
Contribution Account (if any). A withdrawn amount may not be repaid to the
Plan. No Forfeiture will occur solely as a result of an Employee's withdrawal
from a Participant Contribution Account.
12.2. Withdrawals on Account of Hardship.
(a) If the Employer has so elected in the Plan Agreement,
upon a Participant's written request (or in such other manner as shall
be made available and agreed upon by the Employer and Putnam), the
Plan Administrator may permit a withdrawal of FUNDS from the vested
portion of the Participant's Accounts on account of the Participant's
financial hardship, which must be demonstrated to the satisfaction of
the Plan Administrator, provided, that no hardship withdrawal shall be
made from Qualified Nonelective Contribution Account or Qualified
Matching Account. In considering such requests, the Plan Administrator
shall apply uniform standards that do not discriminate in favor of
Highly Compensated Employees. If hardship withdrawals are permitted
from more than one of the Elective Deferral Account, Rollover Account,
Employer Matching Account, and Employer Profit Sharing Account, they
shall be made first from a Participant's Elective Deferral Account,
then from his Rollover Account, then from his Employer Matching
Account, and finally from his Employer Profit Sharing Account. A
withdrawn amount may not be repaid to the Plan.
(b) The maximum amount that may be withdrawn on account of
hardship from an Elective Deferral Account after December 31, 1988,
shall not exceed the sum of (1) the amount credited to the Account as
of December 31, 1988, and (2) the aggregate amount of the Elective
Deferrals made by the Participant after December 31, 1988, and before
the hardship withdrawal.
(c) Hardship withdrawals shall be permitted only on
account of the following financial needs:
(1) Expenses for medical care described in Section
213(d) of the Code for the Participant, his spouse, children
and dependents, or necessary for these persons to obtain such
care;
(2) Purchase of the principal residence of the
Participant (excluding regular mortgage payments);
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(3) Payment of tuition and related educational
fees and room and board expenses for the upcoming 12 months of
post-secondary education for the Participant, his spouse,
children or dependents; or
(4) Payments necessary to prevent the
Participant's eviction from, or the foreclosure of a mortgage
on, his principal residence.
(d) Hardship withdrawals shall be subject to the spousal
consent requirements contained in Sections 411 (a)(11) and 417 of the
Code, to the same extent that those requirements apply to a
Participant pursuant to Section 10. 1.
(e) A hardship distribution will be permitted to a
Participant only upon satisfaction of the following conditions:
(1) The Participant has obtained all nontaxable
loans and all distributions other than hardship withdrawals
available to him from all plans maintained by the Affiliated
Employers;
(2) The hardship withdrawal does not exceed the
amount of the Participant's financial need as described in
paragraph (b) plus any amounts necessary to pay federal, state
and local income taxes and penalties reasonably anticipated to
result from the withdrawal;
(3) With respect to withdrawals from an Elective
Deferral Account, all plans maintained by the Affiliated
Employers provide that the Participant's Elective Deferrals
and voluntary after-tax contributions will be suspended for a
period of 12 months following his receipt of a hardship
withdrawal; and
(4) With respect to withdrawals from an Elective
Deferral Account, all plans maintained by the Affiliated
Employers provide that the amount of Elective Deferrals that
the Participant may make in his taxable year immediately
following the year of a hardship withdrawal will not exceed
the applicable limit under Section 402(g) of the Code for the
taxable year, reduced by the amount of Elective Deferrals made
by the Participant in the taxable year of the hardship
withdrawal.
12.3. Withdrawals After Reaching Age 59 1/2. A Participant who has
reached age 59 1/2 may upon written request to the Employer (or in such other
manner as shall be made available and agreed upon by the Employer and Putnam)
withdraw during his employment any amount not exceeding the vested balance of
his Accounts. A withdrawn amount may not be repaid to the Plan.
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12.4. Loans. If the Employer has so elected in the Plan Agreement,
the Employer may direct the Trustee to make a loan to a Participant or
Beneficiary from the vested portion of his Accounts, subject to the following
terms and conditions and to such reasonable additional rules and regulations as
the Plan Administrator may establish for the orderly operation of the program:
(a) The Plan Administrator shall administer the loan
program subject to the terms and conditions of this Section 12.4.
(b) A Participant's or Beneficiary's request for a loan
shall be submitted to the Plan Administrator by means of a written
application on a form supplied by the Plan Administrator (or in such
other manner as shall be made available and agreed upon by the
Employer and Putnam). Applications shall be approved or denied by the
Plan Administrator on the basis of its assessment of the borrower's
ability to collateralize and repay the loan, as revealed in the loan
application.
(c) Loans shall be made to all Participants and
Beneficiaries on a reasonably equivalent basis. Loans shall not be
made available to Highly Compensated Employees (as defined in Section
414(q) of the Code) in amounts greater than the amounts made available
to other Employees (relative to the borrower's Account balance).
(d) Loans must be evidenced by the Participant's
promissory note for the amount of the loan payable to the order of the
Trustee, and adequately secured by assignment of not more than fifty
percent (50%) of the Participant's entire right, title and interest in
and to the Trust Fund, exclusive of any asset as to which Putnam is
not the Trustee.
(e) Loans must bear a reasonable interest rate comparable
to the rate charged by commercial lenders in the geographical area for
similar loans. The Plan Administrator shall not discriminate among
Participants in the matter of interest rates, but loans may bear
different interest rates if, in the opinion of the Plan Administrator,
the difference in rates is justified by conditions that would
customarily be taken into account by a commercial lender in the
Employer's geographical area.
(f) The period for repayment for any loan shall not
exceed five years, except in the case of a loan used to acquire a
dwelling unit which within a reasonable time is to be used as the
principal residence of the Participant, in which case the repayment
period may exceed five years The terms of a loan shall require that it
be repaid in level payments of principal and interest not less
frequently then quarterly throughout the repayment period, except that
alternative arrangements for repayment. may apply in the event that
the borrower is on unpaid leave of absence for a period not to exceed
one year.
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(g) To the extent that a Participant would be required
under Article 10 to obtain the consent of his spouse to a distribution
of an immediately distributable benefit other than a Qualified Joint
and Survivor Annuity, the consent of the Participant's spouse shall be
required for the use of his Account as security for a loan. The
spouse's consent must be obtained no earlier than the beginning of the
90-day period that ends on the date on which the loan is to be so
secured, and obtained in accordance with the requirements of Section
10.4(c) for a Qualified Election. Any such consent shall thereafter
be binding on the consenting spouse and any subsequent spouse of the
Participant. A new consent shall be required for use of the Account
as security for any extension, renewal, renegotiation or revision of
the original loan.
(h) If valid spousal consent has been obtained in
accordance with Section 12.4(g), then notwithstanding any other
provision of the Plan the portion of the Participant's account balance
used as a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account for
purposes of determining the amount of the account balance payable at
the time of death or distribution, but only if the reduction is used
as repayment of the loan. If less than 100 % of the Participant's
vested account balance (determined without regard to the preceding
sentence) is payable to the surviving spouse, then the account balance
shall be adjusted by first reducing the vested account balance by the
amount of the security used as repayment of the loan, and then
determining the benefit payable to the surviving spouse.
(i) In the event of default on a loan by a Participant
who is an active Employee, foreclosure on the Participant's Account as
security will not occur until the Employer has reported to the Trustee
the occurrence of an event permitting distribution from the Plan in
accordance with Article 9 or Section 4.12.
(j) No loan shall be made to an Owner-Employee or a
Shareholder-Employee unless a prohibited transaction exemption is
obtained by the Employer.
(k) No loan to any Participant or Beneficiary can be made
to the extent that the amount of the loan, when added to the
outstanding balance of all other loans to the Participant or
Beneficiary, would exceed the lesser of (a) $50,000 reduced by the
excess (if any) of the highest outstanding balance of loans during the
one year period ending on the day before the loan is made, over the
outstanding balance of loans from the Plan on the date the loan is
made, or (b) one-half the value of the vested account balance of the
Participant. For the purpose of the above limitation, all loans from
all qualified plans of the Affiliated Employers are aggregated.
(1) Loans shall be considered investments
directed by a Participant pursuant to Section 13.3. The amount
loaned shall be charged solely against the
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Accounts of the Participant, and repaid amounts and interest
shall be credited solely thereto.
12.5. Procedure; Amount Available. Withdrawals and loans shall be
made subject to the terms and conditions applicable to distributions pursuant
to Section 9.4, except that the amount of any withdrawal or loan shall be
determined by reference to the vested balance of the Participant's Account as
of the most recent Valuation Date preceding the withdrawal or loan, and shall
not exceed the amount of the vested account balance.
12.6. Protected Benefits. Notwithstanding any provision to the
contrary, if an Employer amends an existing retirement plan ("prior plan") by
adopting this Plan, to the extent any withdrawal option or form of payment
available under the prior plan is an optional form of benefit within the
meaning of Code Section 411 (d)(6), such option or form of payment shall
continue to be available to the extent required by such Code Section.
12.7. Restrictions Concerning Transferred Assets. Notwithstanding
any provision to the contrary, if an Employer amends an existing defined
benefit or money purchase pension plan ('prior pension plan') by adopting this
Plan, accrued benefits attributable to the assets and liabilities transferred
from the prior pension plan (which accrued benefits include the account balance
of such Participant in the Plan attributable to such accrued benefits as of the
date of the transfer and any earnings on such account balance subsequent to the
transfer) shall be distributable only on or after the events upon which
distributions are or were permissible under the prior pension plan.
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ARTICLE 13. TRUST FUND AND INVESTMENTS
13.1. Establishment of Trust Fund. The Employer and the Trustee
hereby agree to the establishment of a Trust Fund consisting of all amounts as
shall be contributed or transferred from time to time to the Trustee pursuant
to the Plan, and all earnings thereon. The Trustee shall hold the assets of
the Trust Fund for the exclusive purpose of providing benefits to Participants
and Beneficiaries and defraying the reasonable expenses of administering the
Plan, and no such assets shall ever revert to the Employer, except that:
(a) contributions made by the Employer by mistake of
fact, as determined by the Employer, may be returned to the Employer
within one (1) year of the date of payment,
(b) contributions that are conditioned on their
deductibility under Section 404 of the Code may be returned to the
Employer, to the extent disallowed, within one (1) year of the
disallowance of the deduction,
(c) contributions that are conditioned on the initial
qualification of the Plan under the Code, and all investment gains
attributable to them, may be returned to the Employer within one (1)
year after such qualification is denied by determination of the
Internal Revenue Service, but only if an application for determination
of such qualification is made within the time prescribed by law for
filing the Employer's federal income tax return for its taxable year
in which the Plan is adopted, or such later date as the Secretary of
the Treasury may prescribe, and
(d) amounts held in a suspense account may be returned to
the Employer on termination of the Plan, to the extent that they may
not then be allocated to any Participant's Account in accordance with
Article 6.
All Employer contributions under the Plan other than those made
pursuant to Section 4.1 (f) are hereby expressly conditioned on the initial.
qualification of the Plan and their deductibility under the Code. Investment
gains attributable to contributions returned pursuant to Subsections (a) and
(b) shall not be returned to the contributing Employer, and investment losses
attributable to such contributions shall reduce the amount returned.
13.2. Management of Trust Fund. The assets of the Trust Fund shall
be held in trust by the Trustee and accounted for in accordance with this
Article 13, and shall be invested in accordance with Section 13.3 in the
Investment Products specified by the Employer in the Plan Agreement and from
time to time thereafter in writing (or in such other manner as shall be made
available and agreed upon by the Employer and Putnam). The Employer shall have
the exclusive authority and discretion to select the Investment Products
available under the Plan. in making that selection, the Employer shall use the
care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar
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with such matters would use in the conduct of an enterprise of like character
and with like aims. The Employer shall cause the available Investment Products
to be diversified sufficiently to minimize the risk of large losses, unless
under the circumstances it is clearly prudent not to do so. It is especially
intended that the Trustee shall have no discretionary authority to determine
the investment of Trust assets. Notwithstanding the foregoing, assets of the
Trust Fund shall also be invested in Employer Stock if so elected by the
Employer and agreed to by Putnam under the Service Agreement.
13.3. Investment Instructions. All amounts held in the Trust Fund
under the Plan shall be invested in Investment Products solely in accordance
with the instructions of the Participant to whose Accounts they are allocable,
as delivered to Putnam in accordance with the Service Agreement. Instructions
shall apply to future contributions, past accumulations, or both, according to
their terms, and shall be communicated by the Employer to Putnam in accordance
with procedures prescribed in the Service Agreement. Instructions shall be
effective prospectively, coincident with or within a reasonable time after
their receipt in good order by Putnam. An instruction once received shall
remain in effect until it is changed by the provision of a new instruction.
New instructions shall be accepted by Putnam on any valuation date.
In the event that the Employer adopts this Putnam prototype Plan as an
amendment to or restatement of an existing plan, the Employer shall specify one
or more Investment Products to serve as the sole investments for all
Participants' Accounts during the period in which existing records of the Plan
are transferred to the Recordkeeper. During that period, new investment
instructions as to existing assets of the Plan cannot be carried out, nor can
distributions be made from the Plan except to the extent permitted under the
terms of the Service Agreement. The Employer and the Recordkeeper shall use
their best efforts to minimize the duration of the period to which the
preceding sentence applies.
To the extent specifically authorized and provided in the Service
Agreement, the Employer may direct the Trustee to establish as an Investment
Product a fund all of the assets of which shall be invested in shares of stock
of the Employer that constitute "qualifying employer securities' within the
meaning of section 407(d)(5) of ERISA ("Employer Stock"). The Plan
Administrator as named fiduciary shall continually monitor the suitability of
acquiring and holding Employer Stock under the fiduciary duty rules of section
404(a)(1) of ERISA (as modified by section 404(a)(2) of ERISA) and the
requirements of section 404(c) of ERISA, and shall be responsible for ensuring
that the procedures relating to the purchase, holding and sale of Employer
Stock, and the exercise of any and all rights with respect to such Employer
Stock shall be in accordance with section 404(c) of ERISA unless the Employer
retains voting, tender or similar rights with respect to the Employer Stock.
The Trustee shall not be liable for any loss, or by reason of any breach, which
arises from the direction of the Plan Administrator with respect to the
acquisition and holding of Employer Stock. The Employer shall be responsible
for determining whether, under the circumstances prevailing at a given time,
its fiduciary duty to Plan Participants and Beneficiaries under the Plan and
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ERISA-requires that the Employer follow the advice of independent counsel as to
the voting and tender or retention of Employer Stock.
Putnam shall be under no duty to question or review the directions
given by the Employer or to make suggestions to the Employer in connection
therewith. Putnam shall not be liable for any loss, or by reason of any
breach, that arises from the Employer's exercise or non- exercise of rights
under this Article 13, or from any direction of the Employer unless it is clear
on the face of the direction that the actions to be taken under the direction
are prohibited by the fiduciary duty rules of Section 404(a) of ERISA. All
interest, dividends and other income received with respect to, and any proceeds
received from the sale or other disposition of, securities or other property
held in an investment fund shall be credited to and reinvested in such
investment fund, and all expenses of the Trust that are properly allocated to a
particular investment fund shall be so allocated and charged. The Employer may
at any time direct Putnam to eliminate any investment fund or funds, and Putnam
shall thereupon dispose of the assets of such investment fund and reinvest the
proceeds thereof in accordance with the directions of the Employer.
Neither the Employer nor the Trustee nor Putnam shall be responsible
for questioning any instructions of a Participant or for reviewing the
investments selected therein, or for any loss resulting from instructions of a
Participant or from the failure of a Participant to provide or to change
instructions. Neither Putnam nor the Trustee shall have any duty to question
any instructions received from the Employer or a Participant or to review the
investments selected thereby, nor shall Putnam or the Trustee be responsible
for any loss resulting from instructions received from the Employer or a
Participant or from the failure of the Employer or a Participant to provide or
to change instructions. In the event that Putnam or the Trustee receives a
contribution under the Plan as to which no instructions are delivered, or such
instructions as are delivered are unclear to Putnam or the Trustee, such
contribution shall be invested until clear instructions are received in the
default investment option set forth in the Service Agreement or other written
agreement between the Employer and Putnam, or if no such option is so set
forth, the Employer, by execution of the Plan Agreement, shall affirmatively
elect to have such contributions invested in the Putnam Money Market Fund.
Neither Putnam nor the Trustee shall have any discretionary authority or
responsibility in the investment of the assets of the Trust Fund.
13.4. Valuation of the Trust Fund. As of each Valuation Date, the
Trustee shall determine the fair market value of the Trust Fund, and the net
earnings or losses and expenses of the Trust Fund for the period elapsed since
the most recent previous Valuation Date shall be allocated among the Accounts
of Participants. Earnings, losses and expenses which pertain to investments
which are specifically held for a given Participant's Account shall be
allocated solely to that Account. In the event that an investment is not
specifically held for a given Participant's Account, the earnings, losses and
expenses pertaining to that investment shall be allocated among all
Participants' Accounts in the ratio that each such Account bears to the total
of all Accounts of all Participants. Each Participant's Accounts shall be
adjusted pursuant to
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this Section 13.4 until such time as they are either fully distributed or
forfeited, regardless of whether the Participant continues to be an Employee.
13.5. Distribution on Investment Company Shares. Subject to Section
9.3, all dividends and capital gains or other distributions received on any
Investment Company Shares credited to Participant's Account will (unless
received in additional Investment Company Shares) be reinvested in full and
fractional shares of the same Investment Company at the price determined as
provided in the then current prospectus of the Investment Company. The shares
so received or purchased upon such reinvestment will be credited to such
accounts. If any dividends or capital gain or other distributions may be
received on such Investment Company Shares at the election of the shareholder
in additional shares or in cash or other property, the Trustee will elect to
receive such dividends or distributions in additional Investment Company
Shares.
13.6. Registration and Voting of Investment Company Shares. All
Investment Company Shares shall be registered in the name of the Trustee or its
nominee. Subject to any requirements of applicable law, the Trustee will
transmit to the Employer copies of any notices of shareholders' meetings,
proxies and proxy-soliciting materials, prospectuses and the ANNUAL or other
reports to shareholders, with respect to Investment Company Shares held in the
Trust Fund. The Trustee shall act in accordance with directions received from
the Employer with respect to matters to be voted upon by the shareholders of
the Investment Company. Such directions must be in writing on a form approved
by the Trustee, signed by the Employer and delivered to the Trustee within the
time prescribed by it. The Trustee will not vote Investment Company Shares as
to which it receives no written directions.
13.7. Investment Manager. The Employer, with the consent of Putnam,
may appoint an investment manager, as defined in Section 3(38) of the ERISA,
with respect to all or a portion of the assets of the Trust Fund. The Trustee
shall have no liability in connection with any action or nonaction pursuant to
directions of such an investment manager.
13.8. Employer Stock.
(a) Voting Rights. Notwithstanding any other provision
of the Plan, the provisions of this Section 13.8(a) shall govern the
voting of Employer Stock held by Putnam as Trustee under the Plan.
The Trustee shall vote Employer Stock in accordance with the
directions of the Employer unless the Employer has elected in the Plan
Agreement that Participants shall be appointed named fiduciaries as to
the voting of Employer Stock and shall direct the Trustee as to the
voting of Employer Stock in accordance with the provisions of this
Section 13.8(a). In either case, the Employer shall be responsible for
determining whether, under the circumstances prevailing at a given
time, its fiduciary duty to Participants and Beneficiaries under the
Plan and ERISA requires that the Employer follow the advice of
independent counsel as to, the voting of Employer Stock. The
remainder of this Section 13.8(a) applies only if the
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Employer elects in the Plan Agreement that participants shall direct
the Trustee as to the voting of Employer Stock. For purposes of this
Section 13.8(a), the term "Participant" includes any Beneficiary with
an Account in the Plan which is invested in Employer Stock.
When the issuer of Employer Stock files preliminary proxy
solicitation materials with the Securities and Exchange Commission,
the Employer shall cause a copy of all the materials to be
simultaneously sent to the Trustee, and the Trustee shall prepare a
voting instruction form based upon these materials. At the time of
mailing of notice of each annual or special stockholders' meeting of
the issuer of Employer Stock, the Employer shall cause a copy of the
notice and all proxy solicitation materials to be sent to each
Participant, together with the foregoing voting instruction form to be
returned to the Trustee or its designee. The form shall show the
number of full and fractional shares of Employer Stock credited to the
Participant's accounts, whether or not vested. For purposes of this
Section 13.8(a), the number of shares of Employer Stock deemed
credited to a Participant's Accounts shall be determined as of the
date of record determined by the Employer for which an allocation has
been completed and Employer Stock has actually been credited to
Participant's Accounts. Procedures for the execution of purchases and
sales of Employer Stock shall be as set forth in the Service
Agreement. The Employer shall provide the Trustee with a copy of any
materials provided to Participants and shall certify to the Trustee
that the materials have been mailed or otherwise sent to Participants.
Each Participant shall have the right to direct the Trustee as
to the manner in which to vote that number of shares of Employer Stock
held under the Plan (whether or not vested) equal to a fraction, of
which the numerator is the number of shares of Employer Stock credited
to his Account and the denominator is the number of shares of Employer
Stock credited to all Participants' Accounts. Such directions shall
be communicated in writing (or in such other manner as shall be made
available and agreed upon by the Employer and Putnam) and shall be
held in confidence by the Trustee and not divulged to the Employer, or
any officer or employee thereof, or any other persons. Upon its
receipt of directions, the Trustee shall vote the shares of Employer
Stock as directed by the Participant. The Trustee shall not vote
those shares of employer Stock credited to the Accounts of
Participants for which no voting directions are received. With
respect to shares of Employer Stock held in the Trust which are not
credited to a Participant's Account, the Plan Administrator shall
retain the status of named fiduciary and shall direct the voting of
such Employer Stock.
(b) Tendering Rights. Notwithstanding any other
provision of the Plan, the provisions of this Section 13.8(b) shall
govern the tendering of Employer Stock by Putnam as Trustee under the
Plan. In the event of a tender offer, the Trustee shall tender
Employer Stock in accordance with the directions of the Employer
unless the Employer has elected in the Plan Agreement that
Participants shall be appointed named
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fiduciaries as to the tendering of Employer Stock in accordance with
the provisions of this Section 13.8(b). The remainder of this Section
13.8(b) applies only if the Employer elects in the Plan Agreement that
Participants shall direct the Trustee as to the tendering of Employer
Stock. For purposes of this Section 13.8(b), the term "Participant"
includes any Beneficiary with an Account in the Plan which is invested
in Employer Stock.
Upon commencement of a tender offer for any Employer Stock,
the Employer shall notify each Plan Participant, and use its best
efforts to distribute timely or cause to be distributed to
Participants the same information that is distributed to shareholders
of the issuer of Employer Stock in connection with the tender offer,
and after consulting with the Trustee shall provide at the Employer's
expense a means by which Participants may direct the Trustee whether
or not to tender the Employer Stock credited to their Accounts
(whether or not vested). The Employer shall provide to the Trustee a
copy of any material provided to Participants and shall certify to the
Trustees that the materials have been mailed or otherwise sent to
Participants.
Each Participant shall have the right to direct the Trustee to
tender or not to tender some or all of the shares of Employer Stock
credited to his Accounts. Directions from a Participant to the
Trustee concerning the tender of Employer Stock shall be communicated
in writing (or in such other manner as shall be made available and
agreed upon by the Employer and Putnam) as is agreed upon by the
Trustees and the Employer. The Trustee shall tender or not tender
shares of Employer Stock as directed by the Participant. A
Participant who has directed the Trustee to tender some or all of the
shares of Employer Stock credited to his Accounts may, at any time
before the tender offer withdrawal date, direct the Trustee to
withdraw some or all of the tendered shares, and the Trustee shall
withdraw the directed number of shares from the tender offer before
the tender offer withdrawal deadline. A Participant shall not be
limited as to the number of directions to tender or withdraw that he
may give to the Trustee. The Trustee shall not tender shares of
Employer Stock credited to a Participant's Accounts for which it has
received no directions from the Plan Participant. The Trustee shall
tender that number of shares of Employer Stock not credited to
Participants' Accounts determined by multiplying the total number of
such shares by a fraction, the numerator of which is the number of
shares of Employer Stock credited to Participants' Accounts for which
the Trustee has received directions from Participants to tender (which
directions have not been withdrawn as of the date of this
determination), and the denominator of which is the total number of
shares of Employer Stock credited to Participants' Accounts.
A direction by a Participant to the Trustee to tender shares
of Employer Stock credited to his Accounts shall not be considered a
written election under the Plan by the Participant to withdraw or to
have distributed to him any or all of such shares. The Trustee shall
credit to each account of the Plan Participant from which the tendered
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shares were taken the proceeds received by the Trustee in exchange for
the shares of Employer Stock tendered from that account. Pending
receipt of directions through the Administrator from the Participant
as to the investment of the proceeds of the tendered shares, the
Trustee shall invest the proceeds as the Administrator shall direct.
To the extent that any Participant gives no direction as to the
tendering of Employer stock that he has the right to direct under this
Section 13.8(a), the Trustee shall not tender such Employer Stock.
(c) Other Rights. With respect to all rights in
connection with Employer Stock other than the right to vote and the
right to tender, Participants are hereby appointed named fiduciaries
to the same extent (if any) as provided in the foregoing paragraphs of
this Section 13.8 with regard to the right to vote, and the Trustee
shall follow the directions of Participants and the Plan Administrator
with regard to the exercise of such rights to the same extent as with
regard to the right to vote.
13.9. Insurance Contracts. If so provided in the Plan Agreement or
other agreement between the Employer and the Trustee, the Plan Administrator
may direct the Trustee to receive and hold or apply assets of the Trust to the
purchase of individual or group insurance or annuity contracts ("Policies' or
"contracts") issued by any insurance company and in a form approved by the Plan
Administrator (including contracts under which the contract holder is granted
options to purchase insurance or annuity benefits), or financial agreements
which are backed by group insurance or annuity contracts ("financial
agreements"). If such investments are to be made, the Plan Administrator shall
direct the Trustee to execute and deliver such applications and other documents
as are necessary to establish record ownership, to value such policies,
contracts or financial agreements under the method of valuation selected by the
Plan Administrator, and to record or report such values to the Plan
Administrator or any investment manager selected by the Plan Administrator, in
the form and manner agreed to by the Plan Administrator.
The Plan Administrator may direct the Trustee to exercise or may
exercise directly the powers of contract holder under any policy, contract or
financial agreement, and the Trustee shall exercise such powers only upon
direction of the Plan Administrator. The Trustee shall have no authority to
act in its own discretion, with respect to the terms, acquisition, valuation,
continued holding and/or disposition of any such policy, contract or financial
agreement or any asset held thereunder. The Trustee shall be under no duty to
question any direction of the Plan Administrator or to review the form of any
such policy, contract or financial agreement or the selection of the issuer
thereof, or to make recommendations to the Plan Administrator or to any issuer
with respect to the form of any such policy, contract or financial agreement.
The Trustee shall be fully protected in acting in accordance with
written directions of the Plan Administrator, and shall be under no liability
for any loss of any kind which may result by reason of any action taken or
omitted by it in accordance with any direction of the Plan Administrator, or by
reason of inaction in the absence of written directions from the Plan
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Administrator. In the event that the Plan Administrator directs that any
monies or property be paid or delivered to the contract holder other than for
the benefit of specific individual beneficiaries, the Trustee agrees to accept
such monies or property as assets of the Trust subject to all the terms hereof.
13.10. Registration and Voting of Non-Putnam Investment Company
Shares. All shares of registered investment companies other than Investment
Companies shall be registered in the name of the Trustee or its nominee.
Subject to any requirements of applicable law and to the extent provided in an
agreement between Putnam and a third party investment provider, the Trustee
shall transmit to the Employer copies of any notices of shareholders' meetings,
proxies or proxy-soliciting materials, prospectuses or the annual or other
reports to shareholders, with respect to shares of registered investment
companies other than Investment Companies held in the Trust Fund. The Trustee
shall vote shares of registered investment companies other than Investment
Companies in accordance with the directions of the Employer. Directions as to
voting such shares must be in writing on a form approved by the Trustee or such
other manner acceptable to the Trustee, signed by the addressee and delivered
to the Trustee within the time prescribed by it. The Trustee shall vote those
shares of registered investment companies other than Investment Companies for
which no voting directions are received in the same proportion as it votes
those shares for which it has received voting directions.
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ARTICLE 14. TOP-HEAVY PLANS
14.1. Superseding Effect. For any Plan Year beginning after
December 3 1, 1983, in which Plan is determined to be a Top-Heavy Plan under
Section 14.2(b), the provisions of this Article 15 will supersede any
conflicting provisions in the Plan or the Plan Agreement.
14.2. Definitions. For purposes of this Article 14, the terms below
shall be defined as follows:
(a) Key Employee means any Employee or former Employee
(and the Beneficiaries of such Employee) who at any time during the
determination period was: (i) an officer of the Employer having annual
compensation greater than 50% of the amount in effect under Section
415(b)(1)(A) of the Code; (ii) an owner (or considered an owner under
Section 318 of the Code) of one of the ten largest interests in the
Employer having annual compensation exceeding the dollar limitation
under Section 415(c)(1)(A) of the Code; (iii) a 5 % owner of the
Employer; or (iv) a I % owner of the Employer having annual
compensation of more than $150,000. Annual compensation means
compensation satisfying the definition elected by the Employer in the
Plan Agreement, but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under Section 125, Section 402(a)(8), Section
402(h) or Section 403(b) of the Code. The determination period is the
Plan Year containing the Determination Date and the four preceding
Plan Years. The determination of who is a Key Employee will be made
in accordance with Section 416(i)(1) of the Code and the Regulations
thereunder.
(b) Top-Heavy: The Plan is Top-Heavy for any Plan Year
beginning after December 31, 1983, if any of the following conditions
exists:
(1) If the Top-Heavy Ratio for this Plan exceeds
60 % and this Plan is not part of any Required Aggregation
Group or Permissive Aggregation Group of plans.
(2) If this Plan is a part of a Required
Aggregation Group of plans but not part of a Permissive
Aggregation Group and the Top-Heavy Ratio for the group of
plans exceeds 60%.
(3) If this plan is part of a Required
Aggregation Group and part of a Permissive Aggregation Group
of Plans and the Top-Heavy Ratio for the Permissive
Aggregation group exceeds 60%.
(c) Top-Heavy Ratio means the following:
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(1) If the Employer maintains one or more
qualified defined contribution plans (or any simplified
employee pension plan) and the Employer has not maintained any
qualified defined benefit plan which during the 5-year period
ending on the Determination Date(s) has or has had accrued
benefits, the Top-Heavy ratio for this Plan alone or for the
Required or Permissive Aggregation Group as appropriate is a
fraction, the numerator of which is the sum of the account
balances of all Key Employees as of the Determination Date(s)
(including any part of any account distributed in the 5-year
period ending on the Determination Date(s)), and the
denominator of which is the sum of all account balances
(including any part of any account balance distributed in the
5-year period ending on the Determination Date(s)), both
computed in accordance with Section 416 of the Code and the
regulations thereunder. Both the numerator and denominator of
the Top-Heavy Ratio are increased to reflect any contribution
not actually made as of the Determination Date, but which is
required to be taken into account on that date under Section
416 of the Code and the regulations thereunder.
(2) If the Employer maintains one or more
qualified defined contribution plans (or any simplified
employee pension plan) and the Employer maintains or has
maintained one or more qualified defined benefit plans which
during the 5-year period ending on the Determination Date(s)
has or has had any accrued benefits, the Top-Heavy Ratio for
any Required or Permissive Aggregation Group as appropriate is
a fraction, the numerator of which is the sum of account
balances under the aggregated qualified defined contribution
plan or plans for all Key. Employees, determined in
accordance with (1) above, and the Present Value of accrued
benefits under the aggregated qualified defined benefit plan
or plans for all Key Employees as of the Determination
Date(s), and the denominator of which is the sum of the
account balances under the aggregated qualified defined
contributions plan or plans for all Participants, determined
in accordance with (1) above, and the Present Value of accrued
benefits under the qualified defined benefit plan or plans for
all Participants as of the Determination Date(s), all
determined in accordance with Section 416 of the Code and the
regulations thereunder. The accrued benefits under a defined
benefit plan in both the numerator and denominator of the
Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the 5-year period ending on the
Determination Date.
(3) For purposes of (1) and (2) above, the value
of account balances and the Present Value of accrued benefits
will be determined as of the most recent Valuation Date that
falls within or ends with the 12-month period ending on the
Determination Date; except as provided in Section 416 of the
Code and the regulations thereunder for the first and second
Plan Years of a defined benefit plan. The account balances
and accrued benefits of a Participant (A)
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who is not a Key Employee but who was a Key Employee in a
prior Plan Year, or (B) who has not been credited with at
least one Hour of Service for the Employer during the 5-year
period ending on the Determination Date, will be disregarded.
The calculation of the Top-Heavy Ratio, and the extent to
which distributions, rollovers and transfers are taken into
account will be made in accordance with Section 416 of the
Code and the regulations thereunder. Deductible Employee
contributions will not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans, the
value of account balances and accrued benefits will be
calculated with reference to the Determination Dates that fall
within the same calendar year.
The accrued benefit of a Participant other than a Key Employee
shall be determined under (a) the method, if any, that
uniformly applies for accrual purposes under all defined
benefit plans maintained by the Employer, or (b) if there is
no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional
rule of Section 411 (b)(1)(C) of the Code.
(d) Permissive Aggregation Group means the Required
Aggregation Group of plans plus any other qualified plan or plans (or
simplified employee pension plan) of the Employer which, when
considered as a group with the Required Aggregation Group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of
the Code.
(e) Required Aggregation Group means (i) each qualified
plan of the Employer in which at least one Key Employee participates
or participated at any time during the determination period
(regardless of whether the Plan has terminated) and (ii) any other
qualified plan of the Employer which enables a plan described in (i)
to meet the requirements of Section 401(a)(4) or 410 of the Code.
(f) Determination Date means, for any Plan Year
subsequent to the first Plan Year, the last day of the preceding Plan
Year. For the first Plan Year of the Plan, the Determination Date is
the last day of that Plan Year.
(g) Valuation Date means the last day of the Plan Year.
(h) Present Value means present value based only on the
interest and mortality rates specified by the Employer in the Plan
Agreement.
14.3. Minimum Allocation.
(a) Except as otherwise provided in paragraphs (c) and
(d) below, the Employer contributions and Forfeitures (if any)
allocated on behalf of any Participant
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who is not a Key Employee shall not be less than the lesser of 3 % of
such Participant's Earnings, or in the case where the Employer has no
defined benefit plan which designates this Plan to satisfy Section 401
of the Code, the largest percentage of Employer contributions and
Forfeitures, as a percentage of the Key Employee's Earnings, allocated
on behalf of any Key Employee for that year. The minimum allocation
is determined without regard to any Social Security contribution.
This minimum allocation shall be made even though, under other Plan
provisions, the Participant would not otherwise be entitled to receive
an allocation, or would have received a lesser allocation of the
Employer's contributions and Forfeitures for the Plan Year because of
(1) the Participant's failure to be credited with at least 1,000 Hours
of Service, or (2) the Participant's failure to make mandatory
Employee contributions to the Plan, or (3) the Participant's receiving
Earnings less than a stated amount. Neither Elective Deferrals,
Employer Matching Contributions nor Qualified Matching Contributions
for non-Key Employees shall be taken into account for purposes of
satisfying the requirement of this Section 14.3(a).
(b) For purposes of computing the minimum allocation,
Earnings will mean Section 415 Compensation as defined in Section 6-
5(b) of the Plan.
(c) The provision in paragraph (a) above shall not apply
to any Participant who was not employed by the Employer on the last
day of the Plan Year.
(d) The provision in paragraph (a) above shall not apply
to any Participant to the extent he is covered under any other plan or
plans of the Employer, and the Employer has provided in the Plan
Agreement that the minimum allocation requirement applicable to
Top-Heavy Plans will be met in the other plan or plans.
(e) The minimum allocation required (to the extent
required to be nonforfeitable under Section 416(b) of the Code) may
not be forfeited under Sections 411 (a)(3)(B) or (D) of the Code.
14.4. Adjustment of Fractions. For any Plan Year in which the Plan
is Top-Heavy, the Defined Benefit Fraction and the Defined Contribution
Fraction described in Article 6 shall each be computed using 100% of the dollar
limitations specified in Sections 415(b)(1)(A) and 415(c)(1)(A) instead of 125
%. The foregoing requirement shall not apply if the Top-Heavy Ratio does not
exceed 90 % and the Employer has elected in the Plan Agreement to provide
increased minimum allocations or benefits satisfying Section 416(h)(2) of the
Code.
14.5. Minimum Vesting Schedules. For any Plan Year in which this
Plan is Top-Heavy and for any subsequent Plan Year, a minimum vesting schedule
will automatically apply to the Plan, as follows:
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(a) If the Employer has selected in the Plan Agreement as
the Plan's regular vesting schedule 100% immediate vesting, the
Three-year Cliff, Five-Year Graded or Six-Year Graded schedule, then
the schedule selected in the Plan Agreement shall continue to apply
for any Plan Year to which this Section 14.5 applies.
(b) If the Employer has selected in the Plan Agreement as
the Plan's regular vesting schedule the Five-Year Cliff schedule, then
the Three-Year Cliff schedule shall apply in any Plan Year to which
this Section 14.5 applies.
(c) If the Employer has selected in the Plan Agreement as
the Plan's regular vesting schedule the Seven-Year Graded schedule,
then the Six-Year Graded schedule shall apply in any Plan Year to
which this Section 14.5 applies.
(d) If the Employer has selected in the Plan Agreement as
the Plan's regular vesting schedule a schedule other than those
described in paragraphs (a), (b) and (c), then the Top-Heavy schedule
specified by the Employer in the Plan Agreement for this purpose shaft
apply in any Plan Year to which this Section 14.5 applies.
The minimum vesting schedule applies to all benefits within the
meaning of Section 41 1 (a)(7) of the Code except those attributable to
Elective Deferrals, rollover contributions described in Section 5.3, Qualified
Matching Contributions, Qualified Nonelective Contributions, or Participant
Contributions, but including benefits accrued before the effective date of
Section 416 of the Code and benefits accrued before the Plan became Top-Heavy.
Further, no reduction in a Participant's nonforfeitable percentage may occur in
the event the Plan's status as Top- Heavy changes for any Plan Year. However,
the vested portion of the Employer Profit Sharing Account or Employer Matching
Account of any Employee who does not have an Hour of Service after the Plan has
initially become Top-Heavy will be determined without regard to this Section
14.5.
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ARTICLE 15. ADMINISTRATION OF THE PLAN
15.1. Plan Administrator. The Plan shall be administered by the
Employer, as Plan Administrator and Named Fiduciary within the meaning of
ERISA, under rules of uniform application; provided, however, that the Plan
Administrator's duties and responsibilities may be delegated to a person
appointed by the Employer or a committee established by the Employer for that
purpose, in which case the committee shall be the Plan Administrator and Named
Fiduciary. The members of such a committee shall act by majority vote, and may
by majority vote authorize any one or ones of their number to act for the
committee. The person or committee (if any) initially appointed by the
Employer may be named in the Plan Agreement, but the Employer may remove any
such person or committee member by written notice to him, and any such person
or committee may resign by written notice to the Employer, without the
necessity of amending the Plan Agreement. To the extent permitted under
applicable law, the Plan Administrator shall have the sole authority to enforce
the terms hereof on behalf of any and all persons having or claiming any
interest under the Plan, and shall be responsible for the operation of the Plan
in accordance with its terms. The Plan Administrator shall have discretionary
authority to determine all questions arising out of the administration,
interpretation and application of the Plan, all of which determinations shall
be conclusive and binding on all persons. The Plan Administrator, in carrying
out its responsibilities under the Plan, may rely upon the written opinions of
its counsel and on certificates of physicians. Subject to the provisions of
the Plan and applicable law, the Plan Administrator shall have no liability to
any person as a result of any action taken or omitted hereunder by the Plan
Administrator.
15.2. Claims Procedure. Claims for participation in or distribution
of benefits under the Plan shall be made in writing to the Plan Administrator,
or an agent designated by the Plan Administrator whose name SHALL have been
communicated to all Participants and other persons as required by law. If any
claim so made is denied in whole or in part, the claimant shall be furnished
promptly by the Plan Administrator with a written notice:
(a) setting forth the reason for the denial,
(b) making reference to pertinent Plan provisions,
(c) describing any additional material or information
from the claimant which is necessary and why, and
(d) explaining the claim review procedure set forth herein.
Within 60 days after denial of any claim for participation or
distribution under the Plan, the claimant may request in writing a review of
the denial by the Plan Administrator. Any claimant seeking review hereunder
shall be entitled to examine all pertinent documents and to submit issues and
comments in writing. The Plan Administrator shall render a decision
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on review hereunder; provided, that if the Plan Administrator determines that a
hearing would be appropriate, its decision on review shall be rendered within
120 days after receipt of the request for review. The decision on review shall
be in writing and shall state the reason for the decision, referring to the
Plan provisions upon which it is based.
15.3. Employer's Responsibilities. The Employer shall be
responsible for:
(a) Keeping records of employment and other matters
containing all relevant data pertaining to any person affected hereby
and his eligibility to participate, allocations to his Accounts, and
his other rights under the Plan;
(b) Periodic, timely filling of all statements, reports
and returns required to be filed by ERISA;
(c) Timely preparation and distribution of disclosure
materials required by ERISA;
(d) Providing notice to interested parties as required by
Section 7476 of the Code;
(e) Retention of records for periods required by law; and
(f) Seeing that all persons required to be bonded on
account of handling assets of the Plan are bonded.
15.4. Recordkeeper. The Recordkeeper is hereby designated as agent
of the Employer under the Plan to perform directly or through agents certain
ministerial duties in connection with the Plan, in particular:
(a) To keep and regularly furnish to the Employer a
detailed statement of each Participant's Accounts, showing
contributions thereto by the Employer and the Participant, Investment
Products purchased therewith, earnings thereon and Investment Products
purchased therewith, and each redemption or distribution made for any
reason, including fees or benefits; and
(b) To the extent agreed between the Employer and the
Recordkeeper, to prepare for the Employer or to assist the Employer to
prepare such returns, reports or forms as the Employer shall be
required to furnish to Participants and Beneficiaries or other
interested persons and to the Internal Revenue Service or the
Department of Labor; all as may be more fully set forth in the Service
Agreement. If the Employer does not appoint another person or entity
as Recordkeeper, the Employer itself shall be the Recordkeeper.
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15.5. Prototype Plan. Putnam is the sponsor of the Putnam Basic
Plan Document, a prototype plan approved as to form by the Internal Revenue
Service. provided that an Employer's adoption of the Plan is made known to and
accepted by Putnam in accordance with the Plan Agreement, Putnam will inform
the Employer of amendments to the prototype plan and provide such other
services in connection with the Plan as may be agreed between Putnam and the
Employer. Putnam may impose for its services as sponsor of the prototype plan
such fees as it may establish from time to time in a fee schedule addressed to
the Employer. Such fees shall, unless paid by the Employer, be paid from the
Trust Fund, and shall in that case be charged pro rata against the Accounts of
all Participants. The Trustee is expressly authorized to cause Investment
Products to be sold or redeemed for the purpose of paying such fees.
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ARTICLE 16. TRUSTEE
16.1. Powers and Duties of the Trustee. The Trustee shall have the
authority, in addition to any authority given by law, to exercise the following
powers in the administration of the Trust:
(a) To invest all or a part of the Trust Fund in
Investment Products in accordance with the investment instructions
delivered by the Employer pursuant to Section 13.3, without
restriction to investments authorized for fiduciaries, including
without limitation any common, collective or commingled trust fund
maintained by the Trustee (or any other such fund, acceptable to
Putnam and the Trustee, that qualifies for exemption from federal
income tax pursuant to Revenue Ruling 81-100). Any investment in, and
any terms and conditions of, any such common, collective or commingled
trust fund available only to employee trusts which meet the
requirements of the Code, or corresponding provisions of subsequent
income tax laws of the United States, shall constitute an integral
part of this Agreement;
(b) If Putnam and the Trustee have consented thereto in
writing, to invest without limit in stock of the Employer or any
affiliated company;
(c) To dispose of all or part of the investments,
securities or other property which may from time to time or at any
time constitute the TRUST Fund in accordance with the written
directions furnished by the Employer for the investment of
Participants' separate Accounts or the payment of benefits or expenses
of the Plan, and to make, execute and deliver to the purchasers
thereof good and sufficient deeds of conveyance therefore, and all
assignments, transfers and other legal instruments, either necessary
or convenient for passing the title and ownership thereto, free and
discharged of all trusts and without liability on the part of such
purchasers to see to the application of the purchase money;
(d) To hold cash uninvested to the extent necessary to
pay benefits or expenses of the Plan;
(e) To follow the directions of an investment manager
appointed pursuant to Section 13.7;
(f) To cause any investment of the Trust Fund to be
registered in the name of the Trustee or the name of its nominee or
nominees or to retain such investment unregistered or in a form
permitting transfer by delivery; provided that the books and records
of the Trustee shall at all times show that all such investments are
part of the Trust Fund;
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(g) Upon written direction of or through the Employer, to
vote in person or by proxy (in accordance with Sections 13.6 and 13.10
and, in the case of stock of the Employer, at the direction of the
Employer or Participants in accordance with 13.8)on with respect to
all securities that are part of the TRUST Fund;
(h) To consult and employ any suitable agent to act on
behalf of the Trustee and to contract for legal, accounting, clerical
and other services deemed necessary by the Trustee to manage and
administer the Trust Fund according to the terms of the Plan;
(i) Upon the written direction of the Employer, to make
loans from the Trust Fund to Participants in amounts and on terms
approved by the Plan Administrator in accordance with the provisions
of the Plan; provided that the Employer shall have the sole
responsibility for computing and collecting all loan repayments
required to be made under the Plan; and
(j) To pay from the Trust Fund all taxes imposed or levied
with respect to the Trust Fund or any part thereof under existing or
future laws, and to contest the validity or amount of any tax
assessment, claim or demand respecting the Trust Fund or any part
thereof.
16.2. Limitation of Responsibilities. Except as may otherwise be
required under applicable law, neither the Trustee nor any of its agents shall
have any responsibility for:
(a) Determining the correctness of the amount of any
contribution for the sole collection or payment of contributions,
which shall be the sole responsibility of the Employer;
(b) Loss or breach caused by any Participant's exercise
of control over his Accounts, which shall be the sole responsibility
of the Participant;
(c) Loss or breach caused by the Employer's exercise of
control over Accounts pursuant to Section 13.3, which shall be THE
sole responsibility of the Employer;
(d) Performance of any other responsibilities not
specifically allocated to them under the Plan.
16.3. Fees and Expenses. The Trustee's fees for performing its
duties hereunder shall be such reasonable amounts as shall be established by
the Trustee from time to time in a fee schedule addressed to the Employer.
Such fees, any taxes of any kind which may be levied or assessed upon or in
respect of the Trust Fund and any and all expenses reasonably incurred by the
Trustee shall, unless paid by the Employer, be paid from the Trust Fund and
shall, unless
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allocable to the Accounts of specific Participants, be charged pro rata against
the Accounts of all Participants. The Trustee is expressly authorized to cause
Investment Products to be sold or redeemed for the purpose of paying such
amounts. Charges and expenses incurred in connection with a specific
Investment Product, unless allocable to the Accounts of specific Participants,
shall be charged pro rata against the Accounts of all Participants for whose
benefit amounts have been invested in the specific Investment Product.
16.4. Reliance on Employer. The Trustee and its agents shall rely
upon any decision of the Employer, or of any person authorized by the Employer,
purporting to be made pursuant to the terms of the Plan, and upon any
information or statements submitted by the Employer or such person (including
those relating to the entitlement of any Participant to benefits under the
Plan), and shall not inquire as to the basis of any such decision or
information or statements, and shall incur no obligation or liability for any
action taken or omitted in reliance thereon. The Trustee and its agents shall
be entitled to rely on the latest written instructions received from the
Employer as to the person or persons authorized to act for the Employer
hereunder, and to sign on behalf of the Employer any directions or
instructions, until receipt from the Employer of written notice that such
authority has been revoked.
16.5. Action Without Instructions. If the Trustee receives no
instructions from the Employer in response to communications sent by registered
or certified mail to the Employer at its last known address as shown on the
books of the Trustee, then the Trustee may make such determinations with
respect to administrative matters arising under the Plan as it considers
reasonable, notwithstanding any prior instructions or directions given by or on
behalf of the Employer, but subject to any instruction or direction given by or
on behalf of the Participants. To the extent permitted by applicable law, any
determination so made will be binding on all persons having or claiming any
interest under the Plan or Trust, and the Trustee will incur no obligation or
responsibility for any such determination made in good faith or for any action
taken pursuant thereto. In making any such determination the Trustee may
require that it be furnished with such relevant documents as it reasonable
considers necessary.
16.6. Advice of Counsel. The Trustee may consult with legal counsel
(who may, but need not be, counsel for the Employer) concerning any questions
which may arise with respect to its rights and duties under the Plan, and the
opinion of such counsel shall be full and complete protection to the extent
permitted by applicable law in the respect of any action taken or omitted by
the Trustee hereunder in accordance with the opinion of such counsel.
16.7. Accounts. The Trustee shall keep full accounts of all
receipts and disbursements which pertain to investments in Investment Products,
and of such other transactions as it is required to perform hereunder. Within
a reasonable time following the close of each Plan Year, or upon its removal or
resignation or upon termination of the Trust and at such other times as may be
appropriate, the Trustee shall render to the Employer and any other persons as
may be required by law an account of its administration of the Plan and Trust
during the
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period since the last previous such accounting, including such information as
may be required by law. The written approval of any account by the Employer
and all other persons to whom an account is rendered shall be final and binding
as to all matters and transactions stated or shown therein, upon the Employer
and Participants and all persons who then are or thereafter become interested
in the Trust. The failure of the Employer or any other person to whom an
account is rendered to notify the party rendering the account within 60 days
after the receipt of any account of his or its objection to the account shall
be the equivalent of written approval. If the Employer or any other person to
whom an account is rendered files any objections within such 60-day period with
respect to any matters or transactions stated or shown in the account and the
Employer or such other person and the party rendering the account cannot
amicably settle the questions raised by such objections, the party rendering
the account and the Employer or such person shall have the right to have such
questions settled by judicial proceedings, although the Employer or such other
person to whom an account is rendered shall have, to the extent permitted by
applicable law, only 60 days from filing of written objection to the account to
commence legal proceedings. Nothing herein contained shall be construed so as
to deprive the Trustee of the right to have a judicial settlement of its
accounts. In any proceeding for a judicial settlements of any account or for
instructions, the only necessary parties shall be the Trustee, the Employer and
persons to whom an account is required by law to be rendered.
16.8. Access to Records. The Trustee shall give access to its
records with respect to the Plan at reasonable times and on reasonable notice
to any person required by law to have access to such records.
16.9. Successors. Any corporation into which the Trustee may merge
or with which it may consolidate or any corporation resulting from any such
merger or consolidation shall be the successor of the Trustee without the
execution or filing of any additional instrument or the performance of any
further act.
16.10. Persons Dealing with Trustee. No person dealing with the
Trustee shall be bound to see to the application of any money or property paid
or delivered to the Trustee or to inquire into the validity or propriety of any
transactions.
16.11. Resignation and Removal: Procedure. The Trustee may resign at
any time by giving 60 days' written notice to the Employer and to Putnam. The
Employer may remove the Trustee at any time by giving 60 days' written notice
to the party removed and to Putnam. In any case of resignation or removal
hereunder, the period of notice may be reduced to such shorter period as is
satisfactory to the Trustee and the Employer. Notwithstanding anything to the
contrary herein, any resignation hereunder shall take effect at the time notice
thereof is given if the Employer may no longer participate in the prototype
Plan and is deemed to have an individually designed plan at the time notice is
given.
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16.12. Action of Trustee Following Resignation or Removal. When the
resignation or removal of the Trustee becomes effective, the Trustee shall
perform all acts necessary to transfer the Trust Fund to its successor.
However, the Trustee may reserve such portion of the Trust Fund as it may
reasonably determine to be necessary for payment of its fees and any taxes and
expenses, and any balance of such reserve remaining after payment of such fees,
taxes and expenses shall be paid over to its successor. The Trustee shall have
no responsibility for acts or omissions occurring after its resignation becomes
effective.
16.13. Effect of Resignation or Removal. Resignation or removal of
the Trustee shall not terminate the Trust. In the event of any vacancy in the
position of Trustee, whether the vacancy occurs because of the resignation or
removal of the Trustee, the Employer shall appoint a successor to fill the
vacant position. If the Employer does not appoint such a successor who accepts
appointment by the later of 60 days after notice of resignation or removal is
given or by such later date as the Trustee and Employer may agree in writing to
postpone the effective date of the Trustee's resignation or removal, the
Trustee may apply to a court of competent jurisdiction for such appointment or
cause the Trust to be terminated effective as of the date specified by the
Trustee in writing delivered to the Employer. Each successor Trustee so
appointed and accepting a trusteeship hereunder shall have all of the rights
and powers and all of the duties and obligations of the original Trustee, under
the provisions hereof, but shall have no responsibility for acts or omissions
before he becomes a Trustee.
16.14. Fiscal Year of Trust. The fiscal year of the Trust will
coincide with the Plan Year.
16.15. Limitation of Liability. Except as may otherwise be required
by law and other provisions of the Plan, no fiduciary of the Plan, within the
meaning of Section 3(21) of ERISA, shall be liable for any losses incurred with
respect to the management of the Plan, nor shall he or it be liable for any
acts or omissions except those caused by his or its own negligence or bad faith
in failing to carry out his or its duties under the terms contained in the
Plan.
16.16. Indemnification. Subject to the limitations of applicable
law, the Employer agrees to indemnify and hold harmless (i) all fiduciaries,
within the meaning of ERISA Sections 3(21) and 404, and (ii) Putnam, for all
liability occasioned by any act of such party or omission to act, in good faith
and without gross negligence, and for all expenses incurred by any such party
in determining its duty or liability under ERISA with respect to any question
under the Plan.
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ARTICLE 17. AMENDMENT
17.1. General. The Employer reserves the power at any time or times
to amend the provisions of the Plan and the Plan Agreement to any extent and in
any manner that it may deem advisable. If, however, the Employer makes any
amendment (including an amendment occasioned by a waiver of the minimum funding
requirement under Section 412(d) of the Code) other than
(a) a change in an election made in the Plan Agreement,
(b) amendments stated in the Plan Agreement which allow
the Plan to satisfy Section 415 and to avoid duplication of minimums
under Section 416 of the Code because of the required aggregation of
multiple plans, or
(c) model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause
the Plan to be treated as individually designed,
the Employer shall cease to participate in this prototype Plan and will be
considered to have an individually designed plan. In that event, Putnam shall
have no further responsibility to provide to the Employer any amendments or
other material incident to the prototype plan, and Putnam may resign
immediately as Trustee and as Recordkeeper. Any amendment shall be made by
delivery to the Trustee (and the Recordkeeper, if any) of a written instrument
executed by the Employer providing for such amendment. Upon the delivery of
such instrument to the Trustee, such instrument shall become effective in
accordance with its terms as to all Participants and all persons having or
claiming any interest hereunder, provided, that the Employer shall not have the
power:
(1) to amend the Plan in such a manner as would
cause or permit any part of the assets of the Trust to be
diverted to purposes other than the exclusive benefit of
Participants or their Beneficiaries, or as would cause or
permit any portion of such assets to revert to or become the
property of the Employer.
(2) to amend the Plan retroactively in such a
manner as would have the effect of decreasing a Participant's
accrued benefit, except that a Participant's Account balance
may be reduced to the extent permitted under Section 412(c)(8)
of the Code. For purposes of this paragraph (2), an amendment
shall be treated as reducing a Participant's accrued benefit
if it has the effect of reducing his Account balance, or of
eliminating an optional form of benefit with respect to
amounts attributable to contributions made performed before
the adoption of the amendment; or
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(3) to amend the Plan so as to decrease the
portion of a Participant's Account balance that has become
vested, as compared to the portion that was vested, under the
terms of the Plan without regard to the amendment, as of the
later of the date the amendment is adopted or the date it
becomes effective.
(4) to amend the Plan in such a manner as would
increase the duties or liabilities of the Trustee or the
Recordkeeper unless the Trustee or the Recordkeeper consents
thereto in writing.
17.2. Delegation of Amendment Power. The Employer and all
sponsoring organizations of the Putnam Basic Plan Document delegate to Putnam
Mutual Funds Corp., the power to amend the Plan (including the power to amend
this Section 17.2 to name a successor to which such power of amendment shall be
delegated), for the purpose of adopting amendments which are certified to
Putnam Mutual Funds Corp., by counsel satisfactory to it, as necessary or
appropriate under applicable law, including any regulation or ruling issued by
the United States Treasury Department or any other federal or state department
or agency; provided that Putnam Mutual Funds Corp., or such successor may amend
the Plan only if it has mailed a copy of the proposed amendment to the Employer
at its last known address as shown on its books by the date on which it
delivers a written instrument providing for such amendment, and only if the
same amendment is made on said date to all plans in this form as to which
Putnam Mutual Funds Corp., or such successor has a similar power of amendment.
If a sponsoring organization does not adopt any amendment made by Putnam Mutual
Funds Corp., such sponsoring organization shall cease to participate in this
prototype Plan and will be considered to have an individually designed plan.
If, upon the submission of this Putnam Basic Plan Document #06 to the Internal
Revenue Service for a determination letter, the Internal Revenue Service
determines that changes are required to the Basic Plan Document but not to the
form of Plan Agreement, Putnam shall furnish a copy of the revised Basic Plan
Document to the Employer and the Employer will not be required to execute a
revised Plan Agreement.
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<PAGE> 106
ARTICLE 18. TERMINATION OF THE PLAN AND TRUST
18.1. General. The Employer has established the plan and the Trust
with the bona fide intention and expectation that contributions will be
continued indefinitely, but the Employer shall have no obligation or liability
whatsoever to maintain the Plan for any given length of time and may
discontinue contributions under the Plan or terminate the Plan at any time by
written notice delivered to the Trustee, without any liability whatsoever for
any such discontinuance or termination.
18.2. Events of Termination. The Plan will terminate upon the
happening of any of the following events:
(a) Death of the Employer, if a sole proprietor, or
dissolution or termination of the Employer, unless within 60 days
thereafter provision is made by the successor to the business with
respect to which the Plan was established for the continuation of the
Plan, and such continuation is approved by the Trustee;
(b) Merger, consolidation or reorganization of the
Employer 'into one or more corporations or organizations, unless the
surviving corporations or organizations adopt the Plan by an
instrument in writing delivered to the Trustee within 60 days after
such a merger, consolidation and reorganization;
(c) Sale of all or substantially all of the assets of the
Employer, unless the purchaser adopts the Plan by an instrument in
writing delivered to the Trustee within 60 days after the sale;
(d) The institution of bankruptcy proceedings by or
against the Employer, or a general assignment by the Employer to or
for the benefit of its creditors; or
(e) Delivery of notice of termination as provided in
Section 18.1.
18.3. Effect of Termination. Notwithstanding any other provisions
of this Plan, other than Section 18.4, upon termination of the Plan or complete
discontinuance of contributions thereunder, each Participant's Accounts will
become fully vested and nonforfeitable, and upon partial termination of the
Plan, the Accounts of each Participant affected by the partial termination will
become fully vested and nonforfeitable. The Employer shall notify the Trustee
in writing of such termination, partial termination or complete discontinuance
of contributions. In the event of the complete termination of the Plan or
discontinuance of contributions, the Trustee will, after payment of all
expenses of the Trust Fund, make distribution of the Trust assets to the
Participants or other persons entitled thereto, in such form as the Employer
may direct pursuant to Article 10 or, in the absence of such direction, in a
single payment in cash or in kind. Upon completion of such distributions under
this Article,
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<PAGE> 107
the Trust win terminate, the Trustee will be relieved from its obligations
under the Trust, and no Participant or other person will have any further claim
thereunder.
18.4. Approval of Plan. Notwithstanding any other provision of the
Plan, if the Employer fails to obtain or to retain the approval by the Internal
Revenue Service of the Plan as a qualified plan under Section 401 (a) of the
Code, then (i) the Employer shall promptly notify the Trustee, and (ii) the
Employer may no longer participate in the Putnam prototype plan, but will be
deemed to have an individually designed plan. If it is determined by the
Internal Revenue Service that the Plan upon its initial adoption does not
qualify under Section 401 (a) of the Code, all assets then held under the Plan
will be returned within one year of the denial of initial qualification to the
Participants and the Employer to the extent attributable to their respective
contributions and any income earned thereon, but only if the application for
qualification is made by the time prescribed by law for filing the Employer's
federal income tax return for the taxable year in which the Plan is adopted, or
such later date as the Secretary of the Treasury may prescribe. Upon such
distribution, the Plan will be considered to be rescinded and to be of no force
or effect.
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<PAGE> 108
ARTICLE 19. TRANSFERS TO OR FROM OTHER QUALIFIED PLANS; MERGERS
19.1. General. Notwithstanding any other provision hereof, subject
to the approval of the Trustee there may be transferred to the Trustee all or
any of the assets held (whether by a trustee, custodian or otherwise) in
respect of any other plan which satisfies the applicable requirements of
Section 401 (a) of the Code and which is maintained for the benefit of any
Employee (provided, however, that the Employee is not a member of a class of
Employees excluded from eligibility to participate in the Plan). Any such
assets so transferred shall be accompanied by written instructions from the
Employer naming the persons for whose benefit such assets have been transferred
and showing separately the respective contributions made by the Employer and by
the Participants and the current value of the assets attributable thereto.
Notwithstanding the foregoing, if a Participant's employment classification
changes under Section 3.4 such that he begins participation in another plan of
the Employer, his Account, if any, shall, upon the Administrator's direction,
be transferred to the plan in which he has become eligible to participate, if
such plan permits receipt of such Account.
19.2. Amounts Transferred. The Employer shall credit any assets
transferred pursuant to Section 19.1 or Section 3.4 to the appropriate Accounts
of THE persons for whose benefit such assets have been transferred. Any
amounts credited as contributions previously made by an employer or by such
persons under such other plan shall be treated as contributions previously made
under the Plan by the Employer or by such persons, as the case may be.
19.3. Merger or Consolidation. The Plan shall not be merged or
consolidated with any other plan, nor shall any assets or liabilities of the
Trust Fund be transferred to any other plan, unless each Participant would
receive a benefit immediately after the transaction, if the Plan then
terminated, which is equal to or greater than the benefit he would have been
entitled to receive immediately before the transaction if the Plan had then
terminated.
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ARTICLE 20. MISCELLANEOUS
20.1. Notice of Plan. The Plan shall be communicated to all
Participants by the Employer on or before the last day on which such
communication may be made under applicable law.
20.2. No Employment Rights. Neither the establishment of the Plan
and the Trust, nor any amendment thereof, nor the creation of any fund or
account, nor the payment of any benefits shall be construed as giving to any
Participant or any other person any legal or equitable right against the
Employer, or the Trustee, except as provided herein or by ERISA; and in no
event shall the terms of employment or service of any Participant be modified
or in any way be affected hereby.
20.3. Distributions Exclusively From Plan. Participants and
Beneficiaries shall look solely to the assets held in the Trust purchased
pursuant to the Plan for the payment of any benefits under the Plan.
20.4. No Alienation. The benefits provided hereunder shall not be
subject to alienation, assignment, garnishment, attachment, execution or levy
of any kind, and any attempt to cause such benefits to be so subjected shall
not be recognized, except as provided in Section 12.4 or in accordance with a
Qualified Domestic Relations Order. The Plan Administrator shall determine
whether a domestic relations order is qualified in accordance with written
procedures adopted by the Plan Administrator. Notwithstanding the foregoing,
an order shall not fail to be a Qualified Domestic Relations Order merely
because it requires a distribution to an alternate payee (or the segregation of
accounts pending distribution to an alternate payee) before the Participant is
otherwise entitled to a distribution under the Plan.
20.5. Provision of Information. The Employer and the Trustee shall
furnish to each other such information relating to the Plan and Trust as may be
required under the Code or ERISA and any regulations issued or forms adopted by
the Treasury Department or the Labor Department or otherwise thereunder.
20.6. No Prohibited Transactions. The Employer and the Trustee
shall, to the extent of their respective powers and authority under the Plan,
prevent the Plan from engaging in any transaction known by that person to
constitute a transaction prohibited by Section 4975 of the Code and any rules
or regulations with respect thereto.
20.7. Governing Law. The Plan shall be construed, administered,
regulated and governed in all respects under and by the laws of the United
States, and to the extent permitted by such laws, by the laws of the
Commonwealth of Massachusetts
20.8. Gender. Whenever used herein, a pronoun in the masculine
gender includes the feminine gender unless the context clearly indicates
otherwise.
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<PAGE> 1
EXHIBIT 10.4
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________,
1996 by and between JT STORAGE, INC., a Delaware corporation (the
"Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
his/her capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Corporation and its agents, officers, employees
and other agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
______________ of the Corporation, the Corporation has determined and agreed to
enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such
position (subject to any contractual obligation that Agent may have assumed
apart from this Agreement) and that the Corporation or any affiliate shall have
no obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but only to the extent that such
1.
<PAGE> 2
amendment permits the Corporation to provide broader indemnification rights
than were permitted by the Bylaws or the Code prior to adoption of such
amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys'
fees), witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay because of
any claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in
the right of the Corporation) to which Agent is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that Agent
is, was or at any time becomes a director, officer, employee or other agent of
Corporation, or is or was serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
Section 43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a
breach of Agent's duty of loyalty to the Corporation or resulted in any
personal profit or advantage to which Agent was not legally entitled;
(d) for which payment has actually been made to Agent
under a valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this
respect, both the Corporation and Agent have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
2.
<PAGE> 3
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the Corporation, (iii) such indemnification is
provided by the Corporation, in its sole discretion, pursuant to the powers
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as
Agent shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was a _______
of the Corporation or was serving in any other capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 3 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Agent for the portion
thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit
or proceeding, Agent will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Agent notifies the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate
therein at its own expense;
(b) except as otherwise provided below, the Corporation
may, at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense thereof, with
counsel reasonably satisfactory to Agent. After notice from the Corporation to
Agent of its election to assume the defense thereof, the Corporation will not
be liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except
for reasonable costs of investigation or otherwise as provided below. Agent
shall have the right to employ separate counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the
expense of Agent unless (i) the employment of counsel by Agent has been
authorized by the Corporation, (ii) Agent shall
3.
<PAGE> 4
have reasonably concluded that there may be a conflict of interest between the
Corporation and Agent in the conduct of the defense of such action or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of Agent's separate
counsel shall be at the expense of the Corporation. The Corporation shall not
be entitled to assume the defense of any action, suit or proceeding brought by
or on behalf of the Corporation or as to which Agent shall have made the
conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify
Agent under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that
it shall not settle any action or claim in any manner which would impose any
penalty or limitation on Agent without Agent's written consent, which may be
given or withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of
an undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under Section 3 hereof
(other than an action brought to enforce a claim for advancement of expenses
pursuant to Section 8 hereof, provided that the required undertaking has been
tendered to the Corporation) that Agent is not entitled to indemnification
because of the limitations set forth in Section 4, but the burden of proof with
respect to such defense shall be on the Corporation hereof. Neither the
failure of the Corporation (including its Board of Directors or its
stockholders) to have made a determination prior to the commencement of such
enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by
this Agreement shall not be exclusive of any other right which Agent may have
or hereafter acquire under any statute, provision of the Corporation's
Certificate of Incorporation or Bylaws, agreement, vote
4.
<PAGE> 5
of stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the
existence of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date
on which such communication was mailed if mailed by certified or registered
mail with postage prepaid:
5.
<PAGE> 6
(a) If to Agent, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to
JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
Attention: President
or to such other address as may have been furnished to Agent by the
Corporation.
6.
<PAGE> 7
IN WITNESS WHEREOF,the parties hereto have executed this Agreement on
and as of the day and year first above written.
JT STORAGE, INC.
By:______________________________________
Title:___________________________________
AGENT
_________________________________________
Address:
_________________________________________
_________________________________________
7.
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into between JT Storage, Inc., a
Delaware corporation (the "Company"), and Kenneth D. Wing ("Executive")
effective as of June 26, 1995 (the "Effective Date") and sets forth the terms
and conditions of the Company's employment of Executive, as follows:
1. Position. Upon the Effective Date, Executive is employed as Senior
Vice President-Engineering and Quality, reporting directly to the Chief
Executive Officer of the Company.
2. Employment Term. The term of employment shall be "at will," and
may be terminated by either party at any time either with or without cause
(subject to certain severance obligations of the Company to Executive under
certain circumstances within two years after the Effective Date, as provided in
Section 7 below).
3. Base Compensation. For his services, the Company will pay
Executive a base salary at the rate of $225,000 per year (the "Base Salary"),
payable in accordance with the Company's general practices for the payment of
base salary to its executives. The Company, by action of its Board of Directors
in its discretion, may increase, but not decrease, the Base Salary at any time
and from time to time during the first two years following the Effective Date.
4. Management Bonus Programs. Executive shall be eligible to
participate in any distribution of bonuses in a manner commensurate with the
participation of the Company's other executives. The Company intends to
establish a Management Bonus Program after such time as the Company's operations
become profitable. It is anticipated that, under such Management Bonus Program,
Executive and other senior executives will receive a performance and
compensation review on an annual basis.
5. Loan to Executive. Upon the Effective Date, Executive will receive
a $160,000 loan from the Company (the "Loan") which shall bear interest at the
lowest applicable federal rate required to avoid imputed interest under federal
tax laws. The principal amount of the Loan, plus such interest, will be subject
to forgiveness as follows:
(a) subject to Executive's continued employment with the Company
through January 1, 1996, on January 1, 1996 $80,000 principal of the Loan will
be forgiven and all interest accrued thereon as of such date will be forgiven;
and
<PAGE> 2
(b) subject to Executive's continued employment with the Company
through January 1, 1997, on January 1, 1997 $80,000 principal balance and all
accrued interest on the Loan shall be forgiven.
As provided in Section 7 below, if, prior to January 1, 1997,
Executive is terminated by the Company without "cause" (as defined in Section
7(b) below) or Executive dies or becomes disabled, all principal and accrued
interest on the Loan shall be forgiven as of the termination date. If Executive
is terminated by the Company for "cause," or if Executive terminates his
employment with the Company, in either case prior to January 1, 1997, all unpaid
principal and accrued interest on the Loan shall become due and payable
immediately upon such termination.
6. Stock Options. Upon Executive's commencement of employment,
Executive will be granted an incentive stock option, under the Company's 1995
Stock Option Plan (a copy of which has been delivered to Executive, and receipt
of which is hereby acknowledged by Executive), to purchase 300,000 shares of
Common Stock of the Company at an option exercise price of $.25 per share. Such
option shall vest (that is, become exercisable) over a four-year period, such
that 37,500 shares shall vest six months after the Effective Date and,
thereafter, an additional 6,250 shares shall vest on a monthly basis until the
option becomes fully vested on the fourth anniversary of the Effective Date.
Such option shall otherwise be in accordance with the terms and conditions of
the 1995 Stock Option Plan and shall not be in any manner affected by this
Agreement. As an alternative to the foregoing, Executive may choose (subject to
compliance with all applicable securities laws) to purchase 300,000 shares of
Common Stock, at a price of $.25 per share, which shares will be subject to a
repurchase right of the Company (at $.25 per share) upon any termination of
employment with or without cause, and which repurchase right will terminate in
the same manner that the option described above would vest (i.e., the Company's
repurchase right would terminate as to 37,500 shares six months after the
Effective Date and, thereafter, would terminate as to an additional 6,250 shares
on a monthly basis until the fourth anniversary of the Effective Date, at which
time the Company's repurchase right would have fully terminated). If this
alternative is used, Executive will pay 20% of the purchase price for the shares
in cash, and the balance will be represented by a full recourse promissory note
(bearing interest at the lowest applicable federal rate required to avoid
imputed interest under federal tax laws), which would require four equal annual
payments of principal, plus accrued interest through the date of payment, on
each anniversary of the purchase date. Such promissory note would be secured by
the 300,000 shares of Common Stock.
2.
<PAGE> 3
7. Termination of Employment Within Two Years.
(a) Termination by Company Without Cause. If the Company elects
to terminate Executive's employment hereunder without "cause" (as defined in
paragraph (b) below) within two years after the Effective Date, the Company will
provide Executive the following severance benefits:
(i) The Company will continue to pay to Executive the
Executive's then-effective Base Salary (which shall not be less than
$225,000) until the second anniversary of the Effective Date;
provided, however, that (1) such Base Salary payments shall be
reduced by any amounts earned or accrued by Executive during such
period as compensation from any subsequent employer, and (2) such
Base Salary payments shall terminate immediately if Executive
commences employment with, or provides advice or consulting
services to, a competitor of the Company; and
(ii) The Company shall continue to provide Executive with
medical, dental and life insurance coverage (as generally available
to executives of the Company) during such period as the Company is
obligated to continue to pay to Executive the full amount of Base
Salary pursuant to the immediately preceding paragraph (i).
(b) Termination by Executive, or Termination by Company for
Cause. If the Executive terminates his employment hereunder (including a
termination by reason of death or disability) or if the Company elects to
terminate Executive's employment for cause, in either case within two years
after the Effective Date, such employment will terminate on the date fixed by
Executive or the Company (as the case may be), and thereafter the Company will
not be obligated to pay Executive any additional compensation, other than
compensation due and owing to the date of termination. "Cause," for purposes of
this Agreement, shall mean any of the following:
(i) Willful breach by Executive of any material provision
of this Agreement;
(ii) Gross negligence or dishonesty in the performance of
Executive's duties hereunder; or
(iii) Executive intentionally engaging in conduct which is
materially detrimental to the business of the Company.
3.
<PAGE> 4
8. Other Provisions.
(a) Executive shall be entitled to all standard Company
benefits.
(b) Upon presentation of itemized documentation, the Company
shall pay or reimburse Executive for all reasonable and necessary expenses
incurred by him in connection with his duties hereunder.
(c) If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
or impair the validity or enforceability of the remaining provisions of this
Agreement, which shall remain in full force and effect in accordance with their
terms. This Agreement, together with the Company's standard form of
confidentiality and inventions assignment agreement (which Executive hereby
agrees to execute and perform), embodies the entire agreement between the
parties relating to the subject matter hereof, and supersedes all previous
agreements or understandings. No provision of this Agreement may be amended or
waived, except by a writing signed by the parties.
(d) This Agreement shall be governed by the laws of the State of
California.
JT STORAGE, INC.
By: /s/ D. T. Mitchell
----------------------------------
David T. Mitchell, President
/s/ Kenneth Wing
--------------------------------------
Kenneth D. Wing, individually
4.
<PAGE> 1
EXHIBIT 10.6
JT STORAGE, INC.
CONSULTING AGREEMENT FOR ROGER W. JOHNSON
THIS AGREEMENT is made by JT STORAGE, INC., its successors and its
subsidiaries worldwide ("JTS"), and Roger W. Johnson, an individual residing at
Number 2 Rocklege Road, Laguna Beach, CA 92651 ("Consultant"), effective April
1, 1996 (the "Effective Date"), for the purpose of setting forth the exclusive
terms and conditions under which Consultant will provide services on a
temporary basis to JTS.
In consideration of the mutual obligations specified in this
Agreement, and any compensation paid to Consultant for his services, the
parties agree to the following:
1. WORK AND PAYMENT. Attached to this Agreement as Exhibit A
hereto is a statement of the work to be performed by Consultant, Consultant's
rate of payment for such work, expenses to be paid in connection with such
work, the maximum price JTS shall be obligated to pay under this Agreement and
such other terms and conditions as shall be deemed appropriate or necessary for
the performance of the work.
JTS is not obligated to issue any additional orders for work by
Consultant under this Agreement.
2. NONDISCLOSURE AND TRADE SECRETS. During the term of this
Agreement and in the course of Consultant's performance hereunder, Consultant
may receive and otherwise be exposed to confidential and proprietary
information relating to JTS' business practices, strategies and technologies.
Such confidential and proprietary information may include but not be limited to
confidential and proprietary information supplied to Consultant with the legend
"JTS Confidential and Proprietary," or equivalent, JTS' marketing and customer
support strategies, JTS' financial information, including sales, costs, profits
and pricing methods, JTS' internal organization, employee information and
customer lists, JTS' technology, including discoveries, inventions, research
and development efforts, processes, hardware/software design and maintenance
tools, samples and/or media (and procedures and formulations for producing any
such samples and/or media), formulas, methods, product know-how and show-how,
and all derivatives, improvements and enhancements to any of the above which
are created or developed by Consultant under this Agreement and information of
third parties as to which JTS has an obligation of confidentiality
(collectively referred to as "Information").
Consultant acknowledges the confidential and secret character of the
Information and agrees that the Information is the sole, exclusive and
extremely valuable property of JTS. Accordingly, Consultant agrees not to
reproduce any of the Information without the applicable prior written consent
of JTS, not to use the Information except in the performance of this Agreement,
and not to disclose all or any part of the Information in any form to any third
party, either during or after the term of this Agreement. Upon termination of
this Agreement and the request of JTS, Consultant agrees to cease using and to
return to JTS all whole and partial copies and derivatives of the Information,
whether in Consultant's possession or under Consultant's direct or indirect
control.
1.
<PAGE> 2
Consultant shall not disclose or otherwise make available to JTS in
any manner any confidential information of Consultant or received by Consultant
from third parties.
Consultant agrees not to export, directly or indirectly, any U.S.
source technical data acquired from JTS or any products utilizing such data to
any countries outside the United States which export may be in violation of the
United States Export Laws or Regulations. Nothing in this section releases
Consultant from any obligation stated elsewhere in this Agreement not to
disclose such data.
This Section 2 shall survive the termination of this Agreement for any
reason, including expiration of term.
3. OWNERSHIP OF WORK PRODUCT. Consultant shall specifically
describe and identify in Exhibit A to this Agreement all technology (a) which
Consultant intends to use in performing under this Agreement, (b) which is
either owned solely by Consultant or licensed to Consultant with a right to
sublicense, and (c) which is in existence in the form of a writing or working
prototype prior to the effective date of this Agreement ("Background
Technology").
Consultant agrees that any and all ideas, improvements, inventions and
works of authorship conceived, written, created or first reduced to practice in
the performance of work under this Agreement shall be the sole and exclusive
property of JTS and hereby assigns to JTS all its right, title and interest in
and to any and all such ideas, improvements, inventions and works of
authorship.
Consultant further agrees that except for Consultant's rights in
Background Technology, JTS is and shall be vested with all rights, title and
interests including patent, copyright, trade secret and trademark rights in all
of Consultant's work product under this Agreement. Consultant hereby grants to
JTS a non-exclusive, royalty free and worldwide right to use and sublicense the
use of Background Technology for the purpose of developing and marketing JTS
products, but not for the purpose of marketing Background Technology separate
from JTS products.
Consultant shall execute all papers, including patent applications,
invention assignments and copyright assignments, and otherwise shall assist JTS
as reasonably required to perfect in JTS the rights, title and other interests
in Consultant's work product expressly granted to JTS under this Agreement.
Costs related to such assistance, if required, shall be paid by JTS.
This Section 3 shall survive the termination of this Agreement for any
reason, including expiration of term.
4. TERMINATION. Either JTS or Consultant may terminate this
Agreement in the event of a material breach of the Agreement which is not cured
within thirty (30) days of written notice to the other party of such breach.
Material breaches include but are not limited to the filing of bankruptcy
papers or other similar arrangements due to insolvency, the assignment of
Consultant's obligations to perform to third parties and Consultant's
acceptance of employment or consulting arrangements with third parties which
are or may be detrimental to JTS' business
2.
<PAGE> 3
interests. Unless earlier terminated as described above, this Agreement shall
terminate two (2) years following the Effective Date.
5. COMPLIANCE WITH APPLICABLE LAWS. Consultant warrants and
covenants that all material supplied and work performed under this Agreement
complies with or will comply with all applicable United States and foreign laws
and regulations.
6. INDEPENDENT CONTRACTOR. Consultant is an independent
contractor, is not an agent or employee of JTS and is not authorized to act on
behalf of JTS. Consultant will not be eligible for any employee benefits, nor
will JTS make deductions from any amounts payable to Consultant for taxes.
Taxes shall be the sole responsibility of Consultant.
7. LEGAL AND EQUITABLE REMEDIES. Consultant hereby acknowledges
and agrees that in the event of any breach of this Agreement by Consultant,
including, without limitation, the actual or threatened disclosure of
Information without the prior express written consent of JTS, JTS will suffer an
irreparable injury, such that no remedy at law will afford it adequate
protection against, or appropriate compensation for, such injury. Accordingly,
Consultant hereby agrees that JTS shall be entitled to specific performance of
Consultant's obligations under this Agreement, as well as such further relief as
may be granted by a court of competent jurisdiction.
8. GENERAL. The parties' rights and obligations under this
Agreement will bind and inure to the benefit of their respective successors,
heirs, executors, and administrators and permitted assigns. This Agreement and
its Exhibits attached hereto and hereby incorporated herein constitute the
parties' final, exclusive and complete understanding and agreement with respect
to the subject matter hereof, and supersede all prior and contemporaneous
understandings and agreements relating to its subject matter. This Agreement
may not be waived, modified, amended or assigned unless mutually agreed upon in
writing by both parties. In the event any provision of this Agreement is found
to be legally unenforceable, such unenforceability shall not prevent
enforcement of any other provision of the Agreement. This Agreement shall be
governed by the laws of the State of California, excluding its conflicts of
laws principles. Any notices required or permitted hereunder shall be given to
the appropriate party at the address specified below or at such other address
as the party shall specify in writing. Such notice shall be deemed given upon
personal delivery, facsimile transmission or sent by certified or registered
mail, postage prepaid, three (3) days after the date of mailing.
3.
<PAGE> 4
IN WITNESS WHEREOF,the parties hereto have executed this Agreement as
of the date first set forth above.
JT STORAGE, INC. CONSULTANT
By: W. Virginia Walker By: Roger W. Johnson
----------------------------- ---------------------------------
/s/ W. Virginia Walker /s/ Roger W. Johnson
- --------------------------------- -------------------------------------
W. Virginia Walker Roger W. Johnson
_________________________________ _____________________________________
Executive Vice President, [Social Security Number]
Finance and Administration, Chief
Financial Officer and Secretary
4.
<PAGE> 5
EXHIBIT A
WORK TO BE PERFORMED:
Roger W. Johnson shall be reasonably available to JTS during the term of this
Agreement to consult and confer with JTS in connection with strategic business
planning, industry conditions, business relationships and other such areas as
may be reasonably requested by JTS.
RATE OF PAYMENT:
$2,000 per month
METHOD OF PAYMENT:
A method consistent with JTS' then-current payment policies.
EXPENSES TO BE PAID:
Such expenses as are approved in writing by JTS consistent with its
then-current expense reimbursement policies and for which appropriate
documentation is furnished.
MAXIMUM AMOUNT JTS IS REQUIRED TO PAY:
$48,000
JTS FACILITIES WHERE WORK IS TO BE PERFORMED:
JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
Moduler Electronics (India) Pvt. Ltd.
Madras, India
BACKGROUND TECHNOLOGY:
5.
<PAGE> 1
EXHIBIT 10.7
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "Agreement") is made as
of January 2, 1996 (the "Effective Date") by and between JT Storage, Inc., a
Delaware corporation ("JT Storage"), and David T. Mitchell ("Purchaser"), with
reference to the following:
RECITALS:
A. JT Storage desires to advance its growth, development and
financial success by providing additional incentives to its key executive
personnel by assisting them to acquire shares of JT Storage's common stock (the
"Common Stock"), and to benefit directly from JT Storage's growth, development
and financial success.
B. JT Storage desires to sell to Purchaser on the Effective Date, and
Purchaser desires to subscribe for and purchase from JT Storage at such time,
certain shares of Common Stock as set forth in this Agreement.
C. In order to induce JT Storage to sell such shares, Purchaser
desires to have such shares subject to the restrictions and interests created
by this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein, the parties agree as follows:
1. Sale and Purchase of Stock. JT Storage hereby agrees to sell to
Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from JT Storage, 2,000,000
shares (the "Shares") of Common Stock at a price of $.25 per Share for an
aggregate purchase price of $500,000 (the "Purchase Price"). Purchaser shall pay
$100,000 of the Purchase Price by personal check payable to JT Storage and shall
issue a secured promissory note attached hereto as Exhibit A (the "Note") to JT
Storage for $400,000, constituting the balance of the Purchase Price. The Note
shall be secured by a pledge of the Shares, in conjunction with which Purchaser
shall execute a Stock Pledge Agreement (the "Pledge Agreement") attached hereto
as Exhibit B. The check, Note and Pledge Agreement, Joint Escrow Instructions
attached hereto as Exhibit C (the "Escrow Instructions"), and two copies of a
Stock Assignment Separate from Certificate (the "Stock
<PAGE> 2
Assignment") attached hereto as Exhibit D shall be delivered to JT Storage on
the Effective Date.
2. Vesting. The Shares purchased pursuant to Section 1 hereof will
vest over a four-year period from Purchaser's June 5, 1995 commencement of
employment (the "Vesting Commencement Date"), with 250,000 Shares vested
immediately and with the balance vesting in 42 successive monthly installments
of 41,666- 2/3 shares each commencing January 5, 1996 and thereafter on the
fifth day of each successive month through and until June 5, 1999. JT Storage's
repurchase option as described in Section 4 hereof shall be limited to those
Shares which have not so vested (herein referred to as "Unvested Shares") in
accordance with this Section 2 at the time of termination of the Purchaser's
employment with JT Storage. Accordingly, such repurchase right shall not apply
to any Shares which have vested (herein referred to as "Vested Shares") as of
the time of termination of Purchaser's employment with JT Storage.
3. Restriction on Transfer of the Unvested Shares. Except as
otherwise specifically provided herein, Purchaser may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any of the Unvested Shares,
or any right or interest therein. Any purported sale, transfer (including
involuntary transfers initiated by operation of legal process), hypothecation or
disposition of any of the Unvested Shares or any right or interest therein,
except in strict compliance with the terms and conditions of this Agreement,
shall be null and void. Vested Shares not required to remain pledged with JT
Storage pursuant to the Pledge Agreement shall not be subject to the
restrictions on transfer set forth in this Section 3.
4. Repurchase Option Upon Termination.
(a) JT Storage's Repurchase Option. In the event that
Purchaser's employment by JT Storage terminates for any reason (including,
without limitation, death, disability, retirement, voluntary or involuntary
resignation or dismissal, with or without cause) prior to the fifth anniversary
of the Vesting Commencement Date, JT Storage or its nominee(s) shall have the
right and option (the "Repurchase Option") to purchase from Purchaser all or any
portion of the Unvested Shares for a period of 60 days after the date of such
termination (the "Termination Date"). The amount of Unvested Shares shall be
determined as of the Termination Date.
(b) Repurchase Price Under Repurchase Option. The purchase
price for each Share to be purchased pursuant to the Repurchase Option (the
"Repurchase Price") shall be $.25 per
2.
<PAGE> 3
Share. The Company may apply unpaid amounts owing under the Note against the
Repurchase Price.
(c) Exercise of Repurchase Option. The Repurchase Option shall
be exercised by JT Storage or its nominee(s) by delivery, within the 60-day
period specified in Section 4(a) above, to Purchaser of (i) a written notice
specifying the number of Shares to be purchased and (ii) a check in the amount
of the Repurchase Price, calculated as provided in this Section 4, for all
Shares to be purchased.
5. Dividends, Splits and Certain Reorganizations. If, from time to
time during the term of this Agreement:
(a) There is any stock dividend or liquidating dividend of
cash and/or property, stock split or other change in the character or
amount of any of the outstanding securities of JT Storage; or
(b) There is any consolidation, merger or sale of all, or
substantially all, of the assets of JT Storage;
then, in such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of Purchaser's ownership
of Shares shall be immediately subject to this Agreement and be included in the
word "Shares" (as either Vested Shares or Unvested Shares, as appropriate) for
all purposes with the same force and effect as the Shares presently subject to
this Agreement. All such securities or other property so included in the word
"Shares" shall be delivered to the Escrow Agent (as hereinafter defined) and
held pursuant to the Escrow Instructions in accordance with Section 7 hereof.
While the total Repurchase Price pursuant to the Repurchase Option shall remain
the same after each such event, the Repurchase Price per Share upon exercise of
the Repurchase Option shall be appropriately adjusted, as necessary.
6. Change of Control. Notwithstanding the foregoing provisions of
Section 2 of this Agreement, in the event there occurs a Change of Control (as
defined below) and within three (3) years thereafter any one or more of the
following events occurs:
(a) JT Storage terminates Purchaser's employment with JT
Storage, other than by reason of Purchaser's willful failure to
discharge his duties of employment to JT Storage; or
3.
<PAGE> 4
(b) Purchaser is assigned a different employment position
with JT Storage involving a significant reduction in responsibility,
stature or compensation compared to Purchaser's position immediately
preceding such Change of Control; or
(c) Purchaser's continuation of employment with JT Storage
is conditioned on Purchaser's place of principal employment being
relocated by more than fifty (50) miles from such place of principal
employment immediately preceding such Change of Control;
then, in any such event, any Unvested Shares shall automatically become Vested
Shares and JT Storage's repurchase right with respect thereto shall accordingly
terminate. For purposes of this paragraph, "Change of Control" shall mean either
of the following events:
(i) Any "person" (as that term is defined in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under such Act), directly or
indirectly, of securities of JT Storage representing more than 50% of the total
voting power represented by the then outstanding voting securities of JT
Storage; provided, however, that the foregoing shall not apply with respect to
any such "person" who, at the date of this Agreement, is such "beneficial owner"
of securities of JT Storage representing at least 20% of the total voting power
represented by the presently outstanding voting securities of JT Storage; or
(ii) The stockholders of JT Storage shall approve a merger or
consolidation of JT Storage with any other corporation other than a merger or
consolidation which would result in the voting securities of JT Storage
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of JT Storage or such surviving entity outstanding immediately
after such merger or consolidation, as applicable, or the stockholders of JT
Storage approve a plan of complete liquidation of JT Storage or an agreement for
the sale or disposition by JT Storage of all or substantially all of the assets
of JT Storage.
7. Limitation on Payments. In the event that the automatic vesting of
all Unvested Shares provided for under Section 6 of this Agreement (i)
constitutes a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 7 would be subject to the excise tax imposed by Section 4999 of the
4.
<PAGE> 5
Code, then the Unvested Shares shall become automatically vested either:
(a) as to all of the Unvested Shares, or
(b) such lesser number of Unvested Shares which would result in
no portion of value of such acceleration being subject to excise tax under
Section 4999 of the Code,
whichever of the foregoing, taking into account the applicable federal, state,
and local employment taxes, income taxes, and the excise tax imposed by Section
4999 of the Code, results in the receipt by the Purchaser, on an after-tax
basis, of the greatest benefit of such acceleration, notwithstanding that the
value of all or some portion of such benefit may be taxable under Section 4999
of the Code.
All determinations required to be made under this Section 7 shall
be made in writing by JT Storage's independent public accountants (the
"Accounting Firm"). JT Storage shall cause the Accounting Firm to provide
detailed supporting calculations of its determinations to the Purchaser. Notice
must be given to the Accounting Firm within fifteen (15) business days after an
event causing automatic vesting of Unvested Shares under Section 6 of this
Agreement. All fees and expenses of the Accounting Firm shall be borne solely by
JT Storage. The Accounting Firm's determinations must be made with substantial
authority (within the meaning of Section 6662 of the Code).
8. Escrow. In the event the Note is repaid prior to the termination
of the Repurchase Option and the certificates representing Unvested Shares are
released pursuant to the Pledge Agreement, as security for the faithful
performance of the terms of this Agreement and to insure the availability for
delivery of the Unvested Shares upon exercise of the Repurchase Option herein
provided for, Purchaser agrees to deliver to, and deposit with, the Secretary of
JT Storage, or such other person designated by JT Storage (the "Escrow Agent"),
as the Escrow Agent in this transaction, two copies of the Stock Assignment duly
endorsed (with date and number of shares blank), together with the certificate
or certificates evidencing the Unvested Shares. Said documents are to held by
the Escrow Agent and delivered by the Escrow Agent pursuant to the Escrow
Instructions.
9. Permitted Transfers. Purchaser may, at any time or times, transfer
any or all of the Unvested Shares only: (a) inter vivos to Purchaser's spouse or
issue, or to a trust for their benefit, (b) upon Purchaser's death, to any
person in accordance with the laws of descent and/or testamentary distribution
(such persons described in clauses (a) and (b)
5.
<PAGE> 6
hereof are collectively referred to herein as "Permitted Transferee"), provided,
however, that such Unvested Shares shall not be transferred until the Permitted
Transferee executes a valid undertaking to JT Storage to the effect that the
Unvested Shares so transferred shall thereafter remain subject to all of the
provisions of this Agreement (including the Repurchase Option in the event
Purchaser's employment with JT Storage is terminated for any reason prior to the
fifth anniversary of the Vesting Commencement Date) as though the Permitted
Transferee were a party to this Agreement, bound in every respect in the same
way as Purchaser. Vested Shares not required to remain pledged with JT Storage
pursuant to the Pledge Agreement shall not be subject to the restrictions on
transfer set forth in this Section 9.
10. Rights as Shareholder. Subject to compliance with the provisions
of this Agreement and of the Pledge Agreement, Purchaser shall exercise all
rights and privileges of the registered holder of the Shares while they are held
by JT Storage pursuant to the Pledge Agreement or the Escrow Instructions, and
shall be entitled to receive any dividend or other distribution thereof;
provided, however, that any dividends or distributions with respect to the
Shares in the form of shares of capital stock of JT Storage (whether by way of
stock dividend, stock split or recapitalization) shall be subject to this
Agreement, the Pledge Agreement and the Escrow Instructions.
11. Investment Representations. Purchaser represents and warrants to
JT Storage as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
business of JT Storage, (ii) has had an opportunity to discuss with
representatives of JT Storage the condition of any prospects for the continued
operation and financing of JT Storage and such other matters as Purchaser has
deemed appropriate in considering whether to invest in the Shares and (iii) has
been provided access to all available information about JT Storage requested by
Purchaser.
(c) Shares Not Registered. Purchaser understands that the
Shares have not been registered under the Act or registered or qualified under
the securities laws of any state and that Purchaser may not sell or otherwise
transfer the Shares unless they are subsequently registered under the Act and
registered or qualified under applicable state securities laws,
6.
<PAGE> 7
or unless an exemption is available which permits sale or other transfer without
such registration and qualification.
12. Underwriters' Lock-Up. The Purchaser agrees that, in connection
with any underwritten offering of Common Stock of JT Storage pursuant to a
registration statement under the Securities Act of 1933, the Purchaser shall
withhold from the market any or all of the Shares for a period, not to exceed
one hundred and eighty (180) days, which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering.
13. No Contract of Employment. Purchaser acknowledges and agrees that
this Agreement shall not be construed to give Purchaser any right to be retained
in the employ of JT Storage, and that the right and power of JT Storage to
dismiss or discharge Purchaser (with or without cause) is strictly reserved.
14. Miscellaneous.
(a) Legends on Certificates. Any and all certificates now or
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND A PURCHASE OPTION IN FAVOR OF
THE ISSUER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN
ACCORDANCE WITH THE TERMS AND CONDITIONS OF THAT CERTAIN
RESTRICTED STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 2,
1996 BY AND BETWEEN JT STORAGE, INC., A DELAWARE CORPORATION,
AND DAVID T. MITCHELL, A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF JT STORAGE."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform
any further acts and execute and deliver any document which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Binding Agreement. This Agreement shall bind and inure to
the benefit of the successors and assigns of JT
7.
<PAGE> 8
Storage and the personal representatives, heirs and legatees of Purchaser.
(d) Other Restrictions on Transfers. The restrictions on
transfer set forth in this Agreement are in addition to any and all restrictions
imposed pursuant to any applicable state or federal law or regulation.
(e) Notices. Any notice required or permitted to be given
pursuant to this Agreement shall be in writing and shall be deemed given upon
personal delivery or, if mailed, upon the expiration of 48 hours after mailing
by any form of United States mail requiring a return receipt, addressed (i) to
Purchaser at the address set forth on the signature page hereof and (ii) to JT
Storage, Inc. at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other parties setting forth
the new address for the giving of notices pursuant to this Agreement.
(f) Amendments. This Agreement may be amended only by the
written agreement and consent of the parties hereof.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of laws rules thereof.
(h) Disputes. In the event of any dispute among the parties
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party,
including, without limitation, reasonable attorneys' fees.
(i) Entire Agreement. This Agreement, including the agreements
referred to herein, constitutes the entire agreement and understanding among the
parties pertaining to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, relating thereto.
(j) Headings. Introductory headings at the beginning of each
section of this Agreement are solely for the convenience of the parties and
shall not be deemed to be a limitation upon, or description of, the contents of
any such section.
(k) Counterparts. This Agreement may be executed in
counterparts, both of which, when taken together, shall constitute one and the
same instrument.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
JT STORAGE:
JT STORAGE, INC.,
a Delaware corporation
By: /s/ W. Virginia Walker
-----------------------------------
W. Virginia Walker,
Executive Vice President and
Chief Financial Officer
PURCHASER:
/s/ D. T. Mitchell
--------------------------------------
David T. Mitchell
Address:28560 Matadero Creek Road
Los Altos Hills, CA 94022
9.
<PAGE> 10
EXHIBIT A
SECURED PROMISSORY NOTE
$400,000 January 2, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower") hereby promises to pay
to JT Storage, Inc., a Delaware corporation ("Payee"), the principal sum of Four
Hundred Thousand Dollars ($400,000), together with interest at 5.91% per annum,
compounded annually, on the unpaid balance of such principal amount from the
date hereof. Principal payments of $100,000 plus all accrued interest hereon
shall be paid in four installments on each of the first four anniversary dates
hereof.
Payments of principal and interest on this Secured Promissory Note
(this "Promissory Note") shall be made in legal tender of the United States of
America and shall be made at the office of Payee at 166 Baypointe Parkway, San
Jose, California 95134 or at such other place as Payee shall have designated in
writing to Borrower. If the date set for any payment on this Promissory Note is
a Saturday, Sunday or legal holiday, then such payment shall be due on the next
succeeding business day.
As of the date hereof, Borrower has purchased 2,000,000 shares (the
"Shares") of the common stock of Payee, pursuant to the terms of that certain
Restricted Stock Purchase Agreement dated as of January 2, 1996 by and between
Borrower and Payee. This Promissory Note shall be secured by the Shares as
provided in that certain Stock Pledge Agreement (the "Pledge Agreement") of even
date herewith by and between Payee and Borrower.
The principal of, and accrued interest on, this Promissory Note may be
prepaid at any time, in whole or in part, without premium or penalty.
In the event Borrower shall (i) fail to make complete payment of any
installment of principal or accrued interest when due under this Promissory Note
or (ii) commit a breach of, or default under, the Pledge Agreement, Payee may
accelerate this Promissory Note and declare the entire unpaid principal amount
of this Promissory Note and all accrued and unpaid interest thereon to be
immediately due and payable and, thereupon, the unpaid principal amount and all
such accrued and unpaid interest shall become and be immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor or other notices or demands of any kind (all
of which are hereby expressly waived by Borrower). The failure of Payee to
accelerate this Promissory Note shall not constitute a waiver of any of Payee's
rights under this Promissory Note as long as Borrower's default under this
<PAGE> 11
Promissory Note or breach of or default under the Pledge Agreement continues.
The provisions of this Promissory Note shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of law rules thereof. In the event that Payee is required to
take any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such attorneys' fees and court costs as Payee may incur
as a result thereof, whether or not suit is commenced.
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER:
/s/ D. T. Mitchell
--------------------------------------
David T. Mitchell
2.
<PAGE> 12
EXHIBIT B
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
January 2, 1996 by and between David T. Mitchell, as pledgor ("Pledgor"), and JT
Storage, Inc., a Delaware corporation, as pledgee ("Pledgee"), with reference to
the following:
RECITALS:
A. Pursuant to that certain Restricted Stock Purchase Agreement (the
"Purchase Agreement") of even date herewith, by and between Pledgor and Pledgee,
Pledgor has agreed to purchase 2,000,000 shares (the "Shares") of the common
stock of Pledgee.
B. Pursuant to the terms of that certain Secured Promissory Note in
the original principal amount of $400,000 (the "Note") of even date herewith
delivered by Pledgor to Pledgee, Pledgor has agreed to make payments of
principal and interest to Pledgee as provided in the Note.
C. Pursuant to the terms of the Note, Pledgor shall execute this
Pledge Agreement to assure compliance with the terms and conditions of the Note.
D. In order to induce Pledgee to make the loan evidenced by the Note,
Pledgor desires to have the Shares held subject to this Pledge Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties hereto agree as
follows:
1. Grant of Security Interest. Pledgor hereby grants to Pledgee a
security interest in the Shares, pledges and hypothecates the Shares to Pledgee,
and deposits the certificates evidencing the Shares (the "Certificates") with
Pledgee as collateral security for the payment by Pledgor of the Note and the
full, faithful and timely performance by Pledgor of all of its other obligations
under the Note and this Pledge Agreement. The Certificates, together with a
stock assignment duly executed in blank with signatures appropriately guaranteed
or witnessed, are being retained by Pledgee, as the pledgeholder for the Shares.
Notwithstanding the foregoing, the Pledgee shall, from time to time at the
request of the Pledgor, cause to be delivered to the Pledgor one or more
certificates which, together with all other such certificates theretofore
delivered pursuant to this sentence, evidences that portion of the Shares which
is equal to the portion of the full purchase price for all of the Shares then
<PAGE> 13
actually paid to the Pledgee by the Pledgor (i.e., the portion determined by
adding the cash payment amount set forth in Section 1 of the Purchase Agreement
to all principal payments on the Note which have theretofore been made by the
Pledgor at the time of such request), subject in all cases to the provisions of
Section 7 of the Purchase Agreement requiring the continued escrow of Unvested
Shares.
2. Representations and Warranties of Pledgor. Pledgor represents and
warrants to Pledgee that the Shares are free and clear of all claims, mortgages,
pledges, liens and other encumbrances of any nature whatsoever, except any
restriction upon sale and distribution imposed by the Securities Act of 1933, as
amended (the "Act"), or applicable state securities laws, and by the
Subscription Agreement.
3. Voting of Shares in the Absence of Default. So long as there shall
exist no Event of Default as provided in Section 9 hereof, Pledgor shall be
entitled to exercise, as Pledgor deems proper but in a manner not inconsistent
with the terms hereof, Pledgor's rights to voting power with respect to the
Shares. Pledgor shall not be entitled to vote the Shares at any time that there
exists an Event of Default as provided in Section 9 hereof.
4. Dividends and Other Distributions. So long as there shall exist no
Event of Default as provided in Section 9 hereof, Pledgor shall be entitled to
receive any dividend or other distribution with respect to the Shares except as
provided in Section 5 of this Pledge Agreement. If there exists an Event of
Default, such dividend or distribution shall be delivered to Pledgee to be held
as additional collateral security under this Pledge Agreement.
5. Stock Dividends. In the event of any distribution in shares of
capital stock of Pledgee (whether by way of stock dividend, stock split,
recapitalization or otherwise) with respect to the Shares, the shares to be
distributed to Pledgor shall be delivered to Pledgee, together with an
appropriately executed stock certificate and an appropriately executed stock
power, to be held as additional collateral security under this Pledge Agreement.
6. Pledgee's Duties. So long as Pledgee exercises reasonable care
with respect to the Shares in its possession, Pledgee shall have no liability
for any loss or damage to such Shares, and in no event shall Pledgee have
liability for any diminution in value of the Shares occasioned by economic or
market conditions or events. Pledgee shall be deemed to have exercised
reasonable care within the meaning of the preceding
2.
<PAGE> 14
sentence if the Shares in its possession are accorded treatment substantially
equal to that which Pledgee accords its own property, it being understood that
Pledgee shall not have any responsibility under this Pledge Agreement for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to the Shares, whether or not
Pledgee has or is deemed to have knowledge of such matters, or (b) taking any
necessary steps to preserve rights against any person or entity with respect to
the Shares.
7. Sale of Collateral. Upon the occurrence of any Event of Default as
provided in Section 9 hereof, Pledgee shall have all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of California at that time and also may, without notice, except as
specified below, at its option, sell, resell, assign, transfer and deliver all
or any part of the Shares, for cash or on credit for future delivery. Upon such
sale, Pledgee, unless prohibited by a provision of any applicable statute, may
purchase all or any part of the Shares being sold, free from, and discharged of,
all trusts, claims, rights of redemption and equities of Pledgor. If the
proceeds of any sale of the Shares shall be insufficient to pay all amounts due
under the Note, including collection costs and expenses of sale, Pledgor shall
remain obligated and liable for any deficiency with respect thereto. If, at any
time when Pledgee shall determine to exercise its rights to sell all or any part
of the Shares pursuant to this Section 7, such Shares, or the part thereof to be
sold, shall not be effectively registered under the Act as then in effect or any
similar statute then in force, subject to the provisions of Section 8 hereof,
Pledgee, in its sole and absolute discretion, is hereby expressly authorized to
sell such Shares, or any part thereof, by private sale in such manner and under
such circumstances as Pledgee may deem necessary or advisable in order that such
sale may be effected legally without such registration. Without limiting the
generality of the foregoing, Pledgee, in its sole and absolute discretion, may
approach and negotiate with a restricted number of potential purchasers to
effect such sale or restrict such sale to a purchaser or purchasers who will
represent and agree that such purchaser or purchasers are purchasing for its or
their own account, for investment only, and not with a view to the distribution
or sale of such Shares or any part thereof. Any such sale shall be deemed to be
a sale made in a commercially reasonable manner within the meaning of the
California Uniform Commercial Code, and Pledgor hereby consents and agrees that
Pledgee shall incur no responsibility or liability for selling all or any part
of the Shares at a price which is not unreasonably low, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
public. Pledgee shall not be obligated to make any sale of the
3.
<PAGE> 15
Shares regardless of notice of sale having been given. Pledgee may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and any such sale may, without further notice, be made at the
time and place to which it was so adjourned.
8. Redemption of Collateral. Notwithstanding any other provision of
this Pledge Agreement, upon the occurrence of an Event of Default as provided in
Section 9 hereof, Pledgee shall give Pledgor written notice of the time and
place of any public sale or of the time on or after which any private sale or
other disposition is to be made at least ten days before the date fixed for any
public sale or the day on or after which any private sale or other disposition
is to be made. Pledgor agrees that, to the extent notice of sale shall be
required by law, such ten days' notice shall constitute reasonable notification.
This notice shall also specify the aggregate outstanding monetary obligations of
Pledgor to Pledgee at the date of such notice (the "Total Obligation"). At any
time during such ten-day period, Pledgor shall have the right to redeem the
Shares by the payment by certified or bank cashier's check of an amount equal to
the Total Obligation.
9. Events of Default. At the option of Pledgee, the principal balance
of the Note and all accrued and unpaid interest thereon, and all other
obligations of Pledgor to Pledgee thereunder and hereunder, shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Pledgor), upon
the occurrence of any of the events set out below ("Events of Default"):
(a) Pledgor shall fail to make complete payment or prepayment
of principal or interest when due in accordance with the terms of the Note; or
(b) Pledgor shall commit a breach or default of any of his
obligations under this Pledge Agreement.
10. Termination. This Pledge Agreement shall terminate upon the
payment in full of the principal amount and all accrued interest thereon under
the Note. Upon termination of this Pledge Agreement, Pledgor shall be entitled
to the return of the Certificates and any other collateral security then held by
Pledgee pursuant to Section 4 or Section 5 of this Pledge Agreement.
11. Cumulation of Remedies; Waiver of Rights. The remedies provided
herein in favor of Pledgee shall not be deemed
4.
<PAGE> 16
exclusive but shall be cumulative and shall be in addition to all of the
remedies in favor of Pledgee existing at law or in equity. Nothing in this
Pledge Agreement shall require Pledgee to proceed against or exhaust its
remedies against the Shares before proceeding against Pledgor or executing
against any other security or collateral securing performance of Pledgor's
obligations to Pledgee under the Note or this Pledge Agreement. No delay on the
part of Pledgee in exercising any of its options, powers or rights, or the
partial or single exercise thereof, shall constitute a waiver thereof.
12. Execution of Endorsements, Assignments, Etc. Upon the occurrence
of an Event of Default as provided in Section 9 hereof, Pledgee shall have the
right for and in the name, place and stead of Pledgor to execute endorsements,
assignments or other instruments of conveyance or transfer with respect to all
or any of the Shares and any other shares of the capital stock of Pledgee or
other property which is held by Pledgee as collateral security pursuant to
Section 4 or Section 5 of this Pledge Agreement.
13. Miscellaneous.
(a) Further Documents. Pledgor agrees to execute, acknowledge
and deliver any documents or instruments which Pledgee may request in order to
better evidence or effectuate this Pledge Agreement and the transactions
contemplated hereby.
(b) Binding Agreement. This Pledge Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors,
assigns, personal representatives, heirs and legatees. Notwithstanding the
foregoing, Pledgor may not assign any of his rights or delegate any of his
duties hereunder without the prior written consent of Pledgee. The parties
hereto acknowledge that Pledgee shall have the right to assign, with absolute
discretion, any or all of its rights and obligations under this Pledge Agreement
to any bank(s) or lending institution(s) as collateral security.
(c) Notice. Any notice required or permitted to be given
pursuant to this Pledge Agreement shall be in writing and shall be deemed given
upon personal delivery, or if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail requiring a return receipt, addressed
(i) to Pledgor, at the address set forth on the signature page hereof and (ii)
to Pledgee at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other party setting forth the
new address for the giving of notices pursuant to this Pledge Agreement.
5.
<PAGE> 17
(d) Amendments. This Pledge Agreement may be amended only by
the written agreement and consent of the parties hereto.
(e) Governing Law. This Pledge Agreement shall be governed by,
and construed in accordance with, the laws of the State of California, without
regard to the conflicts of laws rules thereof.
(f) Disputes. In the event of any dispute between the parties
arising out of this Pledge Agreement, the prevailing party shall be entitled to
receive from the nonprevailing party the reasonable expenses of the prevailing
party including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Pledge Agreement, including the
agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(h) Headings. Introductory headings at the beginning of each
section of this Pledge Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon, or description of, the contents
of any such section and shall not affect the meanings or construction of the
terms and provisions of this Pledge Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
PLEDGOR:
/s/ D. T. Mitchell
-------------------------------------
David T. Mitchell
Address: 28560 Matadero Creek Road
Los Altos Hills, CA 94022
PLEDGEE:
JT STORAGE, INC.,
a Delaware corporation
By: /s/ W. Virginia Walker
----------------------------------
W. Virginia Walker,
Executive Vice President and
Chief Financial Officer
166 Baypointe Parkway
San Jose, California 95134
6.
<PAGE> 18
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Secretary January 2, 1996
JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
Dear Sir:
As Escrow Agent for both JT Storage, Inc., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents,
including stock certificates and stock assignments, delivered to you pursuant to
the terms of that certain Restricted Stock Purchase Agreement (the "Agreement"),
dated as of even date, to which a copy of these Joint Escrow Instructions is
attached as Exhibit C, in accordance with the following instructions:
1. In the event the Corporation and/or any nominee or assignee of the
Corporation (referred to collectively for convenience herein as the
"Corporation") exercises the Repurchase Option set forth in the Agreement, the
Corporation shall give to Purchaser and you a written notice specifying the
number of shares of stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed to (a) date the stock assignments
necessary for the transfer in question, (b) fill in the number of shares being
transferred and (c) deliver same, together with the certificate evidencing the
shares of stock to be transferred, to the Corporation against the simultaneous
delivery to you of the purchase price (by check) for the number of shares of
stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with
you any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his or her
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated.
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and
<PAGE> 19
privileges of a shareholder of the Corporation while the shares of stock are
held by you.
4. From time to time upon written request of the Purchaser, you will
deliver to Purchaser a certificate or certificates representing so many shares
of stock as are not then subject to the Corporation's Repurchase Option and are
not required to remain pledged with JT Storage pursuant to the Pledge Agreement.
Within 30 days after the expiration of the 60-day period referred to in
paragraph 3 of the Agreement, you will deliver to Purchaser a certificate or
certificates representing the aggregate number of shares sold and issued
pursuant to the Agreement and not purchased by the Corporation or its assignees
pursuant to exercise of the Repurchase Option.
5. Notwithstanding the foregoing paragraphs 1, 2, 3 and 4, your
duties and obligations as Escrow Agent shall not commence until such time as the
certificates representing the shares of stock of the Corporation subject to
these instructions pursuant to the Agreement together with two duly executed
stock assignments separate from certificate are delivered to you. It is also
understood and agreed that you may, on behalf of the Corporation, concurrent
with your duties hereunder, hold such certificates and stock assignments as
collateral for Purchaser's obligations pursuant to a Secured Promissory Note of
even date herewith in the aggregate principal amount of $400,000.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
on any instrument reasonably believed by you to be genuine and to have been
signed or presented by the proper party or parties. You shall not be personally
liable for any act you may do or omit to do hereunder as Escrow Agent or as
attorney-in-fact for Purchaser while acting in good faith and in the exercise of
your own good judgment, and any act done or omitted by you pursuant to the
advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance,
2.
<PAGE> 20
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary to advise you properly in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor. The Corporation shall be
obligated to reimburse you for your expenses in this connection.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the shares of
stock held by you hereunder, you are authorized and directed to retain in your
possession without liability to anyone all or any part of said shares until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of arbitrators or of a
court of competent jurisdiction after the time for appeal has expired and no
appeal has been perfected, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
15. Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed given upon personal delivery, if mailed, or upon the
expiration of 48 hours after mailing by any form of United States mail requiring
a return receipt, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses
3.
<PAGE> 21
as a party may designate by ten days' advance written notice to each of the
other parties hereto.
CORPORATION: JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
PURCHASER: David T. Mitchell
Address: 28560 Matadero Creek Road
Los Altos Hills, CA 94022
ESCROW AGENT: Secretary of JT Storage
166 Baypointe Parkway
San Jose, California 95134
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
JT Storage, Inc.,
a Delaware corporation
By: /s/ W. Virginia Walker
-----------------------------------
W. Virginia Walker,
Executive Vice President and
Chief Financial Officer
PURCHASER:
/s/ D. T. Mitchell
--------------------------------------
David T. Mitchell
ESCROW AGENT:
/s/ W. Virginia Walker
- ----------------------------------
W. Virginia Walker, Secretary
4.
<PAGE> 22
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement and Stock Pledge Agreement, each dated as of January 2, 1996
by and between JT Storage, Inc., a Delaware corporation (the "Corporation"), and
the undersigned, David T. Mitchell hereby sells, assigns and transfers unto
___________________________________________________________________________
(_________) shares of the common stock of the Corporation standing in the
undersigned's name on the books of the Corporation represented by Certificate
No. ___ herewith, and does hereby irrevocably constitute and appoint __________
______________________________________________________ attorney to transfer
the said stock on the books of the Corporation with full power of substitution
in the premises.
Dated: _____________________ [do not date]
/s/ D. T. Mitchell
-----------------------------------
David T. Mitchell
<PAGE> 1
EXHIBIT 10.8
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT(this "Agreement") is made as
of March 6, 1996 (the "Effective Date") by and between JT STORAGE, INC., a
Delaware corporation ("JT Storage"), and DAVID T. MITCHELL ("Purchaser"), with
reference to the following:
RECITALS
A. JT Storage desires to advance its growth, development and
financial success by providing additional incentives to its key executive
personnel by assisting them to acquire shares of JT Storage's common stock (the
"Common Stock"), and to benefit directly from JT Storage's growth, development
and financial success.
B. JT Storage desires to sell to Purchaser on the Effective Date,
and Purchaser desires to subscribe for and purchase from JT Storage at such
time, certain shares of Common Stock as set forth in this Agreement.
C. In order to induce JT Storage to sell such shares, Purchaser
desires to have such shares subject to the restrictions and interests created
by this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein, the parties agree as follows:
1. SALE AND PURCHASE OF STOCK. JT Storage hereby agrees to sell
to Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from JT Storage, 1,000,000
shares (the "Shares") of Common Stock at a price of $1.00 per Share for an
aggregate purchase price of $1,000,000 (the "Purchase Price"). Purchaser shall
pay the Purchase Price by issuing a secured promissory note attached hereto as
Exhibit A (the "Note") to JT Storage for $1,000,000. The Note shall be secured
by a pledge of the Shares, in conjunction with which Purchaser shall execute a
Stock Pledge Agreement (the "Pledge Agreement") attached hereto as Exhibit B.
The Note and Pledge Agreement, Joint Escrow Instructions attached hereto as
Exhibit C (the "Escrow Instructions"), and two copies of a Stock Assignment
Separate from Certificate (the "Stock Assignment") attached hereto as Exhibit D
shall be delivered to JT Storage on the Effective Date.
2. VESTING. The Shares purchased pursuant to Section 1 hereof
will vest over a five-year period from February 21, 1996 (the "Vesting
Commencement Date"), with 1,000,000 Shares vesting in one lump sum on February
21, 2001. Notwithstanding the foregoing, in the event that the merger of Atari
Corporation with and into JT Storage (the "Merger") closes, the
1.
<PAGE> 2
Shares purchased pursuant to Section 1 hereof will vest over a four-year period
from the Vesting Commencement Date, with 125,000 Shares vesting in one lump sum
on August 21, 1996 and with the balance vesting in 42 successive monthly
installments of 20,833-1/3 Shares each commencing September 21, 1996 and
thereafter on the twenty-first day of each successive month through and until
February 21, 2000. JT Storage's repurchase option as described in Section 4
hereof shall be limited to those Shares which have not so vested (herein
referred to as "Unvested Shares") in accordance with this Section 2 at the time
of termination of the Purchaser's employment with JT Storage. Accordingly,
such repurchase right shall not apply to any Shares which have vested (herein
referred to as "Vested Shares") as of the time of termination of Purchaser's
employment with JT Storage.
3. RESTRICTION ON TRANSFER OF THE UNVESTED SHARES. Except as
otherwise specifically provided herein, Purchaser may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any of the Unvested Shares,
or any right or interest therein. Any purported sale, transfer (including
involuntary transfers initiated by operation of legal process), hypothecation
or disposition of any of the Unvested Shares or any right or interest therein,
except in strict compliance with the terms and conditions of this Agreement,
shall be null and void. Vested Shares not required to remain pledged with JT
Storage pursuant to the Pledge Agreement shall not be subject to the
restrictions on transfer set forth in this Section 3.
4. REPURCHASE OPTION UPON TERMINATION.
(a) JT STORAGE'S REPURCHASE OPTION. In the event that
Purchaser's employment by JT Storage terminates for any reason (including,
without limitation, death, disability, retirement, voluntary or involuntary
resignation or dismissal, with or without cause) prior to the fifth anniversary
of the Vesting Commencement Date, JT Storage or its nominee(s) shall have the
right and option (the "Repurchase Option") to purchase from Purchaser all or
any portion of the Unvested Shares for a period of 60 days after the date of
such termination (the "Termination Date"). The amount of Unvested Shares shall
be determined as of the Termination Date.
(b) REPURCHASE PRICE UNDER REPURCHASE OPTION. The
purchase price for each Share to be purchased pursuant to the Repurchase Option
(the "Repurchase Price") shall be $1.00 per Share. The Company may apply
unpaid amounts owing under the Note against the Repurchase Price.
(c) EXERCISE OF REPURCHASE OPTION. The Repurchase Option
shall be exercised by JT Storage or its nominee(s) by delivery, within the
60-day period specified in Section 4(a) above, to Purchaser of (i) a written
notice specifying the number of Shares to be purchased and (ii) a check in the
amount of the Repurchase Price, calculated as provided in this Section 4, for
all Shares to be purchased.
2.
<PAGE> 3
5. DIVIDENDS, SPLITS AND CERTAIN REORGANIZATIONS. If, from time
to time during the term of this Agreement:
(a) There is any stock dividend or liquidating dividend
of cash and/or property, stock split or other change in the character or amount
of any of the outstanding securities of JT Storage; or
(b) There is any consolidation, merger or sale of all, or
substantially all, of the assets of JT Storage;
then, in such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of Purchaser's
ownership of Shares shall be immediately subject to this Agreement and be
included in the word "Shares" (as either Vested Shares or Unvested Shares, as
appropriate) for all purposes with the same force and effect as the Shares
presently subject to this Agreement. All such securities or other property so
included in the word "Shares" shall be delivered to the Escrow Agent (as
hereinafter defined) and held pursuant to the Escrow Instructions in accordance
with Section 7 hereof. While the total Repurchase Price pursuant to the
Repurchase Option shall remain the same after each such event, the Repurchase
Price per Share upon exercise of the Repurchase Option shall be appropriately
adjusted, as necessary.
6. CHANGE OF CONTROL. Notwithstanding the foregoing provisions
of Section 2 of this Agreement, in the event there occurs a Change of Control
(as defined below) and within three (3) years thereafter any one or more of the
following events occurs:
(a) JT Storage terminates Purchaser's employment with JT
Storage, other than by reason of Purchaser's willful failure to discharge his
duties of employment to JT Storage; or
(b) Purchaser is assigned a different employment position
with JT Storage involving a significant reduction in responsibility, stature or
compensation compared to Purchaser's position immediately preceding such Change
of Control; or
(c) Purchaser's continuation of employment with JT
Storage is conditioned on Purchaser's place of principal employment being
relocated by more than fifty (50) miles from such place of principal employment
immediately preceding such Change of Control;
then, in any such event, any Unvested Shares shall automatically become Vested
Shares and JT Storage's repurchase right with respect thereto shall accordingly
terminate. For purposes of this paragraph, "Change of Control" shall mean
either of the following events:
(i) Any "person" (as that term is defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under such Act),
directly or indirectly, of securities of JT Storage
3.
<PAGE> 4
representing more than 50% of the total voting power represented by the then
outstanding voting securities of JT Storage; provided, however, that the
foregoing shall not apply with respect to any such "person" (excluding Atari
Corporation) who, at the date of this Agreement, is such "beneficial owner" of
securities of JT Storage representing at least 20% of the total voting power
represented by the presently outstanding voting securities of JT Storage; or
(ii) The stockholders of JT Storage shall approve
a merger or consolidation of JT Storage with any other corporation other than a
merger or consolidation which would result in the voting securities of JT
Storage outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of JT Storage or such surviving entity outstanding
immediately after such merger or consolidation, as applicable, or the
stockholders of JT Storage approve a plan of complete liquidation of JT Storage
or an agreement for the sale or disposition by JT Storage of all or
substantially all of the assets of JT Storage.
Notwithstanding the foregoing, the Merger shall not constitute a
Change of Control for purposes of this Section 6.
7. LIMITATION ON PAYMENTS. In the event that the automatic
vesting of all Unvested Shares provided for under Section 6 of this Agreement
(i) constitutes a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 7 would be subject to the excise tax imposed by Section 4999 of the
Code, then the Unvested Shares shall become automatically vested either:
(a) as to all of the Unvested Shares, or
(b) such lesser number of Unvested Shares which would
result in no portion of value of such acceleration being subject to excise tax
under Section 4999 of the Code,
whichever of the foregoing, taking into account the applicable federal, state,
and local employment taxes, income taxes, and the excise tax imposed by Section
4999 of the Code, results in the receipt by the Purchaser, on an after-tax
basis, of the greatest benefit of such acceleration, notwithstanding that the
value of all or some portion of such benefit may be taxable under Section 4999
of the Code.
All determinations required to be made under this Section 7
shall be made in writing by JT Storage's independent public accountants (the
"Accounting Firm"). JT Storage shall cause the Accounting Firm to provide
detailed supporting calculations of its determinations to the Purchaser.
Notice must be given to the Accounting Firm within fifteen (15) business days
after an event causing automatic vesting of Unvested Shares under Section 6 of
this Agreement. All fees and expenses of the Accounting Firm shall be borne
solely by JT Storage. The Accounting Firm's determinations must be made with
substantial authority (within the meaning of Section 6662 of the Code).
4.
<PAGE> 5
8. ESCROW. In the event the Note is repaid prior to the
termination of the Repurchase Option and the certificates representing Unvested
Shares are released pursuant to the Pledge Agreement, as security for the
faithful performance of the terms of this Agreement and to insure the
availability for delivery of the Unvested Shares upon exercise of the
Repurchase Option herein provided for, Purchaser agrees to deliver to, and
deposit with, the Secretary of JT Storage, or such other person designated by
JT Storage (the "Escrow Agent"), as the Escrow Agent in this transaction, two
copies of the Stock Assignment duly endorsed (with date and number of shares
blank), together with the certificate or certificates evidencing the Unvested
Shares. Said documents are to held by the Escrow Agent and delivered by the
Escrow Agent pursuant to the Escrow Instructions.
9. PERMITTED TRANSFERS. Purchaser may, at any time or times,
transfer any or all of the Unvested Shares only: (a) inter vivos to Purchaser's
spouse or issue, or to a trust for their benefit, (b) upon Purchaser's death,
to any person in accordance with the laws of descent and/or testamentary
distribution (such persons described in clauses (a) and (b) hereof are
collectively referred to herein as "Permitted Transferee"), provided, however,
that such Unvested Shares shall not be transferred until the Permitted
Transferee executes a valid undertaking to JT Storage to the effect that the
Unvested Shares so transferred shall thereafter remain subject to all of the
provisions of this Agreement (including the Repurchase Option in the event
Purchaser's employment with JT Storage is terminated for any reason prior to
the fifth anniversary of the Vesting Commencement Date) as though the Permitted
Transferee were a party to this Agreement, bound in every respect in the same
way as Purchaser. Vested Shares not required to remain pledged with JT Storage
pursuant to the Pledge Agreement shall not be subject to the restrictions on
transfer set forth in this Section 9.
10. RIGHTS AS SHAREHOLDER. Subject to compliance with the
provisions of this Agreement and of the Pledge Agreement, Purchaser shall
exercise all rights and privileges of the registered holder of the Shares while
they are held by JT Storage pursuant to the Pledge Agreement or the Escrow
Instructions, and shall be entitled to receive any dividend or other
distribution thereof; provided, however, that any dividends or distributions
with respect to the Shares in the form of shares of capital stock of JT Storage
(whether by way of stock dividend, stock split or recapitalization) shall be
subject to this Agreement, the Pledge Agreement and the Escrow Instructions.
11. INVESTMENT REPRESENTATIONS. Purchaser represents and warrants
to JT Storage as follows:
(a) PURCHASER'S OWN ACCOUNT. Purchaser is acquiring the
Shares for Purchaser's own account and not with a view to or for sale in
connection with any distribution of the Shares.
5.
<PAGE> 6
(b) ACCESS TO INFORMATION. Purchaser (i) is familiar
with the business of JT Storage, (ii) has had an opportunity to discuss with
representatives of JT Storage the condition of any prospects for the continued
operation and financing of JT Storage and such other matters as Purchaser has
deemed appropriate in considering whether to invest in the Shares and (iii) has
been provided access to all available information about JT Storage requested by
Purchaser.
(c) SHARES NOT REGISTERED. Purchaser understands that
the Shares have not been registered under the Act or registered or qualified
under the securities laws of any state and that Purchaser may not sell or
otherwise transfer the Shares unless they are subsequently registered under the
Act and registered or qualified under applicable state securities laws, or
unless an exemption is available which permits sale or other transfer without
such registration and qualification.
12. UNDERWRITERS' LOCK-UP. The Purchaser agrees that, in
connection with any underwritten offering of Common Stock of JT Storage
pursuant to a registration statement under the Securities Act of 1933, the
Purchaser shall withhold from the market any or all of the Shares for a period,
not to exceed one hundred and eighty (180) days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering.
13. NO CONTRACT OF EMPLOYMENT. Purchaser acknowledges and agrees
that this Agreement shall not be construed to give Purchaser any right to be
retained in the employ of JT Storage, and that the right and power of JT
Storage to dismiss or discharge Purchaser (with or without cause) is strictly
reserved.
14. MISCELLANEOUS.
(a) LEGENDS ON CERTIFICATES. Any and all certificates
now or hereafter issued evidencing the Shares shall have endorsed upon them a
legend substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND A PURCHASE OPTION IN FAVOR OF THE
ISSUER AND May NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH THE
TERMS AND CONDITIONS OF THAT CERTAIN RESTRICTED STOCK PURCHASE
AGREEMENT DATED AS OF MARCH 6, 1996 BY AND BETWEEN JT STORAGE, INC., A
DELAWARE CORPORATION, AND DAVID T. MITCHELL, A COPY OF WHICH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF JT STORAGE."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
6.
<PAGE> 7
(b) FURTHER ASSURANCES. Each party hereto agrees to
perform any further acts and execute and deliver any document which may be
reasonably necessary to carry out the intent of this Agreement.
(c) BINDING AGREEMENT. This Agreement shall bind and
inure to the benefit of the successors and assigns of JT Storage and the
personal representatives, heirs and legatees of Purchaser.
(d) OTHER RESTRICTIONS ON TRANSFERS. The restrictions on
transfer set forth in this Agreement are in addition to any and all
restrictions imposed pursuant to any applicable state or federal law or
regulation.
(e) NOTICES. Any notice required or permitted to be
given pursuant to this Agreement shall be in writing and shall be deemed given
upon personal delivery or, if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail requiring a return receipt, addressed
(i) to Purchaser at the address set forth on the signature page hereof and (ii)
to JT Storage, Inc. at 166 Baypointe Parkway, San Jose, California 95134. A
party may change address by giving written notice to the other parties setting
forth the new address for the giving of notices pursuant to this Agreement.
(f) AMENDMENTS. This Agreement may be amended only by
the written agreement and consent of the parties hereof.
(g) GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California without
regard to the conflicts of laws rules thereof.
(h) DISPUTES. In the event of any dispute among the
parties arising out of this Agreement, the prevailing party shall be entitled
to recover from the nonprevailing party the reasonable expenses of the
prevailing party, including, without limitation, reasonable attorneys' fees.
(i) ENTIRE AGREEMENT. This Agreement, including the
agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(j) HEADINGS. Introductory headings at the beginning of
each section of this Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon, or description of, the
contents of any such section.
7.
<PAGE> 8
(k) COUNTERPARTS. This Agreement may be executed in
counterparts, both of which, when taken together, shall constitute one and the
same instrument.
IN WITNESS WHEREOF,the parties hereto have duly executed this
Agreement as of the day and year first above written.
JT STORAGE:
JT STORAGE, INC.,
a Delaware corporation
By: /s/ W. Virginia Walker
- -----------------------------------------
W. Virginia Walker
Executive Vice President,
Finance and Administration,
Chief Financial Officer
PURCHASER:
/s/ D. T. Mitchell
- -----------------------------------------
David T. Mitchell
Address: c/o JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
8.
<PAGE> 9
EXHIBIT A
SECURED PROMISSORY NOTE
$1,000,000 March 6, 1996
FOR VALUE RECEIVED,the undersigned ("Borrower") hereby promises to pay
to JT Storage, Inc., a Delaware corporation ("Payee"), the principal sum of One
Million Dollars ($1,000,000), together with interest at 5.45% per annum,
compounded annually, on the unpaid balance of such principal amount from the
date hereof. Principal payments of $250,000 plus all accrued interest hereon
shall be paid in four installments on each of the first four anniversary dates
hereof.
Payments of principal and interest on this Secured Promissory Note
(this "Promissory Note") shall be made in legal tender of the United States of
America and shall be made at the office of Payee at 166 Baypointe Parkway, San
Jose, California 95134 or at such other place as Payee shall have designated in
writing to Borrower. If the date set for any payment on this Promissory Note
is a Saturday, Sunday or legal holiday, then such payment shall be due on the
next succeeding business day.
As of the date hereof, Borrower has purchased 1,000,000 shares (the
"Shares") of the common stock of Payee, pursuant to the terms of that certain
Restricted Stock Purchase Agreement dated as of March 6, 1996 by and between
Borrower and Payee. This Promissory Note shall be secured by the Shares as
provided in that certain Stock Pledge Agreement (the "Pledge Agreement") of
even date herewith by and between Payee and Borrower.
The principal of, and accrued interest on, this Promissory Note may be
prepaid at any time, in whole or in part, without premium or penalty.
In the event Borrower shall (i) fail to make complete payment of any
installment of principal or accrued interest when due under this Promissory
Note or (ii) commit a breach of, or default under, the Pledge Agreement, Payee
may accelerate this Promissory Note and declare the entire unpaid principal
amount of this Promissory Note and all accrued and unpaid interest thereon to
be immediately due and payable and, thereupon, the unpaid principal amount and
all such accrued and unpaid interest shall become and be immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor or other notices or demands of any kind
(all of which are hereby expressly waived by Borrower). The failure of Payee
to accelerate this Promissory Note shall not constitute a waiver of any of
Payee's rights under this Promissory Note as long as Borrower's default under
this Promissory Note or breach of or default under the Pledge Agreement
continues.
The provisions of this Promissory Note shall be governed by, and
construed in accordance with, the laws of the State of California without
regard to the conflicts of law rules thereof. In the event that Payee is
required to take any action to collect or otherwise enforce
1.
<PAGE> 10
payment of this Promissory Note, Borrower agrees to pay such attorneys' fees
and court costs as Payee may incur as a result thereof, whether or not suit is
commenced.
IN WITNESS WHEREOF,this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER
/s/ D. T. Mitchell
----------------------------------------
David T. Mitchell
2.
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EXHIBIT B
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
March 6, 1996 by and between DAVID T. MITCHELL, as pledgor ("Pledgor"), and JT
STORAGE, INC., a Delaware corporation, as pledgee ("Pledgee"), with reference
to the following:
RECITALS
A. Pursuant to that certain Restricted Stock Purchase Agreement
(the "Purchase Agreement") of even date herewith, by and between Pledgor and
Pledge, Pledgor has agreed to purchase 1,000,000 shares (the "Shares") of the
common stock of Pledgee.
B. Pursuant to the terms of that certain Secured Promissory Note
in the original principal amount of $1,000,000 (the "Note") of even date
herewith delivered by Pledgor to Pledgee, Pledgor has agreed to make payments
of principal and interest to Pledgee as provided in the Note.
C. Pursuant to the terms of the Note, Pledgor shall execute this
Pledge Agreement to assure compliance with the terms and conditions of the
Note.
D. In order to induce Pledgee to make the loan evidenced by the
Note, Pledgor desires to have the Shares held subject to this Pledge Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties hereto agree as
follows:
1. GRANT OF SECURITY INTEREST. Pledgor hereby grants to Pledgee
a security interest in the Shares, pledges and hypothecates the Shares to
Pledgee, and deposits the certificates evidencing the Shares (the
"Certificates") with Pledgee as collateral security for the payment by Pledgor
of the Note and the full, faithful and timely performance by Pledgor of all of
its other obligations under the Note and this Pledge Agreement. The
Certificates, together with a stock assignment duly executed in blank with
signatures appropriately guaranteed or witnessed, are being retained by
Pledgee, as the pledgeholder for the Shares. Notwithstanding the foregoing,
the Pledgee shall, from time to time at the request of the Pledgor, cause to be
delivered to the Pledgor one or more certificates which, together with all
other such certificates theretofore delivered pursuant to this sentence,
evidences that portion of the Shares which is equal to the portion of the full
purchase price for all of the Shares then actually paid to the
1.
<PAGE> 12
Pledgee by the Pledgor (i.e., the portion determined by adding the cash payment
amount set forth in Section 1 of the Purchase Agreement to all principal
payments on the Note which have theretofore been made by the Pledgor at the
time of such request), subject in all cases to the provisions of Section 7 of
the Purchase Agreement requiring the continued escrow of Unvested Shares.
2. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents
and warrants to Pledgee that the Shares are free and clear of all claims,
mortgages, pledges, liens and other encumbrances of any nature whatsoever,
except any restriction upon sale and distribution imposed by the Securities Act
of 1933, as amended (the "Act"), or applicable state securities laws, and by
the Subscription Agreement.
3. VOTING OF SHARES IN THE ABSENCE OF DEFAULT. So long as there
shall exist no Event of Default as provided in Section 9 hereof, Pledgor shall
be entitled to exercise, as Pledgor deems proper but in a manner not
inconsistent with the terms hereof, Pledgor's rights to voting power with
respect to the Shares. Pledgor shall not be entitled to vote the Shares at any
time that there exists an Event of Default as provided in Section 9 hereof.
4. DIVIDENDS AND OTHER DISTRIBUTIONS. So long as there shall
exist no Event of Default as provided in Section 9 hereof, Pledgor shall be
entitled to receive any dividend or other distribution with respect to the
Shares except as provided in Section 5 of this Pledge Agreement. If there
exists an Event of Default, such dividend or distribution shall be delivered to
Pledgee to be held as additional collateral security under this Pledge
Agreement.
5. STOCK DIVIDENDS. In the event of any distribution in shares
of capital stock of Pledgee (whether by way of stock dividend, stock split,
recapitalization or otherwise) with respect to the Shares, the shares to be
distributed to Pledgor shall be delivered to Pledgee, together with an
appropriately executed stock certificate and an appropriately executed stock
power, to be held as additional collateral security under this Pledge
Agreement.
6. PLEDGEE'S DUTIES. So long as Pledgee exercises reasonable
care with respect to the Shares in its possession, Pledgee shall have no
liability for any loss or damage to such Shares, and in no event shall Pledgee
have liability for any diminution in value of the Shares occasioned by economic
or market conditions or events. Pledgee shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the Shares in
its possession are accorded treatment substantially equal to that which Pledgee
accords its own property, it being understood that Pledgee shall not have any
responsibility under this Pledge Agreement for (a) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relating to the Shares, whether or not Pledgee has or is deemed
to have knowledge of such matters, or (b) taking any necessary steps to
preserve rights against any person or entity with respect to the Shares.
2.
<PAGE> 13
7. SALE OF COLLATERAL. Upon the occurrence of any Event of
Default as provided in Section 9 hereof, Pledgee shall have all the rights and
remedies of a secured party on default under the Uniform Commercial Code in
effect in the State of California at that time and also may, without notice,
except as specified below, at its option sell, resell, assign, transfer and
deliver all or any part of the Shares, for cash or on credit for future
delivery. Upon such sale, Pledgee, unless prohibited by a provision of any
applicable statute, may purchase all or any part of the Shares being sold, free
from, and discharged of, all trusts, claims, rights of redemption and equities
of Pledgor. If the proceeds of any sale of the Shares shall be insufficient to
pay all amounts due under the Note, including collection costs and expenses of
sale, Pledgor shall remain obligated and liable for any deficiency with respect
thereto. If, at any time when Pledgee shall determine to exercise its rights
to sell all or any part of the Shares pursuant to this Section 7, such Shares,
or the part thereof to be sold, shall not be effectively registered under the
Act as then in effect or any similar statute then in force, subject to the
provisions of Section 8 hereof, Pledgee, in its sole and absolute discretion,
is hereby expressly authorized to sell such Shares, or any part thereof, by
private sale in such manner and under such circumstances as Pledgee may deem
necessary or advisable in order that such sale may be effected legally without
such registration. Without limiting the generality of the foregoing, Pledgee,
in its sole and absolute discretion, may approach and negotiate with a
restricted number of potential purchasers to effect such sale or restrict such
sale to a purchaser or purchasers who will represent and agree that such
purchaser or purchasers are purchasing for its or their own account, for
investment only, and not with a view to the distribution or sale of such Shares
or any part thereof. Any such sale shall be deemed to be a sale made in a
commercially reasonable manner within the meaning of the California Uniform
commercial Code, and Pledgor hereby consents and agrees that Pledgee shall
incur no responsibility or liability for selling all or any part of the Shares
at a price which is not unreasonably low, notwithstanding the possibility that
a substantially higher price might be realized if the sale were public.
Pledgee shall not be obligated to make any sale of the Shares regardless of
notice of sale having been given. Pledgee may adjourn any-public or private
sale from time to time by announcement at the time and place fixed therefor,
and any such sale may, without further notice, be made at the time and place to
which it was so adjourned.
8. REDEMPTION OF COLLATERAL. Notwithstanding any other provision
of this Pledge Agreement, upon the occurrence of an Event of Default as
provided in Section 9 hereof, Pledgee shall give Pledgor written notice of the
time and place of any public sale or of the time on or after which any private
sale or other disposition is to be made at least ten days before the date fixed
for any public sale or the day on or after which any private sale or other
disposition is to be made. Pledgor agrees that, to the extent notice of sale
shall be required by law, such ten days' notice shall constitute reasonable
notification. This notice shall also specify the aggregate outstanding
monetary obligations of Pledgor to Pledgee at the date of such notice (the
"Total Obligation"). At any time during such ten-day period, Pledgor shall
have the right to redeem the Shares by the payment by certified or bank
cashier's check of an amount equal to the Total Obligation.
3.
<PAGE> 14
9. EVENTS OF DEFAULT. At the option of Pledgee, the principal
balance of the Note and all accrued and unpaid interest thereon, and all other
obligations of Pledgor to Pledgee thereunder and hereunder, shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Pledgor), upon
the occurrence of any of the events set out below ("Events of Default"):
(a) Pledgor shall fail to make complete payment or
prepayment of principal or interest when due in accordance with the terms of
the Note; or
(b) Pledgor shall commit a breach or default of any of
his obligations under this Pledge Agreement.
10. TERMINATION. This Pledge Agreement shall terminate upon the
payment in full of the principal amount and all accrued interest thereon under
the Note. Upon termination of this Pledge Agreement, Pledgor shall be entitled
to the return of the Certificates and any other collateral security then held
by Pledgee pursuant to Section 4 or Section 5 of this Pledge Agreement.
11. CUMULATION OF REMEDIES; WAIVER OF RIGHTS. The remedies
provided herein in favor of Pledgee shall not be deemed exclusive but shall be
cumulative and shall be in addition to all of the remedies in favor of Pledgee
existing at law or in equity. Nothing in this Pledge Agreement shall require
Pledgee to proceed against or exhaust its remedies against the Shares before
proceeding against Pledgor or executing against any other security or
collateral securing performance of Pledgor's obligations to Pledgee under the
Note or this Pledge Agreement. No delay on the part of Pledgee in exercising
any of its options, powers or rights, or the partial or single exercise
thereof, shall constitute a waiver thereof.
12. EXECUTION OF ENDORSEMENTS, ASSIGNMENTS, ETC. Upon the
occurrence of an Event of Default as provided in Section 9 hereof, Pledgee
shall have the right for and in the name, place and stead of Pledgor to execute
endorsements, assignments or other instruments of conveyance or transfer with
respect to all or any of the Shares and any other shares of the capital stock
of Pledgee or other property which is held by Pledgee as collateral security
pursuant to Section 4 or Section 5 of this Pledge Agreement.
13. MISCELLANEOUS.
(a) FURTHER DOCUMENTS. Pledgor agrees to execute,
acknowledge and deliver any documents or instruments which Pledgee may request
in order to better evidence or effectuate this Pledge Agreement and the
transactions contemplated hereby.
4.
<PAGE> 15
(b) BINDING AGREEMENT. This Pledge Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors,
assigns, personal representatives, heirs and legatees. Notwithstanding the
foregoing, Pledgor may not assign any of his rights or delegate any of his
duties hereunder without the prior written consent of Pledgee. The parties
hereto acknowledge that Pledgee shall have the right to assign, with absolute
discretion, any or all of its rights and obligations under this Pledge
Agreement to any bank(s) or lending institution(s) as collateral security.
(c) NOTICE. Any notice required or permitted to be given
pursuant to this Pledge Agreement shall be in writing and shall be deemed given
upon personal delivery, or if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail requiring a return receipt, addressed
(i) to Pledgor, at the address set forth on the signature page hereof and (ii)
to Pledgee at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other party setting forth
the new address for the giving of notices pursuant to this Pledge Agreement.
(d) AMENDMENTS. This Pledge Agreement may be amended
only by-the written agreement and consent of the parties hereto.
(e) GOVERNING LAW. This Pledge Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California, without regard to the conflicts of laws rules thereof.
(f) DISPUTES. In the event of any dispute between the
parties arising out of this Pledge Agreement, the prevailing party shall be
entitled to receive from the nonprevailing party the reasonable expenses of the
prevailing party including, without limitation, reasonable attorneys' fees.
(g) ENTIRE AGREEMENT. This Pledge Agreement, including
the agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
5.
<PAGE> 16
(h) HEADINGS. Introductory headings at the beginning of
each section of this Pledge Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon, or description of, the
contents of any such section and shall not affect the meanings or construction
of the terms and provisions of this Pledge Agreement.
IN WITNESS WHEREOF,the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
PLEDGOR:
/s/ D. T. Mitchell
---------------------------------------------
David T. Mitchell
Address: c/o JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
PLEDGEE:
JT Storage, Inc.
a Delaware corporation
By: /s/ W. Virginia Walker
----------------------------------------
W. Virginia Walker
Executive Vice President,
Finance and Administration
and Chief Financial Officer
166 Baypointe Parkway
San Jose, California 95134
6.
<PAGE> 17
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Secretary March 6, 1996
JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
Dear Sir or Madame:
As Escrow Agent for both JT Storage, Inc., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents,
including stock certificates and stock assignments, delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement (the
"Agreement"), dated as of even date, to which a copy of these Joint Escrow
Instructions is attached as Exhibit C, in accordance with the following
instructions:
1. In the event the Corporation and/or any nominee or assignee of
the Corporation (referred to collectively for convenience herein as the
"Corporation") exercises the Repurchase Option set forth in the Agreement, the
Corporation shall give to Purchaser and you a written notice specifying the
number of shares of stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed to (a) date the stock
assignments necessary for the transfer in question, (b) fill in the number of
shares being transferred and (c) deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against
the simultaneous delivery to you of the purchase price (by check) for the
number of shares of stock being purchased pursuant to the exercise of the
Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit
with you any certificates evidencing shares of stock to be held by you
hereunder and any additions and substitutions to said shares as defined in the
Agreement. Purchaser does hereby irrevocably constitute and appoint you as his
or her attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated.
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a shareholder of the Corporation while the shares of
stock are held by you.
1.
<PAGE> 18
4. From time to time upon written request of the Purchaser you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Corporation's Repurchase Option
and are not required to remain pledged with JT Storage pursuant to the Pledge
Agreement. Within 30 days after the expiration of the 60-day period referred
to in paragraph 3 of the Agreement, you will deliver to Purchaser a certificate
or certificates representing the aggregate number of shares sold and issued
pursuant to the Agreement and not purchased by the Corporation or its assignees
pursuant to exercise of the Repurchase Option.
5. Notwithstanding the foregoing paragraphs 1, 2, 3 and 4, your
duties and obligations as Escrow Agent shall not commence until such time as
the certificates representing the shares of stock of the Corporation subject to
these instructions pursuant to the Agreement together with two duly executed
stock assignments separate from certificate are delivered to you. It is also
understood and agreed that you may, on behalf of the Corporation, concurrent
with your duties hereunder, hold such certificates and stock assignments as
collateral for Purchaser's obligations pursuant to a Secured Promissory Note of
even date herewith in the aggregate principal amount of $1,000,000.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying on any instrument reasonably believed by you to be genuine and to have
been signed or presented by the proper party or parties. You shall not be
personally liable for any act you may do or omit to do hereunder as Escrow
Agent or as attorney-in-fact for Purchaser while acting in good faith and in
the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding-any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under
the statute of limitations with respect to these Joint Escrow Instructions or
any documents deposited with you.
2.
<PAGE> 19
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary to advise you properly in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor. The Corporation shall be
obligated to reimburse you for your expenses in this connection.
12. Your responsibilities as Escrow Agent hereunder shall
terminate if you shall cease to be Secretary of the Corporation or if you shall
resign by written notice to each party. In the event of any such termination,
the Corporation shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the shares
of stock held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said shares
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of arbitrators
or of a court of competent jurisdiction after the time for appeal has expired
and no appeal has been perfected, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
15. Any notice required or permitted to be given hereunder shall
be in writing and shall be deemed given upon personal delivery, if mailed, or
upon the expiration of 48 hours after mailing by any form of United States mail
requiring a return receipt, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
CORPORATION: JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
PURCHASER: David T. Mitchell
Address: c/o JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
ESCROW AGENT: Secretary of JT Storage
166 Baypointe Parkway
San Jose, California 95134
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement.
3.
<PAGE> 20
17. This instrument shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
JT STORAGE, INC.,
a Delaware corporation
By: /s/ W. Virginia Walker
------------------------------------
W. Virginia Walker
Executive Vice President,
Finance and Administration and
Chief Executive Officer
PURCHASER:
/s/ D. T. Mitchell
----------------------------------------
David T. Mitchell
ESCROW AGENT:
/s/ W. Virginia Walker
- -------------------------------
W. Virginia Walker, Secretary
4.
<PAGE> 21
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement and Stock Pledge Agreement, each dated as of March 6, 1996
by and between JT STORAGE, INC., a Delaware corporation (the "Corporation"),
and the undersigned, DAVID T. MITCHELL hereby sells, assigns and transfers unto
(_________________________) Shares of the common stock of the Corporation
standing in the undersigned's name on the books of the Corporation represented
by Certificate No. ______ herewith, and does hereby irrevocably constitute and
appoint ____________________ attorney to transfer the said stock on the books
of the Corporation with full power of substitution in the premises.
Dated: ___________________ [do not date]
/s/ D.T. Mitchell
____________________________________
David T. Mitchell
<PAGE> 1
EXHIBIT 10.9
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT(this "Agreement") is made as
of March 6, 1996 (the "Effective Date") by and between JT STORAGE, INC., a
Delaware corporation ("JT Storage"), and SIRJANG LAL TANDON ("Purchaser"), with
reference to the following:
RECITALS
A. JT Storage desires to advance its growth, development and
financial success by providing additional incentives to its key executive
personnel by assisting them to acquire shares of JT Storage's common stock (the
"Common Stock"), and to benefit directly from JT Storage's growth, development
and financial success.
B. JT Storage desires to sell to Purchaser on the Effective Date,
and Purchaser desires to subscribe for and purchase from JT Storage at such
time, certain shares of Common Stock as set forth in this Agreement.
C. In order to induce JT Storage to sell such shares, Purchaser
desires to have such shares subject to the restrictions and interests created
by this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein, the parties agree as follows:
1. SALE AND PURCHASE OF STOCK. JT Storage hereby agrees to sell
to Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from JT Storage, 1,000,000
shares (the "Shares") of Common Stock at a price of $1.00 per Share for an
aggregate purchase price of $1,000,000 (the "Purchase Price"). Purchaser shall
pay the Purchase Price by issuing a secured promissory note attached hereto as
Exhibit A (the "Note") to JT Storage for $1,000,000. The Note shall be secured
by a pledge of the Shares, in conjunction with which Purchaser shall execute a
Stock Pledge Agreement (the "Pledge Agreement") attached hereto as Exhibit B.
The Note and Pledge Agreement, Joint Escrow Instructions attached hereto as
Exhibit C (the "Escrow Instructions"), and two copies of a Stock Assignment
Separate from Certificate (the "Stock Assignment") attached hereto as Exhibit D
shall be delivered to JT Storage on the Effective Date.
2. VESTING. The Shares purchased pursuant to Section 1 hereof
will vest over a five-year period from February 21, 1996 (the "Vesting
Commencement Date"), with 1,000,000 Shares vesting in one lump sum on February
21, 2001. Notwithstanding the foregoing, in the event that (a) the merger of
Atari Corporation with and into JT Storage (the "Merger") closes, (b) JT
Storage's acquisition of Moduler Electronics (India) Pvt. Ltd. ("Moduler")
closes and (c) certain credit facilities in the amount of $10,000,000 are
furnished to Moduler by certain
1.
<PAGE> 2
institutional lenders within India, the Shares purchased pursuant to Section 1
hereof will vest over a four-year period from the Vesting Commencement Date,
with 125,000 Shares vesting in one lump sum on August 21, 1996 and with the
balance vesting in 42 successive monthly installments of 20,833-1/3 Shares each
commencing September 21, 1996 and thereafter on the twenty-first day of each
successive month through and until February 21, 2000. JT Storage's repurchase
option as described in Section 4 hereof shall be limited to those Shares which
have not so vested (herein referred to as "Unvested Shares") in accordance with
this Section 2 at the time of termination of the Purchaser's employment with JT
Storage. Accordingly, such repurchase right shall not apply to any Shares
which have vested (herein referred to as "Vested Shares") as of the time of
termination of Purchaser's employment with JT Storage.
3. RESTRICTION ON TRANSFER OF THE UNVESTED SHARES. Except as
otherwise specifically provided herein, Purchaser may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any of the Unvested Shares,
or any right or interest therein. Any purported sale, transfer (including
involuntary transfers initiated by operation of legal process), hypothecation
or disposition of any of the Unvested Shares or any right or interest therein,
except in strict compliance with the terms and conditions of this Agreement,
shall be null and void. Vested Shares not required to remain pledged with JT
Storage pursuant to the Pledge Agreement shall not be subject to the
restrictions on transfer set forth in this Section 3.
4. REPURCHASE OPTION UPON TERMINATION.
(a) JT STORAGE'S REPURCHASE OPTION. In the event that
Purchaser's employment by JT Storage terminates for any reason (including,
without limitation, death, disability, retirement, voluntary or involuntary
resignation or dismissal, with or without cause) prior to the fifth anniversary
of the Vesting Commencement Date, JT Storage or its nominee(s) shall have the
right and option (the "Repurchase Option") to purchase from Purchaser all or
any portion of the Unvested Shares for a period of 60 days after the date of
such termination (the "Termination Date"). The amount of Unvested Shares shall
be determined as of the Termination Date.
(b) REPURCHASE PRICE UNDER REPURCHASE OPTION. The
purchase price for each Share to be purchased pursuant to the Repurchase Option
(the "Repurchase Price") shall be $1.00 per Share. The Company may apply
unpaid amounts owing under the Note against the Repurchase Price.
(c) EXERCISE OF REPURCHASE OPTION. The Repurchase Option
shall be exercised by JT Storage or its nominee(s) by delivery, within the
60-day period specified in Section 4(a) above, to Purchaser of (i) a written
notice specifying the number of Shares to be purchased and (ii) a check in the
amount of the Repurchase Price, calculated as provided in this Section 4, for
all Shares to be purchased.
5. DIVIDENDS, SPLITS AND CERTAIN REORGANIZATIONS. If, from time
to time during the term of this Agreement:
2.
<PAGE> 3
(a) There is any stock dividend or liquidating dividend
of cash and/or property, stock split or other change in the character or amount
of any of the outstanding securities of JT Storage; or
(b) There is any consolidation, merger or sale of all, or
substantially all, of the assets of JT Storage;
then, in such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of Purchaser's
ownership of Shares shall be immediately subject to this Agreement and be
included in the word "Shares" (as either Vested Shares or Unvested Shares, as
appropriate) for all purposes with the same force and effect as the Shares
presently subject to this Agreement. All such securities or other property so
included in the word "Shares" shall be delivered to the Escrow Agent (as
hereinafter defined) and held pursuant to the Escrow Instructions in accordance
with Section 7 hereof. While the total Repurchase Price pursuant to the
Repurchase Option shall remain the same after each such event, the Repurchase
Price per Share upon exercise of the Repurchase Option shall be appropriately
adjusted, as necessary.
6. CHANGE OF CONTROL. Notwithstanding the foregoing provisions
of Section 2 of this Agreement, in the event there occurs a Change of Control
(as defined below) and within three (3) years thereafter any one or more of the
following events occurs:
(a) JT Storage terminates Purchaser's employment with JT
Storage, other than by reason of Purchaser's willful failure to discharge his
duties of employment to JT Storage; or
(b) Purchaser is assigned a different employment position
with JT Storage involving a significant reduction in responsibility, stature or
compensation compared to Purchaser's position immediately preceding such Change
of Control; or
(c) Purchaser's continuation of employment with JT
Storage is conditioned on Purchaser's place of principal employment being
relocated by more than fifty (50) miles from such place of principal employment
immediately preceding such Change of Control;
then, in any such event, any Unvested Shares shall automatically become Vested
Shares and JT Storage's repurchase right with respect thereto shall accordingly
terminate. For purposes of this paragraph, "Change of Control" shall mean
either of the following events:
(i) Any "person" (as that term is defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under such Act),
directly or indirectly, of securities of JT Storage representing more than 50%
of the total voting power represented by the then outstanding voting securities
of JT Storage; provided, however, that the foregoing shall not apply with
respect to any such "person" (excluding Atari Corporation) who, at the date of
this Agreement, is such "beneficial owner" of securities of JT Storage
representing at least 20% of the total voting power represented by the
presently outstanding voting securities of JT Storage; or
3.
<PAGE> 4
(ii) The stockholders of JT Storage shall approve
a merger or consolidation of JT Storage with any other corporation other than a
merger or consolidation which would result in the voting securities of JT
Storage outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of JT Storage or such surviving entity outstanding
immediately after such merger or consolidation, as applicable, or the
stockholders of JT Storage approve a plan of complete liquidation of JT Storage
or an agreement for the sale or disposition by JT Storage of all or
substantially all of the assets of JT Storage.
Notwithstanding the foregoing, the Merger shall not constitute a
Change of Control for purposes of this Section 6.
7. LIMITATION ON PAYMENTS. In the event that the automatic
vesting of all Unvested Shares provided for under Section 6 of this Agreement
(i) constitutes a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 7 would be subject to the excise tax imposed by Section 4999 of the
Code, then the Unvested Shares shall become automatically vested either:
(a) as to all of the Unvested Shares, or
(b) such lesser number of Unvested Shares which would
result in no portion of value of such acceleration being subject to excise tax
under Section 4999 of the Code,
whichever of the foregoing, taking into account the applicable federal, state,
and local employment taxes, income taxes, and the excise tax imposed by Section
4999 of the Code, results in the receipt by the Purchaser, on an after-tax
basis, of the greatest benefit of such acceleration, notwithstanding that the
value of all or some portion of such benefit may be taxable under Section 4999
of the Code.
All determinations required to be made under this Section 7
shall be made in writing by JT Storage's independent public accountants (the
"Accounting Firm"). JT Storage shall cause the Accounting Firm to provide
detailed supporting calculations of its determinations to the Purchaser.
Notice must be given to the Accounting Firm within fifteen (15) business days
after an event causing automatic vesting of Unvested Shares under Section 6 of
this Agreement. All fees and expenses of the Accounting Firm shall be borne
solely by JT Storage. The Accounting Firm's determinations must be made with
substantial authority (within the meaning of Section 6662 of the Code).
8. ESCROW. In the event the Note is repaid prior to the
termination of the Repurchase Option and the certificates representing Unvested
Shares are released pursuant to the Pledge Agreement, as security for the
faithful performance of the terms of this Agreement and to insure the
availability for delivery of the Unvested Shares upon exercise of the
Repurchase Option herein provided for, Purchaser agrees to deliver to, and
deposit with, the Secretary of JT Storage, or such other person designated by
JT Storage (the "Escrow Agent"), as the Escrow
4.
<PAGE> 5
Agent in this transaction, two copies of the Stock Assignment duly endorsed
(with date and number of shares blank), together with the certificate or
certificates evidencing the Unvested Shares. Said documents are to held by the
Escrow Agent and delivered by the Escrow Agent pursuant to the Escrow
Instructions.
9. PERMITTED TRANSFERS. Purchaser may, at any time or times,
transfer any or all of the Unvested Shares only: (a) inter vivos to Purchaser's
spouse or issue, or to a trust for their benefit, (b) upon Purchaser's death,
to any person in accordance with the laws of descent and/or testamentary
distribution (such persons described in clauses (a) and (b) hereof are
collectively referred to herein as "Permitted Transferee"), provided, however,
that such Unvested Shares shall not be transferred until the Permitted
Transferee executes a valid undertaking to JT Storage to the effect that the
Unvested Shares so transferred shall thereafter remain subject to all of the
provisions of this Agreement (including the Repurchase Option in the event
Purchaser's employment with JT Storage is terminated for any reason prior to
the fifth anniversary of the Vesting Commencement Date) as though the Permitted
Transferee were a party to this Agreement, bound in every respect in the same
way as Purchaser. Vested Shares not required to remain pledged with JT Storage
pursuant to the Pledge Agreement shall not be subject to the restrictions on
transfer set forth in this Section 9.
10. RIGHTS AS SHAREHOLDER. Subject to compliance with the
provisions of this Agreement and of the Pledge Agreement, Purchaser shall
exercise all rights and privileges of the registered holder of the Shares while
they are held by JT Storage pursuant to the Pledge Agreement or the Escrow
Instructions, and shall be entitled to receive any dividend or other
distribution thereof; provided, however, that any dividends or distributions
with respect to the Shares in the form of shares of capital stock of JT Storage
(whether by way of stock dividend, stock split or recapitalization) shall be
subject to this Agreement, the Pledge Agreement and the Escrow Instructions.
11. INVESTMENT REPRESENTATIONS. Purchaser represents and warrants
to JT Storage as follows:
(a) PURCHASER'S OWN ACCOUNT. Purchaser is acquiring the
Shares for Purchaser's own account and not with a view to or for sale in
connection with any distribution of the Shares.
(b) ACCESS TO INFORMATION. Purchaser (i) is familiar
with the business of JT Storage, (ii) has had an opportunity to discuss with
representatives of JT Storage the condition of any prospects for the continued
operation and financing of JT Storage and such other matters as Purchaser has
deemed appropriate in considering whether to invest in the Shares and (iii) has
been provided access to all available information about JT Storage requested by
Purchaser.
(c) SHARES NOT REGISTERED. Purchaser understands that
the Shares have not been registered under the Act or registered or qualified
under the securities laws of any state and that Purchaser may not sell or
otherwise transfer the Shares unless they are subsequently registered under the
Act and registered or qualified under applicable state securities laws, or
5.
<PAGE> 6
unless an exemption is available which permits sale or other transfer without
such registration and qualification.
12. UNDERWRITERS' LOCK-UP. The Purchaser agrees that, in
connection with any underwritten offering of Common Stock of JT Storage
pursuant to a registration statement under the Securities Act of 1933, the
Purchaser shall withhold from the market any or all of the Shares for a period,
not to exceed one hundred and eighty (180) days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering.
13. NO CONTRACT OF EMPLOYMENT. Purchaser acknowledges and agrees
that this Agreement shall not be construed to give Purchaser any right to be
retained in the employ of JT Storage, and that the right and power of JT
Storage to dismiss or discharge Purchaser (with or without cause) is strictly
reserved.
14. MISCELLANEOUS.
(a) LEGENDS ON CERTIFICATES. Any and all certificates
now or hereafter issued evidencing the Shares shall have endorsed upon them a
legend substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND A PURCHASE OPTION IN FAVOR OF THE
ISSUER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH THE
TERMS AND CONDITIONS OF THAT CERTAIN RESTRICTED STOCK PURCHASE
AGREEMENT DATED AS OF MARCH 6, 1996 BY AND BETWEEN JT STORAGE, INC., A
DELAWARE CORPORATION, AND DAVID T. MITCHELL, A COPY OF WHICH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF JT STORAGE."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) FURTHER ASSURANCES. Each party hereto agrees to
perform any further acts and execute and deliver any document which may be
reasonably necessary to carry out the intent of this Agreement.
(c) BINDING AGREEMENT. This Agreement shall bind and
inure to the benefit of the successors and assigns of JT Storage and the
personal representatives, heirs and legatees of Purchaser.
(d) OTHER RESTRICTIONS ON TRANSFERS. The restrictions on
transfer set forth in this Agreement are in addition to any and all
restrictions imposed pursuant to any applicable state or federal law or
regulation.
6.
<PAGE> 7
(e) NOTICES. Any notice required or permitted to be
given pursuant to this Agreement shall be in writing and shall be deemed given
upon personal delivery or, if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail requiring a return receipt, addressed
(i) to Purchaser at the address set forth on the signature page hereof and (ii)
to JT Storage, Inc. at 166 Baypointe Parkway, San Jose, California 95134. A
party may change address by giving written notice to the other parties setting
forth the new address for the giving of notices pursuant to this Agreement.
(f) AMENDMENTS. This Agreement may be amended only by
the written agreement and consent of the parties hereof.
(g) GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California without
regard to the conflicts of laws rules thereof.
(h) DISPUTES. In the event of any dispute among the
parties arising out of this Agreement, the prevailing party shall be entitled
to recover from the nonprevailing party the reasonable expenses of the
prevailing party, including, without limitation, reasonable attorneys' fees.
(i) ENTIRE AGREEMENT. This Agreement, including the
agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(j) HEADINGS. Introductory headings at the beginning of
each section of this Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon, or description of, the
contents of any such section.
(k) COUNTERPARTS. This Agreement may be executed in
counterparts, both of which, when taken together, shall constitute one and the
same instrument.
7.
<PAGE> 8
IN WITNESS WHEREOF,the parties hereto have duly executed this
Agreement as of the day and year first above written.
JT STORAGE:
JT STORAGE, INC.,
a Delaware corporation
By: /s D.T. Mitchell
-------------------------------------
David T. Mitchell
President and Chief
Executive Officer
PURCHASER:
/s/ Sirjang Lal Tandon
- ------------------------------------------
Sirjang Lal Tandon
Address: c/o JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
8.
<PAGE> 9
EXHIBIT A
SECURED PROMISSORY NOTE
$1,000,000 March 6, 1996
FOR VALUE RECEIVED,the undersigned ("Borrower") hereby promises to pay
to JT Storage, Inc., a Delaware corporation ("Payee"), the principal sum of One
Million Dollars ($1,000,000), together with interest at 5.45% per annum,
compounded annually, on the unpaid balance of such principal amount from the
date hereof. Principal payments of $250,000 plus all accrued interest hereon
shall be paid in four installments on each of the first four anniversary dates
hereof.
Payments of principal and interest on this Secured Promissory Note
(this "Promissory Note") shall be made in legal tender of the United States of
America and shall be made at the office of Payee at 166 Baypointe Parkway, San
Jose, California 95134 or at such other place as Payee shall have designated in
writing to Borrower. If the date set for any payment on this Promissory Note
is a Saturday, Sunday or legal holiday, then such payment shall be due on the
next succeeding business day.
As of the date hereof, Borrower has purchased 1,000,000 shares (the
"Shares") of the common stock of Payee, pursuant to the terms of that certain
Restricted Stock Purchase Agreement dated as of March 6, 1996 by and between
Borrower and Payee. This Promissory Note shall be secured by the Shares as
provided in that certain Stock Pledge Agreement (the "Pledge Agreement") of
even date herewith by and between Payee and Borrower.
The principal of, and accrued interest on, this Promissory Note may be
prepaid at any time, in whole or in part, without premium or penalty.
In the event Borrower shall (i) fail to make complete payment of any
installment of principal or accrued interest when due under this Promissory
Note or (ii) commit a breach of, or default under, the Pledge Agreement, Payee
may accelerate this Promissory Note and declare the entire unpaid principal
amount of this Promissory Note and all accrued and unpaid interest thereon to
be immediately due and payable and, thereupon, the unpaid principal amount and
all such accrued and unpaid interest shall become and be immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor or other notices or demands of any kind
(all of which are hereby expressly waived by Borrower). The failure of Payee
to accelerate this Promissory Note shall not constitute a waiver of any of
Payee's rights under this Promissory Note as long as Borrower's default under
this Promissory Note or breach of or default under the Pledge Agreement
continues.
The provisions of this Promissory Note shall be governed by, and
construed in accordance with, the laws of the State of California without
regard to the conflicts of law rules thereof. In the event that Payee is
required to take any action to collect or otherwise enforce
1.
<PAGE> 10
payment of this Promissory Note, Borrower agrees to pay such attorneys' fees
and court costs as Payee may incur as a result thereof, whether or not suit is
commenced.
IN WITNESS WHEREOF,this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER
/s/ Sirjang Lal Tandon
------------------------------------
Sirjang Lal Tandon
2.
<PAGE> 11
EXHIBIT B
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
March 6, 1996 by and between SIRJANG LAL TANDON, as pledgor ("Pledgor"), and JT
STORAGE, INC., a Delaware corporation, as pledgee ("Pledgee"), with reference
to the following:
RECITALS
A. Pursuant to that certain Restricted Stock Purchase Agreement
(the "Purchase Agreement") of even date herewith, by and between Pledgor and
Pledge, Pledgor has agreed to purchase 1,000,000 shares (the "Shares") of the
common stock of Pledgee.
B. Pursuant to the terms of that certain Secured Promissory Note
in the original principal amount of $1,000,000 (the "Note") of even date
herewith delivered by Pledgor to Pledgee, Pledgor has agreed to make payments
of principal and interest to Pledgee as provided in the Note.
C. Pursuant to the terms of the Note, Pledgor shall execute this
Pledge Agreement to assure compliance with the terms and conditions of the
Note.
D. In order to induce Pledgee to make the loan evidenced by the
Note, Pledgor desires to have the Shares held subject to this Pledge Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties hereto agree as
follows:
1. GRANT OF SECURITY INTEREST. Pledgor hereby grants to Pledgee
a security interest in the Shares, pledges and hypothecates the Shares to
Pledgee, and deposits the certificates evidencing the Shares (the
"Certificates") with Pledgee as collateral security for the payment by Pledgor
of the Note and the full, faithful and timely performance by Pledgor of all of
its other obligations under the Note and this Pledge Agreement. The
Certificates, together with a stock assignment duly executed in blank with
signatures appropriately guaranteed or witnessed, are being retained by
Pledgee, as the pledgeholder for the Shares. Notwithstanding the foregoing,
the Pledgee shall, from time to time at the request of the Pledgor, cause to be
delivered to the Pledgor one or more certificates which, together with all
other such certificates theretofore delivered pursuant to this sentence,
evidences that portion of the Shares which is equal to the portion of the full
purchase price for all of the Shares then actually paid to the Pledgee by the
Pledgor (i.e., the portion determined by adding the cash payment amount set
forth in Section 1 of the Purchase Agreement to all principal payments on the
Note which have theretofore been made by the Pledgor at the time of such
request), subject in all cases to the
1.
<PAGE> 12
provisions of Section 7 of the Purchase Agreement requiring the continued
escrow of Unvested Shares.
2. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents
and warrants to Pledgee that the Shares are free and clear of all claims,
mortgages, pledges, liens and other encumbrances of any nature whatsoever,
except any restriction upon sale and distribution imposed by the Securities Act
of 1933, as amended (the "Act"), or applicable state securities laws, and by
the Subscription Agreement.
3. VOTING OF SHARES IN THE ABSENCE OF DEFAULT. So long as there
shall exist no Event of Default as provided in Section 9 hereof, Pledgor shall
be entitled to exercise, as Pledgor deems proper but in a manner not
inconsistent with the terms hereof, Pledgor's rights to voting power with
respect to the Shares. Pledgor shall not be entitled to vote the Shares at any
time that there exists an Event of Default as provided in Section 9 hereof.
4. DIVIDENDS AND OTHER DISTRIBUTIONS. So long as there shall
exist no Event of Default as provided in Section 9 hereof, Pledgor shall be
entitled to receive any dividend or other distribution with respect to the
Shares except as provided in Section 5 of this Pledge Agreement. If there
exists an Event of Default, such dividend or distribution shall be delivered to
Pledgee to be held as additional collateral security under this Pledge
Agreement.
5. STOCK DIVIDENDS. In the event of any distribution in shares
of capital stock of Pledgee (whether by way of stock dividend, stock split,
recapitalization or otherwise) with respect to the Shares, the shares to be
distributed to Pledgor shall be delivered to Pledgee, together with an
appropriately executed stock certificate and an appropriately executed stock
power, to be held as additional collateral security under this Pledge
Agreement.
6. PLEDGEE'S DUTIES. So long as Pledgee exercises reasonable
care with respect to the Shares in its possession, Pledgee shall have no
liability for any loss or damage to such Shares, and in no event shall Pledgee
have liability for any diminution in value of the Shares occasioned by economic
or market conditions or events. Pledgee shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the Shares in
its possession are accorded treatment substantially equal to that which Pledgee
accords its own property, it being understood that Pledgee shall not have any
responsibility under this Pledge Agreement for (a) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relating to the Shares, whether or not Pledgee has or is deemed
to have knowledge of such matters, or (b) taking any necessary steps to
preserve rights against any person or entity with respect to the Shares.
7. SALE OF COLLATERAL. Upon the occurrence of any Event of
Default as provided in Section 9 hereof, Pledgee shall have all the rights and
remedies of a secured party on default under the Uniform Commercial Code in
effect in the State of California at that time and also may, without notice,
except as specified below, at its option sell, resell, assign, transfer and
deliver all or any part of the Shares, for cash or on credit for future
delivery. Upon such sale, Pledgee, unless prohibited by a provision of any
applicable statute, may purchase all or any
2.
<PAGE> 13
part of the Shares being sold, free from, and discharged of, all trusts,
claims, rights of redemption and equities of Pledgor. If the proceeds of any
sale of the Shares shall be insufficient to pay all amounts due under the Note,
including collection costs and expenses of sale, Pledgor shall remain obligated
and liable for any deficiency with respect thereto. If, at any time when
Pledgee shall determine to exercise its rights to sell all or any part of the
Shares pursuant to this Section 7, such Shares, or the part thereof to be sold,
shall not be effectively registered under the Act as then in effect or any
similar statute then in force, subject to the provisions of Section 8 hereof,
Pledgee, in its sole and absolute discretion, is hereby expressly authorized to
sell such Shares, or any part thereof, by private sale in such manner and under
such circumstances as Pledgee may deem necessary or advisable in order that
such sale may be effected legally without such registration. Without limiting
the generality of the foregoing, Pledgee, in its sole and absolute discretion,
may approach and negotiate with a restricted number of potential purchasers to
effect such sale or restrict such sale to a purchaser or purchasers who will
represent and agree that such purchaser or purchasers are purchasing for its or
their own account, for investment only, and not with a view to the distribution
or sale of such Shares or any part thereof. Any such sale shall be deemed to
be a sale made in a commercially reasonable manner within the meaning of the
California Uniform commercial Code, and Pledgor hereby consents and agrees that
Pledgee shall incur no responsibility or liability for selling all or any part
of the Shares at a price which is not unreasonably low, notwithstanding the
possibility that a substantially higher price might be realized if the sale
were public. Pledgee shall not be obligated to make any sale of the Shares
regardless of notice of sale having been given. Pledgee may adjourn any-public
or private sale from time to time by announcement at the time and place fixed
therefor, and any such sale may, without further notice, be made at the time
and place to which it was so adjourned.
8. REDEMPTION OF COLLATERAL. Notwithstanding any other provision
of this Pledge Agreement, upon the occurrence of an Event of Default as
provided in Section 9 hereof, Pledgee shall give Pledgor written notice of the
time and place of any public sale or of the time on or after which any private
sale or other disposition is to be made at least ten days before the date fixed
for any public sale or the day on or after which any private sale or other
disposition is to be made. Pledgor agrees that, to the extent notice of sale
shall be required by law, such ten days' notice shall constitute reasonable
notification. This notice shall also specify the aggregate outstanding
monetary obligations of Pledgor to Pledgee at the date of such notice (the
"Total Obligation"). At any time during such ten-day period, Pledgor shall
have the right to redeem the Shares by the payment by certified or bank
cashier's check of an amount equal to the Total Obligation.
9. EVENTS OF DEFAULT. At the option of Pledgee, the principal
balance of the Note and all accrued and unpaid interest thereon, and all other
obligations of Pledgor to Pledgee thereunder and hereunder, shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Pledgor), upon
the occurrence of any of the events set out below ("Events of Default"):
3.
<PAGE> 14
(a) Pledgor shall fail to make complete payment or
prepayment of principal or interest when due in accordance with the terms of
the Note; or
(b) Pledgor shall commit a breach or default of any of
his obligations under this Pledge Agreement.
10. TERMINATION. This Pledge Agreement shall terminate upon the
payment in full of the principal amount and all accrued interest thereon under
the Note. Upon termination of this Pledge Agreement, Pledgor shall be entitled
to the return of the Certificates and any other collateral security then held
by Pledgee pursuant to Section 4 or Section 5 of this Pledge Agreement.
11. CUMULATION OF REMEDIES; WAIVER OF RIGHTS. The remedies
provided herein in favor of Pledgee shall not be deemed exclusive but shall be
cumulative and shall be in addition to all of the remedies in favor of Pledgee
existing at law or in equity. Nothing in this Pledge Agreement shall require
Pledgee to proceed against or exhaust its remedies against the Shares before
proceeding against Pledgor or executing against any other security or
collateral securing performance of Pledgor's obligations to Pledgee under the
Note or this Pledge Agreement. No delay on the part of Pledgee in exercising
any of its options, powers or rights, or the partial or single exercise
thereof, shall constitute a waiver thereof.
12. EXECUTION OF ENDORSEMENTS, ASSIGNMENTS, ETC. Upon the
occurrence of an Event of Default as provided in Section 9 hereof, Pledgee
shall have the right for and in the name, place and stead of Pledgor to execute
endorsements, assignments or other instruments of conveyance or transfer with
respect to all or any of the Shares and any other shares of the capital stock
of Pledgee or other property which is held by Pledgee as collateral security
pursuant to Section 4 or Section 5 of this Pledge Agreement.
13. MISCELLANEOUS.
(a) FURTHER DOCUMENTS. Pledgor agrees to execute,
acknowledge and deliver any documents or instruments which Pledgee may request
in order to better evidence or effectuate this Pledge Agreement and the
transactions contemplated hereby.
(b) BINDING AGREEMENT. This Pledge Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors,
assigns, personal representatives, heirs and legatees. Notwithstanding the
foregoing, Pledgor may not assign any of his rights or delegate any of his
duties hereunder without the prior written consent of Pledgee. The parties
hereto acknowledge that Pledgee shall have the right to assign, with absolute
discretion, any or all of its rights and obligations under this Pledge
Agreement to any bank(s) or lending institution(s) as collateral security.
(c) NOTICE. Any notice required or permitted to be given
pursuant to this Pledge Agreement shall be in writing and shall be deemed given
upon personal delivery, or if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail
4.
<PAGE> 15
requiring a return receipt, addressed (i) to Pledgor, at the address set forth
on the signature page hereof and (ii) to Pledgee at 166 Baypointe Parkway, San
Jose, California 95134. A party may change its address by giving written
notice to the other party setting forth the new address for the giving of
notices pursuant to this Pledge Agreement.
(d) AMENDMENTS. This Pledge Agreement may be amended
only by-the written agreement and consent of the parties hereto.
(e) GOVERNING LAW. This Pledge Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California, without regard to the conflicts of laws rules thereof.
(f) DISPUTES. In the event of any dispute between the
parties arising out of this Pledge Agreement, the prevailing party shall be
entitled to receive from the nonprevailing party the reasonable expenses of the
prevailing party including, without limitation, reasonable attorneys' fees.
(g) ENTIRE AGREEMENT. This Pledge Agreement, including
the agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(h) HEADINGS. Introductory headings at the beginning of
each section of this Pledge Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon, or description of, the
contents of any such section and shall not affect the meanings or construction
of the terms and provisions of this Pledge Agreement.
5.
<PAGE> 16
IN WITNESS WHEREOF,the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
PLEDGOR:
/s/ Sirjang Lal Tandon
----------------------------------------------
Sirjang Lal Tandon
Address: c/o JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
PLEDGEE:
JT Storage, Inc.
a Delaware corporation
By: /s/ D.T. Mitchell
----------------------------------------------
David T. Mitchell
President and Chief
Executive Officer
166 Baypointe Parkway
San Jose, California 95134
6.
<PAGE> 17
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Secretary March 6, 1996
JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
Dear Sir or Madame:
As Escrow Agent for both JT Storage, Inc., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents,
including stock certificates and stock assignments, delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement (the
"Agreement"), dated as of even date, to which a copy of these Joint Escrow
Instructions is attached as Exhibit C, in accordance with the following
instructions:
1. In the event the Corporation and/or any nominee or assignee of
the Corporation (referred to collectively for convenience herein as the
"Corporation") exercises the Repurchase Option set forth in the Agreement, the
Corporation shall give to Purchaser and you a written notice specifying the
number of shares of stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed to (a) date the stock
assignments necessary for the transfer in question, (b) fill in the number of
shares being transferred and (c) deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against
the simultaneous delivery to you of the purchase price (by check) for the
number of shares of stock being purchased pursuant to the exercise of the
Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit
with you any certificates evidencing shares of stock to be held by you
hereunder and any additions and substitutions to said shares as defined in the
Agreement. Purchaser does hereby irrevocably constitute and appoint you as his
or her attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated.
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a shareholder of the Corporation while the shares of
stock are held by you.
4. From time to time upon written request of the Purchaser you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Corporation's Repurchase Option
and are not required to remain pledged with JT Storage pursuant to the Pledge
Agreement. Within 30 days after the expiration of the 60-day period
7.
<PAGE> 18
referred to in paragraph 3 of the Agreement, you will deliver to Purchaser a
certificate or certificates representing the aggregate number of shares sold
and issued pursuant to the Agreement and not purchased by the Corporation or
its assignees pursuant to exercise of the Repurchase Option.
5. Notwithstanding the foregoing paragraphs 1, 2, 3 and 4, your
duties and obligations as Escrow Agent shall not commence until such time as
the certificates representing the shares of stock of the Corporation subject to
these instructions pursuant to the Agreement together with two duly executed
stock assignments separate from certificate are delivered to you. It is also
understood and agreed that you may, on behalf of the Corporation, concurrent
with your duties hereunder, hold such certificates and stock assignments as
collateral for Purchaser's obligations pursuant to a Secured Promissory Note of
even date herewith in the aggregate principal amount of $1,000,000.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying on any instrument reasonably believed by you to be genuine and to have
been signed or presented by the proper party or parties. You shall not be
personally liable for any act you may do or omit to do hereunder as Escrow
Agent or as attorney-in-fact for Purchaser while acting in good faith and in
the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding-any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under
the statute of limitations with respect to these Joint Escrow Instructions or
any documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary to advise you properly in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor. The Corporation shall be
obligated to reimburse you for your expenses in this connection.
8.
<PAGE> 19
12. Your responsibilities as Escrow Agent hereunder shall
terminate if you shall cease to be Secretary of the Corporation or if you shall
resign by written notice to each party. In the event of any such termination,
the Corporation shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the shares
of stock held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said shares
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of arbitrators
or of a court of competent jurisdiction after the time for appeal has expired
and no appeal has been perfected, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
15. Any notice required or permitted to be given hereunder shall
be in writing and shall be deemed given upon personal delivery, if mailed, or
upon the expiration of 48 hours after mailing by any form of United States mail
requiring a return receipt, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
CORPORATION: JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
PURCHASER: Sirjang Lal Tandon
Address: c/o JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
ESCROW AGENT: Secretary of JT Storage
166 Baypointe Parkway
San Jose, California 95134
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement.
9.
<PAGE> 20
17. This instrument shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
JT Storage, Inc.,
a Delaware corporation
By: /s/ D.T. Mitchell
-----------------------------------
David T. Mitchell
President and Chief
Executive Officer
PURCHASER:
/s/ Sirjang Lal Tandon
--------------------------------------
Sirjang Lal Tandon
ESCROW AGENT:
/s/ W. Virginia Walker
- -----------------------------
W. Virginia Walker, Secretary
10.
<PAGE> 21
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement and Stock Pledge Agreement, each dated as of March ___, 1996
by and between JT Storage, Inc., a Delaware corporation (the "Corporation"),
and the undersigned, Sirjang Lal Tandon hereby sells, assigns and transfers
unto (_________________________) Shares of the common stock of the Corporation
standing in the undersigned's name on the books of the Corporation represented
by Certificate No. ______ herewith, and does hereby irrevocably constitute and
appoint ____________________ attorney to transfer the said stock on the books
of the Corporation with full power of substitution in the premises.
Dated: ___________________ [do not date]
/s/ Sirjang Lal Tandon
------------------------------------
Sirjang Lal Tandon
11.
<PAGE> 1
EXHIBIT 10.10
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "Agreement") is made as
of January 2, 1996 (the "Effective Date") by and between JT Storage, Inc., a
Delaware corporation ("JT Storage"), and Kenneth D. Wing ("Purchaser"), with
reference to the following:
RECITALS:
A. JT Storage desires to advance its growth, development and
financial success by providing additional incentives to its key executive
personnel by assisting them to acquire shares of JT Storage's common stock (the
"Common Stock"), and to benefit directly from JT Storage's growth, development
and financial success.
B. JT Storage desires to sell to Purchaser on the Effective Date,
and Purchaser desires to subscribe for and purchase from JT Storage at such
time, certain shares of Common Stock as set forth in this Agreement.
C. In order to induce JT Storage to sell such shares, Purchaser
desires to have such shares subject to the restrictions and interests created by
this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein, the parties agree as follows:
1. Sale and Purchase of Stock. JT Storage hereby agrees to sell to
Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from JT Storage, 300,000
shares (the "Shares") of Common Stock at a price of $.25 per Share for an
aggregate purchase price of $75,000 (the "Purchase Price"). Purchaser shall pay
$15,000 of the Purchase Price by personal check payable to JT Storage and shall
issue a secured promissory note attached hereto as Exhibit A (the "Note") to JT
Storage for $60,000, constituting the balance of the Purchase Price. The Note
shall be secured by a pledge of the Shares, in conjunction with which Purchaser
shall execute a Stock Pledge Agreement (the "Pledge Agreement") attached hereto
as Exhibit B. The check, Note and Pledge Agreement, Joint Escrow Instructions
attached hereto as Exhibit C (the "Escrow Instructions"), and two copies of a
Stock Assignment Separate from Certificate (the "Stock Assignment")
<PAGE> 2
attached hereto as Exhibit D shall be delivered to JT Storage on the Effective
Date.
2. Vesting. The Shares purchased pursuant to Section 1 hereof will
vest over a four-year period from Purchaser's July 5, 1995 commencement of
employment (the "Vesting Commencement Date"), with 37,500 Shares vesting in one
lump sum on January 5, 1996 and with the balance vesting in 42 successive
monthly installments of 6,250 shares each commencing February 5, 1996 and
thereafter on the fifth day of each successive month through and until July 5,
1999. JT Storage's repurchase option as described in Section 4 hereof shall be
limited to those Shares which have not so vested (herein referred to as
"Unvested Shares") in accordance with this Section 2 at the time of termination
of the Purchaser's employment with JT Storage. Accordingly, such repurchase
right shall not apply to any Shares which have vested (herein referred to as
"Vested Shares") as of the time of termination of Purchaser's employment with JT
Storage.
3. Restriction on Transfer of the Unvested Shares. Except as
otherwise specifically provided herein, Purchaser may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any of the Unvested Shares,
or any right or interest therein. Any purported sale, transfer (including
involuntary transfers initiated by operation of legal process), hypothecation or
disposition of any of the Unvested Shares or any right or interest therein,
except in strict compliance with the terms and conditions of this Agreement,
shall be null and void. Vested Shares not required to remain pledged with JT
Storage pursuant to the Pledge Agreement shall not be subject to the
restrictions on transfer set forth in this Section 3.
4. Repurchase Option Upon Termination.
(a) JT Storage's Repurchase Option. In the event that
Purchaser's employment by JT Storage terminates for any reason (including,
without limitation, death, disability, retirement, voluntary or involuntary
resignation or dismissal, with or without cause) prior to the fifth anniversary
of the Vesting Commencement Date, JT Storage or its nominee(s) shall have the
right and option (the "Repurchase Option") to purchase from Purchaser all or any
portion of the Unvested Shares for a period of 60 days after the date of such
termination (the "Termination Date"). The amount of Unvested Shares shall be
determined as of the Termination Date.
(b) Repurchase Price Under Repurchase Option. The purchase price
for each Share to be purchased pursuant to the Repurchase Option (the
"Repurchase Price") shall be $.25 per
2.
<PAGE> 3
Share. The Company may apply unpaid amounts owing under the Note against the
Repurchase Price.
(c) Exercise of Repurchase Option. The Repurchase Option shall
be exercised by JT Storage or its nominee(s) by delivery, within the 60-day
period specified in Section 4(a) above, to Purchaser of (i) a written notice
specifying the number of Shares to be purchased and (ii) a check in the amount
of the Repurchase Price, calculated as provided in this Section 4, for all
Shares to be purchased.
5. Dividends, Splits and Certain Reorganizations. If, from time to
time during the term of this Agreement:
(a) There is any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or amount
of any of the outstanding securities of JT Storage; or
(b) There is any consolidation, merger or sale of all, or
substantially all, of the assets of JT Storage;
then, in such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of Purchaser's ownership
of Shares shall be immediately subject to this Agreement and be included in the
word "Shares" (as either Vested Shares or Unvested Shares, as appropriate) for
all purposes with the same force and effect as the Shares presently subject to
this Agreement. All such securities or other property so included in the word
"Shares" shall be delivered to the Escrow Agent (as hereinafter defined) and
held pursuant to the Escrow Instructions in accordance with Section 7 hereof.
While the total Repurchase Price pursuant to the Repurchase Option shall remain
the same after each such event, the Repurchase Price per Share upon exercise of
the Repurchase Option shall be appropriately adjusted, as necessary.
6. Change of Control. Notwithstanding the foregoing provisions of
Section 2 of this Agreement, in the event there occurs a Change of Control (as
defined below) and within three (3) years thereafter any one or more of the
following events occurs:
(a) JT Storage terminates Purchaser's employment with JT Storage,
other than by reason of Purchaser's willful failure to discharge his
duties of employment to JT Storage; or
3.
<PAGE> 4
(b) Purchaser is assigned a different employment position with
JT Storage involving a significant reduction in responsibility, stature
or compensation compared to Purchaser's position immediately preceding
such Change of Control; or
(c) Purchaser's continuation of employment with JT Storage is
conditioned on Purchaser's place of principal employment being relocated
by more than fifty (50) miles from such place of principal employment
immediately preceding such Change of Control;
then, in any such event, any Unvested Shares shall automatically become Vested
Shares and JT Storage's repurchase right with respect thereto shall accordingly
terminate. For purposes of this paragraph, "Change of Control" shall mean either
of the following events:
(i) Any "person" (as that term is defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under such Act), directly or
indirectly, of securities of JT Storage representing more than 50% of the total
voting power represented by the then outstanding voting securities of JT
Storage; provided, however, that the foregoing shall not apply with respect to
any such "person" who, at the date of this Agreement, is such "beneficial owner"
of securities of JT Storage representing at least 20% of the total voting power
represented by the presently outstanding voting securities of JT Storage; or
(ii) The stockholders of JT Storage shall approve a merger or
consolidation of JT Storage with any other corporation other than a merger or
consolidation which would result in the voting securities of JT Storage
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of JT Storage or such surviving entity outstanding immediately
after such merger or consolidation, as applicable, or the stockholders of JT
Storage approve a plan of complete liquidation of JT Storage or an agreement for
the sale or disposition by JT Storage of all or substantially all of the assets
of JT Storage.
7. Limitation on Payments. In the event that the automatic vesting of
all Unvested Shares provided for under Section 6 of this Agreement (i)
constitutes a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 7 would be subject to the excise tax imposed by Section 4999 of the
4.
<PAGE> 5
Code, then the Unvested Shares shall become automatically vested either:
(a) as to all of the Unvested Shares, or
(b) such lesser number of Unvested Shares which would result in
no portion of value of such acceleration being subject to excise tax under
Section 4999 of the Code,
whichever of the foregoing, taking into account the applicable federal, state,
and local employment taxes, income taxes, and the excise tax imposed by Section
4999 of the Code, results in the receipt by the Purchaser, on an after-tax
basis, of the greatest benefit of such acceleration, notwithstanding that the
value of all or some portion of such benefit may be taxable under Section 4999
of the Code.
All determinations required to be made under this Section 7 shall
be made in writing by JT Storage's independent public accountants (the
"Accounting Firm"). JT Storage shall cause the Accounting Firm to provide
detailed supporting calculations of its determinations to the Purchaser. Notice
must be given to the Accounting Firm within fifteen (15) business days after an
event causing automatic vesting of Unvested Shares under Section 6 of this
Agreement. All fees and expenses of the Accounting Firm shall be borne solely by
JT Storage. The Accounting Firm's determinations must be made with substantial
authority (within the meaning of Section 6662 of the Code).
8. Escrow. In the event the Note is repaid prior to the termination
of the Repurchase Option and the certificates representing Unvested Shares are
released pursuant to the Pledge Agreement, as security for the faithful
performance of the terms of this Agreement and to insure the availability for
delivery of the Unvested Shares upon exercise of the Repurchase Option herein
provided for, Purchaser agrees to deliver to, and deposit with, the Secretary of
JT Storage, or such other person designated by JT Storage (the "Escrow Agent"),
as the Escrow Agent in this transaction, two copies of the Stock Assignment duly
endorsed (with date and number of shares blank), together with the certificate
or certificates evidencing the Unvested Shares. Said documents are to held by
the Escrow Agent and delivered by the Escrow Agent pursuant to the Escrow
Instructions.
9. Permitted Transfers. Purchaser may, at any time or times, transfer
any or all of the Unvested Shares only: (a) inter vivos to Purchaser's spouse or
issue, or to a trust for their benefit, (b) upon Purchaser's death, to any
person in accordance with the laws of descent and/or testamentary distribution
(such persons described in clauses (a) and (b)
5.
<PAGE> 6
hereof are collectively referred to herein as "Permitted Transferee"), provided,
however, that such Unvested Shares shall not be transferred until the Permitted
Transferee executes a valid undertaking to JT Storage to the effect that the
Unvested Shares so transferred shall thereafter remain subject to all of the
provisions of this Agreement (including the Repurchase Option in the event
Purchaser's employment with JT Storage is terminated for any reason prior to the
fifth anniversary of the Vesting Commencement Date) as though the Permitted
Transferee were a party to this Agreement, bound in every respect in the same
way as Purchaser. Vested Shares not required to remain pledged with JT Storage
pursuant to the Pledge Agreement shall not be subject to the restrictions on
transfer set forth in this Section 9.
10. Rights as Shareholder. Subject to compliance with the provisions
of this Agreement and of the Pledge Agreement, Purchaser shall exercise all
rights and privileges of the registered holder of the Shares while they are held
by JT Storage pursuant to the Pledge Agreement or the Escrow Instructions, and
shall be entitled to receive any dividend or other distribution thereof;
provided, however, that any dividends or distributions with respect to the
Shares in the form of shares of capital stock of JT Storage (whether by way of
stock dividend, stock split or recapitalization) shall be subject to this
Agreement, the Pledge Agreement and the Escrow Instructions.
11. Investment Representations. Purchaser represents and warrants to
JT Storage as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
business of JT Storage, (ii) has had an opportunity to discuss with
representatives of JT Storage the condition of any prospects for the continued
operation and financing of JT Storage and such other matters as Purchaser has
deemed appropriate in considering whether to invest in the Shares and (iii) has
been provided access to all available information about JT Storage requested by
Purchaser.
(c) Shares Not Registered. Purchaser understands that the
Shares have not been registered under the Act or registered or qualified under
the securities laws of any state and that Purchaser may not sell or otherwise
transfer the Shares unless they are subsequently registered under the Act and
registered or qualified under applicable state securities laws,
6.
<PAGE> 7
or unless an exemption is available which permits sale or other transfer without
such registration and qualification.
12. Underwriters' Lock-Up. The Purchaser agrees that, in connection
with any underwritten offering of Common Stock of JT Storage pursuant to a
registration statement under the Securities Act of 1933, the Purchaser shall
withhold from the market any or all of the Shares for a period, not to exceed
one hundred and eighty (180) days, which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering.
13. No Contract of Employment. Purchaser acknowledges and agrees that
this Agreement shall not be construed to give Purchaser any right to be retained
in the employ of JT Storage, and that the right and power of JT Storage to
dismiss or discharge Purchaser (with or without cause) is strictly reserved.
14. Miscellaneous.
(a) Legends on Certificates. Any and all certificates now or
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND A PURCHASE OPTION IN FAVOR OF
THE ISSUER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN
ACCORDANCE WITH THE TERMS AND CONDITIONS OF THAT CERTAIN
RESTRICTED STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 2,
1996 BY AND BETWEEN JT STORAGE, INC., A DELAWARE CORPORATION,
AND KENNETH D. WING, A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF JT STORAGE."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
further acts and execute and deliver any document which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Binding Agreement. This Agreement shall bind and inure to
the benefit of the successors and assigns of JT
7.
<PAGE> 8
Storage and the personal representatives, heirs and legatees of Purchaser.
(d) Other Restrictions on Transfers. The restrictions on
transfer set forth in this Agreement are in addition to any and all restrictions
imposed pursuant to any applicable state or federal law or regulation.
(e) Notices. Any notice required or permitted to be given
pursuant to this Agreement shall be in writing and shall be deemed given upon
personal delivery or, if mailed, upon the expiration of 48 hours after mailing
by any form of United States mail requiring a return receipt, addressed (i) to
Purchaser at the address set forth on the signature page hereof and (ii) to JT
Storage, Inc. at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other parties setting forth
the new address for the giving of notices pursuant to this Agreement.
(f) Amendments. This Agreement may be amended only by the
written agreement and consent of the parties hereof.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of laws rules thereof.
(h) Disputes. In the event of any dispute among the parties
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party,
including, without limitation, reasonable attorneys' fees.
(i) Entire Agreement. This Agreement, including the agreements
referred to herein, constitutes the entire agreement and understanding among the
parties pertaining to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, relating thereto.
(j) Headings. Introductory headings at the beginning of each
section of this Agreement are solely for the convenience of the parties and
shall not be deemed to be a limitation upon, or description of, the contents of
any such section.
(k) Counterparts. This Agreement may be executed in
counterparts, both of which, when taken together, shall constitute one and the
same instrument.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
JT STORAGE:
JT STORAGE, INC.,
a Delaware corporation
By: /s/ D. T. Mitchell
-----------------------------------
David T. Mitchell, President
and Chief Executive Officer
PURCHASER:
/s/ Kenneth D. Wing
--------------------------------------
Kenneth D. Wing
Address: 325 Kamaur Lane
Santa Cruz, CA 95060
9.
<PAGE> 10
EXHIBIT A
SECURED PROMISSORY NOTE
$60,000 January 2, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower") hereby promises to pay
to JT Storage, Inc., a Delaware corporation ("Payee"), the principal sum of
Sixty Thousand Dollars ($60,000), together with interest at 5.91% per annum,
compounded annually, on the unpaid balance of such principal amount from the
date hereof. Principal payments of $15,000 plus all accrued interest hereon
shall be paid in four installments on each of the first four anniversary dates
hereof.
Payments of principal and interest on this Secured Promissory Note
(this "Promissory Note") shall be made in legal tender of the United States of
America and shall be made at the office of Payee at 166 Baypointe Parkway, San
Jose, California 95134 or at such other place as Payee shall have designated in
writing to Borrower. If the date set for any payment on this Promissory Note is
a Saturday, Sunday or legal holiday, then such payment shall be due on the next
succeeding business day.
As of the date hereof, Borrower has purchased 300,000 shares (the
"Shares") of the common stock of Payee, pursuant to the terms of that certain
Restricted Stock Purchase Agreement dated as of January 2, 1996 by and between
Borrower and Payee. This Promissory Note shall be secured by the Shares as
provided in that certain Stock Pledge Agreement (the "Pledge Agreement") of even
date herewith by and between Payee and Borrower.
The principal of, and accrued interest on, this Promissory Note may be
prepaid at any time, in whole or in part, without premium or penalty.
In the event Borrower shall (i) fail to make complete payment of any
installment of principal or accrued interest when due under this Promissory Note
or (ii) commit a breach of, or default under, the Pledge Agreement, Payee may
accelerate this Promissory Note and declare the entire unpaid principal amount
of this Promissory Note and all accrued and unpaid interest thereon to be
immediately due and payable and, thereupon, the unpaid principal amount and all
such accrued and unpaid interest shall become and be immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor or other notices or demands of any kind (all
of which are hereby expressly waived by Borrower). The failure of Payee to
accelerate this Promissory Note shall not constitute a waiver of any of Payee's
rights under this Promissory Note as long as Borrower's default under this
<PAGE> 11
Promissory Note or breach of or default under the Pledge Agreement continues.
The provisions of this Promissory Note shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of law rules thereof. In the event that Payee is required to
take any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such attorneys' fees and court costs as Payee may incur
as a result thereof, whether or not suit is commenced.
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER:
/s/ Kenneth D. Wing
--------------------------------------
Kenneth D. Wing
2.
<PAGE> 12
EXHIBIT B
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
January 2, 1996 by and between Kenneth D. Wing, as pledgor ("Pledgor"), and JT
Storage, Inc., a Delaware corporation, as pledgee ("Pledgee"), with reference to
the following:
RECITALS:
A. Pursuant to that certain Restricted Stock Purchase Agreement (the
"Purchase Agreement") of even date herewith, by and between Pledgor and Pledgee,
Pledgor has agreed to purchase 300,000 shares (the "Shares") of the common stock
of Pledgee.
B. Pursuant to the terms of that certain Secured Promissory Note in
the original principal amount of $60,000 (the "Note") of even date herewith
delivered by Pledgor to Pledgee, Pledgor has agreed to make payments of
principal and interest to Pledgee as provided in the Note.
C. Pursuant to the terms of the Note, Pledgor shall execute this
Pledge Agreement to assure compliance with the terms and conditions of the Note.
D. In order to induce Pledgee to make the loan evidenced by the Note,
Pledgor desires to have the Shares held subject to this Pledge Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties hereto agree as
follows:
1. Grant of Security Interest. Pledgor hereby grants to Pledgee a
security interest in the Shares, pledges and hypothecates the Shares to Pledgee,
and deposits the certificates evidencing the Shares (the "Certificates") with
Pledgee as collateral security for the payment by Pledgor of the Note and the
full, faithful and timely performance by Pledgor of all of its other obligations
under the Note and this Pledge Agreement. The Certificates, together with a
stock assignment duly executed in blank with signatures appropriately guaranteed
or witnessed, are being retained by Pledgee, as the pledgeholder for the Shares.
Notwithstanding the foregoing, the Pledgee shall, from time to time at the
request of the Pledgor, cause to be delivered to the Pledgor one or more
certificates which, together with all other such certificates theretofore
delivered pursuant to this sentence, evidences that portion of the Shares which
is equal to the portion of the full purchase price for all of the Shares then
<PAGE> 13
actually paid to the Pledgee by the Pledgor (i.e., the portion determined by
adding the cash payment amount set forth in Section 1 of the Purchase Agreement
to all principal payments on the Note which have theretofore been made by the
Pledgor at the time of such request), subject in all cases to the provisions of
Section 7 of the Purchase Agreement requiring the continued escrow of Unvested
Shares.
2. Representations and Warranties of Pledgor. Pledgor represents and
warrants to Pledgee that the Shares are free and clear of all claims, mortgages,
pledges, liens and other encumbrances of any nature whatsoever, except any
restriction upon sale and distribution imposed by the Securities Act of 1933, as
amended (the "Act"), or applicable state securities laws, and by the
Subscription Agreement.
3. Voting of Shares in the Absence of Default. So long as there shall
exist no Event of Default as provided in Section 9 hereof, Pledgor shall be
entitled to exercise, as Pledgor deems proper but in a manner not inconsistent
with the terms hereof, Pledgor's rights to voting power with respect to the
Shares. Pledgor shall not be entitled to vote the Shares at any time that there
exists an Event of Default as provided in Section 9 hereof.
4. Dividends and Other Distributions. So long as there shall exist no
Event of Default as provided in Section 9 hereof, Pledgor shall be entitled to
receive any dividend or other distribution with respect to the Shares except as
provided in Section 5 of this Pledge Agreement. If there exists an Event of
Default, such dividend or distribution shall be delivered to Pledgee to be held
as additional collateral security under this Pledge Agreement.
5. Stock Dividends. In the event of any distribution in shares of
capital stock of Pledgee (whether by way of stock dividend, stock split,
recapitalization or otherwise) with respect to the Shares, the shares to be
distributed to Pledgor shall be delivered to Pledgee, together with an
appropriately executed stock certificate and an appropriately executed stock
power, to be held as additional collateral security under this Pledge Agreement.
6. Pledgee's Duties. So long as Pledgee exercises reasonable care
with respect to the Shares in its possession, Pledgee shall have no liability
for any loss or damage to such Shares, and in no event shall Pledgee have
liability for any diminution in value of the Shares occasioned by economic or
market conditions or events. Pledgee shall be deemed to have exercised
reasonable care within the meaning of the preceding
2.
<PAGE> 14
sentence if the Shares in its possession are accorded treatment substantially
equal to that which Pledgee accords its own property, it being understood that
Pledgee shall not have any responsibility under this Pledge Agreement for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to the Shares, whether or not
Pledgee has or is deemed to have knowledge of such matters, or (b) taking any
necessary steps to preserve rights against any person or entity with respect to
the Shares.
7. Sale of Collateral. Upon the occurrence of any Event of Default as
provided in Section 9 hereof, Pledgee shall have all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of California at that time and also may, without notice, except as
specified below, at its option, sell, resell, assign, transfer and deliver all
or any part of the Shares, for cash or on credit for future delivery. Upon such
sale, Pledgee, unless prohibited by a provision of any applicable statute, may
purchase all or any part of the Shares being sold, free from, and discharged of,
all trusts, claims, rights of redemption and equities of Pledgor. If the
proceeds of any sale of the Shares shall be insufficient to pay all amounts due
under the Note, including collection costs and expenses of sale, Pledgor shall
remain obligated and liable for any deficiency with respect thereto. If, at any
time when Pledgee shall determine to exercise its rights to sell all or any part
of the Shares pursuant to this Section 7, such Shares, or the part thereof to be
sold, shall not be effectively registered under the Act as then in effect or any
similar statute then in force, subject to the provisions of Section 8 hereof,
Pledgee, in its sole and absolute discretion, is hereby expressly authorized to
sell such Shares, or any part thereof, by private sale in such manner and under
such circumstances as Pledgee may deem necessary or advisable in order that such
sale may be effected legally without such registration. Without limiting the
generality of the foregoing, Pledgee, in its sole and absolute discretion, may
approach and negotiate with a restricted number of potential purchasers to
effect such sale or restrict such sale to a purchaser or purchasers who will
represent and agree that such purchaser or purchasers are purchasing for its or
their own account, for investment only, and not with a view to the distribution
or sale of such Shares or any part thereof. Any such sale shall be deemed to be
a sale made in a commercially reasonable manner within the meaning of the
California Uniform Commercial Code, and Pledgor hereby consents and agrees that
Pledgee shall incur no responsibility or liability for selling all or any part
of the Shares at a price which is not unreasonably low, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
public. Pledgee shall not be obligated to make any sale of the
3.
<PAGE> 15
Shares regardless of notice of sale having been given. Pledgee may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and any such sale may, without further notice, be made at the
time and place to which it was so adjourned.
8. Redemption of Collateral. Notwithstanding any other provision of
this Pledge Agreement, upon the occurrence of an Event of Default as provided in
Section 9 hereof, Pledgee shall give Pledgor written notice of the time and
place of any public sale or of the time on or after which any private sale or
other disposition is to be made at least ten days before the date fixed for any
public sale or the day on or after which any private sale or other disposition
is to be made. Pledgor agrees that, to the extent notice of sale shall be
required by law, such ten days' notice shall constitute reasonable notification.
This notice shall also specify the aggregate outstanding monetary obligations of
Pledgor to Pledgee at the date of such notice (the "Total Obligation"). At any
time during such ten-day period, Pledgor shall have the right to redeem the
Shares by the payment by certified or bank cashier's check of an amount equal to
the Total Obligation.
9. Events of Default. At the option of Pledgee, the principal balance
of the Note and all accrued and unpaid interest thereon, and all other
obligations of Pledgor to Pledgee thereunder and hereunder, shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Pledgor), upon
the occurrence of any of the events set out below ("Events of Default"):
(a) Pledgor shall fail to make complete payment or prepayment
of principal or interest when due in accordance with the terms of the Note; or
(b) Pledgor shall commit a breach or default of any of his
obligations under this Pledge Agreement.
10. Termination. This Pledge Agreement shall terminate upon the
payment in full of the principal amount and all accrued interest thereon under
the Note. Upon termination of this Pledge Agreement, Pledgor shall be entitled
to the return of the Certificates and any other collateral security then held by
Pledgee pursuant to Section 4 or Section 5 of this Pledge Agreement.
11. Cumulation of Remedies; Waiver of Rights. The remedies provided
herein in favor of Pledgee shall not be deemed
4.
<PAGE> 16
exclusive but shall be cumulative and shall be in addition to all of the
remedies in favor of Pledgee existing at law or in equity. Nothing in this
Pledge Agreement shall require Pledgee to proceed against or exhaust its
remedies against the Shares before proceeding against Pledgor or executing
against any other security or collateral securing performance of Pledgor's
obligations to Pledgee under the Note or this Pledge Agreement. No delay on the
part of Pledgee in exercising any of its options, powers or rights, or the
partial or single exercise thereof, shall constitute a waiver thereof.
12. Execution of Endorsements, Assignments, Etc. Upon the occurrence
of an Event of Default as provided in Section 9 hereof, Pledgee shall have the
right for and in the name, place and stead of Pledgor to execute endorsements,
assignments or other instruments of conveyance or transfer with respect to all
or any of the Shares and any other shares of the capital stock of Pledgee or
other property which is held by Pledgee as collateral security pursuant to
Section 4 or Section 5 of this Pledge Agreement.
13. Miscellaneous.
(a) Further Documents. Pledgor agrees to execute, acknowledge
and deliver any documents or instruments which Pledgee may request in order to
better evidence or effectuate this Pledge Agreement and the transactions
contemplated hereby.
(b) Binding Agreement. This Pledge Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors,
assigns, personal representatives, heirs and legatees. Notwithstanding the
foregoing, Pledgor may not assign any of his rights or delegate any of his
duties hereunder without the prior written consent of Pledgee. The parties
hereto acknowledge that Pledgee shall have the right to assign, with absolute
discretion, any or all of its rights and obligations under this Pledge Agreement
to any bank(s) or lending institution(s) as collateral security.
(c) Notice. Any notice required or permitted to be given
pursuant to this Pledge Agreement shall be in writing and shall be deemed given
upon personal delivery, or if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail requiring a return receipt, addressed
(i) to Pledgor, at the address set forth on the signature page hereof and (ii)
to Pledgee at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other party setting forth the
new address for the giving of notices pursuant to this Pledge Agreement.
5.
<PAGE> 17
(d) Amendments. This Pledge Agreement may be amended only by
the written agreement and consent of the parties hereto.
(e) Governing Law. This Pledge Agreement shall be governed by,
and construed in accordance with, the laws of the State of California, without
regard to the conflicts of laws rules thereof.
(f) Disputes. In the event of any dispute between the parties
arising out of this Pledge Agreement, the prevailing party shall be entitled to
receive from the nonprevailing party the reasonable expenses of the prevailing
party including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Pledge Agreement, including the
agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(h) Headings. Introductory headings at the beginning of each
section of this Pledge Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon, or description of, the contents
of any such section and shall not affect the meanings or construction of the
terms and provisions of this Pledge Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
PLEDGOR:
/s/ Kenneth D. Wing
--------------------------------------
Kenneth D. Wing
Address: 325 Kamaur Lane
Santa Cruz, CA 95060
PLEDGEE:
JT STORAGE, INC.,
a Delaware corporation
By: /s/ D. T. Mitchell
-----------------------------------
David T. Mitchell, President
and Chief Executive Officer
166 Baypointe Parkway
San Jose, California 95134
6.
<PAGE> 18
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Secretary January 2, 1996
JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
Dear Sir:
As Escrow Agent for both JT Storage, Inc., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents,
including stock certificates and stock assignments, delivered to you pursuant to
the terms of that certain Restricted Stock Purchase Agreement (the "Agreement"),
dated as of even date, to which a copy of these Joint Escrow Instructions is
attached as Exhibit C, in accordance with the following instructions:
1. In the event the Corporation and/or any nominee or assignee of the
Corporation (referred to collectively for convenience herein as the
"Corporation") exercises the Repurchase Option set forth in the Agreement, the
Corporation shall give to Purchaser and you a written notice specifying the
number of shares of stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed to (a) date the stock assignments
necessary for the transfer in question, (b) fill in the number of shares being
transferred and (c) deliver same, together with the certificate evidencing the
shares of stock to be transferred, to the Corporation against the simultaneous
delivery to you of the purchase price (by check) for the number of shares of
stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with
you any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as defined in the Agreement.
Purchaser does
1.
<PAGE> 19
hereby irrevocably constitute and appoint you as his or her attorney-in-fact and
agent for the term of this escrow to execute with respect to such securities all
documents necessary or appropriate to make such securities negotiable and to
complete any transaction herein contemplated. Subject to the provisions of this
paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder
of the Corporation while the shares of stock are held by you.
4. From time to time upon written request of the Purchaser, you will
deliver to Purchaser a certificate or certificates representing so many shares
of stock as are not then subject to the Corporation's Repurchase Option and are
not required to remain pledged with JT Storage pursuant to the Pledge Agreement.
Within 30 days after the expiration of the 60-day period referred to in
paragraph 3 of the Agreement, you will deliver to Purchaser a certificate or
certificates representing the aggregate number of shares sold and issued
pursuant to the Agreement and not purchased by the Corporation or its assignees
pursuant to exercise of the Repurchase Option.
5. Notwithstanding the foregoing paragraphs 1, 2, 3 and 4, your
duties and obligations as Escrow Agent shall not commence until such time as the
certificates representing the shares of stock of the Corporation subject to
these instructions pursuant to the Agreement together with two duly executed
stock assignments separate from certificate are delivered to you. It is also
understood and agreed that you may, on behalf of the Corporation, concurrent
with your duties hereunder, hold such certificates and stock assignments as
collateral for Purchaser's obligations pursuant to a Secured Promissory Note of
even date herewith in the aggregate principal amount of $60,000.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
on any instrument reasonably believed by you to be genuine and to have been
signed or presented by the proper party or parties. You shall not be personally
liable for any act you may do or omit to do hereunder as Escrow Agent or as
attorney-in-fact for Purchaser while acting in good faith and in the exercise of
your own good judgment, and any act done or omitted by you pursuant to the
advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall
2.
<PAGE> 20
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary to advise you properly in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor. The Corporation shall be
obligated to reimburse you for your expenses in this connection.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the shares of
stock held by you hereunder, you are authorized and directed to retain in your
possession without liability to anyone all or any part of said shares until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of arbitrators or of a
court of competent jurisdiction after the time for appeal has expired and no
appeal has been perfected, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
15. Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed given upon personal delivery, if mailed, or upon the
expiration of 48 hours after mailing by any form of United States mail requiring
a return receipt, addressed to each of the other parties thereunto
3.
<PAGE> 21
entitled at the following addresses, or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
CORPORATION: JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
PURCHASER: Kenneth D. Wing
Address: 325 Kamaur Lane
Santa Cruz, CA 95060
ESCROW AGENT: Secretary of JT Storage
166 Baypointe Parkway
San Jose, California 95134
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
JT Storage, Inc.,
a Delaware corporation
By: /s/ D. T. Mitchell
-----------------------------------
David T. Mitchell, President
and Chief Executive Officer
PURCHASER:
/s/ Kenneth D. Wing
--------------------------------------
Kenneth D. Wing
ESCROW AGENT:
/s/ W. Virginia Walker
- -----------------------------
W. Virginia Walker, Secretary
4.
<PAGE> 22
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement and Stock Pledge Agreement, each dated as of January 2, 1996
by and between JT Storage, Inc., a Delaware corporation (the "Corporation"), and
the undersigned, Kenneth D. Wing hereby sells, assigns and transfers unto
______________________________
___________________________________________________________ (______________)
shares of the common stock of the Corporation standing in the undersigned's name
on the books of the Corporation represented by Certificate No. ___ herewith,
and does hereby irrevocably constitute and appoint ____________________________
___________________________________ attorney to transfer the said stock on
the books of the Corporation with full power of substitution in the premises.
Dated: ____________________ [do not date]
/s/ Kenneth D. Wing
----------------------------------------
Kenneth D. Wing
<PAGE> 1
EXHIBIT 10.11
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "Agreement") is made as
of January 5, 1996 (the "Effective Date") by and between JT Storage, Inc., a
Delaware corporation ("JT Storage"), and W. Virginia Walker ("Purchaser"), with
reference to the following:
R E C I T A L S:
A. JT Storage desires to advance its growth, development and
financial success by providing additional incentives to its key executive
personnel by assisting them to acquire shares of JT Storage's common stock (the
"Common Stock"), and to benefit directly from JT Storage's growth, development
and financial success.
B. JT Storage desires to sell to Purchaser on the Effective Date,
and Purchaser desires to subscribe for and purchase from JT Storage at such
time, certain shares of Common Stock as set forth in this Agreement.
C. In order to induce JT Storage to sell such shares, Purchaser
desires to have such shares subject to the restrictions and interests created by
this Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein, the parties agree as follows:
1. Sale and Purchase of Stock. JT Storage hereby agrees to sell to
Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from JT Storage, 250,000
shares (the "Shares") of Common Stock at a price of $.25 per Share for an
aggregate purchase price of $62,500 (the "Purchase Price"). Purchaser shall pay
$12,500 of the Purchase Price by personal check payable to JT Storage and shall
issue a secured promissory note attached hereto as Exhibit A (the "Note") to JT
Storage for $50,000, constituting the balance of the Purchase Price. The Note
shall be secured by a pledge of the Shares, in conjunction with which Purchaser
shall execute a Stock Pledge Agreement (the "Pledge Agreement") attached hereto
as Exhibit B. The check, Note and Pledge Agreement, Joint Escrow Instructions
attached hereto as Exhibit C (the "Escrow Instructions"), and two copies of a
Stock
<PAGE> 2
Assignment Separate from Certificate (the "Stock Assignment") attached hereto as
Exhibit D shall be delivered to JT Storage on the Effective Date.
2. Vesting. The Shares purchased pursuant to Section 1 hereof will
vest over a four-year period from Purchaser's November 9, 1995 commencement of
employment (the "Vesting Commencement Date"), with 31,250 Shares vesting in one
lump sum on May 9, 1996 and with the balance vesting in 42 successive monthly
installments of 5,208-1/3 shares each commencing June 9, 1996 and thereafter on
the ninth day of each successive month through and until November 9, 1999. JT
Storage's repurchase option as described in Section 4 hereof shall be limited to
those Shares which have not so vested (herein referred to as "Unvested Shares")
in accordance with this Section 2 at the time of termination of the Purchaser's
employment with JT Storage. Accordingly, such repurchase right shall not apply
to any Shares which have vested (herein referred to as "Vested Shares") as of
the time of termination of Purchaser's employment with JT Storage.
3. Restriction on Transfer of the Unvested Shares. Except as
otherwise specifically provided herein, Purchaser may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any of the Unvested Shares,
or any right or interest therein. Any purported sale, transfer (including
involuntary transfers initiated by operation of legal process), hypothecation or
disposition of any of the Unvested Shares or any right or interest therein,
except in strict compliance with the terms and conditions of this Agreement,
shall be null and void. Vested Shares not required to remain pledged with JT
Storage pursuant to the Pledge Agreement shall not be subject to the
restrictions on transfer set forth in this Section 3.
4. Repurchase Option Upon Termination.
(a) JT Storage's Repurchase Option. In the event that
Purchaser's employment by JT Storage terminates for any reason (including,
without limitation, death, disability, retirement, voluntary or involuntary
resignation or dismissal, with or without cause) prior to the fifth anniversary
of the Vesting Commencement Date, JT Storage or its nominee(s) shall have the
right and option (the "Repurchase Option") to purchase from Purchaser all or any
portion of the Unvested Shares for a period of 60 days after the date of such
termination (the "Termination Date"). The amount of Unvested Shares shall be
determined as of the Termination Date.
(b) Repurchase Price Under Repurchase Option. The purchase
price for each Share to be purchased pursuant to the
2.
<PAGE> 3
Repurchase Option (the "Repurchase Price") shall be $.25 per Share. The Company
may apply unpaid amounts owing under the Note against the Repurchase Price.
(c) Exercise of Repurchase Option. The Repurchase Option
shall be exercised by JT Storage or its nominee(s) by delivery, within the
60-day period specified in Section 4(a) above, to Purchaser of (i) a written
notice specifying the number of Shares to be purchased and (ii) a check in the
amount of the Repurchase Price, calculated as provided in this Section 4, for
all Shares to be purchased.
5. Dividends, Splits and Certain Reorganizations. If, from time to
time during the term of this Agreement:
(a) There is any stock dividend or liquidating dividend
of cash and/or property, stock split or other change in the
character or amount of any of the outstanding securities of JT
Storage; or
(b) There is any consolidation, merger or sale of all,
or substantially all, of the assets of JT Storage;
then, in such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of Purchaser's ownership
of Shares shall be immediately subject to this Agreement and be included in the
word "Shares" (as either Vested Shares or Unvested Shares, as appropriate) for
all purposes with the same force and effect as the Shares presently subject to
this Agreement. All such securities or other property so included in the word
"Shares" shall be delivered to the Escrow Agent (as hereinafter defined) and
held pursuant to the Escrow Instructions in accordance with Section 7 hereof.
While the total Repurchase Price pursuant to the Repurchase Option shall remain
the same after each such event, the Repurchase Price per Share upon exercise of
the Repurchase Option shall be appropriately adjusted, as necessary.
6. Change of Control. Notwithstanding the foregoing provisions of
Section 2 of this Agreement, in the event there occurs a Change of Control (as
defined below) and within three (3) years thereafter any one or more of the
following events occurs:
(a) JT Storage terminates Purchaser's employment with JT
Storage, other than by reason of Purchaser's willful failure to
discharge his duties of employment to JT Storage; or
3.
<PAGE> 4
(b) Purchaser is assigned a different employment
position with JT Storage involving a significant reduction in
responsibility, stature or compensation compared to Purchaser's
position immediately preceding such Change of Control; or
(c) Purchaser's continuation of employment with JT
Storage is conditioned on Purchaser's place of principal
employment being relocated by more than fifty (50) miles from
such place of principal employment immediately preceding such
Change of Control;
then, in any such event, any Unvested Shares shall automatically become Vested
Shares and JT Storage's repurchase right with respect thereto shall accordingly
terminate. For purposes of this paragraph, "Change of Control" shall mean either
of the following events:
(i) Any "person" (as that term is defined in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under such Act), directly or
indirectly, of securities of JT Storage representing more than 50% of the total
voting power represented by the then outstanding voting securities of JT
Storage; provided, however, that the foregoing shall not apply with respect to
any such "person" who, at the date of this Agreement, is such "beneficial owner"
of securities of JT Storage representing at least 20% of the total voting power
represented by the presently outstanding voting securities of JT Storage; or
(ii) The stockholders of JT Storage shall approve a merger or
consolidation of JT Storage with any other corporation other than a merger or
consolidation which would result in the voting securities of JT Storage
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of JT Storage or such surviving entity outstanding immediately
after such merger or consolidation, as applicable, or the stockholders of JT
Storage approve a plan of complete liquidation of JT Storage or an agreement for
the sale or disposition by JT Storage of all or substantially all of the assets
of JT Storage.
7. Limitation on Payments. In the event that the automatic
vesting of all Unvested Shares provided for under Section 6 of this Agreement
(i) constitutes a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 7 would be subject to the excise tax imposed by Section 4999 of the
4.
<PAGE> 5
Code, then the Unvested Shares shall become automatically vested either:
(a) as to all of the Unvested Shares, or
(b) such lesser number of Unvested Shares which
would result in no portion of value of such acceleration being subject to excise
tax under Section 4999 of the Code,
whichever of the foregoing, taking into account the applicable federal, state,
and local employment taxes, income taxes, and the excise tax imposed by Section
4999 of the Code, results in the receipt by the Purchaser, on an after-tax
basis, of the greatest benefit of such acceleration, notwithstanding that the
value of all or some portion of such benefit may be taxable under Section 4999
of the Code.
All determinations required to be made under this Section 7 shall
be made in writing by JT Storage's independent public accountants (the
"Accounting Firm"). JT Storage shall cause the Accounting Firm to provide
detailed supporting calculations of its determinations to the Purchaser. Notice
must be given to the Accounting Firm within fifteen (15) business days after an
event causing automatic vesting of Unvested Shares under Section 6 of this
Agreement. All fees and expenses of the Accounting Firm shall be borne solely by
JT Storage. The Accounting Firm's determinations must be made with substantial
authority (within the meaning of Section 6662 of the Code).
8. Escrow. In the event the Note is repaid prior to the termination
of the Repurchase Option and the certificates representing Unvested Shares are
released pursuant to the Pledge Agreement, as security for the faithful
performance of the terms of this Agreement and to insure the availability for
delivery of the Unvested Shares upon exercise of the Repurchase Option herein
provided for, Purchaser agrees to deliver to, and deposit with, the Secretary of
JT Storage, or such other person designated by JT Storage (the "Escrow Agent"),
as the Escrow Agent in this transaction, two copies of the Stock Assignment duly
endorsed (with date and number of shares blank), together with the certificate
or certificates evidencing the Unvested Shares. Said documents are to held by
the Escrow Agent and delivered by the Escrow Agent pursuant to the Escrow
Instructions.
9. Permitted Transfers. Purchaser may, at any time or times,
transfer any or all of the Unvested Shares only: (a) inter vivos to Purchaser's
spouse or issue, or to a trust for their benefit, (b) upon Purchaser's death, to
any person in accordance with the laws of descent and/or testamentary
distribution (such persons described in clauses (a) and (b)
5.
<PAGE> 6
hereof are collectively referred to herein as "Permitted Transferee"), provided,
however, that such Unvested Shares shall not be transferred until the Permitted
Transferee executes a valid undertaking to JT Storage to the effect that the
Unvested Shares so transferred shall thereafter remain subject to all of the
provisions of this Agreement (including the Repurchase Option in the event
Purchaser's employment with JT Storage is terminated for any reason prior to the
fifth anniversary of the Vesting Commencement Date) as though the Permitted
Transferee were a party to this Agreement, bound in every respect in the same
way as Purchaser. Vested Shares not required to remain pledged with JT Storage
pursuant to the Pledge Agreement shall not be subject to the restrictions on
transfer set forth in this Section 9.
10. Rights as Shareholder. Subject to compliance with the provisions
of this Agreement and of the Pledge Agreement, Purchaser shall exercise all
rights and privileges of the registered holder of the Shares while they are held
by JT Storage pursuant to the Pledge Agreement or the Escrow Instructions, and
shall be entitled to receive any dividend or other distribution thereof;
provided, however, that any dividends or distributions with respect to the
Shares in the form of shares of capital stock of JT Storage (whether by way of
stock dividend, stock split or recapitalization) shall be subject to this
Agreement, the Pledge Agreement and the Escrow Instructions.
11. Investment Representations. Purchaser represents and warrants to
JT Storage as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the
Shares for Purchaser's own account and not with a view to or for sale in
connection with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
business of JT Storage, (ii) has had an opportunity to discuss with
representatives of JT Storage the condition of any prospects for the continued
operation and financing of JT Storage and such other matters as Purchaser has
deemed appropriate in considering whether to invest in the Shares and (iii) has
been provided access to all available information about JT Storage requested by
Purchaser.
(c) Shares Not Registered. Purchaser understands that the
Shares have not been registered under the Act or registered or qualified under
the securities laws of any state and that Purchaser may not sell or otherwise
transfer the Shares unless they are subsequently registered under the Act and
registered or qualified under applicable state securities laws,
6.
<PAGE> 7
or unless an exemption is available which permits sale or other transfer without
such registration and qualification.
12. Underwriters' Lock-Up. The Purchaser agrees that, in connection
with any underwritten offering of Common Stock of JT Storage pursuant to a
registration statement under the Securities Act of 1933, the Purchaser shall
withhold from the market any or all of the Shares for a period, not to exceed
one hundred and eighty (180) days, which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering.
13. No Contract of Employment. Purchaser acknowledges and agrees that
this Agreement shall not be construed to give Purchaser any right to be retained
in the employ of JT Storage, and that the right and power of JT Storage to
dismiss or discharge Purchaser (with or without cause) is strictly reserved.
14. Miscellaneous.
(a) Legends on Certificates. Any and all certificates now or
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND A PURCHASE OPTION IN FAVOR OF THE ISSUER
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH THE TERMS AND
CONDITIONS OF THAT CERTAIN RESTRICTED STOCK PURCHASE AGREEMENT DATED AS
OF JANUARY 5, 1996 BY AND BETWEEN JT STORAGE, INC., A DELAWARE
CORPORATION, AND W. VIRGINIA WALKER, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF JT STORAGE."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform
any further acts and execute and deliver any document which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Binding Agreement. This Agreement shall bind and inure to
the benefit of the successors and assigns of JT
7.
<PAGE> 8
Storage and the personal representatives, heirs and legatees of Purchaser.
(d) Other Restrictions on Transfers. The restrictions on
transfer set forth in this Agreement are in addition to any and all restrictions
imposed pursuant to any applicable state or federal law or regulation.
(e) Notices. Any notice required or permitted to be given
pursuant to this Agreement shall be in writing and shall be deemed given upon
personal delivery or, if mailed, upon the expiration of 48 hours after mailing
by any form of United States mail requiring a return receipt, addressed (i) to
Purchaser at the address set forth on the signature page hereof and (ii) to JT
Storage, Inc. at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other parties setting forth
the new address for the giving of notices pursuant to this Agreement.
(f) Amendments. This Agreement may be amended only by the
written agreement and consent of the parties hereof.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of laws rules thereof.
(h) Disputes. In the event of any dispute among the parties
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party,
including, without limitation, reasonable attorneys' fees.
(i) Entire Agreement. This Agreement, including the
agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(j) Headings. Introductory headings at the beginning of each
section of this Agreement are solely for the convenience of the parties and
shall not be deemed to be a limitation upon, or description of, the contents of
any such section.
(k) Counterparts. This Agreement may be executed in
counterparts, both of which, when taken together, shall constitute one and the
same instrument.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
JT STORAGE:
JT STORAGE, INC.,
a Delaware corporation
By: /s/ D. T. Mitchell
--------------------------------------
David T. Mitchell, President
and Chief Executive Officer
PURCHASER:
/s/ W. Virginia Walker
-----------------------------------------
W. Virginia Walker
Address: 3443 Clover Oak Dr.
--------------------------------
San Jose, CA 95148
--------------------------------
9.
<PAGE> 10
EXHIBIT A
SECURED PROMISSORY NOTE
$50,000 January 5, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower") hereby promises to pay
to JT Storage, Inc., a Delaware corporation ("Payee"), the principal sum of
Fifty Thousand Dollars ($50,000), together with interest at 5.91% per annum,
compounded annually, on the unpaid balance of such principal amount from the
date hereof. Principal payments of $12,500 plus all accrued interest hereon
shall be paid in four installments on each of the first four anniversary dates
hereof.
Payments of principal and interest on this Secured Promissory Note
(this "Promissory Note") shall be made in legal tender of the United States of
America and shall be made at the office of Payee at 166 Baypointe Parkway, San
Jose, California 95134 or at such other place as Payee shall have designated in
writing to Borrower. If the date set for any payment on this Promissory Note is
a Saturday, Sunday or legal holiday, then such payment shall be due on the next
succeeding business day.
As of the date hereof, Borrower has purchased 250,000 shares (the
"Shares") of the common stock of Payee, pursuant to the terms of that certain
Restricted Stock Purchase Agreement dated as of January 5, 1996 by and between
Borrower and Payee. This Promissory Note shall be secured by the Shares as
provided in that certain Stock Pledge Agreement (the "Pledge Agreement") of even
date herewith by and between Payee and Borrower.
The principal of, and accrued interest on, this Promissory Note may be
prepaid at any time, in whole or in part, without premium or penalty.
In the event Borrower shall (i) fail to make complete payment of any
installment of principal or accrued interest when due under this Promissory Note
or (ii) commit a breach of, or default under, the Pledge Agreement, Payee may
accelerate this Promissory Note and declare the entire unpaid principal amount
of this Promissory Note and all accrued and unpaid interest thereon to be
immediately due and payable and, thereupon, the unpaid principal amount and all
such accrued and unpaid interest shall become and be immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor or other notices or demands of any kind (all
of which are hereby expressly waived by Borrower). The failure of Payee to
accelerate this Promissory Note shall not constitute a waiver of any of Payee's
rights under this Promissory Note as long as Borrower's default under this
<PAGE> 11
Promissory Note or breach of or default under the Pledge Agreement continues.
The provisions of this Promissory Note shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of law rules thereof. In the event that Payee is required to
take any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such attorneys' fees and court costs as Payee may incur
as a result thereof, whether or not suit is commenced.
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER:
/s/ W. Virginia Walker
-----------------------------------------
W. Virginia Walker
2.
<PAGE> 12
EXHIBIT B
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
January 5, 1996 by and between W. Virginia Walker, as pledgor ("Pledgor"), and
JT Storage, Inc., a Delaware corporation, as pledgee ("Pledgee"), with reference
to the following:
R E C I T A L S:
A. Pursuant to that certain Restricted Stock Purchase Agreement (the
"Purchase Agreement") of even date herewith, by and between Pledgor and Pledgee,
Pledgor has agreed to purchase 250,000 shares (the "Shares") of the common stock
of Pledgee.
B. Pursuant to the terms of that certain Secured Promissory Note in
the original principal amount of $50,000 (the "Note") of even date herewith
delivered by Pledgor to Pledgee, Pledgor has agreed to make payments of
principal and interest to Pledgee as provided in the Note.
C. Pursuant to the terms of the Note, Pledgor shall execute this
Pledge Agreement to assure compliance with the terms and conditions of the Note.
D. In order to induce Pledgee to make the loan evidenced by the
Note, Pledgor desires to have the Shares held subject to this Pledge Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties hereto agree as
follows:
1. Grant of Security Interest. Pledgor hereby grants to Pledgee a
security interest in the Shares, pledges and hypothecates the Shares to Pledgee,
and deposits the certificates evidencing the Shares (the "Certificates") with
Pledgee as collateral security for the payment by Pledgor of the Note and the
full, faithful and timely performance by Pledgor of all of its other obligations
under the Note and this Pledge Agreement. The Certificates, together with a
stock assignment duly executed in blank with signatures appropriately guaranteed
or witnessed, are being retained by Pledgee, as the pledgeholder for the Shares.
Notwithstanding the foregoing, the Pledgee shall, from time to time at the
request of the Pledgor, cause to be delivered to the Pledgor one or more
certificates which, together with all other such certificates theretofore
delivered pursuant to this sentence, evidences that portion of the Shares which
is equal to the portion of the full purchase price for all of the Shares then
<PAGE> 13
actually paid to the Pledgee by the Pledgor (i.e., the portion determined by
adding the cash payment amount set forth in Section 1 of the Purchase Agreement
to all principal payments on the Note which have theretofore been made by the
Pledgor at the time of such request), subject in all cases to the provisions of
Section 7 of the Purchase Agreement requiring the continued escrow of Unvested
Shares.
2. Representations and Warranties of Pledgor. Pledgor represents and
warrants to Pledgee that the Shares are free and clear of all claims, mortgages,
pledges, liens and other encumbrances of any nature whatsoever, except any
restriction upon sale and distribution imposed by the Securities Act of 1933, as
amended (the "Act"), or applicable state securities laws, and by the
Subscription Agreement.
3. Voting of Shares in the Absence of Default. So long as there
shall exist no Event of Default as provided in Section 9 hereof, Pledgor shall
be entitled to exercise, as Pledgor deems proper but in a manner not
inconsistent with the terms hereof, Pledgor's rights to voting power with
respect to the Shares. Pledgor shall not be entitled to vote the Shares at any
time that there exists an Event of Default as provided in Section 9 hereof.
4. Dividends and Other Distributions. So long as there shall exist
no Event of Default as provided in Section 9 hereof, Pledgor shall be entitled
to receive any dividend or other distribution with respect to the Shares except
as provided in Section 5 of this Pledge Agreement. If there exists an Event of
Default, such dividend or distribution shall be delivered to Pledgee to be held
as additional collateral security under this Pledge Agreement.
5. Stock Dividends. In the event of any distribution in shares of
capital stock of Pledgee (whether by way of stock dividend, stock split,
recapitalization or otherwise) with respect to the Shares, the shares to be
distributed to Pledgor shall be delivered to Pledgee, together with an
appropriately executed stock certificate and an appropriately executed stock
power, to be held as additional collateral security under this Pledge Agreement.
6. Pledgee's Duties. So long as Pledgee exercises reasonable care
with respect to the Shares in its possession, Pledgee shall have no liability
for any loss or damage to such Shares, and in no event shall Pledgee have
liability for any diminution in value of the Shares occasioned by economic or
market conditions or events. Pledgee shall be deemed to have exercised
reasonable care within the meaning of the preceding
2.
<PAGE> 14
sentence if the Shares in its possession are accorded treatment substantially
equal to that which Pledgee accords its own property, it being understood that
Pledgee shall not have any responsibility under this Pledge Agreement for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to the Shares, whether or not
Pledgee has or is deemed to have knowledge of such matters, or (b) taking any
necessary steps to preserve rights against any person or entity with respect to
the Shares.
7. Sale of Collateral. Upon the occurrence of any Event of Default
as provided in Section 9 hereof, Pledgee shall have all the rights and remedies
of a secured party on default under the Uniform Commercial Code in effect in the
State of California at that time and also may, without notice, except as
specified below, at its option, sell, resell, assign, transfer and deliver all
or any part of the Shares, for cash or on credit for future delivery. Upon such
sale, Pledgee, unless prohibited by a provision of any applicable statute, may
purchase all or any part of the Shares being sold, free from, and discharged of,
all trusts, claims, rights of redemption and equities of Pledgor. If the
proceeds of any sale of the Shares shall be insufficient to pay all amounts due
under the Note, including collection costs and expenses of sale, Pledgor shall
remain obligated and liable for any deficiency with respect thereto. If, at any
time when Pledgee shall determine to exercise its rights to sell all or any part
of the Shares pursuant to this Section 7, such Shares, or the part thereof to be
sold, shall not be effectively registered under the Act as then in effect or any
similar statute then in force, subject to the provisions of Section 8 hereof,
Pledgee, in its sole and absolute discretion, is hereby expressly authorized to
sell such Shares, or any part thereof, by private sale in such manner and under
such circumstances as Pledgee may deem necessary or advisable in order that such
sale may be effected legally without such registration. Without limiting the
generality of the foregoing, Pledgee, in its sole and absolute discretion, may
approach and negotiate with a restricted number of potential purchasers to
effect such sale or restrict such sale to a purchaser or purchasers who will
represent and agree that such purchaser or purchasers are purchasing for its or
their own account, for investment only, and not with a view to the distribution
or sale of such Shares or any part thereof. Any such sale shall be deemed to be
a sale made in a commercially reasonable manner within the meaning of the
California Uniform Commercial Code, and Pledgor hereby consents and agrees that
Pledgee shall incur no responsibility or liability for selling all or any part
of the Shares at a price which is not unreasonably low, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
public. Pledgee shall not be obligated to make any sale of the
3.
<PAGE> 15
Shares regardless of notice of sale having been given. Pledgee may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and any such sale may, without further notice, be made at the
time and place to which it was so adjourned.
8. Redemption of Collateral. Notwithstanding any other provision of
this Pledge Agreement, upon the occurrence of an Event of Default as provided in
Section 9 hereof, Pledgee shall give Pledgor written notice of the time and
place of any public sale or of the time on or after which any private sale or
other disposition is to be made at least ten days before the date fixed for any
public sale or the day on or after which any private sale or other disposition
is to be made. Pledgor agrees that, to the extent notice of sale shall be
required by law, such ten days' notice shall constitute reasonable notification.
This notice shall also specify the aggregate outstanding monetary obligations of
Pledgor to Pledgee at the date of such notice (the "Total Obligation"). At any
time during such ten-day period, Pledgor shall have the right to redeem the
Shares by the payment by certified or bank cashier's check of an amount equal to
the Total Obligation.
9. Events of Default. At the option of Pledgee, the principal
balance of the Note and all accrued and unpaid interest thereon, and all other
obligations of Pledgor to Pledgee thereunder and hereunder, shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Pledgor), upon
the occurrence of any of the events set out below ("Events of Default"):
(a) Pledgor shall fail to make complete payment or prepayment
of principal or interest when due in accordance with the terms of the Note; or
(b) Pledgor shall commit a breach or default of any of his
obligations under this Pledge Agreement.
10. Termination. This Pledge Agreement shall terminate upon the
payment in full of the principal amount and all accrued interest thereon under
the Note. Upon termination of this Pledge Agreement, Pledgor shall be entitled
to the return of the Certificates and any other collateral security then held by
Pledgee pursuant to Section 4 or Section 5 of this Pledge Agreement.
11. Cumulation of Remedies; Waiver of Rights. The remedies provided
herein in favor of Pledgee shall not be deemed
4.
<PAGE> 16
exclusive but shall be cumulative and shall be in addition to all of the
remedies in favor of Pledgee existing at law or in equity. Nothing in this
Pledge Agreement shall require Pledgee to proceed against or exhaust its
remedies against the Shares before proceeding against Pledgor or executing
against any other security or collateral securing performance of Pledgor's
obligations to Pledgee under the Note or this Pledge Agreement. No delay on the
part of Pledgee in exercising any of its options, powers or rights, or the
partial or single exercise thereof, shall constitute a waiver thereof.
12. Execution of Endorsements, Assignments, Etc. Upon the occurrence
of an Event of Default as provided in Section 9 hereof, Pledgee shall have the
right for and in the name, place and stead of Pledgor to execute endorsements,
assignments or other instruments of conveyance or transfer with respect to all
or any of the Shares and any other shares of the capital stock of Pledgee or
other property which is held by Pledgee as collateral security pursuant to
Section 4 or Section 5 of this Pledge Agreement.
13. Miscellaneous.
(a) Further Documents. Pledgor agrees to execute, acknowledge
and deliver any documents or instruments which Pledgee may request in order to
better evidence or effectuate this Pledge Agreement and the transactions
contemplated hereby.
(b) Binding Agreement. This Pledge Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors,
assigns, personal representatives, heirs and legatees. Notwithstanding the
foregoing, Pledgor may not assign any of his rights or delegate any of his
duties hereunder without the prior written consent of Pledgee. The parties
hereto acknowledge that Pledgee shall have the right to assign, with absolute
discretion, any or all of its rights and obligations under this Pledge Agreement
to any bank(s) or lending institution(s) as collateral security.
(c) Notice. Any notice required or permitted to be given
pursuant to this Pledge Agreement shall be in writing and shall be deemed given
upon personal delivery, or if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail requiring a return receipt, addressed
(i) to Pledgor, at the address set forth on the signature page hereof and (ii)
to Pledgee at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other party setting forth the
new address for the giving of notices pursuant to this Pledge Agreement.
5.
<PAGE> 17
(d) Amendments. This Pledge Agreement may be amended only by
the written agreement and consent of the parties hereto.
(e) Governing Law. This Pledge Agreement shall be governed
by, and construed in accordance with, the laws of the State of California,
without regard to the conflicts of laws rules thereof.
(f) Disputes. In the event of any dispute between the parties
arising out of this Pledge Agreement, the prevailing party shall be entitled to
receive from the nonprevailing party the reasonable expenses of the prevailing
party including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Pledge Agreement, including the
agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(h) Headings. Introductory headings at the beginning of each
section of this Pledge Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon, or description of, the contents
of any such section and shall not affect the meanings or construction of the
terms and provisions of this Pledge Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
PLEDGOR:
/s/ W. Virginia Walker
-----------------------------------------
W. Virginia Walker
Address: 3443 Clover Oak Dr.
---------------------------------
San Jose, CA 95148
---------------------------------
PLEDGEE:
JT STORAGE, INC.,
a Delaware corporation
By: /s/ D. T. Mitchell
--------------------------------------
David T. Mitchell, President
and Chief Executive Officer
166 Baypointe Parkway
San Jose, California 95134
6.
<PAGE> 18
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Secretary January 5, 1996
JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
Dear Sir:
As Escrow Agent for both JT Storage, Inc., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents,
including stock certificates and stock assignments, delivered to you pursuant to
the terms of that certain Restricted Stock Purchase Agreement (the "Agreement"),
dated as of even date, to which a copy of these Joint Escrow Instructions is
attached as Exhibit C, in accordance with the following instructions:
1. In the event the Corporation and/or any nominee or assignee of
the Corporation (referred to collectively for convenience herein as the
"Corporation") exercises the Repurchase Option set forth in the Agreement, the
Corporation shall give to Purchaser and you a written notice specifying the
number of shares of stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed to (a) date the stock
assignments necessary for the transfer in question, (b) fill in the number of
shares being transferred and (c) deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (by check) for the number of
shares of stock being purchased pursuant to the exercise of the Repurchase
Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with
you any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his or her
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated.
Subject to the provisions
<PAGE> 19
of this paragraph 3, Purchaser shall exercise all rights and privileges of a
shareholder of the Corporation while the shares of stock are held by you.
4. From time to time upon written request of the Purchaser, you will
deliver to Purchaser a certificate or certificates representing so many shares
of stock as are not then subject to the Corporation's Repurchase Option and are
not required to remain pledged with JT Storage pursuant to the Pledge Agreement.
Within 30 days after the expiration of the 60-day period referred to in
paragraph 3 of the Agreement, you will deliver to Purchaser a certificate or
certificates representing the aggregate number of shares sold and issued
pursuant to the Agreement and not purchased by the Corporation or its assignees
pursuant to exercise of the Repurchase Option.
5. Notwithstanding the foregoing paragraphs 1, 2, 3 and 4, your
duties and obligations as Escrow Agent shall not commence until such time as the
certificates representing the shares of stock of the Corporation subject to
these instructions pursuant to the Agreement together with two duly executed
stock assignments separate from certificate are delivered to you. It is also
understood and agreed that you may, on behalf of the Corporation, concurrent
with your duties hereunder, hold such certificates and stock assignments as
collateral for Purchaser's obligations pursuant to a Secured Promissory Note of
even date herewith in the aggregate principal amount of $50,000.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
on any instrument reasonably believed by you to be genuine and to have been
signed or presented by the proper party or parties. You shall not be personally
liable for any act you may do or omit to do hereunder as Escrow Agent or as
attorney-in-fact for Purchaser while acting in good faith and in the exercise of
your own good judgment, and any act done or omitted by you pursuant to the
advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other
2.
<PAGE> 20
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary to advise you properly in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor. The Corporation shall be
obligated to reimburse you for your expenses in this connection.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the shares of
stock held by you hereunder, you are authorized and directed to retain in your
possession without liability to anyone all or any part of said shares until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of arbitrators or of a
court of competent jurisdiction after the time for appeal has expired and no
appeal has been perfected, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
15. Any notice required or permitted to be given hereunder shall be
in writing and shall be deemed given upon personal delivery, if mailed, or upon
the expiration of 48 hours after mailing by any form of United States mail
requiring a return receipt, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses
3.
<PAGE> 21
as a party may designate by ten days' advance written notice to each of the
other parties hereto.
CORPORATION: JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
PURCHASER: W. Virginia Walker
Address: 3443 Clover Oak Dr.
---------------------------------
San Jose, CA 95148
---------------------------------
ESCROW AGENT: Secretary of JT Storage
166 Baypointe Parkway
San Jose, California 95134
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
JT Storage, Inc.,
a Delaware corporation
By: /s/ D. T. Mitchell
--------------------------------------
David T. Mitchell, President
and Chief Executive Officer
PURCHASER:
/s/ W. Virginia Walker
-----------------------------------------
W. Virginia Walker
ESCROW AGENT:
/s/ W. Virginia Walker
- ----------------------------------
W. Virginia Walker, Secretary
4.
<PAGE> 22
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement and Stock Pledge Agreement, each dated as of January 5, 1996
by and between JT Storage, Inc., a Delaware corporation (the "Corporation"), and
the undersigned, W. Virginia Walker hereby sells, assigns and transfers unto
_______________________________________________________________________________
__________________________________________________________________ (___________)
shares of the common stock of the Corporation standing in the undersigned's name
on the books of the Corporation represented by Certificate No._____ herewith,
and does hereby irrevocably constitute and appoint _____________________________
________________________________________________________________________________
____________________ attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated: __________________ [do not date]
/s/ W. Virginia Walker
----------------------------------------
W. Virginia Walker
<PAGE> 1
EXHIBIT 10.12
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "Agreement") is made as
of January 2, 1996 (the "Effective Date") by and between JT Storage, Inc., a
Delaware corporation ("JT Storage"), and David B. Pearce ("Purchaser"), with
reference to the following:
RECITALS:
A. JT Storage desires to advance its growth, development and
financial success by providing additional incentives to its key executive
personnel by assisting them to acquire shares of JT Storage's common stock (the
"Common Stock"), and to benefit directly from JT Storage's growth, development
and financial success.
B. JT Storage desires to sell to Purchaser on the Effective Date,
and Purchaser desires to subscribe for and purchase from JT Storage at such
time, certain shares of Common Stock as set forth in this Agreement.
C. In order to induce JT Storage to sell such shares, Purchaser
desires to have such shares subject to the restrictions and interests created by
this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein, the parties agree as follows:
1. Sale and Purchase of Stock. JT Storage hereby agrees to sell to
Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from JT Storage, 450,000
shares (the "Shares") of Common Stock at a price of $.25 per Share for an
aggregate purchase price of $112,500 (the "Purchase Price"). Purchaser shall pay
$22,500 of the Purchase Price by personal check payable to JT Storage and shall
issue a secured promissory note attached hereto as Exhibit A (the "Note") to JT
Storage for $90,000, constituting the balance of the Purchase Price. The Note
shall be secured by a pledge of the Shares, in conjunction with which Purchaser
shall execute a Stock Pledge Agreement (the "Pledge Agreement") attached hereto
as Exhibit B. The check, Note and Pledge Agreement, Joint Escrow Instructions
attached hereto as Exhibit C (the "Escrow Instructions"), and two copies of a
Stock Assignment Separate from Certificate (the "Stock Assignment")
<PAGE> 2
attached hereto as Exhibit D shall be delivered to JT Storage on the Effective
Date.
2. Vesting. 253,125 of the Shares purchased pursuant to Section 1
hereof shall be deemed vested immediately, with the 196,875 balance of the
Shares vesting over a four-year period following June 15, 1995 (the "Vesting
Commencement Date") in forty-two equal monthly installments of 4,687-1/2 shares
per month as of January 15, 1996 and thereafter on the fifteenth day of each
successive month through and until June 15, 1999. JT Storage's repurchase option
as described in Section 4 hereof shall be limited to those Shares which have not
so vested (herein referred to as "Unvested Shares") in accordance with this
Section 2 at the time of termination of the Purchaser's employment with JT
Storage. Accordingly, such repurchase right shall not apply to any Shares which
have vested (herein referred to as "Vested Shares") as of the time of
termination of Purchaser's employment with JT Storage.
3. Restriction on Transfer of the Unvested Shares. Except as
otherwise specifically provided herein, Purchaser may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any of the Unvested Shares,
or any right or interest therein. Any purported sale, transfer (including
involuntary transfers initiated by operation of legal process), hypothecation or
disposition of any of the Unvested Shares or any right or interest therein,
except in strict compliance with the terms and conditions of this Agreement,
shall be null and void. Vested Shares not required to remain pledged with JT
Storage pursuant to the Pledge Agreement shall not be subject to the
restrictions on transfer set forth in this Section 3.
4. Repurchase Option Upon Termination.
(a) JT Storage's Repurchase Option. In the event that
Purchaser's employment by JT Storage terminates for any reason (including,
without limitation, death, disability, retirement, voluntary or involuntary
resignation or dismissal, with or without cause) prior to the fourth anniversary
of the Vesting Commencement Date, JT Storage or its nominee(s) shall have the
right and option (the "Repurchase Option") to purchase from Purchaser all or any
portion of the Unvested Shares for a period of 60 days after the date of such
termination (the "Termination Date"). The amount of Unvested Shares shall be
determined as of the Termination Date.
(b) Repurchase Price Under Repurchase Option. The purchase price
for each Share to be purchased pursuant to the Repurchase Option (the
"Repurchase Price") shall be $.25 per
2.
<PAGE> 3
Share. The Company may apply unpaid amounts owing under the Note against the
Repurchase Price.
(c) Exercise of Repurchase Option. The Repurchase Option shall
be exercised by JT Storage or its nominee(s) by delivery, within the 60-day
period specified in Section 4(a) above, to Purchaser of (i) a written notice
specifying the number of Shares to be purchased and (ii) a check in the amount
of the Repurchase Price, calculated as provided in this Section 4, for all
Shares to be purchased.
5. Dividends, Splits and Certain Reorganizations. If, from time to
time during the term of this Agreement:
(a) There is any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or amount
of any of the outstanding securities of JT Storage; or
(b) There is any consolidation, merger or sale of all, or
substantially all, of the assets of JT Storage;
then, in such event, any and all new, substituted or additional securities or
other property to which Purchaser is entitled by reason of Purchaser's ownership
of Shares shall be immediately subject to this Agreement and be included in the
word "Shares" (as either Vested Shares or Unvested Shares, as appropriate) for
all purposes with the same force and effect as the Shares presently subject to
this Agreement. All such securities or other property so included in the word
"Shares" shall be delivered to the Escrow Agent (as hereinafter defined) and
held pursuant to the Escrow Instructions in accordance with Section 6 hereof.
While the total Repurchase Price pursuant to the Repurchase Option shall remain
the same after each such event, the Repurchase Price per Share upon exercise of
the Repurchase Option shall be appropriately adjusted, as necessary.
3.
<PAGE> 4
6. Escrow. In the event the Note is repaid prior to the termination
of the Repurchase Option and the certificates representing Unvested Shares are
released pursuant to the Pledge Agreement, as security for the faithful
performance of the terms of this Agreement and to insure the availability for
delivery of the Unvested Shares upon exercise of the Repurchase Option herein
provided for, Purchaser agrees to deliver to, and deposit with, the Secretary of
JT Storage, or such other person designated by JT Storage (the "Escrow Agent"),
as the Escrow Agent in this transaction, two copies of the Stock Assignment duly
endorsed (with date and number of shares blank), together with the certificate
or certificates evidencing the Unvested Shares. Said documents are to held by
the Escrow Agent and delivered by the Escrow Agent pursuant to the Escrow
Instructions.
7. Permitted Transfers. Purchaser may, at any time or times, transfer
any or all of the Unvested Shares only: (a) inter vivos to Purchaser's spouse or
issue, or to a trust for their benefit, (b) upon Purchaser's death, to any
person in accordance with the laws of descent and/or testamentary distribution
(such persons described in clauses (a) and (b)
4.
<PAGE> 5
hereof are collectively referred to herein as "Permitted Transferee"), provided,
however, that such Unvested Shares shall not be transferred until the Permitted
Transferee executes a valid undertaking to JT Storage to the effect that the
Unvested Shares so transferred shall thereafter remain subject to all of the
provisions of this Agreement (including the Repurchase Option in the event
Purchaser's employment with JT Storage is terminated for any reason prior to the
fifth anniversary of the Vesting Commencement Date) as though the Permitted
Transferee were a party to this Agreement, bound in every respect in the same
way as Purchaser. Vested Shares not required to remain pledged with JT Storage
pursuant to the Pledge Agreement shall not be subject to the restrictions on
transfer set forth in this Section 7.
8. Rights as Shareholder. Subject to compliance with the provisions
of this Agreement and of the Pledge Agreement, Purchaser shall exercise all
rights and privileges of the registered holder of the Shares while they are held
by JT Storage pursuant to the Pledge Agreement or the Escrow Instructions, and
shall be entitled to receive any dividend or other distribution thereof;
provided, however, that any dividends or distributions with respect to the
Shares in the form of shares of capital stock of JT Storage (whether by way of
stock dividend, stock split or recapitalization) shall be subject to this
Agreement, the Pledge Agreement and the Escrow Instructions.
9. Investment Representations. Purchaser represents and warrants to
JT Storage as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
business of JT Storage, (ii) has had an opportunity to discuss with
representatives of JT Storage the condition of any prospects for the continued
operation and financing of JT Storage and such other matters as Purchaser has
deemed appropriate in considering whether to invest in the Shares and (iii) has
been provided access to all available information about JT Storage requested by
Purchaser.
(c) Shares Not Registered. Purchaser understands that the
Shares have not been registered under the Act or registered or qualified under
the securities laws of any state and that Purchaser may not sell or otherwise
transfer the Shares unless they are subsequently registered under the Act and
registered or qualified under applicable state securities laws,
5.
<PAGE> 6
or unless an exemption is available which permits sale or other transfer without
such registration and qualification.
10. Underwriters' Lock-Up. The Purchaser agrees that, in connection
with any underwritten offering of Common Stock of JT Storage pursuant to a
registration statement under the Securities Act of 1933, the Purchaser shall
withhold from the market any or all of the Shares for a period, not to exceed
one hundred and eighty (180) days, which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering.
11. No Contract of Employment. Purchaser acknowledges and agrees that
this Agreement shall not be construed to give Purchaser any right to be retained
in the employ of JT Storage, and that the right and power of JT Storage to
dismiss or discharge Purchaser (with or without cause) is strictly reserved.
12. Miscellaneous.
(a) Legends on Certificates. Any and all certificates now or
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND A PURCHASE OPTION IN FAVOR OF
THE ISSUER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN
ACCORDANCE WITH THE TERMS AND CONDITIONS OF THAT CERTAIN
RESTRICTED STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 2,
1996 BY AND BETWEEN JT STORAGE, INC., A DELAWARE CORPORATION,
AND DAVID B. PEARCE, A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF JT STORAGE."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
further acts and execute and deliver any document which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Binding Agreement. This Agreement shall bind and inure to
the benefit of the successors and assigns of JT
6.
<PAGE> 7
Storage and the personal representatives, heirs and legatees of Purchaser.
(d) Other Restrictions on Transfers. The restrictions on
transfer set forth in this Agreement are in addition to any and all restrictions
imposed pursuant to any applicable state or federal law or regulation.
(e) Notices. Any notice required or permitted to be given
pursuant to this Agreement shall be in writing and shall be deemed given upon
personal delivery or, if mailed, upon the expiration of 48 hours after mailing
by any form of United States mail requiring a return receipt, addressed (i) to
Purchaser at the address set forth on the signature page hereof and (ii) to JT
Storage, Inc. at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other parties setting forth
the new address for the giving of notices pursuant to this Agreement.
(f) Amendments. This Agreement may be amended only by the
written agreement and consent of the parties hereof.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of laws rules thereof.
(h) Disputes. In the event of any dispute among the parties
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party,
including, without limitation, reasonable attorneys' fees.
(i) Entire Agreement. This Agreement, including the agreements
referred to herein, constitutes the entire agreement and understanding among the
parties pertaining to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, relating thereto.
(j) Headings. Introductory headings at the beginning of each
section of this Agreement are solely for the convenience of the parties and
shall not be deemed to be a limitation upon, or description of, the contents of
any such section.
(k) Counterparts. This Agreement may be executed in
counterparts, both of which, when taken together, shall constitute one and the
same instrument.
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
JT STORAGE:
JT STORAGE, INC.,
a Delaware corporation
By:
-----------------------------------
David T. Mitchell, President
and Chief Executive Officer
PURCHASER:
/s/ David Pearce
--------------------------------------
David B. Pearce
Address: 20932 Hidden View Lane
Saratoga, CA 95070
8.
<PAGE> 9
EXHIBIT A
SECURED PROMISSORY NOTE
$90,000 January 2, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower") hereby promises to pay
to JT Storage, Inc., a Delaware corporation ("Payee"), the principal sum of
Ninety Thousand Dollars ($90,000), together with interest at 5.91% per annum,
compounded annually, on the unpaid balance of such principal amount from the
date hereof. Principal payments of $22,500 plus all accrued interest hereon
shall be paid in four installments on each of the first four anniversary dates
hereof.
Payments of principal and interest on this Secured Promissory Note
(this "Promissory Note") shall be made in legal tender of the United States of
America and shall be made at the office of Payee at 166 Baypointe Parkway, San
Jose, California 95134 or at such other place as Payee shall have designated in
writing to Borrower. If the date set for any payment on this Promissory Note is
a Saturday, Sunday or legal holiday, then such payment shall be due on the next
succeeding business day.
As of the date hereof, Borrower has purchased 450,000 shares (the
"Shares") of the common stock of Payee, pursuant to the terms of that certain
Restricted Stock Purchase Agreement dated as of January 2, 1996 by and between
Borrower and Payee. This Promissory Note shall be secured by the Shares as
provided in that certain Stock Pledge Agreement (the "Pledge Agreement") of even
date herewith by and between Payee and Borrower.
The principal of, and accrued interest on, this Promissory Note may be
prepaid at any time, in whole or in part, without premium or penalty.
In the event Borrower shall (i) fail to make complete payment of any
installment of principal or accrued interest when due under this Promissory Note
or (ii) commit a breach of, or default under, the Pledge Agreement, Payee may
accelerate this Promissory Note and declare the entire unpaid principal amount
of this Promissory Note and all accrued and unpaid interest thereon to be
immediately due and payable and, thereupon, the unpaid principal amount and all
such accrued and unpaid interest shall become and be immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor or other notices or demands of any kind (all
of which are hereby expressly waived by Borrower). The failure of Payee to
accelerate this Promissory Note shall not constitute a waiver of any of Payee's
rights under this Promissory Note as long as Borrower's default under this
<PAGE> 10
Promissory Note or breach of or default under the Pledge Agreement continues.
The provisions of this Promissory Note shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of law rules thereof. In the event that Payee is required to
take any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such attorneys' fees and court costs as Payee may incur
as a result thereof, whether or not suit is commenced.
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER:
/s/ David Pearce
--------------------------------------
David B. Pearce
2.
<PAGE> 11
EXHIBIT B
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
January 2, 1996 by and between David B. Pearce, as pledgor ("Pledgor"), and JT
Storage, Inc., a Delaware corporation, as pledgee ("Pledgee"), with reference to
the following:
RECITALS:
A. Pursuant to that certain Restricted Stock Purchase Agreement (the
"Purchase Agreement") of even date herewith, by and between Pledgor and Pledgee,
Pledgor has agreed to purchase 450,000 shares (the "Shares") of the common stock
of Pledgee.
B. Pursuant to the terms of that certain Secured Promissory Note in
the original principal amount of $90,000 (the "Note") of even date herewith
delivered by Pledgor to Pledgee, Pledgor has agreed to make payments of
principal and interest to Pledgee as provided in the Note.
C. Pursuant to the terms of the Note, Pledgor shall execute this
Pledge Agreement to assure compliance with the terms and conditions of the Note.
D. In order to induce Pledgee to make the loan evidenced by the Note,
Pledgor desires to have the Shares held subject to this Pledge Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties hereto agree as
follows:
1. Grant of Security Interest. Pledgor hereby grants to Pledgee a
security interest in the Shares, pledges and hypothecates the Shares to Pledgee,
and deposits the certificates evidencing the Shares (the "Certificates") with
Pledgee as collateral security for the payment by Pledgor of the Note and the
full, faithful and timely performance by Pledgor of all of its other obligations
under the Note and this Pledge Agreement. The Certificates, together with a
stock assignment duly executed in blank with signatures appropriately guaranteed
or witnessed, are being retained by Pledgee, as the pledgeholder for the Shares.
Notwithstanding the foregoing, the Pledgee shall, from time to time at the
request of the Pledgor, cause to be delivered to the Pledgor one or more
certificates which, together with all other such certificates theretofore
delivered pursuant to this sentence, evidences that portion of the Shares which
is equal to the portion of the full purchase price for all of the Shares then
<PAGE> 12
actually paid to the Pledgee by the Pledgor (i.e., the portion determined by
adding the cash payment amount set forth in Section 1 of the Purchase Agreement
to all principal payments on the Note which have theretofore been made by the
Pledgor at the time of such request), subject in all cases to the provisions of
Section 7 of the Purchase Agreement requiring the continued escrow of Unvested
Shares.
2. Representations and Warranties of Pledgor. Pledgor represents and
warrants to Pledgee that the Shares are free and clear of all claims, mortgages,
pledges, liens and other encumbrances of any nature whatsoever, except any
restriction upon sale and distribution imposed by the Securities Act of 1933, as
amended (the "Act"), or applicable state securities laws, and by the
Subscription Agreement.
3. Voting of Shares in the Absence of Default. So long as there shall
exist no Event of Default as provided in Section 9 hereof, Pledgor shall be
entitled to exercise, as Pledgor deems proper but in a manner not inconsistent
with the terms hereof, Pledgor's rights to voting power with respect to the
Shares. Pledgor shall not be entitled to vote the Shares at any time that there
exists an Event of Default as provided in Section 9 hereof.
4. Dividends and Other Distributions. So long as there shall exist no
Event of Default as provided in Section 9 hereof, Pledgor shall be entitled to
receive any dividend or other distribution with respect to the Shares except as
provided in Section 5 of this Pledge Agreement. If there exists an Event of
Default, such dividend or distribution shall be delivered to Pledgee to be held
as additional collateral security under this Pledge Agreement.
5. Stock Dividends. In the event of any distribution in shares of
capital stock of Pledgee (whether by way of stock dividend, stock split,
recapitalization or otherwise) with respect to the Shares, the shares to be
distributed to Pledgor shall be delivered to Pledgee, together with an
appropriately executed stock certificate and an appropriately executed stock
power, to be held as additional collateral security under this Pledge Agreement.
6. Pledgee's Duties. So long as Pledgee exercises reasonable care
with respect to the Shares in its possession, Pledgee shall have no liability
for any loss or damage to such Shares, and in no event shall Pledgee have
liability for any diminution in value of the Shares occasioned by economic or
market conditions or events. Pledgee shall be deemed to have exercised
reasonable care within the meaning of the preceding
2.
<PAGE> 13
sentence if the Shares in its possession are accorded treatment substantially
equal to that which Pledgee accords its own property, it being understood that
Pledgee shall not have any responsibility under this Pledge Agreement for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to the Shares, whether or not
Pledgee has or is deemed to have knowledge of such matters, or (b) taking any
necessary steps to preserve rights against any person or entity with respect to
the Shares.
7. Sale of Collateral. Upon the occurrence of any Event of Default as
provided in Section 9 hereof, Pledgee shall have all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of California at that time and also may, without notice, except as
specified below, at its option, sell, resell, assign, transfer and deliver all
or any part of the Shares, for cash or on credit for future delivery. Upon such
sale, Pledgee, unless prohibited by a provision of any applicable statute, may
purchase all or any part of the Shares being sold, free from, and discharged of,
all trusts, claims, rights of redemption and equities of Pledgor. If the
proceeds of any sale of the Shares shall be insufficient to pay all amounts due
under the Note, including collection costs and expenses of sale, Pledgor shall
remain obligated and liable for any deficiency with respect thereto. If, at any
time when Pledgee shall determine to exercise its rights to sell all or any part
of the Shares pursuant to this Section 7, such Shares, or the part thereof to be
sold, shall not be effectively registered under the Act as then in effect or any
similar statute then in force, subject to the provisions of Section 8 hereof,
Pledgee, in its sole and absolute discretion, is hereby expressly authorized to
sell such Shares, or any part thereof, by private sale in such manner and under
such circumstances as Pledgee may deem necessary or advisable in order that such
sale may be effected legally without such registration. Without limiting the
generality of the foregoing, Pledgee, in its sole and absolute discretion, may
approach and negotiate with a restricted number of potential purchasers to
effect such sale or restrict such sale to a purchaser or purchasers who will
represent and agree that such purchaser or purchasers are purchasing for its or
their own account, for investment only, and not with a view to the distribution
or sale of such Shares or any part thereof. Any such sale shall be deemed to be
a sale made in a commercially reasonable manner within the meaning of the
California Uniform Commercial Code, and Pledgor hereby consents and agrees that
Pledgee shall incur no responsibility or liability for selling all or any part
of the Shares at a price which is not unreasonably low, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
public. Pledgee shall not be obligated to make any sale of the
3.
<PAGE> 14
Shares regardless of notice of sale having been given. Pledgee may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and any such sale may, without further notice, be made at the
time and place to which it was so adjourned.
8. Redemption of Collateral. Notwithstanding any other provision of
this Pledge Agreement, upon the occurrence of an Event of Default as provided in
Section 9 hereof, Pledgee shall give Pledgor written notice of the time and
place of any public sale or of the time on or after which any private sale or
other disposition is to be made at least ten days before the date fixed for any
public sale or the day on or after which any private sale or other disposition
is to be made. Pledgor agrees that, to the extent notice of sale shall be
required by law, such ten days' notice shall constitute reasonable notification.
This notice shall also specify the aggregate outstanding monetary obligations of
Pledgor to Pledgee at the date of such notice (the "Total Obligation"). At any
time during such ten-day period, Pledgor shall have the right to redeem the
Shares by the payment by certified or bank cashier's check of an amount equal to
the Total Obligation.
9. Events of Default. At the option of Pledgee, the principal balance
of the Note and all accrued and unpaid interest thereon, and all other
obligations of Pledgor to Pledgee thereunder and hereunder, shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Pledgor), upon
the occurrence of any of the events set out below ("Events of Default"):
(a) Pledgor shall fail to make complete payment or prepayment
of principal or interest when due in accordance with the terms of the Note; or
(b) Pledgor shall commit a breach or default of any of his
obligations under this Pledge Agreement.
10. Termination. This Pledge Agreement shall terminate upon the
payment in full of the principal amount and all accrued interest thereon under
the Note. Upon termination of this Pledge Agreement, Pledgor shall be entitled
to the return of the Certificates and any other collateral security then held by
Pledgee pursuant to Section 4 or Section 5 of this Pledge Agreement.
11. Cumulation of Remedies; Waiver of Rights. The remedies provided
herein in favor of Pledgee shall not be deemed
4.
<PAGE> 15
exclusive but shall be cumulative and shall be in addition to all of the
remedies in favor of Pledgee existing at law or in equity. Nothing in this
Pledge Agreement shall require Pledgee to proceed against or exhaust its
remedies against the Shares before proceeding against Pledgor or executing
against any other security or collateral securing performance of Pledgor's
obligations to Pledgee under the Note or this Pledge Agreement. No delay on the
part of Pledgee in exercising any of its options, powers or rights, or the
partial or single exercise thereof, shall constitute a waiver thereof.
12. Execution of Endorsements, Assignments, Etc. Upon the occurrence
of an Event of Default as provided in Section 9 hereof, Pledgee shall have the
right for and in the name, place and stead of Pledgor to execute endorsements,
assignments or other instruments of conveyance or transfer with respect to all
or any of the Shares and any other shares of the capital stock of Pledgee or
other property which is held by Pledgee as collateral security pursuant to
Section 4 or Section 5 of this Pledge Agreement.
13. Miscellaneous.
(a) Further Documents. Pledgor agrees to execute, acknowledge
and deliver any documents or instruments which Pledgee may request in order to
better evidence or effectuate this Pledge Agreement and the transactions
contemplated hereby.
(b) Binding Agreement. This Pledge Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors,
assigns, personal representatives, heirs and legatees. Notwithstanding the
foregoing, Pledgor may not assign any of his rights or delegate any of his
duties hereunder without the prior written consent of Pledgee. The parties
hereto acknowledge that Pledgee shall have the right to assign, with absolute
discretion, any or all of its rights and obligations under this Pledge Agreement
to any bank(s) or lending institution(s) as collateral security.
(c) Notice. Any notice required or permitted to be given
pursuant to this Pledge Agreement shall be in writing and shall be deemed given
upon personal delivery, or if mailed, upon the expiration of 48 hours after
mailing by any form of United States mail requiring a return receipt, addressed
(i) to Pledgor, at the address set forth on the signature page hereof and (ii)
to Pledgee at 166 Baypointe Parkway, San Jose, California 95134. A party may
change its address by giving written notice to the other party setting forth the
new address for the giving of notices pursuant to this Pledge Agreement.
5.
<PAGE> 16
(d) Amendments. This Pledge Agreement may be amended only by
the written agreement and consent of the parties hereto.
(e) Governing Law. This Pledge Agreement shall be governed by,
and construed in accordance with, the laws of the State of California, without
regard to the conflicts of laws rules thereof.
(f) Disputes. In the event of any dispute between the parties
arising out of this Pledge Agreement, the prevailing party shall be entitled to
receive from the nonprevailing party the reasonable expenses of the prevailing
party including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Pledge Agreement, including the
agreements referred to herein, constitutes the entire agreement and
understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
thereto.
(h) Headings. Introductory headings at the beginning of each
section of this Pledge Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon, or description of, the contents
of any such section and shall not affect the meanings or construction of the
terms and provisions of this Pledge Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
PLEDGOR:
/s/ David Pearce
--------------------------------------
David B. Pearce
Address: 20932 Hidden View Lane
Saratoga, CA 95070
PLEDGEE:
JT STORAGE, INC.,
a Delaware corporation
By:
-----------------------------------
David T. Mitchell, President
and Chief Executive Officer
166 Baypointe Parkway
San Jose, California 95134
6.
<PAGE> 17
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Secretary January 2, 1996
JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
Dear Sir:
As Escrow Agent for both JT Storage, Inc., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents,
including stock certificates and stock assignments, delivered to you pursuant to
the terms of that certain Restricted Stock Purchase Agreement (the "Agreement"),
dated as of even date, to which a copy of these Joint Escrow Instructions is
attached as Exhibit C, in accordance with the following instructions:
1. In the event the Corporation and/or any nominee or assignee of the
Corporation (referred to collectively for convenience herein as the
"Corporation") exercises the Repurchase Option set forth in the Agreement, the
Corporation shall give to Purchaser and you a written notice specifying the
number of shares of stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed to (a) date the stock assignments
necessary for the transfer in question, (b) fill in the number of shares being
transferred and (c) deliver same, together with the certificate evidencing the
shares of stock to be transferred, to the Corporation against the simultaneous
delivery to you of the purchase price (by check) for the number of shares of
stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with
you any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as defined in the Agreement.
Purchaser does
1.
<PAGE> 18
hereby irrevocably constitute and appoint you as his or her attorney-in-fact and
agent for the term of this escrow to execute with respect to such securities all
documents necessary or appropriate to make such securities negotiable and to
complete any transaction herein contemplated. Subject to the provisions of this
paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder
of the Corporation while the shares of stock are held by you.
4. From time to time upon written request of the Purchaser, you will
deliver to Purchaser a certificate or certificates representing so many shares
of stock as are not then subject to the Corporation's Repurchase Option and are
not required to remain pledged with JT Storage pursuant to the Pledge Agreement.
Within 30 days after the expiration of the 60-day period referred to in
paragraph 3 of the Agreement, you will deliver to Purchaser a certificate or
certificates representing the aggregate number of shares sold and issued
pursuant to the Agreement and not purchased by the Corporation or its assignees
pursuant to exercise of the Repurchase Option.
5. Notwithstanding the foregoing paragraphs 1, 2, 3 and 4, your
duties and obligations as Escrow Agent shall not commence until such time as the
certificates representing the shares of stock of the Corporation subject to
these instructions pursuant to the Agreement together with two duly executed
stock assignments separate from certificate are delivered to you. It is also
understood and agreed that you may, on behalf of the Corporation, concurrent
with your duties hereunder, hold such certificates and stock assignments as
collateral for Purchaser's obligations pursuant to a Secured Promissory Note of
even date herewith in the aggregate principal amount of $60,000.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
on any instrument reasonably believed by you to be genuine and to have been
signed or presented by the proper party or parties. You shall not be personally
liable for any act you may do or omit to do hereunder as Escrow Agent or as
attorney-in-fact for Purchaser while acting in good faith and in the exercise of
your own good judgment, and any act done or omitted by you pursuant to the
advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall
2.
<PAGE> 19
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary to advise you properly in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor. The Corporation shall be
obligated to reimburse you for your expenses in this connection.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the shares of
stock held by you hereunder, you are authorized and directed to retain in your
possession without liability to anyone all or any part of said shares until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of arbitrators or of a
court of competent jurisdiction after the time for appeal has expired and no
appeal has been perfected, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
15. Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed given upon personal delivery, if mailed, or upon the
expiration of 48 hours after mailing by any form of United States mail requiring
a return receipt, addressed to each of the other parties thereunto
3.
<PAGE> 20
entitled at the following addresses, or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
CORPORATION: JT Storage, Inc.
166 Baypointe Parkway
San Jose, California 95134
PURCHASER: Kenneth D. Wing
Address: 325 Kamaur Lane
Santa Cruz, CA 95060
ESCROW AGENT: Secretary of JT Storage
166 Baypointe Parkway
San Jose, California 95134
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
JT Storage, Inc.,
a Delaware corporation
By:
-----------------------------------
David T. Mitchell, President
and Chief Executive Officer
PURCHASER:
/s/ David Pearce
--------------------------------------
David B. Pearce
ESCROW AGENT:
/s/ W. Virginia Walker
- -----------------------------
W. Virginia Walker, Secretary
4.
<PAGE> 21
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement and Stock Pledge Agreement, each dated as of January 2, 1996
by and between JT Storage, Inc., a Delaware corporation (the "Corporation"), and
the undersigned, David B. Pearce hereby sells, assigns and transfers unto
______________________________
___________________________________________________________ (______________)
shares of the common stock of the Corporation standing in the undersigned's name
on the books of the Corporation represented by Certificate No. ___ herewith,
and does hereby irrevocably constitute and appoint ____________________________
___________________________________ attorney to transfer the said stock on
the books of the Corporation with full power of substitution in the premises.
Dated: ____________________ [do not date]
/s/ David Pearce
--------------------------------------
David B. Pearce
<PAGE> 1
Exhibit 10.13
JTS borrowed funds from cerain JTS stockholders pursuant to convertible
promissory notes in the form hereto as Exhibit A. The holders, date and
principal amounts of such convertible notes are as follows:
NAME DATE PRINCPAL
1. Entities affiliated with Burr Egan 10/11/94 $247,400
10/11/94 $2,600
10/26/94 $371,100
10/26/94 $3,900
12/29/94 $1,040
12/29/94 $98,960
1/18/95 $100,569
1/18/95 $1,057
6/22/95 $989,600
6/22/95 $10,400
2. Brentwood Associates VI, L.P. 11/1/94 $412,500
1/18/95 $67,073
6/22/95 $500,000
3. Entities affilated with Sofinnova 2/7/94 $107,000
10/25/94 $125,000
10/28/94 $125,000
1/18/95 $20,325
1/18/95 $8,885
1/18/95 $11,441
4. Entities affiliated with Advanced
Technology Ventures 2/7/94 $214,000
10/26/94 $250,000
1/18/95 $40,650
5. Steven L. Kaczeus 6/22/95 $250,000
6. Entities affiliated with Western Digital 12/20/94 $400,000
1/4/95 $100,000
1/6/95 $300,000
7. David T. Mitchell 6/22/95 $1,000,000
<PAGE> 2
Exhibit A
<PAGE> 3
THIS NOTE AND THE SECURITIES THAT MAY BE PURCHASED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OF DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NEITHER SUCH NOTE NOR SUCH SECURITIES MAY BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY AND ITS LEGAL COUNSEL STATING THAT
SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
$____________ _______ 1995
Palo Alto, California
CONVERTIBLE PROMISSORY NOTE
For value received, the undersigned, JT STORAGE, INC., a Delaware
corporation ("Borrower"), promises to pay _______ ("Lender") the principal sum
of _____________ dollars (_________), with interest from the date hereof at a
rate of 8% per annum, compounded monthly. Said principal and interest shall be
due and payable on demand after the first to occur of the following: (a)
August 15, 1995, or (b) the closing of an additional sale by Borrower of its
Series A Preferred Stock ("Stock") to investors ("Investors").
1. Conversion. If at any time before this note is paid Borrower
proposes to sell Stock to Investors, then Borrower shall prior to the proposed
closing of such sale (the "Closing") provide Lender with notice of such
proposed sale, together with any offering materials provided to such Investors.
At its sole option, Lender may at such Closing, upon notice to the Company at
least one (1) day prior to the Closing, exchange this Note at the Closing for
shares of Stock, and receive the full amount of the principal and interest then
due hereunder as credit against the purchase price of such Stock, which
purchase price per share shall be equal to the per share price of, and which
purchase shall be on terms no less favorable than, either the Stock offered to
or purchased by the Investors. Lender shall exercise its conversion option by
tendering this Note as full or partial payment of the purchase price of the
Stock purchased by Lender. In the event that the amount of principal and
interest then due hereunder shall be less than the aggregate purchase price of
the Stock so purchased by Lender, Lender shall deliver to Borrower at the
Closing a check in the amount of such difference. Lender may not acquire
fractional shares.
If Lender elects to convert part but not all of the principal and
interest subject to this Note into Stock, Borrower shall deliver to Lender a
check in the amount of all unconverted principal plus interest, if any, at the
same time and place such conversion occurs. Payment of principal and interest
not converted into Stock in accordance with this Agreement shall be made in
lawful money of the United States to the holder of this Note at the Borrower's
principal
<PAGE> 4
offices or, at the option of the Lender, at such other place in the United
States as such Lender shall have designated to the Borrower in writing.
THIS NOTE SHALL NOT BE CONVERTIBLE INTO SECURITIES OF BORROWER IF SUCH
CONVERSION WOULD VIOLATE FEDERAL SECURITIES LAWS OR APPLICABLE STATE SECURITIES
LAWS.
2. Representations and Warranties. The Lender represents and
warrants that:
(a) It is familiar with Borrower, the nature of its
business, its financial prospects and the merits and risks of an investment in
Borrower, and has the capacity to protect its own interest; and
(b) It is acquiring the Note and the securities that may
be purchased thereby for investment for its own account, not as a nominee or
agent, and not with a view to, or for resale in connection with any
distribution thereof. It understands that the Note and the securities that may
be purchased thereby have not been, and will not be, registered under the
Securities Act of 1933, as amended, by reason of a specific exemption from the
registration provisions of such Act, the availability of which depends upon,
among other things, the bona fide nature of the investment intent and the
accuracy of Lender's representations as expressed herein.
3. Waiver. Borrower hereby waives presentment, demand for
payment, notice of dishonor and any and all other notices and demands in
connection with the delivery, acceptance, performance, default or enforcement
of this Note, except such demands and notices expressly required hereunder, and
hereby consents to any and all extensions of time, renewals, releases of liens,
waivers or modifications that may be made or granted by the Lender to any party
hereto. No delay by the Lender in exercising any power or right hereunder
shall operate as a waiver of any power or right; nor shall any single or
partial exercise of any power or right preclude other or further exercise
thereof, or the exercise of any power or right hereunder or otherwise; and no
waiver or modification of the terms hereof shall be valid unless in writing
signed by Lender and then only to the extent therein set forth.
4. Transfer. This Note may not be sold, transferred or assigned
without Borrower's prior written consent, which consent shall not be
unreasonably withheld.
5. Notice. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
business day after the business day of facsimile transmission, if delivered by
facsimile transmission with copy by first class mail, postage prepaid, and
shall be addressed (i) if to the Borrower, at the address of its principal
corporate offices and (ii) if to the Lender, at the address of its principal
corporate offices, or at
2
<PAGE> 5
such other address as a party may designate by ten days' advance written notice
to the other party pursuant to the provisions above.
6. Governing Law. This Note and the obligations of the Borrower
hereunder shall be governed by and construed in accordance with the laws of the
State of California. The parties expressly stipulate that any litigation under
this Note shall be brought in the State courts of the County of Santa Clara,
California and in the United States District Court for the Northern District of
California. The parties agree to submit to the jurisdiction and venue of those
courts.
Issued this _________ day of ________ 1995.
"BORROWER"
JT STORAGE, INC.
By:____________________________________
Title:_________________________________
"LENDER"
AGREED TO AND ACCEPTED:
By:_____________________________
Title:__________________________
3
<PAGE> 1
Exhibit 10.14
JTS Borrowed funds from certain JTS stockholders pursuant to promissory notes
in the form attached hereto as Exhibit A. The holders, date and principal
amounts of such notes are as follow:
NAME DATE PRINCIPAL
1. Tantec 1/19/96 $1,000,000
2. Brentwood Associates VI, L.P. 1/31/96 $185,000
3. Entities affilated with the Walden Group
of Venture Capital Funds 1/31/96 $47,000
1/31/96 $33,000
1/31/96 $26,667
1/31/96 $13,333
1/31/96 $13,000
1/31/96 $7,000
4. Entities affiliated with Sofinnova 1/31/96 $53,290
1/31/96 $46,700
5. Entities affiliated with Advance
Technology Ventures 1/31/96 $107,116
1/31/96 $152,884
6. Entities affiliated with Burr Egan 1/31/96 $257,296
1/31/96 $2,704
<PAGE> 2
Exhibit A
<PAGE> 3
PROMISSORY NOTE
_____________ San Jose, California
January 19, 1996
FOR VALUE RECEIVED, the undersigned, JT Storage, Inc., a Delaware
corporation, ("Borrower") promises to pay to the order of __________________,
("Lender"), without offset or deduction, at 166 Baypointe Parkway, San Jose,
California, 95134, or such other place as the holder of this promissory
note ("Note") may designate in writing from time to time, in lawful money of
the United States, the principal sum of ___________ Dollars (____________) (the
"Loan"), together with interest on the unpaid principal balance of this Note
from time to time outstanding until paid in full at the rate hereinafter
provided for.
1. Interest.
Interest shall accrue on the unpaid principal balance of this Note
commencing on the date hereof and continuing until repayment of this Note in
full, at a fixed rate per annum equal to ten percent (10%). Interest shall be
computed on the basis of a three hundred sixty-five (365) day year and the
actual number of days elapsed.
2. Terms and Conditions of Payment
The principal amount of this Note, or so much thereof as remains
outstanding from time to time, together with all interest and other sums owed
to the Lender pursuant to any other terms and conditions hereof, shall be due
and payable, by Borrower, as follows:
(a) The entire amount of principal and accrued interest shall be
due and payable on July 15, 1996, (the "Maturity Date").
(b) All payments received by Lender shall be applied first to
accrued but unpaid interest, next to other charges due with respect to this
Note or any other document executed by Lender in connection herewith, and then
to the unpaid principal balance of this Note. Principal, interest and any other
sums payable under this Note shall be payable in lawful money of the United
States.
<PAGE> 4
3. Default.
The unpaid principal balance of this Note, together with all
accrued interest thereon, shall, at the option of the holder hereof, become
immediately due and payable, without demand or notice, upon the failure of
Borrower to perform or observe any other terms or provision of this Note.
4. Prepayment.
Borrower shall have the right to prepay this Note in whole or
in part, at any time, without penalty or premium.
5. Waiver of Demand.
Borrower and all guarantors and endorsers of this Note hereby
severally waive: presentment, demand, protest, notice of dishonor and all other
notices, except as expressly provided herein; and any release or discharge
arising from any extension of time, discharge of a prior party, release of any
or all of the security for this Note, or other cause of release or discharge
other than actual payment in full thereof.
6. Waiver, Amendment or Modification in Writing.
The holder hereof shall not be deemed, by any act or omission,
to have waived, amended or modified any of its rights or remedies hereunder
unless such waiver, amendment or modification is in writing and signed by such
holder and then only to the extent specifically set forth in such writing. A
waiver with reference to one event shall not be construed as continuing or as a
bar to or waiver of any right or remedy as to a subsequent event. No delay or
omission of the holder hereof to exercise any right, whether before or after a
default hereunder, shall impair any such right or shall be construed to be a
waiver of any right or default, and the acceptance at any time by the holder
hereof of any past-due amount shall not be deemed to be a waiver of the right
to require prompt payment when due of any other amounts then or thereafter due
and payable.
7. Time of the Essence.
Time is of the essence for each and every obligation under this
Note. Upon any default hereunder, the holder hereof may exercise all rights and
remedies provided for herein and by law including, but not limited to, the
right to immediate payment in full of this Note.
<PAGE> 5
8. Remedies Cumulative.
The remedies of the holder hereof as provided herein, or in law
or in equity, shall be cumulative and concurrent and may be pursued singularly,
successively, or together at the sole discretion of the holder hereof, and may
be exercised as often as occasion therefor shall occur; and the failure to
exercise any such right or remedy shall in no event be construed as a waiver or
a release thereof.
9. Attorneys' Fees.
It is expressly agreed that in the event of any dispute over
the construction or interpretation of this Note, or any action to enforce or
protect any rights conferred upon Lender by this Note or any other document
evidencing or securing this Note, Borrower promises and agrees to pay all
costs, including reasonable attorneys' fees, incurred by Lender if Lender
prevails in such endeavor.
10. Successors and Assigns.
The terms, covenants and conditions contained herein shall be
binding upon the heirs, successors and assigns of Borrower and shall inure to
the benefit of the successors and assigns of Lender.
11. Choice of Law.
This Note shall be construed in accordance with and governed by
the laws of the State of California.
12. Interest Rate Limitation.
This Note is hereby limited so that in no contingency, whether
by reason of acceleration of the Maturity Date or otherwise, shall the interest
exceed the maximum amount permissible under applicable law. If, from any
circumstances whatsoever, interest would otherwise be payable to Lender in
excess of the maximum lawful amount, the interest payable to the Lender shall be
reduced to the maximum amount permitted under applicable law; and if from any
circumstance, Lender shall ever have received anything of value deemed interest
by applicable law in excess of the maximum lawful amount, an amount equal to
any excessive interest shall be applied to the reduction of the unpaid
principal balance of this Note and not to the payment of interest herein, or if
such excessive interest exceeds the unpaid principal balance of this Note, such
excess shall be refunded to the Borrower. All interest paid, or agreed to be
paid to Lender shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full period until payment in full
of the principal balance of this Note so that interest for such full period
shall not exceed the maximum amount permitted by applicable law.
<PAGE> 6
13. Severability.
If the Borrower consists of more than one person or entity, their
obligations under this Note shall be joint and several.
14. Headings.
Headings at the beginning of each numbered paragraph of this Note
are intended solely for convenience and are not to be deemed or construed to be
a part of this Note.
Borrower:
JT Storage, Inc.
By /s/ D. T. MITCHELL
-----------------------------------
David T. Mitchell
President & Chief Executive Officer
<PAGE> 1
EXHIBIT 10.15
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED.
SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE
$25,000,000.00 February 13, 1996
San Jose, California
FOR VALUE RECEIVED, JT Storage, Inc., a Delaware corporation (the
"Company"), promises to pay to Atari Corporation, a Nevada corporation (the
"Holder"), or its assigns, the principal sum of Twenty Five Million Dollars
($25,000,000.00), or such lesser amount as shall equal the outstanding principal
amount hereof, together with interest from the date of this Note on the unpaid
principal balance at a rate equal to eight and one-half percent (8.5%) per
annum, computed on the basis of the actual number of days elapsed and a year of
365 days. All unpaid principal, together with any then unpaid and accrued
interest and other amounts payable hereunder, shall be due and payable on the
"Maturity Date" which date shall be the earlier of (i) September 30 , 1996, or
(ii) when such amounts are declared due and payable by the Holder (or made
automatically due and payable) upon or after the occurrence of an Event of
Default (as defined below).
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY
AGREEMENT (THE "SECURITY AGREEMENT") DATED AS OF THE DATE HEREOF AND EXECUTED BY
THE COMPANY IN FAVOR OF THE HOLDER. ADDITIONAL RIGHTS OF THE HOLDER ARE SET
FORTH IN THE SECURITY AGREEMENT.
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, and to which the Holder, by the
acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms
have the following meanings:
(a) the "Company" includes the corporation initially executing this
Note and any Person which shall succeed to or assume the obligations of the
Company under this Note.
(b) "Certificate" shall mean the Restated Certificate of
Incorporation of Company as in effect on the date hereof.
-1-
<PAGE> 2
(c) "Equity Securities" of any Person shall mean (a) all common
stock, preferred stock, participations, shares, partnership interests or other
equity interests in and of such Person (regardless of how designated and whether
or not voting or non-voting) and (b) all warrants, options and other rights to
acquire any of the foregoing.
(d) "Event of Default" has the meaning given in Section 7 hereof.
(e) "Financial Statements" shall mean, with respect to any
accounting period for any Person, statements of operations, retained earnings
and cash flows of such Person for such period, and balance sheets of such Person
as of the end of such period, setting forth in each case in comparative form
figures for the corresponding period in the preceding fiscal year if such period
is less than a full fiscal year or, if such period is a full fiscal year,
corresponding figures from the preceding fiscal year, all prepared in reasonable
detail and in accordance with generally accepted accounting principles (except,
with respect to monthly or quarterly financials, for footnotes and year end
adjustments). Unless otherwise indicated, each reference to Financial Statements
of any Person shall be deemed to refer to Financial Statements prepared on a
consolidated basis.
(f) "Holder" shall mean the Person specified in the introductory
paragraph of this Note or any Person who shall at the time be the holder of this
Note.
(g) "Indebtedness" shall mean and include the aggregate amount of,
without duplication (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes or other similar instruments, (c) all
obligations to pay the deferred purchase price of property or services (other
than accounts payable incurred in the ordinary course of business determined in
accordance with generally accepted accounting principals), (d) all obligations
with respect to capital leases, (e) all guaranty obligations; (f) all
obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person, (g) all
reimbursement and other payment obligations, contingent or otherwise, in respect
of letters of credit.
(h) "Investment" of any Person shall mean any loan or advance of
funds by such Person to any other Person (other than advances to employees of
such Person for moving and travel expense, drawing accounts and similar
expenditures in the ordinary course of business), any purchase or other
acquisition of any Equity Securities or Indebtedness of any other Person, any
capital contribution by such Person to or any other investment by such Person in
any other Person (including, without limitation, any Indebtedness incurred by
such Person of the type described in clauses (a) and (b) of the definition of
"Indebtedness" on behalf of any other Person); provided, however, that
Investments shall not include accounts receivable or other indebtedness owed by
customers of such Person which are current assets and arose from sales or
non-exclusive licensing in the ordinary course of such Person's business.
(i) "Lien" shall mean, with respect to any property, any security
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any of the
foregoing, and the filing
-2-
<PAGE> 3
of any financing statement or similar instrument under the Uniform Commercial
Code or comparable law of any jurisdiction.
(j) "Material Adverse Effect" shall mean a material adverse effect
on (a) the business, assets, operations, or financial or other condition of the
Company; (b) the ability of the Company to pay or perform the Obligations in
accordance with the terms of this Note and the other Transaction Documents and
to avoid a default or Event of Default under any Transaction Document; or
(c) the rights and remedies of Holder under this Note, the other Transaction
Documents or any related document, instrument or agreement.
(k) "Merger Agreement" shall mean that certain Agreement and Plan
of Reorganization dated as of February 12, 1996 by and between the Company and
the Holder.
(l) "Obligations" has the meaning given in Section 1 of the
Security Agreement.
(m) "Permitted Indebtedness" means:
(i) Indebtedness of Company in favor of the Holder arising
under this Note;
(ii) The existing Indebtedness disclosed on the JTS Disclosure
Schedule (as defined in the Merger Agreement) (the "Schedule");
(iii) Indebtedness to trade creditors, including, without
limitation, affiliates of Company, incurred in the ordinary course of business,
provided that the amount of such Indebtedness related to Moduler Electronics
(India) Pvt. Ltd. shall not exceed $30.0 million at any time;
(iv) Other Indebtedness of Company, not exceeding $1.0 million
in the aggregate outstanding at any time;
(v) Contingent obligations of Company consisting of guarantees
(and other credit support) of the obligations of vendors and suppliers of
Company in respect of transactions entered into in the ordinary course of
business;
(vi) Indebtedness with respect to capital lease obligations and
Indebtedness secured by Permitted Liens;
(vii) Extensions, renewals, refundings, refinancings,
modifications, amendments and restatements of any of the items of Permitted
Indebtedness (a) through (f) above, provided that the principal amount thereof
is not increased or the terms thereof are not modified to impose more burdensome
terms upon Company.
(n) "Permitted Investments" shall mean and include: (a) deposits
with commercial banks organized under the laws of the United States or a state
thereof to the extent such deposits are fully insured by the Federal Deposit
Insurance Corporation; (b) Investments in marketable obligations issued
-3-
<PAGE> 4
or fully guaranteed by the United States and maturing not more than one (1) year
from the date of issuance; (c) Investments in open market commercial paper rated
at least "A1" or "P1" or higher by a national credit rating agency and maturing
not more than one (1) year from the creation thereof; (d) Investments pursuant
to or arising under currency agreements or interest rate agreements entered into
in connection with bona fide hedging arrangements; (e) Investments consisting of
deposit accounts of the Company in which the Holder has a perfected security
interest and deposit accounts of its Subsidiaries maintained in the ordinary
course of business; (f) Investments existing on the Closing Date disclosed in
the Schedule; (g) Extensions of credit in the nature of accounts receivable or
notes receivable arising from the same or lease of goods or services in the
ordinary course of business; (h) Investments consisting of the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; (i) 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; (j) Investments consisting of (i) compensation of employees, officers
and directors of borrower so long as the Board of Directors of Company
determines that such compensation is in the best interests of Company, (ii)
travel advances, employee relocation loans and other employee loans and advances
in the ordinary course of business, (iii) loans to employees, officers or
directors relating to the purchase of equity securities of Company, (iv) other
loans to officers and employees approved by the Board of Directors; and
(k) other Investments aggregating not in excess of $1,000,000 at any time.
(o) "Permitted Liens" shall mean and include: (i) Liens for taxes
or other governmental charges not at the time delinquent or thereafter payable
without penalty or being contested in good faith, provided provision is made to
the reasonable satisfaction of Holder for the eventual payment thereof if
subsequently found payable; (ii) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith, provided provision is
made to the reasonable satisfaction of Holder for the eventual payment thereof
if subsequently found payable; (iii) deposits under workers' compensation,
unemployment insurance and social security laws or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases, or to secure statutory obligations of surety or appeal bonds or to
secure indemnity, performance or other similar bonds in the ordinary course of
business; (iv) Liens securing obligations under a capital lease if such lease is
permitted under the Security Agreement and such Liens do not extend to property
other than the property leased under such capital lease; (v) Liens upon any
equipment acquired or held by Company or any of its Subsidiaries to secure the
purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition of such equipment; (vi) easements, reservations,
rights of way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances affecting real property in a manner not
materially or adversely affecting the value or use of such property; (vii) Liens
in favor of the Holder; (viii) Liens existing on the date hereof in favor of
holders of Senior Indebtedness; (ix) any liens existing as of the date hereof
and disclosed in the Schedule; (x) liens on equipment leased by Company pursuant
to an operating lease in the ordinary course of business (including proceeds
thereof and accessions thereto) incurred solely for the purpose of financing the
lease of such equipment (including Liens arising from UCC financing statements
regarding such leases); (xi) liens arising from judgements, decrees or
attachments to the extent and only so long as such judgment, decree or
attachment does not constitute an Event of Default under 7(h); (xii) liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment
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<PAGE> 5
of customs duties in connection with the importation of goods; (xiii) liens
arising solely by virtue of any statutory or common law provision relating to
banker's liens, rights off setoff or similar rights and remedies as to deposit
accounts or other funds maintained with a creditor depository institution; and
(xiv) liens incurred in connection with the extension, renewal, refunding,
refinancing, modification, amendment or restatement of the indebtedness secured
by Liens of the type described in clauses (i) and (xiii) above, provided that
any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.
(p) "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
(q) "Senior Indebtedness" shall mean the principal of, unpaid
interest on and other amounts due in connection with the Company's Business Loan
Agreement dated as of December 18, 1995 with Silicon Valley Bank in an amount
not to exceed $5.0 million at any time.
(r) "Series A Preferred" shall mean the Company's presently
authorized Series A Preferred Stock.
(s) "Subsidiary" shall mean (a) any corporation of which more than
50% of the issued and outstanding equity securities having ordinary voting power
to elect a majority of the Board of Directors of such corporation is at the time
directly or indirectly owned or controlled by Company, (b) any partnership,
joint venture, or other association of which more than 50% of the equity
interest having the power to vote, direct or control the management of such
partnership, joint venture or other association is at the time directly or
indirectly owned and controlled by Company (c) any other entity included in the
financial statements of Company on a consolidated basis.
(t) "Transaction Documents" shall mean this Note, the Security
Agreement, the Warrant (as defined in Section 11 hereof) and the Merger
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company represents
and warrants to the Holder that except as disclosed in the JTS Disclosure
Schedule (as defined in the Merger Agreement) delivered concurrently herewith:
(a) Due Incorporation and Qualification. Each of Company and its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation; (ii) has the power
and authority to own, lease and operate its properties and carry on its business
as now conducted and as proposed to be conducted; and (iii) is duly qualified,
licensed to do business and in good standing as a foreign corporation in each
jurisdiction where the failure to be so qualified or licensed could reasonably
be expected to have a Material Adverse Effect.
(b) Authority. The execution, delivery and performance by Company
of each Transaction Document to be executed by Company and the consummation of
the transactions
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<PAGE> 6
contemplated thereby (i) are within the power of Company and (ii) have been duly
authorized by all necessary actions on the part of Company.
(c) Enforceability. Each Transaction Document executed, or to be
executed, by Company has been, or will be, duly executed and delivered by
Company and constitutes, or will constitute, a legal, valid and binding
obligation of Company, enforceable against Company in accordance with its terms,
except as limited by bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights generally and
general principles of equity.
(d) Non-Contravention. The execution and delivery by Company of the
Transaction Documents executed by Company and the performance and consummation
of the transactions contemplated thereby do not and will not (i) violate the
Certificate of Incorporation or Bylaws of the Company or any material judgment,
order, writ, decree, statute, rule or regulation applicable to Company;
(ii) violate any provision of, or result in the breach or the acceleration of,
or entitle any other Person to accelerate (whether after the giving of notice or
lapse of time or both), any material mortgage, indenture, agreement, instrument
or contract to which Company is a party or by which it is bound; or (iii) result
in the creation or imposition of any Lien upon any property, asset or revenue of
Company (other than any Lien arising under the Transaction Documents) or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization or approval applicable to Company, its business
or operations, or any of its assets or properties.
(e) Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or other
Person (including, without limitation, the shareholders of any Person) is
required in connection with the execution and delivery of the Transaction
Documents executed by Company and the performance and consummation of the
transactions contemplated thereby, except such as may be required pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in
connection with any conversion of the principal balance of this Note pursuant to
Section 10 hereof.
(f) No Violation or Default. None of the Company or the Company's
Subsidiaries is in violation of or in default with respect to (i) its
Certificate of Incorporation or Bylaws or equivalent charter document or any
material judgment, order, writ, decree, statute, rule or regulation applicable
to such Person; (ii) any material mortgage, indenture, agreement, instrument or
contract to which such Person is a party or by which it is bound (nor is there
any waiver in effect which, if not in effect, would result in such a violation
or default), where, in each case, such violation or default, individually, or
together with all such violations or defaults, could reasonably be expected to
have a Material Adverse Effect.
(g) Litigation. No actions (including, without limitation,
derivative actions), suits, proceedings or investigations are pending or, to the
knowledge of the Company, threatened against the Company or the Company's
Subsidiaries at law or in equity in any court or before any other governmental
authority which if adversely determined (i) would (alone or in the aggregate)
have a Material Adverse Effect or (ii) seeks to enjoin, either directly or
indirectly, the execution, delivery or performance by the Company of the
Transaction Documents or the transactions contemplated thereby.
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<PAGE> 7
(h) Title. The Company and the Company's Subsidiaries own and have
good and marketable title in fee simple absolute to, or a valid leasehold
interest in, all their respective real properties and good title to their other
respective assets and properties as reflected in the most recent Financial
Statements delivered to Purchasers (except those assets and properties disposed
of in the ordinary course of business since the date of such Financial
Statements) and all respective assets and properties acquired by Company and
Company's Subsidiaries since such date (except those disposed of in the ordinary
course of business). Such assets and properties are subject to no Lien, except
for Permitted Liens.
(i) Equity Securities. The authorized capital stock of the Company
consists of 90,000,000 shares of Common Stock, $.000001 par value, and
70,000,000 shares of Preferred Stock, $.000001 par value, all of which is
designated Series A Preferred Stock, of which there are issued and outstanding,
7,466,729 shares of Common Stock and 28,696,370 shares of Series A Preferred.
There are no other outstanding shares of capital stock or voting securities.
Each outstanding share of the Company's Series A Preferred Stock is convertible
into one (1) share of the Company's Common Stock. All outstanding shares of the
Company's Common Stock and the Company's Series A Preferred Stock are duly
authorized, validly issued, fully paid and non-assessable and are free of any
Liens other than any Liens created by or imposed upon the holders thereof, and
are not subject to preemptive rights or rights of first refusal created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound. The Company
has reserved (i) 4,300,000 shares of Common Stock for issuance to employees and
consultants pursuant to the Company's 1995 Stock Option Plan, of which 16,729
shares have been issued pursuant to option exercises, and 3,885,747 shares are
subject to outstanding, unexercised options, and (ii) 600,000 shares of Common
Stock for issuance upon the exercise of outstanding, unexercised warrants. There
are no other options, warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of capital stock of the
Company or obligating the Company to grant, extend, accelerate the vesting of,
change the price of, or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. Except as set forth in the Registration
Rights Agreement dated as of February 3, 1995 by and among the Company and
certain other persons and as contemplated by Section 11(g) hereof, no Person has
the right to demand or other rights to cause Company to file any registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
relating to any Equity Securities of Company presently outstanding or that may
be subsequently issued, or any right to participate in any such registration
statement.
3. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder represents and
warrants to the Company that such Holder has been advised that neither this Note
nor the securities which may be issued upon the conversion hereof have been
registered under the Securities Act, or any state securities laws and,
therefore, cannot be resold unless registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
requirements is available. Such Holder is aware that the Company is under no
obligation to effect any such registration with respect to the Note or to file
for or comply with any exemption from registration. Such Holder has not been
formed solely for the purpose of making this investment and is purchasing
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<PAGE> 8
the Note to be acquired by such Holder hereunder for its own account for
investment, not as a nominee or agent, and not with a view to, or for resale in
connection with, the distribution thereof. Such Holder has such knowledge and
experience in financial and business matters that such Purchaser is capable of
evaluating the merits and risks of such investment, is able to incur a complete
loss of such investment and is able to bear the economic risk of such investment
for an indefinite period of time. Such Holder is an accredited investor as such
term is defined in Rule 501 of Regulation D under the Securities Act.
4. INTEREST. Accrued interest on the outstanding principal balance on
this Note shall be payable on the Maturity Date.
5. PREPAYMENT. Upon fifteen (15) days prior written notice to the
Holder, the Company may prepay this Note in whole or in part; provided that any
such prepayment will be applied first to the payment of expenses due under this
Note, second to interest accrued on this Note and third, if the amount of
prepayment exceeds the amount of all such expenses and accrued interest, to the
payment of principal of this Note.
6. CERTAIN COVENANTS. While any amount is outstanding under the Note,
without the prior written consent of the Holder:
(a) Indebtedness. Neither Company nor any of its Subsidiaries shall
create, incur, assume or permit to exist any Indebtedness except Senior
Indebtedness and Permitted Indebtedness.
(b) Liens. Neither the Company nor any of its Subsidiaries shall
create, incur, assume or permit to exist any Lien on or with respect to any of
its assets or property of any character, whether now owned or hereafter
acquired, except for Permitted Liens.
(c) Asset Dispositions. Neither the Company nor any of its
Subsidiaries shall sell, lease, transfer, license or otherwise dispose of any of
its assets or property (collectively, a "Transfer"), whether now owned or
hereafter acquired, except (i) transfers in the ordinary course of its business
consisting of the sale of inventory and sales of worn-out or obsolete equipment
and (ii) transfers not in excess of $3.0 million for fair value and other than
to any affiliate of the Company.
(d) Mergers, Acquisitions, Etc. Neither the Company nor any of its
Subsidiaries shall consolidate with or merge into any other Person or permit any
other Person to merge into it, or acquire all or substantially all of the assets
or capital stock of any other Person.
(e) Investments. Neither the Company nor any of its Subsidiaries
shall make any Investment except for Permitted Investments.
(f) Dividends, Redemptions, Etc. Neither the Company nor any of its
Subsidiaries shall (i) pay any dividends or make any distributions on its equity
securities; (ii) purchase, redeem,
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<PAGE> 9
retire, decease or otherwise acquire for value any of its equity securities;
(iii) return any capital to any holder of its equity securities; (iv) make any
distribution of assets, Equity Securities, obligations or securities to any
holder of its Equity Securities; or (v) set apart any sum for any such purpose;
other than payments of principal and interest on outstanding bridge loans and
repurchases of shares from terminated employees pursuant to the terms of
restricted stock purchase agreements, and provided, however, that any Subsidiary
may pay cash dividends to Company.
(g) Indebtedness Payments. Except as set forth on JTS Disclosure
Schedule (as defined in the Merger Agreement), neither the Company nor any of
its Subsidiaries shall (i) prepay, redeem, purchase, decrease or otherwise
satisfy in any manner prior to the scheduled repayment thereof any Indebtedness
for borrowed money (other than (A) amounts due under this Note and (B) Senior
Indebtedness) or lease obligations, (ii) amend, modify or otherwise change the
terms of any Indebtedness for borrowed money (other than (A) Obligations under
this Note and (B) Senior Indebtedness) or lease obligations so as to accelerate
the scheduled repayment thereof or (iii) repay any notes to officers, directors
or stockholders.
(h) Information Rights; Notices. The Company shall furnish to the
Holder the following:
(i) Monthly Financial Statements. Within thirty (30) days after
the last day of each month, a copy of the Financial Statements of the Company
for such quarter and for the fiscal year to date, certified by the chief
financial officer or controller of the Company to present fairly the financial
condition, results of operations and other information presented therein and to
have been prepared in accordance with generally accepted accounting principals
consistently applied, subject to normal year end adjustments and except that no
footnotes need be included with such Financial Statements;
(ii) Annual Financial Statements. Within ninety (90) days after
the close of each fiscal year of the Company, (i) copies of the audited
Financial Statements of Company for such year, audited by nationally recognized
independent certified public accountants, (ii) copies of the unqualified
opinions and management letters delivered by such accountants in connection with
such Financial Statements, and (iii) a report containing a description of
projected business prospects (including capital expenditures) and management's
discussion and analysis of financial condition and results of operation of
Company and its Subsidiaries;
(iii) SEC Reports. At such time as the Company is subject to
the reporting requirement of the Exchange Act, as soon as possible and in no
event later than five (5) days after they are sent, made available or filed,
copies of all registration statements and reports filed by Company with the
Securities and Exchange Commission and all reports, proxy statements and
financial statements sent or made available by Company to its stockholders
generally; and
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<PAGE> 10
(iv) Notice of Defaults. Promptly upon the occurrence thereof,
written notice of the occurrence of any Event of Default hereunder or any event
of default with respect to any Senior Indebtedness.
(i) Inspection Rights. The Holder and its representatives shall
have the right, at any time during normal business hours, upon reasonable prior
notice, to visit and inspect the properties of the Company and its corporate,
financial and operating records, and make abstracts therefrom, and to discuss
the Company's affairs, finances and accounts with its directors, officers and
independent public accountants.
(j) Use of Proceeds. The Company shall use the proceeds from all
borrowings under this Note solely for (A) interim financing for capital
equipment prior to obtaining lease financing for such equipment, (B) leasehold
improvements, tooling and other fixed assets in an aggregate amount not to
exceed $5.3 million, (C) repayment of the Bridge Notes (as defined in the JTS
Disclosure Schedule) in the aggregate principal amount of $2,005,000, and (D)
working capital purposes.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Note and the other Transaction
Documents:
(a) Failure to Pay. The Company shall fail to pay (i) when due any
principal payment on the due date hereunder or (ii) any interest or other
payment required under the terms of this Note or any other Transaction Document
on the date due and such payment shall not have been made within five (5) days
of Company's receipt of the Holder's written notice to Company of such failure
to pay; or
(b) Breaches of Certain Covenants. The Company or any of its
Subsidiaries shall fail to observe or perform any covenant, obligation,
condition or agreement set forth in Section 6(d), 6(f) or 6(j) of this Note; or
(c) Breaches of Other Covenants. The Company or any of its
Subsidiaries shall fail to observe or perform any other covenant, obligation,
condition or agreement contained in this Note or the other Transaction Documents
(other than those specified in Sections 7(a) and 7(b)) and (i) such failure
shall continue for fifteen (15) days, or (ii) if such failure does not result
from the payment of money or the failure to pay money and is not curable within
such fifteen (15) day period, but is reasonably capable of cure within
forty-five (45) days, either (A) such failure shall continue for forty-five (45)
days or (B) the Company or its Subsidiary shall not have commenced a cure in a
manner reasonably satisfactory to the Holder within the initial fifteen (15) day
period; or
(d) Representations and Warranties. Any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of the Company to the Holder in writing in connection with this Note
or any of the other Transaction Documents, or as an inducement to the Holder to
enter into this Note and the other Transaction Documents, shall be false,
incorrect,
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<PAGE> 11
incomplete or misleading in any respect when made or furnished, except any such
false, incorrect, incomplete or misleading statement which will not result in a
Material Adverse Effect on the Company; or
(e) Other Payment Obligations. Except pursuant to the Company's
Business Loan Agreement with Silicon Valley Bank and the capital equipment loan
from Venture Lending and Leasing, Inc., each as described in the JTS Disclosure
Schedule (as defined in the Merger Agreement), the Company or any of its
Subsidiaries shall (i)(A) fail to make any payment when due under the terms of
any bond, debenture, note or other evidence of Indebtedness, including the
Senior Indebtedness, to be paid by such Person (excluding this Note and the
other Transaction Documents but including any other evidence of Indebtedness of
Company or any of its Subsidiaries to the Holder) and such failure shall
continue beyond any period of grace provided with respect thereto, or (B)
default in the observance or performance of any other agreement, term or
condition contained in any such bond, debenture, note or other evidence of
Indebtedness, and (ii) the effect of such failure or default is to cause, or
permit the holder or holders thereof to cause, Indebtedness in an aggregate
amount of Two Hundred Fifty Thousand Dollars ($250,000) or more to become due
prior to its stated date of maturity, unless such acceleration shall have been
rescinded and such failure to pay cured within thirty (30) days from the date of
such acceleration; or
(f) Voluntary Bankruptcy or Insolvency Proceedings. The Company or
any of its Subsidiaries shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial
part of its property, (ii) be unable, or admit in writing its inability, to pay
its debts generally as they mature, (iii) make a general assignment for the
benefit of its or any of its creditors, (iv) be dissolved or liquidated in full
or in part, (v) become insolvent (as such term may be defined or interpreted
under any applicable statute), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or
(g) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or any of its Subsidiaries or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or any
of its Subsidiaries or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged within
sixty (60) days of commencement; or
(h) Judgments. A final judgment or order for the payment of money
in excess of Two Hundred Fifty Thousand Dollars ($250,000) (exclusive of amounts
covered by insurance issued by an insurer not an affiliate of Company) shall be
rendered against the Company or any of its Subsidiaries and the same shall
remain undischarged for a period of thirty (30) days during which execution
shall not be effectively stayed, or any judgment, writ, assessment, warrant of
attachment, or execution or similar process shall be issued or levied against a
substantial part of the property of the Company or any of its
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<PAGE> 12
Subsidiaries and such judgment, writ, or similar process shall not be released,
stayed, vacated or otherwise dismissed within thirty (30) days after issue or
levy; or
(i) Transaction Documents. Any Transaction Document (other than the
Merger Agreement) or any material term thereof shall cease to be, or be asserted
by the Company not to be, a legal, valid and binding obligation of Company
enforceable in accordance with its terms or if the Liens of the Holder in any of
the assets of Company or its Subsidiaries shall cease to be or shall not be
valid and perfected Liens or the Company or any Subsidiary shall assert that
such Liens are not valid and perfected Liens.
8. RIGHTS OF HOLDER UPON DEFAULT. Upon the occurrence or existence of
any Event of Default (other than an Event of Default referred to in
Sections 7(f) and 7(g)) and at any time thereafter during the continuance of
such Event of Default, the Holder may, by written notice to the Company, declare
all outstanding Obligations payable by the Company hereunder to be immediately
due and payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived, anything contained herein or in
the other Transaction Documents to the contrary notwithstanding. Upon the
occurrence or existence of any Event of Default described in Sections 7(f) and
7(g), immediately and without notice, all outstanding Obligations payable by
Company hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the other
Transaction Documents to the contrary notwithstanding. In addition to the
foregoing remedies, upon the occurrence or existence of any Event of Default,
the Holder may exercise any other right, power or remedy granted to it by the
Transaction Documents or otherwise permitted to it by law, either by suit in
equity or by action at law, or both.
9. SUBORDINATION. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of the Senior Indebtedness.
(a) Insolvency Proceedings. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of the
Company, (i) no amount shall be paid by the Company in respect of the principal
of, interest on or other amounts due with respect to this Note at the time
outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof
of claim shall be filed with the Company by or on behalf of Holder of this Note
which shall assert any right to receive any payments in respect of the principal
of and interest on this Note except subject to the payment in full of the
principal of and interest on all of the Senior Indebtedness then outstanding.
(b) Default on Senior Indebtedness. If there shall occur an event
of default which has been declared in writing with respect to any Senior
Indebtedness, as defined therein, or in the instrument under which it is
outstanding, permitting the holder to accelerate the maturity thereof and the
Holder shall have received written notice thereof from the holder of such Senior
Indebtedness, then, unless and until
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<PAGE> 13
such event of default shall have been cured or waived or shall have ceased to
exist, or all Senior Indebtedness shall have been paid in full, no payment shall
be made in respect of the principal of or interest on this Note, unless within
one hundred eighty (180) days after the happening of such event of default, the
maturity of such Senior Indebtedness shall not have been accelerated. Not more
than one notice may be given to Holder pursuant to the terms of this Section
9(b) during any 360 day period.
(c) Further Assurances. By acceptance of this Note, the Holder
agrees to execute and deliver customary forms of subordination agreement
requested from time to time by holders of Senior Indebtedness, and as a
condition to the Holder's rights hereunder, the Company may require that the
Holder execute such forms of subordination agreement; provided that such forms
shall not impose on the Holder terms less favorable than those provided herein
and in the Security Agreement.
(d) Other Indebtedness. No indebtedness which does not constitute
Senior Indebtedness shall be senior in any respect to the indebtedness
represented by this Note.
(e) Subrogation. Subject to the payment in full of all Senior
Indebtedness, the Holder shall be subrogated to the rights of the holder(s) of
such Senior Indebtedness (to the extent of the payments or distributions made to
the holder(s) of such Senior Indebtedness pursuant to the provisions of this
Section 9) to receive payments and distributions of assets of the Company
applicable to the Senior Indebtedness. No such payments or distributions
applicable to the Senior Indebtedness shall, as between the Company and its
creditors, other than the holders of Senior Indebtedness and the Holder, be
deemed to be a payment by the Company to or on account of this Note; and for
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness to which the Holder would be entitled except for the
provisions of this Section 9 shall, as between the Company and its creditors,
other than the holders of Senior Indebtedness and the Holder, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness.
(f) No Impairment. Subject to the rights, if any, of the holders of
Senior Indebtedness under this Section 9 to receive cash, securities or other
properties otherwise payable or deliverable to the Holder, nothing contained in
this Section 9 shall impair, as between the Company and the Holder, the
obligation of the Company, subject to the terms and conditions hereof, to pay to
the Holder the principal hereof and interest hereon as and when the same become
due and payable, or shall prevent the Holder, upon default hereunder, from
exercising all rights, powers and remedies otherwise provided herein or by
applicable law.
(g) Lien Subordination. Any Lien of the Holder, whether now or
hereafter existing in connection with the amounts due under this Note, on any
assets or property of the Company or any proceeds or revenues therefrom which
the Holder may have at any time as security for any amounts due and obligations
under this Note shall be subordinate to all Liens now or hereafter granted to a
holder of Senior Indebtedness by Company or by law, notwithstanding the date,
order or method of attachment or perfection of any such Lien or the provisions
of any applicable law.
(h) Reliance of Holders of Senior Indebtedness. The Holder, by its
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are
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<PAGE> 14
intended to be, an inducement to and a consideration of each holder of Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before or
after the creation of the indebtedness evidenced by this Note, and each such
holder of Senior Indebtedness shall be deemed conclusively to have relied on
such subordination provisions in acquiring and holding, or in continuing to
hold, such Senior Indebtedness.
10. CONVERSION.
(a) Conversion by Holder. In the event that the Merger Agreement is
terminated pursuant to Section 8(a), 8(b) or 8(d) (i) through 8(d)(iv) thereof
or upon the occurrence of an Event of Default hereunder, then from and after
such date, the Holder shall have the right, at such Holder's option, at any time
prior to payment in full of the principal balance of this Note, to convert this
Note, in accordance with the provisions of Section 10(c) hereof, in whole or in
part, into fully paid and nonassessable shares of Series A Preferred, provided
that the Holder shall provide at least thirty (30) days notice to the Company of
Holder's election to convert this Note into shares of Series A Preferred upon
the occurrence of an Event of Default. The number of shares of Series A
Preferred into which this Note may be converted shall be determined by dividing
the aggregate amount of this Note to be converted by the Conversion Price (as
defined below) in effect at the time of such conversion. The initial "Conversion
Price" shall be equal to $1.00 per share. The Conversion Price shall be subject
to adjustment from time to time pursuant to Section 12 hereof and the terms of
the Company's Certificate.
(b) Conversion by the Company. In the event that the Merger
Agreement is terminated pursuant to Section 8(c), 8(d)(v) or 8(d)(vi) thereof,
the Company shall have the right, at the Company's option, to convert this Note,
in accordance with the provisions of Section 10(c) hereof, in whole or in part,
into fully paid and nonassessable shares of Series A Preferred. The number of
shares of Series A Preferred into which this Note may be converted shall be
determined by dividing the aggregate amount of this Note to be converted by the
Conversion Price in effect at the time of such conversion.
(c) Conversion Procedure.
(i) Conversion Pursuant to Section 10(a). Before the Holder
shall be entitled to convert this Note into shares of Series A Preferred, it
shall surrender this Note, duly endorsed, at the office of the Company and shall
give written notice, postage prepaid, to the Company at its principal corporate
office, of the election to convert the same pursuant to Section 10(a), and shall
state therein the amount of the unpaid principal amount of this Note to be
converted and the name or names in which the certificate or certificates for
shares of Series A Preferred are to be issued. The Company shall, as soon as
practicable thereafter (but in any event within ten (10) days thereafter), issue
and deliver to the Holder of this Note a certificate or certificates for the
number of shares of Series A Preferred to which the Holder shall be entitled
upon conversion (bearing such legends as are required by applicable state and
federal securities laws), together with a replacement Note (if any principal
amount is not converted) and any other securities and property to which the
Holder is entitled upon such conversion under the terms of this Note, including
a check payable to Holder for any cash amounts payable as described in
Section 10(d). The conversion shall be deemed to have been made immediately
prior to the close of business on the date
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<PAGE> 15
of the surrender of this Note, and the Person or Persons entitled to receive the
shares of Series A Preferred upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Series A Preferred as
of such date.
(ii) Conversion Pursuant to Section 10(b). If this Note is
converted by the Company pursuant to Section 10(b), written notice shall be
delivered to the Holder notifying the Holder of the conversion to be effected,
specifying the Conversion Price, the principal amount of the Note to be
converted, the date on which such conversion is expected to occur and calling
upon such Holder to surrender to Company, in the manner and at the place
designated, the Note. Upon such conversion of this Note, the Holder shall
surrender this Note, duly endorsed, at the principal office of Company. At its
expense, the Company shall, as soon as practicable thereafter (but in any event
within ten (10) days thereafter), issue and deliver to such Holder a certificate
or certificates for the number of shares to which Holder shall be entitled upon
such conversion (bearing such legends as are required by applicable state and
federal securities laws), together with any other securities and property to
which the Holder is entitled upon such conversion under the terms of this Note,
including a check payable to the Holder for any cash amounts payable as
described in Section 10(d). Any conversion of this Note pursuant to
Section 10(b) shall be deemed to have been made immediately prior to the closing
of the issuance and sale of shares as described in Section 10(b) and on and
after such date the Person entitled to receive the shares issuable upon such
conversion shall be treated for all purpose as the record Holder of such shares
as of such date.
(d) Fractional Shares; Interest; Effect of Conversion. No
fractional shares shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to the Holder upon the conversion of this
Note, the Company shall pay to the Holder an amount equal to the product
obtained by multiplying the Conversion Price by the fraction of a share not
issued pursuant to the previous sentence. In addition, the Company shall pay to
the Holder any interest accrued on the amount converted and on the amount to be
paid to the Company pursuant to the previous sentence. Upon conversion of this
Note in full and the payment of the amounts specified in this Section 10(d), the
Company shall be forever released from all its obligations and liabilities under
this Note.
11. ISSUANCES OF WARRANTS. In the event that the Holder elects to
convert all or any portion of this Note into shares of Series A Preferred
pursuant to Section 10(a) hereof, or in the event the Company elects to convert
all or any portion of this Note into shares of Series A Preferred pursuant to
Section 10(b) hereof the Company hereby agrees to issue to the Holder warrants
to purchase shares of Series A Preferred (the "Warrant") as set forth below:
(a) No Warrant shall be issued if the principal amount of this Note
to be converted together with any principal amount of this Note previously
converted is less than $5,000,001.
(b) If the principal amount of this Note to be converted together
with any principal amount of this Note previously converted is more than
$5,000,000, the Company shall issue to the Holder concurrent with the issuance
of the shares of Series A Preferred to be issued upon such conversion, a Warrant
to purchase up to 7,500,000 shares of Series A Preferred. The number of shares
subject to the first Warrant to be issued shall be determined by multiplying
7,500,000 times a fraction, the numerator
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<PAGE> 16
of which is the amount by which the aggregate principal amount to be converted
exceeds $5,000,000 and the denominator of which is $20,000,000. The number of
shares subject to any subsequent Warrant to be issued shall be determined by
multiplying 7,500,000 times a fraction, the numerator of which is the aggregate
principal amount to be converted and the denominator of which is $20,000,000.
(c) Each Warrant to be issued by the Company pursuant to this
Section 11 shall have an exercise price of $2.00 per share, a term of five (5)
years and such other terms as are set forth in the form of Warrant attached
hereto as Exhibit A.
(d) The shares of Series A Preferred issuable upon the exercise of
any Warrants issued pursuant to this Section 11 shall be entitled to
registration rights which are pari passu with the registration rights held by
the holders of the Company's Series A Preferred Stock.
12. CONVERSION PRICE ADJUSTMENTS.
(a) Adjustments for Stock Splits and Subdivisions. In the event the
Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Series A Preferred or the determination of holders of
Series A Preferred entitled to receive a dividend or other distribution payable
in additional shares of Series A Preferred or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Series A Preferred (hereinafter referred to as
"Series A Preferred Equivalents") without payment of any consideration by such
holder for the additional shares of Series A Preferred or the Series A Preferred
Equivalents (including the additional shares of Series A Preferred issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of this Note shall be appropriately decreased so that the
number of shares of Series A Preferred issuable upon conversion of this Note
shall be increased in proportion to such increase of outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of shares
of Series A Preferred outstanding at any time after the date hereof is decreased
by a combination of the outstanding shares of Series A Preferred, then,
following the record date of such combination, the Conversion Price for this
Note shall be appropriately increased so that the number of shares of Series A
Preferred issuable on conversion hereof shall be decreased in proportion to such
decrease in outstanding shares.
(c) Conversion or Redemption of Series A Preferred Stock. Should
all of Company's Series A Preferred Stock be, or if outstanding would be, at any
time prior to full payment of this Note, redeemed or converted into shares of
Company's Common Stock in accordance with the Certificate, then this Note shall
immediately become convertible into that number of shares of Company's Common
Stock equal to the number of shares of the Common Stock that would have been
received if this Note had been converted in full and the Series A Preferred
Stock received thereupon had been simultaneously converted immediately prior to
such event, and the Conversion Price shall be immediately adjusted to equal the
quotient obtained by dividing (x) the aggregate Conversion Price of the maximum
number of shares of Series A Preferred Stock into which this Note was
convertible immediately prior to such conversion or
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<PAGE> 17
redemption, by (y) the number of shares of Common Stock for which this Note is
convertible immediately after such conversion or redemption.
(d) Notices of Record Date, etc. In the event of:
(i) Any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as that of the last such cash
dividend theretofore paid) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(ii) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to any other
Person or any consolidation or merger involving the Company; or
(iii) Any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, the Company will mail to Holder of this Note at least
ten (10) days prior to the earliest date specified therein, a notice specifying
(A) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right; and (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding-up is expected to become effective and the record date for determining
stockholders entitled to vote thereon.
(e) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Series A Preferred solely for the purpose of effecting the conversion
of this Note such number of its shares of Series A Preferred (and shares of its
Common Stock for issuance on conversion of such Series A Preferred) as shall
from time to time be sufficient to effect the conversion of the Note; and if at
any time the number of authorized but unissued shares of Series A Preferred (and
shares of its Common Stock for issuance on conversion of such Series A
Preferred) shall not be sufficient to effect the conversion of the entire
outstanding principal amount of this Note, without limitation of such other
remedies as shall be available to the holder of this Note, the Company will use
its best efforts to take such corporate action as may, in the opinion of
counsel, be necessary to increase its authorized but unissued shares of Series A
Preferred (and shares of its Common Stock for issuance on conversion of such
Series A Preferred) to such number of shares as shall be sufficient for such
purposes.
13. Successors and Assigns. Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by the Company without the prior written consent
of the Holder or, prior to the termination of the Merger Agreement, by the
Holder without the prior written consent of the Company. Subject to the
foregoing and the
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<PAGE> 18
restrictions on transfer described in Section 15 below, the rights and
obligations of the Company and the Holder shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the parties.
14. WAIVER AND AMENDMENT. Any provision of this Note may be amended,
waived or modified upon the written consent of the Company and the Holder.
15. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF.
With respect to any offer, sale or other disposition of this Note or any
securities into which this Note may be converted, the Holder will give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of the Holder's counsel, to the effect that such
offer, sale or other distribution may be effected without registration or
qualification under any federal or state law then in effect. Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested and subject to Section 13, the Company, as promptly as practicable,
shall notify the Holder that the Holder may sell or otherwise dispose of this
Note or such securities, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant to this
Section 15 that the opinion of counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Each Note thus transferred and each
certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Act, unless in the opinion of counsel for the Company such legend is
not required in order to ensure compliance with the Act. The Company may issue
stop transfer instructions to its transfer agent in connection with such
restrictions.
16. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery, addressed
(i) if to the Holder, at such Holder's address set forth at the end of this
Agreement, or at such other address as such Holder shall have furnished the
Company in writing, or (ii) if to the Company, at its address set forth at the
end of this Agreement, or at such other address as the Company shall have
furnished to the Holder in writing. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given when received.
17. PAYMENT. Payment shall be made in lawful tender of the United
States.
18. DEFAULT RATE; Usury. During any period in which an Event of
Default has occurred and is continuing, the Company shall pay interest on the
unpaid principal balance hereof at a rate per annum equal to the rate otherwise
applicable hereunder plus two percent (2%). In the event any interest is paid on
this Note which is deemed to be in excess of the then legal maximum rate, then
that portion of the interest payment representing an amount in excess of the
then legal maximum rate shall be deemed a payment of principal and applied
against the principal of this Note.
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<PAGE> 19
19. EXPENSES; WAIVERS. If action is instituted to collect this Note,
the Company promises to pay all costs and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred in connection with
such action. The Company hereby waives notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor and all other notices
or demands relative to this instrument. The Company shall pay on demand all
reasonable fees and expenses, including reasonable attorneys' fees and expenses,
incurred by the Holder with respect to the enforcement or attempted enforcement
of any of the obligations of the Company to the Holder under the Transaction
Documents or in preserving any of the Holder's rights and remedies (including,
without limitation, all such fees and expenses incurred in connection with any
"workout" or restructuring affecting the Transaction Documents or the
obligations thereunder or any bankruptcy or similar proceeding involving Company
or any of its Subsidiaries).
20. FINANCING STATEMENTS. The Company agrees to execute all UCC-1
financing statements and other documents and instruments which the Holder may
reasonably request to perfect its security interest in the collateral described
in the Security Agreement.
21. REPLACEMENT NOTE. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note and (a) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it; or (b) in the case of
mutilation, upon surrender thereof; the Company, at its expense, will execute
and deliver in lieu thereof a new Note executed in the same manner as the Note
being replaced, in the same principal amount as the unpaid principal amount of
such Note and dated the date to which interest shall have been paid on such Note
or, if no interest shall have yet been so paid, dated the date of such Note.
22. GOVERNING LAW. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the State of California, without regard to the conflicts of law
provisions of the State of California or of any other state.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as
of the date first written above.
JT STORAGE, INC.
a Delaware corporation
By: /s/ D.T. Mitchell
-----------------------------
Title:
--------------------------
Accepted and Agreed to:
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<PAGE> 20
ATARI CORPORATION
a Nevada corporation
By: /s/ Sam Tramiel
-------------------------------
Title: President
----------------------------
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<PAGE> 21
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of February 12, 1996, is executed by
JT Storage, Inc., a Delaware corporation ("Debtor"), in favor of Atari
Corporation, a Nevada corporation ("Secured Party").
RECITALS
A. Debtor has executed a Subordinated Secured Convertible
Promissory Note (the "Note") in favor of Secured Party. Terms not otherwise
defined herein shall have the meanings given to such terms in the Note.
B. In order to induce Secured Party to extend the credit
evidenced by the Note, Debtor has agreed to enter into this Security Agreement
and to grant Secured Party the security interest in the Collateral described
below.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:
1. Definitions and Interpretation. When used in this Security
Agreement, the following terms shall have the following respective meanings:
"Account Debtor" shall have the meaning given to that term in
Section 3 hereof.
"Collateral" shall have the meaning given to that term in
Section 2 hereof.
"Equipment" shall have the meaning given to that term in
Attachment 1 hereto.
"Inventory" shall have the meaning given to that term in
Attachment 1 hereto.
"Obligations" shall mean and include all loans, advances,
debts, liabilities and obligations, howsoever arising, owed by Debtor
to the Secured Party of every kind and description (whether or not
evidenced by any note or instrument and whether or not for the payment
of money), now existing or hereafter arising under or pursuant to the
terms of the Note and the other Transaction Documents, including, all
interest, fees, charges, expenses, reasonable attorneys' fees and costs
and accountants' fees and costs chargeable to and payable by Debtor
hereunder and thereunder, in each case, whether direct or indirect,
absolute or contingent, due or to become due, and whether or not
arising after the commencement of a proceeding under Title 11 of the
United States Code (11 U.S.C. Section 101 et seq.), as amended from
time to time (including post-petition interest) and whether or not
allowed or allowable as a claim in any such proceeding.
"Receivables" shall have the meaning given to that term in
Attachment 1 hereto.
<PAGE> 22
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of California from time to time.
All capitalized terms not otherwise defined herein shall have the respective
meanings given in the Note. Unless otherwise defined herein, all terms defined
in the UCC shall have the respective meanings given to those terms in the UCC.
2. Grant of Security Interest. As security for the Obligations,
Debtor hereby pledges and assigns to Secured Party and grants to Secured Party a
security interest in all right, title and interests of Debtor in and to the
property described in Attachment 1 hereto (collectively and severally, the
"Collateral"), which Attachment 1 is incorporated herein by this reference.
3. Representations and Warranties. Debtor represents and warrants
to Secured Party that (a) Debtor is the owner of the Collateral (or, in the case
of after-acquired Collateral, at the time Debtor acquires rights in the
Collateral, will be the owner thereof) and that no other Person has (or, in the
case of after-acquired Collateral, at the time Debtor acquires rights therein,
will have) any right, title, claim or interest (by way of Lien or otherwise) in,
against or to the Collateral, other than Permitted Liens; (b) Secured Party has
(or in the case of after-acquired Collateral, at the time Debtor acquires rights
therein, will have) a perfected security interest in the Collateral to the
extent that Lien can be perfected by the filing of a UCC-1 financing statement,
except for Permitted Liens; (c) all Inventory has been (or, in the case of
hereafter produced Inventory, will be) produced in compliance with applicable
laws, including the Fair Labor Standards Act; (d) each Receivable is genuine and
enforceable against the party obligated to pay the same (an "Account Debtor");
and (e) all information set forth in Attachment 2 hereto, when delivered, shall
be true and correct.
4. Covenants Relating to Collateral. Debtor hereby agrees from
time to time (a) to perform all acts that may be necessary to maintain,
preserve, protect and perfect the Collateral, the Lien granted to Secured Party
therein and the first priority of such Lien, except for Permitted Liens; (b) not
to use or permit any Collateral to be used (i) in violation of any provision of
any Transaction Document, (ii) in violation of any applicable law, rule or
regulation, or (iii) in violation of any policy of insurance covering the
Collateral; (c) to pay promptly when due all taxes and other governmental
charges, all Liens and all other charges now or hereafter imposed upon or
affecting any Collateral except for the Permitted Liens; (d) without prior
written notice to Secured Party, (i) not to change Debtor's name or place of
business (or, if Debtor has more than one place of business, its chief executive
office), or the office in which Debtor's records relating to Receivables are
kept, (ii) not to keep Collateral consisting of chattel paper at any location
other than its chief executive office set forth in item 1 of Attachment 2
hereto, and (iii) not to keep Collateral consisting of Equipment or Inventory at
any location other than the locations set forth in item 6 of Attachment 2
hereto, (e) to deposit, or cause to be deposited, all remittances and checks
received with respect to Receivables to an account of Debtor at a bank or other
depository institution which has been given notice of Secured Party's security
interest in such account in substantially the form of the Notice of Security
Interest which is attached hereto as Attachment 3, and in which account Secured
Party has a perfected security interest; (f) to procure, execute and deliver
from time to time any endorsements, assignments, financing statements and other
writings reasonably deemed necessary or appropriate by Secured Party to perfect,
maintain and protect its Lien hereunder and the priority thereof and, at Secured
Party's request, to deliver promptly to Secured Party all originals of
Collateral consisting of instruments other than negotiable instruments received
in the ordinary course of business; (g) to appear in and defend any action or
proceeding which may affect its title to or Secured Party's interest in the
Collateral; (h) if Secured Party gives value to enable Debtor to acquire rights
in or the use of any Collateral, to use such value for such purpose; (i) to keep
separate, accurate and complete records of the Collateral and to provide Secured
Party with such records and such other reports and information relating to the
Collateral as Secured Party may
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<PAGE> 23
reasonably request from time to time; (j) except as permitted under the terms of
the Note, not to surrender or lose possession of (other than to Secured Party),
sell, encumber, lease, rent, or otherwise dispose of or transfer any Collateral
or right or interest therein, and to keep the Collateral free of all Liens
except Permitted Liens; (k) upon request by Secured Party, to type, print or
stamp conspicuously on the face of all original copies of all Collateral
consisting of chattel paper a legend satisfactory to Secured Party indicating
that such chattel paper is subject to the security interest granted hereby; (m)
to collect, enforce and receive delivery of the Receivables in accordance with
past practice until otherwise notified by Secured Party; (n) to comply with all
material requirements of law relating to the production, possession, operation,
maintenance and control of the Collateral (including the Fair Labor Standards
Act); and (o) to complete and deliver Attachment 2 to Secured Party as promptly
as practicable after the date hereof, and in any event within ten (10) days
following the date hereof.
5. Authorized Action by Agent. Debtor hereby irrevocably appoints
Secured Party as its attorney-in-fact and agrees that Secured Party may perform
(but Secured Party shall not be obligated to and shall incur no liability to
Debtor or any third party for failure so to do) any act which Debtor is
obligated by this Security Agreement to perform, and to exercise such rights and
powers as Debtor might exercise with respect to the Collateral, including the
right to (a) collect by legal proceedings or otherwise and endorse, receive and
receipt for all dividends, interest, payments, proceeds and other sums and
property now or hereafter payable on or on account of the Collateral; (b) enter
into any extension, reorganization, deposit, merger, consolidation or other
agreement pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for the Collateral; (c) insure, process and preserve the
Collateral; (d) make any compromise or settlement, and take any action it deems
advisable, with respect to the Collateral; (e) pay any Indebtedness of Debtor
relating to the Collateral; and (f) execute UCC financing statements and other
documents, instruments and agreements required hereunder; provided, however,
that Secured Party shall not exercise any such powers prior to the occurrence of
an Event of Default and shall only exercise such powers during the continuance
of an Event of Default. Debtor agrees to reimburse Secured Party upon demand for
any reasonable costs and expenses, including reasonable attorneys' fees, Secured
Party may incur while acting as Debtor's attorney-in-fact hereunder, all of
which costs and expenses are included in the Obligations. It is further agreed
and understood between the parties hereto that such care as Secured Party gives
to the safekeeping of its own property of like kind shall constitute reasonable
care of the Collateral when in Secured Party's possession; provided, however,
that Secured Party shall not be required to make any presentment, demand or
protest, or give any notice and need not take any action to preserve any rights
against any prior party or any other person in connection with the Obligations
or with respect to the Collateral.
6. Default and Remedies. Debtor shall be deemed in default under
this Security Agreement upon the occurrence and during the continuance of an
Event of Default (as defined in the Note). Upon the occurrence and during the
continuance of any such Event of Default, Secured Party shall have the rights of
a secured creditor under the UCC, all rights granted by this Security Agreement
and by law, including the right to: (a) require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party; and (b) prior to the disposition of the Collateral, store,
process, repair or recondition it or otherwise prepare it for disposition in any
manner and to the extent Secured Party deems appropriate and in connection with
such preparation and disposition, without charge, use any trademark, trade name,
copyright, patent or technical process used by Debtor. Debtor hereby agrees that
ten (10) days' notice of any intended sale or disposition of any Collateral is
reasonable. In furtherance of Secured Party's rights hereunder, Debtor hereby
grants to Secured Party an irrevocable, non-exclusive license (exercisable
without royalty or other payment by Secured Party, but only in connection with
the exercise of remedies hereunder) to use, license or sublicense any patent,
trademark, trade name, copyright or other intellectual property in which
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<PAGE> 24
Debtor now or hereafter has any right, title or interest together with the right
of access to all media in which any of the foregoing may be recorded or stored.
7. Miscellaneous.
(a) Notices. Except as otherwise provided herein, all
notices, requests, demands, consents, instructions or other communications to or
upon Debtor or Secured Party under this Security Agreement shall be by telecopy
or in writing and telecopied, mailed or delivered to each party at telecopier
number or its address set forth below (or to such other telecopy number or
address as the recipient of any notice shall have notified the other in
writing). All such notices and communications shall be effective (a) when sent
by Federal Express or other overnight service of recognized standing, on the
Business Day following the deposit with such service; (b) when mailed, by
registered or certified mail, first class postage prepaid and addressed as
aforesaid through the United States Postal Service, upon receipt; (c) when
delivered by hand, upon delivery; and (d) when telecopied, upon confirmation of
receipt.
Secured Party: Atari Corporation
1196 Borregas Avenue
Sunnyvale, CA 94089-1302
Attn: Jack Tramiel
Telephone No.: (408) 745-2000
Telecopier No.: (408) 745-8800
Debtor: JT Storage, Inc.
166 Baypointe Parkway
San Jose, CA 95134
Attn: David T. Mitchell
Telephone No.: (408) 468-1800
Telecopier No.: (408) 468-1619
(b) Nonwaiver. No failure or delay on Secured Party's
part in exercising any right hereunder shall operate as a waiver thereof or of
any other right nor shall any single or partial exercise of any such right
preclude any other further exercise thereof or of any other right.
(c) Amendments and Waivers. This Security Agreement may
not be amended or modified, nor may any of its terms be waived, except by
written instruments signed by Debtor and Secured Party. Each waiver or consent
under any provision hereof shall be effective only in the specific instances for
the purpose for which given.
(d) Assignments. This Security Agreement shall be binding
upon and inure to the benefit of Secured Party and Debtor and their respective
successors and assigns; provided, however, that Debtor may not sell, assign or
delegate its rights and obligations hereunder without the prior written consent
of Secured Party, and prior to the termination of the Merger Agreement, Secured
Party may not sell, assign, or delegate its rights and obligations hereunder
without the written consent of Debtor.
(e) Cumulative Rights, etc. The rights, powers and
remedies of Secured Party under this Security Agreement shall be in addition to
all rights, powers and remedies given to Secured Party by virtue of any
applicable law, rule or regulation of any Governmental Authority, any
Transaction Document or any other agreement, all of which rights, powers, and
remedies shall be cumulative and may be exercised successively or
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<PAGE> 25
concurrently without impairing Secured Party's rights hereunder. Debtor waives
any right to require Secured Party to proceed against any Person or to exhaust
any Collateral or to pursue any remedy in Secured Party's power.
(f) Payments Free of Taxes, Etc. All payments made by
Debtor under this Security Agreement shall be made by Debtor free and clear of
and without deduction for any and all present and future taxes, levies, charges,
deductions and withholdings. In addition, Debtor shall pay upon demand any stamp
or other taxes, levies or charges of any jurisdiction with respect to the
execution, delivery, registration, performance and enforcement of this Security
Agreement. Upon request by Secured Party, Debtor shall furnish evidence
satisfactory to Secured Party that all requisite authorizations and approvals
by, and notices to and filings with, governmental authorities and regulatory
bodies have been obtained and made and that all requisite taxes, levies and
charges have been paid.
(g) Partial Invalidity. If at any time any provision of
this Security Agreement is or becomes illegal, invalid or unenforceable in any
respect under the law or any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions of this Security Agreement nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
(h) Expenses. Debtor shall pay on demand all reasonable
fees and expenses, including reasonable attorneys' fees and expenses, incurred
by Secured Party in connection with custody, preservation or sale of, or other
realization on, any of the Collateral or the enforcement or attempt to enforce
any of the Obligations which is not performed as and when required by this
Security Agreement.
(i) Headings. Headings in this Security Agreement and
each of the other Transaction Documents are for convenience of reference only
and are not part of the substance hereof or thereof.
(j) Plural Terms. All terms defined in this Security
Agreement or any other Transaction Document in the singular form shall have
comparable meanings when used in the plural form and vice versa.
(k) Construction. Each of this Security Agreement and the
other Transaction Documents is the result of negotiations among, and has been
reviewed by, Debtor, Secured Party and their respective counsel. Accordingly,
this Security Agreement and the other Transaction Documents shall be deemed to
be the product of all parties hereto, and no ambiguity shall be construed in
favor of or against Debtor or Secured Party.
(l) Entire Agreement. This Security Agreement and each of
the other Transaction Documents, taken together, constitute and contain the
entire agreement of Debtor and Secured Party and supersede any and all prior
agreements, negotiations, correspondence, understandings and communications
among the parties, whether written or oral, respecting the subject matter
hereof.
(m) Other Interpretive Provisions. References in this
Security Agreement and each of the other Transaction Documents to any document,
instrument or agreement (a) shall include all exhibits, schedules and other
attachments thereto, (b) shall include all documents, instruments or agreements
issued or executed in replacement thereof, and (c) shall mean such document,
instrument or agreement, or replacement or predecessor thereto, as amended,
modified and supplemented from time to time and in effect at any given time. The
words "hereof," "herein" and "hereunder" and words of similar import when used
in this Security Agreement or any other Transaction Document shall refer to this
Security Agreement or such other
-5-
<PAGE> 26
Transaction Document, as the case may be, as a whole and not to any particular
provision of this Security Agreement or such other Transaction Document, as the
case may be. The words "include" and "including" and words of similar import
when used in this Security Agreement or any other Transaction Document shall not
be construed to be limiting or exclusive.
(n) Governing Law. This Security Agreement shall be
governed by and construed in accordance with the laws of the State of California
without reference to conflicts of law rules (except to the extent governed by
the UCC).
(o) Jury Trial. EACH OF DEBTOR AND SECURED PARTY, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT.
IN WITNESS WHEREOF, Debtor has caused this Security Agreement
to be executed as of the day and year first above written.
JT STORAGE, INC.,
a Delaware corporation
By: /s/ D. T. Mitchell
-------------------------
Name:
Title:
AGREED:
ATARI CORPORATION,
a Nevada corporation
By: /s/ Sam Tramiel
--------------------------
Name:
Title:
-6-
<PAGE> 27
ATTACHMENT 1
TO SECURITY AGREEMENT
All right, title and interest of Debtor now owned or hereafter acquired
in and to the following:
(a) All equipment and fixtures (including, without limitation,
furniture, vehicles and other machinery and office equipment), together with all
additions and accessions thereto and replacements therefor (collectively, the
"Equipment");
(b) All inventory (including, without limitation, (i) all raw
materials, work in process and finished goods and (ii) all such goods which are
returned to or repossessed by Debtor), together with all additions and
accessions thereto, replacements therefor, products thereof and documents
therefor (collectively, the "Inventory");
(c) All accounts, chattel paper, contract rights and rights to the
payment of money (collectively,
the "Receivables");
(d) All general intangibles, including, without limitation, (i)
customer and supplier lists and contracts, books and records, insurance
policies, tax refunds, contracts for the purchase of real or personal property;
(ii) all patents, copyrights, trademarks, trade names, service marks and other
intellectual property rights, (iii) all licenses to use, applications for, and
other rights to, such patents, copyrights, trademarks, trade names and service
marks, and (iv) all goodwill of Debtor;
(e) All deposit accounts, money, certificated securities (but
excluding securities of foreign Subsidiaries), uncertificated securities,
instruments and documents; and
(f) All proceeds of the foregoing (including, without limitation,
whatever is receivable or received when Collateral or proceeds is sold,
collected, exchanged, returned, substituted or otherwise disposed of, whether
such disposition is voluntary or involuntary, including rights to payment and
return premiums and insurance proceeds under insurance with respect to any
Collateral, and all rights to payment with respect to any cause of action
affecting or relating to the Collateral).
<PAGE> 28
ATTACHMENT 2
TO SECURITY AGREEMENT
DEBTOR PROFILE
1. The legal name of Debtor is and its the address of its chief executive
office is: JT Storage, Inc..
2. Debtor was incorporated on _____________, 19__ in the state of
Delaware. Since its incorporation Debtor has had the following legal
names (other than its current legal name):
Date Debtor's Name
Prior Name Was Changed From Such Name
---------- --------------------------
3. Debtor does business under the following trade names:
Trade Name Is This Name Registered? Registration No. Registration Date
---------- ------------------------ ---------------- -----------------
4. Since Debtor's incorporation the following companies have been merged
into Debtor (provide names, dates and brief description of
transactions):
5. The following assets of Debtor were acquired in a bulk sale or another
transaction not in the ordinary course of business of the seller
(provide description of collateral, date and description of
transaction, and name of seller):
<PAGE> 29
6. Debtor has the following places of business:
Brief Description
Address Owner of Location of Assets and Value
------- ----------------- -------------------
7. Debtor has assets at the following other locations that are not places
of business of Debtor:
Brief Description
Address Owner of Location of Assets and Value
------- ----------------- -------------------
8. The following locations listed in items 6 and 7 are public warehouses
issuing warehouse receipts:
Brief Description
Address Owner of Location of Assets and Value
------- ----------------- -------------------
9. Debtor had the following other locations within the past four months:
Brief Description
Address Owner of Location of Assets and Value
------- ----------------- -------------------
2-2
<PAGE> 30
10. Debtor imports assets from outside the United States through the
following ports of entry (list location by state and county):
11. The following Persons have possession of inventory of Debtor for the
purpose of processing or finishing it:
Name and Address Processing Services Description of Inventory
---------------- ------------------- ------------------------
12. Debtor is qualified to do business in the following states:
13. Does Debtor regularly receive letters of credit from customers to
secure payments of sums owed to Debtor? Yes ____. No ____ .
14. Debtor holds notes payable from the following persons:
Name of Obligor Amount
--------------- ------
15. Does Debtor regularly have accounts receivable due from, or contracts
with, the United States government or any agency or department thereof?
Yes ____. No ____.
2-3
<PAGE> 31
If yes, indicate the percentage of Debtor's total outstanding accounts
receivable that are due from the United States government or such
agency or department: _____%
16. Does Debtor regularly receive advance deposits from customers for goods
not yet delivered to such customers? Yes ____. No ____.
17. Debtor's federal employer identification number is: _________________
18. Debtor's assets are subject to the following security interest of
Persons other than the Secured Party:
Assets Name of Secured Party
------ ---------------------
19. The following tax assessments are currently outstanding and unpaid:
Assessing Amount and Description
--------- ----------------------
20. Debtor has directly or indirectly guaranteed the following obligations
of third parties:
Secured Party Amount Debtor
------------- ------ ------
21. Debtor owns the following material intellectual property rights
(including patents, trademarks and copyrights, whether or not
registered):
2-4
<PAGE> 32
22. The following is a list of all software or other copyrighted material
which is licensed to third parties and generates accounts receivable:
23. Debtor has the following subsidiaries (list jurisdiction and date of
incorporation, federal employer identification number, type and value
of assets):
2-5
<PAGE> 33
ATTACHMENT 3
TO SECURITY AGREEMENT
NOTICE OF SECURITY INTEREST
IN
DEPOSIT ACCOUNT
February __, 1996
[Name of Depositary Bank]
[Address of Depositary Bank]
____________________________
____________________________
JT Storage, Inc. ("Debtor") and Atari Corporation ("Secured Party"),
under that certain Security Agreement dated as of February __, 1996, executed by
Debtor in favor of Secured Party, hereby notify you that Debtor has granted to
Secured Party a security interest in all deposit accounts maintained by Debtor
with you including, without limitation, the deposit accounts described below:
Account Number Depositor's Name Account Type
-------------- ---------------- ------------
Debtor and Secured Party authorize you to continue to allow Debtor to make
deposits to, draw checks upon and otherwise withdraw funds from such deposit
accounts (the "Deposit Accounts") without the consent of Secured Party until
Secured Party shall instruct you otherwise.
Debtor has authorized Secured Party to inform you when an Event of
Default has occurred and is continuing and at such time instruct you to cease to
permit any further payments or withdrawals from the Deposit Accounts by Debtor
and/or to pay any or all amounts in the Deposit Accounts to Secured Party.
<PAGE> 34
Debtor authorizes and directs you to comply with all such instructions received
by you from Secured Party without further inquiry on your part and hereby agrees
to indemnify and hold harmless you and your officers, directors and employees
from and for any compliance by you with such instructions.
JT STORAGE, INC.
By: _____________________________
Name:
Title:
ATARI CORPORATION
By: _____________________________
Name:
Title:
3-2
<PAGE> 35
ACKNOWLEDGMENT AND AGREEMENT
OF DEPOSITARY BANK
The undersigned depositary bank hereby acknowledges receipt of the
above notice and agrees with Debtor and Secured Party to comply with any
instruction it may receive from Secured Party in accordance therewith. The
undersigned confirms to Secured Party that the information set forth above
regarding the Deposit Accounts is accurate, that such Deposit Accounts are
currently open and that the undersigned has no prior notice of any other
security interest, lien or interest in such Deposit Accounts.
_________________________________
By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE> 1
EXHIBIT 10.16
STOCK PURCHASE AGREEMENT
DATED AS OF APRIL 4, 1996
BETWEEN
LUNENBURG S.A.
AND
JT STORAGE, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
PURCHASE AND SALE OF HOLDING COMPANY STOCK . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale of Holding Company Stock . . . . . . . . . . . . 1
1.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
RELATING TO THE HOLDING COMPANY STOCK AND MODULER SHARES . . . . . . . . 2
2.1 Due Authorization and Execution . . . . . . . . . . . . . . . . . 2
2.2 Ownership of Stock . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Capitalization and Corporate Records. . . . . . . . . . . . . . . 2
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
RELATING TO THE PANAMA HOLDING COMPANIES AND MODULER . . . . . . . . . . 3
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Dividends and Distributions. . . . . . . . . . . . . . . . . . . . 3
3.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Financial Condition of the Panama Holding Companies. . . . . . . . 4
3.5 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 4
3.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . 4
3.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9 Consents, Violations and Authorizations . . . . . . . . . . . . . 5
3.10 Agreements, Contracts, Commitments and Leases . . . . . . . . . . 6
3.11 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.13 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . 8
3.14 Proprietary Property . . . . . . . . . . . . . . . . . . . . . . . 8
3.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . 9
3.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 9
3.18 Employees and Labor Contracts . . . . . . . . . . . . . . . . . . 9
3.19 Fees, Commissions and Expenses . . . . . . . . . . . . . . . . . . 10
3.20 Environmental Laws and Regulations. . . . . . . . . . . . . . . . 10
3.21 Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . 11
3.22 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 11
3.23 Conditions Affecting Moduler . . . . . . . . . . . . . . . . . . . 11
3.24 Acquisition for Investment . . . . . . . . . . . . . . . . . . . . 11
3.25 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Due Authorization and Execution . . . . . . . . . . . . . . . . . 12
4.2 Organization and Capitalization of the Buyer. . . . . . . . . . . 12
4.3 Financial Information . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Consents, Violations and Authorizations . . . . . . . . . . . . . 13
4.5 Fees, Commissions and Expenses . . . . . . . . . . . . . . . . . . 14
4.6 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . 14
4.7 Shareholder Agreements . . . . . . . . . . . . . . . . . . . . . . 14
4.8 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.9 Known Operations. . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING . . . . . . . . . . . . . . . . . . . 14
5.1 Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Mortgages, Liens and Other Encumbrances . . . . . . . . . . . . . 15
5.6 Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Material Agreements . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . 15
5.9 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10 No Stock Issuances . . . . . . . . . . . . . . . . . . . . . . . . 15
5.11 No Charter Amendments . . . . . . . . . . . . . . . . . . . . . . 15
5.12 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.13 Actions Taken at the Direction of Buyer . . . . . . . . . . . . . 16
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS
OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Representations and Warranties of the Seller . . . . . . . . . . . 16
6.2 Opinion of Counsel for the Seller . . . . . . . . . . . . . . . . 16
6.3 Absence of Litigation or Investigation . . . . . . . . . . . . . . 16
6.4 Requisite Approvals . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Representations and Warranties of the Buyer . . . . . . . . . . . 17
7.2 Opinion of Counsel for the Buyer . . . . . . . . . . . . . . . . . 17
7.3 Absence of Litigation or Investigation . . . . . . . . . . . . . . 17
7.4 Requisite Approvals . . . . . . . . . . . . . . . . . . . . . . . 17
7.5 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . 17
7.6 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII
SURVIVAL; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 Survival of Representations and Warranties and Related Agreements 17
8.2 General Indemnification . . . . . . . . . . . . . . . . . . . . . 18
8.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.4 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX
ADDITIONAL COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . 19
9.1 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Access by Buyer and Agents . . . . . . . . . . . . . . . . . . . . 19
9.3 Availability of Records to the Seller . . . . . . . . . . . . . . 19
ARTICLE X
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XI
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.2 Procedure Upon Termination . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XII
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.2 Certain Filings and Consents . . . . . . . . . . . . . . . . . . . 21
12.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 21
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.5 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
<S> <C>
12.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 22
12.7 Amendment and Modification . . . . . . . . . . . . . . . . . . . 22
12.8 Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . 22
12.9 Gender; Number . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.11 Arbitration of Disputes . . . . . . . . . . . . . . . . . . . . 23
12.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of April 4,
1996, is entered into between LUNENBURG S.A., a Panama corporation (the
"Seller"), and JT STORAGE, INC., a Delaware corporation (the "Buyer").
This Agreement sets forth the terms and conditions upon which the Seller
will sell to the Buyer, and the Buyer will purchase from the Seller, all of the
outstanding shares of capital stock of (1) Asperal Holdings, Inc., a Panama
corporation ("Asperal"), consisting of an aggregate of 500 shares of capital
stock (such shares of Asperal being sold pursuant to this Agreement being
sometimes herein referred to as the "Asperal Stock"), and (2) Dexar Holdings
Inc., a Panama corporation ("Dexar"), consisting of 500 shares of capital stock
(such shares of Dexar being sold pursuant to this Agreement being sometimes
herein referred to as the "Dexar Stock"). Asperal and Dexar are sometimes
herein collectively referred to as the "Panama Holding Companies," and the
Asperal Stock and Dexar Stock is sometimes herein referred to collectively as
the "Holding Company Stock."
In consideration of the mutual agreements contained herein, intending to
be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF HOLDING COMPANY STOCK
1.1 PURCHASE AND SALE OF HOLDING COMPANY STOCK. Subject to the terms
and conditions of this Agreement, at the Closing (as defined in Section 10.1),
the Seller agrees to sell, transfer, and deliver the Holding Company Stock to
the Buyer, and the Buyer agrees to purchase the Holding Company Stock from the
Seller.
1.2 CONSIDERATION. The consideration for the sale, assignment,
transfer and delivery of the Holding Company Stock to Buyer (the "Purchase
Price") shall be:
(a) 1,911,673 shares (the "JTS Shares") of the Series A Preferred
Stock, par value $.000001 per share (the "JTS Preferred"), of the Buyer;
(b) a warrant to purchase 750,000 shares of the Common Stock of
the Buyer (the "JTS Common Stock"), par value $.000001 per share, at an
exercise price of $0.25 per share, in the form of Exhibit A hereto and subject
to the terms and conditions thereof (the "JTS Warrant"); and
(c) Buyer's agreement not to compete set forth in Section 9.1
below.
1
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
RELATING TO THE HOLDING COMPANY STOCK AND MODULER SHARES
The Seller represents and warrants to and agrees with the Buyer that:
2.1 DUE AUTHORIZATION AND EXECUTION. The Seller has the necessary power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Seller and, assuming due execution and delivery by the Buyer,
constitutes a valid and binding obligation of the Seller enforceable against
Seller in accordance with its terms.
2.2 OWNERSHIP OF STOCK. The Seller is the lawful record and beneficial
owner of the Holding Company Stock. Asperal and Dexar are each the lawful
record and beneficial owner of 90,000 shares, rsp. 10/-, of Moduler Electronics
(India) Pvt. Ltd. ("Moduler"). Such shares of outstanding capital stock of
Moduler (being 180,000 shares in the aggregate and sometimes herein referred to
as the "Moduler Shares") presently constitute 90% of the outstanding capital
stock of Moduler, with the balance of the outstanding capital stock of Moduler
consisting of 20,000 shares of capital stock, rsp. 10/-, owned of record by the
persons identified in a schedule delivered by Seller to the Buyer prior to the
date hereof. All of the Holding Company Stock and the Moduler Shares are duly
and validly issued, fully paid and nonassessable, are free and clear of all
liens, encumbrances, security agreements, equities, options, charges,
restrictions and claims of every kind, and the Seller has full legal right,
power and authority to sell, transfer and deliver the Holding Company Stock in
accordance with the terms and subject to the conditions of this Agreement. The
delivery to the Buyer of the Holding Company Stock pursuant to this Agreement
will transfer to the Buyer valid title thereto, free and clear of any and all
liens and adverse claims.
2.3 CAPITALIZATION AND CORPORATE RECORDS. The authorized capitalization
of Asperal consists of 500 shares of capital stock, of which all 500 shares are
issued and outstanding consisting solely of the Asperal Stock held by the
Seller. The authorized capitalization of Dexar consists of 500 shares of
capital stock, of which all 500 shares are issued and outstanding consisting
solely of the Dexar Stock held by the Seller. The authorized capitalization of
Moduler consists of 200,000 shares of capital stock, rsp. 10/-, of which all
200,000 shares are issued and outstanding and held as described herein. There
are no outstanding rights, options, warrants, subscription rights, conversion
rights or other agreements or commitments for the purchase or acquisition from
either of the Panama Holding Companies or Moduler of any shares of their
respective capital stock or otherwise obligating either of the Panama Holding
Companies or Moduler to issue any additional shares of its capital stock of any
class. There are no preemptive rights to purchase new issuances of the capital
stock of either of the Panama Holding Companies or Moduler nor are there any
options or rights to purchase, or any rights of first refusal, with respect to
the Holding Company Stock or the Moduler Shares. The Seller has delivered to
the Buyer true and complete copies of the Articles of Incorporation (or
equivalent charter document) and Bylaws (collectively, the "Charter Documents")
of each of the Panama Holding Companies and Moduler, as currently in effect,
all stock issuance and transfer records
2
<PAGE> 8
of each of the Panama Holding Companies and Moduler, and all written records
reflecting proceedings of the Board of Directors and shareholders of each of
the Panama Holding Companies and Moduler, including actions taken by written
consent (such Charter Documents, stock records and written records of corporate
proceedings are herein referred to as the "Corporate Records").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
RELATING TO THE PANAMA HOLDING COMPANIES AND MODULER
The Seller represents and warrants to and agrees with the Buyer that:
3.1 ORGANIZATION. Each of the Panama Holding Companies is a corporation
duly incorporated, validly existing and in good standing under the laws of
Panama. Moduler is a corporation duly incorporated, validly existing and in
good standing under the laws of India. Each of the Panama Holding Companies
has all requisite corporate power and authority to own and hold the Moduler
Shares held by it. Moduler has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted. Neither of the Panama Holding Companies nor Moduler is required to
be qualified or licensed to do business as a foreign corporation in any
jurisdiction. Except solely for the ownership of the Moduler Shares by the
Panama Holding Companies, neither of the Panama Holding Companies nor Moduler
has any subsidiaries nor any interest as a shareholder, partner, or joint
venturer in any corporation, partnership or other business entity.
3.2 DIVIDENDS AND DISTRIBUTIONS. There has never been, and prior to the
Closing there will not be (a) any declaration, setting aside or payment of a
dividend or other distribution in respect of any of the Holding Company Stock
or the Moduler Shares (except for the divestiture by Moduler prior to the
Closing of the headstack manufacturing business), or (b) any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of either
of the Panama Holding Companies or Moduler or any action constituting a
constructive dividend to the shareholders of either of the Panama Holding
Companies or Moduler.
3.3 FINANCIAL STATEMENTS.
(a) The audited balance sheet of Moduler (the "Balance Sheet") as
of January 28, 1996 (the "Balance Sheet Date"), and the related audited
statements of operation, stockholders' equity and cash flow for the one-year
period then ended, are attached hereto as Schedule 3.3(a).
(b) The financial statements referred to in subparagraph (a) above
present fairly the financial position of Moduler as of the dates indicated and
the results of operations for the periods indicated and have been prepared in
accordance with generally accepted accounting principles consistently applied.
The Balance Sheet contains all adjustments, which are solely of
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a normal recurring nature, necessary to present fairly the financial position
of Moduler at the Balance Sheet Date.
3.4 FINANCIAL CONDITION OF THE PANAMA HOLDING COMPANIES. Neither of the
Panama Holding Companies has engaged in any transaction of any nature
whatsoever nor incurred any liabilities or acquired any assets of any nature
whatsoever, except solely the transactions pursuant to which the Panama Holding
Companies acquired the Moduler Shares and except solely as incident to the
passive ownership of the Moduler Shares. Neither of the Panama Holding
Companies now has or at the Closing will have, nor has either of the Panama
Holding Companies ever incurred, any liability or obligation of any nature,
whether absolute, accrued, contingent or otherwise and except as otherwise set
forth in Schedule 3.4.
3.5 NO UNDISCLOSED LIABILITIES. As of the Balance Sheet Date, there was
no liability or obligation of Moduler of any nature, whether absolute, accrued,
contingent or otherwise, which, individually or in the aggregate, is material
to Moduler, other than liabilities and obligations reflected on the Balance
Sheet and liabilities and obligations relating to contracts not yet required to
be performed as of the Balance Sheet Date. Since the Balance Sheet Date,
Moduler has not assumed or incurred any liabilities or obligations, except
liabilities or obligations assumed or incurred in the ordinary course of
business and consistent with prior practices.
3.6 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date and except
as disclosed in Schedule 3.6 or as otherwise consented to by an authorized
officer of the Buyer, there has not occurred: (i) any material adverse change
in Moduler's business or financial condition, results of operations, properties
or assets; (ii) any damage, destruction or loss, which is not adequately
covered by insurance, which could materially and adversely affect Moduler or
its assets or properties; (iii) any adoption or material modification of any
Employee Benefit Plan (as defined in Section 3.17(a)) made to, for or with any
employees of Moduler; (iv) any increase in compensation payable or to become
payable by Moduler to its employees, or increase in benefits under any Employee
Benefit Plan, in each case other than increases made in the ordinary course of
business and consistent with prior practice; (v) any sale or other disposition
of any assets of Moduler, other than sales or dispositions made in the ordinary
course of business and consistent with prior practice; (vi) any creation of a
mortgage, pledge, security interest, encumbrance, lien or charge of any kind
upon any properties or assets of Moduler except in the ordinary course of
business and consistent with prior practice; (vii) any material write-offs or
write-downs of inventories or accounts receivable of Moduler; (viii) any
material amendment, termination, waiver or cancellation of any substantial
right relating to Moduler; (ix) any discharge or payment of any material
obligation or liability of Moduler other than in the ordinary course of
business and consistent with prior practice; (x) any material borrowings by
Moduler; (xi) any capital expenditures or commitments by Moduler for any
addition to property, plant or equipment; (xii) any material cancellation or
waiver of any debts or any claims of Moduler except in the ordinary course of
business and in accordance with prior practice, or (xiii) any agreement to take
any action described in this Section 3.6. For purposes of this Agreement, only
David T. Mitchell, W. Virginia Walker and Kenneth Wing shall constitute
"authorized officers" of the Buyer. Since the Balance Sheet Date, Moduler's
business has been conducted
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in the ordinary course including, without limitation, the payment of trade
payables consistent with prior practices.
3.7 TAXES. Except as set forth in Schedule 3.7, each of the Panama
Holding Companies and Moduler has filed when due all federal, state, local and
foreign tax returns required by applicable law to be filed by it and paid all
amounts set forth thereon; there is no action, suit, proceeding, investigation,
audit or claim now pending against, or with respect to, either of the Panama
Holding Companies or Moduler in respect of any tax or assessment, nor is any
claim for additional tax or assessment asserted or, to the Seller's knowledge,
threatened by any such authority; all tax liabilities with respect to each of
the Panama Holding Companies and Moduler (including, without limitation,
national, local, foreign, and other income, franchise, capital stock,
employee's income withholding, foreign pension withholding, social security,
unemployment, disability, payroll, real property, personal property, sales,
use, transfer, or other tax, plus any interest, penalties or other charges in
respect of the foregoing) have been paid for all periods up to and including
the Balance Sheet Date or have been accrued or reflected in the Balance Sheet
or are disclosed accurately in Schedule 3.7 hereto; and all such tax
liabilities shall, as of the Closing, be fully paid for all periods up to and
including the Closing Date.
3.8 LITIGATION. Except as may be set forth and accurately described in
Schedule 3.8, there is no action, suit, proceeding or investigation pending or,
to the Seller's knowledge, threatened against either of the Panama Holding
Companies or Moduler, at law or in equity, before any national, local,
municipal or other governmental court, department, commission, board, bureau,
agency or instrumentality; nor does the Seller know of any reasonably likely
basis for any such action, suit, proceeding or investigation, the result of
which could materially and adversely affect either of the Panama Holding
Companies or Moduler or the transactions contemplated hereby; nor is there any
judgment, decree, injunction, rule or order of any public body or governmental
authority outstanding against either of the Panama Holding Companies or
Moduler.
3.9 CONSENTS, VIOLATIONS AND AUTHORIZATIONS.
(a) Except as set forth in Schedule 3.9, neither of the Panama
Holding Companies nor Moduler is a party to or bound by any mortgage,
indenture, lien, deed of trust, lease, agreement, permit, concession,
franchise, license, instrument, order, judgment or decree which would require
the consent of another to the execution of this Agreement or the consummation
of the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will (i) violate any
provision of the Charter Documents of either of the Panama Holding Companies or
Moduler or (ii) conflict with, or result (immediately or upon the giving of
notice or the passage of time or both) in any violation of or default under, or
give rise to a right of modification, termination, cancellation or acceleration
of any obligation or to a loss of a benefit under, any mortgage, indenture,
lease, instrument, permit, concession, franchise, license or other agreement
which either of the Panama Holding Companies or Moduler or their respective
properties or assets are parties to,
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beneficiaries of, or bound by, or violate any judgment, order, decree, statue,
law, ordinance, rule or regulation applicable to either of the Panama Holding
Companies or Moduler or their respective properties or assets.
3.10 AGREEMENTS, CONTRACTS, COMMITMENTS AND LEASES. Except as set forth
in Schedule 3.10 (which indicates the applicable paragraph below to which the
disclosed agreement, contract, commitment or lease relates), Moduler is not a
party to any written or oral:
(a) agreement, contract or commitment with any present or former
employee or consultant or for the employment of any person, including any
consultant, other than oral contracts of employment entered into in the
ordinary course of business and terminable at any time by Moduler without any
payment required to be made to any such employee or consultant by reason of
such termination;
(b) agreement, contract or commitment for the future purchase of,
or payment for, supplies, products or services;
(c) agreement, contract or commitment to sell or supply products
or to perform services except for agreements, contracts or commitments with the
Buyer;
(d) agreement, contract or commitment not otherwise required to be
listed on Schedule 3.10 and continuing over a period of more than six months
from the date hereof or exceeding $25,000 in value;
(e) distribution, dealer, representative or sales agency
agreement, contract or commitment with any party other than the Buyer;
(f) lease under which Moduler is either lessor or lessee of real
or personal property;
(g) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money or agreement or arrangement for a line of credit
or guarantee, pledge or undertaking of the indebtedness of any other person;
(h) agreement, contract or commitment for any capital expenditure
or leasehold improvement not consented to by an authorized officer of the
Buyer;
(i) agreement, contract or commitment limiting or restraining
Moduler or any successor thereto from engaging or competing in any manner or in
any business, nor, to the Seller's knowledge, is any employee of Moduler
subject to any such agreement, contract or commitment;
(j) material agreement, contract or commitment not made in the
ordinary course of business.
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The Seller has delivered to the Buyer true and complete copies of
all agreements, contracts and commitments identified on Schedule 3.10.
Each of the agreements, contracts, commitments and other instruments
listed in Schedule 3.10, or not required to be listed because of the amount
thereof, is valid and enforceable in accordance with its terms; Moduler is, and
to Seller's knowledge all other parties thereto are, in compliance with the
provisions thereof in all material respects; Moduler is not, and to the
Seller's knowledge no other party thereto is, in default in the performance,
observance or fulfillment of any material obligation, covenant or condition
contained therein; and no event has occurred which with or without the giving
of notice or lapse of time, or both, would constitute a default thereunder.
Furthermore, no such agreement, contract, commitment or other instrument, in
the reasonable opinion of the Seller, contains any contractual requirement with
which there is a reasonable likelihood that Moduler or any other party thereto
will be unable to comply in all material respects.
3.11 ASSETS.
(a) All buildings, structures, facilities, equipment and other
material items of tangible property and assets of Moduler are in good operating
condition and repair, subject to normal wear and maintenance, are useable in
the regular and ordinary course of business and conform to all applicable laws,
ordinances, codes, rules, regulations and authorization relating to their
construction, use and operation. No person other than Moduler owns any
equipment or other tangible assets or property situated on the premises of
Moduler or necessary to the operation of its business, except for leased items
disclosed in Schedule 3.10, items owned or leased by the Buyer and provided for
Moduler's use, and items of immaterial value.
(b) Schedule 3.11 contains accurate lists and summary descriptions
of all inventory, equipment, furniture, fixtures and leasehold improvements of
Moduler as of the Balance Sheet Date, specifying such items as are owned and
such as are leased and, with respect to the owned property, specifying its
aggregate cost or original value and the net book value as of the Balance Sheet
Date and, with respect to the leased property as to which Moduler is lessee,
specifying the identity of the lessor, the rental rate and the unexpired term
of the lease.
(c) Moduler owns and has good and marketable title to, or has
valid leasehold interests in, all of its assets and except (i) as disclosed on
the Balance Sheet or in Schedule 3.9, and (ii) for liens for the payment of
national and local taxes not yet due or payable, all such assets (including
without limitation all leasehold interests included in such assets) are free
and clear of any conditions or restrictions on transfer or assignment and of
any liens, pledges, charges, encumbrances, claims, security interests,
easements, covenants or restrictions which could to any material extent
interfere with the present use of such properties or assets or impair the
operations of Moduler's business.
3.12 INVENTORY. All inventory of Moduler, including without limitation
raw materials, work in process and finished goods, reflected on the Balance
Sheet or acquired since the date thereof was acquired and has been maintained
in the ordinary course of business; is of good and
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merchantable quality; consists substantially of a quality, quantity and
condition useable, leasable or saleable in the ordinary course of business; is
valued at reasonable amounts based on the ordinary course of business and
consistent with past practice; and is not subject to any write-down or
write-off. Moduler is not under any liability or obligation with respect to
the return of inventory in the possession of wholesalers, retailers or other
customers.
3.13 ACCOUNTS RECEIVABLE. Except with respect to accounts receivable
owed by the Buyer: all of the accounts receivable of Moduler which are
reflected on the Balance Sheet and all accounts receivable of Moduler which
have arisen since the Balance Sheet Date (except such accounts receivable as
have been collected since the Balance Sheet Date) are valid and enforceable
claims; the goods and services sold and delivered which gave rise to such
accounts were sold and delivered in conformity in all material respects with
the applicable purchase orders, agreements and specifications; there are no
material rights of set-off or claims against such accounts receivable possessed
by the account debtors of Moduler; and such accounts receivable are collectible
within 90 days after billing at the full recorded amount thereof less the
recorded allowance for collection losses. The allowance for collection losses
reflected on the Balance Sheet is adequate.
3.14 PROPRIETARY PROPERTY. Moduler owns, free and clear of all liens,
claims, charges or encumbrances, all patents, trademarks, trade names, service
marks, copyrights, software, trade secrets or know-how used in or necessary for
the conduct of its business (collectively, "Proprietary Property"). Schedule
3.14 contains a list of all Proprietary Property which Moduler has registered,
or otherwise by filing with governmental agencies sought to protect or preserve
its right to use, under federal, state or foreign law. Schedule 3.14 also
contains a list of all licenses or other agreements pursuant to which Moduler
has obtained or licensed rights to any Proprietary Property. Moduler does not
infringe upon or unlawfully or wrongfully use any patent, trademark, trade
name, service mark, copyright or trade secret owned or claimed by another, and
Moduler has not received any notice of any claim of such infringement or any
solicitation or similar request that Moduler enter into a license or similar
agreement in respect of any such patent, trademark, trade name, service mark,
copyright or trade secret owned or claimed by another. No present or former
employee of Moduler and no other person owns or has any proprietary, financial
or other interest, direct or indirect, in whole or in part, in any patent,
trademark, trade name, service mark or copyright, or in any application
therefor, or in any trade secret, which Moduler owns, possesses or uses in the
operations of its business as now or heretofore conducted.
3.15 INSURANCE. Moduler maintains policies of property, fire, public
liability, worker's compensation and other forms of insurance covering its
assets, operations and employees to the extent, and with coverage amounts,
customary in its business. All such insurance policies are in full force and
effect and all premiums with respect thereto covering all periods up to and
including the date of the Closing have been or will be paid. Moduler has not
been refused any insurance, nor has its coverage been limited, by any insurance
carrier to which it has applied for insurance or with which it has carried
insurance during the past five years.
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3.16 COMPLIANCE WITH LAW. Moduler (i) is not in violation of any
national or local laws, ordinances, regulations and orders, including without
limitation any applicable building, zoning, health, sanitation, safety, labor
relations or similar laws, ordinances, regulations or orders, except for
possible violations which in the aggregate do not have a material adverse
effect on the financial condition or results of operations of Moduler, (ii) has
not received any complaint from any governmental authority and, to the Seller's
knowledge, none is threatened alleging that Moduler has violated any such law,
ordinance, regulation or order, and (iii) has not received any notice from any
governmental authority of any pending proceeding to take all or any part of
Moduler's real properties (whether leased or owned) by condemnation or right of
eminent domain and, to Seller's knowledge, no such proceeding is threatened.
Moduler owns and possesses all licenses, permits and other authorizations
required by law.
3.17 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.17 contains a complete list of all employee benefit
plans, whether formal or informal, whether or not set forth in writing, and
whether covering one person or more than one person, sponsored or maintained by
Moduler, and complete copies of all such plans have been provided to Buyer.
For the purposes hereof, the term "Employee Benefit Plan" includes any plan,
fund, program, policy, arrangement, practice, custom or understanding providing
benefits of economic value to any employee, former employee, or present or
former beneficiary, dependent or assignee of any such employee or former
employee other than regular salary, wages or commissions paid substantially
concurrently with the performance of the services for which paid. Each plan
providing benefits which are funded through a policy of insurance is indicated
by the word "insured" placed by the listing of such plan in Schedule 3.17. The
Seller has furnished to the Buyer complete and correct copies of each material
Employee Benefit Plan.
(b) Moduler has timely made all contributions which it was
required to make for each Employee Benefit Plan under the terms of such plan
and applicable law, and all benefit payments due and payable to plan
participants under each Employee Benefit Plan have been made or are being
appropriately processed. As of the Balance Sheet Date, Moduler had no material
liability under any such Employee Benefit Plan which was not reflected on the
Balance Sheet or in the notes thereto.
3.18 EMPLOYEES AND LABOR CONTRACTS.
(a) Schedule 3.18 sets forth the names and titles of, and current
annual base salary or hourly rates for, all employees of Moduler, together with
a statement of the full amount and nature of any other remuneration, whether in
cash or kind, paid to each such person during the past or current fiscal year
or payable to each such person in the future, the bonuses accrued for each such
person, and the vacation and severance benefits to which each such person is
entitled.
(b) Moduler is not a party to any collective bargaining agreement
or other labor contract. The Seller knows of no activity or proceedings of any
labor union (or
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representatives thereof) to organize any employees of Moduler, or of any
strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with
respect to any of such employees. During the one-year period preceding the
date hereof, there have been no significant labor troubles involving employees
of Moduler nor are there any current union representation questions involving
such employees.
3.19 FEES, COMMISSIONS AND EXPENSES. Neither the Seller, the Panama
Holding Companies nor Moduler is liable for or obligated to pay any brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement.
3.20 ENVIRONMENTAL LAWS AND REGULATIONS. Schedule 3.20 discloses all
information relating to the following items: (a) the nature and quantities of
any Hazardous Materials (as defined below) released, used, manufactured,
handled, stored, treated, discharged, buried, generated, transported or
disposed of by Moduler during the past six years, together with a description
of the location of each such activity; (b) a summary of the nature and
quantities of any Hazardous Materials that have been released, placed, used,
manufactured, handled, generated, stored, treated, discharged, buried or
disposed on, under or about any site or facility owned or operated presently or
at any previous time by Moduler (a "Site"); (c) copies of all environmental
audits or other studies or reports prepared by third parties to assess
Hazardous Material risks at any Site; (d) all communications and agreements
with any governmental authority or agency (national or local) or any private
entity or individual, including, but not limited to, any prior owners of any
Site, relating in any way to the presence, release, threat of release,
placement on, under or about any Site, or the use, manufacture, handling,
generation, storage, treatment, discharge, burial or disposal on, under or
about any Site, or the transportation to or from any Site, of any Hazardous
Materials. Moduler is in compliance with all, and has no liability under,
applicable national and local laws and regulations relating to product
registration, pollution control and environmental contamination including, but
not limited to, all laws and regulations governing the generation, use,
collection, discharge, or disposal of Hazardous Materials and all laws and
regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials. Except as disclosed on Schedule
3.20, (a) there are no underground or other storage tanks containing Hazardous
Materials at any Site, (b) Moduler has not been alleged to be in violation of,
or has been subject to any administrative or judicial proceeding pursuant to,
such laws or regulations either now or any time during the past three years,
and (c) there are no facts or circumstances which Moduler reasonably expects
could form the basis for the assertion of any Claim (as defined below) against
Moduler relating to environmental matters including, but not limited to, any
Claim arising from past or present environmental practices asserted under any
Environmental Laws (as defined below), which may have a Material Adverse
Effect.
For purposes of this Section 3.20, the following terms shall have the
following meanings:
(A) "Hazardous Materials" shall mean asbestos, petroleum products,
underground tanks of any type and all other materials now or hereafter defined
as "hazardous substances," "hazardous wastes," "toxic substances" or "solid
wastes," or otherwise now or hereafter listed
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or regulated pursuant to any national or local statute, regulation, ordinance,
order, decree, or any other law, common law theory or reported decision of any
state or federal court, as now or at any time hereafter in effect, relating to,
or imposing liability or standards of conduct concerning, any hazardous, toxic
or dangerous waste, substance or material (collectively, the "Environmental
Laws").
(B) "Claim" shall mean any and all claims, demands, causes of actions,
suits, proceedings, administrative proceedings, losses, judgments, decrees,
debts, damages, liabilities, court costs, attorneys' fees and any other expense
incurred, assessed or sustained by or against Moduler or any of its
subsidiaries.
3.21 PRODUCT WARRANTIES. There are no product warranty claims nor
express warranties applicable to products sold by Moduler except the express
warranties which are set forth in Schedule 3.21. The reserve for warranty
claims reflected on the Balance Sheet is adequate. Moduler has furnished no
other warranties or guarantees in connection with the products produced or
manufactured by it and no claims for breach of product warranty to customers,
whether or not attributable to Moduler's form of warranty, relating to the
products and services manufactured or provided by Moduler, have been filed
against Moduler and remain pending except as set forth on Schedule 3.21.
Except as set forth in Schedule 3.21, to Seller's knowledge no events have
occurred since the Balance Sheet Date or facts exist as of the date hereof
which would result in a material increase in product warranty expenses or
claims.
3.22 TRANSACTIONS WITH AFFILIATES. No shareholder, director, officer or
employee of the Seller, the Panama Holding Companies or Moduler, or any member
of his or her immediate family or any other of its, his or her affiliates, owns
or has a five percent or more ownership interest in any corporation or other
entity that is or was during the last three years a party to, or in any
property which is or was during the last three years the subject of, any
material contract, agreement or understanding, business arrangement or
relationship with Moduler, except as disclosed in Schedule 3.22.
3.23 CONDITIONS AFFECTING MODULER. There is no fact, development or
threatened development with respect to the markets, products, services,
clients, customers, facilities, computer software, data bases, personnel,
vendors, suppliers, operations, assets or prospects of Moduler which are known
to Moduler or Seller which would materially adversely affect the business,
operations or prospects of Moduler, other than such conditions as may affect as
a whole the economy generally. Moduler has used its best efforts to keep
available to Moduler after the Closing the services of the employees, agents,
customers and suppliers of Moduler. Neither Moduler nor the Seller has any
reason to believe that any loss of any employee, agent, customer or supplier or
other advantageous arrangement will result because of the consummation of the
transactions contemplated hereby.
3.24 ACQUISITION FOR INVESTMENT. The Seller will acquire and receive the
JTS Shares, the JTS Warrant, and any and all JTS Common Stock issuable upon
conversion of the JTS Shares or upon exercise of the JTS Warrant, in each case
for its own account for investment only, and not with a view toward any resale
or distribution thereof. The Seller agrees that the
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<PAGE> 17
JTS Shares, the JTS Warrant and all such JTS Common Stock shall not be
transferable except in full compliance with the provisions of all applicable
laws, including without limitation the U.S. Securities Act of 1933, as amended,
and that each certificate representing such securities shall bear a legend to
ensure compliance with the foregoing.
3.25 FULL DISCLOSURE. No representation or warranty by the Seller in
this Article III or in any other Article of this Agreement or any schedule,
exhibit, certificate or other document furnished or to be furnished by the
Seller to the Buyer pursuant to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements made herein or therein not misleading.
Buyer acknowledges that Buyer has conducted the day to day operations of
the disk drive manufacturing operations of Moduler since February 3, 1995 (the
"Known Operations"), and has gained substantial information regarding such
operations of Moduler. To the extent that any of the foregoing representations
and warranties cover or are affected by the Known Operations, such
representations and warranties are made to the knowledge of Seller. In respect
of any statements made in this Article III to the knowledge or best knowledge
of Seller, there shall not be attributed to Seller any knowledge regarding such
operations of Moduler that is gained by Buyer as a result of its conducting the
Known Operations. Further, no representation or warranty is made by Seller in
this Article III as to any act, or failure to act, by Moduler which occurred
under the direction of Buyer and which would otherwise constitute a violation
of this Article III.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF THE BUYER
The Buyer represents and warrants to and agrees with the Seller as
follows:
4.1 DUE AUTHORIZATION AND EXECUTION. The Buyer has the necessary
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The Board of Directors of the Buyer has
duly authorized and approved the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. No other corporate
proceedings on the part of the Buyer are necessary to authorize this Agreement
and the consummation of such transactions. This Agreement has been duly and
validly executed and delivered by the Buyer and, assuming due execution and
delivery by the Seller, constitutes a valid and binding obligation of the Buyer
enforceable against it in accordance with its terms.
4.2 ORGANIZATION AND CAPITALIZATION OF THE BUYER. The Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as proposed to be conducted. The
authorized capital stock of the Buyer consists of 90,000,000 shares of common
stock, $0.000001 par value
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of which 9,283,916 shares are issued and outstanding, and 70,000,000 shares of
Preferred Stock, $0.000001 par value, all of which have been designated "Series
A Preferred Stock," of which 27,784,697 shares are issued and outstanding.
Schedule 4.2 hereto contains a list of all outstanding options, warrants,
agreements, conversion privileges and other rights to purchase any of the
Buyer's authorized and unissued capital stock. The Buyer has full legal right,
power and authority to issue, sell, and deliver the JTS Shares and the JTS
Warrant to the Seller in accordance with the terms and subject to the
conditions of this Agreement. The delivery to the Seller of the JTS Shares and
the JTS Warrant pursuant to this Agreement will transfer to the Seller valid
title thereto free and clear of any and all liens and adverse claims. The JTS
Shares, and all JTS Common Stock issuable upon conversion of the JTS Shares or
upon exercise of the JTS Warrant will be, upon issuance in accordance with the
terms thereof (and, in the case of the exercise of the JTS Warrant, upon
payment of the exercise price therefor), duly and validly issued, fully paid
and nonassessable.
4.3 FINANCIAL INFORMATION. Attached as Schedule 4.3 is the consolidated
audited balance sheet of the Buyer and its subsidiaries at January 28, 1996 and
the related audited statement of operations for the one-year period then ended.
Such financial statements (a) are in accordance with the books and records of
the Buyer, (b) present fairly the financial condition of the Buyer at such date
and the results of its operations for the period therein specified, and (c)
have been prepared in accordance with generally accepted accounting principles.
Specifically, but not by way of limitation, and except with respect to (i)
liabilities incurred in the ordinary course of the business of the Buyer
subsequent to January 28, 1996 and (ii) obligations incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in the financial statements, such balance sheet
discloses all of the debts, liabilities and obligations of the Buyer of any
nature (whether absolute, accrued, contingent (including guarantees of
indebtedness) or otherwise, and whether due or to become due) to the extent
required by generally accepted accounting principles and includes appropriate
reserves, to the extent required by generally accepted accounting principles,
for all taxes and other liabilities accrued or due at such date but not then
payable. At all times up to and including the Closing, there has not been any
event or condition of any character which has adversely affected the business
of the Buyer in a material manner, other than continuing operating losses
incurred in the ordinary course of business, including but not limited to any
material change in, or condition affecting, the condition or prospects
(financial or otherwise) of, or rights or obligations respecting, the
properties, assets, liabilities, business or operations of the Buyer other than
changes, events or conditions, in the ordinary course of its business.
4.4 CONSENTS, VIOLATIONS AND AUTHORIZATIONS.
(a) The Buyer is not a party to or bound by any mortgage,
indenture, lien, deed of trust, lease, agreement, permit, concession,
franchise, license, instrument, order, judgment or decree which would require
the consent of another to the execution of this Agreement or the transactions
contemplated hereby.
(b) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) violate any
provision of the
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Charter Documents of the Buyer or (ii) conflict with, or result (immediately or
upon the giving of notice or the passage of time or both) in any violation of
or any default under, or give rise to a right of modification, termination,
cancellation or acceleration of any obligation or to a loss of a benefit under,
any mortgage, indenture, lease, instrument, permit, concession, franchise,
license or other agreement which the Buyer or its properties or assets are
parties to, beneficiaries of, or bound by, or violate any judgment, order,
decree, statue, law, ordinance, rule or regulation applicable to the Buyer or
its properties or assets, other than such conflicts, violations or defaults or
possible modifications, terminations, cancellations or accelerations which
individually or in the aggregate do not and will not have a material adverse
effect on the Buyer.
(c) No authorization, consent or approval of, or filing with, any
public body or governmental authority is necessary for the consummation by the
Buyer of the transactions contemplated by this Agreement.
4.5 FEES, COMMISSIONS AND EXPENSES. The Buyer has not paid and is not
required to pay any brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this
Agreement.
4.6 PURCHASE FOR INVESTMENT. The Buyer will acquire the Holding Company
Stock for its own account for investment only, and not with a view toward any
resale or distribution thereof.
4.7 SHAREHOLDER AGREEMENTS. Attached hereto as Schedule 4.7 is a list
of all agreements between Buyer and one or more of its shareholders relating to
voting agreements, co-sale rights, rights of first refusal, registration rights
or other similar matters relating to the ownership, transfer and voting of
capital stock of Buyer. Buyer has delivered true and complete copies of its
certificate of incorporation and bylaws and of all such agreements to Seller.
4.8 FULL DISCLOSURE. No representation or warranty of the Buyer in this
Article IV or in any other Article of this Agreement or any schedule, exhibit,
certificate or other document furnished or to be furnished by the Buyer to the
Seller pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements made herein or therein not misleading.
4.9 KNOWN OPERATIONS. Buyer represents that, to the best of Buyer's
knowledge, Seller's representations in Article III as they relate to the Known
Operations are correct in all material respects.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING
From the date of this Agreement until the Closing, the Seller covenants
that, except as otherwise consented to in writing by the Buyer (which consent
shall not be unreasonably withheld), it shall cause to be satisfied the
following:
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5.1 ORDINARY COURSE. Moduler shall carry on its business in the
ordinary course in substantially the same manner as heretofore conducted.
5.2 NO ACQUISITIONS. Moduler shall not acquire or agree to acquire a
substantial portion of the assets of any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets which are material in the
aggregate to its business.
5.3 NO DISPOSITIONS. Moduler shall not sell, lease or otherwise dispose
of any its assets except in the ordinary course of business consistent with
prior practice.
5.4 EMPLOYEES. Moduler shall not grant any material increase in the
compensation payable to any of its employees or any material benefit increase
in any Employee Benefit Plan, except for increases made in the ordinary course
of business consistent with prior practice.
5.5 MORTGAGES, LIENS AND OTHER ENCUMBRANCES. Moduler shall not create,
assume or incur any mortgage, lien, pledge or other encumbrance of any kind
other than immaterial mortgages, liens, pledges or other encumbrances incurred
in the ordinary course of business consistent with prior practice.
5.6 WAIVER OF RIGHTS. Moduler shall not amend, terminate or waive any
right of substantial value.
5.7 MATERIAL AGREEMENTS. Moduler shall not enter into any lease for
property or equipment or any agreement, except in the ordinary course of
business consistent with prior practice.
5.8 CAPITAL EXPENDITURES. Moduler shall not make or commit to any
capital expenditures or commitments without the approval of an authorized
officer of the Buyer.
5.9 DISTRIBUTIONS. Neither Moduler nor either of the Panama Holding
Companies shall declare or pay any dividend or other distribution to its
shareholders.
5.10 NO STOCK ISSUANCES. Neither Moduler nor either of the Panama
Holding Companies shall issue, or agree to issue, any shares of its capital
stock or any rights, options, warrants, subscription rights, conversion rights
or other agreements or commitments for the purchase or acquisition of any
shares of its capital stock.
5.11 NO CHARTER AMENDMENTS. Neither Moduler nor either of the Panama
Holding Companies shall amend its Charter Documents.
5.12 AGREEMENTS. Neither Moduler nor either of the Panama Holding
Companies shall commit or agree, whether in writing or otherwise, to take any
action prohibited by this Article V.
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5.13 ACTIONS TAKEN AT THE DIRECTION OF BUYER. No action taken by Moduler
under the direction of Buyer shall constitute a violation of any provision of
this Article V.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS
OF THE BUYER
The obligations of the Buyer hereunder are subject to fulfillment or
satisfaction at or prior to the Closing of each of the following conditions
(any one or more of which may be waived by the Buyer but only in writing):
6.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. All representations
and warranties of the Seller contained in this Agreement shall be true and
correct as of the date made and, except insofar as such representations and
warranties are specifically made as of an earlier stated date or period of
time, shall be true and correct in all material respects as of the Closing with
the same effect as though such representations and warranties were made at and
as of the Closing; the Seller shall have performed and satisfied in all
material respects all covenants, conditions and agreements required or
contemplated by this Agreement.
6.2 OPINION OF COUNSEL FOR THE SELLER. The Buyer shall have received
one or more opinions of counsel for the Seller reasonably acceptable to the
Buyer, in form and substance reasonably satisfactory to the Buyer, dated as of
the Closing covering the matters set forth in Exhibit B.
6.3 ABSENCE OF LITIGATION OR INVESTIGATION. No preliminary or permanent
injunction or other order of any court or governmental agency or
instrumentality shall have issued or been entered and remain in effect which
prohibits the consummation of the transactions contemplated by this Agreement.
6.4 REQUISITE APPROVALS. All permits or authorizations as may be
required by any regulatory authority having jurisdiction over the parties,
Moduler, the subject matter hereof or actions herein proposed to be taken shall
have been obtained and all consents contemplated by Schedule 3.9 shall have
been obtained.
6.5 DELIVERY OF DOCUMENTS. The documents described in Section 10.2 of
this Agreement shall have been delivered.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE SELLER
The obligations of the Seller hereunder are subject to the fulfillment or
satisfaction at or prior to the Closing of each of the following conditions
(any one or more of which may be waived by the Seller, but only in writing):
7.1 REPRESENTATIONS AND WARRANTIES OF THE BUYER. All representations
and warranties of the Buyer contained in this Agreement shall be true and
correct as of the date made and shall be true and correct in all material
respects as of the Closing with the same effect as though such representations
and warranties were made at and as of the Closing; the Buyer shall have
performed and satisfied in all material respects all covenants, conditions and
agreements required or contemplated by this Agreement to be performed and
satisfied by it at or prior to the Closing.
7.2 OPINION OF COUNSEL FOR THE BUYER. The Seller shall have received
from Cooley Godward Castro Huddleson & Tatum, counsel for the Buyer, an opinion
in form and substance reasonably satisfactory to the Seller dated as of the
Closing covering the matters set forth in Exhibit C.
7.3 ABSENCE OF LITIGATION OR INVESTIGATION. No preliminary or permanent
injunction or other order of any court or governmental agency or
instrumentality shall have issued or been entered and remain in effect which
prohibits the consummation of the transactions contemplated by this Agreement.
7.4 REQUISITE APPROVALS. All permits or authorizations as may be
required by any regulatory authority having jurisdiction over the parties, the
subject matter hereof or the actions herein proposed to be taken shall have
been obtained.
7.5 DELIVERY OF DOCUMENTS. The documents described in Section 10.2 of
this Agreement shall have been delivered.
7.6 REGISTRATION RIGHTS. The Seller shall be added as a "Holder" to
Buyer's Registration Rights Agreement as then amended and in effect in an
amendment reasonably satisfactory to Seller.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND RELATED AGREEMENTS.
The representations and warranties contained in Articles II, III and IV of this
Agreement shall survive the Closing hereunder and shall continue in effect
notwithstanding any investigation by or on behalf of the Buyer or the Seller.
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8.2 GENERAL INDEMNIFICATION.
(a) The Seller shall indemnify and hold harmless the Buyer from
and against, and shall reimburse Buyer on demand for, any claim, loss,
liability, damage or expense (including attorneys' fees and costs of appeals),
resulting from any breach of any representation, warranty, agreement or
covenant on the part of the Seller under or pursuant to this Agreement.
(b) The Buyer shall indemnify and hold harmless the Seller from
and against, and shall reimburse Seller on demand for, any claim, loss,
liability, damage or expense (including attorneys' fees and costs of appeals)
resulting from any breach of any representation, warranty, agreement or
covenant on the part of the Buyer under or pursuant to this Agreement.
(c) If a third party asserts a claim against any indemnified party
for which indemnification would be available under this Section 8.2 hereof (a
"Claim"), the indemnified party shall promptly give notice of such Claim,
describing such Claim with reasonable specificity, to the indemnifying party;
provided, however, that the failure to give such notice shall not affect the
right of the indemnified party to indemnification hereunder except to the
extent that such failure prejudices the ability of the indemnifying party to
defend any Claim or take any other remedial action. The indemnifying party
shall be entitled to assume the defense of such Claim, including the employment
of counsel reasonably satisfactory to the indemnified party; provided, however,
that in the event that the indemnified party reasonably determines in good
faith that its interests with respect to such Claim cannot appropriately be
represented by the indemnifying party, such indemnified party shall have the
right to assume control of the defense of such Claim and to have its expenses
reimbursed promptly with respect to such Claim. In addition, in the event that
such indemnifying party, within a reasonable time after notice of any such
Claim, fails to defend any indemnified party, such indemnified party will (upon
further notice to such indemnifying party) have the right to undertake its
defense of such Claim for the account of such indemnifying party and to have
its expenses reimbursed promptly with respect to such Claim. Regardless of
which party is controlling the defense of any Claim, (i) both the indemnifying
party and the indemnified party shall act in good faith and (ii) no settlement
of such Claim may be agreed to without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. The controlling party
shall deliver, or cause to be delivered, to the other party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of any such Claim, and
timely notices of any hearing or other court proceeding relating to such Claim.
8.3 LIMITATIONS. Except for claims for violations of the
representations and warranties contained in Sections 2.1, 2.2, 2.3, 4.1 and
4.2, no claim for indemnification for breach of a representation or warranty
contained herein may be made after March 31, 1997.
8.4 ESCROW AGREEMENT. Indemnification under Section 8.2(a) above shall
be satisfied pursuant to the terms of the Escrow Agreement in the form attached
hereto as Exhibit D.
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ARTICLE IX
ADDITIONAL COVENANTS OF THE PARTIES
9.1 NONCOMPETITION. By executing a counterpart of this Agreement, the
Buyer agrees that for a period of five years following the Closing Date,
neither it nor any of its affiliates will, directly or indirectly, own, manage,
operate, join, control or participate in the ownership, management, operation
or control of, any business, whether in corporate, proprietorship or
partnership form or otherwise as more than a 5% owner in such business, where
such business is competitive with the headstack manufacturing business which
has been divested by Moduler prior to the Closing and which may during such
five-year period be engaged in by M. L. Tandon, an individual, or any affiliate
of M. L. Tandon, provided, however, that Buyer shall be permitted to
manufacture headstacks for its own internal requirements. The noncompetition
covenant contained in the foregoing sentence shall be limited to the country of
India. The parties hereto specifically acknowledge and agree that the remedy at
law for any breach of the foregoing will be inadequate and that M. L. Tandon or
any of his affiliates, shall, in addition to any other relief available to it
or them, be entitled to temporary and permanent injunctive relief without the
necessity of proving actual damage. In the event that the provisions of this
paragraph should ever be deemed to exceed the limitation provided by applicable
law, then the parties hereby agree that such provisions shall be reformed to
set forth the maximum limitations permitted.
9.2 ACCESS BY BUYER AND AGENTS. The Seller agrees that the Buyer, and
its designated representatives, attorneys and auditors or agents, shall have
reasonable access to the books of account, financial and corporate records,
contracts, leases, tax returns, properties and other assets of the Panama
Holding Companies and Moduler and to make copies of such corporate records,
reports and other documents as they may request at any reasonable time during
regular business hours prior to the Closing, and the Seller agrees to use its
efforts to cooperate with such persons in conducting such examination. The
Seller will cause officers, employees and accountants of the Panama Holding
Companies and Moduler, as the case may be, to furnish such additional financial
and operating data and other information as Buyer may from time to time
reasonably request.
9.3 AVAILABILITY OF RECORDS TO THE SELLER. The Buyer shall make
available to the Seller such documents, books, records or information relating
to the Panama Holding Companies and Moduler as the Seller may reasonably
require after the Closing in connection with any tax determination, defense of
any claim against the Seller relating to the conduct of the business of the
Panama Holding Companies and Moduler prior to the Closing or any governmental
investigation of the Panama Holding Companies or Moduler. The Buyer agrees not
to destroy any files or records which are subject to this Section 9.3 without
giving reasonable notice to the Seller, and within 15 business days of receipt
of such notice, the Buyer may cause to be delivered to Seller the records
intended to be destroyed, at the Seller's expense.
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ARTICLE X
CLOSING
10.1 CLOSING. Unless this Agreement shall have been terminated pursuant
to the provisions of Article XI hereof, the closing (the "Closing") will be
held at the offices of the Buyer at 166 Baypointe Parkway, San Jose, California
95134 on April 4, 1996 (the "Scheduled Closing Date"); provided, however, that
if any of the conditions provided for in Articles VI and VII shall not have
been met or waived by the Scheduled Closing Date, then the Closing shall occur
within three business days after such condition has been met or waived. The
date on which the Closing shall occur is sometimes referred to herein as the
"Closing Date."
10.2 DELIVERIES AT CLOSING. At the Closing, the Seller will deliver to
Buyer (i) certificates representing the Holding Company Stock, duly endorsed in
blank (or accompanied by stock powers duly executed in blank) by the Seller;
(ii) executed copies of the consents referred to in Section 3.9 hereof; (iii)
the opinion of counsel referred to in Section 6.2 hereof; (iv) the Corporate
Records; (v) such written resignations, effective as of the Closing Date, of
such of the directors and officers of the Panama Holding Companies as the Buyer
may specify in writing to the Seller at least five business days prior to the
Closing Date; (vi) such documents and instruments as are necessary to enable
the Buyer to re-designate, effective as of the Closing, the individuals having
signature or other withdrawal authority with respect to the bank and savings
accounts and safety deposit boxes of the Panama Holding Companies; and (vii)
such other previously undelivered documents required to be delivered by the
Seller to the Buyer at or prior to the Closing in connection with the
transactions contemplated by this Agreement. At the Closing, there will be
delivered to the Seller by Buyer, (i) a certificate representing the JTS
Shares, and the JTS Warrant, as referred to in Section 1.2 hereof; (ii) the
opinion of counsel referred to in Section 7.2; and (iii) all previously
undelivered documents required to be delivered by Buyer to the Seller at or
prior to the Closing.
ARTICLE XI
TERMINATION
11.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated herein may be abandoned prior to the Closing Date only (a) by the
mutual consent of the Seller and the Buyer; (b) by the Seller if events occur
(other than events caused by the Seller) which render impossible the
satisfaction of one or more of the conditions set forth in Article VII; (c) by
the Buyer if events occur (other than events caused by the Buyer) which render
impossible the satisfaction of one or more of the conditions set forth in
Article VI; or (d) by Seller or Buyer if the Closing has not occurred on or
prior to June 30, 1996.
11.2 PROCEDURE UPON TERMINATION. In the event of the termination of this
Agreement by either party as provided in clauses (b) or (c) of Section 11.1,
written notice thereof shall forthwith be given to the other party to this
Agreement, this Agreement shall terminate and be abandoned without further
action by the Seller or the Buyer, and there shall be no liability or
obligation on the part of either Seller or Buyer; provided, however, that if
such termination was
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the result of the representations and warranties of a party being materially
incorrect when made or the material breach by such party of a covenant
hereunder, then the party whose representations and warranties were incorrect
or who breached such covenant shall be liable to the other party for all costs
and expenses of the other party in connection with the preparation,
negotiation, execution and performance of this Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1 EXPENSES. Except as otherwise provided in this Agreement, all
expenses incurred pursuant to this Agreement and the transactions contemplated
hereby shall be paid by the party incurring the expense; provided, however,
that Buyer agrees to reimburse Seller up to $30,000 to cover legal fees and
expenses incurred in connection with the negotiation and completion of this
Agreement.
12.2 CERTAIN FILINGS AND CONSENTS. The Seller and the Buyer will use
their respective best efforts to comply with all legal requirements which may
be imposed on them with respect to the transactions contemplated by this
Agreement. The Seller and the Buyer will use their respective best efforts to
obtain (and to cooperate with any other party in obtaining) any consent,
authorization, order or approval of, or exemption by, any regulatory authority,
or third party, required to be obtained in connection with the transactions
contemplated by this Agreement.
12.3 FURTHER ASSURANCES. Each party hereto agrees to use such party's
best efforts to cause the conditions to such party's obligations herein set
forth to be satisfied at or prior to the Closing insofar as such matters are
within its control. Each of the parties agrees to execute and deliver any and
all further agreements, documents or instruments necessary to effectuate this
Agreement and the transactions referred to herein or contemplated hereby or
reasonably requested by the other party to perfect or evidence its rights
hereunder. All parties will use their best efforts to complete all
transactions contemplated by this Agreement as promptly as practicable.
12.4 NOTICES. Any notices hereunder shall be deemed sufficiently given
by one party to another only if in writing and if and when delivered or
tendered by personal delivery or as of three business days after deposit in the
United States mail in a sealed envelope, registered or certified, with postage
prepaid, addressed as follows:
If to Lunenburg S.A.
the Seller: 2125-B Madera Road
Simi Valley, CA 93065
Attn: Jawahar L. Tandon
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With a copy to: Howard Rice et. al.
Three Embarcadero Center
Seventh Floor
San Francisco, CA 94111
Attn: Daniel J. Winnike, Esq.
If to JT Storage, Inc.
the Buyer: 166 Baypointe Parkway
San Jose, CA 95134
Attn: W. Virginia Walker
With a copy to: Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Andrei M. Manoliu, Esq.
or to such other address as the party addressed shall have previously
designated by written notice to the serving party, given in accordance with
this Section 12.4. A notice not given as provided above shall, if it is in
writing, be deemed given if and when actually received by the party to whom it
is given.
12.5 SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of each of the parties hereto and their successors and assigns.
Except as expressly provided herein, this Agreement shall not inure to the
benefit of any persons or entities not a party hereto.
12.6 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules hereto (which are all incorporated herein by this reference),
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection herewith.
12.7 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented by written agreement of the
parties hereto, at any time prior to the Closing Date with respect to any of
the terms contained herein.
12.8 WAIVER OF COMPLIANCE. The failure by any party hereto to comply
with any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by the party or parties hereto adversely affected
by such failure, but such waiver or failure to insist upon strict compliance
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure.
12.9 GENDER; NUMBER. Except where the context otherwise requires, words
used in the masculine gender include the feminine and neuter; the singular
number includes the plural,
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and the plural the singular; and the word "person" includes a corporation or
other entity or association as well as a natural person.
12.10 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of California, U.S.A.
12.11 ARBITRATION OF DISPUTES. In the event of any dispute or
difference of opinion in regard to the interpretation of any matter covered in
this Agreement, the parties hereto shall seek to amicably settle the dispute
through conciliation or mediation of a nominated party. If such mediation or
conciliation fails, the dispute shall be referred to arbitration. The
arbitration proceedings shall be carried out in such location, and shall be
subject to the applicable arbitration rules and regulations of such location,
as the parties may mutually agree upon; provided, however, that if the parties
are unable to agree upon the location, rules and regulations for such
arbitration, such arbitration shall be conducted in Geneva, Switzerland, under
the arbitration laws, rules and regulations of the International Chamber of
Commerce. The award or judgment arising under the arbitration shall be final
and binding on all parties, and judgment upon the award or judgment resulting
from such arbitration may be entered into by any court having jurisdiction over
the parties. The fees and expenses of the arbitration shall be shared ratably
by the parties.
12.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
LUNENBURG S.A.
By: /s/ J. L. Tandon
------------------------------------
Name: J. L. Tandon
------------------------------------
Title: President
------------------------------------
JT STORAGE, INC.
By: /s/ D. T. Mitchell
------------------------------------
Name: David T. Mitchell
------------------------------------
Title: Chief Executive Officer
------------------------------------
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<PAGE> 1
EXHIBIT 10.17
TECHNICAL KNOW HOW LICENCE AGREEMENT
This Agreement made this 14th day of June, One Thousand Nine
Hundred and Ninety Six between JT Storage Corporation, Inc. U.S.A., a
corporation duly created, organised and existing under and by virtue of the laws
of the State of Delaware, U.S.A. having its principal office at 166 Bay Points
Parkway, San Jose, CA 95134 in the United States of America (hereinafter
referred to as "LICENSOR" which term shall unless repugnant to the subject or
context mean and include its, successors and permitted assigns) of the First
Part AND MODULER ELECTRONICS (INDIA) PVT. LTD., a company duly created,
organised and existing under and by virtue of the Companies Act, 1956 and having
its registered office at 406, Dalamal Towers, Nariman Point, Bombay - 400 021,
India and having its Industrial Undertakings in Madras Export Processing Zone
(NEPZ), Madras, India (hereinafter referred to as the "LICENSEE", which term
unless repugnant to the context shall include its successors in interest and
permitted assigns) of the Other Part.
WHEREAS Licensor is in possession and has access to highly innovative Winchester
Disk Drive technology which allows for Ultra high capacity Drives to be
manufactured with simplified designs using fewer parts resulting in lower
manufacturing costs.
WHEREAS the LICENSOR owns and possesses valuable technical information and
know-how relating to the manufacture of the Licensed Products (as defined below)
which the LICENSOR is authorised, competent and willing to disclose and license
to the LICENSEE.
WHEREAS the LICENSEE has been incorporated with the main objects of
manufacturing, producing, distributing, marketing and otherwise dealing in
Winchester Drives.
WHEREAS at the LICENSEE'S request, the LICENSOR has agreed to license to the
LICENSEE certain technical know how and technical information on the terms and
conditions as are hereinafter set out.
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL COVENANTS AND
CONDITIONS, HEREINAFTER CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS:
1. DEFINITIONS
1
<PAGE> 2
In this Agreement, the following words and expression unless inconsistent with
the context, shall bear the meanings assigned thereto: precedent has been
fulfilled under Article 25.
"GOVERNMENT" shall mean the Government of the Republic of India.
"IMPROVEMENTS" means future modifications, improvements and upgradation relating
to the LICENSED PRODUCTS and/or TECHNICAL KNOWHOW in so far as such
modifications, improvements and upgradations have been commercially introduced
by LICENSOR in the LICENSED PRODUCTS it being understood that LICENSOR shall be
under no duty or obligation to include any improvements under this License
Agreement. The term IMPROVEMENTS shall not include new product lines or ranges
outside the LICENSED PRODUCTS or inventions and discoveries subject matter of
Patent.
"LICENSED PRODUCTS" shall mean Winchester Disk Drives and Sub-assemblies
thereof.
"PARTY" shall mean and refer to the LICENSOR or the LICENSEE, as the case may
be.
"PARTIES" shall mean and refer to the LICENSOR and the LICENSEE.
"PLANT" shall mean and refer to the manufacturing facilities being established
by the LICENSEE in India for manufacture of the LICENSED PRODUCTS.
"TECHNICAL KNOW-HOW shall mean and include specifications of the LICENSED
PRODUCTS and the parts and components thereof, general definitions and detailed
lists of equipment, operating and quality control requirements, testing,
procedures, rejection/acceptance norms. Technical know-how shall not include
know-how or information for composers/parts level manufacturing in respect of
components and/or parts manufactured by a third party and in relation to which
the LICENSOR does not have the rights to manufacture and/or grant license.
"TERRITORY" shall mean the geographical area under the jurisdiction of the
Government of the Republic of India.
1.2 INTERPRETATION
a. In this AGREEMENT headings are for convenience only and shall not
affect interpretation except to the extent that the context otherwise
requires.
b. Where a word or phrase is defined, other parts of speech and
grammatical forms of that word or phrase shall have corresponding
meanings.
2.1 AUTHORISATION
2
<PAGE> 3
a. LICENSOR hereby grants to the LICENSEE for the term of this Agreement
and subject to the limitations and restrictions herein contained:
(i) to the exclusive, non-transferable, non-assignable right to
manufacture, assemble and sell the LICENSED PRODUCTS in the
TERRITORY by utilising the TECHNICAL KNOW-HOW;
(ii) the non-exclusive, non-transferable, non-assignable right to
sell the LICENSED PRODUCTS in such other countries and the
LICENSOR may agree upon from time to time.
b. The LICENSOR shall disclose TECHNICAL KNOWHOW as is currently in use by
or in possession of or within the access of by the LICENSOR. Such
TECHNICAL KNOWHOW shall be complete and shall be sufficient to enable
the LICENSEE to assemble and manufacture and the LICENSED PRODUCTS. THE
TECHNICAL KNOWHOW shall be disclosed in such manner as is mutually
agreed by the parties to enable the LICENSEE to undertake the
manufacture of the Licensed product.
c. Nothing contained in this AGREEMENT shall be construed to require the
LICENSOR to disclose to the LICENSEE any TECHNICAL KNOW-HOW:
(i) to which the LICENSOR does not have a free and unrestricted
right to transfer to the LICENSEE; or
(ii) which the LICENSOR has derived under an obligation to observe
secrecy; or
(iii) the disclosure of which would result in a violation of the
laws of the U.S.A. and/or India.
2.2 By means of this AGREEMENT and the right and the license granted
hereunder, the LICENSEE, acknowledges that the LICENSOR is the owner of
the TECHNICAL KNOW-HOW and the LICENSEE shall under no circumstances
use the same to manufacture the LICENSED PRODUCTS outside the TERRITORY
or induce or assist any one else to do so either inside or outside the
TERRITORY. The LICENSEE also undertakes not to challenge, directly or
indirectly, LICENSOR'S ownership of its patents (if any).
2.3 Notwithstanding any provision contained in this AGREEMENT, should any
TECHNICAL KNOW-HOW be disclosed or supplied by the LICENSOR, at its
sole discretion and judgment, to the representatives of the LICENSEE
prior to the EFFECTIVE DATE, the LICENSEE shall immediately become
subject to, and obliged to comply with, the provisions of Article 11
hereof as if this AGREEMENT has become effective for the limited
purpose of this Article.
3
<PAGE> 4
2.4 LICENSOR may disclose and/or provide to LICENSEE, all such IMPROVEMENTS
as have been commercially introduced by the LICENSOR in the LICENSED
PRODUCTS.
2.5 LICENSEE agrees to make full disclosure promptly to LICENSOR of all
modifications, improvements and upgradations relating to the LICENSED
PRODUCTS, which LICENSEE may make to the LICENSED PRODUCTS or the
TECHNICAL KNOW-HOW during the term of this AGREEMENT. The ownership of
all such modifications, improvements and upgradations shall vest in the
LICENSEE. However, the LICENSOR and its affiliates shall have the
royalty free and unlimited duration license to use such modifications,
improvements and upgradations throughout the world either for
manufacturing or having manufactured any products.
3. UNDERTAKINGS BY PARTIES
3.1 UNDERTAKING BY LICENSEE
Neither this AGREEMENT nor the disclosure of confidential information
will be deemed by implication or otherwise to vest in the LICENSEE any
rights in any patents, trade secrets, trade marks, trade names,
know-how, or other property owned by or licensed to LICENSOR, other
than those rights that are expressly set forth in this AGREEMENT or any
other Agreements between the PARTIES.
3.2 UNDERTAKING BY LICENSOR
The LICENSOR undertakes that they are the owner and possesses the
Know-how under this agreement and they are entitled to grant exclusive
license for the production of the licensed products and further
undertakes to hold LICENSEE harmless and indemnify and keep indemnified
by LICENSOR against any claim, action, demand or expenses that the
LICENSEE may have to face or bear as a result of such representation on
the part of LICENSOR.
4. TRAINING OR LICENSEE PERSONNEL
4.1 During the term of this AGREEMENT the LICENSOR shall receive the
personnel of the LICENSEE for the purposes of educating the LICENSEE
and imparting training to the personnel of the licensee in the use of
the TECHNICAL KNOW-HOW, the number of personnel, the duration of
their training and other terms and conditions shall be mutually agreed
upon between the LICENSOR and the LICENSEE. The LICENSEE shall be
responsible for and shall pay all costs and expenses (including
traveling costs and living allowances and expenses of its personnel)
involved in undertaking such training at a Plant or facility of the
LICENSOR.
4
<PAGE> 5
4.2 The personnel of the LICENSEE shall during their training observe all
the Rules and Regulations of the LICENSOR which are applicable to the
LICENSOR'S own employees.
5. MAKING AVAILABLE LICENSOR'S PERSONNEL
The LICENSOR shall make available to the LICENSEE at the LICENSEE's
PLANT the services of its technical personnel for such duration and on
such terms as may be mutually agreed between the PARTIES. Such
personnel will provide technical services including supervision of the
installation and commissioning of the PLANT, training of the LICENSEE'S
personnel in the use of the TECHNICAL KNOW-HOW and operation of the
PLANT. The LICENSEE shall bear business class air fare to and from
India and local traveling and living expenses in India of LICENSOR's
personnel.
6. KNOW HOW FEES
6.1 In consideration for the grant of the license and this rights
hereunder, the LICENSEE shall pay to the LICENSOR a lump sum know-how
fees of US $2 million (US Dollar Two million) net of taxes to be
remitted in three installments as under:
1. 1/3rd after the agreement is filed with the Reserve Bank of
India /Authorised Foreign Exchange Dealer.
2. 1/3rd on delivery of technical documents;
3. and final 1/3rd on commencement of commercial production on
four years after the agreement is filed with Reserve Bank of
India / Authorised Foreign Exchange Dealer, whichever is
earlier.
6.2 Notice of Production
The LICENSEE shall notify the LICENSOR. LICENSEE's commencement of
COMMERCIAL PRODUCTION of LICENSED PRODUCTS within seven (7) days of
such commencement.
6.3 TAX
The lump sum know-how fees payable to the LICENSOR shall be net of all
Indian Taxes. Any such Taxes payable or deductible in respect thereof
shall be exclusively to the account of LICENSEE who shall pay and bear
the same. The LICENSEE shall provide to the LICENSOR along with each
remittance a Certificate showing the Tax which the LICENSEE has paid to
the relevant Tax Authorities.
5
<PAGE> 6
6.4 REMITTANCE
The lump sum know-how fees which are due shall, after conversion into
United States Dollars at the market rate on the date of remittance be
remitted to the LICENSOR, so as to arrive at LICENSOR'S Bank Account in
the United States of America within thirty (30) days of its becoming
due or such extended period as may be agreed by the LICENSOR.
7. QUALITY STANDARDS
7.1 The LICENSEE shall be responsible for manufacturing the LICENSED
PRODUCTS in accordance with the TECHNICAL KNOW-HOW and all applicable
standards of material and workmanship and processing conditions.
8. RIGHT OF INSPECTION & QUALITY CONTROL
8.1 The LICENSEE shall allow the LICENSOR or its authorised representatives
at all reasonable times to enter the works, warehouses, offices or
factories of the LICENSEE to inspect the PLANT, the raw material, parts
and components lying thereat and the manufacturing, testing and quality
control and other methods and processes currently in use for
manufacturing the LICENSED PRODUCTS and to carry out quality checks on
the LICENSES PRODUCTS.
8.2 The LICENSOR shall be entitled to cause the LICENSEE to withhold
manufacture and/or dispatch of the LICENSED PRODUCTS until the LICENSOR
is satisfied that the PLANT, the raw materials, parts and components
the manufacturing methods and the LICENSED PRODUCTS meet the
specifications, standards and quality stipulated by the LICENSOR under
this AGREEMENT.
9. LIMITATION OF LIABILITY
The LICENSOR shall not have any liabilities for claims of third parties
or any consequential losses, direct or indirect, suffered by the
LICENSEE or third parties with respect to the LICENSED PRODUCTS
manufactured by the LICENSEE. Further, the LICENSEE agrees to wave
and hold harmless the LICENSOR and each of its subsidiaries and
affiliates from any claims by anyone arising out of the manufacture or
sale of the LICENSED PRODUCTS by the LICENSEE.
10. LABELS & MARKINGS
10.1 The LICENSED PRODUCTS shall, if so desired by the LICENSOR, be marked
with a designation and/or labels (layout to be provided by the
LICENSOR) indicating that they are made under license of the LICENSOR.
6
<PAGE> 7
10.2 Upon termination and/or expiry of this AGREEMENT, the LICENSEE
shall forthwith cease using any name, marking or other terms of
designation indicating that the LICENSED PRODUCTS are made according to
the license provided for herein unless otherwise agreed to by and
between the PARTIES hereto in writing.
11. SECRECY
11.1 The LICENSEE shall maintain the secrecy of the TECHNICAL KNOW-HOW
furnished hereunder and shall take such necessary stops as may be
required for this purpose. The steps to be taken by the LICENSEE shall
include not making disclosure thereof to its employees,
sub-contractors, associate companies and any other party, except and to
the extent necessary for the performance of their duties. The
employees and sub-contractor shall be bound to threat all such
TECHNICAL KNOW-HOW as confidential and the LICENSEE shall get the
employee and sub-contractor to sign an undertaking to this effect.
11.2 The LICENSEE shall not use or permit the use of any TECHNICAL KNOW-HOW
in any manner inconsistent with the intention and spirit of this
AGREEMENT. The LICENSEE acknowledges that the TECHNICAL KNOW-HOW is
confidential and is delivered to the LICENSEE for the sole purpose of
enabling the LICENSEE to manufacture, market and sell the LICENSED
PRODUCTS.
11.3 The obligations cast upon the LICENSEE by this Article are extremely
valuable to the LICENSOR and therefore adherence to the said
obligations by the LICENSEE is critical to the performance of this
AGREEMENT and forms the very substance of this AGREEMENT and goes to
its very root and intent and any violation thereof would cause
irreparable injury to the LICENSOR which injury cannot be adequately
compensated by monetary reliefs alone and therefore the LICENSOR shall
be entitled to seek injunctive relief from a Court of law in the event
of the failure of the LICENSEE to adhere to the said obligations
notwithstanding the Arbitration Article herein.
11.4 The obligation undertaken in these Articles shall remaining force
indefinitely and shall survive termination or expiration of this
AGREEMENT. Provided always that the provision of this Article 11 shall
not apply to any information which is or enters the public domain due
to no fault of the LICENSEE.
12. NON-COMPETITION
The LICENSEE agrees that, since it is an exclusive licensee, it shall
not, directly or indirectly, except with prior written consent of the
LICENSOR have any business or commercial interest, either as a
shareholder, employees, consultant, partner or otherwise, in any other
company, whether incorporated or not, which is engaged in
7
<PAGE> 8
the TERRITORY in the production, sale and distribution or marketing
of any products which are similar to the LICENSED PRODUCTS and/or
competitive with the same. Any violation of the undertaking(s) set
forth in this Article is fundamental to this AGREEMENT and goes to
the root of the AGREEMENT and shall be considered irreparable injury
to the LICENSOR, thereby permitting it to seek remedy by way of
injunction, stay order or other equitable remedies under India law,
notwithstanding the arbitration clause herein.
13. TERM
Unless earlier terminated as provided herein the terms of this
AGREEMENT shall be for a period of seven (7) years from the Effective
Date of this AGREEMENT.
14. TERMINATION
14.1 The LICENSOR shall have a right to terminate this AGREEMENT forthwith
by written notice to the LICENSEE in any of the following events:
a. if this AGREEMENT does not take effect under Article 15 within 180 days
from the date of execution of this AGREEMENT;
b. if any government shall confiscate, expropriate or nationalise all or
part of the LICENSEE'S business or property or convert such business or
property to purposes which affect the design, manufacture, sale or
service of the LICENSED PRODUCTS;
14.2 This AGREEMENT may be terminated:
i) By mutual agreement between the PARTIES; or
ii) By either PARTY by giving written notice in the event of material
breach or default or any of the obligations by the other PARTY and
where such breach or default has not been rectified within thirty (30)
days after written notice from the other PARTY specifying the nature of
the default; or
iii) By either PARTY if any authority of the GOVERNMENT should require
directly or indirectly modification of any term or condition of this
AGREEMENT. The PARTIES hereto will then mutually negotiate to arrive at
a settlement and in case no such settlement can be arrive at within
ninety (90) days of commencement of such negotiations, either PARTY may
terminate this AGREEMENT; or
iv) By either PARTY in case the other PARTY becomes insolvent or is
declared bankrupt or goes into liquidation, voluntary or compulsory,
except for the purpose of amalgamation or reconstruction effective
immediately upon written notice to the other PARTY.
8
<PAGE> 9
14.3. CONSEQUENCES OF TERMINATION
a. It is expressly agreed and understood by the PARTIES hereto that in the
event of termination pursuant to the terms of this AGREEMENT the PARTY
electing to terminate this AGREEMENT shall incur no liability by the
other PARTY hereto for damages arising solely from the exercise of the
right to terminate this AGREEMENT.
b. Under no circumstances will either PARTY be released from any liability
or obligation accrued prior to the date of termination and the PARTY in
breach shall in all events remain liable for the consequences of that
breach.
c. In the events of expiration or termination of this AGREEMENT for any
reason whatsoever, the LICENSEE shall continue to be bound by the terms
and conditions contained in Article 11 herein.
d. In the event of LICENSOR terminating the Agreement, the LICENSEE shall
cease to use all and any of the TECHNICAL KNOWHOW and the LICENSEE
shall not thereafter manufacture or sell any products that use or
employ any of the LICENSOR's TECHNICAL KNOWHOW. The LICENSEE shall also
upon such termination promptly deliver to the LICENSOR all information,
processing instructions, correspondence and other data relating to the
manufacture, processing or packaging of the LICENSED PRODUCTS and shall
not thereafter use or disclose any information or data furnished under
this AGREEMENT.
14.4 After the full term expiration of this Agreement in accordance with
Article 13 and provided that the LICENSEE have paid all other sums due
hereunder to the LICENSOR up to the date of such expiration, the
LICENSEE may continue to use, in the territory, on a non-exclusive
basis, the TECHNICAL KNOWHOW then in use by its subject, however, to
the provisions of Article 11 herein.
15. EFFECTIVE DATE
This AGREEMENT shall take effect from the date when all the following
conditions precedent have been satisfied:
a. Both the PARTIES have obtained all necessary internal and corporate
approvals to execute this AGREEMENT;
b. All such necessary APPROVALS have been obtained and notification
thereof provided to the LICENSOR;
9
<PAGE> 10
c. This AGREEMENT has been executed by the PARTIES and filed with the
Reserve Bank of India, and/or authorised dealer in accordance with the
APPROVALS received from the GOVERNMENT.
16. INDEPENDENT PARTIES
Nothing set forth herein shall create a partnership, agency or power of
attorney between the PARTIES and neither PARTY shall be liable for a
debt or liability of the other unless it is specifically provided for
in this Agreement.
17. ENTIRE AGREEMENT
This Agreement supersedes all other agreements previously made between
the PARTIES relating to its subject matter. There are no other
understanding or agreements. Any amendment hereof or modifications
hereto shall be made in writing duly signed by authorised
representatives of the PARTIES.
18. WAIVER
Failure to exercise any rights under this AGREEMENT by either PARTY in
any one or more instances shall not constitute a waiver of such rights
or any other rights in any other instance.
19. ASSIGNMENT
This AGREEMENT may be assigned either fully or in part, by the LICENSOR
in respect of any of its rights and obligations to any other party
without the consent of the LICENSEE. However the LICENSEE cannot assign
this AGREEMENT without the prior written consent of the LICENSOR.
20. GOVERNMENT APPROVAL
The Letters of Approval No. 8/423/94-IA1 dated 21.9.94 and
8/423/94-1A2 dated 20.10.95 issued by the Government of India,
Ministry of Commerce, Office of the Development Commissioner, Madras
Export Processing Zone, in favour of licensee shall be deemed to be a
part of this Agreement. Only those provisions of this Agreement which
are covered by the said letter or which are not at variance with the
provisions of that letter, shall be binding on the Government of India
or the Reserve Bank of India.
21. GOVERNING LAW
21.1 This AGREEMENT and its substantive provisions shall be governed by and
construed in accordance with the laws of India.
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<PAGE> 11
22. DISPUTES AND ARBITRATION
22.1 It is specifically agreed that in case of any disputes, controversy,
claim or breach arising out of or in relation to this AGREEMENT
(including any disputes as to the existence and/or validity hereof; the
parties shall seek to resolve such controversy, claim or breach by
amicable arrangement and compromise, and only if the parties fail to
resolve the same by amicable arrangement and compromise within a period
of sixty (60) days of receipt of written notice of the same by the
other PARTY, either PARTY may resort to arbitration as provided for in
Article 22.2 hereof.
22.2 Except as hereinafter provided, any dispute controversy, claim or
breach arising out of or in relation to this Agreement (including a
dispute as to the existence or validity hereof) shall be finally
settled, without appeal, by arbitration in accordance with the Rules of
the International Chamber of Commerce, then in effect which shall be
deemed to have been incorporated herein, and judgment upon the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
23. NOTICE
Any notice required or permitted to be given hereunder shall be
considered properly if sent by Registered Air Mail or by telefax
(confirmed in writing by the Registered Air Mail) to the respective
address of the PARTIES as below:
If to JT Storage Corporation, Inc.
166, Bay Points Parkway,
San Jose, CA 95234,
U.S.A.
FAX: 408-405-1800
TEL: 408-408-1801
If to Modular Electronics (I) Pvt. Ltd.,
Unit #35 and 36,
Madras Export Processing Zone
Madras -- 600 045.
INDIA
FAX: 236-8054
TEL: 2368254/2368079
or to such other address as a party may have previously notified to the
other PARTY in writing.
24. SEVERABILITY
If one or more of the provisions hereof shall be void, invalid, illegal
or unenforceable in any respect under any applicable law or decision,
the validity, legality and enforceability of the remaining provisions
herein continued shall not be affected or impaired in any way. Each
PARTY hereto shall, in any such event, execute such additional
documents as the other PARTY may reasonably request or require in
order to give valid, legal and enforceable effects to any provision
here of which is determined to be invalid, illegal or unenforceable.
IN WITNESS WHEREOF, the PARTIES have caused this AGREEMENT to be
executed by and through their duly authorised representatives as of the
date written herein.
11
<PAGE> 12
LICENSOR LICENSEE
BY [Sig] : BY [Sig] :
NAME : NAME :
TITLE : TITLE :
DATE : DATE :
WITNESS :
12
<PAGE> 1
EXHIBIT 10.18
LEASE
(SINGLE-TENANT SINGLE BUILDING MODIFIED NET)
by and between
CILKER REVOCABLE TRUST OF OCTOBER 9, 1990
("Landlord")
and
JT STORAGE, INC.
("Tenant")
For the 52,000 Square Foot Premises at
166 Baypointe Parkway, San Jose, CA 95134
<PAGE> 2
LEASE SUMMARY
Lease Date: June 15, 1995
----------------------------
Landlord: Cilker Revocable Trust
-----------------------------
of October 9, 1990
-----------------------------
Address of Landlord: 1631 Willow Street, Suite 225
-----------------------------
San Jose, CA 95125
-----------------------------
Tenant: JT Storage, Inc.
-----------------------------
Address of Tenant: 1289 Anvilwood
-----------------------------
Sunnyvale, CA 94086
-----------------------------
Contact: Burton R. Feldstein
-----------------------------
Telephone: (408) 747-1315
-----------------------------
Building Address: 166 Baypointe Parkway
-----------------------------
San Jose, CA 95134
-----------------------------
Premises Square Footage: 52,000
-----------------------------
Building Square Footage: 52,000
-----------------------------
Anticipated Commencement Date: July 1, 1995
-----------------------------
Term: Five (5) Years
-----------------------------
Base Monthly Rent: $40,820.00/month
-----------------------------
Security Deposit: $46,020.00
-----------------------------
Tenant's Percentage: 100%
-----------------------------
<PAGE> 3
LEASE
-----
(SINGLE TENANT SINGLE BUILDING MODIFIED NET)
Table of Contents
-----------------
PARAGRAPH PAGE
- --------- ----
1 Parties 1
2 Premises 1
3 Definitions 1
4 Lease Term 3
5 Rent 3
6 Late Payment Charges 4
7 Security Deposit 4
8 Holding Over 4
9 Tenant Improvements 5
10 Condition of Premises 5
11 Use of the Premises 5
12 Quiet Enjoyment 7
13 Alterations 7
14 Surrender of the Premises 8
15 Real Property Taxes 9
16 Utilities and Services 9
17 Repair and Maintenance 10
18 Liens 12
19 Landlord's Right to Enter the Premises 12
20 Signs 13
21 Insurance 13
22 Waiver of Subrogation 15
23 Damage or Destruction 15
24 Condemnation 17
25 Assignment and Subletting 17
26 Default 18
(i)
<PAGE> 4
PARAGRAPH PAGE
- --------- ----
27 Subordination 20
28 Notices 21
29 Attorney's Fees 21
30 Estoppel Certificates 21
31 Transfer of the Premises by Landlord 22
32 Landlord's Right to Perform Tenant's Covenants 22
33 Tenant's Remedy 22
34 Mortgagee Protection 22
35 Brokers 23
36 Acceptance 23
37 Modifications for Lender 23
38 Parking 23
39 General 23
40 Option to Renew 24
41 Approvals 25
42 Reasonable Expenditures 25
TABLE OF EXHIBITS
-----------------
EXHIBIT A The Premises
---------
EXHIBIT B The Property
---------
EXHIBIT C Work Letter Agreement
---------
EXHIBIT D Commencement Date Memorandum
---------
EXHIBIT E CC&R'S
---------
(ii)
<PAGE> 5
LEASE
(SINGLE TENANT BUILDING ON SINGLE-BUILDING PROPERTY)
1. Parties.
THIS LEASE (the "Lease"), dated June 15th, 1995, is entered into by
and between The Cilker Revocable Trust of October 9, 1990 ("Landlord"), whose
address is 1631 Willow Street, Suite 225, San Jose, California 95125 and JT
Storage, Inc., a Delaware corporation ("Tenant"), whose address is 1289
Anvilwood, Sunnyvale, California 94086.
2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord those certain premises consisting of approximately fifty two
thousand (52,000) square feet, as shown in EXHIBIT "A" (the "Premises") in that
certain building commonly known as 166 Baypointe Parkway (the "Building"), as
further defined in Paragraph 3.B., in the City of San Jose, County of Santa
Clara (the "County"), California located on that certain real property
consisting of approximately three and 4/100ths (3.04) acres as more
particularly described in EXHIBIT "B", (the "Property") together with a right
to the Outside Area as defined in Paragraph 3.E.
3. Definitions. The following terms shall have the following
meanings in this Lease:
A. Alterations. Any alterations, additions or improvements
made in, on or about the Building or the Premises after the Commencement
Date, including, but not limited to, lighting, heating, ventilating, air
conditioning, electrical, partitioning, drapery and carpentry installations.
B. Building. That certain building on the Property consisting
of approximately fifty two thousand (52,000) square feet.
C. CC&R's. Those certain covenants, conditions and
restrictions recorded at Page 94 Book 1771 on August 2, 1984 of the official
Records of Santa Clara County, State of California, as attached hereto as
EXHIBIT "E".
D. Commencement Date. The Commencement Date of this Lease
shall be the first day of the Term determined in accordance with
Paragraph 4.A.
E. Outside Area. All areas and facilities within the Property
and outside the Premises, including, without limitation, the roof, parking
areas, sidewalks, landscaped areas, service areas, trash disposal facilities,
and similar areas and facilities.
F. HVAC. Heating, ventilating and air conditioning.
G. Interest Rate. Ten percent (10%) per annum, however, in
no event to exceed the maximum rate of interest permitted by law.
H. Landlord's Agents. Landlord's authorized agents, partners,
subsidiaries, directors, officers, contractors and employees.
-1-
<PAGE> 6
I. Base Monthly Rent. The rent payable pursuant to Paragraph 5.A.,
as adjusted from time to time pursuant to the terms of this Lease.
J. Real Property Taxes. Any form of association fee, assessment,
license, fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or
tax (other than net income, estate, succession, inheritance, transfer or
franchise taxes), imposed by any authority having the direct or indirect power
to tax, or by any city, county, state or federal government or any improvement
or other district or division thereof, whether such tax is: (i) determined by
the area of the Property or any part thereof or the rent and other sums payable
hereunder by Tenant or by other tenants, including, but not limited to, any
gross income or excise tax levied by any of the foregoing authorities with
respect to receipt of such rent or other sums due under this Lease; (ii) upon
any legal or equitable interest of Landlord in the Property or the Premises or
any part thereof; (iii) upon this transaction or any document to which Tenant
is a party creating or transferring any interest in the Property; (iv) levied or
assessed in lieu of, in substitution for, or in addition to, existing or
additional taxes against the Property whether or not now customary or within
the contemplation of the parties; or (v) surcharged against the parking area.
As of the date hereof, the parties acknowledge that an association fee is
levied against the Premises.
K. Rent. Monthly Rent plus the Additional Rent defined in Paragraph
5.B.
L. Security Deposit. That amount paid by Tenant pursuant to Paragraph
7.
M. Sublet. Any transfer, sublet, assignment, license or concession
agreement, change of ownership, mortgage, or hypothecation of this Lease or the
Tenant's interest in the Lease or in and to all or a portion of the Premises.
N. Subrent. Any consideration of any kind received, or to be received,
by Tenant from a subtenant if such sums are related to Tenant's interest in
this Lease or in the Premises, including, but not limited to, bonus money and
payments (in excess of book value) for Tenant's assets including its trade
fixtures, equipment and other personal property, goodwill, general intangibles,
and any capital stock or other equity ownership of Tenant.
O. Subtenant. The person or entity with whom a Sublet agreement is
proposed to be or is made.
P. Tenant Improvements and Work Letter Agreement. Those certain
improvements to the Premises to be constructed by Landlord as outlined in the
Work Letter Agreement, pursuant to EXHIBITS "C" and "C-1".
Q. Tenant Improvements Allowance. The cost allowance provided by
Landlord for the construction of the Tenant Improvements as further described
in EXHIBIT "C".
R. Tenant's Percentage. The percentage of the area of the Premises to
the total area of the Building. Tenant's Percentage is agreed to be one hundred
percent (100%) for the purpose of this Lease.
S. Tenant's Personal Property. Tenant's trade fixtures, furniture,
telephone and computer equipment and cabling equipment and other personal
property in the Premises.
T. Term. The term of this Lease set forth in Paragraph 4.A., as it
may be extended hereunder pursuant to any options to extend granted herein.
-2-
<PAGE> 7
4. Lease Term.
A. Term. The Term of this Lease shall be a period of five (5) years,
beginning on the Commencement Date of July 1, 1995 (subject to Paragraph 5.A of
the Work Letter Agreement), and terminating on June 30, 2000, unless sooner
terminated, subject to any extensions granted hereunder. Tenant agrees that if
Landlord, for any reason whatsoever, is unable to deliver possession of the
Premises on the anticipated Commencement Date, Landlord shall not be liable to
Tenant for any loss or damage therefrom, nor shall this Lease be void or
voidable. In such event, the Commencement Date, termination date and all other
dates of this Lease shall be extended to conform to the date of Landlord's
tender of possession of the Premises to Tenant, in the condition required by
Paragraph 5.A of the Work Letter Agreement, and Tenant shall not be obligated to
pay Monthly Rent or other sums due Landlord hereunder until possession of the
Premises is tendered to Tenant as provided therein. If the Commencement Date is
delayed beyond the anticipated Commencement Date for any reason other than a
delay by Tenant, Landlord shall use all reasonable efforts to accommodate
occupancy in that portion of the second floor of the Premises which is ready for
occupancy which occupancy shall be on all terms and conditions set forth herein,
except for the payment of Monthly Rent and Additional Rent.
B. Early Entry. Tenant will be permitted access to the Premises prior
to the Commencement Date for the purpose of fixturing or any other purpose
permitted by Landlord. Such early entry shall be at Tenant's sole risk and
subject to all the terms and provisions hereof, except for the payment of
Monthly Rent and Additional Rent. Landlord shall have the right to impose such
reasonable additional conditions on Tenant's early entry as Landlord shall deem
appropriate, and shall further have the right to require that Tenant execute an
early entry agreement containing such conditions prior to Tenant's early entry.
C. Termination. Either party, at its option, may terminate this Lease
by giving written notice of its election to terminate to the other party if the
Commencement Date has not occurred on or before September 1, 1995, through no
fault of the terminating party and provided that the party seeking to terminate
this Lease has used its best efforts to perform the obligations of such party
which are required to be performed in advance of the Commencement Date.
5. Rent.
A. Base Monthly Rent. Tenant shall pay to Landlord, in lawful money of
the United States, for each calendar month of the Term, commencing on the day
fifteen (15) days after the Commencement Date (the "Rent Start Date"), Base
Monthly Rent in the amount set forth below, in advance, on the first day of each
calendar month, without abatement, deduction, claim, offset, prior notice or
demand. Additionally, Tenant shall pay, as and with the Base Monthly Rent, the
estimated monthly Additional Rent as set forth in Paragraph 5.B herein, as
adjusted from time to time hereunder. Tenant shall deposit with Landlord upon
mutual execution of this Lease the sum of Forty Thousand Eight Hundred Twenty
and no/100ths Dollars ($40,820.00) to be applied to the Base Monthly Rent for
the first month for which it is due. Tenant shall pay the Base Monthly Rent on
the amount and for the months set forth below, and otherwise as provided in this
Paragraph 5.A:
<TABLE>
<S> <C> <C>
Base Monthly Rent Months 01-24 $40,820.00
Months 25-48 $43,420.00
Months 49-60 $46,020.00
</TABLE>
B. Additional Rent. All monies required to be paid by Tenant under
this Lease, including, without limitation, Real Property Taxes pursuant to
Paragraph 15., Outside Area Expenses
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<PAGE> 8
pursuant to Paragraph 17., insurance premiums pursuant to Paragraph 21., and
any association fee shall be deemed Additional Rent.
C. Prorations. If the Commencement Date is not the first (1st) day
of a month, or if the termination date of this Lease is not the last day of a
month, a prorated installment of Monthly Rent based on a thirty (30) day month
shall be paid for the fractional month during which the Lease commences or
terminates.
6. Late Payment Charges.
Tenant acknowledges that late payment by Tenant to Landlord of Rent
and other charges provided for under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult or impracticable to fix. therefore, if any installment of
Rent or any other charge due from Tenant is not received by Landlord within
five (5) days after such amount shall be due and after Landlord has made a
reasonable effort to contact Tenant regarding such late payment, Tenant shall
pay to Landlord an additional sum equal to five percent (5%) of the amount
overdue as a late charge for every month or portion thereof that the Rent or
other charges remain unpaid. The parties agree that this late charge represents
a fair and reasonable estimate of the costs that Landlord will incur by reason
of the late payment by Tenant.
Initials:
WHE LAC JSP
- --------------------------------- -----------------------------------
Landlord MCA AP Tenant
7. Security Deposit.
Tenant shall deposit with Landlord upon execution the sum of Forty
Six Thousand Twenty and no/100ths. Dollars ($46,020.00) as the Security Deposit
for the full and faithful performance of every provision of this Lease to be
performed by Tenant. If Tenant commits an event of default as defined in
Paragraph 26 hereof, with respect to any provision of this Lease, and after the
period to cure the default has elapsed, Landlord may apply all or any part of
the Security Deposit for the payment of any rent or other sum in default, the
repair of such damage to the Premises or the payment of any other amount which
Landlord may spend or become obligated to spend by reason of Tenant's default
or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of Tenant's default to the full extent permitted by law. If any
portion of the Security Deposit is so applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount. Landlord
shall not be required to keep the Security Deposit separate from its general
funds, however, Tenant shall be entitled to interest on the Security Deposit.
If Tenant is not otherwise in default pursuant to Paragraph 14 herein, so much
of the Security Deposit as has not been properly applied hereunder, including
interest, shall be returned to Tenant within thirty (30) days of termination
of the Lease.
8. Holding Over.
If Tenant remains in possession of all or any part of the Premises
after the expiration of the Term, with the express or implied consent of
Landlord, such tenancy shall be month-to-month only and shall not constitute
a renewal or extension for any further term. If Tenant remains in possession
either with or without Landlord's consent, Base Monthly Rent shall be
increased to an amount equal to one hundred twenty-five percent (125%) of
<PAGE> 9
the Base Monthly Rent payable during the last month of the Term, and any other
sums due under this Lease shall be payable in the amount and at the times
specified in this Lease. Such month-to-month tenancy shall be subject to every
other term, condition, and covenant contained herein. If Tenant fails to
surrender the Premises upon the expiration of the Term despite demand to do so
by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or
liability, including without limitation any claim made by a succeeding tenant,
resulting from Tenant's failure to surrender.
9. Tenant Improvements.
Landlord agrees to construct such Tenant Improvements pursuant to
the terms of Exhibits "C" and "C-1" herein.
10. Condition of Premises.
Landlord represents and warrants that, as of the Commencement
Date, the Premises and all elements of the Premises, including the sidewalks,
driveways, parking lot, mechanical, electrical, plumbing, truck doors, roof and
roofing system (including roof membrane) will be in good operating condition
and repair. Any damage to the Premises caused by Tenant's move-in shall be
repaired or corrected by Tenant, at its expense. Tenant acknowledges that
neither Landlord nor its Agents have made any representations or warranties as
to the suitability or fitness of the Premises for the conduct of Tenant's
business or for any other purpose, nor has Landlord or its Agents agreed to
undertake any Alterations or construct any Tenant Improvements to the Premises
except as expressly provided in this Lease. If Tenant fails to submit a
punchlist to Landlord within forty-five (45) days of occupancy or lease
commencement, whichever is sooner, then it shall be deemed that there are no
Tenant Improvement items needing additional work or repair, other than as may
be required because of latent defects or conditions which were not reasonably
discoverable by Tenant. Landlord's contractor shall complete all reasonable
punchlist items within forty-five (45) days after the walk-through inspection
or as soon as practicable thereafter. Upon completion of such punchlist items,
Tenant shall approve such completed items in writing to Landlord. If Tenant
fails to approve such items within fourteen (14) days of written notice of
completion, such items shall be deemed approved by Tenant.
11. Use of the Premises.
A. Tenant's Use. Tenant shall use the Premises solely for
office/R&D, light manufacturing, test & assembly, engineering, distribution &
storage and shall not use the Premises for any other purpose without obtaining
the prior written consent of Landlord. Tenant shall have the exclusive use of
all Outside Areas on the Property, subject only to the reasonable requirements
of Landlord to perform Landlord's obligations, or exercise the rights reserved
to Landlord, hereunder.
B. Compliance.
(i) The parties acknowledge that the Premises consist, in
part, of the existing Building which may not comply with legal and other
requirements which would be applicable to buildings newly-constructed as of the
date of this Lease. Subject to that limitation, Landlord represents and
warrants that to the best of his knowledge, as of the Commencement Date, no
condition on, in or about the Premises or the Property, or any improvements
thereon, shall violate any requirements of covenants, conditions, restrictions
and encumbrances ("CC&R's), insurance underwriter's requirements, or any rules,
regulations, statutes, ordinances, laws of building codes, (collectively,
"Laws") applicable thereto, including current building code requirements for
seismic and structural strength, the Americans with Disabilities Act of 1990,
as amended, or Title 24.
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<PAGE> 10
Tenant shall not use the Premises or suffer or permit anything to be
done by any agent, employee, contractor or invitee of Tenant, in or about the
Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental law, rule, regulation or requirement of
public authorities now in force or which may hereafter be in force, or relating
to or affecting the condition, use or occupancy of the Premises. Tenant shall
not commit any public or private nuisance or any other act or thing which might
or would disturb the quiet enjoyment of any occupant of nearby property. Tenant
shall place no loads upon the floors, walls or ceilings in excess of the maximum
designed load determined by Landlord or which endanger the structure; nor place
any harmful liquids in the drainage systems; nor dump or store waste materials
or refuse or allow such to remain outside the Building proper, except in the
enclosed trash areas provided. Tenant shall not store or permit to be stored or
otherwise placed any other material of any nature whatsoever outside the
Building. If applicable Laws, CC&R's or insurance underwriter's requirements
require the construction of any improvement on, in or about the Premises which
would properly be capitalized under generally acceptable accounting principles
(a "Capital Improvement"), except as provided below, Landlord shall construct
the Capital Improvement and, provided that the cost of such Capital Improvement
is properly reimbursable by Tenant hereunder, Tenant shall pay to Landlord, with
each monthly installment of Base Rent coming due after completion of the Capital
Improvement in question and receipt of Landlord's statement of the cost
therefor, an amount equal to the cost of such Capital Improvement amortized over
its useful life (as reasonably determined by the manufacturer or supplier of the
item in question, where applicable in equal monthly installments, until the
earlier of the expiration of the term of this Lease or the end of the useful
life of the Capital Improvement. If applicable Laws, CC&R's or insurance
underwriter's requirements require the construction of any Capital Improvement
as the result of a particular or unique use of the Premises made by Tenant,
Tenant shall construct such Capital Improvement at its sole cost. Tenant shall
not be required to construct or pay the cost of complying with any CC&R's,
insurance underwriter's requirements or Laws regarding the presence of hazardous
or toxic materials, unless the hazardous or toxic materials in question were
stored, used or disposed of by Tenant, its agents, employees or contractors on
or about the Premises.
(ii) In particular, Tenant, at its sole cost, shall comply with all
laws relating to the storage, use and disposal of hazardous, toxic or
radioactive matter by Tenant, its agents, employees or contractors, including
those materials identified in Sections 66680 through 66685 of title 22 of the
California Code of Regulations, Division 4, Chapter 30 as they may be amended
from time to time (collectively "Toxic Materials"). If Tenant does store, use
or dispose of any Toxic Materials, Tenant shall notify Landlord in writing at
least ten (10) days prior to their first appearance on the Premises. Tenant
shall be solely responsible for and shall defend, indemnify and hold Landlord
and its Agents harmless from and against all claims, costs and liabilities,
including attorneys' fees and costs, arising out of or in connection with its
storage, use and disposal of Toxic Materials by Tenant, its agents, employees
or contractors. Tenant shall further be solely responsible for and shall
defend, indemnify and hold Landlord and its Agents harmless from and against
all claims, costs, and liabilities, including attorneys' fees and costs,
arising out of or in connection with the removal, clean-up and restoration work
and materials necessary to comply with the requirements of the governmental
agency having jurisdiction over the removal or remediation of the materials
involved, and return the Premises and any other property of whatever nature
to their condition existing prior to the appearance of the Toxic Materials
on the Premises. If any governmental agency or the beneficiary of any deed of
trust covering the Property requires any testing of the Premises or the
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<PAGE> 11
Property, including the soil or groundwater of the Property, to ascertain
whether there has been any release of Toxic Materials in, on or about the
Premises or the Property, Landlord shall have the right to install monitoring
wells on or about the Outside Area and to perform such other tests and
investigations of the Premises and the Property for such purpose. Tenant shall
reimburse Landlord as Additional Rent for the reasonable cost of such tests and
investigations and of the installation, maintenance, repair and replacement of
such monitoring wells or other measuring devices if the results of such tests
and investigations disclose the existence of facts which give rise to the
liability of Tenant pursuant to the indemnity provisions of this Paragraph
11.B(ii). Tenant's obligations hereunder shall survive the termination of this
Lease. Landlord represents and warrants that to the best of his knowledge it
has provided true, accurate and complete copies of all reports, studies,
assessments and other materials or correspondence provided to Landlord or
prepared by any third party in connection with the investigation of the Property
for the presence of Toxic Materials.
Landlord shall hold Tenant harmless from and against all claims,
costs, and liabilities, including attorneys' fees and costs, arising out of or
in connection with the presence of any Toxic Materials on or about the Property,
from any source, other than those Toxic Materials for which Tenant or Tenant's
agents are responsible hereunder.
12. Quiet Enjoyment.
Landlord covenants that Tenant, upon performing the terms, conditions
and covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against any person claiming the same by, through or under Landlord.
13. Alterations.
After the Commencement Date, Tenant shall not make or permit any
Alterations in, on or about the Premises, except for non structural
Alterations, not exceeding Twenty-Five Thousand Dollars ($25,000.00) in cost,
without the prior written consent of Landlord, and according to plans and
specifications approved in writing by Landlord, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing Tenant shall not, without
the prior written consent of Landlord, make any:
(i) Alterations to the exterior of the Building;
(ii) Alterations to and penetrations of the roof of the Building
(provided that Tenant shall be entitled to install such satellite dishes or
antennae the placement of which on the roof is reasonably necessary in the
conduct of Tenant's business in the Premises, subject to the reasonable
requirements of Landlord; and
(iii) Alterations visible from outside the Premises, including Common
Area, to which Landlord may withhold Landlord's consent on wholly aesthetic
grounds.
All Alterations shall be installed at Tenant's sole expense, in
compliance with all applicable laws and the CC&R's, by a licensed contractor,
shall be done in a good and workmanlike manner conforming in quality and design
with the Premises existing as of the Commencement Date. All Alterations, trade
fixtures and Tenant's Personal Property installed in the Premises at Tenant's
expense ("Tenant's Property") shall at all times remain Tenant's Property and
Tenant shall be entitled to all depreciation, amortization and other tax
benefits with respect thereto. Except for Alterations which cannot be removed
without injury to the Premises, at any time Tenant may remove Tenant's Property
from the Premises, provided Tenant repairs all damage caused by such removal.
At the time that Landlord consents to any proposed
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<PAGE> 12
Alteration, and otherwise, within fifteen (15) days of written request,
Landlord shall advise Tenant in writing whether it will require Tenant to remove
any Alterations from the Premises upon termination of the Lease. If Landlord
fails to so advise Tenant at the time that Landlord consents to any proposed
Alteration, or in response to a written request, Landlord shall be deemed to
have consented to the Alterations in question remaining in the Premises upon
termination of the Lease. Tenant shall not be liable for removal of any
approved alterations which enhance the structural integrity and future use of
the building. Notwithstanding any other provision of this Lease, Tenant shall
be solely responsible for the maintenance and repair of any and all Alterations
made by Tenant to the Premises. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might result in any
claim of lien at least twenty (20) days prior to the commencement of such work
to enable Landlord to post and record a Notice of Nonresponsibility or other
notice deemed proper before the commencement of any such work.
14. Surrender of the Premises.
Upon the expiration or earlier termination of the Term, Tenant shall
surrender the Premises to Landlord in its condition existing as of the
Commencement Date, normal wear and tear and fire or other casualty, or other
condition which is not the obligation of Tenant to correct, excepted, with all
interior walls repaired and repainted if marked or damaged, all carpets
shampooed and cleaned, the HVAC equipment serviced and repaired by a reputable
and licensed service firm, all floors cleaned and waxed, all broken, marred or
nonconforming acoustical ceiling tiles replaced, all windows washed, the
plumbing and electrical systems and lighting in good order and repair,
including replacement of any burned out or broken light bulbs or ballasts, the
lawn and shrubs in good condition including the replacement of any dead or
damaged plantings, and the sidewalk, driveways and parking areas in good order,
condition and repair, all to the reasonable satisfaction of Landlord. Tenant
shall remove from the Premises all of Tenant's Alterations required to be
removed pursuant to Paragraph 13., and all Tenant's Personal Property and
repair any damage and perform any restoration work caused by such removal.
Subject to the provisions of Paragraph 13 above, Landlord shall notify Tenant
of the items to be removed and/or restored within one hundred (100) days prior
to the expiration of the lease term. If Tenant fails to remove such
Alterations and Tenant's Personal Property, and such failure continues after the
termination of this Lease, Landlord may retain such property and all rights of
Tenant with respect to it shall cease, or Landlord may place all or any portion
of such property in public storage for Tenant's account. Tenant shall be
liable to Landlord for costs of removal of any such Alterations and Tenant's
Personal Property and storage and transportation costs of same, and the cost of
repairing and restoring the Premises, together with interest at the Interest
Rate from the date of expenditure by Landlord. If the Premises are not so
surrendered at the termination of this Lease, Tenant shall indemnify Landlord
and its Agents against all loss or liability, including attorneys' fees and
costs resulting from delay by Tenant in so surrendering the Premises.
Normal wear and tear, for the purposes of this Lease, shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of reasonable standards
for maintenance, repair and janitorial practices. It is not intended, nor
shall it be construed, to include items of neglected or deferred maintenance
which would have or should have been attended to during the Term of the Lease
if reasonable standards had been applied to properly maintain and keep the
Premises at all times in good condition and repair.
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<PAGE> 13
15. Real Property Taxes.
A. Payment by Tenant. On or before April 1 and December 1 of each
calendar year during the Term, Tenant shall pay to Landlord, as Additional
Rent, all Real Property Taxes and Assessment District taxes as set forth on the
County assessor's tax statement for the Premises. Landlord shall give Tenant
at least fifteen (15) days' prior written notice of the amount so due,
including a copy of the tax statement. Upon Landlord's receipt of the Real
Property Tax payment from Tenant, Landlord shall pay the taxes to the County.
If Tenant fails to pay Tenant's Percentage of the Real Property Taxes on or
before April 1 and December 1, respectively, Tenant shall pay to Landlord any
penalty incurred by such late payment. Tenant shall pay Tenant's Percentage of
any Real Property Tax not included within the County tax assessor's tax
statement within ten (10) days after being billed for same by Landlord. The
foregoing dates for payment are based on the dates currently established by the
County as the dates on which Real Property Taxes become delinquent if not
paid. If such delinquency dates change, the dates on which Tenant must pay
such taxes shall be at least ten (10) days prior to the delinquency dates.
Notwithstanding the foregoing, at any time, upon prior written notice to
Tenant, Landlord shall have the right to require that Tenant pay one-twelfth
(1/12th) of the Real Property Taxes payments to Landlord directly, on the first
(1st) day of each calendar month. Assessments, taxes, fees, levies and charges
may be imposed by governmental agencies for such purposes as fire protection,
street, sidewalk, road, utility construction and maintenance, refuse removal
and for other governmental services which may formerly have been provided
without charge to property owners or occupants. It is the intention of the
parties that all new and increased assessments, taxes, fees, levies and charges
are to be included within the definition of Real Property Taxes for purposes of
this Lease.
B. Taxes on Tenant Improvements and Personal Property. Tenant shall
pay any increase in Real Property Taxes resulting from any and all Alterations
and Tenant Improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay
prior to delinquency all taxes assessed or levied against Tenant's Personal
Property in, on or about the Premises or elsewhere. When possible, Tenant
shall cause its Personal Property to be assessed and billed separately from the
real or personal property of Landlord.
C. Proration. Tenant's liability to pay Real Property Taxes shall be
prorated on the basis of a 365-day year to account for any fractional portion
of a fiscal tax year included at the commencement or expiration of the Term.
With respect to any assessments which may be levied against or upon the
Premises, or which under the laws then in force may be evidenced by
improvements or other bonds or may be paid in annual installments, only the
amount of such annual installment (with appropriate proration for any partial
year) and interest due thereon shall be included within the computation of the
annual Real Property Taxes levied against the Premises.
16. Utilities and Services.
Tenant shall be responsible for and shall pay promptly all charges for
water, gas, electricity, computer and telephone cabling and equipment, refuse
pickup, janitorial service and all other utilities, materials and services
furnished directly to or used by Tenant in, on or about the Premises during the
Term, together with any taxes thereon. Tenant shall be responsible for all
costs related to excessive intentional or unintentional use of water as
determined by Landlord. Landlord shall not be liable in damages or otherwise
for any failure or interruption of any utility service or other service
furnished to the Premises, except
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<PAGE> 14
that resulting from the negligence or willful misconduct of Landlord, or
Landlord's Agents. In addition, Tenant shall not be entitled to any abatement
or reduction of Rent by reason of such failure or interruption, no eviction of
Tenant shall result from such failure or interruption and Tenant shall not be
relieved from the performance of any covenant or agreement in this Lease
because of such failure or interruption except to the extent attributable to
the negligence or willful misconduct of Landlord, or Landlord's Agents.
17. Repair and Maintenance.
A. Building.
(i) Landlord's Obligations. Landlord shall keep in good order,
condition and repair the structural parts of the Building, which structural
parts include only the roof, the roof surface membrane (to be reimbursed by
Tenant, except as otherwise provided herein), exterior walls, foundation and
subflooring of the Building, except for any damage thereto caused by the
negligence or willful acts or omissions of Tenant or of Tenant's agents,
employees or invitees, or by reason of the failure of Tenant to perform or
comply with any terms in this Lease, or caused by Alterations made by Tenant or
by Tenant's agents, employees or contractors. Except as otherwise reasonably
apparent to Landlord, or part of the regularly scheduled repair or maintenance
of the Property, it is an express condition precedent to all obligations of
Landlord to repair and maintain that Tenant shall have notified Landlord of the
need for such repairs or maintenance.
(ii) Tenant's Obligations. Tenant shall at all times and at its
own expense clean, keep and maintain in good order, condition and repair every
part of the Premises which is not within Landlord's obligation pursuant to
Paragraph 17.A.(i), except for any damage thereto caused by the negligence or
willful acts or omissions of Landlord or Landlord's Agents. Tenant's repair and
maintenance obligations shall include, all plumbing and sewage facilities within
the Premises, fixtures, interior walls and ceiling, floors, windows, doors,
entrances, plateglass, showcases, skylights, all electrical facilities and
equipment, including lighting fixtures, lamps, fans and any exhaust equipment
and systems, any automatic fire extinguisher equipment within the Premises,
electrical motors and all other appliances and equipment of every kind and
nature located in, upon or about the Premises. Landlord will obtain HVAC
systems preventive maintenance contracts with quarterly service in accordance
with manufacturer recommendations, which shall be subject to the reasonable
approval of Landlord and paid for by Tenant, and which shall provide for and
include replacement of filters, oiling and lubricating of machinery, parts
replacement, adjustment of drive belts, oil changes and other preventive
maintenance including annual maintenance of duct work, interior unit drains and
caulking at sheet metal and recaulking of jacks and vents. Tenant shall have
the benefit of all warranties available to Landlord regarding the equipment in
such HVAC systems. The cost of any repair or replacement of Capital Equipment
in or on the Premises, including but not limited to the roof and HVAC equipment,
shall be amortized over the useful life of the Equipment, as established by the
manufacturer or supplier of such an item, but in no event to exceed fifteen (15)
years. Such amortization shall be based on the Tenant paying for a pro rata
share of such cost by taking the remaining Lease Term and dividing it by the
useful life, but in no case shall this ratio exceed 100%. If Tenant extends this
Lease, it will reimburse Landlord for any unamortized portion of this cost
during that extension, and any other portions of the Premises to be maintained
by Tenant.
Notwithstanding the foregoing, Tenant shall have no obligation to
perform any item of repair or maintenance, or to pay
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<PAGE> 15
any cost as part of Outside Area Expenses, as defined below, or otherwise,
which is: (i) necessitated by the acts or omissions of Landlord or Landlord's
Agents; (ii) occasioned by fire, acts of God or other casualty; (iii) required
as a consequence of any construction defect in the Premises; (iv) reimbursable
by third parties; or (v) properly treated as a Capital Improvement (except as
provided below).
B. Outside Area.
(i) Landlord's Obligations. Landlord shall maintain the Outside
Area including those portions of the Building within the Outside Area, including
the roof (subject to Tenant's obligation to pay for annual roof inspection and
repair as set forth in Paragraph 17.B.(ii), and exterior walls (excluding the
doors, ceiling and plateglass). Provided Landlord maintains the Property in a
condition comparable to similarly situated buildings in the vicinity of the
Premises, the manner in which the Outside Area shall be maintained and the
expenditures therefor shall be at the sole discretion of Landlord. As required
to perform the obligations of Landlord hereunder, or in the exercise of the
rights reserved to Landlord, Landlord shall at all times have exclusive control
of the Outside Area and may at any time temporarily close any part thereof,
exclude and restrain anyone from any part thereof, except the bona fide
customers, employees and invitees of Tenant who use the Outside Area in
accordance with the rules and regulations as Landlord may from time to time
promulgate, and may change the configuration or location of the Outside Area. In
exercising any such rights, Landlord shall make a reasonable effort to minimize
any disruption of Tenant's business.
(ii) Tenant to Pay Outside Area Expenses. Tenant shall pay, as
Additional Rent, Tenant's Percentage of all reasonable costs and expenses paid
or incurred by Landlord during the Term in maintaining, repairing and replacing
the Outside Area, including annual roof inspections and preventive maintenance
work on the roof, and a reasonable management fee for Landlord's property
manager which management fee shall be $0.02/square foot/month subject to annual
CPI adjustments during the term of the Lease (the "Outside Area Expenses").
Landlord shall provide Tenant a reasonably detailed Budget summary of the costs
which constitute Outside Area Expenses on an annual basis, together with copies
of invoices for the costs incurred. If any Outside Area Expense would properly
be considered a Capital Improvement, Landlord shall construct the item in
question, and, provided that the cost of such Capital Improvement is properly
reimbursable by Tenant hereunder, Tenant shall pay to Landlord, with each
monthly installment of Base Rent coming due after completion of the Capital
Improvement in question and receipt of Landlord's statement of the cost
therefor, an amount equal to the cost of such Capital Improvement amortized over
its useful life (as reasonably determined by the manufacturer or supplier of the
item in question, where applicable) in equal monthly installments, until the
earlier of the expiration of the term of this Lease or the end of the useful
life of the Capital Improvement.
(iii) Monthly Payments. From and after the Rent Start Date,
Tenant shall pay to Landlord on the first day of each calendar month of the Term
a monthly amount based upon the Budget estimated by Landlord for the Outside
Area Expenses. The foregoing estimated monthly charge may be adjusted by
Landlord at the end of any calendar quarter on the basis of Landlord's
experience and reasonably anticipated costs. Any such adjustment shall be
effective as of the calendar month next succeeding receipt by Tenant of written
notice of such adjustment provided Tenant has received at least thirty (30)
days' notice of the adjustment before it is due. Within one hundred twenty
(120) days following the end of each calendar year Landlord shall furnish Tenant
a statement of the actual Outside Area Expenses
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<PAGE> 16
("Actual Expenses") for the calendar year and the payments made by Tenant with
respect to such period. If Tenant's payments for the Outside Area Expenses do
not equal the amount of the Actual Expenses, Tenant shall pay Landlord the
deficiency within thirty (30) days after receipt of such statement. If
Tenant's payments exceed the Actual Expenses, Landlord shall either offset the
excess against the Outside Area Expenses next thereafter to become due to
Landlord, or shall refund the amount of the overpayments to Tenant, in cash, as
Landlord shall elect. There shall be appropriate adjustments of the Outside
Area Expenses as of the Commencement Date and expiration of the Term. Landlord
shall make the books and records concerning the calculation of Outside Area
Expenses available to Tenant for inspection during normal business hours at a
location reasonably convenient to the Premises. If Tenant's review of those
books and records indicates that the charge for Outside Area Expenses requested
by Landlord exceeds the actual amount due, Landlord shall promptly reimburse to
Tenant any overcharge.
C. Compliance with Governmental Regulations. Subject to Paragraph
11.B above, Tenant shall comply with, including the making by Tenant of any
Alteration to the Premises, all present and future regulations, rules, laws,
ordinances, and requirements of all governmental authorities (including, without
limitation, state, municipal, county and federal governments and their
departments, bureaus, boards and officials) arising from the use or occupancy
of, or applicable to, the Premises or privileges appurtenant to or in
connection with the enjoyment of the Premises. Any such capital expenditures
shall be amortized over its useful life, and Tenant shall pay in monthly
installments during each year of the lease term that portion of such amortized
expenditure that is allocable to such year.
18. Liens.
Tenant shall keep the Building and the Property free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant and hereby indemnifies and holds Landlord and its
Agents harmless from all liability and cost, including attorneys' fees and
costs, in connection with or arising out of any such lien or claim of lien.
Tenant shall cause any such lien imposed to be released of record by payment or
posting of a proper bond acceptable to Landlord within ten (10) days after
written request by Landlord. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might result in any
claim of lien at least ten (10) days prior to the commencement of such work to
enable Landlord to post and record a Notice of Nonresponsibility. If Tenant
fails to so remove any such lien within the prescribed ten (10) day period,
then Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord
as Additional Rent for such amounts upon demand. Such reimbursement shall
include all costs incurred by Landlord including Landlord's reasonable
attorneys' fees with interest thereon at the Interest Rate.
19. Landlord's Right to Enter the Premises.
Tenant shall permit Landlord and its Agents to enter the Premises at
all reasonable times with reasonable notice, except for emergencies in which
case no notice shall be required, to inspect the same, to post Notices of
Nonresponsibility and similar notices and "For Sale" signs, to show the
Premises to interested parties such as prospective lenders and purchasers, to
make necessary repairs, to discharge Tenant's obligations hereunder when Tenant
has failed to do so within a reasonable time after written notice from
Landlord, and at any reasonable time within one hundred eighty (180) days prior
to the expiration of the Term, to place upon the Premises ordinary "For Lease"
signs and to show the Premises to prospective tenants. The above rights are
subject
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to reasonable security regulations of Tenant, and to the requirement that
Landlord shall at all times act in a manner to cause the least possible
interference with Tenant's business.
20. Signs.
Tenant shall have the right to erect and maintain a Tenant
identification sign in, on or about the Building, Outside Area or the Premises
or other advertising material that is visible from the exterior of the Building
with Landlord's consent, which shall not be unreasonably withheld. The size,
design, color and other physical aspects of the Tenant identification sign
shall be subject to the Landlord's written approval prior to installation,
which shall not be unreasonably withheld, and any appropriate municipal or
other governmental approvals. The cost of the sign, its installation,
maintenance and removal expense shall be at Tenant's sole expense. If Tenant
fails to maintain its sign, or, if Tenant fails to remove its sign upon
termination of this Lease, Landlord may do so at Tenant's expense and Tenant's
reimbursement to Landlord for such amounts shall be deemed Additional Rent.
21. Insurance.
A. Indemnification. Tenant hereby agrees to defend, indemnify and
hold harmless Landlord and its Agents from and against any and all damage,
loss, liability or expense including attorneys' fees and legal costs suffered
directly, or by reason of any claim, suit or judgment brought by or in favor of
any person or persons for damage, loss or expense due to, but not limited to,
bodily injury and property damage sustained by such person or persons which
arises out of, is occasioned by or in any way attributable to the use or
occupancy of the Premises or any part thereof by Tenant, the acts or omissions
of the Tenant, its agents, employees or any contractors or invitees brought
onto the Premises by the Tenant, except to the extent caused by the negligence
or willful misconduct of Landlord or its Agents. Tenant agrees that the
obligations assumed herein shall survive this Lease.
Landlord shall indemnify and hold harmless Tenant from all damages,
liabilities, claims, judgments, actions, attorneys' fees, consultants' fees,
cost and expenses arising from the negligence or willful misconduct of Landlord
or its employees, agents, contractors or invitees, or the breach of Landlord's
obligations or representations under this Lease.
B. Tenant's Insurance. Tenant agrees to maintain in full force and
effect at all times during the Term, at its own expense, for the protection of
Tenant and Landlord, as their interests may appear, policies of insurance
issued by a responsible carrier or carriers acceptable to Landlord which afford
the following coverages:
(i) Commercial general liability insurance in an amount not less
than Three Million and no/100ths Dollars ($3,000,000.00) combined single limit
for both bodily injury and property damage which includes blanket contractual
liability broad form property damage, personal injury, completed operations,
products liability, and fire damage legal (in an amount not less than Fifty
Thousand and no/100ths Dollars ($50,000.00), naming Landlord and its Agents as
additional insureds.
(ii) "Special Risk" property insurance (including, without
limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler
leakage endorsement) on Tenant's Personal Property located on or in the
Premises. Such insurance shall be in the full amount of the replacement cost,
as the same may from time to time increase as a result of inflation or
otherwise, and shall be in a form providing
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coverage comparable to the coverage provided in the standard ISO All-
Risk form. As long as this Lease is in effect, the proceeds of such policy
shall be used for the repair or replacement of such items so insured. Landlord
shall have no interest in the insurance upon Tenant's Personal Property.
(iii) Boiler and machinery insurance, including but not limited
to, steam pipes, pressure pipes, condensation return pipes and other pressure
vessels and HVAC equipment, including miscellaneous electrical apparatus, in an
amount satisfactory to Landlord.
C. Premises Insurance. During the Term Landlord shall maintain
"Special Risk" property insurance (including inflation endorsement, sprinkler
leakage endorsement, earthquake and flood coverage) on the Premises, excluding
coverage of all Tenant's Personal Property on or in the Premises, but including
the Building and any Tenant Improvements. Such insurance shall also include
insurance against loss of rents on a "Special Risk" basis, including earthquake
and flood, in an amount equal to the Monthly Rent and Additional Rent, and any
other sums payable under the Lease, for a period of at least twelve (12) months
commencing on the date of loss. Such insurance shall name Landlord and its
Agents as named insureds and include a lender's loss payable endorsement in
favor of Landlord's lender (Form 438 BFU Endorsement). Subject to the remaining
provisions of this Lease, Tenant shall reimburse Landlord for the costs of such
policy, annually, or upon such other periodic basis as Landlord shall elect,
within fifteen (15) days of the date of receipt of a statement for the same, as
Additional Rent. If the insurance premiums are increased after the Commencement
Date, Tenant shall pay such increase within fifteen (15) days of notice of such
increase.
Nothing herein will require Tenant to reimburse to Landlord that
portion of insurance premiums attributable to earthquake coverage which exceeds,
in any one year, a commercially reasonable amount. The parties agree, without
limitation, that, if insurance premiums attributable to earthquake coverage
exceed three (3) times the premiums payable for casualty insurance, such cost
will be deemed in excess of a commercially reasonable amount and providing the
lien holder has waived the requirement for such coverage.
D. Increased Coverage. Upon demand, Tenant shall provide Landlord, at
Tenant's expense, with such increased amount of existing insurance, and such
other insurance as the holder of a first deed of trust on the Property may
reasonably require to afford Landlord and Landlord's lender adequate protection.
E. Co-Insurer. If, on account of the failure of Tenant to comply with
the foregoing provisions, Landlord is adjudged a co-insurer by its insurance
carrier, then, any loss or damage Landlord shall sustain by reason thereof,
including attorneys' fees and costs, shall be borne by Tenant and shall be
immediately paid by Tenant upon receipt of a bill therefor and evidence of such
loss.
F. Insurance Requirements. All such insurance shall be in a form
satisfactory to Landlord and shall be carried with companies that have a general
policy holder's rating of not less than "A" and a financial rating of not less
than Class "X" in the most current edition of Best's Insurance Reports; shall
provide that such policies shall not be subject to material alteration or
cancellation except after at least thirty (30) days' prior written notice to
Landlord; and shall be primary as to Landlord. The policy or policies, or duly
executed certificates for them, together with satisfactory evidence of payment
of the premium thereon shall be deposited with Landlord
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prior to the Commencement Date, and upon renewal of such policies, not less
than thirty (30) days prior to the expiration of the term of such coverage. If
Tenant fails to procure and maintain the insurance required hereunder, Landlord
may, but shall not be required to, order such insurance at Tenant's expense and
Tenant shall reimburse Landlord. Such reimbursement shall include all costs
incurred by Landlord including Landlord's reasonable attorneys' fees, with
interest thereon at the Interest Rate.
G. Landlord's Disclaimer. Landlord and its Agents shall not be
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Premises, or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
whatsoever, unless caused by or due to the negligence or willful acts of
Landlord, or Landlord's Agents. Landlord and its Agents shall not be liable
for any latent defect in the Premises. Tenant shall give prompt written notice
to Landlord in case of a casualty, accident or repair needed in the Premises.
22. Waiver of Subrogation.
Landlord and Tenant each hereby waive all rights of recovery against
the other on account of loss and damage occasioned to such waiving party for its
property or the property of others under its control to the extent that such
loss or damage is insured against under any insurance policies which may be in
force at the time of such loss or damage. Tenant and Landlord shall, upon
obtaining policies of insurance required hereunder, give notice to the
insurance carrier that the foregoing mutual waiver of subrogation is contained
in this Lease and Tenant and Landlord shall cause each insurance policy
obtained by such party to provide that the insurance company waives all right
of recovery by way of subrogation against either Landlord or Tenant in
connection with any damage covered by such policy.
23. Damage or Destruction.
A. Landlord's Obligation to Rebuild. If the Premises are damaged or
destroyed, Landlord shall promptly and diligently repair the Premises unless it
has the right to terminate this Lease as provided herein and it elects to so
terminate.
B. Right to Terminate. Landlord shall have the right to terminate
this Lease in the event any of the following events occurs:
(i) Insurance proceeds are not available to pay one hundred
percent (100%) of the cost of such repair, excluding the deductible;
(ii) The Premises cannot, with reasonable diligence, be fully
repaired by Landlord within one hundred twenty (120) days after the date of the
damage or destruction; or
(iii) The Premises cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake
faults, radiation, chemical waste and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may given Tenant
written notice of its election to terminate within sixty (60) days after such
damage or destruction, and this Lease shall terminate thirty (30) days after the
date Tenant receives such notice. If Landlord elects not to terminate the
Lease, subject to Tenant's termination right set forth below,
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Landlord shall promptly commence the process of obtaining necessary permits and
approvals and repair of the Premises as soon as practicable, and this Lease
will continue in full force and effect. All insurance proceeds from insurance
under Paragraph 21., excluding proceeds for Tenant's Personal Property, shall
be disbursed and paid to Landlord. Tenant shall not be obligated to pay any
such deductible if Landlord elects to terminate the lease due to casualty not
caused by Tenant, its subtenants or their respective agents, employees,
contractors or invitees. In no case shall the total deductible for casualty
insurance or the amount of deductible paid by Tenant for any casualty, except
for earthquake, exceed fifteen thousand dollars ($15,000). The total
deductible amount for any earthquake casualty shall not exceed ten percent
(10%) of the then current replacement cost of the improvements to be restored,
and Tenant shall be obligated to pay up to one-half (5%) of this amount.
Tenant shall have the right to terminate this Lease, if the Premises
cannot, with reasonable diligence, be fully repaired within one hundred
ninety-five (195) days from the date of damage or destruction, or if the
estimate of the time required for such repair indicates that the repair will
require in excess of one hundred ninety-five (195) days from the date of the
damage or destruction. The determination of the estimated repair period shall
be made by Landlord in its good faith business judgment within thirty (30) days
after such damage or destruction. Landlord shall deliver written notice of the
repair period to Tenant after such determination has been made and Tenant shall
exercise its right to terminate this Lease, if at all, within ten (10) days of
receipt of such notice from Landlord.
C. Limited Obligation to Repair. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the basic
Premises, the Tenant Improvements or the basic Building as they exist as of the
Commencement Date, subject to any changes in applicable Laws, as the case may
be, and Tenant shall, at Tenant's expense, replace or fully repair all Tenant's
Personal Property and any Alterations installed by Tenant and existing at the
time of such damage or destruction, as necessary for the conduct of Tenant's
business.
D. Abatement of Rent. Rent shall be temporarily abated
proportionately, but only to the extent of any proceeds received by Landlord
from rental abatement insurance described in Paragraph 21.C., during any period
when, by reason of such damage or destruction, Landlord and Tenant reasonably
determine that there is substantial interference with Tenant's use of the
Building, having regard to the extent to which Tenant may be required to
discontinue Tenant's use of the Building. Such abatement shall commence upon
such damage or destruction and end upon substantial completion by Landlord of
the repair or reconstruction which Landlord is obligated or undertakes to do.
Tenant shall not be entitled to any compensation or damages from Landlord for
loss of the use of the Premises, damage to Tenant's Personal Property or any
inconvenience occasioned by such damage, repair or restoration.
E. Damage Near End of Term. Anything herein to the contrary
notwithstanding, if the Premises are destroyed or damaged during the last
twelve (12) months of the Term, and the cost of repairing the damage or
destruction exceeds ten percent (10%) of the replacement cost of the entire
Premises, then Landlord and Tenant may elect to cancel and terminate this Lease
as of the date of the occurrence of such damage. If Landlord and Tenant do not
elect to so terminate this Lease, the repair of such damage shall be governed
by Paragraphs 23.A. and 23.B.
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24. CONDEMNATION.
If title to all of the Premises or so much thereof is taken for any
public or quasi-public use under any statute or by right of eminent domain so
that reconstruction of the Premises will not, in Landlord's and Tenant's mutual
opinion, result in the Premises being reasonably suitable for Tenant's continued
occupancy for the uses and purposes permitted by this Lease, this Lease shall
terminate as of the date that possession of the Premises or part thereof be
taken and rent shall be adjusted to the date of termination. A sale by Landlord
to any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this paragraph.
If any part of the Premises is taken and such partial taking renders
the Premises unsuitable for Tenant's business as reasonably determined by
Tenant, Tenant shall have the right to terminate this Lease, which termination
shall be effective on the date set forth in Tenant's termination notice and rent
shall be adjusted to the date of termination.
If any part of the Premises is taken and the remaining part is
reasonably suitable for Tenant's continued occupancy for the purposes and uses
permitted by this Lease, this Lease shall, as to the part so taken, terminate as
of the date that possession of such part of the Premises is taken and the Rent
and other sums payable hereunder shall be reduced in the same proportion that
Tenant's use of Premises is reduced. If the parties disagree as to the amount
of Rent reduction, the matter shall be resolved by arbitration. Each party
hereby waives the provisions of Section 1265.130 of the California Code of Civil
Procedure allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Building or Premises.
No award for any partial or entire taking shall be apportioned. Tenant
assigns to Landlord its interest in any award which may be made in such taking
or condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, or its moving costs, or for the loss of its
goodwill.
25. ASSIGNMENT AND SUBLETTING.
A. Landlord's Consent. Tenant shall not enter into a Sublet without
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Any attempted or purported Sublet without Landlord's prior written
consent shall be void and confer no rights upon any third person and, at
Landlord's election, shall terminate this Lease. Each Sublessee shall agree in
writing, for the benefit of Landlord, to assume, to be bound by, and to perform
the terms, conditions and covenants of this Lease to be performed by Tenant.
Notwithstanding anything contained herein, Tenant shall not be released from
personal liability for the performance of each term, condition and covenant of
this Lease by reason of Landlord's consent to a Sublet unless Landlord
specifically grants such release in writing. Consent by Landlord to any Sublet
shall not be deemed a consent to any subsequent Sublet.
B. Information to be Furnished. If Tenant desires at any time to
Sublet the Premises or any portion thereof, it shall first notify Landlord of
its desire to do so and shall submit in writing to Landlord: (i) the name of the
proposed Subtenant; (ii) the nature of the proposed subtenant's business to be
carried on
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in the Premises; (iii) the terms and provisions of the proposed Sublet and a
copy of the proposed Sublet form containing a description of the subject
premises; and (iv) such financial information, including financial statements,
as Landlord may reasonably request concerning the proposed Subtenant.
C. Landlord's Alternatives. At any time within ten (10) days after
Landlord's receipt of the information specified in Paragraph 25.B., Landlord
may, by written notice to Tenant, elect: (i) to consent to the Sublet by
Tenant; or (ii) to refuse its consent to the Sublet.
If Landlord consents to the Sublet, Tenant may thereafter enter
into a valid Sublet or portion thereof, upon the terms and conditions and with
the proposed Subtenant set forth in the information furnished by Tenant to
Landlord pursuant to Paragraph 25.B. Landlord and Tenant shall split any
profit 50/50 derived from any Sublet after deduction for reasonable costs of
such Sublet including brokerage commissions, legal fees, and the costs of any
Alteration(s) made by Tenant to the portion of the Premises which is Sublet
pursuant to Paragraph 13 herein.
D. Proration If a portion of the Premises is Sublet, the pro rata
share of the Rent attributable to such partial area of the Premises shall be
determined by Landlord by dividing the Rent payable by Tenant hereunder by the
total leasable square footage of the Premises and multiplying the resulting
quotient (the per square foot rent) by the number of square feet of the
Premises which are Sublet appropriately adjusted, as necessary, for sublet
areas which are warehouse spaces as opposed to those that are office spaces.
E. Assignment and Exempt Sublets. Notwithstanding the above,
Landlord's consent shall not be required for an Assignment or a Sublet of this
Lease to an exempt subsidiary, affiliate or parent corporation of Tenant, or a
corporation into which Tenant merges or consolidates, if Tenant gives Landlord
prior written notice of the name of any such Sublessee or Assignee, and if the
Sublessee or Assignee assumes, in writing, all of Tenant's obligations under
the Lease. An assignment or other transfer of this Lease to a purchaser of all
or substantially all of the assets of Tenant shall be deemed a Sublet requiring
Landlord's prior written consent.
26. DEFAULT.
A. Tenant's Default. An Event of Default under this Lease by Tenant
shall exist if any of the following occurs:
(i) If Tenant fails to pay Rent or any other sum required to be
paid hereunder within fourteen (14) days after receipt of written notice;
provided, however, that Tenant may cure such default at any time prior to a
termination of this Lease by Landlord by paying all Rent and other expenses or
charges then due together with interest at the Interest Rate from the due date
through the date of payment; or
(ii) If Tenant fails to perform any term, covenant or condition
of this Lease except those requiring the payment of money, and Tenant fails to
cure such breach within twenty (20) days after written notice from Landlord
where such breach could reasonably be cured within such twenty (20) day period;
provided, however, that where such failure could not reasonably be cured within
the twenty (20) day period, that Tenant shall not be in default if it commences
such performance within the twenty (20) day period and diligently thereafter
prosecutes the same to completion; or
(iii) If Tenant assigns its assets for the benefit of its
creditors; or
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(iv) If the sequestration or attachment of or execution on any
material part of Tenant's Personal Property essential to the conduct of Tenant's
business occurs, and Tenant fails to obtain a return or release of such Personal
Property within thirty (30) days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier; or
(v) If a court makes or enters any decree or order other than
under the bankruptcy laws of the United States adjudging Tenant to be insolvent;
or approving as properly filed a petition seeking reorganization of Tenant; or
directing the winding up or liquidation of Tenant and such decree or order shall
have continued for a period of thirty (30) days.
B. Remedies. Upon an Event of Default, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by law
or otherwise provided in this Lease, to which Landlord may resort cumulatively
or in the alternative:
(i) Landlord may continue this Lease in full force and effect, and
this Lease shall continue in full force and effect as long as Landlord does not
terminate this Lease, and Landlord shall have the right to collect Rent when
due.
(ii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Tenant shall be liable immediately to Landlord
for all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs. Reletting
may be for a period shorter or longer than the remaining term of this Lease. No
act by Landlord other than giving written notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. On
termination, Landlord has the right to remove all Tenant's Personal Property and
store same at Tenant's cost and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and other
sums due and payable which had been earned at the time of termination; plus
(b) The worth at the time of award of the amount by which
the unpaid Rent and other sums due and payable which would have been payable
after termination until the time of award exceeds the amount of such Rent loss
that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which
the unpaid Rent and other sums due and payable for the balance or the Term after
the time of award exceeds the amount of such Rent loss that Tenant proves could
be reasonably avoided; plus
(d) Any other amount which is necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, or which, in the ordinary course of
things, would be likely to result therefrom, including, without limitation, any
costs or expenses incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to relet the
Premises; plus
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(e) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by the laws
of the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 26.B(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award"
of the amount referred to in Paragraph 26.B.(ii)(c) is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). Tenant waives redemption or relief
from forfeiture under California Code of Civil Procedure Sections 1174 and
1179, or under any other present or future law,in the event Tenant is evicted
or Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.
(iii) Landlord may, with or without terminating this Lease,
re-enter the Premises and remove all persons and property from the premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. No re-entry or taking possession of
the Premises by Landlord pursuant to this paragraph shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.
C. Landlord's Default. Except as reasonably apparent to Landlord, or
part of the regularly scheduled repair or maintenance of the Property, Landlord
shall not be deemed to be in default in the performance of any obligation
required to be performed by it hereunder unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecute the
same to completion.
27. SUBORDINATION.
This Lease is subject and subordinate to all ground and underlying
leases and any first mortgages and first deeds of trust (collectively
"Encumbrances") which now affect the Building or the Property, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, however, if the holder or holders of any such Encumbrance ("Holder")
shall require that this Lease be prior and superior thereto, within seven (7)
days of written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver any and all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, so long as Tenant is not in default, Holder agrees to recognize
Tenant's rights under this Lease as long as Tenant shall pay the Rent and
observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,
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Tenant shall execute any and all documents required by Landlord or the Holder
required to effectuate such subordination to make this Lease subordinate to any
lien of the Encumbrance. If Tenant fails to do so, it shall be deemed that
this Lease is subordinated.
Notwithstanding anything to the contrary set forth in this paragraph,
Tenant hereby attorns and agrees to attorn to any entity purchasing or
otherwise acquiring the Premises at any sale or other proceeding or pursuant
to the exercise of any other rights, powers or remedies under such Encumbrance.
Promptly following the date of this Lease, Landlord shall deliver to
Tenant a recognition agreement in form reasonably acceptable to Tenant, whereby
the holder of any deed of trust or other similar security instrument affecting
the Property, shall agree to recognize the tenancy of Tenant on all the terms
and conditions set forth herein, so long as there shall be no Event of Default
by Tenant hereunder.
28. Notice.
Any notice or demand required or desired to be given under this Lease
shall be in writing and shall be personally served or in lieu of personal
service may be given by mail. If given by mail, such notice shall be deemed to
have been given when seventy-two (72) hours have elapsed from the time when
such notice was deposited in the United States mail, registered or certified,
and postage prepaid, addressed to the party to be served. At the date of
execution of this Lease, the addresses of Landlord and Tenant are as set forth
in Paragraph 1. After the Commencement Date, the address of Tenant shall be
the address of the Premises. Either party may change its address by giving
notice of same in accordance with this paragraph.
29. Attorneys' Fees.
If either party brings any action or legal proceeding for damages for
an alleged breach of any provision of this Lease, to recover rent, or other
sums due, to terminate the tenancy of the Premises or to enforce, protect or
establish any term, condition or covenant of this Lease or right of either
party, the prevailing party shall be entitled to recover as a part of such
action or proceedings, or in a separate action brought for that purpose,
reasonable attorneys' fees and costs.
30. Estoppel Certificates.
Tenant shall within seven (7) days following written request by
Landlord.
(i) Execute and deliver to Landlord any documents, including
estoppel certificates, in the form prepared by Landlord (a) certifying that
this Lease is unmodified and in full force and effect or, if modified, stating
the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect and the date to which the Rent and other
charges are paid in advance, if any, and (b) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord, or, if
there are uncured defaults on the part of Landlord, stating the nature of such
uncured defaults, and (c) evidencing the status of the Lease as may be required
either by a lender making a loan to Landlord to be secured by deed of trust or
mortgage covering the Premises or a purchaser of the Premises from Landlord.
Tenant's failure to deliver an estoppel certificate within seven (7) days after
delivery of Landlord's written request therefor shall be conclusive upon Tenant
(a) that this Lease is in full force and effect, without modification except as
may be represented by Landlord, (b) that there are now no uncured defaults in
Landlord's performance and (c) that no Rent has been paid in advance.
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<PAGE> 26
If Tenant fails to so deliver a requested estoppel certificate within
the prescribed time, it shall be deemed that the Lease is unmodified and in full
force and effect except as represented by Landlord.
(ii) Deliver to Landlord the current financial statements of
Tenant, and financial statements of the two (2) years prior to the current
financial statements year, with an opinion of a certified public accountant,
including a balance sheet and profit and loss statement for the most recent
prior year, all prepared in accordance with generally accepted accounting
principles consistently applied.
31. TRANSFER OF THE PREMISES BY LANDLORD.
In the event of any conveyance of the Premises and assignment by
Landlord of this Lease, Landlord shall be and is hereby entirely released from
all liability under any and all of its covenants and obligations contained in or
derived from this Lease occurring after the date of such conveyance and
assignment, and Tenant agrees to attorn to such transferee provided such
transferee assumes Landlord's obligations under this Lease.
32. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS.
If Tenant shall commit an Event of Default, Landlord may, but shall not
be obligated to and without waiving or releasing Tenant from any obligation of
Tenant under this Lease, make such payment or perform such other act to the
extent Landlord may deem desirable, and in connection therewith, pay expenses
and employ counsel. All sums so paid by Landlord and all penalties, interest
and costs in connection therewith shall be due and payable by Tenant on the next
day after any such payment by Landlord, together with interest thereon at the
Interest Rate from such date to the date of payment by Tenant to Landlord, plus
collection costs and attorneys' fees. Landlord shall have the same rights and
remedies for the nonpayment thereof as in the case of default in the payment of
Rent.
If Landlord fails to perform any obligation of Landlord hereunder with
respect to the repair or maintenance of the Premises, the Outside Area or any
other portion of the Property within thirty (30) days of written notice from
Tenant, or such shorter time as may be required in an emergency, whether or not
written notice shall be provided, Tenant shall be entitled to perform such
obligation and Landlord shall reimburse to Tenant the reasonable cost of such
performance promptly following receipt of written notice from Tenant describing
the work performed and the cost incurred.
33. TENANT'S REMEDY.
If, as a consequence of a default by Landlord under this Lease, Tenant
recovers a money judgment against Landlord, such judgment shall be satisfied
from insurance and/or out of the proceeds of sale received upon execution of
such judgment and levied thereon against the right, title and interest of
Landlord in the Premises and out of Rent or other income from such property
receivable by Landlord or out of consideration received by Landlord from the
sale or other disposition of all or any part of Landlord's right, title or
interest in the Premises, and neither Landlord nor its Agents shall be liable
for any deficiency.
34. MORTGAGE PROTECTION.
If Landlord defaults under this Lease, Tenant will notify any
beneficiary of a deed of trust or mortgage of a mortgage covering the Premises
whose address has been furnished to Tenant in writing, and offer such
beneficiary or mortgagee a
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<PAGE> 27
reasonable opportunity to cure the default, including time to obtain possession
of the Premises by power of sale or a judicial foreclosure, if such should
prove necessary to effect a cure, and provided that such attempt to cure by any
such beneficiary or mortgagee shall not limit the remedies otherwise available
to Tenant as a result of the default of Landlord.
35. BROKERS.
Landlord and Tenant each warrant and represent that they have had no
dealings with any real estate broker or agent in connection with the
negotiation of this Lease except for CPS Realty Group (representing Landlord
exclusively) and Cooper/Brady (representing Tenant exclusively).
36. ACCEPTANCE.
This Lease shall only become effective and binding upon full execution
hereof by Landlord and delivery of a signed copy to Tenant. Neither party
shall record this Lease nor a short form memorandum thereof.
37. MODIFICATIONS FOR LENDER.
If, in connection with obtaining financing for the Premises or any
portion thereof, Landlord's lender shall request reasonable modification to
this Lease as a condition to such financing, Tenant shall not unreasonably
withhold, delay or defer its consent thereto, provided such modifications do
not materially adversely affect Tenant's rights hereunder.
38. PARKING.
Tenant shall have the right to park in 100% of the Property's parking
facilities, which provides parking spaces at a rate of 4 parking spaces per
1,000 usable square feet in the Property, and which will be provided without
charge.
39. GENERAL.
A. Captions. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
B. Executed Copy. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
C. Time. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
D. Separability. If one or more of the provisions contained herein,
except for the payment of Rent, is for any reason held invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein.
E. Choice of Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
F. Gender; Singular, Plural. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
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<PAGE> 28
G. Binding Effect. The covenants and agreements contained in this
Lease shall be binding on the parties hereto and on their respective successors
and assigns to the extent this Lease is assignable.
H. Waiver. The waiver by Landlord of any breach of any term,
condition or covenant, of this Lease shall not be deemed to be a waiver of such
provision or any subsequent breach of the same or other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach at the time
of acceptance of such payment. No covenant, term or condition of this Lease
shall be deemed to have been waived by Landlord unless such waiver is in
writing signed by Landlord.
I. Entire Agreement. This Lease is the entire agreement between the
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
J. Authority. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of said corporation or partnership,
as the case may be, represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said entity in accordance with its
corporate bylaws, statement of partnership or certificate of limited
partnership, as the case may be, and that this Lease is binding upon said
entity in accordance with its terms. Landlord, at its option, may require a
copy of such written authorization to enter into this Lease.
K. Exhibits. All exhibits, amendments, riders and addendum attached
hereto are hereby incorporated herein and made a part hereof.
L. Lease Summary. The Lease Summary attached to this Lease is
intended to provide general information only. In the event of any
inconsistency between the Lease Summary and the specific provisions of this
Lease, the specific provisions of this Lease shall prevail.
M. Joint and Several Liability. The obligations of the parties
hereunder, and each individual entity, partnership, corporation or person
constituting a party, shall be joint and several.
40. OPTION TO RENEW.
A. Grant of Option. Landlord hereby grants to Tenant two (2)
option(s) (the "Option(s)") to extend the term of this Lease, each for an
additional term of two (2) years, commencing when the then-existing term
expires, upon the terms and conditions set forth in this Paragraph.
B. Exercise of Option. Tenant may exercise such option by giving
Landlord written notice (the "Exercise Notice") of its intention not less than
six (6) months prior to the expiration of the then-existing term of this Lease.
C. Extended Term Rent. If this Option is exercised, the Base Monthly
Rent for the Premises shall be adjusted to an amount not less than the rent
payable for the month immediately preceding the commencement dates of the term
of the Option(s) or equal to ninety-seven and one-half percent (97-1/2%) of the
then current fair market monthly rent ("Fair Market Rent"), whichever is
greater, for the Premises as of the commencement date of the applicable
extended term as determined by the agreement of the
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<PAGE> 29
parties. The Fair Market Rent for the Premises shall not include the value, if
any, attributable to Alterations to the Premises made at the cost of Tenant.
If the parties are unable to agree on the Fair Market Rent for the Premises
within sixty (60) days after the Exercise Notice, Tenant shall be entitled to
require the Fair Market Rent to be determined by arbitration, as set forth
below. All other terms and conditions contained in the Lease shall remain in
full force and effect and shall apply during the Option term.
D. ARBITRATION.
(i) Promptly following notice to Landlord from Tenant, each party
shall appoint a qualified, licensed real estate appraiser experienced in
appraising office space in San Jose, California to act as an arbitrator. The
two (2) appraisers so appointed shall determine the Fair Market Rent pursuant to
the terms and conditions of this Lease within sixty (60) days of Tenant's
initial notice, and they shall notify the parties of that determination in
writing.
(ii) If the two (2) appraisers do not agree on the Fair Market
Rent, they shall appoint a third, similarly qualified appraiser. Within thirty
(30) days of his appointment, the third appraiser shall select, from the
proposals submitted by the first two appraisers, the proposal that most closely
approximate the third appraiser's determination of Fair Market Rent, and that
figure shall be deemed the Fair Market Rent for purposes of this Lease. The
third appraiser shall have no right to compromise or modify either of the
proposals submitted by the first two appraisers.
(iii) Each party shall pay all charges and expenses of the
appraiser appointed by that party, and one-half of any charges and expenses
incurred by the third appraiser.
(iv) If either party fails to select an appraiser as provided
herein, or if either of the appraisers fails to present a determination within
the required time period, the determination presented by the appraiser appointed
by the other party shall be considered final and binding upon both parties.
41. APPROVALS.
Whenever the Lease requires an approval, consent, designation,
determination or judgment by either Landlord or Tenant, such approval, consent,
designation, determination or judgment shall not be unreasonably withheld or
delayed.
42. REASONABLE EXPENDITURES.
Any expenditure by a party permitted or required under the Lease, for
which such party is entitled to demand and does demand reimbursement from the
other party, shall be limited to the fair market value of the goods and services
involved, shall be reasonably incurred, and shall be substantiated by
documentary evidence available for inspection and review by the other party or
its representative during normal business hours.
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<PAGE> 30
THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT:
JT Storage, Inc., a Delaware corporation
By: /s/ David B. Pearce
-------------------------------
Its: President
-------------------------------
LANDLORD:
The Cilker Revocable Trust of
October 9, 1990
By: /s/ William H. Cilker
-------------------------------
William H. Cilker
By: /s/ Leila A. Cilker
-------------------------------
Leila A. Cilker
By: /s/ Marian C. Armstrong
-------------------------------
Marian C. Armstrong
By: /s/ Tom Claiborne Polk
-------------------------------
Tom Claiborne Polk, an unmarried man
The undersigned spouse of Marian C. Armstrong consents to the terms of the
preceding Lease agreement:
/s/ James D. Armstrong, Sr.
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<PAGE> 31
[SECOND LEVEL FLOOR PLAN]
[FIRST LEVEL FLOOR PLAN]
THE PREMISES
EXHIBIT "A"
<PAGE> 32
THE PROPERTY
LEGAL DESCRIPTION: APN 097-07-045
All that certain real property situate in the City of San Jose, County of Santa
Clara, State of California, described as follow:
PARCEL ONE:
All of Lot 5, as shown upon that certain Map entitled, "TRACT NO. 7544",
recorded March 7, 1984 in Book 525 of Maps at Pages 45 and 46, and the
Certificate of Correction, recorded August 8, 1985 in Book J 422, Page 1784,
Official Records, Santa Clara County.
RESERVING THEREFROM as appurtenant to Lot 6, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:
Being a strip of land 13 feet in width, the easterly and southerly line of
which is described as follows:
Beginning at the southeasterly corner of Lot 5 as said lot is shown on Tract
7544 recorded in Book 525 of Maps, Pages 45 and 46, Santa Clara County Records,
said point being on the northerly Right of Way line of Tasman Drive, as shown
on said Tract Map:
Thence northwesterly along the easterly lot line of Lot 5, as said lot is shown
on aforesaid Tract Map, North 30 degrees 23' 31' West, 194.18 feet:
Thence northeasterly North 36 degrees 23' 34" East, 33.70 feet to the terminus
of said strip of land, said terminus being on the northerly lot line of Lot 8,
as said lot is shown on aforesaid Tract Map.
PARCEL TWO:
TOGETHER WITH and as appurtenant to Lot 5, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:
Being a strip of land 13 feet in width, the Northwesterly and Westerly line of
which is described as follows:
Beginning at the most northerly corner of Lot 8 as said Lot is shown on Tract
7544 recorded in Book 525 of Maps at Pages 45 and 46, Santa Clara County
recorded said point being on the Westerly right of way line of Zanker Road as
shown on said Tract Map.
Thence Southwesterly along the Northwesterly lot line of Lot 8 as shown on
aforesaid Tract Map South 36 degrees 23' 34" West, 1220.80 feet to the most
Westerly corner of Lot 8:
Thence Southeasterly along the Southwesterly lot line of aforesaid Lot 8, South
30 degrees 31' 20" East, 194.18 feet to the terminus of said strip of land,
said terminus being on the Northerly right of way line of Tasman Drive as shown
on aforesaid Tract Map.
EXHIBIT "B"
<PAGE> 33
PARCEL THREE:
TOGETHER WITH and as appurtenant to Lot 5, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:
Being a strip of land 13 feet in width, the Southeasterly line of which is
described as follows:
Beginning on the Southeasterly corner of Lot 7 as said lot is shown on Tract
7544 recorded in Book 525 of Maps Pages 45 and 46 Santa Clara County Records,
said point being on the Westerly right of way line of Zanker Road as shown on
said Tract Map;
Thence Southwesterly along the Southeasterly lot line of Lot 7 as said lot is
shown on aforesaid Tract Map South 36 degrees 23' 34" West, 466.10 feet to the
terminus of said strip of land, said terminus being the most Southwesterly
corner of Lot 7.
PARCEL FOUR:
TOGETHER WITH and as appurtenant to Lot 5, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:
Being a strip of land 13 feet in width, the Southeasterly line of which is
described as follows:
Beginning at the most easterly corner of Lot 6 as said lot is shown on Tract
7544 recorded in Book 525 of Maps pages 45 and 46 Santa Clara County Records,
said point being on the northerly lot line of Lot 8 as said lot is shown on
said Tract Map;
Thence southwesterly along the southeasterly lot line of Lot 6 as said lot is
shown on aforesaid Tract Map South 36 degrees 23' 34" West, 721.00 feet to the
terminus of said strip of land, said terminus being the most southerly corner
of said Lot 6.
<PAGE> 34
EXHIBIT C
WORK LETTER AGREEMENT
This Work Letter Agreement ("Work Letter") is entered into as of
June ____, 1995 by and between THE CILKER REVOCABLE TRUST OF OCTOBER 9, 1990
("Landlord"), and JT STORAGE, INC., a Delaware corporation ("Tenant"), in
connection with that certain Commercial Lease (the "Lease") of even date
herewith.
In consideration of the mutual covenants contained herein, Landlord and
Tenant hereby agree as follows:
1. ARCHITECT.
A. The parties hereby approve the retention by Landlord of HPC
Architecture (the "Architect") in connection with the design and construction of
the Tenant Improvements, as defined below.
2. PREPARATION OF SPACE PLANS, CONSTRUCTION DRAWINGS.
A. Approval of Space Plans. Landlord and Tenant hereby approve the
space plan prepared by the Architect as of June 7, 1995 and attached hereto as
Exhibit C-1 (the "Space Plan").
B. Preparation of Construction Drawings. Based on the approved Space
Plan, the Architect shall prepare and submit to Landlord and Tenant complete
architectural plans, drawings and specifications for the Tenant Improvements
(collectively, the "Construction Drawings"). Both Landlord and Tenant agree
that the mechanical, electrical and plumbing improvements will be excluded from
the Architect's Construction Drawings and will be constructed on a design build
basis. Within three (3) days of receipt of the Construction Drawings: (i)
Landlord and Tenant shall notify the Architect in writing of their approval of
the Construction Drawings, or, (ii) if Landlord or Tenant disapproves of any
portion of the Construction Drawings, Landlord and/or Tenant shall notify the
Architect in writing of such disapproval and the specific reasons therefor.
The Architect shall make any changes requested by Landlord and Tenant which are
necessary in order to make the Final Plans and Specifications consistent with
the approved Preliminary Plans and Specifications. Upon approval by both
parties, the Construction Drawings may be attached as Exhibit C-2.
3. SELECTION OF GENERAL CONTRACTOR.
A. Bids and Selection of General Contractor and Subcontractors. The
parties hereby approve the retention of San Jose Construction Company, Inc. as
the general contractor (the "General Contractor") for the construction of the
Tenant Improvements, on terms and conditions to be approved by both parties,
which terms shall include a maximum payment for overhead and profit to the
General Contractor of two and one-half percent (2-1/2%) of the Approved Tenant
Improvement Cost, as defined below. General Contractor, shall solicit bids
from at least three (3) qualified, licensed subcontractors for certain Major
Subcontracts, as defined below, in each case approved by Landlord and Tenant.
For purposes of the preceding sentence, Major Subcontracts shall mean the
following: drywall, paint and carpet. Each final bid from the prospective
subcontractors shall include a guaranteed maximum contract price (including
materials and labor supplied in connection with the Tenant Improvements). All
bids
1
EXHIBIT "C"
<PAGE> 35
shall be subject to the prior review and written approval of Tenant and
Landlord, such approval or disapproval to be provided by Tenant to Landlord
within three (3) business days after receipt of preliminary and final bids by
Tenant. Landlord and Tenant shall attempt to revise the prospective bids so
that a mutually acceptable bid has been received within no more than five (5)
business days after the initial notice of disapproval from Tenant. The sum of
(i) the approved bids, (ii) the design-build costs, incurred for mechanical,
electrical and plumbing improvements, (iii) the compensation payable to the
General Contractor pursuant to this Paragraph 3.A, and (iv) the additional
costs of constructing the Tenant Improvements as reviewed and approved by
Landlord and Tenant shall be referred to herein as the Approved Tenant
Improvement Cost.
B. Form of Construction Contract. The proposed form of construction
contract between Landlord and the General Contractor shall provide, among other
things, that Tenant is the third-party beneficiary thereof, that all change
orders are to be signed by Tenant, that all payments to contractor(s) shall be
subject to a standard retention of ten percent (10%) (and the subcontracts
shall so be provided) and that the General Contractor and all subcontractors
shall carry insurance pursuant to the requirements set forth below. Within
five (5) days after execution, Landlord shall deliver to Tenant a copy of the
construction contract between Landlord and the General Contractor.
C. Insurance. Landlord shall require all contractors to obtain and
maintain the following insurance policies during the construction of the Tenant
Improvements, as applicable: (i) Comprehensive general liability (including
products/completed operations), with limits of not less than $500,000/$500,000
bodily injury and $500,000 property damage or $500,000 combined single limit,
with JT Storage, Inc. and Landlord named as an additional insured; (ii)
Umbrella liability (including products/completed operations), with limits of
not less than $1,000,000, with JT Storage, Inc. and Landlord named as
additional insured; (iii) Automobile liability, with limits of not less than
$500,000/$500,000 bodily injury and $250,000 property damage; and (iv) Worker's
compensation (including employer's liability) insurance in compliance with law.
All such policies (except worker's compensation) shall provide that twenty (20)
days' prior notice of cancellation or reduction in coverage or limits shall be
delivered to Tenant. A certificate evidencing such insurance shall be
delivered, prior to commencement of construction of the Tenant Improvements, to
Tenant. Landlord shall not permit the General Contractor or any subcontractor
to commence construction of any part of the Tenant Improvements until it has
provided Tenant with certificates of insurance evidencing such insurance
coverage.
D. Permits. Landlord shall submit the Construction Drawings to all
governmental agencies and authorities whose review and/or approval thereof is
required and shall use its best efforts to procure all permits, consents and
approvals required under applicable laws, ordinances, codes, rules and
regulations ("Permits"). If Landlord is unable to procure the Permits within
sixty (60) days after the date of execution hereof, Landlord shall be entitled
to terminate the Lease within ten (10) days thereafter by written notice to
Tenant.
4. CONSTRUCTION OF TENANT IMPROVEMENTS.
A. Landlord shall cause the Tenant Improvements to be constructed in
accordance with the Construction Drawings and this Work Letter, in a
first-class manner, and under competent supervision. All materials and
equipment utilized in the Tenant Improvements shall be new, first-class and of
the type and quality
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<PAGE> 36
customary in first-class R&D/Light Manufacturing buildings in the vicinity of
the Premises. The Tenant Improvements, and the construction thereof, shall
comply with all applicable laws, codes, ordinances, rules and regulations.
5. CONSTRUCTION SCHEDULE.
A. Landlord shall use all reasonable efforts to substantially complete
the Tenant Improvements on or before July 1, 1995 the "Anticipated Commencement
Date"). The Commencement Date shall occur on the date that Landlord has
"substantially completed" the Tenant Improvements, which shall be deemed to
occur when all the following have been completed: (i) the Architect has
certified to Tenant that the Tenant Improvements have been constructed in
accordance with the Construction Drawings; (ii) there remains no incomplete or
defective item of Tenant Improvements that would adversely affect Tenant's
intended use of the Premises; (iii) Landlord has delivered legal possession of
the Premises and the Tenant Improvements, in the condition required in the
Lease, to Tenant; and (iv) Landlord has obtained all approvals and permits from
the appropriate governmental authorities required for the legal occupancy of the
Premises and the Tenant Improvements for Tenant's intended use, including a
certificate of occupancy for the Shell Building and the Tenant Improvements.
Landlord shall provide written notice of the impending Commencement Date no
later than fifteen (15) days before the actual Commencement Date.
B. Any Tenant Improvement Costs related to demolition and Landlord's
construction management shall be borne by Landlord.
6. COST OF TENANT IMPROVEMENTS.
A. Tenant Improvement Allowance. Landlord shall contribute up to Three
Hundred Ninety Thousand Dollars ($390,000) (the "Tenant Improvement Allowance")
to the actual cost of constructing the Tenant Improvements (the "Tenant
Improvement Cost"). In addition, at the request of Tenant, Landlord shall
contribute an additional amount of up to One Hundred Forty Thousand Dollars
($140,000) (the "Additional Tenant Improvement Allowance") to the Tenant
Improvement Cost. Tenant shall pay the cost of constructing the Tenant
Improvements up to a maximum amount equal to the difference between the Approved
Tenant Improvement Cost and the sum of the Tenant Improvement Allowance, and so
much of the Additional Tenant Improvement Allowance as Tenant requests Landlord
to provide ("Tenant's Contribution") in accordance with the provisions of
Paragraph 9 hereof. Tenant shall reimburse to Landlord the entire Additional
Tenant Improvement Allowance either: (i) within thirty (30) days of substantial
completion of the Tenant Improvements and following receipt of a statement from
Landlord setting forth in reasonable detail the application of the Additional
Tenant Improvement Allowance, or, (ii) through an increase in Base Monthly Rent
equal to Twenty-One and 25/100 Dollars ($21.25) for each One Thousand Dollars
($1,000) of the Additional Tenant Improvement Allowance applied as set forth
herein.
B. Tenant Improvement Cost. The Tenant Improvement Cost shall include,
but not be limited to, the following:
(1) all costs of preliminary and final architectural and
engineering plans and specifications for the Tenant Improvements, and
engineering costs associated with completion of the State of California energy
utilization calculations under Title 24 legislation;
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<PAGE> 37
(2) all costs of interior design and finish schedule plans and
specifications including the General Contractor's as-built drawings.
(3) all direct and indirect costs of procuring and installing
Tenant Improvements in the Premises, including the approved construction fee
for overhead and profit payable to the General Contractor, and the cost of
general conditions to be provided by the General Contractor; and
(4) all fees payable to the Architect and Landlord's engineering
firm, if required by landlord and Tenant to re-design any portion of the Tenant
Improvements following Tenant's and Landlord's approval of the Construction
Drawings.
In no event will the Tenant Improvement Costs include, nor will the
Tenant Improvement Allowance or the Additional Tenant Improvement Allowance be
applied to the cost of procuring, constructing or installing in the Premises
any of Tenant's personal property, including voice and data equipment and
cabling.
C. Exclusions from Tenant Improvements Cost. Notwithstanding anything
to the contrary contained in the Lease or this Work Letter, the cost of
constructing the Tenant Improvements shall not include the following:
(1) Costs attributable to (A) work to be performed at the cost of
Landlord or any other party, including the previous tenant, which work will
consist of demolition of certain existing interior improvements; (B)
improvements installed outside the demising walls of the Premises unless (1)
necessitated by Tenant Improvements made inside the demising walls of the
Premises; or (2) requested by Tenant or as shown in the Construction Drawings;
and (C) improvements installed "off-site" (such as streets, curbs, gutters,
traffic lights, lights for parking and street lighting);
(2) Costs for improvements which are not shown on or described in
the Construction Drawings unless otherwise approved by Tenant;
(3) Costs incurred to remove Hazardous Materials from the Property
or the surrounding area unless the presence of such materials was caused by
Tenant or its agents, contractors, employees or invitees in violation of
Hazardous Materials laws;
(4) Attorneys' fees incurred in connection with negotiation of
construction contracts, and attorneys' fees, experts' fees and other costs of
legal and arbitration proceedings to resolve construction disputes with third
parties;
(5) Loan fees, mortgage brokerage fees, interest and other costs
of financing construction costs;
(6) Costs incurred as a consequence of delay (unless the delay is
caused by Tenant) or construction defects;
(7) Costs recoverable by Landlord upon account of warranties and
insurance;
(8) Restoration costs as a consequence of casualties;
(9) Penalties and late charges attributable to the failure to pay
construction costs, except to the extent such penalties and late charges arise
due to delays caused by Tenant, its agents, contractors, employees or invitees;
and
(10) Any construction management or supervision fee otherwise
charged by Landlord in connection with its construction of improvements to a
particular premises.
(11) Tenant's space planner.
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<PAGE> 38
7. CHANGE ORDERS.
Tenant shall have the right to make reasonable changes in the
Construction Drawings, subject to the conditions set forth in this Paragraph
7. Before approval of any change in the Construction Drawings, Landlord shall
advise Tenant in writing of (i) the estimated cost of any such change; and (ii)
the additional time, if any, that such change would add to the time required
for substantial completion (as defined above) of the Tenant Improvements. If
Tenant objects to such cost and/or delay, Tenant shall have the right to
withdraw the request for such change. If Tenant approves such cost and delay,
then Tenant shall give its approval in writing; thereafter, Tenant's
responsibility (if any) for any such cost or delay shall be limited to the
amount which it so approved. Change orders shall not be subject to a Landlord
mark-up fee unless they necessitate cost for overtime.
8. TENANT DELAY.
If any failure by Tenant to perform any obligations hereunder delays the
Commencement Date of the Lease beyond the date on which the Commencement Date
would have occurred but for such delay, including Tenant's request for items
which have been identified as long-lead time items to be included in the Tenant
Improvements (a "Tenant Delay"), the Commencement Date shall be deemed to occur
on the date on which it would have occurred but for such Tenant Delay.
9. PAYMENT OF TENANT IMPROVEMENT COSTS.
Within thirty (30) days after substantial completion of the Tenant
Improvements, Landlord shall provide Tenant with a detailed statement of the
Tenant Improvement Cost, such statement to be accompanied by invoices and other
appropriate evidence of payment from Landlord or its General Contractor: (i) if
the Tenant Improvement Cost exceeds the Tenant Improvement Allowance, and so
much of the Additional Tenant Improvement Allowance as has been drawn down at
the request of Tenant, Tenant shall either pay the difference to Landlord
within thirty (30) days after Tenant's receipt of the statement, or through an
increase in Base Monthly Rent equal to Twenty-One and 2/5100 Dollars ($21.25)
for each One Thousand Dollars ($1,000) of the Additional Tenant Improvement
Allowance applied as set forth in Paragraph 6.A.
No payment by Tenant pursuant to this Paragraph shall constitute a
waiver by Tenant of any right of Tenant to contest the amount of the Tenant
Improvement Cost. Notwithstanding any provision in this Work Letter to the
contrary, Tenant shall have no obligation to pay any cost which is excluded
from the definition of Tenant Improvement Cost by Paragraph 6.C., and shall
have no obligation to pay any portion of the Tenant Improvement Cost that
exceeds the Approved Tenant Improvement Cost unless Tenant has approved in
writing such excess amount.
10. PUNCHLIST AND CORRECTION OF DEFECTS.
Not later than five (5) days before the Anticipated Commencement Date,
Landlord and Tenant shall conduct a walk-through of the Premises and mutually
prepare a written punchlist setting forth any defective item of construction.
Landlord shall cause all defects, errors or omissions listed in the punchlist
to be corrected within forty-five (45) days after receipt thereof; or as soon
as practicable thereafter. Notwithstanding anything to the contrary contained
in the Lease, Tenant's acceptance of the Premises or submission of a punchlist
shall not be deemed a waiver of Tenant's right to have defects in the Tenant
Improvements or the Premises repaired at no cost to Tenant. Landlord also
hereby assigns to Tenant all warranties related to the improvements with
respect to the Premises, including warranties which would reduce Tenant's
maintenance obligations under the Lease, and shall cooperate with Tenant to
enforce all such warranties.
5
<PAGE> 39
11. MISCELLANEOUS.
(A) Time is of the Essence. Time is of the essence of each and every
provision of this Work Letter.
(B) Definitions. All terms capitalized herein and not otherwise
defined shall have the meanings set forth in the Lease.
(C) Incorporation in the Lease. The provisions of this Work Letter
shall be incorporated into and constitute a part of the Lease.
(D) Approvals. Except as expressly provided otherwise, whenever the
approval of a party is required hereunder, such approval shall not be
unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have executed this Work Letter as
of the date first above written.
TENANT:
JT Storage, Inc., a Delaware corporation
By: /s/ David B. Pearce
-------------------------------
Its: President
-------------------------------
LANDLORD:
The Cilker Revocable Trust of
October 9, 1990
By: /s/ William H. Cilker
-------------------------------
William H. Cilker
By: /s/ Leila A. Cilker
-------------------------------
Leila A. Cilker
By: /s/ Marian C. Armstrong
-------------------------------
Marian C. Armstrong
By: /s/ Tom Claiborne Polk
-------------------------------
Tom Claiborne Polk, an unmarried man
6
<PAGE> 40
EXHIBIT "C-1" TO BE INSERTED
SPACE PLAN
Dated June 7, 1995
This plan is to substantially conform to the Preliminary layout
dated June 7, 1995 by HPC Architecture.
EXHIBIT "C-1"
<PAGE> 41
COMMENCEMENT DATE MEMORANDUM
LANDLORD: THE CILKER REVOCABLE TRUST OF OCTOBER 9, 1990
---------------------------------------------
TENANT: JT STORAGE, INC.
----------------
LEASE DATE:
----------------------------------------------
PREMISES: 166 BAYPOINTE PARKWAY
----------------------
SAN JOSE, CALIFORNIA
----------------------
Pursuant to Paragraph 4.A. of the above referenced Lease, the
Commencement Date is hereby established as ___________________________, 1995.
LANDLORD
THE CILKER REVOCABLE TRUST OF
OCTOBER 9, 1990
By:
---------------------------------
William H. Cilker
Its:
---------------------------------
TENANT
JT STORAGE, INC.
By:
---------------------------------
Its:
---------------------------------
EXHIBIT "D"
<PAGE> 1
Exhibit 10.19
LOAN AGREEMENT
BETWEEN
MODULER ElECTRONICS (I) PVT. LTD.
AS BORROWER
AND
THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED
AS LENDER
<PAGE> 2
LOAN AGREEMENT
THIS Agreement made this 15th day of September One Thousand
Nine Hundred and Ninety Two between MODULER ELECTRONICS (I) PVT. LTD., a company
within the meaning of the Companies Act, 1956 (1 of 1956) and having its,
Registered office at 35 & 36, SDF Block 1, Madras Export Processing Zone
Tambaram, Kadaperi, Madras 600 045 (hereinafter referred to as to the
"Borrower", which expression shall, unless it be repugnant or to the subject or
context thereof, include its successors and assigns);
AND
THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED, a
public company incorporated under the Indian Companies Act, 1913 (7 of office
at 163, and having its registered office at Backbay Reclamation, Bombay 400 020
(hereinafter referred to as "the Lender", which expression shall, unless it be
repugnant to the subject or context thereof, include its unless it be repugnant
or successors and assigns).
<PAGE> 3
CONTENTS
<TABLE>
<CAPTION>
Article Subject Page No.
------- ------- -------
<S> <C> <C>
I DEFINITIONS: GENERAL CONDITIONS 2
II AGREEMENT AND TERMS OF LOAN 3
III SECURITY 6
IV APPOINTMENT OF NOMINEE DIRECTOR(S) 8
V SPECIAL CONDITIONS 8
VI EFFECTIVE DATE OF AGREEMENT 8
SCHEDULE I - THE PROJECT 9
SCHEDULE II - FINANCING PLAN 10
SCHEDULE III - AMORTIZATION SCHEDULE 11
SCHEDULE IV - SPECIAL CONDITIONS 12
</TABLE>
<PAGE> 4
3
Provided, however, that the General Conditions shall in their
application to this Agreement stand modified as under:
a) The words "commitment charge" wherever they appear shall
be substituted by "Front End Fees".
b) Section 4.16 - PLACE AND MODE OF PAYMENT BY THE BORROWER be
substituted by the following:
"Section 4.16 - PLACE AND MODE OF PAYMENTS AND CREDIT
THEREFOR-
All monies payable by the Borrower to the Lender shall be paid
to the Lender at such office(s) as may be specified by them by telegraphic,
telex or mail transfer to the account of such, office(s) or by cheque or bank
draft drawn in favour of the Lender on a scheduled bank at Bombay or such
other place or to such other account as the Lender may notify to the Borrower
and shall be so paid as to enable the Lender to realise, at par, the amount on
or before the relative due date.
Credit for all payments by local cheque/bank draft will be given on the Lender's
immediately next working day after the date of receipt of the instrument or the
relative due date whichever is later.
Credit for all payments by outstation cheque/bank draft will be given only on
realisation or on the relative due date whichever is later."
c) Section 7.4 - NOMINEE DIRECTOR sub clause (v) be substituted
as follows:
The Nominee Director(s) shall be entitled to receive all
notices agenda, minutes of Board Meetings, etc. and to attend
all General Meetings and Board Meetings and meetings of any
Committees of the Board of which he is a member."
ARTICLE II
AGREEMENT AND TERMS OF LOAN
2.1. AMOUNT AND TERMS OF LOAN:
The Borrower agrees to borrow from the lender and the Lender
agrees to lend to the Borrower, on the terms and conditions contained herein as
also in the General Conditions, sum to the maximum extent of Rs. 180 lacs.
<PAGE> 5
4
2.2 INTEREST
(i) The Borrower shall pay to the Lender interest at the
rate of 20% per annum on the principal amounts of the Loan
outstanding from time to time, quarterly in each year, on
February 15, May 15, August 15 and November 15.
(ii) Disbursements made pending creation of final security as
stipulated in Article III hereof shall carry further
interest at the rate of 1% per annum till creation of such
security.
PROVIDED that in the event of any upward revision of the
minimum lending rate(s) of the commercial banks for cash credits, the Borrower
shall pay to the Lender interest at such higher rate as shall from time to time
be fixed by the Lender and intimated to the Borrower but so that such revised
rate shall not at any point of time exceed the highest of the interest rates
charged by the commercial banks for cash credits.
PROVIDED further that in the event of increase in the rate of
interest :
(a) The Borrower shall have an option to prepay to the Lender
forthwith on receipt of such intimation, the entire
outstanding of the Loan together with all outstanding interest
and other charges thereon with such premium as may be
specified by the Lender.
(b) In the alternative, the Borrower shall have an option to make
such prepayment together with interest, at the increased rate
as intimated till payment, at any time during a period of two
years after receipt of such intimation.
2.3 FRONT END FEE
The Company shall pay to the Lenders Front End Fee of 1% of
the Loan on or before signing this Agreement.
2.4 COSTS AND CHARGES
The Borrower shall pay all taxes, duties, costs, charges and
expenses in connection with or relating to the Loan transaction (including costs
of investigation of title and protection of Lender's interests). In the event
of the Borrower failing to pay the aforesaid monies, the Lender will be at
liberty but shall not be obliged to pay the same. All such sums shall be
reimbursed by the Borrower to the lender within 30 days from the date of notice
of demand from the Lender and shall be debited to the Borrower's Loan Account
and shall carry interest at the rate of 20% per annum from the date of payment
till such reimbursement.
<PAGE> 6
5
In case of default in making such reimbursement within 30 days
from the date of notice of demand, the Borrower shall also pay on the defaulted
amounts, liquidated damages at the rate 2% per annum from the date of notice of
demand till reimbursement in accordance with the provisions of the General
Conditions.
2.5 LAST DATE OF WITHDRAWAL :
Unless the Lender otherwise agrees, the right to make
withdrawals from the Loan shall cease on February 15, 1995.
2.6 REPAYMENT
The Borrrower undertakes to repay the principal amounts of the
Loan in accordance with the Amortization Schedule set forth in Schedule III
hereto.
2.7 CONVERSION RIGHT IN CASE OF DEFAULT
(a) If
the Borrower commits a default in payment or repayment of
three consecutive instalments of principal amounts of the Loan
or interest thereon or any combination thereof,
then, the Lender shall have the right to convert (which right
is hereinafter referred to as "the conversion right") at its
option the whole of the outstanding amount of the Loan, or a
part not exceeding 20% of the Loan, whichever is lower, into
fully paid-up equity shares of the Borrower, at par, in the
manner specified in a notice in writing to be given by the
lender to the Borrower (which notice is hereinafter referred
to as the "notice of conversion") prior to the date on which
the conversion is to take effect, which date shall be
specified in the said notice (which date is hereinafter
referred to as the "date of conversion").
<PAGE> 7
6
On receipt of notice of conversion, the Borrower shall allot
and issue the requisite number of fully paid-up equity shares
to the Lender as from the date of conversion and the Lenders
shall accept the same in satisfaction of the principal amount
of the Loan to the extent so converted. The part of the Loan
so converted shall cease to carry interest as from the date of
conversion and the Loan shall stand correspondingly reduced.
Upon such conversion, the instalments of the Loan payable after
the date of conversion as per Schedule III hereto shall stand
reduced proportionately by the amounts of the Loan so
converted. The equity shares so alloted and issued to the
Lender shall carry, from the date of conversion, the right to
receive proportionately the dividends and other distributions
declared or to be declared in respect of the equity capital of
the Borrower. Save as aforesaid, the said shares shall rank
pari passu with the existing equity shares of the Borrower in
all respects. The Borrower shall, at all times, maintain
sufficient unissued equity shares for the above purpose.
ii) The conversion right reserved as aforesaid may be exercised by
the Lender on one or more occasions during the currency of the
Loan on the happening of any of the events specified in
sub-clauses 1 (a) above.
iii) The Borrower assures and undertakes that in the event of the
Lender exercising the right of conversion as aforesaid, the
Borrower shall get the equity shares which will be issued to
the Lender as a result of the conversion, listed with the
Stock Exchange(s) at Bombay and Madras.
iv) (a) For purposes of sub-clause 1 (a) above it shall not be
construed as a default, if the Borrower approaches the Lender
well in advance for postponement of principal or interest, as
the case may be, and the Lender agrees to the same.
ARTICLE III
SECURITY
3.1 SECURITY FOR THE LOAN
(A) The Loan together with all interest, liquidated
damages, premia on prepayment or on redemption, costs, expenses and other
monies whatsoever stipulated in this Agreement shall be secured by
<PAGE> 8
7
(a) a first charge by way of hypothecation in favour of the Lender
off all the Borrower's movables save and except book debts),
including movable machinery, machinery spares, tools and
accessories, present and future, subject to prior charges
created and/or to be created:
i) in favour of the Borrower's Bankers on the Borrower's
stocks of raw materials, semi-finished and finished goods,
consumable stores and such other movables as may be agreed
to by the Lender for securing the borrowings for working
capital requirements in the ordinary course of business.
(B) The Borrower shall make out a good and marketable title to
its properties to the satisfaction of the Lender and comply
with all such formalities as may be necessary or required for
the said purpose.
3.2 CREATION OF ADDITIONAL SECURITY
If, at any time during the subsistence of this Agreement, the
Lender is of the opinion that the security provided by the Borrower has become
inadequate to cover the balance of the Loan then outstanding, then, on the
Lender advising the Borrower to that effect, the Borrower shall provide and
furnish to the Lender, to the satisfaction of the Lender such additional
security as may be acceptable to the Lender to cover such deficiency.
3.3 ACQUISITION OF ADDITIONAL IMMOVABLE PROPERTIES
So long as any monies remain due and outstanding to the
Lender, the Borrower undertakes to notify the Lender in writing of all its
acquisitions of immovable properties and as soon as practicable thereafter to
make out a marketable title to the satisfaction of the Lender and charge the
same in favour of the Lender by way of first charge in such form and manner as
may be decided by the Lender.
3.4 GUARANTEE
The Borrower shall procure irrevocable and unconditional
personal guarantee from [*] in favour of the Lender for the due repayment of
the Loan and the payment of all interest and other monies payable by the
Borrower in the form prescribed by the Lender and to be delivered to the Lender
before any part of the Loan is advanced. The Borrower shall not pay any
guarantee commission to the said Guarantors.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 9
8
ARTICLE IV
APPOINTMENT OF NOMINEE DIRECTOR(S)
The Borrower agrees that the Lender shall be entitled to
appoint and withdraw from time to time one Director on the Board of Directors
of the Borrower at any time during the currency of this Agreement.
ARTICLE V
SPECIAL CONDITIONS
The Loan hereby granted shall also be subject to the Borrower
complying with the special conditions set out in Schedule IV hereto.
ARTICLE VI
EFFECTIVE DATE OF AGREEMENT
This Agreement shall become binding on the Borrower and the
Lender on and from the date first above written. It shall be in force till all
the monies due and payable under this Agreement are fully paid off.
<PAGE> 10
9
SCHEDULE I
THE PROJECT
Moduler Electronics (I) Pvt. Ltd. (MEPL), an existing 100%
EOU has been promoted by the Tandon group for manufacture and export of
Winchester Head Gimble Assembly (HGA) for use in hard disk drives and Switch
Mode Power Supplies (SMPS) for use in computers and instrumentation. The
company now proposes to augment its existing manufacturing facilities at Meepz,
Madras in order to manufacture the latest version of HGA and also expand the
production capacity of SMPS from the existing level of 10,000 nos. per month to
25,000 nos. per month.
The cost of the project, expected to be implemented by March
1994, is estimated at Rs. 470 lacs.
The Borrower has requested the Lenders and the Lenders have at
the request of the Borrower agreed to lend and advance to the Borrower the
Rupee Term Loans of Rs. 180 lacs to meet a part of the cost of the project.
<PAGE> 11
10
FINANCIAL PLAN
<TABLE>
<S> <C>
Cost of Project
---------------
Plant & machinery - HGA 152
- SMPS 100
Incremental margin money 218
for working capital
---
470
---
Means of Financinq
------------------
Rupee loan - ICICI 180
Internal accruals 290
---
470
---
</TABLE>
<PAGE> 12
11
SCHEDULE III
AMORTIZATION SCHEDULE
(Rs. in lacs)
<TABLE>
<CAPTION>
Principal amount
Date Payment Principal outstanding after
Due Payment Amount each payment
---------------- ---------------- -------------------
<S> <C> <C>
180
May 15, 1995 15 165
August 15, 1995 15 150
November 15, 1995 15 135
February 15, 1996 15 120
May 15, 1996 15 105
August 15, 1996 15 90
November 15, 1996 15 75
February 15, 1997 15 60
May 15, 1997 15 45
August 15, 1997 15 30
November 15, 1997 15 15
February 15, 1998 15 --
</TABLE>
<PAGE> 13
12
SCHEDULE IV
SPECIAL CONDITIONS
--- N I L ----
<PAGE> 14
13
IN WITNESS WHEREOF the Borrower has caused its Common Seal to be
affixed hereto and to a duplicate hereof on the day, month and year first
hereinabove written and the Lender has caused the same and the said duplicate
to be executed by the hand of Shri S. Nagarkatte authorized official of the
Lender as hereinafter appearing.
THE COMMON SEAL OF MODULER ELECTRONICS (1) PVT. LIMITED has pursuant to the
Resolution of its Board of Directors passed in that behalf on the 9th day of
September 1992 hereunto been affixed in the presence of Shri [*] ,
Director, who has signed these presents in token thereof and Shri B.V. Shah
authorized person who has countersigned the same in token thereof.
SIGNED AND DELIVERED BY the withinnamed Lender by the hand of Shri S.
Nagarkatte an authorized official of the Tender.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 15
GENERAL CONDITIONS
NO. GC-I-86
APPLICABLE TO ASSISTANCE PROVIDED
BY FINANCIAL INSTITUTIONS
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Number Title Page No.
<S> <C> <C>
I Applicability 02
II Definitions 02
III Approvals 03
IV Disbursement, Interest, 03-06
Commitment, other
charges and Repayment.
V Borrower's warranties 07
VI Predisbursement conditions 08
VII Conditions applicable
during currency of Loan
Agreement
1. Project 09
2. Financing of Project 10
3. General Covenants 10
4. Nominee Director 13
5. Management 14
VIII Reports 15
IX Inspection 15
X Events of default and remedies 16-18
XI Cancellation, suspension 19
and termination
XII Waiver 20
XIII Applicability of other statutes 21
XIV Miscellaneous 21
</TABLE>
* * * *
<PAGE> 17
2
ARTICLE I
APPLICABILITY
The General conditions set out herein shall, if the Loan Agreement so
provides, be applicable to the assistance provided singly or jointly (that is
in participation) by Industrial Development Bank of India ('IDBI'),
Industrial Finance Corporation of India ('IFCI'), The Industrial Credit And
Investment Corporation of India Limited ('ICICI'), Industrial Reconstruction
Bank of India ('IRBI'), Life Insurance Corporation of India ('ILIC'), General
Insurance Corporation of India ('GIC'), National Insurance Company Limited
('NIC'), New India Assurance Company Limited ('GIC'), Oriental Insurance
Company Limited ('OIC), United India Insurance Company Limited ('UII') and
Unit Trust of India ('UTI').
If there is any inconsistency between the General Conditions and the
Loan Agreement, the Loan Agreement will prevail.
All the provisions of these General Conditions and the Loan Agreement
shall have full force and effect till all monies due from the Borrower to the
Lenders under the Loan Agreement are paid/repaid in full.
ARTICLE II
DEFINITIONS
The following terms have the following meanings in these General
Conditions and in the Loan Agreement :
1. "Borrower" means the party to the Loan Agreement to which the Loans are
made.
2 "Lead Institution" means any one of the Lenders as may be designated by
them, from time to time, as their attorney in a particular Loan
transaction. In the event of any Lender granting Loan(s) to the Borrower
singly (and not in participation with other Lenders), the expression
"Lead Institution" wherever it appears in these General Conditions or in
the Loan Agreement shall mean only the "Lender".
3. "Lenders" means IDBI, IFCI, ICICI, IRBI, LIC, GIC, NIC, NIA, OIC, UII
and UTI or any one or more of them where the subject or context, so
admits.
4. "Loan Agreement" means the particular loan agreement and includes these
General Conditions as applied thereto, and all schedules and amendments
supplemental to the Loan Agreement.
<PAGE> 18
3
5. "Loans" means the loans agreed to be provided under the Loan Agreement.
6. "Normal Loan" means that component of a rupee term loan which carries
interest at the maximum rate applicable to a widely held public limited
company.-
7. "Project" means the project for which the Loans are agreed to be
granted, as described in the Loan Agreement.
8. All other terms used in these General Conditions shall have the meanings
assigned to them under the Loan Agreement.
ARTICLE III
APPROVALS
Unless otherwise agreed to by the Lead Institution, the Borrower shall
approach the Lead Institution for obtaining all consents and approvals required
under the Loan Agreement. All acts and deeds done, and all consents and
approvals given, by the Lead Institution shall be deemed to have been done and
given by every Lender individually.
ARTICLE IV
DISBURSEMENT, INTEREST, COMMITMENT,
OTHER CHARGES AND REPAYMENT
Section 4.1 - TERMS OF DISBURSEMENT
(i) The Loans will be disbursed by the Lenders through the Lead
Institution, in one or more instalment(s) as may be decided by the Lead
Institution subject to the Borrower complying with the provisions of the Loan
Agreement and the disbursement procedure stipulated by the Lead Institution and
the expenditure incurred on the Project being in consonance with the details
mentioned in Loan Agreement. All disbursements shall be by
cheque(s)/authorisation(s) and the collection/ remittance charges will be borne
by the Borrower. The interest on the Loans will accrue as from the date of the
cheque(s)/authorisation(s) of the Lead Institution.
(ii) In the event of the Lender(s) agreeing to disburse any amount of the
Loans pending creation of final security as stipulated in the Loan Agreement,
the same may be disbursed on such terms as may be decided by the Lead
Institution.
<PAGE> 19
4
Section 4.2 - ADJUSTMENT OF OVERDUES
The Lead Institution may deduct from sums to be lent to the Borrower any
monies then remaining due and payable by the Borrower to the Lenders.
Section 4.3 - INTEREST
(i) All interest on the Loans and an all other monies accruing due under
the Loan Agreement shall, in case the same be not paid on the respective due
dates, carry further interest at the applicable rate(s) under the Loan
Agreement, computed from the respective due dates and shall become payable upon
the footing of compound interest with quarterly rests as provided in the Loan
Agreement.
(ii) All interest or other monies which shall accrue under the provisions
of the Loan Agreement shall also be payable in the manner and on the dates as
mentioned in the Loan Agreement for payment of interest on the principal
amounts of the Loans.
Section 4.4 - COMMITMENT CHARGES
(i) Commitment charge shall be payable in the manner and on the dates
specified for payment of interest under the Loan Agreement.
(ii) Arrears of commitment charge shall carry interest at the applicable
rate for Normal Loans on the date of the Loan Agreement.
(iii) Commitment charge shall be payable even though the Loans are
ultimately cancelled or not availed of for any reason whatsoever.
(iv) In the event of such cancellation, the commitment charge in respect of
the Loans or any part thereof which has been cancelled, shall cease to accrue
from the day on which the Borrower's request for cancellation is received by
the Lead Institution.
Section 4.5 - WEIGHTED AVERAGE RATE OF INTEREST AND COMMITMENT CHARGE
The Lenders may charge interest and commitment charge on the Loans at the
weighted average rate, where applicable.
For the purpose of this clause, "weighted average rate" means the weighted
mean of the rates of interest or commitment charge, as the case may be,
applicable to the Loans.
Section 4.6 - COMPUTATION OF INTEREST AND OTHER CHARGES
Interest and all other charges shall accrue from day to day and shall be
computed on the basis of 365 days' year and the actual number of days elapsed.
<PAGE> 20
5
Section 4.7 - REPAYMENT
(i) The Lead Institution may, in suitable circumstances, revise, vary or
postpone the repayment of the principal amounts of the Loans or the
balance outstanding for the time being or any instalment(s) of the
said principal amounts of the Loans or any part there of upon such
terms and conditions as may be decided by the Lead Institution.
(ii) In the event of any default in the payment of installments, of
principal, any interest, commitment charge and liquidated damages,
postponement, if any, allowed by the Lead Institution shall be at the
rate of interest as may be stipulated by the Lead Institution at the
time of postponement.
(iii) If, for any reason, the amount finally disbursed by the Lenders out of
the Loans is less than the amount of the Loans, the instalment(s) of
repayment of the Loans shall stand reduced proportionately but shall
be payable on the due dates as specified in the Amortization Schedule
in the Loan Agreement.
Section 4.8 - ACCELERATION OF REPAYMENT BY THE LENDERS
If the Lead Institution finds that the profitability of the Borrower, the
cash flow and other circumstances so warrant, the Lead Institution may, on
previous intimation to the Borrower, require the Borrower to prepay the Loans
on dates earlier than the dates specified in the Amortization Schedule in the
Loan Agreement and also increase the amount of the installments of repayment
fixed in that Schedule.
Section 4.9 - PREMATURE REPAYMENT
The Borrower shall not prepay the outstanding principal amounts of the
Loans in full or in part, before the due dates except after the conversion
right is exercised in full, or has lapsed and after obtaining the prior
approval of the Lead Institution (which may be granted conditionally).
Section 4.10 - DUE DATE OF PAYMENT
If the due date in respect of any instalment of principal, interest,
commitment charge and liquidated damages and all other monies payable under the
Loan Agreement falls on a Saturday or a day which is a bank holiday at the
place where the payment is to be made, the immediately preceding working day
shall be the due date for such payment.
Section 4.11 - LIQUIDATED DAMAGES ON DEFAULTED AMOUNTS
In case of default in payment of instalment of principal, interest,
<PAGE> 21
6
commitment charge and all other monies (except liquidated damages) on their
respective due dates, liquidated damages at the rate of 2% per annum for the
period of default. Liquidated damages shall be payable in the manner and on
the dates as specified in the Loan Agreement for payment of interest. Arrears
of liquidated damages shall carry interest at the applicable rate for Normal
Loans on the date of the Loan Agreement.
Section 4.12 - REIMBURSEMENT OF EXPENSES
(i) The Borrower shall reimburse all sums paid by the Lead Institution or
the Lenders under Article VII Sections 7.3(vii), 7.5(vii), Article
IX-Section 9(b) and Article X Section 10.4 within 30 days from the date
of notice of demand from the Lead Institution. All such sums shall be
debited to the Borrower's Loan Account and shall carry interest from the
date of payment till such reimbursement at the applicable rate for
Normal Loans on the date of the Loan Agreement.
(ii) In case of default in making such reimbursement within 30 days from the
date of notice of demand, the Borrower shall also pay an the defaulted
amounts, liquidated damages at the rate of 2% per annum from the expiry
of 30 days from the date of notice of demand till reimbursement in
accordance with the provisions of Section 4.11.
Section 4.13 - APPROPRIATION OF PAYMENTS
a) Unless otherwise agreed to by the Lead Institution, any payments due
and payable under the Loan Agreement and made by the Borrower shall be
appropriated towards such dues in the following order, viz.,
(i) Premium on prepayment;
(ii) Costs, charges, expenses and other monies;
(iii) Interest on costs, charges, expenses and other monies;
(iv) Commitment charge;
(v) Interest on arrears of commitment charge;
(vi) Interest, including additional interest, payable in terms of the Loan
Agreement;
(vii) Further interest and liquidated damages on defaulted amounts payable
in terms of Section 4.3(i) and 4.11;
(viii) Repayment of installments of principal due and payable under the Loan
Agreement.
b) Notwithstanding anything contained in Clause(a) hereinabove, the
Lenders may, at their discretion, appropriate such payments towards
the dues, if any, payable by the Borrower in respect of earlier
loan(s) availed of by the Borrower from the Lenders in the order
specified in the relative Loan Agreement(s).
Section 4.14 - RESTRICTION ON PREFERENTIAL PAYMENTS
The borrower shall pay and discharge all its liabilities to each of
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Section 4.15 - SHARING OF PREFERENTIAL PAYMENTS
If the Borrower makes any payment to any of the Lenders in preference
to other Lenders, the Lender receiving such payment shall, notwithstanding
anything to the contrary contained in the Loan Agreement, share the same with
other(s) on pro-rata basis or in such other manner as the Lenders may mutually
agree and such sharing shall be binding on the Borrower.
Section 4.16 - PLACE AND MODE OF PAYMENT BY THE BORROWER
All monies payable by the Borrower to the Lenders shall be paid to the
Lead Institution at such office(s) as may be specified by the Lead Institution,
by telegraphic, telex or mail transfer to the account of such office(s) or by
cheque or bank draft drawn in favour of the Lead Institution on a scheduled bank
at Bombay or such other place or to such other account as the Lead Institution
may notify to the Borrower and shall be so paid as to enable the Lead
Institution to realise, at par, the amount on or before the relative due date.
Credit for all payments by cheque/bank draft will be given only on realisation
or on the relative due date, whichever is later.
ARTICLE V
Section 5 - BORROWER'S WARRANTIES
Except to the extent already disclosed in writing by the Borrower to
the Lenders, the Borrower shall be deemed to have assured, confirmed and
undertaken as follows:
(a) DUE PAYMENT OF PUBLIC AND OTHER DEMANDS
The Borrower is not in arrears of any public demands such as
income-tax, corporation tax and all other taxes and revenues or any other
statutory dues payable to the Central or State Governments or any local or other
authority.
(b) SELLING AND PURCHASING AGREEMENTS
The Borrower has entered into requisite selling and purchasing
arrangements to the satisfaction of the Lead Institution.
(c) MANAGEMENT AGREEMENT
The terms and conditions of appointment of Managing Director or any
other person holding substantial powers of management by whatever name called
shall be subject to the approval of the Lead Institution.
(d) CONFLICT WITH MEMORANDUM AND ARTICLES OF ASSOCIATION
Nothing in the Loan Agreement conflicts with the Memorandum and
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ARTICLE VI
PREDISBURSEMENT CONDITIONS
Section 6 - CONDITIONS PRECEDENT TO DISBURSEMENT
The obligation of the Lenders to make disbursements under the Loan
Agreement shall be subject to the Borrower performing all its obligations and
undertakings under the Loan Agreement besides compliance by the Borrower with
the Disbursement Procedure stipulated by the Lead Institution, such as
submission of necessary information, documents, etc. to the satisfaction of the
Lead Institution. Before seeking disbursement, the Borrower shall also comply
with the following conditions:
(a) RAISING OF SHARE CAPITAL
The Borrower shall raise share capital as stipulated in the Loan Agreement
and the promoters shall subscribe to such share capital to the extent
stipulated by the Lead Institution.
(b) SECURITY IN FAVOUR OF LENDERS
The Borrower shall create security as stipulated in the Loan Agreement in
favour of the Lenders.
(c) BORROWING FROM OTHER INSTITUTIONS/BANKS
The Borrower shall enter into effective agreements with other institutions
and banks in the form and substance satisfactory to the Lead Institution for
raising of funds as per the financing plan.
(d) NON-EXISTENCE OF EVENT OF DEFAULT
The Borrower shall satisfy the Lead Institution that no event of default
as defined in Article X hereof and no event which, with the lapse of time or
notice and lapse of time as specified in Article X, would become an event of
default, has happened and been continuing.
(e) COMPLIANCE WITH SPECIAL CONDITIONS
The Borrower shall comply with such special conditions as may be
stipulated by the Lead Institution at the time of communication of the sanction
of the Loans or subsequently.
(f) DETAILED REVIEW OF THE PROGRESS
(1) The Lead Institution shall have the right to review the cost of the
project before final disbursement of the Loans.
(2) The Lead Institution may withhold disbursement of the amount of the
Loans equivalent to the provision against margin money for working
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capital in the cost of the Project, till such time as the Project
is completed and build-up of working capital commences.
(g) UNDERTAKING FOR MEETING SHORTFALL
The Borrower shall procure undertaking(s) from such persons as may be
specified by the Lead Institution in the form required by the Lead Institution,
whereby it/he/they shall take the responsibility for making arrangements
satisfactory to the Lead Institution for meeting the shortfall, if any, in the
resources of the Borrower for completing the project and for working capital.
The Borrower shall join in such undertaking as a confirming party. The funds
brought in to meet the shortfall in the resources of the Borrower for
completing the Project and/or working capital shall be in such form and manner
and on such terms as may be required by the Lead Institution.
ARTICLE VII
CONDITIONS APPLICABLE DURING CURRENCY OF THE LOAN AGREEMENT
Section 7.1 - PROJECT
The Borrower shall,
(i) PROJECT CHANGES
Promptly notify the Lead Institution of any proposed change in the nature
or scope of the Project and of any event or condition which might materially
and adversely affect or delay completion of the project or result in
substantial overrun in the original estimate of costs.
Any proposed change in the nature or scope of the Project shall not be
implemented or funds committed therefor without the prior approval of the Lead
Institution.
(ii) CONTRACT CHANGES
Obtain prior concurrence of the Lead Institution to any material
modification or cancellation of the Borrower's agreements with its machinery
suppliers, collaborators, technical consultants and suppliers of raw materials.
(iii) DELAY IN COMPLETING THE PROJECT
Promptly inform the Lead Institution of the circumstances and conditions
which are likely to disable the Borrower from implementing the Project or which
are likely to delay its completion or compel the Borrower to abandon the same.
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Section 7.2 - FINANCING OF THE PROJECT
The Borrower shall,
(i) UTILISATION OF THE LOANS
Furnish to the Lead Institution at the end of each month following the
month in which the Loan monies are disbursed, a statement showing the manner
in which the said monies have been utilised.
(ii) SPECIAL BANK ACCOUNT
(a) Keep the drawals from the Loans in special accounts in the name of
the Borrower with a scheduled bank to be approved by the Lead
Institution, the payments from which the account shall be subject to
verification by any person authorised in this behalf by the Lead
Institution. The Borrower shall also obtain and furnish to the Lead
Institution a letter (in a form approved by the Lead Institution)
from the said bank forgoing its right of set-off or lien in respect
of such account.
(b) Keep such records as may be required by the Lead Institution to
facilitate verification of the entries in the said account. The
Borrower shall also authorise the said bank to furnish to the Lead
Institution, as and when required by it, certified true copy of the
said account with details for verification by the Lead Institution,
at the expense of the Borrower.
(c) Not transfer the Loans or any portion thereof from the said special
account for being kept in call or any deposit in any bank without
obtaining the prior approval of the Lead Institution.
Section 7.3 - GENERAL COVENANTS
The Borrower shall,
(i) NEW PROJECT
Not undertake any new project, diversification, modernisation or
substantial expansion of the Project described herein. The word 'substantial'
shall have the same meaning as under the Industries (Development and
Regulation) Act, 1951.
(ii) LOANS AND DEBENTURES
Not issue any debentures, raise any loans, accept deposits from public,
issue equity or preference capital, change its capital structure or create any
charge on its assets or give any guarantees without the prior approval of the
Lead Institution. This provision shall not apply to normal trade guarantees or
temporary loans and advances granted to staff or contractors or suppliers in
the ordinary course of business or to raising of unsecured loans, overdrafts,
cash credit or other facilities from banks in the ordinary course of business.
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(iii) PREMATURE REPAYMENT
Not prepay any loan availed of by it from any other party without the
prior approval of the Lead Institution. If for any reason, the Borrower is
required to prepay any loan, it shall make proportionate prepayment to the
Lenders as well as subject to such conditions as may be stipulated by the
Lenders.
(iv) COMMISSION
Not pay any commission to its promoters, directors, managers or other
persons for furnishing guarantees, counter guarantees or indemnities or for
undertaking any other liability in connection with any financial assistance
obtained for or by the Borrower or in connection with any other obligation
undertaken for or by the Borrower for the purpose of the Project.
(v) NOTICE OF WINDING UP OR OTHER LEGAL PROCESS
Promptly inform the vendors if it has notice of any application for
winding up having been made or any statutory notice of winding up under the
provisions of the Companies Act, 1956, or any other notice under any other Act
or otherwise of any suit or other legal process intended to be filed or
initiated against the Borrower and affecting the title to the properties of the
Borrower or if a receiver is appointed of any of its properties or business or
undertaking.
(vi) ADVERSE CHANGES IN PROFITS AND PRODUCTION
Promptly inform the Lead Institution of the happening of any labour
strikes, lockouts, shut-downs, fires or other similar happenings likely to have
an adverse effect on the Borrower's profits or business and of any material
changes in the rate of production or sales of the Borrower with an explanation
of the reasons therefor.
(vii) INSURANCE
a) Keep insured up to the replacement value thereof as approved by the Lead
Institution (including surveyor's and architect's fees) the properties
charged/to be charged to the Lenders and such of its other properties as
are of an insurable nature against fire, theft, lightning, explosion,
earthquake, riot, strike, civil commotion, storm, tempest, flood, marine
risks, erection risks, war risks, and such other risks as may be
specified by the Lead Institution and shall duly pay all premia and
other sums payable for that purpose. The insurance in respect of the
properties charged/to be charged to the Lenders shall be taken in the
joint names of the Borrower and the Lenders and any other person or
institution having an insurable interest in the properties of the
Borrower and acceptable to the Lead Institution. The Borrower shall
keep deposited with the Lead Institution the insurance policies and
renewals thereof.
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b) Agree that, in the event of failure on the part of the
Borrower to insure the properties or to pay the insurance
premia or other sums referred to above, the Lenders may get
the properties insured or pay the insurance premia and other
sums referred to above, as the case may be.
(viii) LOSS OR DAMAGE BY UNCOVERED RISKS
Promptly inform the Lead Institution of any loss or damage which the
Borrower may suffer due to any force majeure circumstances or act of God, such
as earthquake, flood, tempest or typhoon, etc. against which the Borrower may
not have insured its properties.
(ix) ANNUAL ACCOUNTS
Submit its duly audited annual accounts, within six months from the
close of its accounting year. In case statutory audit (if required) is not
likely to be completed during this period, the Borrower shall get its accounts
audited by an independent firm of Chartered Accountants and furnish the same to
the Lead Institution.
(x) DIVIDEND
Not declare or pay any dividend to its shareholders during any
financial year unless it has paid all the dues to the Lenders up to the date on
which the dividend is proposed to be declared or paid or has made satisfactory
provisions therefor. Further, the Borrower shall not declare dividend to the
equity shareholders in excess of 15% or the average of the dividend paid in the
three preceding years, whichever is higher, without prior approval of the Lead
Institution, which may be given conditionally.
(xi) SUBSIDIARIES
Not create any subsidiary or permit any company to become its
subsidiary.
(xii) MEMORANDUM AND ARTICLES OF ASSOCIATION
Carry out such alterations to its Memorandum and Articles of
Association as may be deemed necessary in the opinion of the Lead Institution
to safeguard the interests of the Lenders arising out of the Loan Agreement.
(xiii) MERGER CONSOLIDATION, ETC.
Not undertake or permit any merger, consolidation, reorganisation,
scheme or arrangement or compromise with its creditors or shareholders or
effect any scheme of amalgamation or reconstruction.
(xiv) INVESTMENTS BY BORROWER
Not make any investments by way of deposits, loans, share capital,
etc. in any concern.
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(xv) REVALUATION OF ASSETS
Not revalue its assets at any time during the currency of the Loans.
(xvi) TRADING ACTIVITY
Not carry on any general trading activity other than the sale of its
own products.
(xvii) SELLING AND PURCHASING ARRANGEMENTS
Undertake that any arrangement for the sale of its products and
purchase of raw materials and inputs, shall be subject to prior approval of the
Lead Institution. If so required by the Lead Institution, the Borrower shall
take steps to suitably modify or terminate the existing selling/purchasing
arrangements in such manner as may be required by the Lead Institution. The
Borrower shall not enter into any fresh agreement for the appointment of sole
selling agents/sole purchasing agents without the prior approval of the Lead
Institution. Any such arrangement shall be subject to such terms and
conditions as may be stipulated by the Lead Institution.
Section 7.4 - NOMINEE DIRECTOR
(i) Each of the Lenders shall have the right to appoint and remove from
time to time, Director(s) on the Board of Directors of the Borrower as
set out in the Loan Agreement (such directors are hereinafter referred
to as 'Nominee Director(s)').
(ii) The Nominee Director(s) shall not be required to hold qualification
shares and not be liable to retire by rotation.
(iii) The Nominee Director(s) shall be entitled to all the rights and
privileges of other directors including the sitting fees and expenses
as payable to other Directors but if any other fees, commission,
monies or remuneration in any form is payable to the Directors, the
fees, commission, monies and remuneration in relation to such Nominee
Director(s) shall accrue to the Lenders and the same shall accordingly
be paid by the Borrower directly to the Lead Institution for the
account of the concerned Lenders.
Provided that if any such Nominee Director is an officer of the
Lenders, the sitting fees in relation to such Nominee Director(s)
shall also accrue to the Lenders and the same shall accordingly be
paid by the Borrower directly to the Lead Institution for the account
of the concerned Lenders. Any expenditure incurred by the Lenders or
the Nominee Director(s) in connection with his appointment or
directorship shall be borne by the Borrower.
(iv) The Nominee Director(s) shall be appointed a Member of the Management
Committee or other Committees of the Board, if so desired by the
Lenders.
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(v) The Nominee Director(s) shall be entitled to receive all notices,
agenda, etc. and to attend all General Meetings and Board Meetings and
Meetings of any Committees of the Board of which he is a member.
(vi) If, at any time, the Nominee Director is not able to attend a meeting
of the Board of Directors or any of its Committees of which he is a
member, the Lenders may depute an observer to attend the meeting. The
expenses incurred by the Lenders in this connection shall be borne by
the Borrower.
Section 7.5 - MANAGEMENT
Unless the Lead Institution otherwise agrees
(i) EXISTING MANAGEMENT
The Borrower shall not remove any person, by whatever name called,
exercising substantial powers of management of the affairs of the Borrower at
the time of execution of the Loan Agreement.
(ii) PAYMENT OF REMUNERATION
The person(s) referred to in (i) shall not be paid any commission in
any year unless all the dues of the Lenders in that year have been paid to the
satisfaction of the Lead Institution.
(iii) PAYMENT OF COMPENSATION
The Borrower shall not pay any compensation to any of the persons
mentioned in (i) above in the event of loss of his/their office(s) for any
reason whatsoever if there is a default in repayment of dues to the Lenders.
(iv) UNDERTAKINGS
The Borrower shall obtain suitable undertakings for giving effect to
(ii) and (iii) above from the persons mentioned in (i) above. The
appointment/reappointment including terms of appointment (or alteration in such
terms) of the persons mentioned in (i) above shall be subject to the prior
approval of the Lead Institution.
(v) FUTURE ARRANGEMENT
The Borrower shall, as and when required by the Lead Institution,
appoint and change to the satisfaction of the Lead Institution, suitable
technical, financial and executive staff of proper qualifications and experience
for the key posts. The terms of such appointments including any changes
therein, shall be subject to prior approval of the Lead Institution.
(vi) REVIEW OF MANAGEMENT
In case of default in payment of any dues to the Lenders or if in the
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opinion of the Lead Institution the business of the Borrower is conducted in a
manner opposed to the public policy or in a manner prejudicial to Lenders'
interest, the Lead Institution shall have the right to review the management
set up or organisation of the Borrower and to require the Borrower to
restructure it as may be considered necessary by the Lead Institution,
including the formation of Management Committees with such powers and functions
as may be considered suitable by the Lead Institution.
(vii) APPOINTMENT OF TECHNICAL/MANAGEMENT CONSULTANT
The Lead Institution shall have the right to appoint, whenever it
considers necessary, any person, firm, company or association of persons
engaged in technical, management or any other consultancy business to inspect
and examine the working of the Borrower and its factory and to report to the
Lead Institution. The Lead Institution shall have the right to appoint,
whenever it considers necessary, any Chartered Accountants/Cost Accountants as
auditors for carrying out any specific assignment(s) or to examine the financial
or cost accounting system and procedures adopted by the Borrower for its
working or as concurrent or internal auditors, or for conducting a special
audit of the Borrower. The costs, charges and expenses including professional
fees and travelling and other expenses of such consultants or auditors shall be
payable by the Borrower.
(viii) The Borrower shall constitute such committees of the Board with such
composition and functions as may be required by the Lead Institution for close
monitoring of different aspects of its working.
(ix) UNDERTAKINGS FOR NON-DISPOSAL OF SHAREHOLDINGS
The Borrower shall not recognise or register any transfer of shares in
the Borrower's capital made or to be made by promoters, their friends or
associates as may be specified by the Lenders.
ARTICLE VIII
REPORTS
Section 8
The Borrower shall furnish to the Lead Institution such reports as may
be required by the Lead Institution.
ARTICLE IX
INSPECTION
Section 9 - The Borrower shall,
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a) PROJECT EXPENDITURE RECORDS
Maintain records showing expenditure incurred on the Project, utilisation
of the disbursements out of the Loans, progress of the Project and the
operations and financial conditions of the Borrower and such records shall be
open to examination by the Lenders and their authorised representatives.
b) TECHNICAL, FINANCIAL AND LEGAL INSPECTIONS
Permit the Lenders and their authorised representatives to carry our
technical, financial and legal inspections during the construction and
operation periods of the Project and to inspect all records, registers and
accounts of the Borrower. Any such representative of the Lenders shall have
free access at all reasonable times to any part of the Borrower's factory and
to its records, registers and accounts and to all schedules, costs, estimates,
plans and specifications relating to the plant and shall receive full
cooperation and assistance from the employees of the Borrower. The cost of
inspection, including travelling and all other expenses shall be payable by the
Borrower to the Lenders in this behalf.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1
If one or more of the events specified in this Section (hereinafter
called 'events of default') happen(s), the Lead Institution or the Lenders or
any of them may, by a notice in writing to the Borrower, declare the principal
of and all accrued interest on the Loans to be due and payable forthwith and the
security created in terms of Article III of the Loan Agreement shall become
enforceable and the Lenders shall have the following rights (anything in the
Loan Agreement to the contrary notwithstanding) namely: -
(i) to enter upon and take possession of the assets of the Borrower; and
(ii) to transfer the assets of the Borrower by way of lease or leave and
licence or sale.
EVENTS OF DEFAULT
a) DEFAULT IN PAYMENT OF PRINCIPAL SUMS OF THE LOANS
Default has occurred in the payment of principal sums of the Loans on
the due dates.
b) DEFAULT IN PAYMENT OF INTEREST
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instalment of interest on the Loans and such default has continued for a period
of thirty days.
c) ARREARS OF INTEREST
Interest amounting to at least Rs. 500 has been in arrears and unpaid
for thirty days after becoming due.
d) DEFAULT IN PERFORMANCE OF COVENANTS AND CONDITIONS
Default has occurred in the performance of any other covenant,
condition or agreement on the part of the Borrower under the Loan Agreement and
any other agreement and such default has continued for a period of thirty
days after notice in writing.thereof has been given to the Borrower by the
Lenders/Lead Institution.
e) SUPPLY OF MISLEADING INFORMATION
Any information given by the Borrower in its application for Loans, in
the reports and other information furnished by the Borrower in accordance with
the Reporting System and the warranties given/deemed to have been given by the
Borrower to the Lead Institution/Lenders is misleading or incorrect in any
material respect.
f) INABILITY TO PAY DEBTS
If there is reasonable apprehension that the Borrower is unable to pay
its debts or proceedings for taking it into liquidation, either voluntarily or
compulsorily, may be or have been commenced.
g) INADEQUATE INSURANCE
If the properties and assets offered to the Lenders as security for
the Loans have not been kept insured by the Borrower or depreciate in value to
such an extent that, in the opinion of the Lead Institution, further security
to the satisfaction of the Lead Institution should be given and on advising the
Borrower to that effect such security has not been given to the Lenders.
h) SALE, DISPOSAL AND REMOVAL OF ASSETS
If, without the prior approval of the Lead Institution, any land,
buildings, structures or plant and machinery of the Borrower are sold, disposed
of, charged, encumbered or alienated or the said buildings, structures,
machinery, plant or other equipment are removed, pulled down or demolished.
i) REFUSAL TO DISBURSE LOANS BY OTHER FINANCIAL INSTITUTION
If the other financial institution(s) or bank(s) with whom the Borrower
has entered into agreements for financial assistance have refused to disburse
it(s)/their loan(s) or any part thereof or have recalled its/their loan(s)
under their respective loan agreements with the Borrower.
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j) PROCEEDINGS AGAINST BORROWER
The Borrower has voluntarily or involuntarily become the subject of
proceedings under any bankruptcy or insolvency law or the Borrower is
voluntarily or involuntarily dissolved.
k) INABILITY TO PAY DEBTS ON MATURITY
The Borrower is unable or has admitted in writing its inability to pay
its debts as they mature.
l) LIQUIDATION OR DISSOLUTION OF THE BORROWER
The Borrower has taken or suffered to be taken any action for its
reorganisation, liquidation or dissolution.
m) APPOINTMENT OF RECEIVER OR LIQUIDATOR
A receiver or liquidator has been appointed or allowed to be appointed
of all or any part of the undertaking of the Borrower.
n) ATTACHMENT OR DISTRAINT ON MORTGAGED PROPERTIES
If an attachment or distraint has been levied on the mortgaged
properties or any part thereof or certificate proceedings have been taken or
commenced for recovery of any dues from the Borrower.
o) EXTRAORDINARY CIRCUMSTANCES
If extraordinary circumstances have occurred which make improbable for
the Project to be carried out and for the Borrower to fulfill its obligations
under the Loan Agreement.
Section 10.2 CONSEQUENCES OF DEFAULT
On the happening of any of the events of default, in addition to the
rights specified in Section 10.1 hereof, each of the Lenders shall be entitled
to appoint and remove from time to time Whole-time Director(s) on the Board of
Directors of the Borrower (such Director(s) are hereinafter referred to as "the
whole-time Nominee Director(s)"). Such Whole-time Nominee Director(s) shall
exercise such powers and duties as may be approved by the Lenders and have such
rights as are usually exercised by or are available to a Whole-time Director,
in the management of the affairs of the Borrower. Such Whole-time Nominee
Director(s) shall not be required to hold qualification shares nor be liable
to retire by rotation and shall be entitled to receive such remuneration, fees,
commission and monies as may be approved by the Lead Institution. Such
Whole-time Nominee Director(s) shall have the right to receive notices of and
attend all General Meetings and Board Meetings or any committees of the
Borrower of which they are members.
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Any expense that maybe incurred by the Lenders or such Whole-time
Nominee Director(s) in connection with their appointment or directorship shall
be paid or reimbursed by the Borrower to the Lenders, or as the case may be, to
such Whole-time Nominee Director(s).
Section 10.3 NOTICE TO THE LENDERS ON THE HAPPENING OF AN EVENT OF DEFAULT
If any event of default or any event which, after the notice, or lapse
of time, or both, would constitute an event of default has happened, the
Borrower shall, forthwith give notice thereof to the Lead Institution in
writing specifying the nature of such event of default, or of such event.
Section 10.4 EXPENSES OF PRESERVATION OF ASSETS OF BORROWER AND OF
COLLECTION
All expenses incurred by the Lenders after an event of default has
occurred in connection with:
(i) preservation of the Borrower's assets (whether then or thereafter
existing); and
(ii) collection of amounts due under the Loan Agreement shall be payable by
the Borrower.
ARTICLE XI
CANCELLATION, SUSPENSION AND TERMINATION
Section 11.1 CANCELLATION BY NOTICE TO THE LENDERS
The Borrower may, by notice in writing to the Lead Institution, cancel
the Loans or any part thereof which the Borrower has not withdrawn prior to
the giving of such notice. Provided that such cancellation shall be pro-rata
for each Lender.
Section 11.2 SUSPENSION
Further access by the Borrower to the use of the Loans may be
suspended or terminated by the Lead Institution/Lenders.
a) NON-COMPLIANCE OF TERMS AND CONDITIONS
Upon failure by the Borrower to carry out all or any of the terms of
the Loan Agreement or on the happening of any event of default referred to in
Article X hereof.
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b) EXTRAORDINARY SITUATION
If any extraordinary situation makes it improbable that the Borrower
would be able to perform its obligations under the Loan Agreement.
c) ASSIGNMENT OR TRANSFER OF PROPERTIES TO RECEIVER, ASSIGNEE, ETC.
If the Borrower takes or permits to be taken any action or proceedings
whereby any of its properties shall or may be assigned or, in any manner,
transferred or delivered to any receiver, assignee, liquidator or other person
whether appointed by the Borrower or by any Court of Law whereby such property
shall or may be distributed among the creditors of the Borrower or the Borrower
suffers any charge to be created over its properties in any legal proceedings.
d) CHANGE IN THE BORROWER'S SET-UP
If any change in the Borrower's set-up has taken place which, in the
opinion of the Lead Institution (which shall be final and binding on the
Borrower), would adversely affect the conduct of the Borrower's business or the
financial position or the efficiency of the Borrower's management or personnel
or the execution of the Project.
Section 11.3 SUSPENSION TO CONTINUE TILL DEFAULT REMEDIED
The right of the Borrower to make withdrawals from the Loans shall
continue to be suspended until the Lead Institution has notified the Borrower
that the right to make withdrawals has been restored.
Section 11.4 TERMINATION
If any of the events described above as also in Article X hereof has
been continuing or if the Borrower has not withdrawn the Loans by the date
referred to in the Loan Agreement or such later date as may be agreed to by the
Lead Institution, then, in such event, the Lead Institution may, by notice in
writing to the Borrower, terminate the right of the Borrower to make
withdrawals. Upon such notice, the undrawn amount of the Loans shall stand
cancelled. Notwithstanding any cancellation, suspension or termination
pursuant to the aforesaid provisions, all the provisions of the Loan Agreement
shall continue to be in full force and effect as herein specifically provided.
ARTICLE XII
WAIVER
Section 12 WAIVER NOT TO IMPAIR THE RIGHTS OF THE LENDERS
No delay in exercising omission to exercise any right, power or
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remedy accruing to the Lead Institution/Lenders upon any default under the Loan
Agreement, security documents or any other agreement or document shall impair
any such right, power or remedy or shall be construed to be a waiver thereof or
any acquiescence in such default, nor shall the action or inaction of the Lead
Institution/Lenders in respect of any default or any acquiescence by it in any
default, affect or impair any right, power or remedy of the Lead
Institution/Lenders in respect of any other default.
ARTICLE XIII
APPLICABILITY OF OTHER STATUTES
Section 13 APPLICATION OF OTHER STATUTES
Nothing contained in the Loan Agreement shall prejudice or in any way
affect the rights vested in the Lenders under the Industrial Development Bank
of India Act, 1964 (18 of 1964), Industrial Finance Corporation Act, 1948 (15
of 1948), Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), Life
Insurance Corporation of India Act, 1956 (31 of 1956), General Insurance
Business (Nationalisation) Act, 1972 (57 of 1972) and Unit Trust of India Act,
1963 (52 of 1963) or any other statute.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 SERVICE OF NOTICE
Any notice or request to be given or made to the Lead Institution/the
Lenders or to the Borrower or to any other party shall be in writing. Such
notice or request shall be deemed to have been given or made when it is
delivered by hand or despatched by mail or telegram to the party to which it is
required to be given or made at such party's designated address.
Section 14.l SERVICE OF NOTICE
a) Each of the Lenders shall maintain, in accordance with its usual
practice, accounts evidencing the amounts from time to time lent by
and owing to it under the Loan Agreement.
b) The Lead Institution shall maintain in its books a control account or
accounts in which shall be recorded.
(1) the amount of any advance made under the Loan Agreement by
each of the Lenders;
<PAGE> 37
22
(2) the amount of any principal or interest due or to become due
from the Borrower to each of the Lenders under the Loan
Agreement;
(3) the amount of any sum received or recovered by the Lead
Institution under the Loan Agreement and/or security documents
executed in favour of the Lenders and the other Lender's
participation therein.
In any legal action or proceedings arising out of or in connection
with the Loan Agreement, the entries made in the accounts maintained
pursuant to sub-clauses (a) and (b) above shall be prima-facie
evidence of the existence and amount of obligations of the Borrower as
therein recorded.
Section 14.3 BENEFIT OF THE LOAN AGREEMENT
The Loan Agreement shall be binding upon and enure to the benefit of
each party thereto and its successors and assigns.
Section 14.4 HEADINGS
The headings of various Articles and Sections herein and in the Loan
Agreement are inserted for convenience of reference and are not deemed to
affect the construction of the relative provisions.
<PAGE> 1
EXHIBIT 10.20
[CURRENCY]
The Industrial Credit & Investment
Corporation of India Limited
163, Backbay Reclamation
Bombay 400 020
Dear Sirs:
In consideration of your having agreed to grant to Moduler Electronics
(I) Pvt. Ltd. ("the Company"), the financial assistance in terms of the Foreign
Currency Loan Agreement dated the 11th day of October 1994, we the Directors
of the Company, do hereby, in pursuance of the said Loan Agreement, jointly and
severally, undertake to you that we shall not demand or withdraw nor shall the
Company repay any unsecured loans/deposits or any part thereof brought in/to be
brought in by us for financing the capital cost and the requirement of working
capital for the Company's project as per the Financing Plan approved by you so
long as any moneys remain due by the Company to you under the said Loan
Agreement or till the project is duly completed whichever is later without your
prior approval.
<PAGE> 2
: 2 :
We agree that if a dispute arises whether the Project is duly completed
or not, your decision shall be final and binding on us.
We note that such unsecured loans/deposits shall carry interest as may
be agreed to by you. We further agree that the Company shall not pay any
interest on such unsecured loans/deposits, if at the time of such payment,
there is a default in the payment of installments of principal and/or interest
due and owing by the Company to you.
Yours faithfully,
[SIG]
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
: 3 :
We note the above and agree and confirm that we shall not repay to the
above mentioned the unsecured loans/deposits or any part thereof when received
by us for financing the capital cost and the requirement of working capital for
our Project as per the Financing Plan approved by you so long as any moneys
remain due by us to you under the said Loan Agreement or till our Project is
duly completed, whichever is later, without your prior approval. We shall pay
such interest on the said unsecured loans/deposits as may be agreed to by you.
We agree not to pay any interest on the said unsecured loans/deposits if at the
time of such payment thee is a default in the payment of installments of
principal and/or interest due and owing by us to you.
For Moduler Electronics (I) Pvt. Ltd.
[SIG]
Director
Dated this 11th day of October 1994,
<PAGE> 4
[CURRENCY]
LOAN AGREEMENT
FC-Foreign Currency
THIS AGREEMENT made this 11th day of October One Thousand Nine Hundred
and Ninety Four at Bombay between Moduler Electronics (I) Pvt. Ltd., a Company
within the meaning of the Companies Act, 1956 (1 of 1956) and having its
Registered Office at 406, Dalamal Towers, Nariman Point, Bombay 400 021
(hereinafter referred to as "the Borrower" which expression shall, unless it be
repugnant to the subject or context thereof, include its successors and
assigns);
AND
THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED, a
public company incorporated under the Indian Companies Act, 1913 (7 of 1913) and
having its registered office at 163, Backbay Reclamation, Bombay 400 020
(hereinafter referred to as "the Lenders" which expression shall, unless it be
repugnant to the subject or context thereof, include its successors and
assigns);
<PAGE> 5
: 2 :
ARTICLE - I
DEFINITIONS
1.1 The following terms shall have the following meanings:
(a) "Due Date" means, in respect of
i) an instalment of principal - the date on which the instalment falls due
as stipulated in Schedule V hereto.
ii) interest - the date on which interest falls due as stipulated in
Schedule V hereto.
iii) commitment charge - the date on which commitment charge falls due as
stipulated in Section 2.3 of Article II hereof.
<PAGE> 6
: 3 :
(b) "Financing Plan" means the financing plan as described in Schedule III
hereto.
(c) "General Conditions" means the GENERAL CONDITIONS No. GC-FC-88 APPLICABLE
TO FOREIGN CURRENCY LOANS PROVIDED BY FINANCIAL INSTITUTIONS.
(d) "Loan" or "Loans" - means the amounts of various foreign currencies
specified in Section 2.1 of Article II hereof or their equivalents in other
foreign currencies used for their purchase, agreed to be provided by the
Lenders for the Project or (as the context requires) so much thereof as may
be outstanding from time to time.
(e) "Project" - means the project to be financed as described in Schedule II
hereto.
1.2 GENERAL CONDITIONS
The Loan(s) hereby agreed to be granted by the Lenders shall be subject
to the Borrower complying with the terms and conditions set out herein and also
in the General Conditions a copy of which is annexed hereto. The General
Conditions shall be deemed to form part of this Agreement and shall be read as
if they are specifically incorporated herein.
ARTICLE - II
AGREEMENT AND TERMS OF LOAN
2.1 AMOUNT AND TERMS OF LOAN
The Borrower agrees to borrow from the Lenders and the Lenders agree to
lend to the Borrower out of foreign currencies specified in Schedule IV hereto,
on the terms and conditions contained herein as also in the General Conditions,
the sums to the maximum extent in various foreign currencies set out in Schedule
I equivalent in the aggregate to about Rs.803 lacs.
2.2 INTEREST
i) The Borrower shall pay to the Lenders interest on the Loan(s) at the
rate(s) and in the manner provided in Schedule V hereto.
ii) Disbursements made pending creation of final security as stipulated in
Article III hereof shall carry further interest at the rate of 1% per
annum till creation of such security.
<PAGE> 7
: 4 :
iii) Provided however, interest on rupee tied defaulted amounts, arrears of
liquidated damages and sums incurred by the Lenders by way of expenses in
terms of Sections 4.11, 4.5 and 4.7 respectively of the General Conditions
shall be payable quarterly on January 1, April 1, July 1 and October 1.
2.3 FRONT END FEE
The Borrower shall pay to the Lenders Front End Fee of 1.05% of the Loan
on or before signing this Agreement.
2.4 LAST DATE OF WITHDRAWALS
Unless the Lenders otherwise agree, the right to make drawals from the
Loan(s) shall cease on January 31, 1995.
2.5 REPAYMENT
The Borrower undertakes to repay the principal amount of the Loan(s) in
accordance with the Amortization Schedule set forth in Schedule VI hereto.
2.6 CONVERSION RIGHT IN CASE OF DEFAULT
If the Borrower commits a default in payment or repayment of any
instalment of principal amount of the Loans or interest thereon or any
combination thereof, then, the Lenders shall have the right to convert (which
right is hereinafter referred to as "the conversion right") at its option 20% of
the rupee equivalent of the defaulted amount determined in accordance with
Section 4.11 of Article IV of the General Conditions into fully paid up equity
shares of the Borrower, at par, in the manner specified in the notice in writing
to be given by the Lenders to the Borrower (which notice is hereinafter referred
to as the "notice of conversion") prior to the date on which the conversion is
to take effect, which date shall be specified in the said notice (hereinafter
referred to as the "date of conversion").
i) On receipt of notice of conversion, the Borrower shall allot and
issue the requisite number of fully paid-up equity shares to the Lenders as from
the date of conversion and the Lenders shall accept the same in satisfaction of
the said defaulted amount(s) in respect of the Loans to the extent so converted.
The amount so converted shall cease to carry interest as from the date of
conversion and the outstanding amount in respect of the loans shall stand
correspondingly reduced. The equity shares so allotted and issued to the
Lenders shall carry, from the date of conversion, the right to receive
proportionately the dividends and other distributions declared or to be declared
in respect of the equity capital of the Borrower. Save as aforesaid, the said
shares shall rank pari passu with the existing equity shares of the Borrower in
all respects. The Borrower shall, at all times, maintain sufficient unissued
equity shares for the above purpose.
<PAGE> 8
: 5 :
ii) The conversion right reserved as aforesaid may be exercised by the
Lenders on one or more occasions during the currency of the Loan(s)
on the happening of the default as specified in this Section.
iii) The Borrower assures and undertakes that in the event of the Lenders
exercising the right of conversion as aforesaid, the Borrower shall get
the equity shares which will be issued to the Lenders as a result of
the conversion, listed with the Stock Exchange(s) as Bombay.
ARTICLE - III
SECURITY
3.1 SECURITY FOR THE LOAN
(A) The Loan(s) together with all interest, liquidated damages, commitment
charges premia on prepayment or on redemption, costs, expenses and other monies
whatsoever stipulated in this Agreement shall be secured by: -
a) a first charge by way of hypothecation in favour of the Lenders of all
the Borrower's moveables (save and except book debts), including
moveable machinery, machinery spares, tools and accessories present and
future, subject to prior charges created and/or to be created:-
i) in favour of the Borrower's Bankers on the Borrower's stocks of raw
materials, semi- finished and finished goods, consumable stores and
such other moveables as may be agreed to by the Lead Institution for
securing the borrowings for working capital requirements in the
ordinary course of business; and
The charges referred to above shall rank pari passu with the mortgages
and charges created and/or to be created in favour of ICICI for its existing
loans.
(B) The borrower shall make out a good and marketable title to its
properties to the satisfaction of the Lenders and comply with all such
formalities as may be necessary or require for the said purpose.
<PAGE> 9
: 6 :
3.2 CREATION OF ADDITIONAL SECURITY
If at any time during the subsistence of this Agreement, the Lenders is
of the opinion that the security provided by the Borrower has become inadequate
to cover the balance of the Loans then outstanding, then, on the Lenders
advising the Borrower to that effect, the Borrower shall provide and furnish to
the Lenders, to the satisfaction of the Lenders, such additional security as
may be acceptable to the Lenders to cover such deficiency.
3.3 ACQUISITION OF ADDITIONAL IMMOVEABLE PROPERTIES
So long as any monies remain due and outstanding to the Lenders, the
Borrower undertakes to notify the Lenders in writing of all its acquisitions of
immoveable properties and as soon as practicable thereafter to make out a
marketable title to the satisfaction of the Lenders and charge the same in
favour of the Lenders by way of first charge the same in favour of the Lenders
by way of first charge in such form and manner as may be decided by the Lenders.
3.4 GUARANTEE
The Borrower shall procure irrevocable and unconditional personal
guarantee(s) from [*] in favour of the Lenders for the due repayment
of the Loans and the payment of all interest and other monies payable by the
Borrower in the form prescribed by the Lenders and to be delivered to the
Lenders before any part of the Loan is advanced. The Borrower shall not pay
any guarantee commission to the said Guarantor.
ARTICLE - IV
APPOINTMENT OF NOMINEE DIRECTOR(S)
The Borrower agrees that the Lenders shall be entitled to appoint and
withdraw from time to time One Director on the Board of Directors of the
Borrower during the currency of this Agreement.
ARCICLE - V
SPECIAL CONDITIONS
The loan(s) hereby granted shall also be subject to the Borrower
complying with the special conditions set out in Schedule VII hereto.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 10
: 7 :
ARTICLE - VI
EFFECTIVE DATE OF AGREEMENT
This Agreement shall become binding on the Borrower and the Lenders on
and from the date first above written. It shall be in force till all the monies
due and payable under this Agreement are fully paid of.
<PAGE> 11
: 8 :
SCHEDULE I
PARTICULARS OF LOANS
<TABLE>
<CAPTION>
NAME OF THE LENDER LOAN
------------------ ----
RC Equal US$ (Rs. in lacs)
--- --------- -------------
<S> <C> <C> <C>
The Industrial Credit and Investment US$ 16,50,375 520
Corporation of India Limited (ICICI) SGD 8,45,395 266
163 Backbay Reclamation BEF 6,627 2
Bombay 400 020 YEN 47,603 15
--------- ---
TOTAL 25,50,000 803
========= ===
</TABLE>
<PAGE> 12
: 9 :
SCHEDULE II
PROJECT
The Loan(s) shall be utilised by the Borrower for import of Capital
Goods under Open General Licence.
The Rupee figure has been arrived at on the basis of rates of exchange
of the foreign currencies involved prevailing at the time of sanction of the
Loan(s) and is subject to revision based on the fluctuations in foreign currency
rates.
<PAGE> 13
: 10 :
SCHEDULE III
FINANCING PLAN
A. The total estimated cost of the project is Rs.2274 lacs made up as
under:
<TABLE>
<CAPTION>
(Rc in lacs)
Rupee equivalent
Rupee of foreign currency
Cost cost
----- -------------------
<S> <C> <C>
Plant & Machinery -
a) Imported
i) CIF value 910
Technical know-how fees 630
Miscellaneous fixed assets 75
Preoperative expenses 15
Contingencies 50
Margin money for working capital 594
---- -----
734 1,540
-----
Total of Rupee & foreign currency cost 2,274
=====
</TABLE>
B. The proposed sources of financing are as follows:
<TABLE>
<CAPTION>
(Rs. in lacs)
<S> <C>
(1) SHARE CAPITAL
a) Promoters 200
(2) FOREIGN CURRENCY LOANS
a) ICICI 803
(3) DEFERRED PAYMENTS
Technical knowhow fees 630
(4) UNSECURED LOANS FROM PROMOTERS 641
-----
2,274
=====
</TABLE>
<PAGE> 14
: 11 :
SCHEDULE IV
(Particulars of ICICI Loans)
The Loan referred to in Section 2.1 herein is comprised of the following:-
i) US $ 16,50,375
ii) SGD 12,85,000
iii) BEF 2,15,900
iv) YEN 46,87,500
which is agreed to be provided as follows:-
i) US $ 16,50,375
ii) SGD 12,85,000
iii) BEF 2,15,900
iv) YEN 46,87,500
equivalent in the aggregate to US$ 25,50,000 (hereinafter referred to as
the "US Dollars Loan - 1994") (which expression shall, unless expressly
provided otherwise, mean the aggregate to the amounts of various foreign
currencies used for their purchase expressed in US$ equivalent or so much as
may be outstanding from time to time) out of the US Dollars available with
ICICI.
<PAGE> 15
: 12 :
SCHEDULE V
PART I
SUB PART Y
(US DOLLAR LOAN - 1994)
The following provisions shall apply to the US Dollars Loan - 1994 :
I. REPAYMENT
The US Dollar Loan - 1994 is repayable in accordance with the
amortization schedule set forth in Schedule VI. The amortization schedule has
been drawn up on the basis of the aggregate US $ equivalent of the foreign
currencies involved at the rates of exchange prevailing at the time of each
disbursement. In such an event the Borrower shall, unless otherwise determined
by ICICI, repay to ICICI, the principal amount of the US Dollar Loan - 1994 in
accordance with the amortization schedule as of revised.
All sums payable by the Borrower under this Agreement, shall be paid in
full without set off or counter claim and without any deduction or withholding
on account of any present or future taxes, levies, imposts, duties, charges or
withholdings of any future taxes, levies, imposts, duties, charges or
withholdings of any nature or otherwise imposed in India or by any taxing
authority in India.
II. INTEREST:
The Borrower shall pay to ICICI interest on the principal amount of the
US Dollar Loan - 1994 outstanding from time to time quarterly in each year on
January 1, April 1, July 1 and October 1 at the rate of US Dollar LIBOR +2.75%
per annum.
III. COMPUTATION OF INTEREST AND OTHER CHARGES:
Interest and all other charges will be calculated on the basis of a 360
day year and the actual number of days elapsed.
IV. PREPAYMENT
Unless expressly agreed to by ICICI and subject to payment of such
premium as may be stipulated by ICICI, the Borrower shall not be entitled to
prepay in whole or in part, the US Dollar Loan - 1994 before the due date(s).
<PAGE> 16
: 13 :
SCHEDULE VI
AMORTISATION SCHEDULE FOR ICICI LOAN
IN US$
<TABLE>
<CAPTION>
Principle
amount
outstanding
Date after
payment Payment of each
due Principle payment
------- ---------- -----------
<S> <C> <C>
25,50,000
April 1, 1997.......................... 1,96,150 23,53,850
July 1, 1997.......................... 1,96,150 21,57,100
Oct. 1, 1997.......................... 1,96,150 19,61,550
Jan. 1, 1998.......................... 1,96,150 17,65,400
April 1, 1998.......................... 1,96,150 15,69,250
July 1, 1998.......................... 1,96,150 13,73,100
Oct. 1, 1998.......................... 1,96,150 11,76,950
Jan. 1, 1999.......................... 1,96,150 9,80,800
April 1, 1999.......................... 1,96,150 7,84,650
July 1, 1999.......................... 1,96,150 5,88,500
Oct. 1, 1999.......................... 1,96,150 3,02,350
Jan. 1, 2000.......................... 1,96,150 1,96,200
April 1, 2000.......................... 1,96,200 0
---------
Total.......................... 25,50,000
=========
</TABLE>
[SEAL]
<PAGE> 17
: 14 :
SCHEDULE - VII
SPECIAL CONDITIONS
1) The company shall obtain from the promoters, unsecured loans of Rs. 641 lacs
for financing a part of the cost of the project. Such unsecured loans may
carry interest at the rate of 17.5%p.a. or the rate of dividend paid on
equity capital whichever is lower. The payment of interest on such
unsecured loans and repayment thereof shall be subordinate to payment of
interest and repayment of ICICI dues. Such unsecured loans shall not carry
interest for the year in which the company has not paid dividends on its
equity capital.
2) The company shall arrange with Tandon Associates Inc, USA for deferred
payment of technical knowhow fees of Rs. 630 lacs over a period of 3 years
begining in 1996 and ending in 1998. The payment of the deferred technical
knowhow fees and royalty will be subordinate to payment of interest on and
repayment of ICICI dues. Such deferred technical knowhow fees and royalty
shall not carry any interest.
3) The Company does not undertake any new project or expansion or make any
investment or take any assets on lease without prior approval of ICICI
during the currency of ICICI loans.
4) The company shall undertake in terms of section 6(g) of GC-FC-88.
5) The company undertakes that during the currency of the loans from ICICI, it
shall not, without obtaining prior consent in writing of ICICI declare
dividend in excess of the rate stipulated in the Loan Agreement nor declare
any dividend on its share capital, if it fails to meet its obligations to
pay interest and / or instalments and / or other moneys payable to ICICI so
long as it is in default.
6) ICICI shall be entitled to appoint one nominee on the Board of Directors of
the company during the currency of ICICI assistance.
<PAGE> 18
: 15 :
IN WITNESS WHEREOF the Borrower has caused its Common Seal to be
affixed hereto and to duplicate hereof and ICICI has caused this Agreement to
be executed in duplicate on the day, month and year first above written as
hereinafter appearing:
THE COMMON SEAL of Moduler
Electronics (I) Pvt. Ltd. has
pursuant to the Resolution of its
Board of Directors passed in that
behalf on the 10th day of October
1994 hereunto been affixed in the
presence of Shri /s/ [SIG] /s/ [SIG]
Director who has signed these -------------------
presents in token thereof and
Shri
Secretary/authorised person who
has countersigned the same in
token hereof. /s/ [SIG]
------------------
SIGNED AND DELIVERED by the
withinnamed Lenders by the hand of
Shri /s/ [SIG] an authorised /s/ [SIG]
official of ICICI. ------------------
27/53
<PAGE> 19
GENERAL CONDITIONS
NO. GC-FC-88
APPLICABLE TO FOREIGN CURRENCY LOANS PROVIDED BY
FINANCIAL INSTITUTIONS
<PAGE> 20
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE NUMBER TITLE PAGE NO.
- -------------- ----- --------
<S> <C> <C>
I Applicability 01
II Definitions 01-02
III Approvals 02
IV Disbursement, Interest, Commitment 02-06
and other charges and Repayment
V Borrower's warranties 06-07
VI Predisbursement conditions 07-09
VII Conditions applicable during currency
of the Loan Agreement
1. Project 09-10
2. Utilisation of the Loans 10
3. General Covenants 10-14
4. Nominee Director 14
5. Management 14-16
VIII Reports 16
IX Inspection 16
X Events of default and remedies 17-20
XI Cancellation, suspension and termination 20-22
XII Waiver 22
XIII Applicability of other Statutes 22
XIV Miscellaneous 22
</TABLE>
<PAGE> 21
1
ARTICLE I
APPLICABILITY
The General Conditions set out herein shall, if the Loan Agreement so
provides, be applicable to the foreign currency loans provided singly or
jointly by the Industrial Development Bank of India (IDBI), The Industrial
Finance Corporation of India (IFCI) and the Industrial Credit and Investment
Corporation of India Limited (ICICI).
If there is any inconsistency between these General Conditions and the
Loan Agreement, the Loan Agreement will prevail.
All the provisions of these General Conditions and the Loan Agreement
shall have full force and effect till all monies due from the Borrower to the
Lenders under the Loan Agreement are paid/repaid in full.
ARTICLE II
DEFINITIONS
The following terms have the following meanings in these General
conditions and in the Loan Agreement:
1. "Borrower" means the party to the Loan Agreement to which the Loans are
made.
2. "Foreign Lending Agency" means the Agency providing foreign currency funds
to the Lenders pursuant to terms of their Agreements.
3. "Lead Institution" means any one of the Lenders as may be designated by them
from time to time, as their attorney in a particular loan transaction. In the
event of any Lender granting loan(s) to the Borrower singly (and not jointly
with other Lenders), the expression "Lead Institution" wherever it appears in
these General Conditions or in the Loan Agreement shall mean only the "Lender".
4. "Lenders" means IDBI, IFCI and ICICI or anyone or more of them where the
subject or context so admits.
5. "Loan Agreement" means the particular loan agreement and includes these
General Conditions and applied thereto, and all schedules and amendments
supplemental to the Loan Agreement.
6. "Loan" or "Loans" means amounts of various foreign currencies or their
equivalents in other foreign currencies used for their purchase, agreed to be
provided by the Lenders under the Loan Agreement or (as the context requires)
so much thereof as may be outstanding from time to time.
<PAGE> 22
2
7. "Project" means the project for which the Loans are agreed to be granted,
as described in the Loan Agreement.
8. All other terms used in these General Conditions shall have the meanings
assigned to them under the Loan Agreement.
ARTICLE III
APPROVALS
Unless otherwise agreed to by the Lead Institution, the Borrower shall
approach the Lead Institution for obtaining all consents and approvals required
under the Loan Agreement. All acts and deeds done, and all consents and
approvals given, by the Lead Institution shall be deemed to have been done and
given by every Lender individually.
ARTICLE IV
DISBURSEMENT, INTEREST, COMMITMENT AND OTHER CHARGES AND REPAYMENT
SECTION 4.1 - TERMS OF DISBURSEMENT
(i) The Loans will be disbursed by the Lenders in such manner as may
be decided by the Lenders subject to the Borrower complying with the provisions
of the Loan Agreement and the disbursement procedure(s) stipulated by the
Lenders (including production/execution of evidences/documents required for
disbursement) and the expenditure incurred on the Project being in consonance
with the details mentioned in the Loan Agreement.
(ii) In the event of the Lenders agreeing to disburse any amount of the
Loans pending creation of final security as stipulated in the Loan Agreement,
the same may be disbursed on such terms as may be decided by the Lenders.
All disbursements shall be by authorisation(s) and the
collection/remittance charges will be borne by the Borrower. The interest on
the Loans will accrue as from the value date as specified in the authorisation.
SECTION 4.2 - INTEREST
(i) All interest on the Loans and on all other monies accruing due under
the Loan Agreement shall, in case the same be not paid on the respective due
dates, carry further interest at the applicable rate(s) under the Loan
Agreement, computed from the respective due dates and shall become payable upon
the footing of compound interest with quarterly/half yearly/yearly rests as
provided in the Loan Agreement.
<PAGE> 23
3
(ii) All interest and other monies which shall accrue under the provisions
of the Loan Agreement shall also be payable in the manner and on the dates as
mentioned in the Loan Agreement for payment of interest on the principal
amounts of the Loans.
SECTION 4.3 - COMMITMENT CHARGE
(i) Commitment charge shall be payable in the manner and on the dates
specified in the Loan Agreement.
(ii) Arrears of commitment charge shall carry interest at the lending
rate(s) of the Lenders for normal rupee term loans prevailing on the date of
default.
(iii) Commitment charge shall be payable even though the Loans are
ultimately cancelled or not availed of for any reason whatsoever.
(iv) In the event of such cancellation, the commitment charge in respect
of the Loans or any part thereof which has been cancelled, shall cease to
accrue from the day on which the Borrower's request for cancellation is
received by the Lenders.
SECTION 4.4 - REPAYMENT
(i) The Lenders may, in suitable circumstances, revise, vary or postpone
the repayment of the principal amounts of the Loans or the balance outstanding
for the time being or any installments) of the said principal amounts of the
Loans or any part thereof upon such terms and conditions as may be decided by
the Lenders.
(ii) In the event of any default in the payment of installment(s) of
principal, any interest, commitment charge or liquidated damages, postponement,
if any, allowed by the Lenders shall be at the rate of interest as may be
stipulated by The Lenders at the time of postponement.
(iii) If, for any reason, the amount finally disbursed by the Lenders out
of the Loans is less than the amount of the Loans, the installment(s) of
repayment of the Loans shall stand reduced proportionately but shall be payable
on the due dates as specified in the Amortization Schedule(s) in the Loan
Agreement.
SECTION 4.5 - LIQUIDATED DAMAGES ON DEFAULTED AMOUNTS
In case of default in payment of installment(s) of principal,
interest, commitment charge and all other monies (except liquidated damages) on
their respective due dates, the Borrower shall pay on the defaulted amounts,
liquidated damages at the rate of 2% per annum for the period of default.
Liquidated damages shall be payable in the manner and
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4
on the dates as specified in the Loan Agreement for payment of interest.
Arrears of liquidated damages shall carry interest at the lending rate(s) of
the Lenders for normal rupee term loans prevailing on the date of default.
4.6 - INCREASED COSTS
In the event of the Lenders being called upon to pay any additional
amount by the Foreign Lending Agency, in terms of their respective agreements,
or on account of factors beyond the control of the Lenders, the Borrower shall
reimburse all such amounts to the Lenders.
SECTION 4.7 - REIMBURSEMENT OF EXPENSES
(i) The Borrower shall reimburse all sums paid by the Lead Institution/the
Lenders under Article IV - Sections 4.6 and 4.10(f) Article VII - Sections
7.3(B)(v), 7.3(B)(vii), 7.5(vii), Article IX-Section 9(b)(iii) and Article X
- - Section 10.4 within 30 days from the date of notice of demand from the Lead
Institution/Lenders. All such sums shall be debited to the Borrower's Loan
Account and shall carry interest from the date of payment till such
reimbursement at the lending rate(s) of the Lenders for normal rupee term loans
prevailing on the date of payment.
(ii) In case of default in making such reimbursement within 30 days from the
date of notice of demand, the Borrower shall also pay on the defaulted amounts,
liquidated damages at the rate of 2% per annum from the expiry of 30 days from
the date of notice of demand till reimbursement in accordance with the
provisions of Section 4.5.
SECTION 4.8 - APPROPRIATION OF PAYMENTS
a) Unless otherwise agreed to by the Lenders, any payments due and
payable under the Loan Agreement and made by the Borrower shall be appropriated
towards such dues in the following order, viz., -
(i) Premium on prepayment;
(ii) Costs, charges, expenses and other monies;
(iii) Interest on costs, charges, expenses and other monies;
(iv) Commitment charge;
(v) Interest on arrears of commitment charge;
(vi) Interest payable in terms of the Loan Agreement;
(vii) Further interest and liquidated damages on defaulted amounts
payable in terms of Section 4.2(i) and 4.5;
(viii) Repayment of installments of principal due and payable under the Loan
Agreement.
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b) Notwithstanding anything contained in Clause(a) hereinabove, the
Lenders may, at their discretion, appropriate such payments towards the dues,
if any, payable by the Borrower in respect of earlier loan(s) availed of by the
Borrower from the Lenders in the order specified in the relative Loan
Agreement(s).
4.9 - ALTERATION IN SOURCE(S) OF THE LOAN/CURRENCY/INTEREST SWAPS
The Lenders may, at any time, in their absolute discretion, alter the
sources from which the Loans or any part thereof is agreed to be
provided/provided under the Loan Agreement. In such an event, the liability of
the Borrower in respect of the Loans or such part thereof in respect of which
the source(s) has been altered as regards rate(s) of interest, repayment(s) of
principal and currencies and date(s) and mode of such payment/repayment shall
be as applicable to the loan(s) out of such altered source(s) as intimated by
the Lenders, which shall be final and binding on the Borrower.
The Lenders may, at any time, in their absolute discretion, effect
currency and/or interest rate swap for the Loans or any part thereof agreed to
be provided/provided herein. In such an event, the liability of the Borrower
in respect of which the Loans or such part thereof in respect of the currency
or currencies of repayment/payment of principal, interest and all other monies
payable hereunder/rate(s) of interest on principal of the Loans/or such part
thereof shall be as intimated by the Lenders, which shall be final and binding
on the Borrower.
SECTION 4.10 - PLACE AND MODE OF PAYMENT
Notwithstanding anything contained hereinbefore, the Borrower shall
make payments to each of the Lenders, whether of principal amount of the Loan,
interest, commitment charge, premium on prepayment or on redemption, if any, in
equivalent rupees in lieu of foreign currencies. For the purpose of this
section, the following conditions shall apply: -
a) The rupee sum shall be determined by the Lenders with reference to the
actual cost to the Lenders (including all commission or other bank charges and
out-of-pocket expenses) in remitting the foreign currencies on the due dates.
b) The rupee sum shall be paid by the Borrower to the Lenders 15 days in
advance of the due dates to enable the Lenders to remit the foreign currencies
on the due dates.
c) The rupee sum shall be paid by the Borrower to the Lenders by cheque or
bank draft drawn on a Scheduled Bank in Bombay/New Delhi and the
collection/remittance charges, if any, in respect thereof will be borne by the
Borrower.
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d) Credit for all payments made by the Borrower in terms of Agreement by
cheque/bank draft will be given only on realisation or on the relative due
date, whichever is later.
e) For the purpose of sub-section (a) hereof a statement signed by a
designated officer of the Lenders shall be sufficient evidence of the costs,
commission, expenses, etc.
f) Any difference on account of exchange fluctuations in the rates of
foreign currencies involved between the payment made by the Borrower to the
Lenders and the actual cost to the Lenders as referred to in sub-section (a)
above shall be borne by or be given credit to the Borrower.
In the case of ICICI, if ICICI decides not to call for payment in
equivalent rupees in the manner provided above, ICICI shall have the right to
notify the Borrower the place or places where and the person or persons to whom
the payments in foreign currencies falling due thereafter shall be made and all
expenses involved in making payments in the manner so notified shall be borne
by the Borrower.
SECTION 4.11 - RUPEE TYING OF DEFAULTED AMOUNTS
Without prejudice to any of the obligations of the Borrower in terms
of the Loan Agreement, in the event of default by the Borrower in making
payment in discharge of any of its obligations under the Loan Agreement on the
due dates then, notwithstanding anything to the contrary contained in the Loan
Agreement, the liability of the Borrower thereafter in respect of such amounts
shall be in rupees, which shall be determined and notified by the Lenders to
the Borrower in accordance with the provisions of sub-section 4.10(a)
hereinabove (hereinafter referred to as "the rupee tied defaulted amounts").
Notwithstanding anything to the contrary contained in the Loan
Agreement, the rupee tied defaulted amounts will carry interest and further
interest from the respective due dates at the lending rate(s) of the Lenders
for normal rupee term loans prevailing on the date of default and shall be
payable on the dates specified in the Loan Agreement.
ARTICLE V
SECTION 5 - BORROWER'S WARRANTIES
Except to the extent already disclosed in writing by the Borrower to
the Lenders, the Borrower shall be deemed to have assured, confirmed and
undertaken as follows:
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(a) DUE PAYMENT OF PUBLIC AND OTHER DEMANDS
The Borrower is not in arrears of any public demands such as
income-tax, corporation tax and all other taxes and revenues or any other
statutory dues payable to the Central or State Government(s) or any local or
other authority.
(b) SELLING AND PURCHASING ARRANGEMENTS
The Borrower has entered into requisite selling and purchasing
arrangements to the satisfaction of the Lead Institution.
(c) MANAGEMENT AGREEMENT
The terms and conditions of appointment of Managing Director or any
other person holding substantial powers of management, by whatever name called,
shall be subject to the approval of the Lead Institution.
(d) CONFLICT WITH MEMORANDUM AND ARTICLES OF ASSOCIATION
Nothing in the Loan Agreement conflicts with the Memorandum and
Articles of Association of the Borrower.
(e) IMPORT LICENCE
The Borrower has obtained import licence(s) with list of
equipment/necessary information about eligibility, scope and validity of
imports under Open General Licence for equipment to be imported for the
Project, and final quotation therefor. The Borrower further undertakes to
obtain information regarding changes in import policy, eligibility and scope of
import and shall advise the Lenders in this regard from time to time.
ARTICLE VI
PREDISBURSEMENT CONDITIONS
SECTION 6 - CONDITIONS PRECEDENT TO DISBURSEMENT
The obligation of the Lenders to make disbursements under the Loan
Agreement shall be subject to the Borrower performing all its obligations and
undertakings under the Loan Agreement besides compliance by the Borrower with
the Disbursement Procedure stipulated by the Lenders, such as submission of
necessary information, documents, etc. to the satisfaction of the Lenders.
Before seeking disbursement the Borrower shall also comply with the following
conditions:
<PAGE> 28
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(a) RAISING OF SHARE CAPITAL
The Borrower shall raise share capital as stipulated in the Loan
Agreement and the promoters shall subscribe to such share capital to the extent
stipulated by the Lenders.
(b) SECURITY IN FAVOUR OF THE LENDERS
The Borrower shall create security as stipulated in the Loan
Agreement in favour of the Lenders.
(c) BORROWING FROM OTHER INSTITUTIONS/BANKS
The Borrower shall enter into effective agreements with other
institutions/banks in the form and substance satisfactory to the Lenders for
raising of funds as per the Financing Plan.
(d) NON-EXISTENCE OF EVENT OF DEFAULT
The Borrower shall satisfy the Lenders that no event of default as
defined in Article X hereof and no event which, with the lapse of time or
notice and lapse of time as specified in Article X would become an event of
default, has happened and been continuing.
(e) DRAW DOWN SCHEDULE
The Borrower shall, within a period of 30 days from the date of the
Loan Agreement or such extended period as may be agreed to by the Lenders,
supply to the Lenders full information regarding the orders for the equipment
placed by it with its foreign suppliers and the schedule showing the dates on
which it expects to establish Letters of Credit under the disbursement
procedure and the dates on which payments under those Letters of Credit are
expected to be made.
(f) LETTERS OF CREDIT
The Borrower shall open Letter(s) of Credit for import of capital
goods approved under the financing plan only through the Lead Institution/the
Lenders.
(g) COMPLIANCE WITH SPECIAL CONDITIONS
The Borrower shall comply with such special conditions as may be
stipulated by the Lenders at the time of communication of the sanction of the
Loan or subsequently.
(h) DETAILED REVIEW OF THE PROGRESS
The Lenders shall have the right to review the cost of the Project
before final disbursement of the Loan.
<PAGE> 29
9
(i) UNDERTAKING FOR MEETING SHORTFALL
The Borrower shall procure undertaking(s) from such persons as may be
specified by the Lead Institution in the form required by the Lead Institution
whereby it/he/they shall take the responsibility for making arrangements
satisfactory to the Lead Institution for meeting the shortfall, if any, in the
resources of the Borrower for completing the Project and for working capital.
The Borrower shall join in such undertaking as a confirming party. The funds
brought in to meet the shortfall in the resources of the Borrower for
completing the Project and/or working capital shall be in such form and manner
and on such terms as may be required by the Lead Institution
ARTICLE VII
CONDITIONS APPLICABLE DURING CURRENCY OF THE LOAN AGREEMENT
SECTION 7.1 - PROJECT
The Borrower shall,
(i) PROJECT IMPLEMENTATION
Carry out and operate the Project with due diligence and efficiency
and in accordance with sound engineering, technical, administrative, financial,
managerial and industrial standards and business practices with qualified and
experienced management and personnel and in accordance with the Financing Plan
and cause the financing specified in the Financing Plan to be applied
exclusively to the Project.
(ii) PROJECT CHANGES
Promptly notify the Lead Institution of any proposed change in the
nature or scope of the Project and of any event or condition which might
materially and adversely affect or delay completion of the Project or result in
substantial overrun in the original estimate of costs. Any proposed change in
the nature or scope of the Project shall not be implemented or funds committed
therefor without the prior approval of the Lead Institution.
(iii) CONTRACT CHANGES
Obtain prior concurrence of the Lead Institution to any material
modification or cancellation of the Borrower's agreements with its machinery
suppliers, collaborators, technical consultants and suppliers of raw materials.
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(iv) DELAY IN COMPLETING THE PROJECT
Promptly inform the Lead institution of the circumstances and
conditions which are likely to disable the Borrower from implementing the
Project or which are likely to delay its completion or compel the Borrower to
abandon the same.
SECTION 7.2 - UTILISATION OF THE LOANS
(i) The Borrower shall use the Loans solely for the purposes
described in the Loan Agreement and covenants that the capital goods and
services purchased from the Loan shall be used exclusively in the carrying out
of the Project.
(ii) The Borrower shall purchase the capital goods and services to be
financed out of the Loans at a reasonable price, account being taken also of
other relevant factors such as time of delivery, efficiency, reliability of the
goods, their suitability for the Project and availability of maintenance
facilities and spare parts therefor and in the case of services, their quality
and the competence of the parties rendering them.
(iii) The Borrower shall not use the proceeds of the Loan for the purpose of
trading in any other currency.
SECTION 7.3 - GENERAL COVENANTS
(A) Without the prior approval of the Lead Institution, the Borrower shall
not
(i) NEW PROJECT
Undertake any new project, diversification, modernisation or
substantial expansion of the Project described herein. The word
"substantial" shall have the same meaning as under the Industries (Development
and Regulation) Act, 1951.
(ii) LOANS AND DEBENTURES
Issue any debentures, raise any loans, accept deposits from public,
issue equity or preference capital, change its capital structure, create any
charge on its assets or give any guarantees. This provision shall not apply to
normal trade guarantees or temporary loans and advances granted to staff or
contractors or suppliers in the ordinary course of business or to raising of
unsecured loans, overdrafts, cash credit or other facilities from banks in the
ordinary course of business.
(iii) PREMATURE REPAYMENT
Prepay any loan availed of by it from any other party.
<PAGE> 31
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(iv) COMMISSION
Pay any commission to its promoters, directors, managers or other
persons for furnishing guarantees, counter guarantees or indemnities or for
undertaking any other liability in connection with any financial assistance
obtained for or by the Borrower or in connection with any other obligation
undertaken for or by the Borrower for the purpose of the Project.
(v) DIVIDEND
Declare or pay any dividend to its shareholders during any financial
year unless it has paid all the dues to the Lenders up to the date on which the
dividend is proposed to be declared or paid or has made satisfactory
provisions therefor. Further, the Borrower shall not declare dividend to the
equity shareholders in excess of 15% or the average of the dividend paid in the
three preceding years, whichever is higher, without prior approval of the Lead
Institution, which may be given conditionally.
(vi) SUBSIDIARIES
Create any subsidiary or permit any company to become its subsidiary.
(vii) MERGER, CONSOLIDATION, ETC.
Undertake or permit any merger, consolidation, reorganisation, scheme
of arrangement or compromise with its creditors or shareholders or effect any
scheme of amalgamation or reconstruction.
(viii) INVESTMENTS BY BORROWER
Make any investments by way of deposits, loans, share capital, etc.
in any concern.
(ix) REVALUATION OF ASSETS
Revalue its assets at any time during the currency of the Loans.
(x) TRADING ACTIVITY
Carry on any general trading activity other than the sale of its own
products.
(B) Unless otherwise agreed to by the Lead Institution, the Borrower
shall,
(i) ACCOUNTING AND COST CONTROL SYSTEMS
Promptly and diligently instal and thereafter maintain an accounting
and cost control system satisfactory to the Lenders and maintain
<PAGE> 32
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books of accounts and other records adequate to reflect truly and fairly the
financial position of the Borrower and the results of its operations (including
the progress of the Project) in conformity with sound accounting principles
consistently applied. Such records and books shall be open to examination by
the Lenders and any authorised representative of the Foreign Lending Agency.
(ii) INFORMATION OF LOANS, GOODS, ETC.
Provide to the Lenders all such information relating to the Loans,
the goods and services financed out of the Loans, the Project and its
operations and other related matters as the Lenders or the Foreign Lending
Agency shall, from time to time, at their discretion request, including
information relating to the administration, management and financial condition
of the Borrower.
(iii) NOTICE OF WINDING UP OR OTHER LEGAL PROCESS
Promptly inform the Lenders if it has notice of any application for
winding up having been made or any statutory notice of winding up under the
provisions of the Companies Act, 1956, or any other notice under any other Act
or otherwise of any suit or other legal process intended to be filed or
initiated against the Borrower and affecting the title to the properties of the
Borrower or if a receiver is appointed of any of its properties or business or
undertaking.
(iv) ADVERSE CHANGES IN PROFITS AND PRODUCTION
Promptly inform the Lead Institution of the happening of any labour
strikes, lockouts, shutdowns, fires or any event likely to have a substantial
effect on the Borrower's profits or business and of any material changes in the
rate of production or sales of the Borrower with an explanation of the reasons
therefor.
(v) INSURANCE
a) Insure and keep insured against such risks as may be
determined by the Lenders all the goods to be imported for the purpose of the
Project whether financed out of the proceeds of the Loans or not and in
particular the goods to be financed out of the proceeds of the Loans as are of
an insurable nature against all marine, transit and other hazards incidental to
the acquisition, transportation and delivery of the goods to the place of use
or installation and for such insurance any indemnity shall be payable in a
currency freely usable by the Borrower to replace or repair such goods.
b) Keep insured up to the replacement value thereof as approved
by the Lead Institution (including surveyor's and architect's fees) the
properties charged/to be charged to the Lenders and such of its other
properties as are of an insurable nature against fire, theft, lightning,
explosion, earthquake, riot, strike, civil commotion, storm, tempest, flood,
marine risks, erection risks, war risks and such other risks as may be
specified by the Lead Institution.
<PAGE> 33
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c) Duly pay all premia and other sums payable for that purpose. The
insurance in respect of the properties charged/to be charged to the Lenders
shall be taken in the joint names of the Borrower and the Lenders and any other
person or institution having an insurable interest in the properties of the
Borrower and acceptable to the Lead Institution. The Borrower shall keep
deposited with the Lead Institution the insurance policies and renewals
thereof.
d) Agree that, in the event of failure on the part of the Borrower to
insure the properties or to pay the insurance premia or other sums referred to
above, the Lenders may get the properties insured or pay the insurance premia
and other sums referred to above, as the case may be.
(Vi) LOSS OR DAMAGED BY UNCOVERED RISKS
Promptly inform the Lead Institution of any loss or damage which the Borrower
may suffer due to any force majeure circumstances or act of God such as
earthquake, flood, tempest or typhoon, etc. against which the Borrower may not
have insured its properties.
(vii) COSTS AND CHARGES
Pay all taxes, duties, cesses, costs, charges and expenses in connection with
or relating to the Loan transaction (including cost of investigation of title
and protection of the Lenders' interest). In the event of the Borrower failing
to pay the aforesaid monies, the Lenders/Lead Institution shall be at liberty
but shall not be obliged to pay the same.
(viii) ANNUAL ACCOUNTS
Submit to each of the Lenders its duly audited annual accounts
within six months from the close of its accounting year. In case
statutory audit (if required) is not likely to be completed during this
period, the Borrower shall get its accounts audited by an independent firm of
Chartered Accountants and furnish the same to the Lead Institution.
(ix) MEMORANDUM AND ARTICLES OF ASSOCIATION
Carry out such alterations to its Memorandum and Articles of Association as
may be deemed necessary in the opinion of the Lead Institution to safeguard the
interests of the Lenders arising out of the Loan Agreement.
(x) SELLING AND PURCHASING ARRANGEMENTS
Undertake that if so required by the Lead Institution, the Borrower shall
take steps to suitably modify or terminate the existing selling/purchasing
arrangements in such manner as may be required by the Lead Institution. The
Borrower shall not enter into any fresh agreement for the appointment of sole
selling agents/sole purchasing agents without the
<PAGE> 34
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prior approval of the Lead Institution. Any such arrangement shall he subject
to such terms and conditions as may be stipulated by the Lead Institution.
SECTION 7.4 - NOMINEE DIRECTOR
(i) Each of the Lenders shall have the right to appoint and remove
from time to time, Director(s) on the Board of Directors of the Borrower as set
out in the Loan Agreement (such directors are hereinafter referred to as
'Nominee Director(s)').
(ii) The Nominee Director(s) shall not be required to hold qualification
shares and not be liable to retire by rotation.
(iii) The Nominee Director(s) shall be entitled to all the rights and
privileges of other Directors including the sitting fees and expenses as
payable to other Directors but if any other fees, commission, monies or
remuneration in any form is payable to the Directors, the fees, commission,
monies and remuneration in relation to such Nominee Director(s) shall accrue to
the Lenders and the same shall accordingly be paid by the Borrower directly to
the Lead Institution for the account of the concerned Lender. Provided that,
if any such Nominee Director(s) is an officer of the Lenders, the sitting fees
in relation to such Nominee Director(s) shall also accrue to the Lenders and
the same shall accordingly be paid by the Borrower directly to the Lead
Institution for the account of the concerned Lender.
Any expenditure incurred by the Lenders or the Nominee Director(s) in
connection with his appointment or directorship shall be borne by the Borrower.
(iv) The Nominee Director(s) shall be appointed a Member of the Management
Committee or other Committees of the Board, if so desired by the Lenders.
(v) The Nominee Director(s) shall be entitled to receive all notices,
agenda, etc. and to attend all General Meetings and Board Meetings and
Meetings of any Committees of the Board of which he is a member.
(vi) If, at any time, the Nominee Director(s) is not able to attend a
meeting of the Board of Directors or any of its Committees of which he is a
member, the Lenders may depute an observer to attend the meeting. The expenses
incurred by the Lenders in this connection shall be borne by the Borrower.
SECTION 7.5 - MANAGEMENT
Unless the Lead Institution otherwise agrees:
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(i) EXISTING MANAGEMENT
The Borrower shall not remove any person, by whatever name called,
exercising substantial powers of management of the affairs of the Borrower at
the time of execution of the Loan Agreement.
(ii) PAYMENT OF REMUNERATION
The person(s) referred to in (i) above shall not be paid any
commission in any year unless all the dues of the Lenders in that year have
been paid to the satisfaction of the Lead Institution.
(iii) PAYMENT OF COMPENSATION
The Borrower shall not pay any compensation to any of the persons
mentioned in (i) above in the event of loss of his/their office(s) for any
reason whatsoever if there is a default in repayment of dues to the Lenders.
(iv) UNDERTAKINGS
The Borrower shall obtain suitable undertakings for giving effect to
(ii) and (iii) above from the persons mentioned in (i) above. The
appointment/reappointment including terms of appointment (or alteration in such
terms) of the persons mentioned in (i) above shall be subject to the prior
approval of the Lead Institution.
(v) FUTURE ARRANGEMENT
The Borrower shall, as and when required by the Lead Institution,
appoint and change to the satisfaction of the Lead Institution suitable
technical, financial and executive staff of proper qualifications and
experience for the key posts. The terms of such appointments including any
changes therein, shall be subject to prior approval of the Lead Institution.
(vi) REVIEW OF MANAGEMENT
In case of default in payment of any dues to the Lenders or if in the
opinion of the Lead Institution the business of the Borrower is conducted in a
manner opposed to the public policy or in a manner prejudicial to the Lenders'
interest, the Lead Institution shall have the right to review the management
set up or organisation of the Borrower and to require the Borrower to
restructure it as may be considered necessary by the Lead Institution,
including the formation of Management Committees with such powers and functions
as may be considered suitable by the Lead Institution.
(vii) APPOINTMENT OF TECHNICAL/MANAGEMENT CONSULTANTS/CHARTERED ACCONTANTS
The Lead Institution shall have the right to appoint, whenever it
considers
<PAGE> 36
necessary, any person, firm, company or association of persons engaged in
technical, management or any other consultancy business to inspect and examine
the working of the Borrower and its factory and to report to the Lead
Institution. The Lead Institution shall have the right to appoint, whenever it
considers necessary, any Chartered Accountants/Cost Accountants as auditors for
carrying out any specific assignments) or to examine the financial or cost
accounting systems and procedures adopted by the Borrower for its working or as
concurrent or internal auditors, or for conducting a special audit of the
Borrower. The costs, charges and expenses including professional fees and
travelling and other expenses of such consultants or auditors shall be payable
by the Borrower.
(viii) COMMITTEES OF BOARD
The Borrower shall constitute such committees of the Board
with such composition and functions as may be required by the Lead Institution
for close monitoring of different aspects of its working.
(ix) UNDERTAKINGS FOR NON-DISPOSAL OF SHAREHOLDINGS
The Borrower shall not recognise or register any transfer of shares in the
Borrower's capital made or to be made by promoters, their friends or associates
as may be specified by the Lead Institution. The Borrower shall obtain and
furnish to the Lead Institution suitable undertakings from such person for
giving effect to the above.
ARTICLE VIII
REPORTS
Section 8 - The Borrower shall furnish to the Lenders such reports at may be
required by the Lenders.
ARTICLE IX
INSPECTION
Section 9 - The Borrower shall,
a) PROJECT EXPENDITURE RECORDS
Maintain records and procedures adequate to record and monitor the progress of
the Project (including its cost and the benefits to be derived from it) to
identify the goods and services financed out of the Loan, to disclose their use
in the Project and the operations and financial condition of the
<PAGE> 37
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Borrower and such records shall be open to examination by the Lenders, the
Foreign Lending Agency and their authorised representatives.
b) TECHNICAL, FINANCIAL AND LEGAL INSPECTIONS
(i) Permit the Lenders, by themselves or jointly with the Foreign
Lending Agency and their authorised representatives, to carry out technical,
financial and legal inspections of the goods purchased out of the Loans and to
visit any facilities and construction sites included in the Project and to
examine any plants, installations, sites, works, buildings, property,
equipment, records and documents relevant to the performance of the obligations
of the Borrower under the Loan Agreement. Any such representative of the
Lenders and/or the Foreign Lending Agency shall have free access at all
reasonable times to the Borrower's properties and shall receive full
cooperation and assistance from the employees of the Borrower.
(ii) Permit any whole-time officer of the Lenders or any authorised
representative of the Foreign Lending Agency or a qualified practising Auditor
to examine the Borrower's books and papers and will give all facilities to
enable any technically qualified person chosen by tile Lenders or the Foreign
Lending Agency to report on the business of the Borrower at any time.
Provided that, if the technically qualified person is not a whole-time employee
of the Lenders or an authorised representative of the Foreign Lending Agency
such technically qualified person shall be reasonably acceptable to the
Borrower having regard to his other activities, if any.
(iii) The cost of inspection, including travelling and all other
expenses, shall be payable by tile Borrower to the Lenders/the Foreign
Lending Agency in this behalf.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 16.1 If one or more of the events specified in this Section
(hereinafter called 'events of default') happen(s), the Lead Institution or the
Lenders or any of them may, by a notice in writing to the Borrower, declare the
principal of and all accrued interest on the Loans to be due and payable
forthwith and the security created in terms of Article III of, the Loan
Agreement shall become enforceable and the Lenders shall have the following
rights (anything in the Loan Agreement to the contrary notwithstanding) namely:
(i) to enter upon and take possession of the assets of the Borrower; and
(ii) to transfer the assets of the Borrower by way of lease or leave
and licence or sale.
<PAGE> 38
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EVENTS OF DEFAULT
a) DEFAULT IN PAYMENT OF PRINCIPAL SUMS OF THE LOANS
Default has occurred in the payment of principal sums of the Loans on the due
dates.
b) DEFAULT IN PAYMENT OF INTEREST
Default has been committed by the Borrower in payment of any instalment of
interest on the Loans and such default has continued for a period of thirty
days.
c) ARREARS OF INTEREST
Interest amounting to at least Rs. 500 has been in arrears and unpaid for
thirty days after becoming due.
d) DEFAULT IN PERFORMANCE OF COVENANTS AND CONDITIONS
Default has occured in the performance of any other covenant, condition or
agreement on the part of the Borrower under the Loan Agreement or any other
agreement and such default has continued for a period of thirty days after
notice in writing thereof has been given to the Borrower by the Lenders/Lead
Institution.
e) SUPPLY OF MISLEADING INFORMATION
Any information given by the Borrower in its Loan Application, in the reports
and other information furnished by the Borrower in accordance with the
Reporting System and the warranties given/deemed to have been given by the
Borrower to the Lenders/Lead Institution is misleading or incorrect in any
material respect.
f) INABILITY TO PAY DEBTS
If, there is reasonable apprehension that the Borrower is unable to pay its
debts or proceedings for taking it into liquidation, either voluntarily or
compulsorily, may be or have been commenced.
g) INADEQUATE INSURANCE
If, the properties and assets offered to the Lenders as security for the Loans
have not been kept insured by the Borrower or depreciate in value to such an
extent that, in the opinion of the Lead Institution, further security to the
satisfaction of the Lead Institution should be given and on advising the
Borrower to that effect such security has not been given to the Lenders.
<PAGE> 39
19
h) SALE, DISPOSAL AND REMOVAL OF ASSETS
If, without the prior approval of the Lead Institution any
land, buildings, structures or plant and machinery of the Borrower are sold,
disposed of, charged, encumbered or alienated or the said buildings,
structures, machinery, plant or other equipment are removed, pulled down or
demolished.
i) REFUSAL TO DISBURSE LOANS BY OTHER FINANCIAL INSTITUTIONS
If the other financial institutions or bank(s) with whom the
Borrower has entered into agreements for financial assistance have refused to
disburse its/their loan(s) or any part thereof or have recalled its/their
loan(s) under their respective loan agreement(s) with the Borrower.
j) PROCEEDINGS AGAINST BORROWER
The Borrower has voluntarily or involuntarily become the
subject of proceedings under any bankruptcy or insolvency law or the Borrower
is voluntarily or involuntarily dissolved.
k) INABILITY T0 PAY DEBTS ON NATURITY
The Borrower is unable or has admitted in writing its
inability to pay its debts as they mature.
l) LIQUIDATION OR DISSOLUTION OF THE BORROWER
The Borrower has taken or suffered to be taken any action for
its reorganisation, liquidation or dissolution.
m) APPOINTMENT OF RECEIVER OR LIQUIDATOR
A receiver or liquidator has been appointed or allowed to be
appointed of all or any part of the undertaking of the Borrower.
n) ATTACHMENT OR DISTRAINT ON MORTGAGED PROPERTIES
If, an attachment or distraint has been levied on the
mortgaged properties or any part thereof or certificate proceedings have been
taken or commenced for recovery of any dues from the Borrower.
o) EXTRAORDINARY CIRCUMSTANCES
If, extraordinary circumstances have occured which make it
improbable for the Project to be carried out and for the Borrower to fulfill
its obligations under the Loan Agreement.
Section 10.2 CONSEQUENCES OF DEFAULT
On the happening of any of the events of default, in addition
to
<PAGE> 40
20
the rights specified in Section 10.1 hereof, each of the Lenders shall be
entitled to appoint and remove from time to time Whole-time Director(s) on the
Board of Directors of the Borrower (such Director (s) are hereinafter referred
to as "the Whole-time Nominee Director(s)"). Such Whole-time Nominee
Director(s) shall exercise such powers and duties as may be approved by the
Lenders and have such rights as are usually exercised by or are available to
a Whole-time Director in the management of the affairs of the Borrower. Such
Whole-time Nominee Director(s) shall not be required to hold qualification
shares nor be liable to retire by rotation and shall be entitled
to receive such remuneration, fees, commission and monies as may be approved by
the Lead Institution. Such Whole-time Nominee Director(s) shall have the right
to receive notices of and attend all General meetings and Board Meetings or any
committee(s) of the Borrower of which they are members.
Any expense that may be incurred by the Lenders or such
Whole-time Nominee Director(s) in connection with their appointment or
directorship shall be paid or reimbursed by the Borrower to the Lenders or as
the case may be, to such Whole-time Nominee Director(s).
Section 10.3 NOTICE TO THE LENDERS ON THE HAPPENING OF AN EVENT OF DEFAULT
If, any event of default or any event which, after the notice,
or lapse of time, or both, would constitute an event of default has happened,
the Borrower shall, forthwith give notice thereof to the Lead Institution in
writing specifying the nature of such event of default, or of such event.
Section 10.4 EXPENSES OF PRESERVATION OF ASSETS OF BORROWER AND OF COLLECTION
All expenses incurred by the Lenders after an event of default
has occurred in connection with:-
(i) preservation of the Borrower's assets (whether then or
thereafter existing) and
(ii) collection of amounts due under the Loan Agreement shall
be payable by the Borrower.
ARTICLE XI
CANCELLATION, SUSPENSION AND TERMINATION
Section 11.1 CANCELLATION BY NOTICE TO THE LENDERS
The Borrower may, by notice in writing to the Lead
Institution, cancel the Loans or any part thereof which the Borrower has not
withdrawn prior to the giving of such notice. Provided that such cancellation
shall be pro-rata for each Lender.
<PAGE> 41
21
Section 11.2 SUSPENSION
Further access by the Borrower to the use of the Loans may be
suspended or terminated by the Lenders/Lead Institution:
a) NON-COMPLIANCE OF TERMS AND CONDITIONS
Upon failure by the Borrower to carry out all or any of the
terms of the Loan Agreement or on the happening of any event of default
referred to in Article X hereof.
b) EXTRAORDINARY SITUATION
If, any extra ordinary situation makes it improbable that the
Borrower would be able to perform its obligations under the Loan Agreement.
c) ASSIGNMENT OR TRANSFER OF PROPERTIES T0 RECEIVER, ASSIGNEE, ETC.
If, the Borrower takes or permits to be taken any action or
proceedings whereby any of its properties shall or may be assigned or, in any
manner, transferred or delivered to any receiver, assignee ' liquidator or
other person, whether appointed by the Borrower or by any Court of Law, whereby
such property shall or may be distributed among the creditors of the Borrower
or the Borrower suffers any charge to be created over its properties in any
legal proceedings.
d) CHANGE IN THE BORROWER'S SET-UP
If, any chance in the Borrower's set-up has taken place which,
in the opinion of the Lead Institution (which shall be final and binding on the
Borrower), would adversely affect the conduct of the Borrower's business or the
financial position or the efficiency of the Borrower's management or personnel
or the execution of the Project.
e) DENIAL OF ACCESS
If, for any reason, the Lenders are denied further access to
their loan(s) facility from the Foreign Lending Agency.
Section 11.3 SUSPENSION TO CONTINUE TILL DEFAULT REMEDIED
The right of the Borrower to make withdrawals from the Loans
shall continue to be suspended until the Lead Institution has notified the
Borrower that the right to make withdrawals has been restored.
Section 11.4 TERMINATION
If any of the events described above or in Article X hereof
has been continuing or if the right of the Borrower to make withdrawals from
the Loans shall have been suspended with respect to any amount of the Loans
<PAGE> 42
22
for a continuous period of thirty days or if the Borrower has not withdrawn the
Loans by the date referred to in the Loan Agreement or such later date as may
be agreed to by the Lenders or if the Lenders are denied access to their
loan(s) by the Foreign Lending Agency, then, in such event, the Lead
Institution may, by notice in writing to the Borrower, terminate the right of
the Borrower to make withdrawals. Upon such notice, the undrawn amount of the
Loans shall stand cancelled. Notwithstanding any cancellation, suspension or
termination pursuant to the aforesaid provisions, all the provisions of the
Loan Agreement shall continue to be in full force and effect as herein
specifically provided.
ARTICLE XII
WAIVER
Section 12. WAIVER NOT TO IMPAIR THE RIGHTS OF THE LENDERS
No delay in exercising or omission to exercise any right, power or
remedy accruing to the Lenders/Lead Institution upon any default under the Loan
Agreement, security documents or any other agreement or document shall impair
any such right, power or remedy or shall be construed to be a waiver thereof or
any acquiescence in such default, nor shall the action or inaction of the
Lenders/Lead Institution in respect of any default or any acquiescence by them
in any default, affect or impair any right, power or remedy of the Lenders/Lead
Institution in respect of any other default.
ARTICLE XIII
APPLICABILITY OF OTHER STATUTES
Section 13. APPLICATION OF OTHER STATUTES
Nothing contained in the Loan Agreement shall prejudice or in any way
affect the rights vested in the Lenders under the Industrial Development Bank of
India Act, 1964 (18 of 1964), Industrial Finance Corporation Act, 1948 (15 of
1948), or any other statute.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 SERVICE OF NOTICE
Any notice or request to be given or made to the Lenders/Lead
Institution or to the Borrower or to any other party shall be in writing.
Such notice or request shall be deemed to have been given or made when it
<PAGE> 43
23
is delivered by hand or despatched by mail or telegram to the party to which it
is required to be given or made at such party's designated address.
Section 14.2 EVIDENCE OF DEBT
a) Each of the Lenders shall maintain, in accordance with
their usual practice, accounts evidencing the amounts from time to time lent by
and owing to them under the Loan Agreement.
b) In any legal action or proceedings arising out of or in
connection with the Loan Agreement, the entries made in the accounts maintained
pursuant to sub-clause (a) above shall be prima-facie evidence of the existence
and amount of obligations of the Borrower as therein recorded.
Section 14.3 BENEFIT OF THE LOAN AGREEMENT
The Loan Agreement shall be binding upon and enure to the benefit of
each party thereto and its successors and assigns.
Section 14.4 HEADINGS
The headings of various Articles and Sections herein and in the Loan
Agreement are inserted for convenience of reference and are not deemed to affect
the construction of the relative provisions.
<PAGE> 44
The Industrial Credit and Investment
Corporation of India Limited
Dear Sirs,
Foreign Currency Loan aggregating US$ 2550,000 equivalent to
about Rs.803 lacs sanctioned by your Corporation to us
With reference to the circular sent by you alongwith your sanction
letter 07??400?? dated October 5, 1994 for the above mentioned Foreign Currency
Loan, we do hereby undertake to your Corporation that we shall submit to your
Corporation (Foreign Exchange Department) quarterly statement in the prescribed
form as and when any part of the Foreign Currency Loan is drawn by us.
We are aware that on the faith of the above undertaking given by us,
you have agreed to consider our eligibility, inter alia, to provide the above
mentioned Foreign Currency Loan and to sign the Heads of Agreement with your
Corporation in respect of the same.
Yours faithfully,
Shri [*]
Director
Dated this 11th day of October, 1994.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
Exhibit 10.21
LOAN AGREEMENT
(FOREIGN CURRENCY LOAN)
BETWEEN
MODULER ELECTRONICS (INDIA) PVT. LTD.
AS BORROWER
AND
THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED
AS LENDERS
<PAGE> 2
LOAN AGREEMENT
--------------
FC-Foreign Currency
-------------------
THIS AGREEMENT made this 18th day of March One Thousand Nine Hundred and
Ninety Six at Bombay between MODULER ELECTRONICS (INDIA) PVT. LTD. a Company
within the meaning of the Companies Act, 1956 (1 of 1956) and having its
Registered Office at 406, Dalamal Towers, Nariman Point, Bombay 400 021
(hereinafter referred to as "the Borrower" which expression shall, unless it be
repugnant to the subject or context thereof, include its successors and
assigns);
AND
THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED, a public
company incorporated under the Indian Companies Act, 1913 (7 of 1913) and having
its registered office at 163, Backbay Reclamation, Bombay 400 020 (hereinafter
referred to as "the Lenders" which expression shall, unless it be repugnant to
the subject or context thereof, include its successors and assigns);
<PAGE> 3
2
ARTICLE - I
DEFINITIONS
1.1 The following terms shall have the following meanings:-
(a) "Due Date" means, in respect of
i) an instalment of principal -- the date on which the instalment falls due
as stipulated in Schedule V hereto.
ii) interest -- the date on which interest falls due as stipulated in
Schedule V hereto.
iii) commitment charge -- the date on which commitment charge falls due as
stipulated in Section 2.3 of Article II hereof.
[SEAL]
<PAGE> 4
(b) "Financing Plan" means the financing plan as described in Schedule III
hereto.
(c) "General Conditions" means the GENERAL CONDITIONS No. GC-FC-88 APPLICABLE
TO FOREIGN CURRENCY LOANS PROVIDED BY FINANCIAL INSTITUTIONS.
(d) "Loan" or "Loans" means the amounts of various foreign currencies
specified in Section 2.1 of Article II hereof or their equivalents in other
foreign currencies used for their purchase, agreed to be provided by the
Lenders for the Project or (as the context requires) so much thereof as may be
outstanding from time to time.
(e) "Project" means the project to be financed as described in Schedule II
hereto.
1.2 GENERAL CONDITIONS
The Loan(s) hereby agreed to be granted by the Lenders shall be subject
to the Borrower complying with the terms and conditions set out herein and also
in the General Conditions a copy of which is annexed hereto. The General
Conditions shall be deemed to form part of this Agreement and shall be read as
if they are specifically incorporated herein.
ARTICLE - II
AGREEMENT AND TERMS OF LOAN
2.1 AMOUNT AND TERMS OF LOAN
The Borrower agrees to borrow from the Lenders and the Lenders agree
to lend to the Borrower out of foreign currencies specified in Schedule IV
hereto, on the terms and conditions contained herein as also in the General
Conditions, the sums to the maximum extent in various foreign currencies set
out in Schedule I equivalent in the aggregate to about Rs.2520 lacs.
2.2A. INTEREST
i) The Borrower shall pay to the Lenders interest on the Loan(s) at the
rate(s) and in the manner provided in Schedule V hereto.
ii) Disbursements made pending creation of final security as stipulated in
Article III hereof shall carry further interest at the rate of 1% per
annum till creation of such security.
iii) Provided however, interest on rupees: defaulted amounts, arrears of
liquidated damages and sums incurred by the Lenders by way of expenses in
terms of Sections 4.11, 4.5 and 4.7 respectively of the General Conditions
shall be payable quarterly on February 20, May 20, August 20 and November
20.
[SEAL]
<PAGE> 5
2.2B INTEREST RATE SURCHARGE
"The Borrower shall pay to the Lenders interest rate surcharge at the
rate of 25% per annum or such other rate Reserve Bank of India (RBI) may
indicate from time to time on the lending rate. The interest rate surcharge will
be payable by the Borrower from the date of drawal of the loan. Such interest
rate surcharge shall be payable quarterly each year along with the interest
payable on the outstanding amounts of the Loan."
2.3 FRONT END FEE
The Borrower shall pay to the Lenders Front End Fee of 1.05% of the
Loan on or before signing this Agreement.
2.4 LAST DATE OF WITHDRAWALS
Unless the Lenders otherwise agree, the right to make drawals from the
Loan(s) shall cease on March 31, 1997.
2.5 REPAYMENT
The Borrower undertakes to repay the principal amount of the Loan(s) in
accordance with the Amortization Schedule set forth in Schedule VI hereto.
2.6 CONVERSION RIGHT IN CASE OF DEFAULT
If the Borrower commits a default in payment or repayment of any
instalment of principal amount of the Loans or interest thereon or any
combination thereof, then, the Lenders shall have the right to convert (which
right is hereinafter referred to as "the conversion right") at its option 20%
of the rupee equivalent of the defaulted amount determined in accordance with
Section 4.11 of Article IV of the General Conditions into fully paid up equity
shares of the Borrower, at par, in the manner specified in a notice in writing
to be given by the Lenders to the Borrower (which notice is hereinafter
referred to as the "notice of conversion") prior to the date on which the
conversion is to take effect, which date shall be specified in the said notice
(hereinafter referred to as the "date of conversion").
i) On receipt of notice of conversion, the Borrower shall allot and issue the
requisite number of fully paid-up equity shares to the Lenders as from the
date of conversion and the Lenders shall accept the shares in satisfaction
of the said defaulted amount(s) in respect of the Loans to the extent so
converted. The amount so converted shall cease to carry interest as from the
date of conversion and the outstanding amount in respect of the Loans shall
stand correspondingly reduced. The equity shares so allotted and issued to
the Lenders shall cease from the date of conversion, the right to receive
proportionately the dividends and other distributions declared or to be
declared in respect of the equity capital of the Borrower. Save as
aforesaid, the said shares shall rank pari passu with the existing equity
shares of the Borrower in all respects. The Borrower shall, at all times,
maintain sufficient unissued equity shares for the above purpose.
[SEAL]
<PAGE> 6
(i) The conversion right reserved as aforesaid may be exercised by the
Lenders on one or more occasions during the currency of the Loan(s) on
the happening of the default as specified in this Section.
(ii) The Borrower assumes and undertakes that in the event of the Lenders
exercising the right of conversion as aforesaid, the Borrower shall
get the equity shares which will be issued to the Lenders as a result
of the conversion, listed with the Bombay Stock Exchange.
ARTICLE III
SECURITY
3.1 SECURITY FOR THE LOAN
(A) The Loan(s) together with all interest, liquidated damages, commitment
charges premia on prepayment or on redemption, costs, expenses and other
monies whatsoever stipulated in this Agreement shall be secured by:
a) a first charge by way of hypothecation in favour of the Lenders of
all the Borrower's moveables (save and except book debts), including
moveable machinery, machinery spares, tools and accessories present
and future, subject to prior charges created and/or to be created:
i) in favour of the Borrower's Bankers on the Borrower's stocks
of raw materials, semi-finished and finished goods,
consumable stores and such other moveables as may be agreed
to by the Lead Institution for securing the borrowings for
working capital requirements in the ordinary course of
business; and
The mortgages and charges referred to above shall rank pari passu with
the mortgages and charges created and/or to be created in favour of:
i) ICICI for its Rupee Loan of Rs.84 lacs.
ii) ICICI for its Foreign Currency Loan equivalent to US $7.55 million.
(B) The Borrower shall make out a good and marketable title to its properties to
the satisfaction of the Lenders and comply with all such formalities as may
be necessary or required for the said purpose.
[SEAL]
<PAGE> 7
3.2 CREATION OF ADDITIONAL SECURITY
If at any time during the subsistence of this Agreement, the Lenders is
of the opinion that the security provided by the Borrower has become inadequate
to cover the balance of the Loans then outstanding, then, on the Lenders
advising the Borrower to that effect, the Borrower shall provide and furnish to
the Lenders, to the satisfaction of the Lenders, such additional security as
may be acceptable to the Lenders to cover such deficiency.
3.3 ACQUISITION OF ADDITIONAL IMMOVEABLE PROPERTIES
So long as any monies remain due and outstanding to the Lenders, the
Borrower undertakes to notify the Lenders in writing of all its acquisitions of
immoveable properties and as soon as practicable thereafter to make out a
marketable title to the satisfaction of the Lenders and charge the same in
favour of the Lenders by way of first charge the same in favour of the Lenders
by way of first charge in such form and manner as may be decided by the
Lenders.
3.4 GUARANTEE
The Borrower shall procure irrevocable and unconditional personal
guarantee(s) from [*] in favour of the Lenders for the due repayment
of the Loans and the payment of all interest and other monies payable by the
Borrower in the form prescribed by the Lenders and to be delivered to the
Lenders before any part of the Loan is advanced. The Borrower shall not pay any
guarantee commission to the said Guarantor(s).
ARTICLE - IV
APPOINTMENT OF NOMINEE DIRECTOR(S)
The Borrower agrees that the Lenders shall be entitled to appoint and
withdraw from time to time one Director on the Board of Directors of the
Borrower during the currency of this Agreement.
ARTICLE - V
SPECIAL CONDITIONS
The Loan(s) hereby granted shall also be subject to the Borrower
complying with the special conditions set out in Schedule VII hereto.
[SEAL]
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 8
ARTICLE - VI
EFFECTIVE DATE OF AGREEMENT
This Agreement shall become binding on the Borrower and the Lenders on and
from the date first above written. It shall be in force till all the monies due
and payable under this Agreement are fully paid off.
[SEAL]
<PAGE> 9
SCHEDULE I
PARTICULARS OF LOANS
<TABLE>
<CAPTION>
Name of the Lender Loan
- ------------------ ----
(Equivalent)
RC Equal US$ (Rs. in lacs)
---- --------- -------------
<S> <C> <C> <C>
The Industrial Credit and US 7,000,000 2520
Investment Corporation of India Dollars
Limited (ICICI)
163 Backbay Reclamation
Bombay 400 020
</TABLE>
[SEAL]
<PAGE> 10
9
SCHEDULE II
PROJECT
The Borrower proposes to expand existing facilities for manufacture of
Winchester Disk drives for computers from 500,000 nos. per annum to 1,200,000
nos. per annum, at Madras Export Processing Zone, Madras.
The Loan(s) shall be utilised by the Borrower for import of Capital
Goods.
<PAGE> 11
10
SCHEDULE III
FINANCING PLAN
A. The total estimated cost of the project is Rs.8290 made up as under:
<TABLE>
<CAPTION>
(Rs in lacs)
Rupee equivalent
Rupee of foreign currency Total
Cost cost cost
----- ------------------- ------
<S> <C> <C> <C>
Land & Site Development
Buildings
Plant & Machinery -
a) Imported
i) CIF value 6705 6705
ii) Import Duty
iii) Clearing & Forwarding
Charges
b) Indigenous
c) Foundation & Erection Charges
Miscellaneous fixed assets 190 190
Preliminary and Capital Issue
expenses including interest
during construction period 344 344
Contingencies
Margin money for working 1051 1051
capital ----
Total of Rupee &
foreign currency cost 8290
====
</TABLE>
B. The proposed sources of financing are as follows:
<TABLE>
<CAPTION>
(Rs. in lacs)
<S> <C> <C>
SHARE CAPITAL 1990
FOREIGN CURRENCY LOANS
ICICI 3600
INTERNAL RESOURCES 1319
UNSECURED LOANS/DEPOSITS 1296
SUBSIDY 85
----
TOTAL 8290
====
</TABLE>
The Rupee figure has been arrived at on the basis of rates of exchange
of the foreign currencies involved prevailing at the time of sanction of the
Loan(s) and is subject to revision based on the fluctuations in foreign
currency rates.
[SEAL]
<PAGE> 12
11
SCHEDULE IV
The Loan referred to in section 2.1 herein is comprised of the
following:
(i) USD 7,000,000
which is agreed to be provided as follows:
(i) USD 7,000,000
equivalent in the aggregate to US$ 7,000,000 (hereinafter referred to as the
("Bayerische Loan") (which expression shall, unless expressly provided
otherwise, mean the aggregate of the amounts of various foreign currencies of
their equivalents in other foreign currencies used for their purchase expressed
in US$ equivalent or so much thereof as may be outstanding from time to time)
out of the facility available to ICICI in terms of the Facility Agreement
entered into between ICICI, Bayerische Landesbank Cirozentrale and other Banks
mentioned in the Facility Agreement.
[SEAL]
<PAGE> 13
: 12 :
SCHEDULE V
PART I
SUB PART h
(BAYERISCHE LOAN)
The following provisions shall apply to the Bayerische Loan:
1. APPLICATION OF PROCEEDS
-----------------------
No part of the Bayerische Loan shall be used for any purpose other than
for the import of capital goods.
2. INTEREST
--------
The Borrower shall pay to ICICI interest on the principal amount of the
Bayerische Loan outstanding from time to time quarterly on February 20, May 20,
August 20, and November 20 at a floating rate of 4% over and above the US$
LIBOR plus applicable interest tax as may be advised by ICICI to the Borrower.
However, the last interest payment date shall be on February 20, 20003.
3. COMPUTATION OF INTEREST & OTHER CHARGES
---------------------------------------
Interest and other charges shall accrue from day to day and shall be
calculated on the basis of a year of 360 days and the actual number of days
elapsed.
[SEAL]
<PAGE> 14
13
4. REPAYMENT
Bayerische Loan is repayable in accordance with the Amortization
Schedule set forth in Schedule VI Part I Sub part - h hereto. The Amortization
Schedule has been drawn up on the basis of the aggregate U.S. equivalent of the
foreign currencies involved at the rates of exchange prevailing at the time of
sanction of the Bayerische Loan and is subject to revision on the basis of
rates of exchange prevailing at the time of each disbursement.
5. PREPAYMENT AND FORWARD CONTRACTS
Unless expressly agreed to by ICICI and subject to payment of such
premium as may be stipulated by ICICI the Borrower shall not be entitled to
prepay in whole or in part of the Bayerische Loan before the due date nor shall
be entitled to enter into forward contracts to buy foreign currencies in
respect of the Bayerische Loan or in respect of payment of interest or other
payments herein.
6. DUE DATE
If the Due Date referred to herein falls on a day which is not a
business day, Due Date shall be extended to the next succeeding business day,
unless such day falls in the next succeeding calendar month, in which event,
such due date shall be immediately preceding business day. Business day shall
be construed as a reference to a day (other than Saturday or Sunday) on which
banks are generally open for business in Singapore, London, New York City, Hong
Kong and Bombay.
[SEAL]
<PAGE> 15
7. LAST DATE OF WITHDRAWAL
-----------------------
Unless otherwise agreed to by ICICI, no part of the Bayerische Loan shall
be drawn after January 15, 1997.
[SEAL]
<PAGE> 16
15
SCHEDULE VI
PART I
SUB PART h
AMORTISATION SCHEDULE
(BAYERISCHE LOAN)
<TABLE>
<CAPTION>
IN US$
Principal amount
Date payment outstanding
due Payment of Principal after each payment
- -------------------------------------------------------------------------------
<S> <C> <C>
7,000,000
May 20, 1998 583,333 6,416,667
August 20, 1998 583,333 5,833,334
November 20, 1998 583,333 5,250,001
February 20, 1999 583,333 4,666,668
May 20, 1999 583,333 4,083,335
August 20, 1999 583,333 3,500,002
November 20, 1999 583,333 2,916,669
February 20, 2000 583,333 2,333,236
May 20, 2000 583,333 1,750,003
August 20, 2000 583,333 1,166,670
November 20, 2000 583,333 583,337
February 20, 2001 583,333 ---
[SEAL]
<PAGE> 17
16
SCHEDULE - VII
SPECIAL CONDITIONS
1. The Company shall implement the Project within the overall project cost of
Rs.8290 lacs ("the Project Cost") and in accordance with the financing plan
("the Financing Plan") both as agreed to between the Company and ICICI and
which will be set out in the loan Agreement and shall commence commercial
production on or before April 1, 1997 ("the Completion Date").
2. The Company shall, out of the envisaged cash accruals of Rs.2330 lacs during
the period 1/4/96 to 31/3/97, utilise a sum of Rs.1977 lacs for meeting a
part of the cost of the Project and/or other requirements of funds.
3. The Company shall raise Rs.2010 lacs by issue of Equity Shares to promoters
to the satisfaction of ICICI for meeting a part of the cost of the Project
and/or other requirements of funds.
4. Before the loans become effective -
The Company shall raise at least 50% of the abovementioned equity capital of
Rs.2010 lacs, i.e. at least Rs.1005 lacs, to the satisfaction of ICICI for
meeting a part of the cost of the project.
5. The Company shall obtain State Subsidy of Rs.85 lacs for meeting a part of
the cost of the Project. In the event the Company is unable to obtain the
subsidy, the Company shall raise funds on terms satisfactory to ICICI to
meet the shortfall.
6. The Company shall raise unsecured loan of Rs.1296 lacs, to the satisfaction
of ICICI for meeting a part of the cost of the project. The unsecured loans
shall not carry any interest till the Company commences payment of dividend.
Thereafter, the interest on such loan shall be equal to the interest on
secured loans or the percentage of dividend, whichever is lower.
Before the loans become effective -
The Company shall raise at least 50% of the abovementioned unsecured loans
of Rs.1296 lacs, i.e. at least Rs.648 lacs, to the satisfaction of ICICI for
meeting a part of the cost of the project.
[SEAL]
<PAGE> 18
17
7. The Company shall undertake/furnish an undertaking from [*] in
terms of Section 8(g) of GC-FC-88.
8. The Company shall make satisfactory arrangements with its bankers for
meeting its additional working capital requirements and shall furnish a
letter from its bankers in this regard.
9. The Company shall satisfy ICICI that the physical progress as well as
expenditures incurred on the Project are as per the original schedule.
To this end, the Company agrees and undertakes to furnish to ICICI such
information and data as may be required by ICICI.
10. The Company shall suitably among its Articles of Association to provide
for appointment of nominee director by ICICI on the Board of the
Company.
11. ICICI shall be entitled to appoint one nominee of the Board of Directors
of the Company during the currency of ICICI's assistance.
[SEAL]
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 19
18
IN WITNESS WHEREOF the Borrower has caused its Common Seal to be
affixed hereto and to duplicate hereof and ICICI has caused this Agreement to
be executed in duplicate on the day, month and year first above written as
hereinafter appearing:
THE COMMON SEAL of Moduler
Electronics (India) Pvt. Ltd.
has pursuant to the Resolution of
its Board of Directors passed in
that behalf on the 29th day of
February 1996 hereunto been affixed
in the presence of Shri M.I. Trade
Director who have signed these
presents in token thereof and
Shri Bhupendra V. Shah authorized
person who has countersigned the
same in token thereof. /s/ Bhupendra V. Shah
SIGNED AND DELIVERED by the
within named Lenders by the hand of
Shri I. Raghacudran an authorized
official of ICICI, ICICI acting as
the Lender. /s/ Shri I. Raghacudran
</TABLE>
<PAGE> 1
EXHIBIT 10.22
JEFF J. MARWIL
KATTEN MUCHIN & ZAVIS
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: (312) 902-5200
L. DONALD RAUB, JR. (Cal. Bar No. 111973)
THOMAS M. GAA (Cal. Bar No. 130720)
BROOKS & RAUB
505 Hamilton Avenue, Suite 300
Palo Alto, California 94301-2009
Attorneys for TEAC CORPORATION
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
(San Jose Division)
In re ) Chapter 11
) Case No. 93-54027-MM
KALOK CORPORATION, a California )
corporation ) AGREED ORDER COMPROMISING
) CONTROVERSIES
Debtor. )
) Date: February 4, 1994
Employer's Tax ID 77-0146015 ) Time: 11:00 a.m.
) Place: 280 South First Street,
) Rm. 3070
) San Jose, California
)
) The Honorable Marilyn Morgan
)
- --------------------------------------------------------------------------------
THIS CAUSE, coming to be heard on the Motion of Kalok Corporation,
Debtor and Debtor-in-Possession, seeking entry of an Order compromising certain
controversies in this case ("Motion") and the Court having conducted a hearing
on the Motion, Kalok being represented by Gray Cary Ware & Freidenrich, by
Lillian G. Stenfeldt and Nels R. Nelsen, TEAC Corporation ("TEAC") being
represented by Katten, Muchin & Zavis, by Jeff J. Marwil and Mark D. Gerstein,
DZU-AD ("DZU") and DZU Corporation ("DZU Corp.") being represented by Fulbright
& Jaworski, L.L.P., by William J. Rochelle III, Courtney S. Katzenstein and
Mark N. Mutterperl, Dan Dooley ("Dooley"), individually, Steven Kaczeus
("Kaczeus"), individually, JT Storage, Inc. ("Newco") and The Official
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 2
Unsecured Creditors Committee (the "Committee") being represented by Murray &
Murray, by Janice Murray.
THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF FACT:
1. Each of TEAC, DZU, DZU Corp., Kalok, the Committee, Kaczeus,
Dooley, and Newco have negotiated in good faith to resolve all pending
controversies in this case pursuant to the terms of this Order.
2. Kalok filed a voluntary petition for relief on June 21, 1993
("Petition Date"). Since that time, the Debtor has operated its business
pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
3. On June 30, 1993, the Committee was appointed in the Debtor's
bankruptcy case.
4. Kalok is engaged in the business of designing, manufacturing
and selling hard disk drives for computers.
5. TEAC holds all of the issued and outstanding shares of Kalok
Series E Preferred Stock ("Series E") which shares were purchased by TEAC
pursuant to a Stock Purchase Agreement with Kalok dated as of December 18,
1992. Simultaneous with the purchase of the Series E by TEAC, TEAC and Kalok
entered into a Licensing Agreement dated as of December 18, 1992 ("TEAC
Licensing Agreement"), whereby Kalok agreed to license certain of its disk
drive technology to TEAC, and a Manufacturing and Sales Agreement dated as of
December 18, 1992 ("Manufacturing Agreement"), whereby TEAC agreed to
manufacture disk drives for Kalok on certain terms and conditions.
6. Prior to the filing date, TEAC provided Kalok with a credit
line of up to $5,000,000 ("TEAC Credit Line") for purchases made by Kalok
pursuant to the Manufacturing Agreement. Pursuant to the terms of the
Manufacturing Agreement, Kalok was in default under the TEAC Credit Line in the
amount of $1,159,828.23 ("Credit Line Default Indebtedness") on the Petition
Date.
2
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 3
7. DZU holds all or substantially all of the issued and
outstanding shares of the Debtor's Series D Preferred Stock ("Series D") which
shares were purchased by DZU pursuant to a Stock Purchase Agreement with Kalok
dated as of May 15, 1992 for a cash purchase price of approximately $5,000,000.
On May 15, 1992, DZU and Kalok entered into a Subcontract Manufacturing
Agreement (the "DZU Manufacturing Agreement") of even date, whereby DZU agreed
to manufacture disk drives for Kalok and Kalok agreed to purchase such disk
drives from DZU. On account of pre-petition inventory purchases DZU alleges
that Kalok owes DZU no less than approximately $1,383,390.28 (the "Pre-Petition
Debt") and that the Pre-Petition Debt is an administrative claim arising under
the DZU Manufacturing Agreement. The Debtor and the Committee dispute the
validity, amount and priority to be accorded to the debt.
8. On June 10, 1993 Kalok obtained a loan from Steven Kaczeus in
the principal amount of $200,000 (the "Kaczeus Loan"). Kaczeus is an officer,
director and shareholder of Kalok. On June 11, 1993 Kalok obtained a loan from
TEAC in the principal amount of $150,000 ("TEAC Loan"). On June 14, 1993 Kalok
obtained from Dr. Richard I. Emori a loan in the principal amount of $100,000
("Emori Loan"). The TEAC Loan, the Kaczeus Loan and the Emori Loan are secured
by, among other things, the following wheresoever located and whether then
existing or thereafter arising or acquired by Kalok (collectively referred to
as the "Pre-Petition Collateral"):
All personal property of Kalok, including without limitation,
all goods and equipment, inventory, contract rights, general
intangibles, accounts receivable, patents, trademarks,
tradenames, licenses, documents, securities, cash, Kalok's
books and records and all proceeds of any of the foregoing,
all as more fully described in the "Pre-Petition Documents"
(as defined below).
The security interests and liens granted TEAC, Kaczeus and Emori were evidenced
by various agreements, instruments and documents all as may have been amended
from time to time (collectively referred to as the "Pre-Petition Documents").
3
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 4
9. With respect to the TEAC Loan, the Kaczeus Loan and the Emori
Loan (collectively referred to as the "Pre-Petition Loans"), TEAC, Emori and
Kaczeus hold, on a pro rata and equal priority basis, first priority, valid and
duly perfected liens upon and security interests in the Pre-Petition
Collateral.
10. Pursuant to that certain Order entered by this Court on or
about June 23, 1993, Kalok borrowed a total of $500,000, $250,000 from TEAC and
$250,000 from DZU ("First Financing Order") secured by an equal first priority
lien upon and security interest in Kalok's accounts and accounts receivable,
and proceeds thereof ("Accounts Receivable"). Pursuant to this Court's Order
entered on July 24, 1993 Kalok borrowed an additional $450,000, $225,000 from
TEAC and $225,000 from DZU, ("Second Financing Order") secured by equal first
priority security interests in and liens upon Kalok's inventory and proceeds
thereof together with Kalok's Accounts Receivable, subject only to the first
priority liens upon and security interests in the Pre-Petition Collateral held
on an equal priority basis by TEAC, Kaczeus and Emori to the extent of $450,000
plus interest. In addition, the Second Financing Order granted TEAC and DZU an
equal first priority security interest in and lien upon Kalok's inventory to
further secure Kalok's obligations to TEAC and DZU under the First Financing
Order. Pursuant to this Court's Order entered on August 13, 1993 ("Third
Financing Order"), and in accordance with Section 365 of the Bankruptcy Code,
Kalok modified and assumed (i) its Manufacturing Agreement with TEAC ("TEAC
Assumed Manufacturing Agreement"), and (ii) the TEAC License Agreement ("TEAC
Assumed License Agreement"), and further borrowed up to $900,000 from TEAC,
secured by a valid, duly perfected security interest in and lien upon all of
Kalok's assets, including the Pre-Petition Collateral, with priority (a) senior
to all other such liens and security interests except those held by TEAC,
Kaczeus and Emori to secure the Pre-Petition Loans and OPC, to the extent of
approximately $2,000, (to the extent such liens and security interest were
valid, perfected and enforceable) and (b) equal in priority to all liens and
security
4
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 5
interests in any portion of Kalok's assets granted to DZU pursuant to the
First, Second or Third Financing Orders. Upon entry of the Third Interim
Financing Order, Kalok and TEAC executed the TEAC Assumed Manufacturing
Agreement and the TEAC Assumed License Agreement, and accordingly each such
agreement is, in accordance with their respective terms, fully binding upon and
enforceable against each of Kalok and TEAC. Pursuant to the terms of the Third
Financing Order, TEAC advanced $400,000 on a revolving basis to Kalok to fund
costs and expenses associated with operation of Kalok's business, and further
extended to Kalok a credit line of $500,000 to fund purchase of product by
Kalok from TEAC.
11. On September 10, 1993 this Court entered that certain
Stipulated Final Financing Order pursuant to 11 U.S.C. Section 364(d) ("TEAC
Final Order") pursuant to which TEAC loaned to Kalok the amount of $175,000 (to
satisfy operating expenses), and extended to Kalok a credit line in the amount
of approximately $300,000 to purchase disk drive inventory. In addition, the
TEAC Final Order granted TEAC a lien upon and security interest in all of
Kalok's assets, including the Pre-Petition Collateral, on the same basis and
priority as the liens granted TEAC under the Third Financing Order, to secure
all post Petition Date loans and extensions of credit made by TEAC to Debtor.
12. On or about September 23, 1993 the Court entered that certain
Stipulated Final Financing Order Pursuant to 11 U.S.C. Section 364(c) and Order
Authorizing Debtor to Enter into a License and Manufacturing Agreement with DZU
AD ("DZU Final Order"). Pursuant to the terms of the DZU Final Order, DZU
loaned Kalok $1,525,000 ("DZU Final Loan"), which funds Kalok used to satisfy
ongoing operating expenses. The DZU Final Order further granted DZU a lien upon
and security interest in all of the Kalok's assets, including the pre-petition
collateral, on the same basis and priority as the security interests and liens
granted TEAC under the TEAC Final Order to secure all Post Petition Date
indebtedness owing by Kalok to DZU. In addition, Kalok and DZU
5
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 6
entered into that certain Subcontract Manufacturing Agreement dated September
22, 1993 ("DZU License").
13. Pursuant to the terms of the TEAC Assumed Manufacturing
Agreement, Kalok was required to pay TEAC for all advances under the TEAC
Credit Line within 60 days of the date inventory was delivered to Kalok by
TEAC. In September 1993 Kalok obtained an advance of credit under the TEAC
Credit Line in an amount in excess of $1,000,000. Thereafter, Kalok, with the
consent of TEAC, returned substantial amounts of inventory as a credit against
amounts owing TEAC by Kalok under the TEAC Credit Line. Nonetheless, as of 60
days after the advance of such credit, Kalok was still indebted to TEAC in the
approximate amount of $338,813.13. Accordingly, on November 5, 1993, and
again on December 23, 1993, TEAC declared a default under the terms of the TEAC
Manufacturing Agreement, and pursuant to the terms of that agreement, the Final
Financing Order, and subsequent agreements between Kalok and TEAC, all
obligations due and owing by Kalok to TEAC became due and owing TEAC on January
21, 1994. All such amounts, which aggregate approximately [$1,500,000], not
including the Credit Line Default Indebtedness, are currently due and owing by
Kalok to TEAC. TEAC has asserted an administrative claim against Kalok in an
amount equal to the Credit Line Default Indebtedness based on Section
365(b)(1)(A) of the Bankruptcy Code. Accordingly, TEAC holds valid, duly
perfected, enforceable priority security interests in and liens upon all of
Kalok's assets to the extent of approximately $1,500,000 plus interest, costs
and expenses ("TEAC Secured Claim").
14. Pursuant to the terms of the DZU Final Order, all amounts due
and owing by Kalok to DZU ($2,000,000 plus interest, costs and expenses) were
due and owing DZU on or before December 30, 1993. Kalok has not paid DZU, but
has alleged no such payments are due or owing. Although DZU purchased $160,000
in parts, Kalok provided DZU prior to December 30, 1993, with two purchase
orders and subsequent change orders pursuant to which Kalok purported to order
assembled disk drives from
6
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 7
DZU pursuant to the DZU License. Pursuant to the terms of the DZU License, DZU
was allegedly required, subject to specified conditions, to purchase from Kalok
the piece parts necessary to build assembled disk drives. Kalok alleged that
DZU's failure to sell disk drives and purchase parts from Kalok within a
specified time period constituted a default under the DZU License and the DZU
Final Order, resulting in DZU's loss of all license rights under the DZU
Agreement and all collateral rights and other rights under the DZU Final Order.
Kalok filed formal notices with this Court declaring these defaults and
remedies. DZU thereafter formally noticed Kalok of its default under the DZU
Final Order in a writing dated January, 1994, and filed a notice with the Court
formally setting forth Kalok's default and disputing Kalok's allegation of
default by DZU. Thereafter, DZU filed an adversary proceeding in this case
seeking a declaratory judgment that Kalok had defaulted under the DZU Final
Order and that DZU's liens, claims, security interests and licenses were valid,
perfected, and enforceable. Simultaneously, DZU filed a motion for authority to
move for summary judgment. DZU's motion for summary judgment was postponed as a
consequence of the agreement among the parties leading to the Motion. By virtue
of the settlement, Kalok will withdraw its claims and defenses against DZU, and
it is found, for the purposes of 11 U.S.C. Section 363(k) and otherwise,
(a) that DZU holds a valid, duly perfected and enforceable security interest
in and lien upon all of Kalok's assets to the extent of approximately
$2,000,000 plus interest ("DZU Secured Claim"), and (b) that the DZU License is
valid and enforceable. DZU has assigned the DZU Secured Claim to DZU Corp.
15. On or about December 10, 1993 Kalok filed that certain Adversary
Proceeding, No. 93-5624, against Dooley ("Dooley Adversary") (a) seeking among
other things to enjoin Dooley or his agents, employees, servants and all other
persons who act or participate with him from (i) gaining access to Kalok's
business premises; (ii) using, disclosing or otherwise disseminating Kalok's
confidential intellectual property; and (iii) retaining any confidential and
proprietary Kalok intellectual property to which he was not
7
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 8
entitled; and (b) monetary damages. On December 10, 1993 this Court entered a
temporary restraining order granting Kalok's requested relief, pending a final
hearing, which is scheduled for March 11, 1994.
16. In January, 1994, DZU moved to intervene in the Dooley Adversary,
and, simultaneously, Dooley and DZU moved in the District Court to withdraw the
reference of the Dooley Adversary. In addition, DZU and Dooley have asserted
that the Dooley Adversary fails to state a claim and that the temporary
restraining order should be vacated because, among other things, Dooley is a
United States citizen who, regardless of whomever his employer may be, is
entitled under export laws to be in possession of the subject technology and
because the statute under which Kalok initiated the case does not give rise to
a private right of action. The litigation in connection with the Dooley
Adversary is being terminated in accordance with this order. By virtue of this
order, DZU and Dooley, among other things, will waive any claims they may have
against Kalok on the grounds that the temporary restraining order against
Dooley was improperly issued.
17. On December 23, 1993, TEAC filed a Motion for Relief from
Automatic Stay and for Conversion of this Case to one under Chapter 7 ("TEAC
Stay Relief Motion"), based on Kalok's defaults under the TEAC Final Order and
the TEAC Assumed Manufacturing Agreement. Thereafter, DZU filed a Motion for
Relief From Automatic Stay ("DZU Stay Relief Motion") based on, among other
things, Kalok's defaults under the DZU Final Order. Kalok filed responses to
each of the TEAC and DZU Stay Relief Motions. The granting of the motions for
relief from the stay would have allowed the foreclosure of substantially all of
Kalok's assets, leaving for creditors only funds generated pursuant to carve
out provisions in prior Orders of this Court. Hearings on these motions have
been continued for status on February 4, 1994.
18. Kalok cannot generate sufficient sales of its current products to
satisfy the obligations due and owing TEAC, Kaczeus, Emori and DZU under the
various Financing
8
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 9
Orders and loan agreements by and between those parties and Kalok, and has
further determined that the compromise of controversies is in the best interest
of the estate and its creditors. The Committee has represented that it has
reviewed Kalok's business operations and also has determined that the proposed
compromises are in the best interest of the estate and its creditors.
19. The best interest of creditors of this estate mandates a
settlement in which:
(a) TEAC and DZU bid in their liens under Section 363(k) to
take title to certain of Kalok's assets as more fully
set forth herein;
(b) TEAC extends to Newco a license, in substantially the
form attached hereto as Exhibit A, with respect to
certain intellectual property which TEAC acquires from
Kalok's bankruptcy estate, and TEAC contributes other
property acquired from the Kalok bankruptcy estate to
Newco in exchange for an equity interest in Newco;
(c) The parties dismiss the DZU Adversary and the Dooley
Adversary with prejudice;
(d) Kaczeus release all liens, claims and interests in to
or against Kalok and Kalok's assets;
(e) Kalok, TEAC, Kaczeus, DZU, DZU Corp. and Dooley each
release the other of all existing and potential claims,
rights and causes of action, as set forth in Paragraph
R of this Order;
(f) DZU pays to the Kalok estate the sum of $275,000;
(g) Newco executes a promissory note in favor of the
Kalok estate in the amount of $225,000;
(h) Newco issues to the Kalok estate for the benefit of
unsecured creditors, warrants entitling the unsecured
creditors of Kalok's estate to 2% ownership interest
in Newco;
(i) All of Kalok, TEAC, DZU, DZU Corp., Newco, Kaczeus and
Dooley execute and consummate all of the agreements
attached hereto as group Exhibit B, and all other
reasonable necessary documents to effect the intended
transactions (collectively referred to as "Agreements");
(j) The Kalok estate shall pay to David Pearce, current
President of Kalok, but as an independent contractor,
an amount equal to 3% of gross accounts receivable of
the Kalok estate to a maximum of $350,000, 10% of gross
accounts receivable in excess of $350,000, but not
greater than $400,000, and 25% of gross accounts
receivable in excess of $400,000, all of which are
actually collected by Pearce after the date hereof;
9
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 10
(k) The Kalok estate will not incur payroll expenses after
February 4, 1994;
(l) Newco will reimburse the Kalok estate pro rata for rent
and other expenses paid by Kalok for the period from
and after February 4, 1994; and
(m) Kaczeus will receive an agreed upon percentage equity
interest in Newco.
20. Pursuant to the terms hereof, Kalok, TEAC, DZU, DZU Corp.,
Kaczeus, the Committee and Dooley have agreed to resolve all disputes affecting
such parties which currently exist in this case and other related proceedings,
and further agree to fully release each other on the terms specified in
Paragraph R of this Order.
NOW, THEREFORE, based on the foregoing, and the agreement of TEAC, DZU,
DZU Corp., Kalok, the Committee, Newco, Kaczeus and Dooley, the COURT HEREBY
ORDERS AS FOLLOWS:
A. All of the foregoing findings of fact in Paragraphs 1 though 20
are incorporated herein by this reference thereto.
B. Pursuant to Section 363(k) of the Bankruptcy Code, in
consideration of the release and offset by (i) TEAC, and (ii) DZU and DZU Corp.
of the TEAC Secured Claim and the DZU Secured Claim, respectively, Kalok shall
transfer, assign and convey to each of TEAC and DZU Corp., free and clear of
any liens, claims and encumbrances of whatsoever type or description, except as
otherwise expressly provided in this Order, separate but equal right, title and
interest in and to all of Kalok's right, title and interest in and to the
following property, exclusive of the Nordic II Series technology, as more fully
described in Exhibit C hereto, which is incorporated herein ("Nordic II"):
(1) all Kalok products, including the Point5 Series
(consisting of models P-3125, P-3250, P-3360 and
P-3540), the Kalok K-Stor Products (consisting of the
P5DM Series, support software, controllers, docking
modules, carrying cases, and cables), the Kalok K-Port
Products, and the Kalok K-RAID Products (collectively,
the "Products");
(2) all technical information, and intellectual property and
documents (except the trademarks as hereinafter provided
for) of Kalok relating to all aspects of Kalok's
business, products, developments,
10
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 11
and projects, including without limitation, patents and patent
applications, including those provided for in those certain
assignments, copies of which are attached hereto as Exhibit E
and incorporated herein ("Patents"), copyrights, trade secrets,
inventions, source codes, object codes, flow charts, engineering
notebooks, processes, techniques, specifications, drawings,
parts layouts, parts lists, circuitries, tooling and testing
requirements, know-how, manuals and other technical data and
support documentation, and all technical information and other
intellectual property pertaining to the parts, components, and
manufacturing of all Kalok products, developments and projects
(collectively referred to as "Intellectual Property");
notwithstanding the foregoing, any ambiguity between the terms
hereof and the Agreement regarding the Patents (attached as
Exhibit E) shall be resolved in favor of the terms set forth in
that Agreement;
(3) Any improvements in, modifications on, derivative works of,
variations of, new designs of, discoveries related to, or
developments useful in any of the technology or other
intellectual property described in (2) above, whether separately
developed, licensed or otherwise obtained by or on behalf of
Kalok, all as of the date hereof, and not hereafter
(collectively referred to as "Developments");
(4) Pursuant to the Assignment of Trademarks attached hereto
as Exhibit D and incorporated herein, the trademarks, trade
names, trademark registrations, and applications for
registration of trademarks of Kalok, including all other
trademark rights, whether registered or unregistered, and good
will of Kalok, associated with such trademark, (collectively
referred to as "Trademarks"), together with labels, stickers
and other items using such Trademark (on a 50/50 basis) except
that TEAC shall, for the benefit of Newco retain an exclusive
right to the "K-Stor" tradename and trademark in the United
States; and
(5) The goodwill of Kalok, its business and its products
("Goodwill").
(Collectively referred to as "IP Assets.") With respect to the transfer, sale,
conveyance and assignment of the IP Assets:
(i) TEAC shall be entitled to the originals thereof, and
DZU Corp. shall be entitled to an exact duplicate of
all such original IP Assets;
(ii) Kalok shall simultaneously with the execution of this
order deliver or cause its counsel to deliver both to
TEAC and DZU (a) a complete list of all of the
Intellectual Property, applications, and registrations
showing the status of each and all deadlines, including
those pertaining to documents to be filed to obtain
protection or registration, and to renew any
registrations; (b) all files used in connection with the
prosecution of applications for any of the Intellectual
Property, except that Kalok shall deliver to TEAC the K-
11
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 12
STOR trademark file, and Kalok shall deliver to
each of TEAC and DZU Corp. all other trademark
and tradename files with TEAC to retain the
originals in accordance with subparagraph (i)
above.
(iii) Kalok shall assign to both DZU Corp. and TEAC
any and all employee confidentiality agreements,
and consistent with the terms hereof, agreements
of employees to assign to Kalok discoveries and
inventions with TEAC to retain the originals in
accordance with subparagraph (i) above.
C. Pursuant to Section 363(k) of the Bankruptcy Code, in further
consideration of the release and offset by TEAC of the TEAC Secured Claim,
Kalok shall and does hereby assign, transfer and convey to TEAC free and clear
of any and all liens, claims and encumbrances of whatsoever type or
description, including those asserted by DZU (except as otherwise provided
herein or in agreements attached hereto):
(1) All of Kalok's right, title and interest in and to all
personal property of Kalok (except the IP Assets, the
Piece Part Inventory (as defined below) and rights under
any unexpired lease or executory contract) including,
without limitation, the TEAC Parts (as hereinafter
defined), Kalok's interest as licensee in the Software
Licenses identified on Exhibit F, and Kalok's books and
records (provided, however, Kalok shall retain an
absolute right to access such books and records).
(Collectively referred to as "Hard Assets."); and
(2) The trademark K-STOR and the goodwill related thereto,
including a customer list pertaining to K-STOR and any
labels, stickers, and other items using the K-STOR
trademark, provided, however, that TEAC and Newco shall
allow DZU to use the trademark K-STOR in connection with
the sale of those Kalok products which DZU holds in its
inventory as of the date of the entry of this order or
which it will manufacture utilizing the Piece Parts
Inventory (defined below) conveyed to DZU under this
Agreed Order.
(3) All of Kalok's right, title and interest in or to the
Intellectual Property pertaining exclusively to Nordic
II, including, without limitation, all glass disk
technology, drawings pertaining to the design or
construction, shockproof technology, firmware, the ASIC,
the spindle motor and related technology, provided,
however, that any Intellectual Property that is in
common with the Nordic II and any other products,
developments or technology of Kalok shall not be deemed
part of Nordic II but shall be and be deemed part of the
IP Assets transferred to both TEAC and DZU pursuant to
paragraph B above.
12
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 13
D. Pursuant to Section 363(k) of the Bankruptcy Code, in further
consideration of the release and offset by DZU Corp. of the DZU Secured Claim,
Kalok shall and does hereby transfer, assign and convey to DZU Corp. free and
clear of any and all liens, claims, and encumbrances (except as otherwise
provided herein or in agreements attached hereto), including those asserted by
TEAC, all of Kalok's right, title and interest in and to all piece parts
inventory and only such related products tooling owned by Kalok which may be
used in connection with Kalok's products other than Nordic II, (provided,
however, that any parts, tooling or other related property paid for by TEAC
("TEAC Parts") shall not be transferred to DZU pursuant hereto) including
without limitation the piece parts set forth on the Inventory Schedule and
Notes thereto, attached hereto as Exhibit G ("Piece Part Inventory"). The
foregoing sentence notwithstanding, the transfer of the Piece Parts Inventory
to DZU Corp. shall be subject to any liens, claims or encumbrances asserted by
Reliance Technical Services, Inc., to the extent that such liens, claims or
encumbrances are valid, perfected, and enforceable and were, prior to the entry
of this Order, prior in lien to the DZU Secured Claim. Any prior agreements or
understandings by Kalok to the contrary notwithstanding, DZU and DZU Corp. are
authorized to have access to and purchase goods and services from Kalok's
vendors and suppliers of the Point5 Series products for the purpose of
purchasing additional drive materials on such terms as may be agreed by such
vendors or suppliers and DZU or DZU Corp. DZU Corp. shall be provided
reasonable access to the Piece Part Inventory for purposed of packing and
shipping the Piece Part Inventory to a destination of DZU Corp.'s choice, all
at the costs and expense of DZU Corp.
E. Immediately subsequent to the entry of this Order, each of
TEAC, DZU, DZU Corp. and Newco (in accordance with its license from TEAC) shall
be and are hereby forever prohibited from using, manufacturing, selling and/or
sublicensing the Intellectual Property, the Developments, the Trademarks and
the Patents in conflict with the certain
13
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 14
exclusive territories, set forth in the Agreement between TEAC, DZU, DZU Corp.
and Newco, a copy of which is attached hereto and incorporated herein as
Exhibit H.
F. Immediately subsequent to entry of this Order, notwithstanding
any provision herein, neither TEAC (or Newco) or DZU shall have the right to
sublicense or otherwise transfer their rights in or to any of the IP Assets to
Seagate Technology Conor, Western Digital Corporation, Quantum Corporation,
Maxtor Corporation, IBM Corporation and Hewlett-Packard Company, together with
all of their affiliates, subsidiaries successors, (collectively referred to as
the "HDD Companies"), except that TEAC (and Newco) and/or DZU shall be entitled
to (a) sell finished products to the HDD Companies; (b) allow the HDD Companies
to manufacture products to be sold by TEAC (or Newco) or DZU; and (c)
cross-license any of the IP Assets (only to the extent reasonably necessary) to
the HDD Companies solely for the purposes of resolving bona fide patent
infringement claims, ("Settlement Licenses") provided however, no such
Settlement License shall be granted without 30 days prior written notice to the
other parties (TEAC, DZU) and such parties' consent in writing thereto, which
consent will not be unreasonably withheld, but consent shall be deemed given if
no written response to such notice is received within such 30 day period.
G. TEAC shall (i) license to Newco the Intellectual Property, the
Developments and the Trademarks on the terms and conditions set forth in the
License Agreement attached hereto as Exhibit A; and (ii) contribute the Hard
Assets, to Newco in exchange for a 10% equity interest in Newco.
H. Each of DZU, TEAC, DZU Corp., Dooley and Newco shall, and are
hereby bound and required to maintain in confidence all trade secrets of or
pertaining to the Point5 Series Technology, the Intellectual Property, the
Trademarks and the Developments, and shall only disclose the portion of such
information, on a need to know basis, as is essential for the manufacture of
products using such trade secrets.
14
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 15
I. Kalok shall retain, free of any lien, claim or encumbrance of
TEAC, DZU, DZU Corp., Kaczeus, Dooley and Emori, the following property for the
benefit of the estate which shall have with the Committee, joint power of
direction with respect to such property:
(a) all of Kalok's accounts receivable, in the approximate
amount of $300,000;
(b) all current cash balances in Kalok's bank accounts in the
approximate amount of $50,000;
(c) all avoidance actions under the Bankruptcy Code except those
actions released pursuant to Paragraph R hereof; and
(d) any other causes of action against any party, except those
actions released pursuant to Paragraph R hereof.
J. Kaczeus shall and does hereby release and waive any lien, claim or
encumbrance he may have in, to or against Kalok or any property of Kalok,
including the Pre-Petition Collateral, on account of the Kaczeus Loan or any
other obligations due or owing by Kalok to Kaczeus.
K. TEAC shall and does hereby waive and release any and all liens,
claims or encumbrances it has in, to or against Kalok or any property of Kalok
under the First, Second or Third Financing Order the TEAC Final Order, the
Credit Line Default Indebtedness and any other claim TEAC may have against
Kalok or its estate.
L. DZU and DZU Corp. shall and does hereby waive and release any and
all liens, claims or encumbrances it has in, to or against Kalok or any
property of Kalok on account of the First, Second or Third Financing Order, the
DZU Final order, the Pre-Petition Debt and any other claim DZU and DZU Corp.
may have against Kalok or its estate.
M. DZU shall pay $275,000 to Kalok, and the assets and properties
shall be transferred, conveyed, and assigned to DZU Corp. as follows:
(1) Kalok or whoever is in control of the premises at which
Kalok conducted business ("Premises") shall forthwith cause
the IP Assets, or duplicates thereof (the "Deposit
Material"), to be removed to a room
15
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 16
(the "Secure Room") on the Premises. No one shall have
access to the Secure Room except DZU, DZU Corp. or their
agents, except Kalok or Newco shall be entitled to
supervise all activity in the Secure Room.
(2) Upon the determination made by DZU in its reasonable
judgment that all or substantially all of the Deposit
Material has been removed to the Secure Room, DZU shall
cause a cashiers check in the sum of $275,000 to be wire
transferred to an escrow account held by Murray & Murray
counsel for Kalok's Official Creditors' Committee, in
satisfaction of DZU's payment obligations under this
Order.
(3) Upon Murray & Murray receipt of the $275,000, DZU Corp.
shall be entitled to take immediate possession of the
Deposit Materials, remove the Deposit Materials from the
Secure Room, and have all of Kalok's right, title and
interest in the Deposit Materials free of liens, claims
and encumbrances as provided in this Order. Contemporan-
eous with the removal by DZU Corp. of the Deposit
Materials from the Premises, Murray & Murray shall pay
the $275,000 (plus accrued interest) to Kalok. Upon
Murray & Murray's receipt of the $275,000, Kalok shall
also cause all other assets and properties provided for
in this order to be transferred, conveyed, and assigned
to DZU Corp. free of liens, claims and encumbrances as
provided in this Order. DZU shall remove from Kalok's
premises all Piece Part Inventory within a reasonable
time with the transfer of the $75,000 to Murray &
Murray. DZU shall remove from the Premises all Piece
Part Inventory within a reasonable time after that
date of the transfer of the $275,000 to Murray & Murray.
(4) At reasonable times and in reasonable manners subsequent
to the payment of the $275,000 to Murray & Murray,
DZU shall have the right to conduct an audit (the
"Audit") to determine whether the properties received
constituted all of the assets and properties which DZU
Corp. was entitled to receive under the terms of this
Order. Upon notification by DZU of its determination,
made pursuant to an Audit or otherwise, that any assets
or properties were not turned over, Kalok, TEAC, and
Newco shall use their reasonable best efforts to cause
such assets or properties, or copies thereof, to be
turned over to DZU Corp. within five (5) business days
after such notification.
(5) Kalok, TEAC and Newco shall, if requested by DZU,
cooperate with and assist DZU in performing the Audit
and, in connection with DZU's performance of the Audit,
Kalok, TEAC and Newco shall provide DZU with reasonable
access to all books, records, documents, and technology
relating to the IP Assets as are in Kalok's, TEAC's
and/or Newco's possession. Kalok, TEAC and Newco shall
also provide DZU with reasonable access to any of
Kalok's TEAC's or Newco's employees that were formerly
employed by Kalok and that have knowledge, information
or experience with respect to the IP Assets. DZU and/
or DZU Corp.
16
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 17
shall also be entitled to and are hereby authorized
to contract and transact business with any prior vendor
or supplier of Kalok.
(6) If there is a dispute between the parties of this Order
with respect to this Paragraph M, this Court shall,
upon appropriate Motion, resolve such disputes.
N. Newco shall tender to Kalok's bankruptcy estate (a) a
promissory note in the amount of (U.S.) $225,000, payable in ten (10) equal
quarterly installments, without interest, a copy of which is attached hereto as
Exhibit I; and (b) warrants to acquire 2% of the common stock of Newco at a
price equal to 25 % of the initial offering price when Newco goes public, said
warrants to be exercisable up to one year after the date of Newco goes public,
to be set forth in a Warrant Agreement between Kalok and Newco.
O. Emori shall and does hereby immediately release and waive any
and all liens, claims or encumbrances he may have into or against Kalok or
Kalok's assets, including, without limitation, the Pre-Petition Collateral.
Upon receipt of $275,000 by Murray & Murray in accordance with Paragraph M
hereof, Kalok shall pay to Emori the sum of $100,000 plus interest accrued
under the Emori Loan to the extent Emori has not already been paid by Kalok.
P. The Bankruptcy Court shall enter in accordance herewith the
orders annexed hereto as Group Exhibit J dismissing with prejudice the Dooley
Adversary (including any related case pending in the Federal District Court)
and the DZU Adversary Proceeding, which shall become effective when Murray &
Murray receive $275,000 in accordance with Paragraph M.
Q. Contemporaneous with the transfers and conveyances required
under Paragraph B, C and D hereof, of all property, including without limitation
the IP Assets the Hard Assets Nordic II, and the Piece Part Inventory, each of
the DZU License, the TEAC Assumed License Agreement and the TEAC Assumed
Manufacturing Agreement shall be canceled and terminated.
R. Except with respect to those obligations specifically
created by, or arising out of this Agreed Order, each of (i) Kalok on its own
behalf, and on behalf of the
17
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 18
Kalok Bankruptcy estate, its creditors, and all parties in interest (including
any subsequently appointed Trustee) ("Kalok Estate"), (ii) TEAC, (iii) DZU and
DZU Corp. (iv), Kaczeus and (v) Dooley do hereby, for themselves and their
respective legal successors and assigns, fully and forever remise, release and
discharge each other and their respective parents, subsidiaries and affiliated
corporations, companies, divisions or other entities together with its or their
predecessors, successors and assigns, and each and all of its or their
shareholders, directors, officers, employees, attorneys, accountants,
consultants, and other agents of and from any and all claims, demands,
agreements, contracts, covenants, actions, suits, causes of action, obligations,
controversies, costs, expenses, accounts, damages, judgments, losses,
liabilities, and defenses, of whatsoever kind and nature, in law, equity or
otherwise, whether known or unknown, whether or not concealed or hidden which
each such party have had, may have had or now have, or which any of their
predecessors, successors or assigns hereafter can, shall or may have against any
other such party, based upon or arising out of any matter, cause, facts, thing,
act, omission whatsoever, occurring or existing at any time to and including the
date this Agreed Order is entered, including, but without in any respect
limiting the generality of the foregoing, any and all claims or causes of action
against any of (i) the Kalok Estate, (ii) DZU Corp. and DZU, (iii) TEAC, (iv)
Dooley, and (V) Kaczeus by the other, including, without limitation, any such
claims which were or might have been asserted in this Chapter 11 case, or in any
adversary proceeding that may be commenced or may have been commenced in
connection herewith.
S. TEAC, Newco, DZU Corp. and DZU are each purchasers in good
faith for purposes of Section 363(m) of the Bankruptcy Code.
T. The purchase of certain of Kalok's assets by each of DZU and
TEAC was not controlled by any type of agreement that would be grounds to
avoid such sale under Section 363(n) of the Bankruptcy Code.
18
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 19
U. This Court retains jurisdiction over the parties hereto to enforce
the term and conditions hereof.
V. Kalok is authorized, pursuant to Section 365(a), to assume, and
assign to TEAC, each of the software licenses identified on Exhibit __ hereto.
W. Kalok, DZU, TEAC, DZU Corp., Dooley, Kaczeus and the Committee
shall issue, execute, and deliver such other and further documents and
instruments as may be reasonably necessary to carry out the transactions
approved or provided for in this Agreed Order.
X. Kalok's motions to enter into license agreements with JRA, Inc.,
Kaczeus, Richard Emori, and others shall be withdrawn and dismissed with
prejudice.
Y. The rights and obligations of DZU and DZU Corp., under and pursuant
to all transaction contemplated hereby shall not be limited or impaired by
Exhibit A and B hereto.
Z. Kalok and Newco shall provide DZU and DZU Corp. with reasonable
access to Kalok's books and records, specifically excluding all customer lists
and related
19
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 20
information and documents.
ENTER: Kalok Corporation, Debtor and
Debtor-in-Possession
BANKRUPTCY COURT
By: /s/ David B. Pearce
--------------------------------
Its Duly Authorized Signatory
- ----------------------------
Dated this 4th day TEAC Corporation
of February, 1994.
By: /s/ [sig]
--------------------------------
Its Duly Authorized Signatory
DZU AD, a Bulgarian corporation
By: /s/ Eftim Pandeff
--------------------------------
Its Duly Authorized Signatory
DZU Corporation
By: /s/ Eftim Pandeff
--------------------------------
Its Duly Authorized Signatory
Daniel Dooley, Individually
/s/ Daniel Dooley
------------------------------------
Steven Kaczeus, Individually
/s/ Steven L. Kazeus
------------------------------------
The Official Committee of Unsecured
Creditors Kalok Corporation
By: /s/ J.M. Murray
--------------------------------
Its Duly Authorized Signatory
ATTORNEYS FOR OFFICIAL
COMMITTEE OF UNSECURED CREDITORS
JT Storage, Inc.
By: /s/ J. Tanden
--------------------------------
Its Duly Authorized Signatory
20
AGREED ORDER TO COMPROMISE CONTROVERSY
<PAGE> 21
Exhibit H
Agreement Between TEAC, DZU and JT Storage, Inc. With
Respect to Exclusive Sales and Manufacturing Territories
Notwithstanding any other term or condition in the Agreed Order to which this
is attached, any other agreement attached to the Agreed Order (not including
the License Agreement between Newco and TEAC attached to the Agreed Order as
Exhibit A), any other Order of the Bankruptcy Court presiding over the Kalok
case, or any other, document, license or other writing by or between TEAC
Corporation ("TEAC"), DZU-AD, a Bulgarian corporation ("DZU"), DZU Corporation
("DZU Corp"), JT Storage, Inc. ("Newco") and Kalok Corporation ("Kalok") each
of TEAC, DZU, Newco and Kalok, hereby agree as follows:
1. TEAC shall have exclusive sales rights with respect to the IP Assets in
Japan, and nonexclusive sales rights throughout the remainder of the
world except India and the "Eastern Block Countries" (Poland, Czech
Republic, Slovakia, Hungary, Romania, Bulgaria and former Yugoslavia).
2. TEAC shall have exclusive use and manufacturing rights with respect to
the IP Assets in Japan and (co-extensive with [Newco]) "Asia" (the
entire Asian Continent and other countries and territories illustrated
on the attached Map, excluding the countries which constituted the
former Soviet Union,), and nonexclusive manufacturing rights throughout
the remainder of the world except the Eastern Block Countries, the
former Soviet Union, India and Korea.
3. DZU and DZU Corp. shall exclusive sales rights with respect to the IP
Assets in the Eastern Block Countries, and nonexclusive sales rights
throughout the remainder of the world except Japan and India.
4. DZU and DZU Corp. shall have exclusive use and manufacturing rights with
respect to the IP Assets in the Eastern Block Countries and the
countries which constituted the former Soviet Union, and nonexclusive
manufacturing rights throughout the remainder of the world except Japan,
India and Korea.
5. [Newco] shall have exclusive sales rights with respect to the IP Assets
in India, and nonexclusive sales rights throughout the remainder of the
world except Japan and the Eastern Block Countries.
6. [Newco] shall have exclusive use and manufacturing rights with respect
to the IP Assets in India, Korea and (co-extensive with TEAC) Asia, and
nonexclusive manufacturing rights throughout the remainder of the world
except Japan, the Eastern Block Countries and the countries which
constituted the former Soviet Union.
7. For purposes of enforcing the terms hereof, TEAC, DZU, DZU Corp.,
[Newco] and Kalok each (a) consent to exclusive jurisdiction in the
District Court for the ________ District of California; (b) are entitled
to money damages and injunctive relief on account of, as a result of or
upon the occurrence of any breach of the terms hereof;
<PAGE> 22
JEFF J. MARWIL
KATTEN MUCHIN & ZAVIS
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone No. (312) 902-5200
Attorneys for TEAC CORPORATION
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
(San Jose Division)
In re ) Chapter 11
)
KALOK CORPORATION, a California ) Case No. 93-54027-MM
corporation, )
) NOTICE OF ENTRY OF ORDER
Debtor. ) APPROVING AMENDMENT TO
) AGREED ORDER COMPROMISING
Taxpayer I.D. No. 77-0146015 ) CONTROVERSIES
)
- --------------------------------------------------------------------------------
Date: January 20, 1995
Time: 10:00 a.m.
Place: 280 S. First St.,
Rm. 3070
San Jose, California
The Honorable Marilyn Morgan
TO ALL PARTIES IN INTEREST:
PLEASE TAKE NOTICE that the United States Bankruptcy Court for the
Northern District of California (San Jose Division) entered the Order Approving
Amendment to Agreed Order Compromising Controversies (the "Order") on or about
///
///
///
///
///
///
1.
NOTICE OF ENTRY OF ORDER APPROVING AMENDMENT TO AGREED ORDER
TO COMPROMISE CONTROVERSIES
<PAGE> 23
January 20, 1995. A true and correct copy of the Order is attached hereto as
Exhibit "A" and incorporated herein by this reference.
Dated: January 24, 1995
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
By: /s/ Lillian Stenfeldt
----------------------------------
Lillian G. Stenfeldt
Attorneys for Debtor/Plaintiff
Kalok Corporation
2.
NOTICE OF ENTRY OF ORDER APPROVING AMENDMENT TO AGREED ORDER
TO COMPROMISE CONTROVERSIES
<PAGE> 24
JEFF J. MARWIL
KATTEN MUCHIN & ZAVIS
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone No. (312) 902-5200
Attorneys for TEAC CORPORATION
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
(San Jose Division)
In re ) Chapter 11
)
KALOK CORPORATION, a California ) Case No. 93-54027-MM
corporation, )
) ORDER APPROVING AMENDMENT
Debtor. ) TO AGREED ORDER
) COMPROMISING CONTROVERSIES
Taxpayer I.D. No. 77-0146015 ) ___________________________
- ----------------------------------
Date: January 20, 1995
Time: 10:00 a.m.
Place: 280 S. First St., Rm. 3070
San Jose, California
The Honorable Marilyn Morgan
THIS MATTER coming to be heard on the Motion of TEAC Corporation,
seeking an Order approving an amendment to the Agreed Order Compromising
Controversies entered by this Court on February 4, 1994 (the "Order"), and the
Court having considered the Motion, and the Court having reviewed the
Stipulation To Amend The Agreed Order Compromising Controversies signed by
Kalok Corporation ("Kalok"), JT Storage, Inc. ("JTS"), TEAC Corp. ("TEAC"),
Pont Peripherals Corporation ("Pont"), fka DZU Corporation and The Official
Unsecured Creditors' Committee (the "Committee") on file herein (the
"Stipulation"), and the Court having conducted a hearing on the Motion,
appearances being noted on the records, and other parties being represented as
indicated on the record and good cause appearing therefor,
1
ORDER APPROVING AMENDMENT TO AGREED ORDER TO COMPROMISE CONTROVERSIES
<PAGE> 25
IT IS HEREBY ORDERED, ADJUDGED AND DECREED as follows:
A. The Stipulation is approved; and
B. The Order is amended as follows:
1. Paragraph F, appearing on Page 14, is modified to remove
Western Digital Corporation ("WDC") from the list of collective HDD Companies
as defined in the Order; and
2. JTS, TEAC, and Pont are authorized to make future
modifications to the Order, with respect to other HDD Companies and other
intellectual property matters as agreed between JTS, TEAC and Pont, without
having to obtain additional Bankruptcy Court approval.
Dated: JAN 20 1995 /s/ Marilyn Morgan
------------- -----------------------------------
The Honorable Marilyn Morgan
United States Bankruptcy Judge
2
ORDER APPROVING AMENDMENT TO AGREED ORDER TO COMPROMISE CONTROVERSIES
<PAGE> 26
I, Michelle Osiakowski, declare:
I am over the age of eighteen years and not a party to the within
action and am employed in Santa Clara County. I an employed with the law firm
of Gray Care Ware & Freidenrich, a Professional Corporation, 400 Hamilton
Avenue, Palo Alto, California 94301. I am readily familiar with the business
practice at my place of business for collection and processing of
correspondence for mailing with the United States Postal Service.
Correspondence so collected and processed is deposited in the ordinary course
of business.
On January 26, 1995, at my place of business, the:
ORDER APPROVING AMENDMENT TO AGREED ORDER
COMPROMISING CONTROVERSIES
was placed for deposit with the United States Postal Service in a sealed
envelope, with postage prepaid, addressed as follows:
Office of the U.S. Trustee
Katherine Rosenblatt, Esq.
Office of the United States Trustee
280 S. First Street, Room 268
San Jose, CA 95113
Attorneys for TEAC Corporation
Jeff J. Marwil, Esq.
Fulbright & Jaworski
525 West Monroe Street, Suite 1600
Chicago, IL 60661-3693
Attorneys for JT Storage, Inc.
Lawrence Weeks, Esq.
Riordan & McKenzie
5743 Corsa Avenue, Suite 116
Westlake Village, CA 91362
NOTICE OF ENTRY OF ORDER APPROVING AMENDMENT TO AGREED ORDER
TO COMPROMISE CONTROVERSIES
<PAGE> 27
Attorneys for Creditors Committee
Craig Prim, Esq.
Murray & Murray
3030 Hanson Way, Suite 200
Palo Alto, CA 94306
DZU Corporation
Mr. Dan Dooley
c/o Pont Peripherals Corporation
912 West Maude Avenue
Sunnyvale, CA 94086
DZU A.D.
Mr. Eftim Pandeff
c/o Mr. Dan Dooley
Pont Peripherals Corporation
912 West Maude Avenue
Sunnyvale, CA 94086
and that envelope was placed for collection and mailing on that date following
ordinary business practices.
I declare under penalty of perjury under the laws of the State of
California and the United States of America that the above is true and correct.
Executed on January 26, 1995, at Palo Alto, California.
/s/ Michelle Osiakowski
-----------------------------------
Michelle Osiakowski
4
NOTICE OF ENTRY OF ORDER APPROVING AMENDMENT TO AGREED ORDER
TO COMPROMISE CONTROVERSIES
<PAGE> 1
EXHIBIT 10.23
MASTER AGREEMENT
MASTER AGREEMENT (the "Agreement") made as of the __ day of February,
1994, by and between TEAC CORPORATION, a corporation organized and existing
under the laws of Japan having its principal place of business at 3-7-3
Naka-cho, Musashino, Tokyo, Japan ("TEAC"), and JT STORAGE, INC., a Delaware
corporation (the "Corporation").
RECITALS
WHEREAS, Jugi Tandon ("Tandon") has formed the Corporation for the
purpose of developing, manufacturing, marketing, and selling magnetic hard disk
drives initially utilizing the engineering team of Kalok Corporation ("Kalok")
and the Corporation, technologies of TEAC, to be obtained by TEAC pursuant to
an Agreed Order Compromising Controversies (the "Agreed Order"), to be entered
the Bankruptcy Court presiding over the Bankruptcy Case No. 93-54027 MM of
Kalok Corporation, a California corporation ("Kalok"), such technologies to be
licensed by TEAC to the Corporation;
WHEREAS, Tandon and TEAC also desire to establish among Tandon, the
Corporation and TEAC certain cooperative relationships for the purpose of
continuing the development of projects currently in process, developing future
technologies and products and supplying of parts, components, subassemblies and
finished drives; and
WHEREAS, in order effect the contribution and licensing to the
Corporation of certain technologies and assets requisite to the accomplishment
of its purposes, to effect the licensing of certain technologies from TEAC to
the Corporation, and from the Corporation to TEAC and to govern the
relationships amongst Tandon, the Corporation and TEAC as customers, suppliers,
investors, licensees and directors, each such party desire to enter into this
agreement and other related agreements referenced herein or pertinent hereto.
WHEREAS, the Agreed Order (to which TEAC and the Corporation are to be
parties) authorizes certain transactions upon which this Agreement is
predicated, and pursuant to which certain actions of TEAC and the Corporation
will be governed.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Formation of the Corporation. Prior to the Commencement Date (as
hereinafter defined), Tandon shall have caused the Corporation to be formed
under the provisions of the corporation law of the State of Delaware. The
Articles of Incorporation for the Corporation shall be in the form attached
hereto as Exhibit 1.
2. Bylaws. Tandon shall cause the adoption by the Corporation of the
form of By-Laws attached hereto as Exhibit 2 prior to the Commencement Date.
-1-
<PAGE> 2
3. Stockholders' Agreement. Prior to the Commencement Date, TEAC and
the Corporation shall execute and deliver to each other executed counterparts
of the Stockholders' Agreement in the form attached as Exhibit 3 hereto (the
"Stockholders' Agreement").
4. License Agreement. On the Commencement Date, TEAC and the
Corporation, shall deliver to each other executed counterparts of the License
Agreement in the form attached as Exhibit 4 hereto (the "License Agreement").
5. Representations and Warranties of TEAC. As an inducement to Tandon
to enter into and perform its obligations under this Agreement and all of the
other documents, instruments and agreements to be executed and delivered
pursuant hereto or in connection herewith (the "Related Agreements"), TEAC
hereby represents and warrants to Tandon, as of the date of this Agreement and
the Commencement Date, as follows:
a. Organization. TEAC is a corporation duly organized, validly
existing and in good standing under the laws of Japan.
b. Authorization. TEAC has full corporate power and authority
to execute, deliver and perform its obligations under this Agreement and
the Related Agreements to be entered into by TEAC, and the consummation
by TEAC of the transactions contemplated hereby and thereby have been
duly and properly authorized by all requisite corporate action. This
Agreement is, and each of the Related Agreements, when duly executed and
delivered by TEAC will be, valid and binding obligations of TEAC,
enforceable against TEAC in accordance with their respective terms.
c. Investment. TEAC is acquiring its equity interest in the
Corporation for investment purposes only and not with a view towards the
resale thereof in connection with a distribution, it being understood,
subject to the terms of the Stockholders' Agreement, that the
disposition by TEAC of its interests in the Corporation shall at all
times remain within its sole control.
6. Representations and Warranties of the Corporation. As an inducement
to TEAC to enter into and perform its obligations under this Agreement and the
Related Agreements, the Corporation hereby represents and warrants to TEAC, as
of the date of this Agreement and the Commencement Date, as follows:
a. Capitalization. Immediately following the Commencement Date,
the issued and outstanding common capital stock of the Corporation, on a
fully diluted basis, will be as follows:
(i) 10% shares of the Corporation's Common Stock, par
value $.00001 per share (the "Common Stock"), on a
fully diluted basis, owned beneficially and of record
by TEAC.
-2-
<PAGE> 3
(ii) 1,000 shares of Common Stock, owned beneficially and of
record by Tandon.
(iii) A warrant exercisable for 2% of the shares of Common
Stock, issued by the Corporation to the Official
Committee of Unsecured Creditors of Kalok Corporation.
b. Organization of the Corporation. As of the Commencement Date,
the Corporation will be a corporation duly organized, validly existing and in
good standing under the corporation laws of the State of Delaware.
c. Authorization. As of the Commencement Date, the Corporation will
have full corporate power and authority to execute, deliver and perform its
obligations under the Related Agreements to be entered into by the Corporation,
and the consummation by the Corporation of the transactions contemplated thereby
will have been duly and properly authorized by all requisite corporate action.
Each of the Related Agreements, when duly executed and delivered by the
Corporation will be valid and binding obligations of the Corporation,
enforceable in accordance with their respective terms.
7. Contribution and Issuance of Shares.
a. TEAC Contributions. In consideration of the issuance of the
shares of Common Stock of the Corporation referred in Section 6a, TEAC shall
contribute to the Corporation the Hard Assets (as defined in the Agreed Order)
and the rights provided royalty free under Section 3.1 and 3.4 of the License
Agreement.
b. Commencement Date. As used herein, the "Commencement Date" shall
mean 10 a.m. on the first business day following the date on which the last of
the following shall have occurred:
(i) the Order Date shall have occurred;
(ii) Steven Kaczeus and the Engineers listed on Schedule 7B
hereto shall have accepted employment with the
Corporation; and
(iii) all regulatory approvals requisite to the consummation
of the transactions contemplated hereby shall have been
waived or obtained; provided each of the parties shall
undertake the best efforts to obtain approvals to which
it is subject.
In the event that the Commencement Date shall not occur on or before
February , 1994, this Agreement shall become null and void and the parties
shall be under no obligation to consummate the transactions contemplated hereby.
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<PAGE> 4
c. Tandon Contributions. Tandon or his share transferees shall
fund, raise funds or cause there to be funded on an non-debt basis the
amounts required under Schedule 7C on the dates specified therein.
Breach of this Section shall automatically be deemed to be a material
breach of this Agreement for purposes hereof and of the License
Agreement, subject to the sixty (60) day cure period set forth in the
License Agreement.
d. Order Date. As used in this Agreement, the term "Order Date"
shall mean the first business day following the date upon which the
Agreed Order shall be entered by the Bankruptcy Court for the Northern
District of California, San Jose division, substantially in the form of
Exhibit 7D hereto, notwithstanding whether an appeal shall be taken with
respect to the Agreed Order.
8. Omitted.
9. Employment of Engineers. Tandon shall cause the Corporation to
undertake all reasonable efforts to solicit and employ the engineers listed on
Schedule 7B (the "Subject Engineers") hereto and none of the parties hereto or
their respective Affiliates (other than the Corporation) shall solicit to
employ, or employ, any of the Subject Engineers unless the License Agreement
has been terminated in accordance with its terms.
10. Completion of Nordic Project. As essential consideration for TEAC
entering into this Agreement, Tandon agrees to cause the Corporation to promptly
undertake, as a first priority, its best efforts to continue and complete the
development of the 540mb HDD and the hard disk drive technology known as "Nordic
II". Without limiting the foregoing, such efforts shall include the dedication,
as a first priority, of sufficient engineering personnel and resources, the
provision of sufficient funding and materials resources and cooperation with
TEAC engineers, suppliers and potential customers.
11. Bankruptcy Proceeding. The parties hereto shall fully cooperate in
and undertake all reasonable efforts by themselves and their respective counsel
and affiliates to effect all of the transactions contemplated by the Agreed
Order (whether or not a party thereto), including prosecution of the Motion of
Debtor and Debtor-In-Possession in support of Order Approving Compromise of
Controversies and Authority to Enter into Contracts and the entry of the Agreed
Order.
12. Public Disclosure. None of TEAC, the Corporation or Tandon, nor
any of their respective agents or employees, not any persons acting on their
behalf, shall make any formal or informal public release to the press or
otherwise concerning the relationship or relationships of the parties hereto
without the prior consent of the other parties hereto. The following
description may be provided to customers and vendors (other than by press
release):
"Mr. Jugi Tandon has formed JT Storage, Inc., a corporation which
will continue the engineering and development programs of Kalok
Corporation. TEAC Corporation has licensed to JT Storage, Inc. the
principal proprietary technology to be initially
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<PAGE> 5
utilized by JT Storage, Inc. in its product development and has acquired
a minority interest in JT Storage, Inc. The Corporation and TEAC have
licensed certain of their future HDD developments to each other. Certain
key engineers associated with Kalok's development programs have agreed
to join JT Storage, Inc. and will be equity holders of JT Storage, Inc."
13. Confidentiality. Tandon and TEAC each agree, and Tandon agrees to
cause the Corporation, to undertake all reasonable efforts to treat, and to
cause each of its Affiliates, agents and employees to treat, as confidential
(as if it were their own trade secrets) all proprietary information they
receive from each other, whether pursuant hereto, the Related Agreements or
otherwise. The parties hereto acknowledge that the parties hereto may find it
necessary to disclose to third parties proprietary information in connection
with the manufacturing of components, parts and accessories; in such
circumstances, the party hereto may make such information available to third
parties, provided that such party shall first obtain from the recipients a
fully-executed confidentiality agreement which is at least as restrictive as
the confidentiality agreement contained herein. The foregoing shall not
restrict any party's right to provide technical information and test data that
is reasonably requested by customers in the ordinary course of business. None
of the parties shall be bound by the provisions of this Section 15 with respect
to information which (a) is in the public domain at the time of disclosure; (b)
becomes a part of the public domain after the time of disclosure, other than
through disclosure by the recipient or some other third party who is under an
agreement of confidentiality with respect to the subject information or obtained
the information from the recipient; (c) is required to be disclosed by law or
(d) is disclosed by a third party not bound by any agreement of confidentiality
with respect to such information which third party did not obtain the
information from the recipient.
14. Omitted.
15. Other Business Activities; Disclosure and Waiver. The parties
hereto understand that any party hereto or its affiliates may be interested,
directly or indirectly, in various other businesses and undertakings not
included in the Corporation, which may be competitive with the business of the
Corporation. Each party also understands that the conduct of the business of
the Corporation may involve business dealings with such other businesses and
undertakings. The parties hereto hereby agree that, except as expressly
provided herein or in the Related Agreements, the creation of the Corporation
and the assumption and performance by any of the parties of their duties
hereunder shall be without prejudice to their rights (or the rights of their
affiliates) to have such other interests and activities and to receive and
enjoy profits or compensation therefrom, and each party waives and releases any
rights or claims it might otherwise have to share or participate in such other
interests or activities of any party or their affiliates. Except as expressly
provided herein or in the Related Agreements, the parties may engage in or
possess any interest in any other business venture of any nature or description
independently or with others, and neither the Corporation nor any other party
hereto shall have any right by virtue of this Agreement in and to such venture
or the income or profits derived therefrom.
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<PAGE> 6
16. General.
a. Notices. All notices, demands, consents, requests, approvals,
and other communications required or permitted hereunder shall be in writing and
shall be deemed effective only upon delivery (whether receipt is accepted or
refused) at the addresses set forth below (or at such other addresses within the
United States of America as shall be given in writing by any party to the others
in accordance with this Section 16(a). Notices may be delivered by hand, United
States registered or certified mail, return receipt requested, bonded private
courier service or by telecopier (followed immediately in writing by bonded
private courier service).
If to TEAC: TEAC Corporation
3-7-3 Nakacho, Musachino
Tokyo, Japan
Attention: General Manager Disk
Drive Products Division
Facsimile: 0422-52-3771
with copies to: TEAC America, Inc.
7733 Montebello Road
Montebello, California 90640
Attention: Executive Vice President
Facsimile: 213/727-7688
and
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661
Attention: Mark D. Gerstein
Facsimile: 312/902-1061
If to the JT Storage, Inc.
Corporation 2125 Madera Road
Simi Valley, California 93065
Facsimile: 808/582-3227
with a copy to: Riordan & McKenzie
5743 Corsa Avenue, Suite 116
West Lake Village, California 91362
Attention: Lawrence Weeks
Facsimile: 818/706-2956
b. Governing Law. This Agreement shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation
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<PAGE> 7
and performance of this Agreement shall be governed by, the laws of the State
of California, without giving effect to provisions thereof regarding conflict
of laws.
c. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
d. Entire Agreement. This Agreement, the Related Agreements and
those documents expressly referred to herein and therein embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
e. Counterparts. This Agreement may be executed on separate
counterparts transmitted by telecopy, each of which is deemed to be an original
and all of which taken together constitute one and the same agreement.
f. Successors; Assigns; Transferees. This Agreement is intended to
bind and inure to the benefit of and be enforceable by each of the parties
hereto and their respective successors and permitted assigns. No party may
assign any of his, her or its rights or obligations hereunder without the
written consent of the other parties.
g. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party hereto.
h. Amendments and Waivers. Any provision of the Agreement may be
amended or waived only with the prior written consent of all of the parties
hereto.
i. Descriptive Headings; Interpretation. The descriptive headings
in this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The term "Affiliate" as applied to any
person or entity means any other person or entity directly or indirectly
controlling, controlled by, or under common control with, that person or
entity. The term "control" (including, with correlative meanings, the terms
controlling, controlled by and under common control with), as applied to any
entity, means the possession, directly or indirectly, of the power to vote 50%
or more of the voting stock (or in the case of an entity that is not a
corporation, 50% or more of the ownership interest, beneficial or otherwise) of
such entity or otherwise to direct or cause the direction of the management and
policies
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<PAGE> 8
of that entity, whether through the ownership of voting stock or other
ownership interest, by contract or otherwise. All of executive officers, 50%
shareholders, directors, subsidiaries, joint ventures and partners shall be
deemed to be Affiliates for purposes of this Agreement. All personal pronouns
used in this Agreement, whether used in the masculine, feminine or neuter
genders shall include all genders, the singular shall include the plural and
vice versa and shall refer solely to the parties signatory thereto unless
otherwise specifically provided.
j. Preamble: Preliminary Recitals. The Preliminary Recitals set forth
in the Preamble hereto are hereby incorporated and made part of this Agreement.
k. Consent to Jurisdiction and Service of Process. Each of TEAC and
Tandon hereby consent to the jurisdiction of any state or federal court located
within the County of Los Angeles, State of California and irrevocably agree
that all actions or proceedings arising out of or relating to this Agreement
shall be litigated in such courts. Each of the parties hereto accept for
itself, himself or herself, as the case may be, and in connection with its, his
or her properties, generally and unconditionally, the nonexclusive jurisdiction
of the aforesaid courts and waives any defense of forum non conveniens, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Each of the parties hereto designate and appoint CT
Corporation System and such other persons as may hereinafter be selected by
them who irrevocably agree in writing to so serve as agent to receive on their
behalf service of all process in any such proceedings in any such court, such
service being hereby acknowledged by each such party to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to each such party hereto as provided herein, except
that unless otherwise provided by applicable law, any failure to mail such copy
shall not affect the validity of service of process. If any agent appointed by
a party hereto refuses to accept service, such party hereby agrees that service
upon it, him or her, as the case may be, by mail shall constitute sufficient
notice. Nothing herein shall affect the right of any party hereto to serve
process in any other manner permitted by law.
l. WAIVER OF JURY TRIAL; ARBITRATION. (i) EACH OF TEAC AND TANDON
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND THE RELATIONSHIP THAT IS BEING ESTABLISHED HEREBY. EACH OF TEAC
AND TANDON ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH
MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY OTHER PARTY. 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 AGREEMENT,
INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS,
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<PAGE> 9
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. EACH OF TEAC AND TANDON 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. EACH OF TEAC AND TANDON
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS, HIS
OR HER, AS THE CASE MAY BE, LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS, HIS OR HER, AS THE CASE MAY BE, 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 AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT;
(ii) (a) If any controversy or claim between the parties hereto arises out
of this Agreement or dispute may, at the election of either party within
10 days of notice of breach hereunder, if any, or with respect to any
matter, not the subject of such a notice, at any time prior to the
filing of an action in a court of proper jurisdiction under clause (i)
above, shall be submitted to binding arbitration in Los Angeles,
California, under the Commercial Arbitration Rules of the American
Arbitration Association; provided further that any matter provided for
in this Agreement to be mutually agreed to, negotiated or otherwise
discussed between the parties shall be subject to arbitration hereunder
only if specifically provided in this Agreement.
(b) One arbitrator shall be appointed under the Commercial Arbitration
Rules of the American Arbitration Association, who shall be a business
person with at least five years experience in the disk drive industry;
provided, however, that if any disagreement arises concerning
specialized matters such as intellectual property rights, product design
or computer engineering, market conditions or importing/exporting
regulations, then the arbitrator shall also have an expertise in such
matters. As soon as the panel has been convened, a hearing date shall be
set within 45 days thereafter. Written submittals shall be presented and
exchanged by both parties 15 days before the hearing date, including
reports prepared by experts upon whom either party intends to rely. At
such time the parties shall exchange copies of all documentary evidence
upon which they will rely at the arbitration
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<PAGE> 10
hearing and a list of the witnesses whom they intend to call to
testify at the hearing. Each party shall also make its
respective experts available for deposition by the other party
prior to the hearing date. The arbitrator shall make its award
as promptly as practicable after conclusion of the hearing.
(c) The arbitrator shall not be bound by the rules of
evidence or civil procedure, but rather may consider such
writings and oral presentations as reasonable businessmen would
use in the conduct of their day-to-day affairs, and may require
the parties to submit some or all of their presentations orally
or in written form as the arbitrators may deem appropriate. It
is in the intention of the parties to limit live testimony and
cross-examination to the extent necessary to insure a fair
hearing to the parties on the matters submitted to arbitration,
and to provide neither party more than ten business days to
present its position. The parties have included the foregoing
provisions limiting the scope and extent of the arbitration with
the intention of providing for prompt, economic and fair
resolution of any dispute submitted to arbitration.
(d) The arbitrator shall have the discretion to award the
costs of arbitration, arbitrators' fees and the respective
attorneys' fees of each party between the parties as they see
fit. Judgment upon the award entered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitrator
shall make its award in accordance with applicable law and based
on the evidence presented by the parties, and at the request of
either party at the state of the arbitration shall include in
its award findings of fact and conclusions of law both in law
and equity which would be available in a court having
jurisdiction over the parties and over the subject matter of
the dispute. Such powers shall include, but not be limited to,
the power to require specific performance.
(e) The arbitration agreement set forth herein shall not
limit a court from granting a temporary restraining order or
preliminary injunction in order to preserve the status quo of
the parties pending arbitration. Further, the arbitrator shall
have power to enter such orders by way of interim award, and
they shall be enforceable in court.
m. Payment of Fees. In the event of litigation or arbitration of
any dispute or controversy arising from, in, under or concerning this
Agreement or any Related Agreement and any amendments hereof, the prevailing
party or parties in such action shall be entitled to recover from the other
parties in such action, such sums as the court shall fix as reasonable
attorneys' fees and expenses incurred by such parties, allocated as such court
shall determine.
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<PAGE> 11
n. No Broker. The parties hereto hereby represent and warrant to each
other that there are no claims for brokerage or other commissions or finder's
or other similar fees in connection with the transactions covered by this
Agreement insofar as such claims shall be based on arrangements or agreements
made by or on its behalf. The parties hereby agree to indemnify, defend and
hold each other harmless from and against all liabilities, costs, damages and
expenses (including reasonable attorneys' fees) from any such claims based upon
the agreement or alleged agreement of the indemnifying party giving rise to
such claim.
o. No Waiver of Default. No consent or waiver, express or implied, by
any party or of any breach or default by any other party in the performance by
the other of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
any other party of the same or any other obligations of such party hereunder.
Failure on the part of any party to complain of any act or failure to act of
any of the other parties or to declare any other party in default, irrespective
of how long such failure continues, shall not constitute a waiver by any such
party of its rights hereunder.
p. Remedies. Each of the parties confirms that damages at law may be
an inadequate remedy for a breach or threatened breach of this Agreement and
agrees that, in the event of a breach or threatened breach of any provisions
hereof, the respective rights and obligations hereunder shall be enforceable by
specific performance, injunction or other equitable remedy, but nothing herein
contained is intended to, nor shall it limit or affect, any rights at law or by
statute or otherwise of any party aggrieved as against any other party for
breach or threatened breach of any provision hereof, it being the intention by
this section to make clear the agreement of the parties that the respective
rights and obligations of the parties shall be enforceable in equity as well as
at law or otherwise.
q. Future Deliveries. Each party will, from time to time, execute and
deliver such further instruments and do such further acts and things as may be
reasonably requested by any other party to carry out the intent and purposes of
this Agreement.
r. Computation of Time. In the computation of any period of time
provided for in this Agreement, the day of the act or event from which said
period of time runs shall be excluded, and the last day of such period shall be
included unless it is a Saturday, Sunday, or national Japanese or United States
holiday, in which case the period shall be deemed to run until the end of the
next day which is not a Saturday, Sunday, or national Japanese or United States
holiday. As used in this Agreement "business day" for any party shall be a day
which is not a Saturday, Sunday or national Japanese or United States holiday.
Time shall be computed based on Los Angeles local Time.
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<PAGE> 12
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
TEAC CORPORATION
By:
-----------------------------
a duly authorized signatory
JT STORAGE, INC.
By: /s/ Sirjang Tandon
-----------------------------
a duly authorized signatory
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<PAGE> 13
EXHIBIT TO
MASTER AGREEMENT
Exhibit 1 - Attached
Exhibit 2 - Attached
Exhibit 3 - Attached
Exhibit 4 - Attached
Exhibit 7b - Attached List
Exhibit 7c - $125,000 per month average during each three month period
commencing February 7, 1994 (prorated for such partial month) until
$5,000,000 in the aggregate has been funded into the Corporation.
Funding of the Corporation in excess of $125,000 in any month shall
be credited toward future months and existing average funding until
consumed.
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<PAGE> 14
SCHEDULE 7B
Teddy Hadiono - Servo Engineer
Steve Harris - ASIC Engineer
Larry Hewitt - Electrical Engineer
Steven Kaczeus, Jr. - Mechanical Engineer
Steve Kelly - Read/Write Engineer
Greg Kudo - Mechanical Engineer
Joe Liu - Firmware Engineer
Bill Thanos - VP Engineering
Don Vohar - Firmware Engineer
Rich Albert - Firmware
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<PAGE> 15
EXHIBIT 1
Certificate of Incorporation
of
JT Storage, Inc.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
ARTICLE I
The name of the Corporation is JT Storage, Inc.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801,
County of New Castle. The name of the Corporation's registered agent 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 the State of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation shall have
authority to issue is two thousand (2,000). All such shares are to be common
stock, par value of $.000001 per share, and are to be of one class.
<PAGE> 16
ARTICLE V
The name and mailing address of the Incorporator is Mark A. Morton, One
Rodney Square, P.O. Box 551, Wilmington, Delaware 19899.
ARTICLE VI
The powers of the Incorporator shall terminate upon the filing of this
Certificate of Incorporation. The name and mailing address of the person who
is to serve as the sole director of the Corporation until the first annual
meeting of the stockholders of the Corporation, or until his successor is
elected and qualified, is Rajeev Tandon, 19820 Northridge Road, Chatsworth, CA
91311.
ARTICLE VII
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VIII
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
and empowered to make, alter and repeal the By-Laws of the Corporation, subject
to the power of the stockholders of the Corporation to alter or repeal any
by-law made by the Board of Directors.
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<PAGE> 17
ARTICLE IX
A director of this Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
ARTICLE X
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
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<PAGE> 18
IN WITNESS WHEREOF, I, the undersigned, being the Incorporator
hereinabove named, do hereby further certify that the facts hereinabove stated
are truly set forth, and accordingly I have hereunto set my hand this 3rd day
of February, 1994.
/s/ Mark Morton
--------------------------------
Mark A. Morton
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<PAGE> 19
EXHIBIT 2
BY-LAWS
OF
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, or by
a committee of the Board of Directors that has been duly designated by the
Board of Directors and whose powers and authority, as expressly provided in a
resolution of the Board of Directors, include the power to call such meetings,
but such special meetings may not be called by any other person or persons.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given that shall state the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
these by-laws, the written notice of any meeting shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such 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 which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or it after the adjournment a new record date is fixed
for the adjourned meeting, notice of
<PAGE> 20
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 1.5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, at each meeting of stockholders
the presence in person or by proxy of the holders of a majority in voting power
of the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum. In the absence of a quorum,
the stockholders so present may, by majority vote, adjourn the meeting from
time to time in the manner provided in Section 1.4 of these by-laws until a
quorum shall attend. Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be
counted for quorum purposes; provided, however, that the foregoing shall not
limit the right of the corporation or any subsidiary of the corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his 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 absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of the
meeting shall announce at the meeting of stockholders the date and time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote.
Section 1.7. Voting; Proxies. Except as otherwise provided by the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person
or persons to act for him by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period. A proxy shall be irrevocable if it states that it is irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary of the corporation.
Voting at meetings of stockholders need not be by written ballot. At all
meetings of stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect. All other elections and questions shall,
unless otherwise provided by law, the certificate of incorporation or
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<PAGE> 21
these by-laws, be decided by the affirmative vote of the holders of a majority
in voting power of the shares of stock which are present in person or by proxy
and entitled to vote thereon.
Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders 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 a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date
upon which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than
sixty days prior to such other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
of the Board of Directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution
taking such prior action; and (3) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. 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.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary
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
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<PAGE> 22
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. Upon the willful neglect or refusal of the directors to produce
such a list at any meeting for the election of directors, they shall be
ineligible for election to any office at such meeting. Except as otherwise
provided by law, the stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 1.10. Action By Consent of Stockholders. Unless otherwise
restricted by the certificate of incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents 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 and shall be
delivered (by hand or by certified or registered mail, return receipt requested)
to the corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of minutes of
stockholders are recorded. 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.
Section 1.11. Inspectors of Election. The corporation may, and shall
if required by law, in advance of any meeting of stockholders, appoint one or
more inspectors of election, who may be employees of the corporation, to act at
the meeting or any adjournment thereof and to make a written report thereof. The
corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. In the event that no inspector so
appointed or designated is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath to execute faithfully the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector or inspectors so appointed or designated shall (i)
ascertain the number of shares of capital stock of the corporation outstanding
and the voting power of each such share, (ii) determine the shares of capital
stock of the corporation represented at the meeting and the validity of proxies
and ballots, (iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares of capital stock of the corporation represented at the meeting
and such inspectors' count of all votes and ballots. Such certification and
report shall specify such other information as may be required by law. In
determining the validity and counting
<PAGE> 23
of proxies and ballots cast at any meeting of stockholders of the corporation,
the inspectors may consider such information as is permitted by applicable law.
No person who is a candidate for an office at an election may serve as an
inspector at such election.
Section 1.12. Conduct of Meetings. The Board of Directors of the
corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
<PAGE> 24
ARTICLE II
Board of Directors
Section 2.1. Number; Qualifications. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time
to time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 2.2. Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the persons named as directors in the
certificate of incorporation, and each director so elected shall hold office
until the first annual meeting of stockholders or until his successor is
elected and qualified. At the first annual meeting of stockholders or until his
successor is elected and qualified. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors
each of whom shall hold office for a term of one year or until his successor is
elected and qualified. Any director may resign at any time upon written notice
to the corporation. Any newly created directorship or any vacancy occurring in
the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced or until his successor is elected
and qualified.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware
and at such times as the Board of Directors may from time to time determine,
and if so determined notices thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, the Secretary, or
by any member of the Board of Directors. Notice of a special meeting of the
Board of Directors shall be given by the person or persons calling the meeting
at least twenty-four hours before the special meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute
a quorum for the transaction of business. Except in cases in which the
certificates of
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<PAGE> 25
incorporation, these by-laws or applicable law otherwise provides, the
vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 2.7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in his
absence by the Vice Chairman of the Board, if any, or in his 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 absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8. Informal Action by Directors. Unless otherwise
restricted by the certificates of incorporation or these by-laws, 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 of Directors of such 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 of Directors or such committee.
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<PAGE> 26
ARTICLE III
Committees
Section 3.1 Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board of Directors 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 or disqualification of
a member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and 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.
Section 3.2. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence
of such rules each committee shall conduct its business in the same manner as
the Board of Directors conducts its business pursuant to Article II of these
by-laws.
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<PAGE> 27
ARTICLE IV
Officers
Section 4.1. Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board and a Vice Chairman of the Board from among its members. The Board of
Directors may also choose one or more Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer
shall hold office until the first meeting of the Board of Directors after the
annual meeting of stockholders next succeeding his election, and until his
successor is elected and qualified or until his earlier resignation or removal.
Any officer may resign at any time upon written notice to the corporation. The
Board of Directors may remove any officer with or without cause at any time, but
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the corporation. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
Section 4.2. Powers and Duties of Executive Officers. The officers
of the corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
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<PAGE> 28
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock 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, if any, or the President
or a Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, of the corporation certifying the number
of shares owned by him in the corporation. Any of or all the signatures on the
certificate may be a 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 he were such officer, transfer agent, or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance
of New Certificates. The corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the corporation may require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may
be made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
<PAGE> 29
ARTICLE VI
Indemnification
Section 6.1. Right to Indemnification. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable
law as it presently exists or may hereafter be amended, any person who was
or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he, or a person
for whom he is the legal representative, is or was a director or officer of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partner-
ship, joint venture, trust, enterprise or nonprofit entity, including service
with respect to employee benefit plans (an "indemnitee"), against all
liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such indemnitee. The corporation shall be required to
indemnify an indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if the initiation of such proceeding (or part
thereof) by the indemnitee was authorized by the Board of Directors of the
corporation.
Section 6.2. Prepayment of Expenses. The corporation shall pay the
expenses (including attorney's fees) incurred by an indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
Section 6.3. Claims. If a claim for indemnification or payment of
expenses under this Article is not paid in full within sixty days after a
written claim therefor by the indemnitee has been received by the corporation,
the indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the
burden of proving that the indemnitee was not entitled to the requested
indemnification or payment of expenses under applicable law.
Section 6.4. Nonexclusivity of Rights. The rights conferred on any
person by this Article VI shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 6.5. Other Indemnification. The corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or
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<PAGE> 30
nonprofit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture,
trust, enterprise or nonprofit enterprise.
Section 6.6. Amendment or Repeal. Any repeal or modification of
the foregoing provisions of this Article VI shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
ARTICLE VII
Miscellaneous
Section 7.1. Fiscal Year. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
Section 7.2. Seal. The corporate seal shall have the name of
the corporation inscribed thereon and shall be such form as may be approved
from time to time, by the Board of Directors.
Section 7.3. Waiver of Notice of Meetings of Stockholders,
Directors and Committee. Any written waiver of notice, 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 stockholders, directors,
or members of a committee of directors need be specified in any written
waiver of notice.
Section 7.4. Interested Directors; Quorum. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if: (1) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than
a quorum; or (2) the material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and
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<PAGE> 31
the contract or transaction is specifically approved in good faith by vote
of the stockholders; or (3) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
Section 7.5. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its stock
ledger, books of account, and minute books, may be kept on, or be in the
form of, punch cards, magnetic tape, photographs, microphotographs, or any
other information storage device, provided that the records so kept can be
converted into clearly legible form within a reasonable time.
Section 7.6. Amendment of By-Laws. these by-laws may be altered
or repealed, and new by-laws made, by the Board of Directors, but the
stockholders may make additional by-laws and may alter and repeal any by-laws
whether adopted by them or otherwise.
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<PAGE> 32
and (c) are entitled to recover from any party, breaching the terms hereof,
the profits earned by such breaching party as a portion of the money damages
sought in any suit.
TEAC Corporation DZU AD
By: [sig] By: [sig]
----------------------------- ----------------------------
Its Duly Authorized Signatory Its Duly Authorized Signatory
JT Storage, Inc. DZU Corporation
By: By: [sig]
----------------------------- ----------------------------
Its Duly Authorized Signatory Its Duly Authorized Signatory
<PAGE> 1
EXHIBIT 10.24
LICENSE AGREEMENT
LICENSE AGREEMENT (the "Agreement") made as of the 4th day of February,
1994, by and among JT STORAGE, INC., a Delaware corporation having its
principal place of business at 2125 Madera Road, Simi Valley, California 93065
(the "Corporation") and TEAC CORPORATION, a corporation organized and existing
under the laws of Japan, having its principal place of business at 3-7-3
Naka-cho, Musashino, Tokyo, Japan ("TEAC").
PRELIMINARY RECITALS
A. Pursuant to an Agreed Order Compromising Controversies (the
"Order"), entered as of the date hereof by the Bankruptcy Court presiding over
the Bankruptcy Case No. 93-54027 MM of Kalok Corporation, a California
corporation ("Kalok"), pending in the Northern District of California, and
certain related documents referenced in and approved by the Order (the "Related
Documents"), TEAC has acquired certain of the technology and other intellectual
property and certain other assets of Kalok, subject only to the terms and
conditions of the Order and the Related Documents.
B. Pursuant to that certain Master Agreement (the "Master
Agreement") of even date by and among TEAC and the Corporation, such parties
have agreed to exploit through the Corporation certain technology for the
purpose of designing, manufacturing, marketing and selling magnetic rotating
hard disk drive storage devices ("HDDs") and related accessories.
C. TEAC has certain technology that the Corporation desires to
utilize and further develop and TEAC desires to have the Corporation make such
developments and to utilize such developments in its own business, all on the
terms and conditions set forth herein.
D. TEAC and the Corporation each desire to License certain future
additional developments of each company to the other, as hereinafter set forth.
E. The Master Agreement, the representations and covenants of each
party thereunder being substantial consideration for this Agreement, provides,
among other things, that Tandon contribute to the Corporation certain funds,
and that TEAC contribute to the Corporation certain assets. In addition, TEAC
is to provide this license of the technology and other intellectual property of
Kalok acquired by TEAC pursuant to the Order.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and undertakings hereinafter set forth, the parties hereto hereby
agree as follows:
1
<PAGE> 2
AGREEMENTS
1. Certain Definitions.
"Accessories" means any products that are not HDDs but are sold
in conjunction with or for uses incidental to an HDD, which is a Licensed
Product, such as carrying cases, docking modules, interface cards and
installation software and other items incidental to installation in a computer
or other value added subsystem; provided, Accessories shall not include any
system incorporating an HDD.
"Additional Developments" as applied to any Person means any
improvements in, modifications on, derivative works of, variations of, new
designs of, discoveries related to, or developments utilizing any of the
Licensed Technology or any other additional development (including
preproduction tooling and drawings and product design and processes and
Accessories), whether separately developed, licensed or otherwise obtained by
or on behalf of such Person or jointly developed, licensed or otherwise
obtained by or on behalf of such Person during the term of this Agreement now
existing or hereafter developed, including patents and patent applications and
licenses therefor (obtained under Section 3.11D or otherwise) in each case,
solely in connection with the development, manufacture or sale of HDD's;
provided that if Additional Developments are obtained by a party hereto from
an unaffiliated third party then the obligations of the party hereto to license
such Additional Development to the other parties hereto shall be conditioned
upon obtaining the consent of such Unaffiliated third party to such license,
which consent the party hereto shall undertake its best efforts to obtain.
"Affiliate" as applied to any Person means any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For purposes of this definition and Section 5.3 below, the
term "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 vote 50% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 50% or
more of the ownership interest, beneficial or otherwise) of such Person or
otherwise to direct or cause the direction of the management and policies of
that Person, whether through the ownership of Voting Stock or other ownership
interest, by contract or otherwise. All executive officers, 50% or greater
shareholders and directors of any Person shall be deemed to be Affiliates of
such Person for purposes of this Agreement. "Unaffiliated" shall refer to a
person or entity which is not an Affiliate.
"Future Generation Products" means any HDD product, other than
the Point5 Series or the Nordic II Series, that utilizes the Licensed
Technology or Additional Developments, and was developed or in development
prior to January 31, 1999.
"Licensed Products" means the Point5 Series, the Nordic II
Series and the Future Generation Products.
2
<PAGE> 3
"Licensed Technology" all technical information and intellectual
property of Kalok acquired by TEAC pursuant to the Order and the Related
Documents, including without limitation, patents, patent applications and
copyrights (and all extensions, continuations, continuations in part, divisions,
reexaminations and reissues thereof), trade secrets, inventions, source codes,
object codes, flow charts, processes, techniques, specifications, drawings,
parts layouts, parts lists, all technical information and other intellectual
property pertaining to Parts, circuitries, tooling and testing requirements,
know-how, manuals and other technical data and support documentation, whether or
not patentable or copyrightable and whether or not actually patented or
copyrighted.
"Licensed Trademarks" means all trademarks, trade names, trademark
registrations, and applications for registration of trademarks for the names
"Point5", "Kalok", "Nordic II Series" and variations thereof (including all
renewals and extensions thereof) and any other trademark rights or goodwill
associated therewith.
"Corporation Manufacturing Territory" means world-wide, except for the
following: Japan, Poland, the Czech Republic, Slovakia, Hungary, Romania, the
countries that constituted the former Yugoslavia and the countries that
constituted the former Soviet Union, and any new nation created by the merger
or separation of any of the above countries and all territories in the region
controlled by any of the above countries.
"Nordic II Series" means any HDD with a width of between 3.25 and 3.75
inches and a height of less than .40 (four-tenths) inches, and all Licensed
Technology pertaining principally thereto.
"Person" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Point5 Series" means the Kalok Point5 Series products consisting of
models P-3125, P-3250, P-3360 and P-3540, each having those specifications
attached hereto as Exhibit A, and each Accessory obtained by TEAC from Kalok
pursuant to the Order that is fully-developed and in commercial sale as of the
date hereof.
"Corporation Sales Territory" means world-wide, except for the
following: Japan, Poland, the Czech Republic, Slovakia, Hungary, Romania and
the countries that constituted the former Yugoslavia, and any new nation
created by the merger or separation of any of the above countries and all
territories in the region controlled by any of the above countries.
"Subsidiary" means any corporation, association or other business
entity of which securities or other ownership interests representing more than
fifty percent (50%) of the ordinary voting power are, at the time as of which
any determination is being made, owned or controlled by the Corporation or one
or more Subsidiaries of the Corporation or by the Corporation and one or more
Subsidiaries of the Corporation.
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"Tandon" means Mr. Jugi Tandon.
"TEAC Manufacturing Territory" means world-wide, except for the
following: India, North and South Korea, Poland, the Czech Republic, Slovakia,
Hungary, Romania, the countries that constituted the former Yugoslavia and the
countries that constituted the former Soviet Union, and any new nation created
by the merger or separation of any of the above countries and all territories
in the region controlled by any of the above countries.
"TEAC Sales Territory" means world-wide, except for the
following: India, Poland, the Czech Republic, Slovakia, Hungary, Romania and
the countries that constituted the former Yugoslavia, and any new nation
created by the merger or separation of any of the above countries and all
territories in the region controlled by any of the above countries.
"Voting Stock" of any Person means securities of any class or
classes of such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the directors of such Person.
2. Transfer of Licensed Technology.
2.1 Delivery by TEAC.
A. Licensed Technology and Additional Developments. As of the date
of this Agreement, TEAC will deliver to the Corporation copies or originals of
all of the Licensed Technology in its possession. From time to time during the
term of this Agreement in a reasonably prompt manner as, TEAC shall, at its
sole expense, deliver to the Corporation in written form, and such other useful
format and media as may be reasonably required for the manufacture and support
of the Licensed Products, all Licensed Technology and Additional Developments
that come into the possession of TEAC or any of its Affiliates not previously
so delivered.
B. Disclosure of Additional Developments. Without limiting the
foregoing, with respect to Additional Developments, TEAC shall at the time this
Agreement is executed and delivered and from time to time thereafter, but in no
event less frequently than quarterly, disclose to the Corporation and confer
with it as to all Additional Developments under consideration or in development
by or on behalf of TEAC or any of its Affiliates.
2.2 Delivery by the Corporation.
A. Additional Developments. From time to time during the term of
this Agreement in a reasonably prompt manner as, the Corporation shall, at its
sole expense, deliver to TEAC in written form, and such other useful format and
media as may be reasonably required for the manufacture and support of the
Licensed Products, all Additional Developments that come into the possession of
the Corporation or any of its Affiliates.
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B. Disclosure of Additional Developments. Without limiting the
foregoing, with respect to Additional Developments, the Corporation shall at
the time this Agreement is executed and delivered and from time to time
thereafter, but in no event less frequently than quarterly, disclose to TEAC
and confer with it as to all Additional Developments under consideration or in
development by or on behalf of the Corporation or any of its Affiliates.
2.3 Restricted Ancillary Technology. On February __, 1994, TEAC and the
Corporation entered into an escrow agreement (the "Escrow Agreement") with
___________________ (the "Escrow Agent"). In accordance with the terms of the
Escrow Agreement, TEAC deposited with the Escrow Agent all of the source codes
and object codes related to the Licensed Technology (the "Restricted Ancillary
Technology"). In addition, under the Escrow Agreement TEAC and the Corporation
agreed to deposit with the Escrow Agent from time to time all source codes and
object codes in their possession or in the possession of one of their
Affiliates related to Additional Developments.
2.4 Confidentiality.
A. TEAC and the Corporation each agree to undertake all reasonable
efforts to treat, and to cause each of its Affiliates, licensees and
sublicensees to treat, as confidential all proprietary information with respect
to the Licensed Technology and Additional Developments. Each of the parties
hereto acknowledge that another party hereto may find it necessary to disclose
general descriptions of proprietary information during the conduct of its
business to banks and other financial institutions contemplating the provision
of project financing to such party. In addition, each of the parties hereto
acknowledge that another party hereto may find it necessary to disclose
proprietary information in connection with the proper grant of sublicenses to
parties other than a party hereto. Under such circumstances, TEAC or the
Corporation, as the case may be, may make such information available to third
parties to the limited extent necessary for such third party to fulfill its
supply or other permitted purposes, provided that such party shall first obtain
from the recipients, a fully-executed confidentiality agreement which is at
least as restrictive as the confidentiality agreement contained herein;
provided, however, that the foregoing shall not restrict the Corporation's or
TEAC's right to provide technical information (other than the Restricted
Ancillary Technology) and test data that is reasonably requested by customers
in the ordinary course of business.
B. With respect to information not subject to Section 2.4.A above,
each of TEAC and the Corporation agree to undertake all reasonable efforts to
treat, and to cause each of its Affiliates to treat, as confidential all other
proprietary information of any party hereto obtained through its relationship
with another party hereto established hereunder or otherwise, and will not
disclose any such information to a third party or, subject to the provisions of
Section 3.7 below, otherwise use such information for its own purposes.
C. Neither TEAC nor the Corporation shall be bound by the provisions
of this Section 2.4 with respect to information which (a) was previously known
to the recipient at the time of disclosure; (b) is in the public domain at the
time of disclosure; (c) becomes a part of the public domain after the time of
disclosure, other than through disclosure by the
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recipient or some other third party who is under an agreement of
confidentiality with respect to the subject information or obtained the
information from the recipient; (d) is required to be disclosed by law or (e)
is disclosed by a third party not bound by any agreement of confidentiality
with respect to such information which third party did not obtain the
information from the recipient.
D. Each of TEAC and the Corporation shall take such action as
another party hereto may reasonably request from time to time to safeguard the
confidentiality of any information subject to the terms of this Section 2.4.
E. To the extent that United States Export Control Regulations, or
similar laws of any jurisdiction, are applicable, neither of TEAC nor the
Corporation shall, without having first fully complied with such regulations,
(i) knowingly transfer, directly or indirectly, any unpublished technical data
obtained or to be obtained from the other party hereto to a destination outside
the United States, or such other relevant jurisdiction, or (ii) knowingly ship,
directly or indirectly, any product produced using such unpublished technical
data to any destination outside the United States, or such other relevant
jurisdiction.
F. The obligations of TEAC and the Corporation under this Section
2.4 shall survive the expiration or earlier termination of all or any part of
this Agreement.
2.5 Support of Licensed Technology. From time to time under this
Agreement, each of the parties hereto shall provide the other parties hereto
with any support materials that they shall have on hand and which shall be
reasonably requested for the manufacture, of the Licensed Products as provided
for herein, including, without limitation, any manuals, reports, specifications
or drawings required by customers to use the Licensed Products in the
manufacture of their products. Each of the Corporation and TEAC shall also
allow the other access to each of their engineering staffs and will allow each
others engineers to visit each of their manufacturing, or research facilities,
for the purpose of providing or receiving support of the technology licensed by
each of them hereunder.
3. Licensing Matters.
3.1 Grant of License by TEAC. Subject to the terms of this
Agreement, TEAC hereby grants to the Corporation:
A. Exclusive Rights to Manufacture. The sole and exclusive right
and license to make the Licensed Products within India, North and South Korea
and the entire Asian Continent, subject only to TEAC's right to manufacture the
Licensed Products within the entire Asian Continent (as set forth in the
dictionary definition attached as Exhibit B hereto, but excluding the countries
that constitute the former Soviet Union), and to use the Licensed Technology and
any Additional Developments made by TEAC and/or its Affiliates in connection
therewith.
B. Nonexclusive Rights to Manufacture. The nonexclusive right and
license to manufacture the Licensed Products within the Corporation
Manufacturing Territory, and to
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use the Licensed Technology and any Additional Developments made by TEAC and/or
its Affiliates in connection therewith.
C. Exclusive Rights to Sell. The sole and exclusive right and
license to sell the Licensed Products within India, and to use the
Licensed Trademarks, the Licensed Technology and any Additional Developments
made by TEAC and/or its Affiliates in connection therewith.
D. Nonexclusive Rights to Sell. The nonexclusive right and license
to sell the Licensed Products within the Corporation Sales Territory and, to use
the Licensed Trademarks, the Licensed Technology and any Additional Developments
made by TEAC and/or its Affiliates in connection therewith.
E. Nonexclusive Rights to Use. The nonexclusive right to use the
Licensed Technology and Additional Developments made by TEAC and/or any of its
Affiliates within the Corporation Manufacturing Territory for the purpose of
making Additional Developments.
3.2 Grant of License to TEAC. Subject to the terms of this
Agreement the Corporation hereby grants to TEAC:
A. Exclusive Right to Manufacture. The sole and exclusive right
and license to use Additional Developments made by the Corporation and/or its
Affiliates for the purpose of manufacturing Licensed Products within Japan and
the entire Asian Continent (as set forth in the dictionary definition attached
as Exhibit B hereto, but excluding the countries that constitute the former
Soviet Union), subject only to the Corporation's right to manufacture the
Licensed Products within the entire Asian Continent (excluding the countries
that constitute the former Soviet Union).
B. Nonexclusive Rights to Manufacture. The nonexclusive right and
license to use Additional Developments made by the Corporation and/or its
Affiliates for the purpose of Licensed Products within the TEAC Manufacturing
Territory.
C. Exclusive Rights to Sell. The sole and exclusive right and
license to use Additional Developments made by the Corporation and/or its
Affiliates for the purpose of selling the Licensed Products within Japan.
D. Nonexclusive Rights to Sell. The nonexclusive right and
license to use Additional Developments made by the Corporation and/or its
Affiliates for the purpose of selling the Licensed Products within the TEAC
Sales Territory.
E. Nonexclusive Rights to Use. The nonexclusive right to use
Additional Developments made by the Corporation and/or any of its Affiliates
within the TEAC Manufacturing Territory for the purpose of making Additional
Developments.
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3.3 Sublicensing. The licenses granted in Sections 3.1 and 3.2 above
shall not include the right to sublicense to a third party, except (i) that
either party may sublicense such licenses in connection with the manufacturing
of Parts and Accessories for use in the manufacture or assembly of finished
goods by the primary licensee or the person described in Section 3.3(ii)
hereunder, (ii) that either party may sublicense their rights to manufacture or
assemble to a third party making products to such party's specifications and
for sale by such primary licensee and under the tradenames or trademarks of the
primary licensee hereunder, and (iii) the parties may sublicense selling rights
in their respective exclusive selling territories.
Further, the parties shall from time to time consider in good faith the
granting of additional sublicenses to other manufacturers for the purpose of
providing multiple sourcing requested by substantial customers of both of the
parties hereto.
3.4 The Corporation's Royalty Obligations to TEAC.
A. The Point5 Series and the Nordic II Series. All of the licenses
granted by TEAC to the Corporation in Section 3.1 above shall be [*]
with respect to the Point5 Series, the Nordic II Series and all Accessories
(with respect to Accessories, only those in existence on the date hereof).
B. Other Licensed Products. Subject to Section 3.4D below, the
Corporation shall pay TEAC royalties on all Future Generation Products as
follows:
(i) all such licenses are now [*] with respect to all
Future Generation Products sold within the [*] period, immediately
following the first commercial sale by the Corporation of each such Future
Generation Product (excepting Future Generation Products with a different form
factor than either the Point5 Series or the Nordic II Series (or Accessories
therefor) ("Other Form Factor Drives and Accessories") which shall be [*]
for only [*] after the first commercial sale by the Corporation of each such
Future Generation Product);
(ii) after such [*] period or such [*] period, as
applicable, if the Future Generation Product was developed by TEAC, then the
royalty shall be [*] of the sales price of such Future Generation
Product;
(iii) after such [*] period or such [*] period, as
applicable, if the Future Generation Product was developed by TEAC, but TEAC
has not developed in a commercially timely manner production tooling or
processes utilized in the development or production of such Future Generation
Product, then the royalty shall be [*] of the sales price of such Future
Generation Product; and
(iv) after such [*] period or such [*] period, as
applicable, if the Future Generation Product is a Joint Development, then the
royalty shall be [*] for each such Future Generation Product sold by the
Corporation.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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3.5 TEAC's Royalty Obligations to the Corporation.
A. The Nordic II Series. All of the licenses granted by the
Corporation in Section 3.2 above shall be [*] with respect Additional
Developments on the Nordic II Series.
B. Other Licensed Products. TEAC shall pay the Corporation
royalties on all Future Generation Products as follows:
(i) all such licenses shall be [*] with respect to all
Future Generation Products sold within the [*] period, immediately
following the first commercial sale by TEAC of such Future Generation Product
(except for Other Form Factor Drives and Accessories, which shall be [*]
for [*] period following the first commercial sale of each such Future
Generation Product);
(ii) after such [*] period or such [*] period, as
applicable, if the Future Generation Product was developed solely by the
Corporation, then the royalty shall be [*] of the sales price of such Future
Generation Product;
(iii) after such [*] period or such [*] period, as
applicable, if the Future Generation Product was developed by the Corporation,
but the Corporation has not developed in a commercially timely manner
production tooling or processes utilized in the development or production of
such Future Generation Product, then the royalty shall be [*] of the sales
price of such Future Generation Product; and
(iv) after such [*] period or such [*] period, as
applicable, if the Future Generation Product is a Joint Development, then the
royalty shall be [*] for each such Future Generation Product sold by the
Corporation.
3.6 Calculation of Royalties. Each of TEAC and the Corporation shall
be responsible for only one royalty on each Future Generation Product sold or
otherwise provided to customers irrespective of the number of patents, patent
claims, copyrights, trademarks, trade names or other types of Licensed
Technology and Additional Developments that may pertain to such Future
Generation Product. In addition, royalties paid on Future Generation Products
not accepted by the customer and returned to the seller thereof will be
deducted from future royalties; provided, that if such returned Future
Generation Products are resold, then royalties will be paid thereon.
Notwithstanding anything in this Agreement to the contrary, royalties will not
be payable on Future Generation Products manufactured by TEAC and sold by it to
the Corporation or manufactured by the Corporation and sold by it to TEAC.
Future Generation Products internally used by TEAC or the Corporation and/or
their respective Affiliates for their own purpose shall be excluded from royalty
payment obligations hereunder. The "sales price" of a Future Generation Product
shall be FOB seller, net of discounts and allowances, and, with respect to sales
to Affiliates, shall be deemed to equal the lowest "sales price" that would have
been paid by an independent third party on an arms-length basis for such a
Future Generation Product. All royalties payable in full, regardless of
applicable withholding taxes.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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3.7 Payment of Royalties. Royalties shall be based on sales made
in any given calendar quarter as reflected in TEAC's or the Corporation's
invoices to its customers, as the case may be, in such calendar quarter. All
royalty payments for each calendar quarter shall be made within thirty (30)
days subsequent to the end of such quarter, and shall be subject to any
applicable withholding tax requirements. Each of TEAC and the Corporation
agrees to maintain accurate and complete records showing all Future Generation
Products sold by it and to keep such records for a period of three years after
the date of sale. Such records will include all information necessary to verify
the total amount and computation of royalties due, and will be open to
inspection by TEAC or the Corporation, as the case may be, or their respective
representatives during reasonable business hours, at their sole expense.
3.8 Proprietary Rights. Subject to the provisions of this
Agreement and any other written agreement between the parties hereto entered
into after the date hereof:
A. TEAC's Rights to the Licensed Technology. Subject to the other
express terms of this Agreement, including Section 3.8.D below, TEAC shall
retain all title and other rights (including copyrights, patent rights, trade
secret rights and other proprietary rights) to the Licensed Technology and the
Licensed Trademarks.
B. Rights to TEAC Additional Developments. Subject to Section
3.8.D below, TEAC shall retain all title and other rights (including
copyrights, patent rights, trade secret rights and other proprietary rights) to:
(i) the information, design and technology of property
(including the Licensed Products and Additional Developments) and all
manufacturing processes with respect thereto developed by TEAC independently
from the Corporation, and all modifications, improvements and derivative works
of the foregoing made by TEAC; and
(ii) all service marks, trademarks, tradenames, and any
other designations with respect to TEAC products.
C. Rights to the Corporation's Additional Developments. Subject
to Section 3.8.D below, the Corporation shall retain all title and other rights
(including copyrights, patent rights, trade secret rights and other proprietary
rights) to:
(i) the information, design and technology of property
(including the Licensed Products and Additional Developments) and all
manufacturing processes with respect thereto developed by the Corporation
independently from TEAC, and all modifications, improvements and derivative
works of the foregoing made by each of the Corporation; and
(ii) all service marks, trademarks, tradenames, and any
other designations with respect to the Corporation's products.
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D. Joint Developments. From time to time during the term of this
Agreement the parties may agree in writing to develop products through a joint
project between each other using the technology owned and/or engineers employed
by each of them (a "Joint Development") to develop Future Generation Products.
Any technology or other intellectual property developed under a Joint
Development shall be owned jointly by the parties, and the parties mutually
shall agree in writing upon the method(s) for commercial exploitation of such
technology. Royalties on Joint Developments shall be as set forth in Sections
3.4(iv) or 3.5(iv), as the case may be. In addition, any patents or copyrights
resulting from any such Joint Development shall be applied for and owned
jointly by the parties. The individual expenses incurred by either party in
connection with any Joint Development (e.g. engineering, development,
prototypes, testing, travel, lodging, allowances and other expenses incurred in
connection with the project) shall be borne by the party incurring the expense.
Notwithstanding anything to the contrary contained herein, neither party shall
transfer or license any of its rights in or to any technology or other
intellectual property developed under a Joint Development without the written
consent of the other party, except pursuant to sublicenses permitted under
Section 3.3.
E. Markings. All Licensed Products shall bear such markings with
respect to patents (or patents pending) and/or trademarks, as shall be
reasonably requested by the licensing party to comply with applicable law or
otherwise required to protect its proprietary rights.
3.9 Defense of Infringement Claims.
A. Notification. If and as soon as any party hereto becomes aware
of any claim of infringement by any third party against any party hereto
concerning or affecting any rights or properties licensed under this Agreement
within the scope of the licenses granted in Sections 3.1 and 3.2 above, it
shall inform the other in writing of all the details thereof.
B. Control of and Co-operation in Defense. If any claim or action
described in Section 3.9.A above results in the filing by a third party of a
formal complaint, answer or other request for judicial or administrative relief
or action (a "Suit"), then each party hereto shall assist the other parties
hereto in diligently defending such suit. The control of the defense of a Suit
relating to the Licensed Technology shall rest, at TEAC's option, with TEAC and
all costs incurred in such a Suit by either party shall be borne by the party
incurring such cost. The defense of all other Suits shall be controlled by the
party licensing the subject technology, which party shall defend such suit on
its own behalf and on behalf of the licensee and, except as set forth in
Section 3.9.C below, shall bear the costs of such defense.
C. Representation in Defense. Each party hereto shall have the
right, in any Suit defended by another party hereto, to be represented at its
own expense by counsel of its own selection to the extent of having full access
to all information and the opportunity to be heard.
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3.10 Prosecution of Infringement Claims.
A. Notification. If any party hereto becomes aware of an
infringement or potential infringement of any of the Licensed Technology,
Additional Developments or Licensed Trademarks by third parties then each shall
inform the other in writing of all details available (an "Infringement
Notice").
B. Right to Prosecute. Upon receipt of an Infringement Notice or
otherwise learning of an infringement or potential infringement of the Licensed
Technology, Additional Developments or Licensed Trademarks, the party that owns
the technology or other intellectual property rights that are the subject of
such infringement shall promptly either (a) obtain a discontinuance of said
infringement; or (b) bring suit against the third party. Before any party
hereto commences any such infringement action, it shall give careful
consideration to the views of the other parties hereto and to any potential
effects of the litigation on such other parties or itself. The costs and
expenses of such suit and all recoveries therefrom shall be the responsibility
of, and for the party bringing the suit.
C. Participation in Prosecution. Whenever any suit for infringement
is contemplated or brought against any third party by a party hereto as
provided in Section 3.10.B above, such party hereto shall immediately notify
the other parties hereto of any intention of any such suit, and shall provide
such other parties with copies of all pleadings, formal papers, and related
documents and materials prior to filing of such suit. At any time, such other
party may notify the prosecuting party that it elects to participate in such
suit. Regardless of a party's participation in the prosecution of such
infringement, the prosecuting party shall not settle such suit in any manner
which would impair any of the rights hereunder of any other party hereto
without such party's prior written consent.
D. Representation in Prosecution. Any party hereto shall have the
right, in any suit brought by another party hereto pursuant to Section 3.10.B
above, to be represented at its own expense by counsel of its own selection to
the extent of having full access to all information and the opportunity to be
heard.
E. Assumption of Prosecution. If at any time hereafter a party (the
"Delivering Party") shall deliver an Infringement Notice to another party (the
"Other Party") who fails or is unable to bring suit against such infringing
third party or obtain a discontinuance of such infringing operations as
provided in Section 3.10.B above within six (6) months of delivery of the
Infringement Notice, then the Delivering Party may, at its election, bring suit
in its own name against such infringer or, if required by the law of the forum,
in the name of the Other Party or joining such Other Party as a party
plaintiff. Should the Delivering Party bring suit in its own name, the
Delivering Party is hereby irrevocably granted the power to execute such legal
papers necessary and take such other action required for the prosecution of
such suit pursuant to the power of attorney granted by each party hereto to the
other party hereto and executed and delivered contemporaneously herewith. The
Other Party further agrees to execute such legal papers necessary and take such
other action as may be reasonably required for the prosecution of such suit as
may be requested by the
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Delivering Party. Such other party shall also have all rights described in
Sections 3.10.C and 3.10.D above.
3.11 Prosecution of Applications.
A. Licensed Technology and Licensed Trademarks. As between the
parties hereto, TEAC agrees to take responsibility, including financial
responsibility, for the preparation, filing and prosecution of any and all
United States and foreign patent, trademark and copyright applications covering
the Licensed Technology or the Licensed Trademarks and shall furnish to the
Corporation copies of all communications and correspondence between TEAC and
any patent, trademark or copyright office in which such a patent copyright
application has been filed.
B. Additional Developments. As between the parties hereto, each
party agrees to take responsibility, including financial responsibility, for
the preparation, filing and prosecution of any and all United States and
foreign patent, trademark and copyright applications covering the Additional
Developments made by such party or its Affiliates and shall furnish to the
Corporation copies of all communications and correspondence between any party
and any patent, trademark or copyright office in which such a patent copyright
application has been filed.
C. Failure to Prosecute Claim. If any party hereto decides to
abandon or not to initiate any United States or foreign patent, trademark or
copyright application covering the Licensed Technology, the Licensed Trademarks
or Additional Developments in the countries listed on Exhibit C before
exhausting all permissible applications or petitions for rehearing or review,
or appeals by a superior tribunal, then such party shall inform the other party
of such decision no less than thirty (30) days prior to the expiration of the
time permitted for such applications for petitions for rehearing or review, or
appeals.
D. Power to Prosecute. If (a) a party hereto decides to abandon
any United States or foreign patent, trademark or copyright application
covering the Licensed Technology, the Licensed Trademarks or the Additional
Developments as described in Sections 3.11.A or Section 3.11.B above or
otherwise fails or is unable to prosecute such patent, trademark or copyright
application or acts as described in Section 3.11.A or Section 3.11.B above or
(b) if such party fails to prepare, file or prosecute any patent, trademark or
copyright application in any jurisdiction, then the other party shall have the
right, at its own option and expense, to initiate or continue the prosecution,
including the right to file applications or continuation, continuation-in-part,
and/or divisional applications, of such applications, which such party has
decided to abandon or has otherwise failed or been unable to prosecute. Each
party hereto is hereby irrevocably granted the power to prosecute such patent,
trademark or copyright applications and to prepare and file such legal papers
necessary and take such other action required for the prosecution of such
applications pursuant to the patent power of attorney granted to by each party
hereto and executed and delivered to each other as of the date hereof. Each
party hereto further agrees to give the other party its full cooperation and
assistance in preparing, filing and prosecuting such applications.
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4. LIMITATION OF LIABILITY. NOTWITHSTANDING ANY OTHER TERM OF
THIS AGREEMENT, NEITHER PARTY HEREUNDER NOR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AFFILIATES, OR AGENTS SHALL BE LIABLE TO THE OTHER
PARTY HEREUNDER OR TO ANY THIRD PARTY FOR ANY LOSS OF USE, LOSS OF
GOODWILL, INTERRUPTION OF BUSINESS, OR FOR INDIRECT, INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES (INCLUDING LOST REVENUES OR PROFITS) OR SIMILAR
DAMAGES, WHETHER BASED ON TORT (INCLUDING WITHOUT LIMITATION,
NEGLIGENCE OR STRICT LIABILITY), CONTRACT, OR OTHER LEGAL OR EQUITABLE
GROUNDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OR HAD REASON TO KNOW OF
THE POSSIBILITY OF SUCH DAMAGES.
5. TERM AND TERMINATION.
5.1 LICENSE PERPETUAL. Except as otherwise provided in Section 5.2
below, the term of this Agreement and the licenses hereunder shall be perpetual.
5.2 TERMINATION OF RIGHTS. If any party hereto shall commit a
material breach of any of the terms of the Order, any of the Related Documents
to which all parties hereto are also parties thereto or this Agreement, and
such breach (to the extent it can be cured) continues for seventy-five (75)
days after receipt of written notice specifying such breach in reasonable
detail, then any non-breaching party shall have the right to terminate all of
the breaching party's rights hereunder by delivery of written notice of such
termination. Notwithstanding the foregoing, (i) any such termination shall have
no effect on the breaching party's duties and obligations hereunder, which
shall continue past such termination in full force and effect, (ii) if any
party initiates arbitration under Section 24 within thirty (30) days of its
notice of the breach hereunder, this license shall not terminate to such person
unless the arbitrator determines that such breach did in fact occur and was
material (regardless of any cure after such seventy-five (75) day period) and
(iii) an inadvertent breach or one caused by a third party outside the control
or not an Affiliate of a party hereto shall not be a material breach unless (a)
it is remediable by money damages and the party hereto fails to do so after
court order or arbitration hereunder, or (b) such breach may be cured by the
party hereto and it fails to do so within the time provided therefor herein.
5.3 BANKRUPTCY, ETC. A party's rights (but not its obligations)
under this Agreement shall terminate automatically if (a) any party attempts to
assign this Agreement, except under circumstances permitted hereunder, or
hereto suspends business, or files a voluntary petition pursuant to or
purporting to be pursuant to any reorganization or insolvency law of any
jurisdiction, or an involuntary petition pursuant to or purporting to be
pursuant to any reorganization or insolvency law of any jurisdiction is filed
and is not dismissed within sixty (60) days, or any party makes an assignment
for the benefit of creditors, or applies for or consents to the appointment of
a receiver or trustee of a substantial part of its property or a receiver or
trustee of a substantial part of its property is otherwise appointed and is not
removed within sixty (60) days or (b) "control" of such party shall be obtained
by an entity or person engaged (or whose affiliate is engaged), in the
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manufacture by itself or its affiliates of hard disk drives (excluding
affiliates of the parties hereto on the date hereof) other than following a
public offering under the Securities Act of 1933 of not less than 30% of the
Corporation's common stock (an "IPO").
6. Force Majeure and Damage Exclusions. Notwithstanding any other
provision of this Agreement:
A. Force Majeure. Either party shall be excused from any failure or
delay in performance resulting directly or indirectly from inability to obtain
parts or other necessary materials from usual sources of supply, transit
failure or delay, labor disputes, governmental orders or restrictions, fire,
flood or other acts of nature, accident, war, civil disturbance, or any other
causes beyond such party's reasonable control. A party affected by a force
majeure shall resume performance promptly upon cessation of same.
B. Damage Exclusions. Neither party shall be liable to the other party
for any incidental, indirect, consequential or special damages in connection
with any matters relating directly or indirectly to this Agreement, or
otherwise relating to the business relationship of the parties, even if such
party has been advised of the possibility of such damages by the other party
and even if such damages have been asserted against a party hereto by a third
party.
7. Warranties and Representations: Release.
A. Of TEAC. TEAC represents and warrants that (i) TEAC is a corporation
validly existing, and in good standing under the laws of Japan and has full
power and authority to carry on its business as it is now being conducted and
to own or lease the properties and assets it now owns or leases, and is duly
qualified to do business, and is in good standing as a foreign corporation in
each state in the United States in which TEAC's activities require such
qualification, (ii) TEAC has all necessary right, power and authority to enter
into this Agreement (iii) neither the execution and delivery of this Agreement
by TEAC nor its performance hereunder will conflict with or result in the
breach of any of the terms or conditions of or constitute a default under the
charter documents of TEAC or of any contract, agreement, commitment, indenture,
mortgage, note, bond, license or other instrument or obligation to which it is
a party or by which it or any of its property or assets may be bound, (iv) this
Agreement has been duly and validly executed by TEAC and constitutes the valid
and binding obligation of TEAC enforceable in accordance with its terms and (v)
except as set forth on Exhibit D attached hereto, no consent, approval or
authorization of, or declaration, filing or registration with, any foreign,
federal, state or local governmental or regulatory authority, or any other
party, is required to be made by TEAC in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SPECIFICALLY PROVIDED IN
THIS AGREEMENT ALL OF THE TECHNOLOGY IS PROVIDED TO THE CORPORATION BY TEAC
HEREUNDER "AS IS" AND TEAC EXPRESSLY DISCLAIMS ANY AND ALL OTHER WARRANTIES,
INCLUDING ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
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<PAGE> 16
B. Of The Corporation. The Corporation represents and warrants that (i)
the Corporation is a corporation validly existing, and in good standing under
the laws of the State of California and has full power and authority to carry
on its business as it is now being conducted and to own or lease the properties
and assets it now owns or leases, and is duly qualified to do business, and is
in good standing as a foreign corporation in each state in the United States in
which the Corporation's activities require such qualification, (ii) the
Corporation has all necessary right, power and authority to enter into this
Agreement (iii) neither the execution and delivery of this Agreement by the
Corporation nor its performance hereunder will conflict with or result in the
breach of any of the terms or conditions of or constitute a default under the
charter documents of the Corporation or of any contract, agreement, commitment,
indenture, mortgage, note, bond, license or other instrument or obligation to
which it is a party or by which it or any of its property or assets may be
bound, (iv) this Agreement has been duly and validly executed by the
Corporation and constitutes the valid and binding obligation of the Corporation
enforceable in accordance with its terms and (e) except as set forth on Exhibit
E attached hereto, no consent, approval or authorization of, or declaration,
filing or registration with, any foreign, federal, state or local governmental
or regulatory authority, or any other party, is required to be made by the
Corporation in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SPECIFICALLY PROVIDED IN THE AGREEMENT ALL OF
THE ADDITIONAL DEVELOPMENTS IS PROVIDED TO TEAC BY THE CORPORATION HEREUNDER
"AS IS" AND THE CORPORATION EXPRESSLY DISCLAIMS ANY AND ALL OTHER WARRANTIES,
INCLUDING ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
C. The Corporation, on behalf of itself, Tandon and all of their now or
hereafter existing Affiliates (the "First Releasing Parties") grants to TEAC
and any of its licensees or product purchasers ("TEAC Users") immunity from any
infringement action by the First Releasing Parties with respect to the use by
TEAC or the TEAC Users of the Licensed Technology or Licensed Products and
hereby covenants, on behalf of itself and the other First Releasing Parties,
not to sue TEAC or the TEAC Users with respect thereto.
D. TEAC, on behalf of itself and its now or hereafter existing
Affiliates (the "Second Releasing Parties") grants to TEAC and any of its
licensees or purchasers ("Corporation Users") immunity from any infringement
action by those and Releasing Party with regard to the use by the Corporation
or the Corporation Users of the Licensed Technology or Licensed Products and
hereby covenants on behalf of itself and the other Second Releasing Parties,
not to sue the Corporation or the Corporation Users with respect thereto.
8. Waiver. The waiver by either party of any of its rights or any
breaches of the other party under this Agreement in a particular instance shall
not serve as a waiver of the same or different rights or breaches in subsequent
instances. All remedies, rights, undertakings and obligations hereunder shall
be cumulative, and none shall operate as a limitation of any other.
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<PAGE> 17
9. Section Headings and Language Interpretations: Business Days. As used
herein, "business day" shall mean each day other than Saturday, Sunday and any
day on which banks are nationally required to be closed in the United States of
America or Japan, or any other business holiday for either party of which it
has advised the other party in writing not less than 45 days in advance. The
descriptive headings in this Agreement are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter genders shall
include all genders, the singular shall include the plural and vice versa and
shall refer solely to the parties signatory thereto unless otherwise
specifically provided. The use of the word "including" in this Agreement shall
be by way of example rather than by limitation.
10. Notices. All notices, demands, consents, requests, approvals, and other
communications required or permitted hereunder shall be in writing and shall be
deemed effective only upon delivery (whether receipt is accepted or refused) at
the addresses set forth below (or at such other addresses within the United
States of America as shall be given in writing by any party to the others in
accordance with this Section 10. Notices may be delivered by hand, United
States registered or certified mail, return receipt requested, bonded private
courier service or by telecopier (followed immediately in writing by bonded
private courier service).
To the Corporation: JT Storage, Inc.
2125 Madera Road
Simi Valley, California 93065
Attention: Board of Directors
Telecopy Number: (805) 582-3227
with a copy to: Riordan & McKenzie
5743 Corsa Avenue, Suite 116
West Lake Village, California 91362
Attention: Lawrence Weeks
Telecopy Number: (818) 706-2956
To TEAC: TEAC Corporation
3-7-3 Nakacho, Musashino
Tokyo, Japan
Attention: General Manager,
Disk Drive Products Division
Telecopy Number: 0422-52-3771
with copies to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Mark D. Gerstein
Telecopy Number: (312) 902-1061
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<PAGE> 18
and
TEAC America, Inc.
7733 Montebello Road
Montebello, California 90640
Attention: Executive Vice President
Telecopy Number: (213) 727-7688
11. Assignment. Except as specifically provided herein, no party hereto may
assign any of its rights or delegate any of its obligations hereunder without
the prior written consent of the other parties, which consent shall not be
withheld unreasonably; provided that TEAC may assign its rights and obligations
hereunder to any party purchasing all of the Licensed Technology, without the
consent of the Corporation, other than as prohibited by the Order and provided
further the Corporation's rights hereunder will succeed to a successor by
merger or acquisition to the Corporation following an IPO.
12. Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of California, without giving effect to provisions thereof
regarding conflict of laws.
14. Controlling Terms/Entire Agreement/Amendment. This Agreement, those
documents expressly referred to herein and other documents of even date
herewith embody the complete agreement and understanding among the parties and
supersede and preempt any prior understandings, agreements or representations
by or among the parties, written or oral, which may have related to the subject
matter hereof in any way. No provisions in the purchase orders,
acknowledgements or other business forms of either party which are different
from or in addition to the applicable terms set forth in this Agreement shall be
of any force or effect whatsoever unless it is acknowledged to in writing by the
other party expressly stating that each document supersedes this Agreement as
follows: "Notwithstanding any term of the License Agreement by and between TEAC
Corporation and ___________________ dated February ____, 1994". Any
provision of this Agreement may be amended only with the prior written consent
of all of the parties hereto.
15. Multiple Counterparts. This Agreement may be executed on separate
counterparts transmitted by telecopy, each of which is deemed to be an original
and all of which taken together constitute one and the same agreement.
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<PAGE> 19
16. Relationship of the Parties. It is not the intent of the parties to create
a partnership or joint venture or to assume partnership liability or
responsibility by entering into this Agreement. Each party hereto shall be
deemed an independent contractor with respect to the other party and neither
party hereto shall have any right or authority to assume or create any
obligations on behalf of the other party hereto or to make any representations
on such other party's behalf. Accordingly, the obligations of the parties with
respect to the matters addressed herein shall be limited to those specifically
set forth in this Agreement or other written agreements between the parties.
17. Public Disclosure. Neither party hereto shall make any public release of
information regarding the terms of this Agreement relating to the royalties due
hereunder unless (i) such party has obtained the written consent of the other
party regarding the form, content and timing of such disclosure or (ii) such
disclosure is required by applicable law; provided that in the event of any
disclosure mandated by law, each party shall consult with the other as to the
content of such disclosure.
18. Right of Set-off. If in the good faith belief of one of the parties hereto
(the "Injured Party"), it is entitled to indemnification, reimbursement or
payment hereunder, in addition to any other remedies which it may have
available to it, the Injured Party shall have the right to set off the entire
amount thereof against any amounts which the Injured Party shall owe to the
other party from time to time thereafter for any reason, including any
royalties due or which become due hereunder.
19. No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction will be applied against any party hereto.
20. Remedies. Each of the parties confirms that damages at law may be an
inadequate remedy for a breach or threatened breach of this Agreement and
agrees that, in the event of a breach or threatened breach of any provisions
hereof, the respective rights and obligations hereunder shall be enforceable by
specific performance, injunction or other equitable remedy, but nothing herein
contained is intended to, nor shall it limit or affect, any rights at law or by
statute or otherwise of any party aggrieved as against any other party for
breach or threatened breach of any provision hereof, it being the intention by
this section to make clear the agreement of the parties that the respective
rights and obligations of the parties shall be enforceable in equity as well as
at law or otherwise.
21. Preamble; Preliminary Recitals. The Preliminary Recitals set forth in the
Preamble hereto are hereby incorporated and made part of this Agreement.
22. Consent to Jurisdiction and Service of Process. Each of the Corporation and
TEAC hereby consent to the jurisdiction of any state or federal court located
within the County of Los Angeles, State of California and irrevocably agree
that all actions or proceedings arising out of or relating to this Agreement
shall be litigated in such courts. Each of the parties hereto accept for
itself, himself or herself, as the case may be, and in connection with its, his
or her properties, generally and unconditionally, the nonexclusive jurisdiction
of the
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<PAGE> 20
aforesaid courts and waives any defense of forum non conveniens, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Each of the parties hereto designate and appoint CT
Corporation System and such other persons as may hereinafter be selected by
them who irrevocably agree in writing to so serve as agent to receive on their
behalf service of all process in any such proceedings in any such court, such
service being hereby acknowledged by each such party to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to each such party hereto as provided herein, except
that unless otherwise provided by applicable law, any failure to mail such copy
shall not affect the validity of service of process. If any agent appointed by
a party hereto refuses to accept service, such party hereby agrees that service
upon it, him or her, as the case may be, by mail shall constitute sufficient
notice. Nothing herein shall affect the right of any party hereto to serve
process in any other manner permitted by law.
23. WAIVER OF JURY TRIAL. EACH OF THE CORPORATION AND TEAC HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED HEREBY. EACH OF THE CORPORATION AND TEAC ALSO WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OTHER PARTY. 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 AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. EACH OF THE CORPORATION AND TEAC 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. EACH OF THE
CORPORATION AND TEAC FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER WITH ITS, HIS OR HER, AS THE CASE MAY BE, LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS, HIS OR HER, AS THE CASE MAY BE, 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 AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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<PAGE> 21
24. Arbitration.
(i) If any controversy or claim between the parties hereto arises out
of this Agreement or any document, instrument or agreement executed and
delivered pursuant hereto, such disagreement or dispute may, at the election of
either party prior to the filing by either party an action in a court of proper
jurisdiction pertaining to such claim, be submitted to binding arbitration in
Los Angeles, California, under the Commercial Arbitration Rules of the American
Arbitration Association; provided that any matter provided for in this
Agreement to be mutually agreed to, negotiated or otherwise discussed between
the parties shall be subject to arbitration hereunder only if specifically
provided in this Agreement.
(ii) One arbitrator shall be appointed under the Commercial
Arbitration Rules of the American Arbitration Association, who shall be a
business person with at least five years experience in the disk drive industry;
provided, however, that if any disagreement arises concerning specialized
matters such as intellectual property rights, product design or computer
engineering, market conditions or importing/exporting regulations, then the
arbitrator shall also have an expertise in such matters. As soon as the panel
has been convened, a hearing date shall be set within 45 days thereafter.
Written submittals shall be presented and exchanged by both parties 15 days
before the hearing date, including reports prepared by experts upon whom either
party intends to rely. At such time the parties shall exchange copies of all
documentary evidence upon which they will rely at the arbitration hearing and a
list of the witnesses whom they intend to call to testify at the hearing. Each
party shall also make its respective experts available for deposition by the
other party prior to the hearing date. The arbitrator shall make its award as
promptly as practicable after conclusion of the hearing.
(iii) The arbitrator shall not be bound by the rules of evidence or
civil procedure, but rather may consider such writings and oral presentations
as reasonable businessmen would use in the conduct of their day-to-day affairs,
and may require the parties to submit some or all of their presentations orally
or in written form as the arbitrators may deem appropriate. It is in the
intention of the parties to limit live testimony and cross-examination to the
extent necessary to insure a fair hearing to the parties on the matters
submitted to arbitration, and to provide neither party more than ten business
days to present its position. The parties have included the foregoing
provisions limiting the scope and extent of the arbitration with the intention
of providing for prompt, economic and fair resolution of any dispute submitted
to arbitration.
(iv) The arbitrator shall have the discretion to award the costs of
arbitration, arbitrators' fees and the respective attorneys' fees of each party
between the parties as they see fit. Judgment upon the award entered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitrator shall make its award in accordance with applicable law and based on
the evidence presented by the parties, and at the request of either party at
the state of the arbitration shall include in its award findings of fact and
conclusions of law both in law and equity which would be available in a court
having
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<PAGE> 22
jurisdiction over the parties and over the subject matter of the dispute. Such
powers shall include, but not be limited to, the power to require specific
performance.
(v) The arbitration agreement set forth herein shall not limit a court
from granting a temporary restraining order or preliminary injunction in order
to preserve the status quo of the parties pending arbitration. Further, the
arbitrator shall have power to enter such orders by way of interim award, and
they shall be enforceable in court.
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<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
THE CORPORATION:
JT STORAGE, INC.
By: /s/
-----------------------------
A duly authorized signatory
TEAC:
TEAC CORPORATION
By:
----------------------------
A duly authorized signatory
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
THE CORPORATION:
JT STORAGE, INC.
By:
-----------------------------
A duly authorized signatory
TEAC:
TEAC CORPORATION
By: /s/
----------------------------
A duly authorized signatory
24
<PAGE> 25
AMENDMENT AND CONSENT
This Amendment and Consent (the "Amendment") is made and entered into as of
this 3rd day of February, 1995, by and between TEAC Corporation, a corporation
organized and existing under the laws of Japan, having its principal place of
business at 3-7-3 Naka-cho, Musashino, Tokyo, Japan ("TEAC"), and JT Storage,
Inc., a corporation organized and existing under the laws of the State of
Delaware, U.S.A., having its principal place of business at 2125 Madera Road,
Simi Valley, California 93065 (the "Corporation").
WHEREAS, on February 4, 1994 an Agreed Order Compromising Controversies
(the "Order") was entered into in the United States Bankruptcy Court For the
Northern District of California with respect to case No. 93-54027MM pursuant to
which TEAC obtained certain technology and other intellectual property and
certain other assets of Kalok Corporation, and licensed certain of said
technology and intellectual property to the Corporation pursuant to a License
Agreement attached to the Order as Exhibit A (the "License Agreement"); and
WHEREAS, Section F of the Order prohibits the sublicensing or transfer of
the IP Assets to certain parties, including Western Digital Corporation ("WDC").
WHEREAS, TEAC and the Corporation deem that it is in their mutual best
interest to amend the License Agreement, and to consent to certain transactions
related thereto, upon the terms and conditions set forth in this Amendment.
WHEREAS, all capitalized terms not otherwise defined herein shall have the
meaning given such term in the License Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and in the Order and the License Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. AMENDMENT OF LICENSE AGREEMENT. The License Agreement is hereby
amended as follows:
1.1 Section 1, the definition of "Nordic II Series", is amended to delete
the number and words ".40 (four-tenths)" appearing between the words "than" and
"inches" and to insert the number and words ".50 (five tenths)" between the
words "than" and "inches".
1.1A A new Section 2.1C will be added and will read in its entirety as
follows:
"C. Certain WDC Additional Developments. Notwithstanding the foregoing,
TEAC shall not disclose to the Corporation any Additional Developments which may
be delivered by WDC to TEAC after [*] , under the WDC License Agreement
(as defined hereunder)."
1.2 Section 3.1A is amended to add the phrase "India, North and South
Korea and" between the words "within" and "the" at the end of the third line of
said section. Section 3.1B
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 26
is amended to add the phrase "Japan and" between the words "within" and "the" in
the second line of said Section. Section 3.1C is amended to add the phrase
",subject only to TEAC's right to sell Licensed Products in India after January
1, 1995" after the word "India" in the second line of said section. Section
3.1D is amended to add the phrase "and, after January 1, 1995, in Japan" after
the word "Territory" in the second line of said section.
1.3 Section 3.2A is amended to add the phrase "Japan and" between the
words "within" and "the" in the sixth line of said section. Section 3.2C is
amended to add the phrase ",subject only to the Corporation's right to sell
Licensed Products in Japan after January 1, 1995" after the word "Japan" in the
last line of said section. Section 3.2D is amended to add the phrase "and, after
January 1, 1995, in India" after the word "Territory" in the last line of said
section.
1.4 The first paragraph of Section 3.3 of the Agreement is amended to
delete the text ",and (iii) the parties may sublicense selling rights in the
respective exclusive selling territories", and to insert before the text "(ii)",
the word "and" in the fifth line of said paragraph. The second paragraph of
Section 3.3 is amended to add the following phrase at the end of such paragraph:
", but only for sale of products under the trade names or trademarks of the
primary licensee hereunder."
1.5 Section 3.4A is amended to add the phrase "Subject to Sections 3.4C
and 3.4D below, all" in substitution of the first word of said section. Section
3.4B is amended to add the phrase "Subject to Section 3.4D below, the" in
substitution of the first word of said section.
1.6 Section 3.4B(iii) is amended to delete the phrase "pre-" in the
third line of said section.
1.7 A new Section 3.4C will be added and will read in its entirety as
follows:
"C. TEAC Exit of HDD Industry. If TEAC shall cease (i) all sales of
Licensed Products, (ii) all production or subcontracting production of
Licensed Products and (iii) the purchase of Licensed Products from the
Corporation and WDC, then during the [*] period following the
last of such events, the Corporation shall pay TEAC a royalty of [*]
per Nordic II Series HDD sold by the Corporation outside of Japan.
Notwithstanding anything to the contrary contained herein, this royalty
shall cease at such time, if any, as the fair market value of TEAC's
investment in the Corporation shall equal or exceed [*] (subject
to pro rata adjustment to the extent TEAC disposes of such investment)
for a period of twelve consecutive months."
1.8 A new Section 3.4D will be added and will read in its entirety
as follows:
"D" Sales in Japan. Notwithstanding anything to the contrary contained
herein, the Corporation shall pay TEAC a royalty as follows: From the
date of [*] , up until the earlier of an [*]
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
-2-
<PAGE> 27
[*] or [*] (the "Initial Term") the Corporation shall pay TEAC the
greater of (i) [*] each three months during the Initial Term (provided
that this clause "(i)" shall only be applicable for periods after
[*] , or (ii) the product of [*] times the number of HDD or each
HDD in an accessory utilizing the Licensed Technology ("Licensed
HDD's") sold by the Corporation in Japan each [*] during the Initial
Term. Subsequent to the Initial Term and up through [*] , the
Corporation shall pay TEAC the greater of (i) [*] each [*] or (ii)
the product of [*] times the number of HDD or Licensed HDD's sold
during each three-month period. In the event that an IPO occurs prior
to [*] the Corporation shall pay TEAC, with respect to the
[*] period during which the IPO occurs, the greater of (i) an
amount equal to [*] in such [*] times [*] , or (ii) the number
of HDD or Licensed HDD's sold during the period of time within such
[*] period prior to the [*] times [*] . All amounts owed by the
Corporation to TEAC under this Section 3.4(D) shall be paid no later
than thirty (30) days after the three-month period in which such
payment is due."
1.8 Section 3.5B(iii) is amended to delete the word "pre-" in the third
line of said section. Section 3.5B(iv) is amended to delete the words "the
Corporation" and substitute therefor the word "TEAC".
1.9 All references to "Future Generation Products" in Sections 3.6 and
3.7 shall be changed to reference "Licensed HDD's".
1.10 Section 3.7 is amended to delete the phrase ", and shall be
subject to any applicable withholding tax requirements" in lines 4 and 5 of
said section.
1.11 Section 11 is amended to clarify the original intent of the
parties to add the following language: "As used in this Agreement, the phrase
'assign' or 'assignments' shall include, without limitation, any pledge,
hypothecation or other encumbering of rights hereunder, and any transfer by
operation of law, involving merger or consolidation.
2. OTHER AGREEMENTS. As additional consideration for the agreements and
covenants of TEAC contained herein, the parties hereby further agree as
follows:
2.1 The Corporation shall provide TEAC with the opportunity to purchase
Licensed HDDs from the Corporation at a price equal to the lower of [*] If
TEAC purchases Licensed HDDs at the
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
-3-
<PAGE> 28
price provided in (i) of the previous sentence, then TEAC's purchases shall be
limited to [*] . Allocations of the indirect costs provided for in
the previous sentence shall be made in a reasonable manner, consistent with
allocations made by the Corporation for other cost/analysis purposes. Delivery
(subject only to the available manufacturing capacity of the Corporation) and
warranty terms for such purchases shall be equal to the most favorable terms
provided to any of the Corporation's other customers for comparable products
without regard to volume purchased by such customers or to be purchased by
TEAC.
2.2 If TEAC or one of its subcontracted manufacturers of Licensed
Products needs to purchase parts from a vendor that also does business with the
Corporation, then the Corporation shall authorize such vendor to calculate the
price of such parts based on the combined purchase volumes of such parts of
TEAC, any such subcontractor and the Corporation. TEAC agrees to bear its pro
rata share of any tooling costs, which proportion shall be agreed to by TEAC
and the Corporation at the time of the purchase.
3. BALANCE OF AGREEMENT. Except as amended by the terms of this Amendment,
each and every other term, condition and covenant of the License Agreement (and
the exhibits and schedules thereto) and all other documents, instruments or
agreements heretofore executed and delivered by the parties shall remain in
full force and effect.
4. LICENSE WITH WDC. The Corporation and TEAC hereby acknowledge that TEAC is
entering into a certain licensing agreement with WDC dated as of February 3,
1995 (the "WDC License Agreement") by which TEAC will license certain
technologies to WDC and WDC will license certain technologies to TEAC and the
Corporation hereby consents to the WDC License Agreement. The Corporation and
TEAC hereby acknowledge that the Corporation is entering into a certain
licensing agreement with WDC, the Technology Transfer and License Agreement
dated as of February ___, 1995 (hereinafter the "Corporation License
Agreement") by which the Corporation will license certain technologies to WDC
and WDC will license certain technologies to the Corporation and TEAC hereby
consents to the Corporation License Agreement.
5. LICENSE WITH COMPAQ. The Corporation and TEAC hereby acknowledge that the
Corporation has entered into a certain licensing agreement with Compaq Computer
Corporation, dated as of June 16, 1994, as amended (the "Development
Agreement"), by which the Corporation has licensed certain technologies to
Compaq and TEAC hereby consents to the Development Agreement.
6. CERTAIN CONDITIONS. The agreements of the parties contained herein are
conditioned upon, and shall become immediately effective only upon the
completion of, the following:
6.1 TEAC shall have received the counter-signature page of Mr. Tandon
to the Stockholders Agreement (as defined in the Master Agreement) and a
revised Exhibit H to the Order, executed by the Corporation.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
-4-
<PAGE> 1
EXHIBIT 10.25
DEVELOPMENT AGREEMENT
DEVELOPMENT AGREEMENT (the "Agreement") made as of the 16th of June 1994,
by and between COMPAQ COMPUTER CORPORATION, a Delaware corporation having its
principal place of business at 20555 S.H. 249, Houston, Texas 77070 [hereafter
"Compaq"] and JT STORAGE, INC., a Delaware corporation having its principal
place of business at 1289 Anvilwood Avenue, Sunnyvale, California 94089
[hereafter "JTS"].
PRELIMINARY RECITALS
WHEREAS, Compaq (i) is in the business of designing, manufacturing and
marketing Computer Products, including hard disk drives ("HDD"), computer
options/accessories, and software for such HDDs, and (ii) possesses expertise
and owns proprietary rights related to its products, including, but not limited
to, copyrights, know-how, inventions, trade secrets, patents, patent
applications and the like; and
WHEREAS JTS desires to promote its HDDs to the personal computer industry;
and
WHEREAS JTS desires to have Compaq endorse and adopt JTS's proposed design
for HDDs as an industry standard; and
WHEREAS Compaq's endorsement of JTS's proposed design for HDDs as an
industry standard will aid in the adoption by the industry at large; and
WHEREAS Compaq has agreed to assist JTS's efforts to promote and develop an
industry standard for certain HDD technology in exchange for the covenants,
licenses, and consideration recited herein; and
WHEREAS, the parties desire to develop hardware and software products which
will incorporate existing technology of JTS, and additional new technology to be
developed by JTS; and
WHEREAS, Compaq is a manufacturer of personal computer products sold and
distributed on a world-wide basis; and
WHEREAS, JTS has demonstrated some small form factor HDD technology and
product concepts which appear to be of particular use to Compaq for its personal
computer products; and
WHEREAS, JTS has certain technology that Compaq desires to utilize in its
personal computer products and JTS desires to complete development on
<PAGE> 2
such technology and make products using such technology available for use by
Compaq on the terms and conditions set forth herein; and
WHEREAS, JTS desires to License certain future additional developments
to Compaq, as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and undertakings hereinafter set forth, the parties hereto hereby
agree as follows:
AGREEMENTS
----------
1.0 Certain Definitions
- -----------------------
1.1 Acceptance and Accepted means strict compliance with the provisions
of the applicable technical specification unless compliance is waived or
modified in writing by Compaq and shall be satisfied by JTS's submittal of the
software (firmware) and/or hardware (as specified by the Development Plan) with
a statement that such software and/or hardware [hereafter collectively referred
to as "Product"] complies with the applicable technical specification, provided,
however, that Compaq, in its sole discretion shall determine whether such
Product is in compliance with the applicable specification. After submittal by
JTS, Compaq shall test such Product, in randomly selected commercially
reasonable quantities, to verify compliance and to determine whether JTS can
reasonably produce the Product in commercial quantities. Compaq's tests shall be
performed as soon as commercially practical. In the event that the Product does
not comply with the applicable specifications (including but not limited to the
engineering specifications attached hereto, shock and vibration specification
and other specifications provided by Compaq), Compaq shall provide detailed
information of such non-compliance to JTS. In the event that Compaq does not
provide JTS with a written notice that the Product submitted by JTS is in
compliance with the applicable specifications within ten business (10) days [the
"First Period"] then in such event the Product submitted by JTS shall be deemed
to be in non-compliance. Thereafter, JTS shall have ten business (10) days [the
"Section Period"] to correct such non-compliance and resubmit the Product for
Acceptance. Compaq shall again have ten (10) business days [the "Third Period"]
to retest the Product and provide JTS with details, if any, of non-compliant
operation. In the event that Compaq does not provide JTS with a written notice
that the Product submitted by JTS is in compliance with the applicable
specifications during such Third Period then in that event the Product submitted
by JTS shall be deemed to be in non-compliance. In the event that Compaq does
not respond in writing within the aforesaid First Period and/or Third Period
with a written acceptance of the Product submitted, such submitted Product shall
be deemed to be in non-compliance and shall not be Accepted. The submittal by
JTS of a non-compliant Product shall not toll a Project Milestone or satisfy a
Project Milestone. In the event that JTS submits a non-
<PAGE> 3
compliant Product, Compaq may serve a notice of material breach and the Cure
Period shall run concurrently with any attempts by JTS to correct a
non-compliant Product and such Cure Period shall run concurrently with Compaq's
testing and verification program. Notwithstanding the foregoing, Acceptance of
a Product by Compaq shall not relieve JTS from its obligation to resolve any
hardware and/or software bugs which are discovered after Acceptance.
1.2 "Additional Developments" as applied to JTS, means any
improvements in, modifications on, derivative works of, variations of, new
designs of, discoveries related to, or developments utilizing any of the
Licensed Technology or any other additional development (including
reproduction tooling and drawings and product design and processes and
Accessories), whether separately developed, licensed or otherwise obtained by
or on behalf of such Person or jointly developed, licensed or otherwise
obtained by or on behalf of such Person during the term of this Agreement now
existing or hereafter developed, including patents and patent applications and
licenses therefore in each case, solely in connection with the development,
manufacture or sale of HDDs; provided that if Additional Developments are
obtained by a party hereto from an unaffiliated third party then the
obligations of the party hereto to license such Additional Development to the
other parties hereto shall be conditioned upon obtaining the consent of such
Unaffiliated third party to such license, which consent the party hereto shall
undertake its best efforts to obtain.
1.3 "Affiliate" as applied to any Person means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For purposes of this definition, the term "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 vote 50% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 50% or more of the ownership
interest, beneficial or otherwise) of such Person or otherwise to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of Voting Stock or other ownership interest, by contract
or otherwise. All executive officers, 50% or greater shareholders and directors
of any Person shall be deemed to be Affiliates of such Person for the purposes
of this Agreement. "Unaffiliated" shall refer to a person or entity which is
not an Affiliate.
1.4 "Change in Corporate Control" means any circumstance in which (i)
any person, entity or group (other than pursuant to a venture capital
financing) acquires direct or indirect beneficial ownership [as defined in Rule
13d-3 under the Exchange Act of 1934 as Amended] in the aggregate securities of
a party representing more than thirty percent (30%) of the total combined
voting power of such party's then issued and outstanding voting securities,
(ii) the sale of all or substantially all of the assets of a party occurs to
any person or entity which is not a wholly-owned subsidiary of such party,
(iii) a party is liquidated, or (iv) a
<PAGE> 4
party experiences a change in the composition of a majority of its Board of
Directors as a result of an election contest.
1.5 "Derived Program" means, individually or collectively, any and all
derivations or Source made by compiling and/or processing of Source, or
modified, enhanced or extended versions thereof, to create a machine-readable
object code (binary), intermediate code or interpreted form, and all copies or
portions thereof. Derived Programs also include Documentation. For purposes of
this Agreement, Derived Programs shall be construed to be "derivative works"
and "compilations," within the meaning of such terms in the Copyright Act (17
U.S.C. Section 101 et seq.).
1.6 "Development Plan" means the product development and design plan
which is set out in Exhibit A.
1.7 "Documentation" means all written materials furnished hereunder by
either party, including, but not limited to, user and maintenance manuals, and
materials useful for designing, developing, testing, marketing and maintaining
products, and providing training related thereto.
1.8 "Effective Date" shall mean the date last affixed on the signature
line of this Agreement.
1.9 "Filing" means any documentation, application, filing,
registration or the like required to perfect the parties' interest in the
developed Technology under statutory intellectual property rights protection
mechanisms.
1.10 "Future Generation Products" means any HDD product, other than
the Nordic Series, that utilizes the Licensed Technology or Additional
Developments, and was developed or in development prior to end of the Term of
this Agreement.
1.11 "HDD" shall mean hard disk drive in any form factor or size.
1.12 "Licensed Products" means the Nordic Series and the Future
Generation Products.
1.13 "Licensed Technology" all technical information and intellectual
property of JTS, including without limitation, patents, patent applications and
copyrights (and all extensions, continuations, continuations in part,
divisions, reexaminations and reissues thereof), trade secrets, inventions,
source codes, object codes, flow charts, processes, techniques, specifications,
drawings, parts layouts, parts lists, all technical information and other
intellectual property pertaining to Parts, circuitry, tooling and testing
requirements, know-how, manuals and other technical data and support
documentation, whether or not patentable or copyrightable and whether or not
actually patented or copyrighted.
<PAGE> 5
1.14 "Nordic Series" means any HDD with a width of between 3.25 and
3.75 inches and a height of less than .40 (four-tenths) inches, and all
Licensed Technology pertaining principally thereto.
1.15 "JTS Patents" means all domestic and foreign patents and utility
models which issue from any applications filed by or for JTS and/or its
Subsidiaries during the Term of this Agreement but does not include design,
ornamental, industrial design patents, or design registrations.
1.16 "Person" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
1.17 "Project Milestones" means that set of milestones which is set
forth in Exhibit B.
1.18 [*]
1.19 "Source" means software (firmware) source code provided or
developed under this Agreement, and any portion thereof. Source is provided in
human-readable form and contains specific algorithms, instructions, plans,
routines and the like, for controlling the operation of a central processing
unit (including microprocessors, controllers, etc.), or otherwise used by a
central processing unit to do a particular job or solve a particular problem.
Machine-readable form (a "Derived Program") is derived upon compilation of such
Source. Source may be provided as printed listings of code or on magnetic
media, and includes any Documentation and information related to Source. Source
includes corrections, modifications, and enhancements thereto by JTS during the
Term.
1.20 "Subsidiary" means any entity of which fifty percent (50%) or more
of the voting rights are owned or controlled, directly or indirectly, by a
party hereto, provided, however, that such entity shall be deemed to be a
Subsidiary only for so long as such ownership or control exists.
1.21 "Technology" means, Background Technology, developed Technology or
Residuals, and includes, but is not limited to, technical information, data and
processes, whether tangible or intangible, including, without limitation, any
and all techniques, discoveries, inventions, copyrights, mask works, VHSIC
hardware description language ("VHDL") descriptions, net
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 6
lists, know-how, patents (including any extension, reissue or renewal
patents), patent, mask work or copyright applications, inventor certificates,
trade secrets, designs, drawings, specifications, schematics, software programs
(including Source and object codes), microcode, operating and instructional
manuals, magnetic tapes, methods of production and any other proprietary
information.
1.22 "Term" shall mean the period commencing with the execution of this
Agreement and ending on the fifth anniversary of this agreement. This Agreement
shall automatically renew for an additional five (5) year period, if Compaq is
purchasing HDDs from JTS in commercially reasonable quantities during the fifth
year.
1.23 "Use" or "Used" means the application, exploitation,
commercialization and sublicensing of Technology, including (i) modifying
Technology to form derivative works, (ii) incorporating portions of original or
modified Technology into products, (iii) research, design, experimentation,
development, or marketing of products, and (iv) making, having made, leasing,
selling or otherwise transferring hardware Background Technology in products.
2.0 Development of Nordic HDD
A. JTS agrees to develop the Nordic HDDs in conformance with the
Development Plan attached hereto as Exhibit A and in conformance with the
Project Milestones as set forth in the attached Exhibit B. JTS agrees that the
Project Milestones shall not have been satisfied until the Nordic design is
Accepted by Compaq. Failure to meet a Project Milestone, produce an HDD in
conformance with the Development Plan, and/or failure to design an HDD in
conformance with the Nordic Technical Specifications shall be deemed to be a
material default of this Agreement.
B. JTS further agrees that the Nordic HDDs shall be in strict
conformance with the Nordic Technical Specifications attached hereto as Exhibit
C. The parties agree that to the extent that Exhibit C contains "TBDs" (To Be
Determined) such information shall be inserted into the specification at a later
date and that such information shall be negotiated in good faith by the parties
prior to July 30, 1994 unless otherwise agreed to in writing by both parties.
JTS agrees that the information designated as "TBD" is not material and will
not result in any changes to the Milestone Dates, Schedule, and/or result in
additional cost. To the extent that JTS later finds that the information
designated as "TBD" will impact the Milestone Dates, Schedule, and/or result in
additional cost, JTS will notify Compaq in writing within five (5) business days
of the time that Compaq provides JTS with the information designated as "TBD"
which has resulted in a change to the Milestone Date, Schedule, and/or resulting
in additional cost. In the event that JTS does not notify Compaq within five (5)
business days, then in
<PAGE> 7
such event the information furnished as a "TBD" will be deemed to have no
impact on the Milestone Dates, Schedule, and/or cost of the project.
C. In consideration for JTS' agreement to design the Nordic HDD in
conformance with the Development Plan and the Project Milestones and in
conformance with the Nordic Technical Specifications, Compaq shall pay [*]
as non-recurring engineering charges (NRE) to JTS for the development of two
Nordic HDDs, [*] (hereafter collectively referred to as "Nordic HDDs").
The NRE charges referred to above shall be payable as follows:
[*]
D. In the event of a material default by JTS, JTS agrees to refund any
NRE moneys advanced by Compaq. JTS further agrees that in the event of a
material default by JTS, Compaq at its sole option, may apply the NRE previously
paid by Compaq, as an offset against its purchases of other HDD (e.g. Palladium
or Sterling) from JTS. The offset may be applied at any time and in any
increments which Compaq may in its sole judgment effect.
E. In consideration of the covenants and obligations set forth in this
Agreement, JTS agrees that it shall not undertake any other development projects
for any third party and that it will focus the appropriate resources to the
development of the Nordic HDDs. A breach of this provision shall be deemed to be
a material breach of this Agreement.
F. JTS agrees that Compaq shall have no obligations to provide any
technology, licenses, firmware, development resources, engineering resources or
any contribution, other than the NRE listed above, to the Nordic development
efforts.
G. In consideration of the covenants and obligations set forth in this
Agreement, Compaq will have a first right of refusal on all of Nordic production
for a period of [*] commencing with volume production of Nordic HDDs.
Additionally, JTS agrees that during the Term of this Agreement, Compaq shall
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 8
have a right of first refusal to license and/or otherwise acquire any newly
developed JTS product and/or technology on a right of first refusal and on
pricing and royalties which are [*] .
H. Except for any of its pre-existing obligations to TEAC, JTS agrees
not to license the Nordic design to a third party manufacturer.
I. In consideration of the convenants and obligations set forth in this
Agreement, JTS agrees that Compaq will have price preferences which shall result
in Compaq's price being at least [*] lower than any price paid by any other
party for JTS' HDDs, such price preferences commencing with volume production
of Nordic HDDs and shall extend for the initial Term of this Agreement. In the
event this Agreement is extended beyond the initial Term, then in such event
Compaq will have a price preference which shall result in Compaq's price being
at least [*] lower than any price paid by any other party for JTS' HDDs.
J. In consideration of the covenants and obligations set forth in this
Agreement, JTS agrees not to market the Nordic HDDs to any third party before
the Nordic HDDs are Accepted by Compaq and JTS further agrees that it will not
sell any Nordic HDDs to any third party for the [*] . JTS shall be free to
market Nordic HDDs to third parties during the [*] provided however, that
marketing efforts shall not include the sale of Nordic HDDs to such third
parties in contravention of the [*] . Additionally, JTS agrees that it will
not sample in quantities exceeding two (2) Nordic HDDs to any third party
during the [*] .
K. Following Acceptance by Compaq of the Nordic HDDs and - provided
further that JTS is able to supply Compaq with quantities of Nordic HDDs as set
out in the applicable purchasing documents within the schedule provided in such
purchasing documents, if Compaq fails to fulfill its minimum purchase
obligations of Nordic HDDs (as such obligation is set forth in the accompanying
purchasing documents), then in that event JTS shall notify Compaq of its
default. In the event that Compaq fails to cure such default within thirty (30)
days of such notice, then in such event JTS shall be relieved of any further
obligations with respect to the [*] . Notwithstanding the foregoing, Compaq
and JTS agree that Compaq will not be declared to be in default of its
purchasing obligations if JTS is not able to deliver HDDs on the schedule
agreed to in writing by the parties. JTS further acknowledges that in the
event Compaq is required to place orders for HDDs with an alternate supplier
because of reasonable uncertainty of JTS' delivery, such decision may result
in Compaq's inability to purchase HDDs from JTS. JTS agrees that such
inability shall not be considered as a default condition.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 9
L. Upon expiration of the [*] , and in consideration of the
covenants and obligations set forth in this Agreement, Compaq will receive a
royalty of [*] HDD for each Nordic HDD sold to a third party, such royalty
payable for the initial Term of this Agreement. In the event that this Agreement
is extended beyond the initial Term, then in such event, Compaq will receive a
royalty of [*] HDD for each Nordic HDD sold to a third party. The foregoing
royalties shall be payable quarterly in accordance with the provisions of this
Agreement and subject to the audit provision of this Agreement.
M. In consideration of the covenants and obligations set forth in this
Agreement, Compaq will be licensed to use the Nordic designs [hereafter
"Licensed Technology"] to make and have made any HDDs, for use in Compaq's
products; such license shall permit Compaq to use the Nordic design on a
royalty-free basis in the event that JTS is unable to meet Compaq's volume or
shipment schedule and such schedule is set forth in a mutually agreed Corporate
Purchase Agreement, or in the event of a material default on the Nordic
development program. Compaq's right to use the Nordic design shall be of
sufficient scope to permit Compaq to improve/modify the JTS design.
N. Provided that JTS is not in default and in the event that Compaq in
its sole discretion chooses to have Nordic HDDs manufactured by a third party
after Acceptance of the Nordic design, then in that event Compaq shall pay JTS a
royalty at the rate of [*] HDD during the initial Term of this Agreement;
such HDDs shall bear JTS' trademarks. In the event that this Agreement is
extended beyond the initial Term of this Agreement. Compaq's royalty obligation
shall be reduced from [*] HDD to a royalty of [*] HDD Compaq's right to
use the Licensed Technology and the Nordic design shall be of sufficient scope
to permit Compaq to improve/modify the JTS design.
O. In consideration of the foregoing covenants and obligations set
forth above by JTS, Compaq agrees that it will design the Nordic HDD products
into at least one of its computer products and further agrees to place purchase
orders for the Nordic HDDs as set forth in the Corporate Purchase Agreement.
3.0 Compaq's Purchasing Obligations
Upon Compaq's Acceptance of the Nordic HDDs, qualification of JTS'
manufacturing operations and compliance with other terms and conditions as set
forth in Compaq's purchasing documents, (including but not limited to Corporate
Purchase Agreement (CPA)); Compaq will place purchase orders towards the
purchase of a minimum quantity of [*] HDDs over a
two (2) year period. Compaq's obligations to purchase HDDs shall be as more
specifically set forth in the accompanying CPA and purchasing documents.
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 10
4.0 Transfer of Licensed Technology
4.1 Delivery by JTS
A. Licensed Technology and Additional Developments. As of the date
of this Agreement, JTS will deliver to Compaq copies or originals of all of the
Nordic Licensed Technology in its possession. From time to time during the term
of this Agreement in a reasonably prompt manner as, JTS shall, at its sole
expense, deliver to Compaq in written form, and such other useful format and
media as may be reasonably required for the manufacture and support of the
Licensed Products, all Licensed Technology and Additional Developments that
come into the possession of JTS or any of its Affiliates not previously so
delivered.
B. Disclosure of Additional Developments. Without limiting the
foregoing, with respect to Additional Developments, JTS shall at the time this
Agreement is executed and delivered and from time to time thereafter; but in
no event less frequently than quarterly, disclose to Compaq in writing and
confer with it as to all Additional Developments under consideration or in
development by or on behalf of JTS or any of its Affiliates.
4.2 Confidentiality.
A. JTS and Compaq each agree to undertake all reasonable efforts
to treat, and to cause each of its Affiliates, licensees and sublicensees to
treat, as confidential all proprietary information with respect to the Licensed
Technology and Additional Developments. Each of the parties hereto acknowledge
that another party hereto may find it necessary to disclose general
descriptions of proprietary information during the conduct of its business to
banks and other financial institutions contemplating the provision of project
financing to such party. In addition, each of the parties hereto acknowledge
that another party hereto may find it necessary to disclose proprietary
information in connection with the proper grant of sublicenses to parties other
than a party hereto. Under such circumstances, JTS or Compaq, as the case may
be, may make such information available to third parties to the limited extent
necessary for such third party to fulfill its supply or other permitted
purposes, provided that such party shall first obtain from the recipients, a
fully-executed confidentiality agreement which is at least as restrictive as
the confidentiality agreement contained herein; provided, however, that the
foregoing shall not restrict Compaq's or JTS's right to provide technical
information (other than the Restricted Ancillary Technology) and test data that
is reasonably requested by customers in the ordinary course of business.
B. With respect to information not subject to Section 4.2(A)
above, each of JTS and Compaq agree to undertake all reasonable efforts to
treat, and to cause each of its Affiliates to treat, as confidential all other
proprietary information of any party hereto obtained through its relationship
with another
<PAGE> 11
party hereto established hereunder or otherwise, and will not disclose any such
information to a third party except as necessary to comply with its obligations
to TEAC but in no event shall JTS disclose any Compaq Confidential Information,
or otherwise use such information for its own purposes.
C. Neither JTS nor Compaq shall be bound by the provisions of this
Section 4.2 with respect to information which (a) was previously known to the
recipient at the time of disclosure; (b) is in the public domain at the time of
disclosure; (c) becomes a part of the public domain after the time of
disclosure, other than through disclosure by the recipient or some other third
party who is under an agreement of confidentiality with respect to the subject
information or obtained the information from the recipient; (d) is required to
be disclosed by law or (e) is disclosed by a third party not bound by any
agreement of confidentiality with respect to such information which third party
did not obtain from the recipient.
D. Each of JTS and Compaq shall take action as another party hereto
may reasonably request from time to time to safeguard the confidentiality of
any information subject to the terms of this Section 4.2.
E. To the extent that United States Export Control Regulations, or
similar laws of any jurisdiction, are applicable, neither of JTS nor Compaq
shall, without having first fully complied with such regulations, (i) knowingly
transfer, directly or indirectly, any unpublished technical data obtained or to
be obtained from the other party hereto to a destination outside the United
States, or such other relevant jurisdiction, or (ii) knowingly ship, directly
or indirectly, any product produced using such unpublished technical data to
any destination outside the United States, or such other relevant jurisdiction.
F. The obligations of JTS and Compaq under this Section 4.2 shall
survive the expiration or earlier termination of all or any part of this
Agreement.
4.3 Support of Licensed Technology. From time to time under this
Agreement, each of the parties hereto shall provide the other parties hereto
with any support materials that they shall have on hand and which shall be
reasonably requested for the manufacture, of the Licensed Products as provided
for herein, including, without limitation, any manuals, reports, specifications
or drawings required by customers to use the Licensed Products in the
manufacture of their products. Each of Compaq and JTS shall also allow the
other access to each of their engineering staffs and will allow each others
engineers to visit each of their manufacturing, or research facilities, for the
purpose of providing or receiving support of the technology licensed by each of
them hereunder.
5. Licensing Matters
5.1 Grant of License by JTS. Subject to the terms of this Agreement,
JTS hereby grants to Compaq:
<PAGE> 12
A. Nonexclusive Rights to Manufacture. The nonexclusive right and
license to manufacture the Licensed Products, and to use the Licensed
Technology and any Additional Developments made by JTS and/or its Affiliates in
connection therewith.
B. Nonexclusive Rights to Sell. The nonexclusive right and license to
sell the Licensed Products, in Compaq Products or as options for use in Compaq
Products, and to use the Licensed Trademarks, the Licensed Technology and any
Additional Developments made by JTS and/or its Affiliates in connection
therewith.
C. Nonexclusive Rights to Use. The nonexclusive right to use the
Licensed Technology and Additional Developments made by JTS and/or any of its
Affiliates for the purpose of making Additional Developments.
5.2 Sublicensing. The licenses granted in Section 5.1 above shall not
include the right to sublicense to a third party, except (i) that either party
may sublicense such licenses in connection with the manufacturing of Nordic HDDs
and/or parts and accessories therefore, for use in the manufacture or assembly
of finished goods to fulfill orders placed by Compaq, and, (ii) that either
party may sublicense their rights to manufacture or assemble to a third party
making products to Nordic specifications as necessary to fill Compaq orders for
Nordic HDDs and under the tradenames or trademarks of JTS.
Further, the parties shall from time to time consider in good faith the
granting of additional sublicenses to other manufacturers for the purpose of
providing multiple sourcing requested by Compaq.
6.0 Royalty Payments
6.1 Calculation of Royalties Payable by Compaq. Compaq shall be
responsible for only one royalty on each Nordic HDD manufactured by Compaq
pursuant to its royalty-bearing license irrespective of the number of patents,
patent claims, copyrights, trademarks, trade names or other types of Licensed
Technology and Additional Developments that may pertain to such Future
Generation Product. Royalties paid shall be net of any returns.
6.2 Calculation of Royalties Payable by JTS. JTS shall be responsible
for only one royalty on each Nordic HDD sold to a third party [hereafter
sometimes referred to as a "Market Development Royalty"] pursuant to the royalty
provisions of this agreement. Royalties paid shall be net of any returns.
6.3 Payment of Royalties. Royalties shall be based on sales made in
any given calendar quarter as reflected in Compaq's or JTS invoices (as the case
may be) to its customers, as the case may be, in such calendar quarter. All
<PAGE> 13
royalty payments for each calendar quarter shall be made within sixty (60) days
subsequent to the end of such quarter, and shall be subject to any applicable
withholding tax requirements. Each of JTS and Compaq agrees to maintain accurate
and complete records showing Nordic HDDs sold by it and to comply with such
further requirements as set forth in the Record Keeping and Audit provisions of
this Agreement.
6.4 Proprietary Rights. Subject to the provisions of this Agreement and
any other written agreement between the parties hereto entered into after the
date hereof the parties agree that the following provisions shall govern the
parties intellectual property rights:
A. JTS's Rights to the Licensed Technology. Subject to the other express
terms of this Agreement, JTS shall retain all title and other rights (including
copyrights, patent rights, trade secret rights and other proprietary rights)
to the Licensed Technology.
B. Rights to JTS Additional Developments. JTS shall retain all title
and other rights (including copyrights, patent rights, trade secret rights and
other proprietary rights) to:
(i) the information, design and technology of property (including the
Licensed Products and Additional Developments) and all manufacturing processes
with respect thereto developed by JTS independently from Compaq, and all
modifications and derivative works of the foregoing made by JTS; and
(ii) all service marks, trademarks, tradenames, and any other
designations with respect to JTS products.
C. Rights to Compaq's Additional Developments. Compaq shall retain all
title and other rights (including copyrights, patent rights, trade secret
rights and other proprietary rights) to:
(i) the information, design and technology of property (including the
Licensed Products and Additional Developments) and all manufacturing processes
with respect thereto developed by Compaq independently from JTS, and all
modifications, improvements and derivative works of the foregoing made by each
of Compaq; and
(ii) all service marks, trademarks, tradenames, and any other
designations with respect to Compaq's products.
D. Joint Developments. From time to time during the term of this
Agreement the parties may agree in writing to develop products through a joint
project between each other using the technology owned and/or engineers employed
by each of them (a "Joint Development") to develop Future Generation Products.
Any technology or other intellectual property developed under a Joint
<PAGE> 14
Development shall be owned jointly by the parties, and the parties mutually
shall agree in writing upon the method(s) for commercial exploitation of such
technology. Royalties on Joint Developments shall be negotiated in the future.
In addition, any patents or copyrights resulting from any such Joint
Development shall be applied for and owned jointly by the parties. The
individual expenses incurred by either party in connection with any Joint
Development (e.g. engineering, development, prototypes, testing, travel,
lodging, allowances and any other expenses incurred in connection with the
project) shall be borne by the party incurring the expense. Notwithstanding
anything to the contrary contained herein, neither party shall transfer or
license any of its rights in or to any technology or other intellectual
property developed under a Joint Development without the written consent of the
other party, except pursuant to sublicenses permitted in this Agreement. To the
extent that Compaq and JTS engage in joint development in the course of
developing the Nordic HDDs, each party shall retain ownership in its own
development and there shall be no obligation to license or otherwise provide
such development to the other party, except as necessary to manufacture Nordic
HDDs for Compaq.
E. Markings. All Licensed Products shall bear such markings with
respect to patents (or patents pending) and/or trademarks, as shall be
reasonably requested by the licensing party to comply with applicable law or
otherwise required to protect its proprietary rights.
7.0 Limitation Of Liability.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY HEREUNDER NOR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES, OR AGENTS SHALL BE
LIABLE TO THE OTHER PARTY HEREUNDER OR TO ANY THIRD PARTY FOR ANY LOSS OF USE,
LOSS OF GOODWILL, INTERRUPTION OF BUSINESS, OR FOR INDIRECT, INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST REVENUES OR PROFITS) OR
SIMILAR DAMAGES, WHETHER BASED ON TORT (INCLUDING WITHOUT LIMITATION,
NEGLIGENCE OR STRICT LIABILITY), CONTRACT, OR OTHER LEGAL OR EQUITABLE GROUNDS,
EVEN IF SUCH PARTY HAS BEEN ADVISED OR HAD REASON TO KNOW OF THE POSSIBILITY OF
SUCH DAMAGES.
8.0 Term And Termination
8.1 License Perpetual. Except as otherwise provided in Section 8.2
below, the term of this agreement and the licenses and immunities from suit
hereunder shall be perpetual.
8.2 Termination of Rights. If any party hereto shall commit a
material breach of any of the terms of this Agreement, or any of the related
purchasing documents, and such breach continues for thirty (30) days after
receipt of written notice specifying such breach in reasonable detail, then any
non-breaching party
<PAGE> 15
shall have the right to terminate all of the breaching party's rights hereunder
by delivery of written notice of such termination. Notwithstanding the foregoing
any such termination shall have no effect on the breaching party's duties and
obligations hereunder, which shall continue past such termination in full force
and effect. Compaq's rights to use JTS' technology and designs shall not be
reduced or diminished in the event of a Termination for default by JTS.
8.3 Bankruptcy, Etc. A party's rights (but not its obligations) under this
Agreement shall terminate automatically if any party attempts to assign this
Agreement, except under circumstances permitted hereunder, or hereto suspends
business, or files a voluntary petition pursuant to or purporting to be pursuant
to any reorganization of insolvency law of any jurisdiction, or an involuntary
petition pursuant to or purporting to be pursuant to any reorganization or
insolvency law of any jurisdiction or an involuntary petition pursuant to or
purporting to be pursuant to any reorganization of insolvency law of any
jurisdiction is filed and is not dismissed within sixty (60) days, or any party
makes an assignment for the benefit of creditors, or applies for or consents to
the appointment of a receiver or trustee of a substantial part of its property
or a receiver or trustee of a substantial part of its property is otherwise
appointed and is not removed within sixty (60) days.
9.0 Force Majeure And Damage Exclusions.
Notwithstanding any other provision of this Agreement:
A. Force Majeure. Either party shall be excused from any failure or delay
in performance resulting directly or indirectly from inability to obtain parts
or other necessary materials from usual sources of supply, transit failure or
delay, labor disputes, governmental orders or restrictions, fire, flood or other
acts of nature, accident, war, civil disturbance, or any other causes beyond
such party's reasonable control. A party affected by a force majeure shall
resume performance promptly upon cessation of same.
10.0 Warranties And Representations: Release
A. Of JTS. JTS represents and warrants that (i) JTS validly existing and in
good standing under the laws of the State of Delaware and having full power and
authority to carry on its business as it is now being conducted and to own or
lease the properties and assets it now owns or leases, and being duly qualified
to do business, and being in good standing, (ii) JTS has all necessary right,
power and authority to enter into this Agreement (iii) neither the execution and
delivery of this Agreement by JTS nor its performance hereunder will conflict
with or result in the breach of any of the terms or conditions of or constitute
a default under the charter documents of JTS or of any contract, agreement,
commitment, indenture, mortgage, note, bond, license or other instrument or
obligation to which it is a party or by which it or any of its property or
assets may be bound, (iv) this Agreement has been duly and validly executed by
JTS and
<PAGE> 16
constitutes the valid and binding obligation of JTS enforceable in accordance
with its terms (c) no consent, approval or authorization of, or declaration,
filing or registration with, an foreign, federal, state, or local governmental
or regulatory authority, or any other party, is required to be made by JTS in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES SPECIFICALLY PROVIDED IN THIS AGREEMENT ALL OF THE ADDITIONAL
DEVELOPMENTS PROVIDED BY JTS HEREUNDER ARE PROVIDED "AS IS" AND JTS
EXPRESSLY DISCLAIMS ANY AND ALL OTHER WARRANTIES, INCLUDING ANY EXPRESS OR
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
B. Of Compaq. Compaq represents and warrants that it has received a
copy of the TEAC agreement with JTS.
11.0 Record Keeping And Audit Rights
A. Reports. Each party hereto shall keep and maintain full and accurate
records relating to sale and manufacture of Nordic HDDs. To the extent that a
party is obligated to pay royalties, such party shall prepare and submit
quarterly reports to the other party no later than sixty (60) days following
the last business day of all calendar quarters, certified by an officer of such
party, specifying, at a minimum, the quantity of each royalty-bearing products
sold during the previous quarter and the royalty due for such royalty-bearing
products. The information contained in such reports will be retained in
confidence and access to such information shall be restricted to the finance
and legal groups. The obligations to provide royalty reports shall only apply
to royalty-bearing products. Each party shall retain such business records as
necessary to support the royalty reports for a period of three (3) years
following the end of a reporting period.
B. Audit. Each party agrees to allow mutually acceptable independent
auditors to audit and analyze appropriate accounting records to ensure
compliance with all terms of this Agreement. Any such audit shall be permitted
by the party to be audited within fifteen (15) days of receipt of a written
request by the party requesting such audit, during normal business hours, at
a time mutually agreed upon by the party to be audited. The cost of such an
audit will be borne by the party requesting the audit unless a material
discrepancy is found (underpayment of royalties for the quarter) or records are
not maintained and available in accordance with this section, in which case the
audited party agrees to pay the requesting party for the costs associated with
the audit, but in no event shall such costs exceed twenty thousand dollars
($20,000) for such audit.
C. Interest. In the event that there is an underpayment of royalties,
the underpaid royalties shall be promptly remitted with interest, such interest
accruing from the date such royalties should have been paid. The applicable
<PAGE> 17
interest rate shall be equal to the higher of twelve percent (12%) per annum or
at two percent (2%) over prime. The interest rate shall be compounded monthly.
12.0 Immunity From Suit
A JTS hereby grants to Compaq, its Subsidiaries and to its and their
customers, mediate and immediate, a personal, non-transferable immunity from
suit under any JTS Patents for the formation, combination, and use of any JTS
Nordic HDD with other hardware or software products. The foregoing immunity from
suit shall extend to an apparatus, method, or process used in the manufacture of
a Nordic HDD.
13.0 Additional Licenses
A JDD Firmware License. Subject to the provisions of this Agreement,
JTS hereby grants to Compaq a nonexclusive, transferable, worldwide, non-royalty
bearing, irrevocable license to:
(1) use and prepare derivative works of source code for JTS's firmware, on
equipment located within Compaq's control, such source code to be used
for internal purposes only;
(2) reproduce, perform, display, sublicense and distribute, in any HDD,
such firmware (in object code form) to third parties; each third party
shall have the right correspondingly to sublicense other third parties
along the chain of distribution to end users;
(3) reproduce, perform, display, sublicense and distribute, in any HDD,
Compaq prepared derivatives of the firmware (in object code form) to
third parties; each third party shall have the right correspondingly
to sublicense other third parties along the chain of distribution to
end users; and
(4) reproduce, perform, display, sublicense and distribute Compaq
derivations of the JTS firmware under a source code license agreement.
B License under JTS Patents
(1) JTS hereby grants to Compaq a nonexclusive, transferable, worldwide
license under JTS Patents to use, make, have made, lease, sell and
otherwise transfer any HDD with Compaq products, either alone or
connected to or in conjunction with other computer hardware or
software. All licenses granted under this Agreement
<PAGE> 18
shall be of sufficient scope to permit Compaq to exercise all rights
granted in this Agreement and shall include the right to grant
sublicenses of equivalent scope to Compaq's Subsidiaries, which
Subsidiaries may correspondingly sublicense other Subsidiaries.
Licenses to Subsidiaries shall be valid and subsisting for as long as
the parent has a valid and subsisting license and only for as long as
the parent has corporate control of the Subsidiary receiving a license
hereunder.
(2) JTS hereby grants to Compaq, its Subsidiaries and its and their
customers, mediate and immediate, a personal, non-transferable
immunity from suit under JTS Patents for the formation and use of any
Compaq product with other hardware or software products. The foregoing
immunity from suit extends to any apparatus, method, or process per se
if such apparatus, method, or process infringes a JTS Patent when used
for its intended purpose or is combined with a Compaq product.
C. JTS hereby grants Compaq a royalty-free, irrevocable, worldwide
license to use, publish, have published, copy, have copied, distribute, have
distributed, prepare derivative works and have such derivative works prepared
of any Documentation produced by JTS for any Nordic HDD.
D. In furtherance of Compaq's licenses granted in above, JTS agrees to
provide Compaq with magnetic copies of modifications, enhancements, versions,
version releases, updates, and bug fixes which JTS makes to its firmware. JTS
agrees to use its best efforts to inform Compaq of its plans to release major
modifications and version releases and of the anticipated release date to
permit Compaq to formulate corresponding release dates and to permit Compaq to
phase out its production of obsolete versions and updates. Magnetic copies of
major modifications and version releases shall be provided to Compaq at least
30 days prior to commercial release by JTS to other JTS customers or 30 days
prior to commercial release by JTS's licensees (whichever comes first).
Magnetic copies of minor bug fixes, updates, modifications, etc. shall be
provided to Compaq as soon as reasonably possible but in every event prior to
the expiration of sixty (60) days from commercial release by JTS or commercial
release by JTS's licensees.
14.0 Miscellaneous Provisions
A. EXPORT. Notwithstanding any rights, license or privileges specified in
this Agreement, each party agrees that it will not export any technology or
product provided by the other party hereunder or jointly developed hereunder,
or any part thereof, either directly or indirectly, without first obtaining any
required licenses to so export from the United States Government, and
<PAGE> 19
further agrees that it will comply with all laws, rules and regulations
applicable to the export or re-export of such technology or product.
B. INFRINGEMENT CLAIMS. Compaq and JTS shall notify each other of any
potential or actual infringement or misappropriation by any third party of any
patent, copyright or other proprietary right that forms part of the HDD
technology and shall provide each other with any available evidence of such
infringement or misappropriation. If the parties determine that they will
cooperate in an action relating to the foregoing, the parties shall jointly
take all reasonable steps necessary to enjoin and prevent such infringement or
misappropriation, including the institution and maintenance of legal or
equitable proceedings, and shall promptly execute all papers and perform
such other acts as may be reasonably required to join in any such suit, action
or proceeding, provided, however, that a party may, at its option, be
represented by counsel of its choice. Upon any such joinder, each party shall
pay the fees of its own separate counsel (if any) and shall bear fifty percent
(50%) of all other reasonable costs incurred in connection with such suit,
action or proceeding. If a party, in its reasonable business judgment,
concludes that the steps necessary to enjoin such infringement or
misappropriation are not economically justifiable under the circumstances, it
may decline to join in any action proposed or taken by the other party,
provided, however, that if the other party determines that it shall proceed in
such action, the declining party shall provide all reasonable assistance and
information, at its sole cost and expense, to the other party in support of
such action. Any amount recovered in any such suit, action or proceeding
brought by the parties jointly (whether recovered through judgment or
settlement) shall be allocated to Compaq and JTS, pro-rata, for reimbursement of
the reasonable expenses incurred by the parties in connection with such
proceedings in accordance with their cost-sharing arrangement set forth in this
section, and to the extent to which amounts recovered are in addition to the
amount of such expenses, such additional amounts shall be shared equally by the
parties. Any amount recovered by a party individually pursuing any such suit,
action or proceeding shall inure solely to the benefit of such party.
C. Third-Party Claims of Infringement to Technology. Each party agrees
to promptly notify the other party upon becoming aware of any suit or
proceeding brought against it by any third party which is based on a claim that
the HDD technology infringes any patent, copyright or other proprietary right.
The parties may, upon mutual agreement, cooperate in the defense against such
suit or proceeding, and in such case shall promptly execute all papers and
perform such other acts as may be reasonably required to join in such defense.
In such circumstance where the parties cooperate in a defense, each party
shall pay the fees of its own separate counsel (if any) in such defense, and
shall bear fifty percent (50%) of all other reasonable costs incurred in
connection with such suit, action or proceeding. In any event, each party shall
provide all reasonable assistance and information to the other party in support
thereof.
<PAGE> 20
D. Injunctive Relief. Each party acknowledges and agrees that in the
event of an unauthorized use, reproduction, distribution or disclosure of any
confidential information or data contained in either party's technology, an
adequate remedy at law would not be available; and, therefore, injunctive or
other equitable relief would be appropriate to restrain such use, reproduction,
distribution or disclosure, threatened or actual. Such relief shall be in
addition to any other remedies provided herein.
E. Breach of Exclusivity. JTS acknowledges and agrees that in the
event a license is granted to a third party in breach of the [*] , an
adequate remedy at law would not be available; and, therefore, injunctive or
other equitable relief would be appropriate to restrain any use, reproduction,
distribution or disclosure, threatened or actual in contravention of the [*] .
Such relief shall be in addition to any other remedies provided herein.
F. Other Remedies. In the event of a material breach of this
Agreement, the other party shall have such remedies for direct damages
(including out-of-pocket expenses and funds paid to JTS) to which it is
entitled by law.
G. Assignment. This Agreement and the licenses granted hereunder are
to a specific entity or legal person, which does not include corporate
subsidiaries, affiliates or parent company of either party, and except as set
forth herein, all rights hereunder are not assignable nor are the obligations
imposed delegable by either party without the prior written consent of the
other party. Notwithstanding anything to the contrary, neither party may assign
its patent license or immunity to another party unless the acquiring party
agrees to provide a patent license, to the other party to this Agreement, of
the same scope and on the same terms as set forth in this Agreement.
H. Execution of Assignments and Non-Disclosure Agreements by Contract
Employees. JTS agrees to have each of its contract employees (including
contractors, independent agents, temporary employees, etc.) execute an
assignment of all intellectual property rights, including an assignment of
copyrights, inventions, and patents and a waiver of moral rights prior to
employment or retention by JTS. Additionally, such Contractor employees shall
execute appropriate non-disclosure agreements which obligate them to retain the
confidential information of JTS and its customers and licensees in strictest
confidence.
I. Execution of Assignments, Non-Disclosure Agreements, and
Non-Solicitation Agreements by Employees. JTS agrees to have each of its
employees execute an assignment of all intellectual property rights, including
an assignment of copyrights, inventions, and patents and a waiver of moral
rights prior to employment or retention by JTS. Additionally, such employees
shall execute appropriate non-disclosure agreements which obligate them to
retain the
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 21
confidential information of JTS and its customers and licensees in strictest
confidence. Such employees shall also execute an appropriate non-solicitation
agreement which prohibits the solicitation of JTS's employees by a former
employee.
J. Execution of Assignments, Non-Disclosure Agreements,
Non-Solicitation Agreements and Covenants Not to Compete by Officers and Key
Employees. JTS agrees to have each of its officers and key employees execute an
assignment of all intellectual property rights, including an assignment of
copyrights, inventions, and patents and a waiver of moral rights prior to
employment or retention by JTS. Additionally, such officer and key employees
shall execute appropriate non-disclosure agreements which obligate them to
retain the confidential information of JTS and its customers and licensees in
strictest confidence. Such officer and key employees shall also execute an
appropriate non-solicitation agreement which prohibits the solicitation of JTS'
employees by a former officer or key employee. In consideration for
Compaq's participation and as material inducement for Compaq participation in
this venture, JTS agrees to obtain, to the extent such agreements are
enforceable in the state or country where such employees reside, from its
current and future officers and key employees an agreement not to compete with
JTS' business interests for a period of fifteen (15) months following the
Effective Date of this Agreement.
15.0 Waiver.
The waiver by either party of any of its rights or any breaches of the
other party under this Agreement in a particular instance shall not serve as a
waiver of the same or different rights or breaches in subsequent instances. All
remedies, rights, undertakings and obligations hereunder shall be cumulative,
and none shall operate as a limitation of any other.
16.0 Section Heading and Language Interpretations: Business Days.
As used herein, "business day" shall mean each day other than Saturday,
Sunday and any day on which banks are nationally required to be closed in the
United States of America or Japan, or any other business holiday for either
party of which it has advised the other party in writing not less than 45 days
in advance. The descriptive headings in this Agreement are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement. All personal pronouns used in
this Agreement, whether used in the masculine, feminine or neuter genders shall
include all genders, the singular shall include the plural and vice versa and
shall refer solely to the parties signatory thereto unless otherwise
specifically provided. The use of the word "including" in this Agreement shall
be by way of example rather than by limitation.
17.0 Notices.
All notices, demands, consents, requests, approvals, and other
communications required or permitted hereunder shall be in writing and shall be
deemed effective only upon delivery (whether receipt is accepted or refused) at
the addresses set forth below (or at such other addresses within the United
<PAGE> 22
States of America as shall be given in writing by any party to the others in
accordance with this Section 10. Notices may be delivered by hand, United
States registered or certified mail, return receipt requested, bonded private
courier service or by telecopier (followed immediately in writing by bonded
private courier service).
To Compaq: Compaq Computer Corporation
20555 S.H. 249
Houston, Texas 77070
Attn: Purchasing Department
with copy to:
P.C. Storage Development
Compaq Computer Corporation
20555 S.H. 249
Houston, Texas 77070
and copy to:
Managing Attorney - Licensing and Technology
Compaq Computer Corporation
20555 S.H. 249
Houston, Texas 77070
To JTS: JT Storage, Inc.
1289 Anvilwood Avenue
Sunnyvale, California 94089
Attention: President
Telecopy Number: (408) 747-0849
18.0 Assignment
A. Except as specifically provided herein, no party hereto may assign
any of its rights (in whole or in part), or delegate any of its obligations (in
whole or in part), hereunder without the prior written consent of the other
parties, which consent shall not be unreasonably withheld. In the event of an
IPO, Compaq's rights hereunder will succeed to a successor by merger or
acquisition to Compaq following an IPO.
B. In the event of an assignment by JTS of any its rights or delegation
of its obligations, or in the event of a Change in Control of JTS and its
<PAGE> 23
operations, Compaq may at its sole option choose to terminate JTS' rights (but
not its obligations) under this Agreement.
19.0 Severability.
Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
20.0 Governing Law.
This Agreement shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Agreement shall be governed by, the laws of the State of
Texas, without giving effect to provisions thereof regarding conflict of laws.
21.0 Controlling Terms/Entire Agreement/Amendment.
This Agreement, those documents expressly referred to herein and other
documents of even date herewith embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way. No provisions in the purchase
orders, acknowledgments or other business forms of either party which are
different from or in addition to the applicable terms set forth in this
Agreement shall be of any force or effect whatsoever unless it is acknowledged
to in writing by the other party expressly stating that each document supersedes
this Agreement as follows: "Notwithstanding any term of the Development
Agreement by and between JTS and dated June 16th, 1994." Any provision of this
Agreement may be amended only with the prior written consent of all of the
parties hereto.
22.0 Multiple Counterparts.
This Agreement may be executed on separate counterparts transmitted by
telecopy, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
23.0 Relationship of the Parties.
It is not the intent of the parties to create partnership or joint
venture or to assume partnership liability or responsibility by entering into
this Agreement. Each party hereto shall be deemed an independent contractor with
respect to the other party and neither party hereto shall have any right or
authority to assume or create any obligations on behalf of the other party
hereto or to make any representations on such other party's behalf. Accordingly,
the obligations of the parties with respect to the matters addressed herein
shall be limited to those specifically set forth in this Agreement or other
written agreements between the parties.
<PAGE> 24
24.0 Public Disclosure.
Neither party hereto shall make any public release of information
regarding the terms of this Agreement relating to the royalties due hereunder
unless (i) such party has obtained the written consent of the other party
regarding the form, content and timing of such disclosure or (ii) such
disclosure is required by applicable law; provided that in the event of any
disclosure mandated by law, each party shall consult with the other as to the
content of such disclosure.
25.0 Right of Set-Off.
If in the good faith belief of one of the parties hereto (the "Insured
Party"), it is entitled to indemnification, reimbursement or payment hereunder,
in addition to any other remedies which it may have available to it, the Insured
Party shall have the right to set off the entire amount thereof against any
amounts which the Injured Party shall owe to the other party from time to time
thereafter for any reason, including any royalties due or which become due
hereunder.
26.0 No Strict Construction.
The language used in this Agreement will be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction will be applied against any party hereto.
27.0 Remedies.
Each of the parties confirms that damages at law may be an inadequate
remedy for a breach or threatened breach of this Agreement and agrees that, in
the event of a breach or threatened breach of any provisions hereof, the
respective rights and obligations hereunder shall be enforceable by specific
performance, injunction or other equitable remedy, but nothing herein contained
is intended to, nor shall it limit or affect, any rights at law or by statute or
otherwise of any party aggrieved as against any other party for breach or
threatened breach of any provision hereof, it being the intention by this
section to make clear the agreement of the parties that the respective rights
and obligations of the parties shall be enforceable in equity as well as at law
or otherwise.
<PAGE> 25
28.0 Preamble; Preliminary Recitals and Exhibits. The Preliminary Recitals set
forth in the Preamble hereto are hereby incorporated and made part of this
Agreement. Additionally, Exhibits A, B, and C are incorporated herein by
reference.
JT Storage COMPAQ COMPUTER CORP.
By: /s/ David B. Pearce By: /s/ Hugh Barnes
---------------------------- ---------------------------
David B. Pearce Hugh Barnes
President Sr. Vice President and
General Manager
Portable P.C. Division
Date: June 16, 1994 Date: 6/20/94
-------------------------- -------------------------
<PAGE> 26
AMENDMENT TO DEVELOPMENT AGREEMENT
This Amendment is made effective as of the Effective Date between COMPAQ
COMPUTER CORPORATION, A Delaware corporation having a principal place of
business at 20555 S.H. 249, Houston, Texas 77070 (hereinafter "Compaq") and JT
STORAGE, INC., a Delaware corporation having a principal a place of business at
1289 Anvilwood Avenue, Sunnyvale, California 94089 (hereinafter "JTS") and
amends the Development Agreement between the parties of effective date of June
16, 1994 (hereinafter referred to as "Agreement").
PRELIMINARY RECITALS
WHEREAS, Compaq has paid to JTS consideration of Five Hundred Thousand U.S.
Dollars (U.S. $500,000.00) under the Agreement; and
WHEREAS, JTS has been negotiating with Western Digital Corporation ("WDC")
about entering into a Technology Transfer and License Agreement pursuant to
which, among other things, JTS will grant to WDC certain license and sublicense
rights with respect to JTS technology, including the Nordic Series design and
other technology referred to in the Agreement between JTS and Compaq; and
WHEREAS, JTS desires that Compaq release JTS from certain obligations in the
Agreement in order that JTS may finalize the Technology Transfer and License
Agreement; and
WHEREAS, Compaq desires to release JTS from such obligations if WDC will
provide equity funding to JTS and thereby make JTS a more viable entity and
further to enable WDC to become an alternate source of Nordic Series HDDs for
Compaq; and
WHEREAS, JTS has represented to Compaq that WDC will provide equity funding to
JTS and JTS agrees that it will not stand in the way of WDC being an alternate
source of Nordic Series HDDs to Compaq; and
WHEREAS, the parties are desirous of modifying the obligations of each other
that are in the Agreement, as described in this Amendment; and
NOW THEREFORE, in consideration of the premises and the mutual covenants and
undertakings hereinafter set forth, the parties hereto hereby agree as follows:
1.0 Definitions
1.1 Capitalized terms in this Amendment shall have the same meaning as given
them in the Agreement.
1.2 Delete Section 1.14 in its entirety and replace with the following:
"Nordic-Series" means any HDD with a width of between 3.25 and 3.75
inches and a height of 0.50 (five-tenths) inches or less, and all
Licensed Technology pertaining principally thereto.
1.3 Delete Section 1.18 in its entirety and replace with the following:
[*] means that period of exclusivity commencing on the date of a
publicly-announced delivery by Compaq of a revenue-bearing product
incorporating a Nordic Series HDD and extending for a period of [*]
thereafter, provided however, that such [*] shall not begin unless
and until the
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 27
Nordic Series HDD that will be incorporated into the Compaq
product has been Accepted by Compaq.
1.4 The term [*] in the Agreement shall be replaced with the
term [*] .
1.5 The term "Nordic" in the Agreement shall be replaced with the term
"Nordic Series."
1.6 The "Effective Date" of this Amendment shall be February 3, 1995. The
amendments to Sections 2.1.e. and 2.1.f. of this Amendment shall, solely with
respect to JTS's obligations to TEAC, be retroactively effective as of June 16,
1994.
2.0 Development of Nordic Series HDDs
2.1 The parties agree to modify the Agreement as follows:
a. Delete Exhibits A, B, and C in their entirety and replace
within thirty (30) days of the effective date of this Amendment with new
Exhibits A, B, and C.
b. Delete Section 2.0.B of the Agreement in its entirety and
replace with the following:
JTS further agrees that the Nordic Series HDDs shall be
in strict conformance with the Nordic Technical
Specifications attached hereto as Exhibit C. To the
extent that JTS finds that any information in Exhibit C
will impact the Milestone Dates, Schedule, and/or
result in additional cost. JTS will notify Compaq in
writing within five (5) business days of the time that
Compaq provides JTS with the information which has
resulted in a change to the Milestone Dates, Schedule,
and/or additional cost. In the event that JTS does not
notify Compaq within five (5) days, then in such event,
the information furnished will be deemed to have no
impact on the Milestone Dates, Schedule, and/or cost of
the project.
c. Delete Section 2.0.C in its entirety and replace with the
following:
In consideration for JTS's agreement to design the
Nordic Series HDDs in conformance with the Development
Plan and the Project Milestones and in conformance with
the Nordic Technical Specifications; Compaq shall pay
five hundred thousand dollars (U.S. $500,000.00) as
non-recurring engineering charges ("NRE") to JTS for the
development of two (2) Nordic Series HDDs: [*] .
The NRE charges referred to above shall be
payable as follows:
One Hundred percent (100%) of NRE already paid
by Compaq by JTS.
d. In Section 2.0.E, second line down from the top, after the word
"that", insert the following:
, except for JTS's obligations under the Technology
Transfer and License Agreement with WDC.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 28
e. In Section 2.0.G, four lines down from the top, after the word
"Agreement," the phrase "except for any pre-existing obligation to TEAC and
JTS's obligations to WDC under the Technology Transfer and License Agreement."
f. Delete Section 2.0.H of the Agreement in its entirety and
replace instead with the following:
Except for any of JTS's pre-existing obligations to TEAC and
for the above-referenced Technology Transfer and License
Agreement with WDC, JTS agrees not to license the
Nordic Series design to a third party manufacturer. JTS
represents and warrants that the Technology Transfer and
License Agreement with WDC contains a prohibition against
WDC sublicensing the Licensed Technology to any third party
other than a WDC Subsidiary, as defined herein. "WDC
Subsidiary" is defined as an entity in which WDC holds at
least a fifty-one percent (51%) ownership, or, for WDC
manufacturing entities that are located in foreign
jurisdictions that require that the foreign entity own a
controlling interest, is controlled for all intent and
purposes by WDC and in which WDC holds at least a forty-nine
percent (49%) ownership, but only for so long as the
foregoing conditions are met.
g. Delete Section 2.0.J of the Agreement in its entirety and
replace with the following:
In consideration of the covenants and obligations set forth
in this Agreement, JTS agrees not to market any
particular Nordic Series HDD to any third party before such
Nordic Series HDD is Accepted by Compaq, and JTS further
agrees that it will not sell any Nordic Series HDDs [except
the Nordic three inch (3"), single disk, seven millimeter
(7mm) high, 270MByte HDD, the three inch (3"), dual disk,
ten and a half millimeter (10.5mm) high HDD with a capacity
of less than 700MBytes, and the three inch (3"), single
disk, ten and a half millimeter (10.5mm) high HDD with a
capacity of less than 350MBytes] to any third party for the
[*] . JTS shall be free to market Nordic Series HDDs to
third parties during the [*] provided however, that
marketing efforts shall not include the sale of Nordic
Series HDDs to such third parties in contravention of the
[*] . Additionally, JTS agrees that it will not sample
in quantities exceeding two (2) Nordic Series HDDs to any
third party during the [*]
h. In Section 2.0.K of the Agreement, delete all references to
[*] and replace with [*] Five lines down from the top, delete the phrase
"Nordic HDDs" and insert instead "HDDs."
i. Delete Section 2.0.L of the Agreement in its entirety and
replace with the following:
Upon expiration of the [*] and in consideration of the
covenants and obligations set forth in this Agreement,
Compaq will receive a royalty of [*] HDD for each Nordic
Series HDD sold to a third party, such royalty payable for
the initial Term of this Agreement. In the event that this
Agreement is extended beyond the initial Term, then in such
event, Compaq will receive a royalty of [*] HDD for each
Nordic Series HDD sold to a third party. Compaq agrees that
in the event that any third party, who is not licensed by
JTS, begins volume shipment of any Nordic Series equivalent
form factor and capacity HDDs, Company will renegotiate the
royalties of Section 2.0.L. in good faith. The foregoing
royalties shall be payable quarterly in accordance with the
provisions of this Agreement and subject to the audit
provision of
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 29
this Agreement. JTS agrees that WDC is obligated under
the above-referenced Technology Transfer and License
Agreement to pay to JTS the royalties described in the
following paragraph and further agrees that all such
royalties paid by WDC to JTS (hereinafter "WDC
Royalties") will be promptly paid by JTS to Compaq as
additional royalty under this Agreement. JTS hereby
grants to Compaq a perfected security interest in such
WDC Royalties and agrees to execute and file in
California and in Texas a Form UCC-1 with respect
thereto and all other documents and instruments as
Compaq may request to confirm or perfect such security
interest.
The royalty payable to WDC to JTS is as follows:
For so long as JTS is obligated to pay royalties to
Compaq for the sale of Nordic Series drives under this
Agreement, WDC shall pay to JTS, on a quarterly basis, a
royalty at a rate equivalent to the rate quoted in the
Development Agreement, not to exceed [*] per drive on
all sales of "Licensed Nordic Products" by WDC to any
third party other than Compaq (hereinafter referred to
as "Royalty Obligation"); provided, however, that at
such time as a third party competitor begins volume
shipment of any "3-Inch Disk Drive," such Royalty
Obligation will be reduced to a level to be negotiated
in good faith among WDC, JTS, and Compaq. Nothing in the
WDC/JTS Technology Transfer and License Agreement or in
this letter is intended to reduce or otherwise affect
JTS's obligation to Compaq to pay royalties to Compaq on
sales by JTS of Licensed Nordic Products. For purposes
of this letter and the WDC/JTS Technology Transfer and
License Agreement, "3-Inch Disk Drives" means every
magnetic-media storage system that includes control and
interfacing circuitry and hard disk assembly that
includes at least one magnetic rigid disk the diameter
of which is less than three and one-half inches (3 1/2")
and greater than two and three-quarters inches (2 3/4");
and "Licensed Nordic Products" means 3-Inch Disk Drives
that include the proprietary single-chip controller
currently embodied in JTS's Nordic Series design and any
derivative controller.
j. In Section 2.0.O of the Agreement, last line, delete "Nordic
HDDs" and insert instead "HDDs."
3.0 General
3.1 Other than as modified by this Amendment, all other terms and
conditions of the Agreement remain the same.
3.2 Whenever possible, each provision of this Amendment will be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Amendment is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
3.3 Governing Law. This Amendment shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Amendment shall be governed by, the laws
of the State of Texas, without giving effect to provisions thereof regarding
conflict of laws.
3.4 This Amendment, together with the Agreement and those documents
expressly referred to therein, and the Corporate Purchase Agreement of June 21,
1994 between the parties herewith, embody the complete agreement
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 30
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way. No
provisions in the purchase orders, acknowledgements or other business forms of
either party that are different from or in addition to the applicable terms set
forth in this Amendment shall be of any force or effect whatsoever unless it is
acknowledged to in writing by the other party expressly stating that such
document supersedes this Amendment as follows: "Notwithstanding any term of the
Development Agreement dated June 16, 1994 between the parties, as amended." Any
provision of this Amendment may be amended only with the prior written consent
of all of the parties hereto.
IN WITNESS WHEREOF, the persons signing below warrant that they are duly
authorized to sign for, an on behalf of, the respective parties. This
Amendment has been executed in duplicate originals.
JT STORAGE COMPAQ COMPUTER CORPORATION
By: /s/ David B. Pearce By: /s/ Hugh Barnes
-------------------------- ----------------------------
David E. Pearce Hugh Barnes
President Senior Vice President
General Manager
Portable PC Division
Date: February 3, 1995 Date: 2/8/95
-------------------------- ----------------------------
5
<PAGE> 31
[COMPAQ LETTERHEAD]
December 5, 1995
Mr. Lee Peterson
Vice President Sales & Marketing
JTS Corporation
166 Baypointe Parkway
San Jose, CA 95134
Subject: Nordic Series Exclusivity Issue; Proposed Amendment 2 to our
Development Agreement of June 16, 1994, ("Agreement") as
amended by the Amendment dated February 3, 1995 ("Amendment 1")
Dear Lee:
Thank you for your letter of November 28, 1995. We seem to be close to agreement
on the issues. While Compaq remains willing to provide JTS relief from the
current [*] on Nordic Series products, we would
like to ensure (1) that Compaq's prices for Nordic Series products are not
permitted to increase as a result of increased royalties required of third
parties, and (2) that the proposed terms also apply to Western Digital
Corporation ("WDC"). Compaq proposes, therefore, to modify our Agreement, as
amended by Amendment 1 (collectively "Amended Agreement") substantially as
outlined in your letter of November 28, 1995, with additional provision to
address provided these concerns. Accordingly, we propose the following as
Amendment 2 to our Amended Agreement:
* Sections 2.0.G and 2.0.I of the Amended Agreement will remain in effect. In
addition, Compaq's prices for Nordic Series products will be the lesser of the
amounts permitted under these Sections or Compaq's current prices.
* For clarification, the phrase [*] , wherever it appears in the Amended
Agreement, shall be replaced by [*] . The [*] will commence upon the
date of delivery by JTS of a revenue-bearing product and extend for a period
of [*] thereafter.
Section 2.0.J of the Amended Agreement is simply entirely deleted to reflect
the elimination of the [*] restriction placed on JTS.
* The first sentence the first paragraph of Section 2.0.L of the Amended
Agreement is replaced with the following sentence: "Compaq will receive a
royalty of (a) [*] /HDD for each Nordic Series HDD sold to a third party
during the [*] , and (b) [*] /HDD for each Nordic Series HDD sold to a
third party after the [*] , such royalty payable for the initial Term of
this Agreement."
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 32
Mr. Lee Peterson -2- December 5, 1995
* The first sentence of the last paragraph of Section 2.0.L of the Amended
Agreement is replaced with the following sentence: "For so long as JTS is
obligated to pay royalties to Compaq for the sale of Nordic Series drives
under this Agreement, WDC will pay JTS, on a quarterly basis, a royalty at a
rate of (a) [*] /HDD for each Nordic Series HDD sold to a third party
other than Compaq during the [*] , and (b) [*] /HDD for each Nordic
Series HDD sold to a third party other than Compaq after the [*]
(collectively "Royalty Obligation"): provided, however, that at such time as
a third party competitor begins volume shipment of any "3-Inch Disk Drive,"
such Royalty Obligation will be reduced to a level to be negotiated in good
faith among WDC, JTS and Compaq.
* Capitalized terms in this letter shall have the same meaning given them in
the Amended Agreement. Other than as modified by this Amendment 2, all other
terms and conditions of the Amended Agreement remain the same.
Because we understand the importance of timing to JTS at this stage, JTS may
confirm its acceptance of the above by signing below and returning a counter
signed copy of this letter to me at the above address. This Amendment 2 shall
become effective upon JTS' acceptance and return of a countersigned copy of
this letter.
Very truly yours,
COMPAQ COMPUTER CORPORATION
/s/ James W. Hartzog
- -----------------------------
James W. Hertzog
Vice President AGREED TO:
Portable PC Division
JTS Corporation
By: /s/ D. T. Mitchell
---------------------------
Name: David T. Mitchell
Date: Dec. 15, 1995
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 1
EXHIBIT 10.26
COMPAQ COMPUTER CORPORATION
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is made by Compaq Computer
Corporation ("Buyer") and J.T. Storage Inc., ("Seller"), (JTS).
The terms and conditions contained in this Agreement shall govern
the purchase and sale of Product listed in Exhibit A ("Products and
Pricing"), conforming to Compaq specifications listed in Exhibit "B".
1. INTENT
A. Buyer intends to enter into a long term relationship with Seller. As
such, Seller is willing to cooperate with Buyer to further mutual long
term goals by sharing Product road map and technology directions.
Seller agrees to cooperate to achieve Buyer's long term program goals
such as shortening Product lead-times, increasing volume flexibility,
achieving Just-in-Time delivery, achieving ongoing cost reductions and
specific quality goals, and continuous quality improvement.
B. This Agreement is not a requirements contract and does not obligate
Buyer to purchase any minimum quantity of Product but only establishes
the terms and conditions for such purchase if and when they occur,
except as provided in Exhibit "A".
2. PURCHASE ORDERS
A. Buyer will purchase Products only by issuing purchase orders ("Order or
Orders") to Seller. Orders shall contain such things as quantity, price,
delivery date, part number, and revision level. Buyer shall make
commercially reasonable efforts to send written confirmation (except by
mutual agreement) of Orders within one (1) week after issuance. If
Seller fails to return the acknowledgment, Seller will be deemed to have
accepted any Order which conforms with the terms of this Agreement. No
additional or different provisions proposed by Seller shall apply unless
expressly agreed to in writing by Buyer. Buyer hereby gives notice of
its objection to any additional or different terms.
B. Seller agrees that all Buyer sites, subsidiaries, affiliated companies
and subcontractors, wherever located, shall be entitled to make
purchases under this Agreement.
3. TERM OF AGREEMENT
A. The term of this Agreement shall be sixty (60) months, commencing on
the date Buyer executes this Agreement ("Effective Date"). This
Agreement will be automatically renewed at the conclusion of the
initial sixty (60) month period for successive twelve (12) month
periods unless one of the parties indicates by written notice to the
other party not less than thirty (30) days prior to the end of any
such twelve (12) month period that it does not intend to renew the
Agreement. Notwithstanding the foregoing, the Agreement shall remain
in full force and effect and shall be applicable to any Order(s) issued
by Buyer to Seller during the term of this Agreement until any and all
obligations of the parties under such Order(s) have been fulfilled.
page 1
<PAGE> 2
4. PRICING
A. The prices for the Products shall be set forth in Exhibit A and shall be for
the period set forth therein (the "Pricing Period").
B. Prices shall include all charges such as packaging, packing, crating,
storage, forwarding agent or brokerage fees, document fees, duties, and any
and all sales, use, excise and similar taxes.
C. Seller represents that the prices charged for any 3 1/2" product, qualified
by Compaq, will be [*] than prices charged to any other customer,
regardless of volume. Seller represents that prices charged for any 3" form
factor product, qualified by Compaq, will be [*] than prices charged to
any other customer, regardless of volume. In the event Seller provides
prices and/or terms for Products more favorable to another of its customers.
Buyer shall be entitled to a reduction retroactive to the date the prices
and/or terms were made available to other customers.
D. Seller shall maintain a vigorous cost reduction program to ensure that
pricing is competitive at all times. In the event that Buyer does not
consider Seller's pricing aggressive relative to the market during any
Pricing Period, Buyer shall have the right to request an immediate meeting
with Seller to renegotiate pricing.
E. Seller agrees to allow mutually acceptable independent auditors to inspect
the books and records of Seller from time to time as reasonably necessary to
confirm the representations contained in, and compliance with the terms of,
this Section 4, at Buyer's expense.
5. DELIVERY
A. Time shall be of the essence in meeting Buyer's requirements. Delivery
performance shall be measured by on-dock date at Buyer's specified ship-to
location (+/- 2 Days).
B. Unless otherwise set forth in the Order, title and risk of loss shall pass to
Buyer at Buyer's specified ship-to location.
C. If Seller delivers Product in advance of the specified delivery date, Buyer
may either return such Product at Seller's risk and expense for subsequent
delivery on the specified delivery date or retain such material and make
payment when it would have been due based on the specified delivery date.
D. Changes to delivery dates may only be made by Buyer's authorized purchasing
representatives. Buyer may, without cost or liability, issue change requests
for Product quantities and schedule dates in accordance with the Flexibility
Agreement attached as Exhibit D ("Flexibility Agreement"). Written
confirmation will be sent by Seller to Buyer within two (2) work days of
receiving a change request, and Buyer shall provide a confirming Order change
within ten (10) working days of receiving Seller's confirmation.
E. Seller shall notify Buyer in writing immediately if Seller has knowledge of
any event which could result in any change to the agreed delivery plan.
F. In the event that Product scheduled for delivery is more than two (2)
business days late, Buyer may request such Product to be shipped and
delivered via a different mode of transportation at sellers expense.
Alternatively, Buyer may purchase substitute Product elsewhere without
affecting other remedies Buyer may have and charge Seller any additional cost
incurred as a result.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
page 2
<PAGE> 3
6. PACKING, MARKING, AND SHIPPING INSTRUCTIONS
A. All Product shall be prepared and packed in a commercially reasonably
manner so as to secure the lowest transportation rates and meet
carrier's requirements or those set forth in the Product specification
attached as Exhibit B ("Specification").
B. Each shipping container shall be marked to show Buyer's Order number,
part number, revision level, lot number, and quantity contained therein.
A packing list showing the Order number shall be included in each
container.
C. Seller agrees to standardize the count multiples used in shipments.
7. QUALITY
A. Seller shall establish and/or maintain a quality improvement plan
acceptable to Buyer. Seller's Quality Improvement Plan is attached to
this Agreement as Exhibit C ("Quality Plan").
B. At Buyer's request, Seller will facilitate one-site visits and
inspections by Buyer during normal business hours. Buyer's inspections
shall in no way relieve Seller of its obligation to deliver conforming
Product or waive Buyer's right of inspection and acceptance at the time
the Products are delivered.
C. Seller agrees to provide relevant outgoing inspection, quality, and
reliability data upon Buyer's request.
D. Seller agrees to conform to the revision level stated on Buyer's Order.
E. Seller agrees to advise Buyer of any changes to process, materials, or
sources of supply and ensure that such changes do not compromise
specifications, quality, or reliability of Products ordered by Buyer.
8. INSPECTION AND ACCEPTANCE
A. Products purchased pursuant to this Agreement shall be subject to
inspection and test by Buyer at all times and places, including the
period of manufacture or development. Unless otherwise specified in the
Order, final inspection and acceptance of Product by Buyer shall be at
Buyer's facilities. Buyer reserves the right to reject Product which
does not conform to the specifications, drawings, samples or other
descriptions specified by Buyer. Buyer may, at its option, either return
defective or non-conforming Product for full credit of the purchase
price plus any transportation charges paid by Buyer, or require prompt
correction or replacement of defective or non-conforming Product, which
rights shall be in addition to such other rights as Buyer may have in
law or in equity. Product required to be corrected or replaced shall be
subject to the same inspection and warranty provisions of this Agreement
as Product originally delivered under any Order. Buyer may charge Seller
for costs of any above normal level of inspection.
page 3
<PAGE> 4
B. In the event Buyer returns Product back to Seller for correction or
replacement, Seller shall repair or replace all defective Product within
five (5) days of receipt of such Product. Seller will issue a "Return
Material Authorization" within twenty-four (24) hours of receipt. Seller
shall bear all risk and costs such as labor, material, inspection, and
shipping to and from Buyer's facilities. If Buyer incurs any such costs, it
may either recover them directly from Seller or set-off via a credit note
any amounts due to Seller. Seller agrees to provide failure analysis of
rejected material within five (5) days after receipt of rejected materials.
Seller will also provide a written corrective action report addressing the
steps that will be taken to eliminate the cause of the problem.
9. WARRANTY
A. Seller warrants that title to all Products delivered to Buyer under this
Agreement shall be free and clear of all liens, encumbrances, security
interests or other claims and that for a period of three (3) years from date
of acceptance of material by Buyer, that all Product shall be free from
defects in material, workmanship, and design. Seller further warrants that
all Product shall conform to applicable specifications, drawings, samples,
and descriptions referred to in this Agreement. The warranty for replaced or
repaired Product will be the same as the original Product.
B. Defective material discovered during Buyer's manufacturing or assembly
processes are not considered to be a warranty repair and shall be corrected
in accordance with paragraph 8.B.
C. Seller agrees that in case of epidemic failure (greater than 2% failure for
the same cause in any six (6) month period), Seller shall provide correction
or replacement in accordance with Paragraph 8.B.
D. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 9, NO WARRANTIES, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, ARE MADE WITH RESPECT TO THE PRODUCT
DELIVERED BY SELLER TO BUYER UNDER THIS AGREEMENT.
10. OUT OF WARRANTY REPAIRS and SPARE PARTS AVAILABILITY
A. Seller agrees to refurbish to a "like new" condition any out of warranty
Product at the refurbishment prices listed in Exhibit E ("Service, Repair,
and Refurbishment"). In addition, Seller agrees to make available for
purchase by Buyer replacement and repair parts for Products ("Spares") in
accordance with Exhibit E.
11. PAYMENT AND SET-OFF
A. Terms of payment shall be net 15 from the date of Seller's invoice provided
that Product has been received by Buyer for the period of six (6) months
from date of initial production shipment. After this period, terms of
payment shall be net 45 from the date of Seller's invoice provided that
Product has been received by Buyer. Payment of invoices shall not constitute
final acceptance of the Product.
B. Buyer retains the right to setoff rejections of Product or discrepancies on
paid invoices against future invoices.
C. Unless otherwise specified in Exhibit A or agreed to in writing by the
parties, payment shall be in U.S. dollars.
page 4
<PAGE> 5
12. CHANGES
A. Buyer may from time to time change the specifications for the Products and
Seller agrees to make best efforts to comply. If changes result in a change
in Seller's costs or in the time for performance, an adjustment will be
made. Any adjustment must be in writing and must be requested within ten
(10) days of receipt by Seller of the notice of change.
B. No changes shall be made by Seller in the form, fit, or function of Products
purchased hereunder without Buyer's prior written approval.
13. TERMINATION FOR CAUSE
A. Seller may terminate this Agreement and/or any Order issued hereunder at any
time by written notice in the event Buyer:
1. Fails to comply with any material provision of this Agreement or any
Order issued hereunder, and in the case of a breach which is capable of
remedy, fails to remedy same within thirty (30) days of notification of
said breach, or
2. Becomes insolvent or makes an assignment for the benefit of creditors, or
a receiver or similar officer is appointed to take charge of all or a
part of the Buyer's assets and such condition is not cured within thirty
(30) days, or
B. Buyer may terminate this Agreement and/or any Order issued hereunder at any
time by written notice in the event Seller:
1. Fails to comply with any material provision of this Agreement or any
Order issued hereunder, and in the case of a breach which is capable of
remedy, fails to remedy same within thirty (30) days of notification of
said breach, or
2. Becomes insolvent or makes an assignment for the benefit of creditors, or
a receiver or similar officer is appointed to take charge of all or a
part of Seller's assets and such condition is not cured within thirty
(30) days, or
3. Assigns or attempts to assign, or subcontracts or attempts to
subcontract, any or all of its rights or obligations under this Agreement
or any Orders issued hereunder to a third party without Buyer's prior
written approval, or
4. Failure to agree on pricing for any Pricing Period.
C. Upon termination by Seller of the Agreement and/or any Order issued under
13A above, Buyer's entire liability shall be to purchase all finished goods,
work in progress, and Buyer unique materials that have been purchased within
lead time by Seller to fulfill Buyer's Order(s).
D. Upon termination by Buyer of the Agreement and/or any Order issued under 13B
above:
1. Buyer shall have the option to purchase any materials or work in progress
which Seller may have purchased or processed for the fulfillment of any
Order at Seller's cost plus a reasonable amount for any value already
added by Seller.
2. Buyer shall have no liability beyond payment for any balance due for
Products delivered by Seller before notice of termination.
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<PAGE> 6
14. TERMINATION FOR CONVENIENCE
A. Buyer may terminate this Agreement and/or any Order issued hereunder at
any time for any reason upon giving written notice of termination to the
Seller. Upon receipt of such notice, Seller shall immediately cease to
incur expenses pursuant to this Agreement and/or the Order that has been
terminated unless otherwise directed in the termination notice. Seller
shall also take all reasonable steps to mitigate the cost to Buyer for
terminating this Agreement and/or any Order. Within sixty (60) days from
the date of notice, Seller shall notify Buyer of costs incurred up to the
date of termination. In no event shall such cost exceed the unpaid balance:
1. Due for conforming material delivered prior to receipt of Buyer's
termination notice; and
2. Due on purchase orders previously issued in conformance with this
Agreement.
B. In addition to the foregoing, in the event that this Agreement is
terminated pursuant to this Paragraph, Buyer's entire liability shall be to
purchase all finished goods, work in progress, and Buyer unique materials
that have been purchased within lead time by Seller to fulfill Buyer's
Order(s).
15. LIMITATION OF LIABILITY
A. EXCEPT FOR A BREACH OF SECTION 19, 25 OR 26 OF THIS AGREEMENT, NEITHER
PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION,
LOST PROFITS, UNLIQUIDATED INVENTORY, ETC.), INCIDENTAL, INDIRECT, SPECIAL,
ECONOMIC, OR PUNITIVE DAMAGES EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
16. FORCE MAJEURE
A. Neither party shall be liable for its failure to perform any of its
obligations hereunder during any period in which performance is delayed by
fire, flood, war, embargo, riot or the intervention of any government authority
("Force Majeure"), provided that the party suffering such delay immediately
notifies the other party of the delay. If, however, Seller's performance is
delayed for reasons set forth above for a cumulative period of fourteen (14)
calendar days or more, the Buyer, notwithstanding any other provision of this
Agreement to the contrary, may terminate this Agreement and/or any Order issued
hereunder by notice to Seller. In the event of such termination, Buyer's sole
liability, hereunder will be for the payment to Seller of any balance due and
owing for conforming Product delivered by Seller prior to Seller's notification
of delay to Buyer. In the event the parties do not terminate this Agreement
and/or Order due to a Force Majeure, the time for performance or cure will be
extended for a period equal to the duration of the Force Majeure.
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17. PRODUCT NOTICES
A. Any notice given under this Agreement shall be in writing and will be
effective when delivered personally or deposited in the mail, postage prepaid
and addressed to the parties at their respective addresses set forth below,
or at any new address subsequently designated in writing by either party to
the other:
If to Seller: If to Buyer:
JTS CORPORATION COMPAQ COMPUTER CORPORATION
1289 Anvilwood Avenue P.O. BOX 692000
Sunnyvale, CA 94089 20555 S.H. 249
HOUSTON, TEXAS 77269-2000
ATTN.: David B. Pearce ATTN.:
with a copy to:
COMPAQ COMPUTER CORPORATION
P.O. BOX 692000
20555 S.H. 249
HOUSTON, TX 77269-2000
ATTN.: Division Counsel - Operations
18. COMPLIANCE WITH LAWS
A. All Product supplied and work performed under this Agreement shall comply
with all applicable laws and regulations in effect. In particular, Seller
agrees that its performance under this Agreement shall comply with all laws
governing its relationship with its employees, agents or subcontractors and
with the chlorofluorocarbon labeling requirements of the U.S. Clean Air Act
of 1990. Upon request, Seller agrees to certify compliance with such
applicable laws and regulations.
19. PATENT, COPYRIGHT AND TRADEMARK INDEMNITY
A. Seller shall defend, at its expense, any claim against Buyer alleging that
Products furnished under this Agreement infringe any patent, copyright or
trademark and shall pay all costs and damages awarded, provided Seller is
notified in writing of such claim and permitted to defend and compromise such
claim. If a final injunction against Buyer's use of the Products results from
such a claim (or, if Buyer reasonably believes such a claim is likely) Seller
shall, at its expense, and at Buyer's request, use commercially reasonable
efforts to obtain for Buyer the right to continue using the Product. In the
event that Seller cannot obtain such right for Buyer, Seller shall repurchase
all such Product from Buyer at the purchase price.
B. Seller warrants that there are no claims of infringement with respect to the
Product.
C. Seller is authorized to use Compaq logo and trademark only to the extent
necessary to meet the required specification for the Product(s). No other
rights with respect to Buyer's trademarks, trade names or brand names are
conferred, either expressly or by implication, upon Seller.
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<PAGE> 8
20. CAPACITY PLANNING
A. Seller agrees to review forecasts provided by Buyer and advise Buyer if
Seller anticipates that he will be unable to achieve the requested volumes.
Buyer volume forecasts will be provided to Seller in accordance with Exhibit
A. Seller may from time to time request Buyer to review Buyer's forecast and
advise of any changes.
21. GRATUITIES
A. Each party represents that it has not offered nor given and will not offer
nor give any employee, agent, or representative of the other party any
gratuity with a view toward securing any business from the other party or
influencing such person with respect to the business between the parties.
22. INSURANCE AND STATUTORY OBLIGATIONS
A. If Seller's work under this Agreement requires access by Seller to any of
Buyer's premises or the premises of Buyer's customers or locations where
Buyer conducts business, or with material or equipment furnished by Buyer,
Seller shall take all necessary precautions to prevent the occurrence of any
injury to persons or property during the progress of such work and, except
to the extent that such injury is due solely and directly to Buyer's acts or
negligence, Seller shall indemnify Buyer against all loss which may result
in any way from any act or negligence of Seller, its employees, servants,
agents or subcontractors, and Seller shall maintain such insurance as shall
protect Buyer from such risks and from any statutory liabilities arising
therefrom and shall provide evidence of such insurance to Buyer upon
request.
23. INDEMNIFICATION
Seller agrees to protect, defend, indemnify and save Buyer harmless from all
sums, costs and expense which Buyer may incur or be obliged to pay as a
result of any and all loss, expense, damage, liability, claims, demands,
either at law or in equity, of every nature whatsoever in favor of any
person, including both Seller's and Buyer's employees, resulting from any
personal injury or death resulting from the use of any product sold to Buyer
by Seller hereunder, irrespective of whether Compaq or any other party is
found to have been negligent or strictly liable in connection with such
personal injury or death.
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<PAGE> 9
24. CONFIDENTIAL INFORMATION
A. Each party recognizes that it may have previously entered or will in the
future enter into various agreements with the other party which obligates
it to maintain as confidential certain information disclosed to it by the
other party. To the extent that such information or any further
confidential information, which might include but is not limited to
business plans, forecasts, capacity, pricing, inventory levels, etc.
(collectively referred to hereinafter as "Information") is disclosed in
furtherance of this Agreement or any Order issued hereunder, such
information shall be so disclosed pursuant to the minimum terms and
conditions listed below; provided, however, the minimum terms and
conditions listed below shall in no way relieve the parties from any
obligation or modify such obligations previously agreed to in other
agreements. Both parties agree that this Agreement and any other
agreements regarding confidential information shall hereafter be
considered as coterminous, and shall expire no earlier than the date of
expiration or termination of this Agreement.
B. Both parties agree that the party receiving information will maintain such
information in confidence for a period of three (3) years from the date of
disclosure of such information, except when such disclosure is required by
law.
C. Each party shall protect the other party's information to the same extent
that it protects its own confidential and proprietary information and shall
take all reasonable precautions to prevent unauthorized disclosure to third
parties, except when such disclosure is required by law.
D. The parties acknowledge that the unauthorized disclosure of such
information will cause irreparable harm. Accordingly, the parties agree
that the injured party shall have the right to seek immediate injunctive
relief enjoining such unauthorized disclosure.
E. This provision shall not apply to information (1) known to the receiving
party at the time of receipt from the other party, (2) generally known or
available to the public through no act or failure to act by the receiving
party, (3) furnished to third parties by the disclosing party without
restriction on disclosure, or (4) furnished to the receiving party by a
third party as a matter of right and without restriction on disclosure.
F. Immediately upon termination of this Agreement or at the request of the
other party, each of the parties shall promptly return all materials in its
possession containing information of the other party.
25. COUNTRY OF ORIGIN
A. For each Product purchased under this Agreement, Seller shall furnish
Buyer with country of origin (manufacture), by quantity and part number
(Buyer's and Seller's) if necessary.
B. Seller agrees to provide necessary export documents and to facilitate
export of Product. Seller further agrees to assist Buyer's import of
Product as reasonably requested by Buyer.
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26. PROPERTY FURNISHED BY BUYER
A. Any tools, drawings, specifications, or other materials furnished by Buyer
for use by Seller in its performance under this Agreement or any Order issued
hereunder shall be identified and shall remain the property of Buyer and
shall be used by Seller only in its performance hereunder. Such property
shall be delivered, upon request, to destination specified by Buyer in good
condition, except for normal wear and tear.
27. GENERAL
A. Any obligations and duties which by their nature extend beyond the expiration
or earlier termination of this Agreement shall survive any such expiration or
termination and remain in effect.
B. If any provision or provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, such provision shall be enforced to the fullest
extent permitted by applicable law and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
C. No action, except those regarding claims by third parties, or claims with
respect to patents, copyrights, trademarks or trade names or the unauthorized
disclosure of Confidential Information, regardless of form, arising out of
this Agreement may be brought by either party more than two (2) years after
the cause of action has arisen, or, in the case of non-payment, more than two
(2) years from the date the payment was due.
D. Any waiver of any kind by a party of a breach of this Agreement must be in
writing, shall be effective only to the extent set forth in such writing and
shall not operate or be construed as a waiver of any subsequent breach. Any
delay or omission in exercising any right, power or remedy pursuant to a
breach or default by a party shall not impair any right, power or remedy
which either party may have with respect to a future breach or default.
E. Seller hereby gives assurance to Buyer that it shall not export, re-export or
otherwise disclose, directly or indirectly, technical data received from
Buyer or the direct product of such technical data to any person or
destination when such export, re-export or disclosure is prohibited by the
laws of the United States or regulations of a Department of the United
States.
F. This Agreement is considered to be Compaq Confidential.
G. The entire Agreement between the parties is incorporated in this Agreement
and Appendices attached hereto, and it supersedes all prior discussions and
agreements between the parties relating to the subject matter hereof. This
Agreement can be modified only by a written amendment duly signed by persons
authorized to sign agreements on behalf of both parties, and shall not be
supplemented or modified by any course of dealing or trade usage. Variance
from or addition to the terms and conditions of this Agreement in any Order,
or other written notification from Seller will be of no effect.
H. THE CONSTRUCTION, VALIDITY, AND PERFORMANCE OF THIS AGREEMENT AND ANY ORDER
ISSUED UNDER IT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, U.S.A.
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<PAGE> 11
28. [*]
IN WITNESS, THE AUTHORIZED REPRESENTATIVES OF THE PARTIES HAVE EXECUTED THIS
AGREEMENT.
For the Buyer For the Seller
/s/ JACK BAIKIC 6/21/94 /s/ DAVID B. PEARCE 6/21/94
________________________________ _______________________________
Signature (date) Signature (date)
JACK BAIKIC DAVID B. PEARCE
________________________________ _______________________________
Name Name
Director, Mass Storage
Corporate Procurement President
________________________________ _______________________________
Title Title
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
page 11
<PAGE> 1
EXHIBIT 10.27
TECHNOLOGY TRANSFER AND
LICENSE AGREEMENT
THIS TECHNOLOGY TRANSFER AND LICENSE AGREEMENT (this "Agreement") is made
this 3rd day of February, 1995, by and between WESTERN DIGITAL CORPORATION, a
Delaware corporation, having its principal place of business at 8105 Irvine
Center Drive, Irvine, California 92718 ("WDC"), and JT STORAGE, INC., a Delaware
corporation, having its principal place of business at 1289 Anvilwood Avenue,
Sunnyvale, California 94089 ("JTS"), with reference to the following facts:
WHEREAS, JTS has designed and developed new hard disk drive products in a
new form factor generally referred to as a 3-inch disk drive form factor, at
least one of which is currently ready for production and for which JTS currently
has a customer;
WHEREAS, WDC desires to acquire from JTS the information and rights
necessary to enable WDC to manufacture such new JTS disk drive products, as well
as certain related rights, all as set forth herein; and
WHEREAS, JTS is willing to transfer such information and rights to WDC in
consideration of the payment and other obligations of WDC hereunder.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "3-Inch Disk Drive" means every magnetic-media storage system that
includes control and interfacing circuitry, and a head-disk assembly that
includes at least one magnetic rigid disk the diameter of which is less than
three and one-half inches (3.50") and greater than two and three quarters inches
(2.75").
1.2 "Accessories" means any products that are not 3-Inch Disk Drives but
are sold in conjunction with or for uses incidental to a 3-Inch Disk Drive that
is a Licensed Product, such as carrying cases, docking modules, interface cards
and installation software and other items incidental to installation in a
computer or other value added subsystem; provided, however,
<PAGE> 2
Accessories shall not include any system incorporating a 3-Inch Disk Drive.
1.3 "Additional Developments" of a party hereto means any
improvements in, modifications on, or variations of any Licensed Nordic
Product; provided, however, that any such improvements, modifications and
variations that do not result in a change to any of the following
specifications of the affected Licensed Nordic Product shall be excluded from
the scope of the term Additional Developments: capacity per disk, data transfer
rate, mechanical form factor, and interface specifications.
1.4 "Captured Patents" of a party hereto means all Patents, issued
or issuing, on applications entitled to an effective filing date prior to
December 31, 1999, under which Patents or the applications therefor such party
or any of its Subsidiaries now has, or hereafter obtains, the right to grant
licenses of or within the scope granted herein. The Captured Patents of JTS
include, but are not limited to, the Patents and Patent applications listed on
Exhibit B attached hereto.
1.5 "Change in Control" means any circumstance in which (a) any
person, entity or group (as group is used in Section 13(d)(3) of the Exchange
Act of 1934, as amended) (other than pursuant to a venture capital financing)
acquires direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Exchange Act of 1934, as amended) in the aggregate of securities of
JTS representing more than thirty percent (30%) of the total combined voting
power of JTS's then issued and outstanding voting securities; (b) the sale of
all or substantially all of the assets of JTS occurs to any person or entity
that is not a wholly-owned-subsidiary of JTS; (c) a part is liquidated; or (d)
an entity identified in Section 11.3 of this Agreement holds or otherwise
controls, directly or indirectly, a majority of the seats on the Board of
Directors of JTS as a result of an election contest.
1.6 "The Customer Sponsor" means the company identified in a letter
from JTS to WDC dated of even date herewith.
1.7 "Designated Product" means the first double disk Licensed
Nordic Product and its single disk version that results from the Technology
Transfer Program.
1.8 "Effective Date" means the effective date of this Agreement as
set forth in Section 10.1 below.
1.9 "Future Generation Licensed Nordic Products" means all Licensed
Nordic Products other than the Designated Product.
1.10 "JTS Chip" means the proprietary single-chip controller
identified by JTS as 541J included in the Designated Product, and any
derivative of such controller.
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<PAGE> 3
1.11 "Licensed Nordic Products" mean every 3-Inch Disk Drive that
includes a JTS Chip or any derivative of a JTS Chip, including, without
limitation, the Designated Product.
1.12 "Licensed Products" mean (a) every 3-Inch Disk Drive and all
components thereof and (b) all Accessories.
1.13 "Other Licensed Technology" of a party hereto means all
technical information and intellectual property (other than Captured Patents
and trademarks and trade names), now owned or possessed by such party (or any
of its Subsidiaries) or hereafter conceived, developed or acquired by such party
(or any of its Subsidiaries), embodied or used, or intended to be embodied or
used, in the making or operation of any Licensed Nordic Product, including,
without limitation, copyrights, trade secrets, inventions, source codes, object
codes, flow charts, processes, techniques, specifications, drawings, parts
layouts, parts lists, technical information pertaining to manufacturing, parts,
circuitry, tooling and testing requirements, know-how, manuals and other
technical data and support documentation, whether or not patentable or
copyrightable.
1.14 "Patents" mean any and all patents of all countries of the
world, including utility patents, design patents, reissue patents, utility
models, inventors certificates and registrations, and any and all applications
therefor, including divisional, continuation, and reissue applications.
1.15 "Subsidiary" of a party hereto means any corporation, company
or other entity (a) in which such party holds at least fifty-one percent (51%)
ownership or (b) with respect to such party's manufacturing entities that are
located in foreign jurisdictions that require that the foreign entity own
a controlling interest, that is controlled for all intents and purposes by such
party and in which such party holds at least forty-nine percent (49%)
ownership, but only for so long as the foregoing conditions are met.
1.16 "Technology Transfer Program" means the program described in
Exhibit A, pursuant to which JTS will deliver to WDC information, rights,
documentation and other items relating to the Designated Product.
ARTICLE 2
LICENSES
2.1 Grant of Non-Exclusive Patent License by JTS. In consideration
of WDC entering into this Agreement, JTS hereby grants WDC the perpetual
non-exclusive worldwide right and license under the JTS Captured Patents to
make, have made, use, import and sell Licensed Products, and to make, have
made and use machines, tools, apparatus and equipment required in such
manufacture, and to dispose of such machines, tools, apparatus
3
<PAGE> 4
and equipment by sale or otherwise when no longer required in such manufacture;
provided, however, that such sale or disposal of such machines, tools,
apparatus and equipment shall carry no express or implied rights to make, use
or sell any Licensed Product.
2.2 Grant of Non-Exclusive Licensed Technology License by JTS. In
consideration of WDC entering into this Agreement, JTS hereby grants WDC the
perpetual non-exclusive worldwide right and license under JTS Other Licensed
Technology to make, have made, use, import and sell the Licensed Nordic
Products, and to make, have made and use machines, tools, apparatus and
equipment required in such manufacture, and to dispose of such machines, tools,
apparatus and equipment by sale or otherwise when no longer required in such
manufacture; provided, however, that such sale or disposal of such machines,
tools, apparatus and equipment shall carry no express or implied rights to
make, use or sell any Licensed Nordic Product.
2.3 Grant of Non-Exclusive Patent License by WDC. Subject to the
terms and conditions of this Agreement, WDC hereby grants JTS the perpetual
non-exclusive worldwide right and license under WDC Captured Patents to make,
have made, use, import and sell Licensed Products, and to make, have made and
use machines, tools, apparatus and equipment required in such manufacture, and
to dispose of such machines, tools, apparatus and equipment by sale or
otherwise when no longer required in such manufacture; provided, however, that
such sale or disposal of such machines, tools, apparatus and equipment shall
carry no express or implied rights to make, use or sell any Licensed Product.
2.4 Grant of Non-Exclusive License by WDC. Subject to the terms and
conditions of this Agreement, WDC grants JTS the perpetual non-exclusive
worldwide right and license under WDC Other Licensed Technology to make, have
made, use, import and sell Licensed Nordic Products, and to make, have made and
use machines, tools, apparatus and equipment required in such manufacture, and
to dispose of such machines, tools, apparatus and equipment by sale or
otherwise when no longer required in such manufacture; provided, however, that
such sale or disposal of such machines, tools, apparatus and equipment shall
carry no express or implied rights to make, use or sell any Licensed Nordic
Product.
2.5 Sublicensing. Except as separately agreed between WDC and the
Customer Sponsor, the licenses granted in this Article 2 shall not include the
right to sublicense to a third party; provided, however, that the licenses
granted in this Article 2 shall inure to the benefit of any subsidiary of a
party hereto during such period of time that such entity remains a Subsidiary
of such party.
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<PAGE> 5
2.6 Additional Disclosure and Transfer Obligations.
(a) In addition to the information, documents, rights and other
tangible and intangible items required to be transferred and delivered to WDC
by JTS in accordance with the Technology Transfer Program, until the earlier of
(i) six (6) months after WDC commences volume production of a Licensed Nordic
Product or (ii) March 31, 1996, JTS shall, at JTS's sole expense, deliver,
transfer and disclose to WDC all other information, documents, rights and other
tangible and intangible items that constitute JTS Other Licensed Technology,
within a reasonable time before JTS (or any of its Subsidiaries) begins to sell
any Licensed Nordic Product containing such JTS Other Licensed Technology.
Thereafter, [*] JTS shall disclose to WDC all JTS Additional Developments
within a reasonable time before JTS (or any of its Subsidiaries) begins to
sell any Licensed Nordic Product containing such JTS Additional Developments,
and shall, at JTS's sole expense, deliver to WDC such appropriate documentation
in JTS's possession with respect thereto as may be reasonably requested by WDC
to enable WDC to incorporate such JTS Additional Developments into WDC's
manufacturing processes for 3-Inch Disk Drives.
(b) Until [*] WDC shall disclose to JTS all WDC Additional
Developments within a reasonable time before WDC (or any of its Subsidiaries)
begins to sell any Licensed Nordic Product containing such WDC Additional
Developments, and shall, at WDC's sole expense, deliver to JTS such appropriate
documentation in WDC's possession with respect thereto as may be reasonably
requested by JTS to enable JTS to incorporate such WDC Additional Developments
into JTS's manufacturing processes for 3-Inch Disk Drives.
ARTICLE 3
TECHNOLOGY TRANSFER PROGRAM
3.1 Transfer of Know-How Required to Manufacture the Licensed Nordic
Products. JTS shall deliver to WDC the information, documents, rights and other
tangible and intangible items that are necessary to enable WDC to manufacture
the Designated Product in accordance with the Technology Transfer Program. Any
material deviation from the Technology Transfer Program shall require the
mutual agreement of JTS and WDC. JTS shall be solely responsible for the
conduct of all phases of the Technology Transfer Program; provided, however,
JTS agrees to consult in good faith with WDC regarding all significant aspects
of the Technology Transfer Program. JTS shall focus the appropriate resources
to the successful and timely completion of the Program Schedule included in
Exhibit A attached hereto. Without WDC's prior written consent, which shall not
be
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
5
<PAGE> 6
unreasonably withheld, JTS shall not undertake any development or similar
projects for any third party prior to the earlier of (a) the date on which WDC
commences volume production of a Licensed Nordic Product or (b) January 1,
1996; provided, however, that JTS may continue to discharge its development and
other obligations under the Customer Sponsor Agreement, and nothing contained
herein shall limit or restrict JTS in respect of its performance of the
Customer Sponsor Agreement.
3.2 Access to Vendors. Without limiting the requirements set forth in
the Technology Transfer Program, JTS shall provide WDC with appropriate
documentation [*] . Upon reasonable notice and during normal business hours,
JTS shall further allow WDC reasonable access to JTS's engineering staff and
shall allow WDC's engineers to visit JTS's manufacturing and research facilities
for the purpose of receiving reasonable support of the Licensed Nordic Products
and all rights granted WDC under this Agreement.
3.3 Disclosures Not Required. Notwithstanding any other provision in
this Agreement, JTS shall not be required to disclose to WDC any of the
following information with respect to any JTS Chip: varilogic designs, circuit
designs and logic designs.
ARTICLE 4
PAYMENTS TO JTS
4.1 Technology Transfer Program Payments. In consideration of the
rights granted to WDC under this Agreement, WDC shall pay to JTS [*] in
accordance with and subject to the conditions set forth in the Payment Schedule
included in Exhibit A attached hereto. Whenever the Technology Transfer Program
designates a particular achievement or requirement of JTS as a condition to any
payment, such condition shall be satisfied only after WDC has verified to its
reasonable satisfaction that such achievement or requirement has been
accomplished.
4.2 Transfer of Tangible Items. The parties acknowledge and agree
that the tangible items to be transferred to WDC incidental to the transfer of
technology pursuant to this
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 7
Agreement have an aggregate value of less than [*] .
4.3 Royalties. For so long as JTS is obligated to pay a royalty to the
Customer Sponsor under the Customer Sponsor Agreement, WDC shall pay a royalty
to JTS, on a quarterly basis, at a rate equivalent to that set forth in the
Customer Sponsor Agreement, not to exceed [*] per covered product, on all
sales by WDC to any third party other than the Customer Sponsor of Licensed
Nordic Products; provided, however, that at such time as a third party
competitor begins volume shipment of any 3-Inch Disk Drive, WDC's royalty
obligations to JTS shall be reduced to a level to be negotiated in good faith
among WDC, JTS and the Customer Sponsor. Nothing in this Agreement shall reduce
or otherwise affect JTS's obligations to the Customer Sponsor to pay royalties
to the Customer Sponsor on sales by WDC of Licensed Nordic Products.
4.4 Payments and Reports. WDC shall submit royalty payments due pursuant
to Section 4.2 above on a quarterly basis no later than [*] following the
last business day of all calendar quarters, together with a quarterly report,
certified by an officer of WDC, specifying the quantity of the royalty-bearing
Licensed Nordic Product sold during the previous quarter and the royalty due for
such royalty-bearing Licensed Nordic Product. JTS shall certify to WDC from time
to time the prevailing royalty rates in effect under the Customer Sponsor
Agreement.
4.5 Reports Confidential. The information contained in the reports
delivered by WDC pursuant to Section 4.3 above shall be retained in confidence
and access to such information shall be restricted to the finance and legal
groups of JTS. The obligations to provide royalty reports shall only apply to
the royalty-bearing Licensed Nordic Products.
ARTICLE 5
JTS REPRESENTATIONS,
WARRANTIES AND COVENANTS
JTS hereby represents, warrants and covenants as follows:
5.1 Corporate Power. JTS has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
The execution, delivery and performance of this Agreement has been duly and
validly authorized by JTS, and upon the Effective Date, this Agreement will
constitute a valid and binding agreement of JTS.
5.2 No Other Licenses. Except to the extent identified on Exhibit C
attached hereto, JTS has not granted to any third party any rights or interests
to the JTS Captured
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
7
<PAGE> 8
Patents, the Licensed Nordic Products or JTS Other Licensed Technology. Until
[*] neither JTS nor any of its Subsidiaries shall grant to any third party
any license under the JTS Captured Patents, JTS Other Licensed Technology or any
JTS Chip to sell 3-Inch Disk Drives made for or by such third party; provided,
however, that JTS and its Subsidiaries shall be entitled to (a) allow other
companies to manufacture 3-Inch Disk Drives to be sold by JTS or its
Subsidiaries; (b) grant manufacturing and sales licenses with respect to 3-Inch
Disk Drives to customers of JTS in connection with sales agreements between JTS
and its customers, but only to the extent such licenses are contingent upon the
inability or failure of JTS to supply such 3-Inch Disk Drives to its customers;
(c) include 3-Inch Disk Drives in the field of use in any patent license
included in a cross-license agreement that is reasonably required to resolve
third party patent infringement claims; and (d) on or after [*] transfer any
of its rights in any JTS Chip (by license or otherwise) to any third party. For
the term of this Agreement, neither JTS nor any of its Subsidiaries shall take
or fail to take any action that may restrict JTS's legal right to grant to WDC
the rights and licenses contemplated under this Agreement.
5.3 No Consents Required. As of the Effective Date, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereunder will require JTS or any of its Subsidiaries
to obtain any permits, authorizations or consents under current law from any
governmental body or from any other person, firm or corporation under any
existing agreement to which JTS or any of its Subsidiaries may be a party. The
execution, delivery and consummation of this Agreement will not result in the
breach of or give rise to cause for termination of any agreement to which JTS
or any of its Subsidiaries may be a party or, to JTS's knowledge, that
otherwise relates to the Captured Patents, Licensed Products or any JTS Other
Licensed Technology.
5.4 No Additional Obligations. Neither the execution, delivery and
performance of this Agreement by WDC nor the use of the licenses and other
rights granted WDC hereunder impose or will impose on WDC any royalty
obligation or other payment obligation of any kind pursuant to (a) any
agreement or understanding to which JTS is a party or (b) to the best of JTS's
knowledge, otherwise, except as expressly contemplated herein and in the
License Agreement of even date herewith between WDC and TEAC CORPORATION.
5.5 Current Technology. All material technical information and other
items deliverable pursuant to the Technology Transfer Program represent what
JTS believes in good faith to be the most current and best technology available
to JTS relating to 3-Inch Disk Drives.
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
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ARTICLE 6
WDC REPRESENTATIONS AND WARRANTIES
WDC hereby represents, warrants and covenants as follows:
6.1 Corporate Power. WDC has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
The execution, delivery and performance of this Agreement has been duly and
validly authorized by WDC, and upon the Effective Date, this Agreement will
constitute a valid and binding agreement of WDC.
6.2 No Consents Required. As of the Effective Date, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereunder will require WDC to obtain any permits,
authorizations or consents from any governmental body or from any other
person, firm or corporation, and such execution, delivery and consummation will
not result in the breach of or give rise to any termination of any agreement or
contract to which WDC may be a party.
6.3 Future Generation Licensed Nordic Products. WDC shall offer to
sell all Future Generation Licensed Nordic Products to the Customer Sponsor
before offering such products to any third party. Provided the Customer Sponsor
commits in a reasonably timely manner to purchase such Future Generation
Licensed Nordic Products from WDC or JTS, WDC shall refrain from selling such
products to any customer other than JTS or the Customer Sponsor for a period of
[*] commencing on [*] .
ARTICLE 7
IMMUNITY FROM SUIT
7.1 Immunity Granted by JTS. JTS, on behalf of itself and its
Subsidiaries, hereby grants to all third-party transferees of the Licensed
Products manufactured, leased, sold or otherwise transferred by WDC or its
Subsidiaries, an immunity from suit under JTS Captured Patents (a) for the
manufacture, use and sale of the Licensed Products; and (b) for the formation,
sale and use of any higher-level assembly that includes any Licensed Product,
whether or not such higher-level assembly includes other apparatus not
furnished by WDC or any of its Subsidiaries; provided, however, that such
immunity shall not extend to any apparatus that forms a part of such
higher-level assembly that is not furnished by WDC or its Subsidiaries. JTS, on
behalf of itself and its Subsidiaries, hereby grants to all third-party
transferees of the Licensed Nordic Products manufactured, leased, sold or
otherwise transferred by WDC or its Subsidiaries, an immunity from suit under
JTS Other Licensed Technology (a) for the manufacture, use and sale of the
Licensed
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
9
<PAGE> 10
Nordic Products; and (b) for the formation, sale and use of any higher-level
assembly that includes any Licensed Nordic Product, whether or not such
higher-level assembly includes other apparatus not furnished by WDC or any of
its Subsidiaries; provided, however, that such immunity shall not extend to any
apparatus that forms a part of such higher-level assembly that is not
furnished by WDC or its Subsidiaries.
7.2 Immunity Granted by WDC. WDC, on behalf of itself and its
Subsidiaries, hereby grants to all third-party transferees of the Licensed
Products manufactured, leased, sold or otherwise transferred by JTS or its
Subsidiaries, an immunity from suit under WDC Captured Patents (a) for the
manufacture, use and sale of Licensed Products; and (b) for the formation, sale
and use of any higher-level assembly that includes any Licensed Product,
whether or not such higher-level assembly includes other apparatus not
furnished by JTS or any of its Subsidiaries; provided, however, that such
immunity shall not extend to any apparatus that forms a part of such
higher-level assembly that is not furnished by JTS or its Subsidiaries. WDC, on
behalf of itself and its Subsidiaries, hereby grants to all third-party
transferees of the Licensed Nordic Products manufactured, leased, sold or
otherwise transferred by JTS or its Subsidiaries, an immunity from suit under
WDC Other Licensed Technology (a) for the manufacture, use and sale of the
Licensed Nordic Products; and (b) for the formation, sale and use of any
higher-level assembly that includes any Licensed Nordic Product, whether or not
such higher-level assembly includes other apparatus not furnished by JTS or any
of its Subsidiaries; provided, however, that such immunity shall not extend to
any apparatus that forms a part of such higher-level assembly that is not
furnished by JTS or its Subsidiaries.
ARTICLE 8
CONFIDENTIALITY
8.1 Confidential Information. JTS and WDC agree to undertake all
reasonable efforts to refrain, and to cause its Subsidiaries to refrain, from
disclosing any confidential proprietary information with respect to the
technology products governed by this Agreement. Each of the parties hereto
acknowledge that another party hereto may find it necessary to disclose
proprietary information in connection with the proper grant of sublicenses to
parties other than a party hereto to the extent permitted hereby. Under such
circumstances, JTS or WDC, as the case may be, may make such information
available to third parties to the limited extent necessary for such third party
to fulfill its supply or other permitted purposes, provided that such party
shall first obtain from the recipients a fully-executed confidentiality
agreement that is at least as restrictive as the confidentiality agreement
contained herein; provided, however, that the foregoing shall not restrict JTS's
or WDC's right to provide technical information and test data that
10
<PAGE> 11
is reasonably requested by customers in the ordinary course of business.
8.2 Public Domain. Neither JTS nor WDC shall be bound by the
provisions of Section 8.1 above with respect to information that (a) was
previously known to the recipient at the time of disclosure; (b) is in the
public domain at the time of disclosure; (c) becomes a part of the public
domain after the time of disclosure, other than through disclosure by the
recipient or some other third party that is under an agreement of
confidentiality with respect to the subject information or obtained the
information from the recipient; (d) is required to be disclosed by law; or
(e) is disclosed by a third party not bound by an agreement of confidentiality
with respect to such information that the third party did not obtain from the
recipient.
ARTICLE 9
RECORDKEEPING AND AUDIT RIGHTS
Each party shall keep and maintain full and accurate records relating
to the development, manufacture and sales of the Licensed Products. Each party
agrees to allow a mutually acceptable independent auditor to audit and analyze
appropriate records to ensure compliance with the terms of this Agreement. Any
such audit shall be permitted by the party to be audited within fifteen (15)
days of receipt of a written request by the party requesting such audit, during
normal business hours. The cost of such audit will be borne by the party
requesting the audit unless a material discrepancy is found or records are not
maintained and available in accordance with this Article, in which case the
audited party agrees to pay the requesting party for the costs associated with
the audit.
ARTICLE 10
TERM AND TERMINATION
10.1 Effective Date. This Agreement shall become effective upon
satisfaction of the following conditions, any of which may be waived by WDC in
its sole discretion:
(a) The execution and delivery of a license or similar
agreement, acceptable in form and substance to WDC, from TEAC CORPORATION in
favor of WDC with respect to 3-Inch Disk Drives (the "TEAC Agreement");
(b) The execution and delivery of a license or similar
agreement, acceptable in form and substance to WDC, from PONT PERIPHERALS
(formerly known as DZU CORPORATION) in favor of WDC with respect to 3-Inch
Disk Drives;
(c) The execution and delivery of an amendment to or other
arrangement affecting the Customer Sponsor
11
<PAGE> 12
Agreement, acceptable in form and substance to WDC, modifying such
agreement to the extent it may otherwise affect WDC's rights hereunder
and consenting to this Agreement; and
(d) The closing of the JTS equity financing on substantially the
terms and conditions identified in the Letter of Intent for Private
Placement of Equity Securities dated November 3, 1994 or otherwise on
terms and conditions acceptable to WDC.
The parties agree that if the Effective Date does not occur on or
before February 15, 1995, WDC may terminate this Agreement at any time before
the Effective Date occurs.
10.2 Term. Except to the extent provided in Section 10.3 below, the
term of this Agreement and the licenses and immunities from suit granted
hereunder shall be perpetual.
10.3 Early Termination. If any party hereto commits a material breach
of this Agreement, and such breach continues for thirty (30) days after receipt
of a written notice specifying such breach in reasonable detail, the
non-breaching party shall have the right to terminate all of the breaching
party's rights hereunder by delivery of written notice of such termination.
Notwithstanding the foregoing, any such termination shall have no effect on the
breaching party's duties and obligations hereunder, which shall continue in
full force and effect. WDC's rights hereunder shall not be reduced or
diminished in the event of a termination by WDC by reason of a material breach
of JTS. JTS's rights hereunder shall not be reduced or diminished in the event
of a termination by JTS by reason of a material breach by WDC.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. Any notice, consent or approval required under this
Agreement shall be in writing sent by registered or certified mail, postage
prepaid, or by facsimile or cable (confirmed by such registered or certified
mail) and addressed as follows:
If to WDC: Western Digital Corporation
8105 Irvine Center Drive
Irvine, California 92718
Attn: General Counsel
Phone: (714) 932-5000
Facsimile: (714) 932-7820
12
<PAGE> 13
If to JTS: JT Storage, Inc.
1289 Anvilwood Avenue
Sunnyvale, California 94089
Attn: President
Phone: (408) 747-1315
Facsimile: (408) 747-0849
All notices shall be deemed to be effective on the earlier of actual
receipt or the fifth day after deposit in the U.S. first class mail, postage
prepaid, properly addressed to the party to whom such notice is directed.
Either party may change its address at which notice is to be received by
delivering notice to the other party in accordance with this Section.
11.2 Relationship of the Parties. Notwithstanding any provision
hereof, for all purposes of this Agreement each party shall be and act as an
independent contractor and not as a partner, joint venturer or agent of the
other and shall not bind nor attempt to bind the other to any contract.
11.3 Assignment. Neither party shall have the right or ability to
assign, transfer or sublicense any obligations or benefits under this Agreement
without the written consent of the other party, which consent shall not be
unreasonably withheld. A Change in Control of JTS shall constitute an
assignment for purposes of this Agreement, requiring the consent of WDC as set
forth in this Section, [*] Further, JTS shall not consent to an assignment,
transfer or sublicense of the JTS Captured Patents, the Licensed Nordic
Products and/or JTS Other Licensed Technology by [*]
11.4 Waivers; Amendments. The waiver by either party of any of its
rights or any breaches of the other party under this Agreement in a particular
instance shall not be deemed to be a waiver of the same or different rights or
breaches in subsequent instances. Neither this Agreement nor any Exhibit
attached hereto may be amended or waived except by an instrument in writing
executed by the party against which enforcement is sought.
11.5 Governing Law. This Agreement shall be governed, construed and
interpreted in accordance with the laws of the State of California, without
regard to the choice of law rules thereof.
11.6 Entire Agreement. This Agreement and the Exhibits attached hereto
constitute the entire agreement of the parties
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
13
<PAGE> 14
and supersede all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations between the parties with respect to
the subject matter hereof.
11.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
11.8 Severability. If any provision of this Agreement shall be held
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect.
11.9 Attorneys' Fees. Should any party institute any action or
proceeding, including without limitation binding arbitration, to enforce this
Agreement or any provision hereof, the prevailing party in any such action or
proceeding shall be entitled to receive from the other all reasonable costs and
expenses, including attorneys' fees, incurred by the prevailing party in
connection with such action or proceeding.
11.10 Binding Arbitration. Any controversy or claim arising out of or
related to this Agreement, or any breach thereof (a "Dispute"), shall be
settled by binding arbitration, conducted by a single mutually agreed-upon
arbitrator, with the forum being Orange County, California. The arbitrator of
any Dispute shall be either a lawyer selected by the parties or a retired judge
selected by two lawyers (one of each such lawyer being designated for such
purpose by each party). Promptly after such Dispute arises, the parties shall
confer to select a lawyer who practices in or near Orange County, California to
serve as the arbitrator. If the parties cannot agree upon the selection of a
lawyer as the arbitrator, a retired judge who is a member of JAMS shall be
selected as the arbitrator. Such selection shall by made by the lawyers
designated by the parties. The arbitrator so selected shall make the
determination required on the basis of such procedures as such arbitrator, in
his or her sole judgment, deems appropriate and expeditious, taking into
account the nature of the issues, the amount in dispute and the positions
asserted by the parties. The arbitrator shall not be required to follow any
particular rules or procedure, it being the parties' intention to create a
flexible, practical, and expeditious method of resolving any Dispute hereunder.
Upon the written request of a party, the arbitrator shall issue a written
opinion of his or her findings of fact and conclusions of law. Upon receipt by
the requesting party of such a written opinion, such party shall have the right
within ten (10) days thereof to file with the arbitrator a motion to reconsider.
Thereupon, the arbitrator shall reconsider the issues raised by said motion and
either confirm or change his or her decision. The decision of such arbitrator
shall then be final, conclusive and binding, and shall not be subject to review
or challenge of any kind. The parties
14
<PAGE> 15
intend that this agreement to arbitrate be valid, enforceable and irrevocable.
11.11 Time of the Essence. Time is of the essence of this Agreement.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
"WDC"
WESTERN DIGITAL CORPORATION,
a Delaware corporation
By: /s/ Marc Nussbaum for Kathryn A. Braun
---------------------------------------
Its:
--------------------------------------
"JTS"
JT STORAGE, INC., a Delaware corporation
By:
---------------------------------------
Its:
--------------------------------------
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
"WDC"
WESTERN DIGITAL CORPORATION,
a Delaware corporation
By:
---------------------------------------
Its:
--------------------------------------
"JTS"
JT STORAGE, INC., a Delaware corporation
By: /s/ David B. Pearce
---------------------------------------
Its: President
--------------------------------------
16
<PAGE> 18
LIST OF EXHIBITS
TO
TECHNOLOGY TRANSFER AND
LICENSE AGREEMENT
PAGE
----
EXHIBIT A TECHNOLOGY TRANSFER PROGRAM A1
SECTION A-1 DESIGNATED PRODUCT TECHNICAL A2
SPECIFICATIONS
SECTION A-2 PROGRAM SCHEDULE (DEVELOPMENT A4
PLAN)
SECTION A-3 PAYMENT SCHEDULE A7
SECTION A-4 DELIVERY SCHEDULE A9
SECTION A-5 JTS DELIVERABLES TO WDC QUALITY AND A10
RELIABILITY DEPARTMENT
SECTION A-6 JTS DELIVERABLES TO WDC NEW PRODUCT A13
INTRODUCTION AND ADVANCED MANUFACTURING
DEPARTMENT
SECTION A-7 JTS DELIVERABLES TO WDC DESIGN A14
ENGINEERING DEPARTMENT
SECTION A-8 JTS DELIVERABLES TO WDC TEST A18
ENGINEERING DEPARTMENT
SECTION A-9 JTS DELIVERABLES TO WDC PURCHASING A20
AND MATERIALS DEPARTMENT
EXHIBIT B NON-EXCLUSIVE LIST OF JTS CAPTURED B1
PATENTS
EXHIBIT C THIRD PARTY LICENSES AND RIGHTS C1
AFFECTING JTS TECHNOLOGY
<PAGE> 19
EXHIBIT A
TO
TECHNOLOGY TRANSFER AND
LICENSE AGREEMENT
TECHNOLOGY TRANSFER PROGRAM
---------------------------
This Technology Transfer Program sets forth the information, documents,
rights and other tangible and intangible items that JTS shall deliver to WDC
pursuant to Article 3 of this Agreement; the manner in which JTS shall deliver
such items to WDC; and the payments to which JTS shall be entitled in
consideration of its performance of this Agreement, including, without
limitation, the Technology Transfer Program. Any material deviation from the
Technology Transfer Program shall require the mutual written agreement of JTS
and WDC.
Page A1
<PAGE> 20
SECTION A-1: DESIGNATED PRODUCT TECHNICAL SPECIFICATIONS
In a timely manner following the execution of this Agreement, the
parties shall finalize the Technical Specifications for the Designated Product.
Set forth below are preliminary technical specifications for the Designated
Product, which may be modified by mutual agreement of the parties in accordance
with the above provision and the terms of this Agreement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
[*]
- -------------------------------------------------------------------------------
</TABLE>
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page A2
<PAGE> 21
-J541HP 'HIGH PERFORMANCE' ASIC FEATURES (.95u)
IDE INTERFACE:
[*]
DME INTERFACE:
[*]
SEQUENCER/DISK INTERFACE:
[*]
SERVO INTERFACE:
[*]
PROCESSOR INTERFACE:
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
A3
<PAGE> 22
[CHART]
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
A4
<PAGE> 23
[CHART]
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
A5
<PAGE> 24
[CHART]
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
A6
<PAGE> 25
SECTION A-3: PAYMENT SCHEDULE
In consideration of the rights granted to WDC under this Agreement, WDC
shall pay to JTS up to [*] in accordance with and subject to the terms and
conditions of the Technology Transfer Program and the Payment Schedule set
forth below:
<TABLE>
<CAPTION>
Date Payment Condition to Payment
---- ------- --------------------
<S> <C> <C>
Execution of this [*] None
Agreement
[*] [*] JTS successfully completes
Engineering Verification Test
("EVT") and reviews EVT with WDC
[*] [*] JTS delivers the Designated Product
to WDC*
If JTS delivers the Designated Product
between [*] and [*] , the payment
shall be [*] , unless the Designated
Product is an [*] Mbyte 3-Inch Disk
Drive, in which case the payment shall be
[*] *
If JTS delivers the Designated Product
after 09/30/95, the payment shall be
$500,000*
* If a change is made to the Technology
Transfer Program at the request of WDC
that causes a delay in JTS's delivery of
the Designated Product, the time deadlines
set forth herein shall be equitably
adjusted accordingly.
[*] [*] [*] following the date on which the
Company accepts from JTS working samples
of both an [*] Mbyte Licensed Nordic
Product and a [*] Mbyte Licensed
Nordic Product
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A7
<PAGE> 26
<TABLE>
<S> <C> <C>
[*] [*] [*] following the date on which the Company commences
volume production of both an [*] Mbyte Licensed Nordic
Product and a [*] Mbyte Licensed Nordic Product
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A8
<PAGE> 27
SECTION A-4: DELIVERY SCHEDULE
JTS shall deliver to WDC the following deliverables in accordance with
the Delivery Schedule set forth below:
<TABLE>
<CAPTION>
DELIVERY
DATE DELIVERABLE
-------- -----------
<S> <C> <C>
[*]
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A9
<PAGE> 28
SECTION A-5: JTS DELIVERABLES TO WDC QUALITY AND RELIABILITY
DEPARTMENT
Promptly upon execution of this Agreement, JTS shall deliver to WDC's
Quality and Reliability Department copies or originals of the following
materials in JTS's possession. Thereafter, JTS shall deliver updates of such
materials on at least a [*] basis. All such deliveries shall be at
[*] sole expense. To facilitate this process, JTS and WDC shall review
these deliverables on a [*] basis.
MATERIALS QUALITY -- [*]
[*]
- [*]
-
-
-
-
-
-
-
-
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A10
<PAGE> 29
- [*]
-
-
-
-
-
-
-
-
-
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
page a11
<PAGE> 30
- - [*]
- -
- -
- -
- -
- -
- -
- -
- -
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
Page A12
<PAGE> 31
SECTION A-6: JTS DELIVERABLES TO WDC NEW PRODUCT
INTRODUCTION AND ADVANCED MANUFACTURING
DEPARTMENT
Promptly upon execution of this Agreement, JTS shall deliver to WDC's
New Product Introduction and Advanced Manufacturing Department copies or
originals of the following materials in JTS's possession. Thereafter, JTS shall
deliver updates of such materials on at least a [*] basis. All such
deliveries shall be at [*] sole expense. To facilitate this process, JTS and
WDC shall review those deliverables [*] .
- All drive piece part drawings with critical-to-function ("CTF")
parameters identified and process capability ("CpK") figures
list
- All drive sub-assembly drawings and associated parts list
- Head gimbal assembly ("HGA") specification
- Disk specification
- Track map
- ESD requirements and a list of static sensitive components
- At least one (1) complete set of functional mechanical parts
and sub-assemblies, including labels, seals, etc.
- At least one (1) mechanically functional drive that is able to
spin-up
- Tolerance stack up analysis for the drive itself and all
subassemblies
- Head stack assembly ("HSA") shipping comb drawing and three (3)
samples
- Latest revision design drawings for all tools, including disk
install, head load, VCM install and cover install
- Tooling to tolerance study results
- Rights to fabricate/use tools that WDC finds desirable
- Permission to contact HGA vendors for answers to questions
- JTS contact for design questions
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
Page A13
<PAGE> 32
SECTION A-7: JTS DELIVERABLES TO WDC DESIGN ENGINEERING
DEPARTMENT
Promptly upon execution of this Agreement, JTS shall deliver to WDC's
Design Engineering Department copies or originals of the following materials in
JTS's possession. Thereafter, JTS shall deliver updates of such materials on at
least a [*] basis. All such deliveries shall be at [*] 's sole expense. To
facilitate this process, JTS and WDC shall review these deliverables on a
[*] basis.
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A14
<PAGE> 33
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A15
<PAGE> 34
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A16
<PAGE> 35
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page A17
<PAGE> 36
SECTION A-8: JTS DELIVERABLES TO WDC TEST ENGINEERING DEPARTMENT
Promptly upon execution of this Agreement, JTS shall deliver to WDC's
Test Engineering Department copies or originals of the following materials in
JTS's possession. Thereafter, JTS shall deliver updates of such materials on at
least a [*] basis. All such deliveries shall be at [*] sole expense. To
facilitate this process, JTS and WDC shall review these deliverables on a
[*] basis
[*]
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
Page A18
<PAGE> 37
[*]
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
Page A19
<PAGE> 38
SECTION A-9 JTS DELIVERABLES TO WDC PURCHASING AND
MATERIALS DEPARTMENT
Promptly upon execution of this Agreement, JTS shall deliver to WDC's
Purchasing and Materials Department copies or originals of the following
materials in JTS's possession. Thereafter, JTS shall deliver updates of such
materials on at least a monthly basis. All such deliveries shall be at JTS's
sole expense. To facilitate this process, JTS and WDC shall review these
deliverables on a monthly basis.
- Complete costed bill of material ("BOM") reflecting the
following information (minimum):
- JTS part numbers
- JTS part descriptors
- All current hard tooled suppliers
- All targeted hard tooled suppliers
- Supplier part numbers
The above-referenced list should include piece parts, purchased
sub-assemblies and all packaging materials.
- Complete book of all parts, including the following information
by part number:
- Prints
- Schematics/specifications
- Documented supplier process flow charts
- Supplier quotes, with cost break points
- Tooling capacities at each supplier (which must support
WW volumes requirements for the first 12 months of
productions)
- Documented cleaning process
- Contact names, addresses and telephone numbers for each
supplier
- Supplier materials and process lead-times
- Copies of any supply agreements and/or contracts in
existence
Page A20
<PAGE> 39
- Of primary importance are any custom integrated
circuits and/or other components that may be sole
sourced. Ownership of design prints and/or mask rights
must be identified. Length of support agreements are
critical.
- Authorization for WDC to purchase against JTS
specifications at WDC's prerogative.
Page A21
<PAGE> 40
EXHIBIT B
TO
TECHNOLOGY TRANSFER AND
LICENSE AGREEMENT
NON-EXCLUSIVE LIST OF JTS CAPTURED PATENTS
PATENTS ISSUED:
<TABLE>
<CAPTION>
PATENT TITLE INVENTOR ISSUE DATE
- ---------- ---------------------------------------------------------------- --------------- ------------
<S> <C> <C> <C>
4,992,899 Low Inertia, Single Component Arm Actuator for Open-Loop Disk S. Kaczeus 02/12/91
Drives G. Kudo
4,949,202 Disk-Track for Locating Zero Track and Generating Timing for T. Kim 08/14/90
Index Signal
5,218,496 Magnetic Disk Drive with Reduced Disk-to-Disk Spacing and S. Kaczeus 06/08/93
Improved Actuator Design
</TABLE>
PATENT PENDING APPLICATIONS
<TABLE>
<CAPTION>
DOCKET # TITLE INVENTOR(S) FILE DATE
- ---------- ---------------------------------------------------------------- --------------- ------------
<S> <C> <C> <C>
[*]
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page B1
<PAGE> 41
<TABLE>
<CAPTION>
DOCKET # TITLE INVENTOR(S) FILE DATE
- ---------- ---------------------------------------------------------------- --------------- ------------
<S> <C> <C> <C>
[*]
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page B2
<PAGE> 42
EXHIBIT C
TO
TECHNOLOGY TRANSFER AND
LICENSE AGREEMENT
THIRD PARTY LICENSES AND RIGHTS AFFECTING JTS TECHNOLOGY
TEAC Corporation
Pont Peripherals (Formerly DZU Corporation)
Compaq Computer Corporation
Page C1
<PAGE> 1
EXHIBIT 10.28
January 31, 1995
Agreement
By and Between
Pont Peripherals Corporation
and JT Storage, Inc.
dated
January 31, 1995
<PAGE> 2
January 31, 1995
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
RECITALS 1
ARTICLE I DEFINITIONS 2
1.01 "ASIC" 2
1.02 "Affiliate" 2
1.03 "Components" 2
1.04 "Improvements" 2
1.05 "Jointly Developed Products" or Jointly Developed Technology" 2
1.06 "JTS Products" 2
1.07 "JTS I Territory" 3
1.08 "JTS II Territory" 3
1.09 "Know-How" 3
1.10 "Micro Code" 3
1.11 "OEM" 3
1.12 "Patents" 3
1.13 "Point 5" 3
1.14 "Pont Final Product" 3
1.15 "JTS Final Product" 3
1.16 "Pont Products" 3
1.17 "Pont I Territory" 3
1.18 "Pont II Territory" 4
1.19 "Products" 4
1.20 "Technical Information" 4
1.21 "Technology" 4
ARTICLE II MANUFACTURING, PATENT AND KNOW-HOW LICENSES 4
2.01 Licenses From JTS to Pont 4
2.02 Licenses From Pont to JTS 5
2.03 Legal Limitation on Licenses 6
2.04 Certain Agreements and Representations of Grantees of Licenses 6
2.05 Certain Agreements and Representations of JTS 8
2.06 Certain Agreements and Representations of Pont 8
2.07 Territorial Restrictions Applicable to Licenses Granted in Article II 9
ARTICLE III MANUFACTURING AND SALE 9
3.01 JTS and Jointly Developed Products 9
3.02 Servo Writer Prototype 10
ARTICLE IV TECHNICAL INFORMATION AND ASSISTANCE 10
4.01 Technical Information 10
4.02 Technical Assistance 11
4.03 Jointly Developed Products and Technology 12
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
January 31, 1995
<S> <C>
ARTICLE V IMPROVEMENTS 13
5.01 Cooperation 13
5.02 Ownership of Improvements 13
ARTICLE VI SECRECY 14
6.01 Confidentiality 14
6.02 Exceptions to Confidentiality 14
6.03 Exercise of Care 14
6.04 Specific Performance 14
ARTICLE VII ROYALTIES 15
7.01 Royalty Rate 15
7.02 When Sold 15
7.03 Net Sales Revenues 15
7.04 Certain Sales Excluded 15
7.05 Royalty Calculation on Items Used or Leased 16
7.06 Payments 16
7.07 Time of Payment and Period for Which Royalty Paid 16
7.08 Late Payments 16
7.09 Records and Reports 16
7.10 Governmental Approvals to U.S. Currency Payments 17
7.11 Royalties to Survive Contractual Patents or Knowledge of Others
and Termination of License 17
ARTICLE VIII TERMINATION 17
8.01 Bankruptcy of a Licensee 17
8.02 Bankruptcy of a Licensor 17
ARTICLE IX GENERAL PROVISIONS 18
9.01 Notices 18
9.02 Successors and Assigns 18
9.03 Counterparts 18
9.04 Captions and Paragraph Headings 18
9.05 Entirety of Agreement; Amendments 19
9.06 Construction 19
9.07 Waiver 19
9.08 Governing Law 19
9.09 Remedies 19
9.10 Status of Parties 20
9.11 Severability 20
9.12 Payments in U.S. Currency 20
9.13 Consents Not Unreasonably Withheld 20
9.14 Time is of the Essence 21
</TABLE>
(ii)
<PAGE> 4
January 31, 1995
THIS AGREEMENT is made as of this 31 day of January, 1995, by and
between Pont Peripherals Corporation, a Delaware corporation, formerly known as
DZU Corporation, having its principal place of business at 912 West Maude,
Sunnyvale, California 94086 ("Pont"), and JT Storage, Inc., a Delaware
corporation, having its principal place of business at 1289 Anvilwood Avenue,
Sunnyvale, California 94089 ("JTS").
RECITALS
WHEREAS, pursuant to the Agreed Order Compromising Controversies (the
"Order") entered by the United States Bankruptcy Court, Northern District of
California, on February 4, 1994 in the Chapter 11 reorganization of Kalok
Corporation, a California corporation (No. 93-54027), Pont and Teac
Corporation, a Japanese corporation ("Teac"), acquired certain of the
technology and other intellectual property and certain other assets of Kalok,
subject to the terms and conditions of the Order and certain other documents
referenced in and approved by the Order;
WHEREAS, Pont owns rights to certain products and technology that it
desires to license to JTS, and JTS desires to obtain such license;
WHEREAS, JTS has developed certain products and technology, including
ASIC and Micro Code, for use in hard disk drives and desires to license such
products and technology to Pont, and Pont desires to obtain such license;
WHEREAS, JTS and Pont are each desirous of licensing rights to
improvements to the products and technology licensed hereunder made by each of
them to the other party;
WHEREAS, JTS and Pont desire to cooperate in jointly developing certain
technology and products;
WHEREAS, JTS and Pont are each desirous of Pont's manufacturing and
selling certain products to JTS and to third parties in certain designated
territories, and JTS desires to permit Pont to manufacture such products and to
purchase certain products from Pont;
WHEREAS, JTS desires to sell certain products, including jointly
developed products, in sales territories in which Pont has been given exclusive
rights to make sales pursuant to the Order, and Pont desires to grant such a
license to JTS; and
WHEREAS, JTS desires to engage Pont to design and build one engineering
prototype Servo Write Station and to engage Pont to manufacture additional
Servo Write Stations, and Pont desires to enter into such an arrangement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein made, the parties hereto do hereby agree as follows:
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January 31, 1995
ARTICLE I
DEFINITIONS
1.01 "ASIC" shall mean Application Specific Integrated Circuits as
independently developed by JTS at the date of this Agreement, in addition to
any improvements. All such improvements shall be included in the definition of
ASIC and be subject to this Agreement.
1.02 "Affiliate" of an entity shall mean an entity actually
controlling, controlled by, or under common control with, such other entity.
1.03 "Components" shall mean:
(a) Subassemblies and components of a product customarily repaired and
not consumed in the repair and maintenance of the product;
(b) Nonrepairable and disposable goods customarily consumed in
connection with the use, test, maintenance and repair of a product, including
by way of example and not limitation, electrical components as resistors,
capacitors, integrated circuits, and mechanical components such as brackets,
switches, bushings and bearings; and
(c) Consumable items sold for use with a product, including, by way of
example and not limitation, paper goods, ink and the like.
1.04 "Improvements" shall mean any Improvements, variations,
derivative works, refinements, enhancements or other developments, discoveries
or modifications, whether patentable or not, relating directly or indirectly to
a Product or a Technology, including, but not limited to, any Improvements made
with the financial, technical or other support of a third party other than Teac.
1.05 "Jointly Developed Products" or "Jointly Developed Technology"
shall be products and Components thereof or technology jointly developed by JTS
and Pont as set forth in Section 4.04 of this Agreement.
1.06 "JTS Products" shall mean all products developed and all product
developments, of JTS, including, but not limited to, Micro Code and ASIC, and
any Components thereof, provided, however, that such term shall not include any
product or technology licensed by JTS solely from Teac and under terms which
prevent the grant of the license granted hereunder, and provided, further, that
such term shall include any product, whether completed or not, and any
technology, developed with the direct financial or technical support or
assistance of a third party other than Teac or with the assistance of Teac if
the terms of such assistance do not prohibit the grant of the licenses
contained herein. Any Improvements to the JTS Products shall be included in the
term JTS Products and be subject to this Agreement.
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January 31, 1995
1.07 "JTS I Territory'' shall mean the world except for Japan, the
Eastern Bloc countries of Poland, Czech Republic, Slovakia, Hungary, Romania,
Bulgaria and former Yugoslavia and the countries comprising the form Soviet
Union.
1.08 "JTS II Territory" shall mean the world except for Japan.
1.09 "Know-How" shall mean all factual knowledge and information
acquired from time to time concerning the design and manufacture of a product
or the design and development of a technology, whether or not in graphic or
printed form, which may not be capable of precise separate description but
which, in an accumulated form, after being acquired as the result of trial and
error, gives to the one acquiring it an ability to produced and market a
product or use a technology which one otherwise would not have known how to
produce and market or use with the same accuracy, precision, quality or
efficiency necessary for commercial success.
1.10 "Micro Code" shall mean Micro Code as independently developed
by JTS at the date of this Agreement, in addition to any Improvements. All such
Improvements shall be included in the definition of Micro Code and be subject
to this Agreement.
1.11 "OEM" shall mean an original equipment manufacturer who
incorporates a Product in a product of its own bearing its own label for
purposes of resale to an end user.
1.12 "Patents" shall mean any and all patents of any country of the
world and any applications therefor, and patents which may issue on such
applications, which are owned or controlled by a party, or under which a party
has or may acquire the rights to grant a license and which cover inventions
pertaining to a product or technology. The term "Patents" shall include,
without limitation, patents of importation, improvement patents, patents and
certificates of addition and utility, model and design patents, as well as
divisions, reissues, reexainnations, continuations-in-part, renewals and
extension of, any of the foregoing.
1.13 "Point5" means the Kalok Point 5 Series of products (consisting
of Models P-3125, P-3250 and P-3540).
1.14 "Pont Final Product" shall mean a completed Hard Disk Drive
product.
1.15 "JTS Final Product" shall mean a completed Hard Disk Drive
product.
1.16 "Pont Products" shall mean all products developed and all
product developments, whether completed or not, of Pont, including, but not
limited to, Point 5, and any Components thereof.
1.17 "Pont I Territory" shall mean the world except Japan and India.
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January 31, 1995
1.18 "Pont II Territory" shall mean the following:
(a) commencing on January 1, 1998 "Pont II Territory", for JTS non
three and a half inch Disk Drive product, shall mean the world, except for the
Pacific Rim (defined as all countries that border the Pacific Ocean except for
Mexico) and North America except for Mexico.
(b) commencing on June 1, 1998 "Pont II Territory", for JTS non
three and a half inch Disk Drive product, shall mean the world, except for
Japan and India.
1.19 "Products" shall mean JTS Products, Pont Products and Jointly
Developed Products. The singular shall refer to each of the products which
comprise the JTS Products, Pont Products and Jointly Developed Products.
1.20 "Technical Information" shall mean all scientific, technical
and other information, existing in graphic, printed or computer media form, as
may be available from time to time, pertaining to the development, design,
manufacture, testing or use of all Products and Technology, Components,
circuitry's, tooling and testing requirements, including, by way of
illustration and not limitation, all specifications (mechanical and
electrical), computer programs (source and object), circuit diagrams, drawings,
charts, blueprints, vellums, masks, vendor lists, parts layout, parts lists,
automated design programs, design information, object code, source code,
program generation tapes, information embodied in any Patent, component lists,
technical reports, operation descriptions and manufacturing steps, techniques
and processes.
1.21 "Technology" shall mean the principal technology designed and
developed for the Products or a Product, including any Improvements to such
Technology.
ARTICLE II
MANUFACTURING, PATENT AND KNOW-HOW LICENSES
2.01 Licenses From JTS to Pont, Subject to the terms, conditions and
limitations hereinafter set forth, JTS hereby grants to Pont, and Pont hereby
accepts from JTS, a royalty-free, nonexclusive, perpetual license, right and
privilege, under the pertinent Patents and Know-How:
(a) To use and apply JTS Products Technology for the purposes, and
only for the purposes, of making additional Improvements and of manufacturing
and assembling any Pont Final Product in the Pont I Territory, having made and
assembled any Pont Final Product in the Pont I Territory, using any Pont Final
Product in the Pont I Territory and selling any Pont Final Product in the Pont
I Territory.
(b) To sue and apply Jointly Developed Products Technology for the
purposes, and only for the purposes, of making additional Improvements and of
manufacturing and assembling any Pont Product in the Pont I Territory, having
made and assembled any Pont Product in the Pont I Territory, using any Pont
Product in the Pont I Territory and selling any Pont Products in the Pont I
Territory.
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<PAGE> 8
January 31, 1995
(c) To use and apply any Improvements made by JTS for the purposes,
and only for the purposes, of making additional Improvements and of
manufacturing and assembling any Pont Final Product in the Pont I Territory,
having made and assembled any Pont Final Product in the Pont I Territory, using
any Pont Final Product in the Pont I Territory and selling any Pont Final
Products in the Pont I Territory.
(d) To manufacture and assemble any JTS Final Product in the Pont I
Territory, having made and assembled any JTS Final Product in the Pont I
Territory, using any JTS Final Product in the Pont I Territory and selling any
JTS Final Products in the Pont I Territory for the purposes, and only for the
purposes, of sale by Pont of such JTS Final Products to (i) JTS and (ii) to
third party customers located with respect to (a) JTS Final Products which are
or include non-three-and-a-half-inch disk drives, within the Pont II Territory
and (b) all other JTS Final Products within the Pont I Territory.
(e) To manufacture, and assembling any Jointly Developed Product in
the Pont I Territory, having made and assembled any Jointly Developed Product
in the Pont I Territory, using any Jointly Developed Product in the Pont I
Territory and selling any Jointly Developed Product in the Pont I Territory in
the Pont I Territory.
Patents existing as of the date of this Agreement related to the licenses set
forth in Section 2.01 are set forth in Exhibit 2.01 hereto, which also sets
forth information regarding the pertinent patent or application number, the
party which is the owner or controller of the patent or application and the
invention to which such patent or invention relates.
2.02 Licenses From Pont to JTS. Subject to the terms, conditions and
limitations hereinafter set forth, Pont hereby grants to JTS, and JTS hereby
accepts from Pont, a royalty-free, nonexclusive, perpetual license, right and
privilege, under the pertinent Patents and Know-How:
(a) To use and apply the Pont Products Technology for the purposes,
and only for the purposes, of (i) making additional Improvements, (ii)
manufacturing and assembling any JTS Final Product in the JTS I Territory, and
(iii) having manufactured and assembled any JTS Final Product in the JTS I
Territory (iv) using any JTS Final Product in the JTS I Territory and (v)
selling any JTS Final Product in the JTS II Territory.
(b) To use and apply Jointly Developed Products Technology for the
purposes, and only for the purposes, of (i) making additional Improvements,
(ii) manufacturing and assembling any JTS Product or Jointly Developed Product
in the JTS I Territory, and (iii) having manufactured and assembled any JTS
Product or Jointly Developed Product in the JTS I Territory, (iv) using any JTS
Product or Jointly Developed Product in the JTS I Territory, and (v) selling
JTS Products and Jointly Developed Products in the JTS II Territory.
(c) To use and apply any Improvements made by Pont for the purposes,
and only for the purposes, of (i) making additional improvements, (ii)
manufacturing and assembling any JTS Final Product in the JTS I Territory, and
(iii) having manufactured and assembled any JTS Final Product in the JTS I
Territory, (iv) using any JTS Final Product in the JTS Territory and (v)
selling any JTS Final Product in the JTS II Territory.
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January 31, 1995
Patents existing as of the date of this Agreement related to the licenses set
forth in Section 2.02 are set forth in Exhibit 2.02 hereto, which also sets
forth information regarding the pertinent patent or application number, the
party which is the owner or controller of the patent or application and the
invention to which such patent or invention relates.
2.03 Legal Limitation on Licenses.
(a) Each of the licenses granted under Section 2.01 and 2.02 above is
granted only to the extent that the rights granted are owned by the grantor
free and clear of any legal incapacity to make such grant or only to the extent
that the grantor otherwise has the legal right and capacity to grant such
rights without thereby breaching or unlawfully interfering with any contract,
or incurring any obligation or liability to pay, grant or transfer any money,
property, or right to, any third party. Without limiting the generality of
the foregoing, the grant of a license under Section 2.01 and 2.02 above shall
be subject to any and all legal obligations and requirements with which the
grantor is bound by law to comply.
(b) None of the licenses granted under Section 2.01 by JTS to Pont may
be sublicensed by Pont without the express prior written consent of JTS which
may be withheld in the sole and absolute discretion of JTS except that Pont may
sublicense such licenses in connection with the manufacturing of Components
for use in the manufacture or assembly of Pont Final Product by Pont. All of
the licenses granted under Section 2.02 by Pont to JTS may be sublicensed to a
third party without the consent of Pont. Other than as permitted in the two
preceding sentences, the Products and Technology and the rights thereto
conveyed in this Agreement shall not be assigned or transferred to another
party, including, but not limited to, an Affiliate of either party, without the
express prior written consent of the other party, which may be withheld in such
party's sole and absolute discretion, provided, however, that this provision
shall not apply to a change in ownership of either party as permitted under
the Order.
(c) None of the licenses granted under this Article II conveys any
right in the grantee to use or to register any trademarks or trade names of the
grantor or to use the name of the grantor in any manner whatsoever.
(d) Nothing in this Agreement shall be construed as conveying to the
grantee of a license, either expressly or by implication, any right under any
letters patent of the grantor, other than the pertinent Patents, or any right
to use the Patents or Know-How under which a license is granted, except as
expressly set forth in this Article II. The proprietary rights in the Patents
and in the Know-How under which a license is granted herein shall remain
exclusively with the grantor of such license, and nothing in this Agreement
shall be interpreted or construed as conferring upon the grantee of such
license any proprietary right in such Patents or in such Know-How.
(e) NEITHER JTS OR PONT, NOR ANY OF THEIR RESPECTIVE AFFILIATES, MAKES
ANY WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR ANY PARTICULAR PURPOSE OR
USE AND/OR ANY OTHER WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, OR OTHERWISE,
CONCERNING ANY PRODUCT OR TECHNOLOGY LICENSED BY THIS AGREEMENT.
2.04 Certain Agreements and Representations of Grantees of Licenses.
Pont and JTS each agree with and represent to the other that:
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January 31, 1995
(a) It (i) accepts the licenses, rights and privileges granted to it
under this Article II and admits the validity of the Patents under which such
licenses, rights and privileges are granted to it, corresponding Patents of the
grantor of such licenses granted or applied for in any country of the world,
and corresponding Patents of the grantor of such licenses to be granted or to
be applied for in any country of the world by the grantor during the term of
this Agreement, (ii) agrees not to attach or question the validity of the
Patents under which such licenses, rights and privileges are granted to it, and
corresponding Patents of the grantor now existing, applied for or to be applied
for anywhere in the world during the term of this Agreement or thereafter, and
(iii) acknowledges that the Know-How under which such licenses are granted to
it constitutes one of more trade secrets of the grantor.
(b) It shall file as a registered licensee under the Patents held or
owned by the other party if such registration is considered necessary or
desirable by the other party and shall mark any product manufactured by it
under a license granted herein to use a Patent of the other party with "Patent
Pending or Patent No." designations identifying such patents or applications
of the other party or any other markings with respect to copyrights, mask
rights and/or trademarks to the extent required by applicable law or considered
desirable by the other party.
(c) It agrees that it will give prompt notice in writing to the
licensor of a license granted to it hereunder of (i) all acts of any third
person of which it obtains knowledge which in any way might constitute
infringement of the Patents of such licensor or misappropriation of such
licensor's rights in Know-How or any of such licensor's rights under this
Agreement and of any information which may assist such licensor in dealing with
such infringement or otherwise, and (ii) any action for infringement of the
legal rights of others by reason of its alleged or actual use of such license
or institution of any proceedings for the revocation of any of the Patents of
such licensor. Whether or not such notification is given or received, such
licensor shall have the right (but not the obligation) at its own expense and
in its own name to institute proceedings against such infringer or
misappropriate or to defend such actions brought by third parties or such
revocation proceedings, as the case may be. If requested by such licensor, it
further agrees to furnish to such licensor all necessary information and
assistance relating to such actions or proceedings instituted or defended by
such licensor including lending its name thereto if considered necessary or
desirable by such licensor, and each of the parties shall pay all costs and
expenses including legal expenses which it may incur in connection with such
actions or proceedings; provided, however, that the licensee under a license
granted hereunder shall pay all such costs and expenses including those of the
licensor of such license if any such action or proceeding shall arise by reason
of a use by such licensee of the Patents or Know-How which such license is
granted in violation of, or in a manner inconsistent with, the provisions of
this Agreement, and such licensee shall indemnify such licensor against and
hold such licensor harmless from any and all losses, damages or expenses
arising directly or indirectly out of or in any way relating to such violation
or inconsistent use.
(d) With respect to products manufactured by it or Patents or Know-How
used by it under a license granted hereby, and with respect to Technical
Information or other information obtained by it from the licensor respecting
the subject matter of such license, it will not knowingly, directly or
indirectly, use, sell or otherwise dispose of such products, Patents, Know-How
or information (including any direct product thereof) to persons or countries
or for purposes prohibited by the laws or regulations of the government of the
country, or any agency or instrumentality thereof, in which the licensor is
domiciled which are applicable to such transactions, including, by way of
example and not limitation, the Export Control Regulations of the United States
Department of Commerce and the Foreign Asset Control Regulations of the United
States Department of the Treasury, or knowingly do any other act which would be
in violation of any law or regulation of the government of the country, or any
agency or instrumentality thereof, in which the licensor is domiciled.
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January 31, 1995
(e) It will otherwise comply with, and assist the other party in
obtaining any licenses or other approvals required by, the laws and regulation
of the government, or any agency or instrumentality thereof, pertinent to the
transactions contemplated hereby, and each party agrees to make all
certifications and keep all records required to obtain or retain such licenses
or approvals.
2.05 Certain Agreements and Representations of JTS. JTS represents and
warrants to Pont that (i) it is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has fill power
and authority to carry on its business as it is currently being conducted and
to own or lease the properties and assets it now owns or leases, and is duly
qualified to do business and is in good standing as a foreign corporation under
the laws of the State of California; (ii) it has all necessary right, power and
authority to enter into and perform this Agreement; (iii) the execution and
delivery of this Agreement and the performance by JTS of its terms do not
conflict with or result in a violation of JTS's certificate of incorporation or
bylaws or any judgment, order or decree of any court or arbitrator to which JTS
is a party or is subject and do not conflict with and will not constitute a
material breach of the terms, conditions or provisions of or constitute a
default under any contract, agreement, commitment, indenture, mortgage, note,
bond, license or other instrument or obligation to which JTS is a party or to
which it, its properties or assets are bound; (iv) this Agreement has been duly
and validly executed by JTS and constitutes the valid and binding obligation of
JTS enforceable in accordance with its terms; (v) it is the valid owner of the
rights which are licensed to JTS pursuant to Section 2.02 of this Agreement;
and (vi) no consent, approval or authorization of, or declaration, filing or
registration with, any foreign, federal, state or local governmental or
regulatory authority, or any other party, is required to be made by JTS in
connection with the execution and performance of this Agreement and the
transactions contemplated hereby.
2.06 Certain Agreements and Representations of Pont. Pont represents
and warrants to JTS that (i) it is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
fill power and authority to carry on its business as it is now being conducted
and to own or lease the properties and assets it currently owns or leases and
is duly qualified to do business and is in good standing as a foreign
corporation under the laws of the State of California; (ii) it has all
necessary right, power and authority to enter into and perform this Agreement;
(iii) the execution and delivery of this Agreement and the performance by Pont
of its terms do not conflict with or result in a violation of Pont's
certificate of incorporation or bylaws or any judgment, order or decree of any
court or arbitrator to which Pont is a party or is subject and do not conflict
with and will not constitute a material breach of the terms, conditions or
provisions of or constitute a default under any contract, agreement,
commitment, indenture, mortgage, note, bond, license or other instrument or
obligation to which Pont is a party or to which it, its properties or assets are
bound; (iv) this Agreement has been duly and validly executed by Pont and
constitutes the valid and binding obligation of Pont enforceable in accordance
with its terms; (v) it is the valid owner of the rights which are licensed to
JTS pursuant to Section 2.02 of this Agreement; and (vi) no consent, approval
or authorization of, or declaration, filing or registration with, any foreign,
federal, state or local governmental or regulatory authority, or any other
party, is required to be made by Pont in connection with the execution and
performance of this Agreement and the transactions contemplated hereby.
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January 31, 1995
2.07 Territorial Restrictions Applicable to Licenses Granted in
Article II.
(a) Pont will not in the case of each license granted in Section
2.01, use any license outside the territory specified in such grant, provided,
however, that nothing herein shall prevent Pont or any of its assignees,
licensees or sublicensees, if any, from selling, having sold, leasing or having
leased such products to any OEM customer located within the specified territory
for incorporation as an integral part of systems assembled within the specified
territory by such OEM customer for sale or lease within or outside the specified
territory.
(b) JTS will not in the case of each license granted in Section
2.02, use any license outside the territory specified in such grant, provided,
however that nothing herein shall prevent JTS or any of its assignees,
licensees or sublicensees, if any, from selling, having sold, leasing or having
leased such products to any OEM customer located within the specified territory
for incorporation as an integral part of systems assembled within the specified
territory by such OEM customer for sale or lease within or outside the
specified territory.
(c) Each of the parties will exercise their best efforts and take
such actions as permitted by law to prevent any circumvention of the intent of
this Section by any distributor of products manufactured by them.
ARTICLE III
MANUFACTURING AND SALE
3.01 JTS and Jointly Developed Products.
Subject to the terms, conditions and limitations as set forth in a
manufacturing and marketing agreement to be negotiated between the parties, Pont
hereby agrees to manufacture and to sell JTS Products and Jointly Developed
Products to JTS. The parties agree to negotiate in good faith a marketing and
manufacturing agreement that will provide for a standard form purchase order to
be used to order any such products. Such purchase order shall contain, at a
minimum, in each case:
(1) the model number, configuration and description of the JTS
Product or Jointly Developed Product requested;
(2) the quantity of each such requested product;
(3) the delivery date of each such requested product;
(4) the delivery destination of each such requested product; and
(5) the unit price of each such requested product.
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January 31, 1995
3.02 Servo Writer Prototype
(a) Pont shall deliver to JTS by February 28, 1995 one fully tested
and integrated engineering Servo Write Station (the "Servo Writer"), which
Servo Writer shall be designed for use with Point 5 disk drives and the
mounting hardware for JTS Products. For thirty days after delivery of the Servo
Writer, JTS may request that Pont make changes to the Servo Writer, provided
that Pont shall have no obligation to make such changes and JTS shall be
required to accept such Servo Writer, if the technical performance is of a
quality that should be reasonably satisfactory to JTS. The software developed
for the Servo Writer shall also be adaptable to other disk drives, including
JTS Products.
(b) JTS has previously advanced the sum of $25,000 and agrees to
pay Pont $25,000 upon the execution of this Agreement and $25,000 upon the
satisfaction of the condition as to satisfaction described in subsection (a).
(c) Upon JTS's acceptance of the Servo Writer, the parties shall
negotiate in good faith a purchase order pursuant to which JTS will agree to
purchase up to fifty (50) additional Servo Writers at a price of no more than
$45,000 per unit.
ARTICLE IV
TECHNICAL INFORMATION AND ASSISTANCE
4.01 Technical Information. JTS and Pont shall each have the
following rights and obligations respecting Technical information of the other.
(a) Within thirty (30) days of the date of this Agreement, JTS
shall delivery to Pont, free of charge, one reproducible copy of all material
constituting Technical Information concerning the JTS Products and Pont shall
deliver to JTS, free of charge, one reproducible copy of all material
constituting Technical Information concerning the Pont Products.
(b) Said Technical Information shall comprise, but not necessarily
be limited to, the following:
(1) Manufacturing blueprints and vellums in reproducible
form and specifications of all parts;
(2) Full details of all manufacturing, assembly and testing
processes, special tools and equipment, software and procedures then currently
used;
(3) A description of all parts for use in such manufacture
in manufacturer's catalogue form, if available;
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January 31, 1995
(4) Details of all tests and inspection procedures currently
being carried out in connection with such manufacture; and
(5) Current filed instructions with respect to the item.
(c) Each of the parties agrees to deliver promptly to the other, free
of charge, one reproducible copy of all Technical Information which it shall
generate or which it shall acquire from third parties other than Teac, and
which relates to the Products or Products Technology, including, but not
limited to, any Improvements thereto.
(d) All Technical Information referred to herein shall be delivered in
the English language and in the form in which such information is used by the
originator, provided that any translation into English of such Technical
Information shall be at the originator's sole expense.
(e) Neither JTS nor Pont guarantees that the design, engineering,
techniques and information related thereto to be furnished by them under this
Section is or will in the future be free from defects or that products built or
activities undertaken in accordance therewith will perform in the field to the
satisfaction or so as to meet the requirements of any particular purchaser or
user thereof.
(f) Each of the parties specifically agrees that any and all Technical
Information described herein and reproductions thereof is and shall remain, the
exclusive and sole property of the party who first generated the Technical
Information or first acquired it from another party. It is further agreed by
the parties that money damages for unauthorized use of any Technical
Information or reproductions thereof of which it is not the owner designated by
this paragraph will be inadequate, and that the owner of such Technical
Information and reproductions designated by this paragraph, shall be entitled,
in addition to money damages, to such legal process as would require the other
party hereto to cease and desist from such breach of this Agreement and to
perform such acts as are necessary to carry out the terms of this paragraph.
4.02 Technical Assistance.
(a) For a period not to exceed one year from the start date of the
consulting engagement which start date shall be in the sole and absolute
discretion of Pont, but in no event may start later than ninety (90) days from
the date of this Agreement, JTS shall provide the technical assistance,
engineering services, scientific assistance or similar services and advice
reasonably necessary to assist Pont with the conversion of ASIC, including, but
not limited to, the design, code and documentation related to ASIC, for use
with a current, industry supported development platform or platforms and
environment or environments. JTS agrees to make Stephen J. Harris available for
part-time consultation in connection with such technical assistance, provided
that if Mr. Harris is no longer an employee or consultant to JTS. JTS shall
provide a replacement of approximately the same experience and knowledge in
ASIC to provide such technical assistance.
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January 31, 1995
(b) For a period not to exceed one year from the start date of the
consulting engagement which start date shall be in the sole and absolute
discretion of Pont, but in no event may start later than ninety (90) days from
the date of this Agreement, JTS shall provide the technical assistance,
engineering services, scientific assistance or similar services and advice
reasonably necessary to assist Pont with the conversion of Micro Code,
including, but not limited to, the design, code and documentation related to
Micro Code, for use with development platform or platforms and environment or
environments to be specified by Pont. JTS agrees to make one suitably qualified
employee or consultant available for part-time consultation in connection with
such technical assistance.
(c) Pont shall reimburse JTS for all reasonable travel expenses of the
persons identified in Section 4.02 (a) and (b) to and from Pont's offices, or
such other place as Pont shall designate for rendering such technical
assistance, including lodging, food and transportation. Pont shall not be
responsible for any consulting fee or salary of any employee of JTS or
consultant hired by JTS.
(d) Except for liability arising out of gross negligence or willful
misconduct of Pont, Pont shall assume no liability and shall be indemnified and
held harmless by JTS against all claims, liabilities and expenses with respect
to all injury, damage and loss to persons and property which may occur to or be
caused by or to the personnel rendering technical assistance pursuant to this
Article.
4.03 Jointly Developed Products and Technology.
(a) Within thirty (30) days after execution of this Agreement, JTS
shall deliver data sheets to Pont setting forth the specifications of all JTS
Products and JTS Products Technology and the target specifications for all JTS
Products and JTS Products Technology, in the detail that would be common in the
industry (the "JTS Specifications"), and Pont shall deliver data sheets to JTS
setting forth the specifications of all Pont Products and Pont Products
Technology and the target specifications of all Pont Products and Pont Products
Technology, in the detail that would be common in the industry (the "Pont
Specifications"). The Specifications shall be attached hereto as Exhibit B.
(b) JTS and Pont may undertake to jointly develop a Product or
Technology by so agreeing in a writing executed by both parties and attaching
specifications and target specifications for such Jointly Developed Product or
Technology, provided such Jointly Developed Product or Technology is not
already the subject of JTS or Pont Specifications, in which case such JTS or
Pont Specifications shall become the specifications for the Jointly Developed
Product or Technology (the "Jointly Developed Specifications," together with
the JTS and Pont Specifications, the "Specifications"). Until such agreement to
develop a Jointly Developed Product or Technology is terminated in writing or
by operation of Section 4.03(c), each party shall own a half-interest in all
rights to the Jointly Developed Product or Technology.
12
<PAGE> 16
January 31, 1995
(c) Upon ninety days' notice (or such shorter notice as may be agreed
to by either party), JTS or Pont may make changes to Jointly Developed
Specifications subsequent to the engineering final release of any Jointly
Developed Product or Technology. If such changes are not agreed to in writing
by the other party, then the party requesting the change may proceed with the
proposed change by documenting a new bill of material containing the change and
may proceed with that change and sole technical support of Jointly Developed
Products or Technology incorporating such change shall be the sole
responsibility of the party making the change. The party not agreeing with the
change is not required to provide technical support for Jointly Developed
Products or Technology incorporating such change. A change in the Specification
shall not affect the designation of a Jointly Developed Product or Technology.
(d) Ownership of any and all rights to Jointly Developed Products and
Technology, including Improvements while a product is designated a Jointly
Developed Product or Technology, shall be joint between the parties. Any
patents, trade marks or copyrights shall be applied for and owned jointly by
the parties and each party will cooperate in the preparation and filing of
applications for patents, trademarks and copyrights.
(e) Each party shall be responsible for its own expenses and costs in
connection with the development of any Jointly Developed Product or Technology.
ARTICLE V
IMPROVEMENTS
5.01 Cooperation. JTS and Pont shall cooperate closely with one another
within the field Covered by this Agreement. Each will from time to time inform
the other of their lines of development within the said field and will promptly
communicate with one another of all Improvements related to any Product and
Technology, in each instance accompanied by all Technical Information.
5.02 Ownership of Improvements. The parties agree that all
Improvements are and shall remain the exclusive and sole property of the party
discovering or making such Improvements, except for Improvements related to
Jointly Developed Products or Technology as provided in Section 4.04 which will
be jointly owned. Each of the parties hereby understands that the provisions of
Article II includes a license of such Improvements from the party discovering
or making such Improvements to the other party. Without in anyway limiting the
generality of the foregoing and in furtherance thereof, each of the parties
hereby agrees with the other that:
(a) It will not, and its Affiliates will not, apply for any patents,
or permit its or their employees, directors, officers, or agents to apply for
any patents, covering Improvements designated in this Section as being the sole
and exclusive property of the other party.
(b) It will cooperate with the other party in the preparation and
filing, in the name and at the expense of such other party, of applications for
patents, trademarks, and copyrights which may be obtainable in all countries
covering Improvements which are designated as the sole and exclusive property
of such other party under this Section.
13
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January 31, 1995
ARTICLE VI
SECRECY
6.01 Confidentiality. Each of the parties hereto shall treat and
maintain as confidential all Know-How under which such party is a licensee
hereunder and all Technical Information provided by a party to the other party.
Each party shall not, and shall cause its Affiliates to not, disclose any
aspect of such Know-How or Technical Information to any person, including any
association, corporation or governmental or quasi-governmental agency, except
as may be specifically contemplated by this Agreement or as required by law;
provided, however, that each party shall have the right, during the terms of
this Agreement, to disclose such Know-How or Technical Information to its
directors, officers, employees, agents or Affiliates to the extent, and only to
the extent, necessary to accomplish the objectives of this Agreement and to
customers only to the extent necessary to permit satisfactory operation of any
products.
6.02 Exceptions to Confidentiality. The parties further agree that the
provisions of Section 6.01 shall not apply to information which is first
acquired from a third party after the date of this Agreement, if there is no
obligation to keep the information from such third party confidential, or
information which is or becomes generally available to the public through no
act or omission on the part of the party who would otherwise be required to
keep such information confidential pursuant to Section 6.01.
6.03 Exercise of Care. With respect to the Know-How and Technical
Information which a party is required to keep confidential under Section 6.01,
and without limiting the generality of Section 6.01, each party agrees to
exercise at least such degree of care and take at least such precautions to
maintain such confidentiality as such party would exercise and take to maintain
the confidentiality of what such party regards as its most valuable and
confidential trade secrets, Know-How, processes and practices. Each party shall
be absolutely liable to the other for the non permitted disclosure directly or
indirectly of any details of the Know-How or Technical Information which it is
required to keep confidential hereunder by its directors, officers, employees,
agents or Affiliates.
6.04 Specific Performance. Each party agrees with the other that money
damages for breaches of this Article VI will be inadequate and that the
nonbreaching party shall, with respect to such breach, be entitled, in addition
to money damages, to such legal process as would required the breaching party
to cease the breach and to perform such further acts as are necessary to carry
out the terms of this Article.
14
<PAGE> 18
January 31, 1995
ARTICLE VI
ROYALTIES
7.01 Royalty Rate. Pont agrees to pay to JTS, in accordance with the
terms of this Article, in addition to all other sums due or which may become
due under this Agreement, a royalty rate of: (a) for the first [*] beginning
on the date that Pont begins to produce and sell non-three-and-a-half-inch disk
drive JTS Products, [*] of the net sales revenues from sales during the [*]
period of 2500 or more of such non-three-and-a-half-inch disk drive JTS
Products to an OEM or into the distribution or end user markets; and (b) for
the following [*] , [*] of the net sales revenues from sales during the
[*] period of 2500 or more of such non-three-and-a-half-inch disk drive JTS
Products to an OEM or into the distribution or end user markets; provided, in
each instance, such royalty rate shall be due on the sale of the first 2499
such products upon the sale of the 2500th such product during the period
specified.
7.02 When Sold. For purposes of Section 7.01 and 7.07, an item shall be
considered sold by Pont when first invoiced or shipped, whichever is sooner, to
a third party,
7.03 Net Sales Revenues. The net sales revenue shall be calculated by
deducting from the gross sales price the following items to the extent they are
included in the gross sales price:
(a) Sales, turnover or other taxes on the sale or use;
(b) Transportation and insurance charges payable by the seller on
shipments to the destination specified by the purchaser or user;
(c) Trade or quantity discounts (but not cash discounts or agents'
commissions to the purchaser, user, representatives or Affiliates);
(d) Credits allowed for items returned or not accepted by the purchaser
or user.
7.04 Certain Sales Excluded. No royalty shall be charged on direct
sales to JTS, or on the use of an item by Pont or its Affiliates for
experimental, testing or sales demonstration purposes only.
15
<PAGE> 19
January 31, 1995
7.05 Royalty Calculation on Items Used or Leased. For the purpose of
computing royalties on items used by Pont or its Affiliates (except for items
used for experimental testing or sales demonstration purposes only), such items
shall be deemed sold at Pont's quoted F.O.B. factory (based upon the location
at which such items are principally manufactured) sales price for such in
effect as of the time the royalty on such items accrues under Section 7.02, or
if no such items are so quoted, at the quoted price for the most similar item
then being so quoted by Pont.
7.06 Payments. All payments hereunder by Pont to JTS shall be made in
United States currency at a bank to be designated by JTS net of any deductions
or withholdings for taxes or charges of any kind which Pont is required to
withhold or deduct by law, provided that nothing in this Agreement shall be
construed or deemed as imposing upon Pont the obligation to make any such
deduction or withholding. To the extent any such deduction or withholding is
made by Pont, Pont agrees promptly to forward such amount withheld or deducted
to the pertinent agencies or entities imposing such charges. To compute net
sales and to determine amounts payable pursuant to this Article, any currency
other than United States legal tender shall be converted into United States
legal tender in accordance with Section 9.10 hereof.
7.07 Time of Payment and Period for Which Royalty Paid. Royalties
shall accrue during each quarterly-yearly period (or shorter period for the
first and last periods for which royalties shall accrue) ending on March 31st,
June 30th, September 30th, and December 31st of each year, and the
corresponding payments shall be made thirty days after each quarterly period,
respectively.
7.08 Late Payments. Any royalty payments made after the due date shall
include interest from the due date of payment until the actual date of payment
at the prime rate of interest in New York City publicly quoted by Chase
Manhattan Bank N.A. for unsecured commercial loans to its more favored
commercial customers ("Prime Rate") in effect on the due date, or the last
business day prior to the due date if the due date is a bank holiday ("the
Initial Prime Rate"), plus one and one-half percent (1.5%); if any such
payments shall remain unpaid for more than 60 days after the due date, the
Initial Prime Rate shall continue in effect until the first business day of the
month next occurring after the month in which such sixty (60) day period shall
end, where upon the Prime Rate to be used in computing interest hereunder for
the month beginning on such first day and ending on the first business day of
the next succeeding month shall be the Prime Rate in effect on that first
business day and for each such monthly period occurring thereafter the Prime
Rate in effect on the first business day of each such month. If Chase
Manhattan Bank N.A. shall not be quoting such Prime Rate at any time, then the
Prime Rate of any other United States Bank reasonably desiganted by JTS shall
be used.
7.09 Records and Reports. Royalty payments under this Article shall be
supported by a reasonably detailed statement of account for all transactions
subject to royalty showing the basis for calculating the royalty due and the
detail and purpose of the sums paid, and certified as accurate by Pont's chief
financial officer or its representatives. Pont shall keep, at its usual place
of business, and require its Affiliates to likewise keep, all books of
account relating to the manufacture and sale, lease or use of items subject
to royalties under this Article and shall produce such books for inspection by
any authorized certified auditor or financial officer of JTS at reasonable
times during normal business hours for the purpose of verifying the accuracy
and adequacy of royalties due hereunder. If any audit shall find an error
greater than 10% not in favor of JTS, then Pont shall pay the reasonable costs
of such audit.
16
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January 31, 1995
7.10 Governmental Approvals to U.S. Currency Payments. Pont agrees to
obtain the approval of any foreign country authorities, if necessary, and to
take whatever steps may be required, to remit to JTS in United States Dollars
the royalties payable hereunder.
7.11 Royalties to Survive Contractual Patents or Knowledge of Others
and Termination of License. Pont specifically acknowledges that notwithstanding
JTS' proprietary rights in the Patents and Know-How under which Pont is being
licensed to manufacture the items subject to royalty hereunder, it is agreeing
to pay the royalties due hereunder in lieu of significant initial charges in
return for JTS facilitating Pont's manufacture of the items subject to royalty
and thereby permitting Pont to commence the manufacture of such items earlier
than it would have otherwise been able to engage in such manufacture even if
JTS had no proprietary rights in such Patents and Know-How. Accordingly, Pont
agrees to pay the royalties due under this Article irrespective of the validity
or term of the Patents, or whether patent applications presently pending fail
to issue, or whether patent applications first made in the future covering JTS
Products or Technology or Components thereof or Improvements thereto fail to
issue, or whether third parties acquire knowledge of the Know-How.
Additionally, Pont agrees that the provisions of this Article VII shall
survive any termination of this Agreement or the license granted under Section
2.01 or any determination that the license granted under Section 2.01 is
invalid for any reason and shall apply to any sales by Pont and its Affiliates
following such termination or determination, whether or not such sales are
consistent with the terms of this Agreement, as though such termination had not
occurred or such determination had not been made.
ARTICLE VIII
TERMINATION
8.01 Bankruptcy of a Licensee. If a licensee under this Agreement
shall be adjudicated insolvent, or files a petition in bankruptcy, or for
reorganization, or if a licensee shall take advantage of any insolvency act, or
make an assignment for the benefit of creditors, then, and in any such event,
the licensee's rights but not its obligations under this Agreement shall
forthwith terminate and the license herein granted shall not constitute an
asset in reorganization, bankruptcy or insolvency which may be assigned or
which may accrue to any court- or creditor-appointed referee, receiver or
committee. Such licensee shall also promptly deliver to the licensor all
materials embodying information or data transferred pursuant to this Agreement,
including, but not limited to, all Technical information.
8.02 Bankruptcy of a Licensor. If a licensor under this Agreement
shall be adjudicated insolvent, or files a petition in bankruptcy, or for
reorganization, or if a licensor shall take advantage of any insolvency act, or
make an assignment for the benefit of creditors, then, and in any such event,
the licensor's rights but not its obligations under this Agreement shall
forthwith terminate.
17
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January 31, 1995
ARTICLE IX
GENERAL PROVISIONS
9.01 Notices. All notices, requests demands, waivers, consents and
other communications hereunder shall be in writing, shall be delivered either
in person, by telegraphic, facsimile or other electronic means, by overnight
air courier or by mail, and shall be deemed to have been duly given and to have
become effective (a) upon receipt if delivered in person or by telegraphic,
facsimile or other electronic means (b) one business day after having been
delivered to an air courier for overnight delivery or (c) three business days
after having been deposited in the mails as certified or registered mail,
return receipt requested, all fees prepaid, directed to the parties or their
permitted assignees at the following addresses (or at such other address as
shall be given in writing by a party hereto):
If to JTS, addressed to:
JT Storage, Inc.
1289 Anvilwood Avenue
Sunnyvale, California 94089
Attn: President
Facsimile: (408)-747-0849
If to Pont, addressed to:
Pont Peripherals Corporation
912 West Maude
Sunnyvale, California 94086
Attn: President
Facsimile: (408)-749-9499
9.02 Successors and Assigns. The rights under this Agreement shall not
be assignable or transferable nor the duties delegable by either party without
the prior written consent of the other; and nothing contained in this
Agreement, express or implied, is intended to confer upon any person or entity,
other than the parties hereto and their permitted successors-in-interest and
permitted assignees, any rights or remedies under or by reason of this
Agreement unless so stated to the contrary.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.04 Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not a part of this Agreement and
shall not be used in construing it.
18
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January 31, 1995
9.05 Entirety of Agreement: Amendments. This Agreement (including any
schedules and exhibits hereto) contains the entire understanding between the
parties concerning the subject matter of this Agreement and supersedes all
prior understandings and agreements, whether oral or written, between them with
respect to the subject matter hereof and thereof. There are no representations,
warranties, agreements, arrangements or understandings, oral or written,
between the parties hereto relating to the subject matter of this Agreement and
such other documents and instruments which are not fully expressed herein or
therein. This Agreement may be amended or modified only by an agreement in
writing signed by each of the parties hereto. All exhibits and schedules
attached to or delivered in connection with this Agreement are integral parts
of this Agreement as If fully set forth herein.
9.06 Construction. This Agreement and any documents or instruments
delivered pursuant hereto shall be construed without regard to the identity of
the person who drafted the various provisions of the same. Each and every
provision of this Agreement and such other documents and instruments shall be
construed as though the parties participated equally in the drafting of the
same. Consequently, the parties acknowledge and agree that any rule of
construction that a document is to be construed against the drafting party shall
not be applicable either to this agreement or such other documents and
instruments.
9.07 Waiver. The failure of a party to insist, in any one or more
instances, on performance of any of the terms, covenants and conditions of this
Agreement shall not be construed as a waiver or relinquishment of any rights
granted hereunder or of the future performance of any such term, covenant or
condition, but the obligations of the parties with respect thereto shall
continue in full force and effect. No waiver of any provision or condition of
this Agreement by a party shall be valid unless in writing signed by such party
or operational by the terms of this Agreement. A waiver by one party of the
performance of any covenant, condition, representation or warranty of the other
party shall not invalidate this Agreement, nor shall such waiver be construed
as a waiver of any other covenant, condition, representation or warranty. A
waiver by any party of the time for performing any act shall not constitute a
waiver of the time for performing any other act or the time for performing an
identical act required to be performed at a later time.
9.08 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California, without regard to the principles of conflicts of law thereof.
9.09 Remedies.
(a) All disputes, controversies or claims arising out of, or relating
to this Agreement, or the making, validity, interpretation, performance or
breach of this Agreement, shall be settled by arbitration in San Jose,
California under the commercial arbitration rules of the American Arbitration
Association in effect on the date of this Agreement. The arbitration shall be
conducted by one arbitrator selected in accordance with Section 12 of the
Rules. The arbitrator shall render a written decision, stating the reasons
therefor, and shall render his award within 12 months of the request for
arbitration. The award shall be final, binding and enforceable, and may be
entered in any court of competent jurisdiction. The successful or prevailing
party shall be entitled to recover reasonable attorneys' fees and other costs
incurred in the arbitration or any court proceeding, in addition to any other
relief to which such party is entitled. Such arbitration proceedings shall
constitute a condition precedent to any actions brought in the courts of any
jurisdiction which may have cognizance of this Agreement.
19
<PAGE> 23
January 31, 1995
(b) Each party's obligation under this Agreement is unique. If any
party should default in its obligations under the Agreement, the parties each
acknowledge that it would be extremely impractical to measure the resulting
damages; accordingly, the nondefaulting party, in addition to any other
available rights or remedies, may sue in equity for specific performance, and
the parties each expressly waive the defense that a remedy in damages will be
adequate. Nothing contained herein is intended to, nor shall limit or affect,
any rights at common law or by statute or otherwise of any party aggrieved as
against any other party for breach or threatened breach of any provision of
this Agreement, it being the intention by this provision to make clear the
agreement of the parties that the respective rights and obligations of the
parties shall be enforceable in equity as well as at law or otherwise.
(c) NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT, NEITHER
PARTY HEREUNDER NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES OR
AGENTS SHALL BE LIABLE TO THE OTHER PARTY HEREUNDER OR TO ANY THIRD PARTY FOR
ANY LOSS OF USE, LOSS OF GOODWILL, INTERRUPTION OF BUSINESS, OR FOR INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST REVENUES OR
PROFITS) OR SIMILAR DAMAGES, WHETHER BASED ON TORT (INCLUDING, WITHOUT
LIMITATION, NEGLIGENCE OR STRICT LIABILITY), CONTRACT OR OTHER LEGAL OR
EQUITABLE GROUNDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OR HAD REASON TO KNOW OF
THE POSSIBILITY OF SUCH DAMAGES.
9.10 Status of Parties. JTS and Pont are and intend to remain
independent contractors, and this Agreement shall not constitute, create or be
interpreted as a joint venture, partnership or formal business organization of
any kind. Nothing in this Agreement shall be construed to constitute either
party the agent of the other for the purpose of accepting service of legal
process or binding either party as principal to any representation, commitments
or agreements made by the other in connection with the manufacture, sale,
distribution, use or application of the Products or Technology referred to
herein or otherwise.
9.11 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid, binding and
enforceable under applicable law, but if any provision of this Agreement is
held to be invalid, void (or voidable) or unenforceable under applicable law,
such provision shall be ineffective only to the extent held to be invalid,
void (or voidable) or unenforceable, without affecting the remainder of such
provision or the remaining provisions of this Agreement.
9.12 Payments in U.S. Currency. All payments from one party to the
other and the calculation of all amounts due will be in United States dollars.
Any conversions to United States dollars shall be based upon the midpoint
between the official banking buying and selling rate of United States dollars
at the close of business on the business day immediately preceding the day on
which such conversion is to be calculated for purposes of carrying out the
terms of this Agreement.
9.13 Consents Not Unreasonably Withheld. Wherever the consent or
approval of any party is required under this Agreement, such consent or
approval shall not be unreasonably withheld, unless such consent or approval is
to be given by such party at the sole or absolute discretion of such party or
is otherwise similarly qualified.
20
<PAGE> 24
January 31, 1995
9.14 Time Is of the Essence. Time is hereby expressly made of the
essence with respect to each and every term and provision of this Agreement.
The parties acknowledge that each will be relying upon the timely performance
by the other of its obligations hereunder as a material inducement to each
party's execution of this Agreement. Neither party shall be liable for any
delay or failure in its performance of any of the acts required by this
Agreement when such delay or failure arises beyond the control and without the
fault or negligence of such party. Such causes may include, without limitation,
acts of God or public enemies, labor disputes, material or component shortages,
embargoes, rationing, acts of local, State or national governments or public
agencies, utility or communication failures or delays, fire, flood, epidemics,
riots or strikes. The time for performance of any act delayed by such events
may be postponed for a period equal to the delay.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
JTS
JT STORAGE, INC.
By: /s/ Sirjang L. Tandon
-------------------------
Its: Chairman & CEO
------------------------
Pont
PONT PERIPHERALS CORPORATION
By: /s/ Daniel Dooley
-------------------------
Its: President
------------------------
21
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
1. Atari Corp. (U.K.) Ltd., a corporation organized under the laws of the
United Kingdom.
2. Modular Electronics (India) Pvt. Ltd., a corporation organized under
the laws of India.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
/S/ Arthur Andersen
----------------------------------
San Jose, California
June 17, 1996
<PAGE> 1
Exhibit 23.2
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the use in this Registration Statement of JT Storage Inc. on Form
S-4 of our report dated March 1, 1996 (April 8, 1996 as to Note 16) relating to
Atari Corporation, appearing in the Joint Proxy Statement/Prospectus, which is
a part of this Registration Statement, and to the references to us under the
heading "Experts" in such Joint Proxy Statement/Prospectus.
/s/ Deloitte & Touche
- ----------------------------------
DELOITTE & TOUCHE LLP
San Jose, California
June 19, 1996
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<ARTICLE> 5
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> APR-28-1996 JAN-28-1996
<PERIOD-START> JAN-29-1996 JAN-30-1996
<PERIOD-END> APR-28-1996 JAN-28-1996
<CASH> 5,116 547
<SECURITIES> 0 0
<RECEIVABLES> 10,694 2,016
<ALLOWANCES> 1,086 730
<INVENTORY> 12,983 2,093
<CURRENT-ASSETS> 1,585 240
<PP&E> 20,221 10,774
<DEPRECIATION> 4,009 2,831
<TOTAL-ASSETS> 46,871 19,813
<CURRENT-LIABILITIES> 61,669 27,116
<BONDS> 0 0
29,697 27,785
0 0
<COMMON> 0 0
<OTHER-SE> (50,876) (38,573)
<TOTAL-LIABILITY-AND-EQUITY> 46,871 19,813
<SALES> 17,481 13,502
<TOTAL-REVENUES> 17,581 18,777
<CGS> 19,434 28,548
<TOTAL-COSTS> 29,587 50,588
<OTHER-EXPENSES> 56 32
<LOSS-PROVISION> 356 726
<INTEREST-EXPENSE> 542 589
<INCOME-PRETAX> (12,855) (33,050)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (12,855) (30,050)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,855) (33,050)
<EPS-PRIMARY> (1.47) (7.17)
<EPS-DILUTED> (1.47) (7.17)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
JTS CORPORATION
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David T. Mitchell and W. Virginia
Walker, jointly and severally, proxies with full power of substitution, to vote
all shares of Common Stock and Series A Preferred Stock of JT Storage, Inc., a
Delaware corporation, which the undersigned is entitled to vote at the Special
Meeting of Stockholders to be held at the offices of the Company, located at
166 Baypointe Parkway, San Jose, California, on July , 1996 at 9:00 a.m.,
local time, or any adjournment thereof. The proxies are being directed to vote
as specified below or, if no specification is made, FOR the proposal to approve
(a) the Amended and Restated Agreement and Plan of Reorganization dated as of
April 8, 1996 between Atari Corporation, a Nevada corporation ("Atari"), and
JTS Corporation, and (b) the merger of Atari with and into JTS Corporation,
and in accordance with their discretion on such other matters that may
properly come before the meeting.
The directors recommend a FOR vote on each item.
(continued and to be signed on reverse side.)
1.
<PAGE> 2
PLEASE MARK YOUR VOTES AS THIS: /X/
1. Proposal to approve (a) the Amended and Restated Agreement and Plan of
Reorganization dated as of April 8, 1996 between Atari and JTS
Corporation, and (b) the merger of Atari with and into JTS
Corporation.
FOR AGAINST ABSTAIN
/ / / / / /
I plan to attend the Meeting:
Dated:_________________________________
_______________________________________
(Signature)
_______________________________________
(Signature)
(Signature(s) must be exactly as
name(s) appear on this proxy.) (If
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such, and, if
signing for a corporation, please give
your title. When shares are in the
names of more than one person, each
should sign this Proxy.)
2.
<PAGE> 1
EXHIBIT 99.2
ATARI CORPORATION
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack Tramiel and Sam Tramiel, jointly
and severally, proxies with full power of substitution, to vote all shares of
Common Stock of Atari Corporation, a Nevada corporation, which the undersigned
is entitled to vote at the Special Meeting of Stockholders to be held at the
offices of Wilson Sonsini Goodrich & Rosati, P.C., legal counsel to the Company,
located at 650 Page Mill Road, Palo Alto, California, on July , 1996 at 9:00
a.m., local time, or any adjournment thereof. The proxies are being directed to
vote as specified below or, if no specification is made, FOR the proposal to
approve (a) the Amended and Restated Agreement and Plan of Reorganization dated
as of April 8, 1996 between Atari and JTS Corporation, a Delaware corporation
("JTS"), and (b) the merger of Atari with and into JTS, and in accordance with
their discretion on such other matters that may properly come before the
meeting.
The directors recommend a FOR vote on each item.
(Continued and to be signed on reverse side.)
<PAGE> 2
PLEASE MARK YOUR VOTES AS THIS: /X/
1. Proposal to approve (a) the Amended and Restated Agreement and Plan of
Reorganization dated as of April 8, 1996 between Atari and JTS, and (b)
the merger of Atari with and into JTS.
FOR AGAINST ABSTAIN
/ / / / / /
I plan to attend the Meeting:
Dated:______________________________
____________________________________
(Signature)
____________________________________
(Signature)
(Signature(s) must be exactly as
name(s) appear on this proxy.) (If
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such, and,
if signing for a corporation, please
give your title. When shares are in
the names of more than one person,
each should sign this Proxy.)
-2-
