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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1996
Commission file number 0-25796
STORMEDIA INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 77-0373062
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
390 REED STREET, SANTA CLARA, CALIFORNIA 95050-3118
(Address of principal executive offices)
(Zip Code)
(408) 327-8400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of August 2, 1996, 13,015,793 shares of the Registrant's Class A
Common Stock, $0.013 par value, and 4,362,001 shares of the Registrant's Class B
Common Stock, $0.013 par value, were issued and outstanding.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations -- Three and Six Months Ended
June 28, 1996 and June 30, 1995.................................................... 3
Condensed Consolidated Balance Sheets -- As of June 28, 1996 and December 31, 1995... 4
Condensed Consolidated Statements of Cash Flows -- Six Months Ended
June 28, 1996 and June 30, 1995.................................................... 5
Notes to Condensed Consolidated Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 17
Item 2. Changes in Securities................................................................ 17
Item 3. Defaults Upon Senior Securities...................................................... 17
Item 4. Submission of Matters to a Vote of Securities Holders................................ 17
Item 5. Other Information.................................................................... 17
Item 6. Exhibits and Reports on Form 8-K..................................................... 17
SIGNATURES............................................................................................. 19
</TABLE>
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PART I.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
STORMEDIA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, JUNE 30, JUNE 28, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $57,652 $34,679 $118,808 $62,559
Cost of sales 42,761 25,889 86,808 47,707
------- ------- -------- -------
Gross profit 14,891 8,790 32,000 14,852
Operating expenses:
Research and development 4,419 2,003 8,127 3,695
Selling, general, and administrative 2,129 1,273 4,179 2,281
------- ------- -------- -------
Total operating expenses 6,548 3,276 12,306 5,976
Operating earnings 8,343 5,514 19,694 8,876
Interest income (expense) net 827 (594) 1,312 (1,161)
------- ------- -------- -------
Earnings before income tax expense 9,170 4,920 21,006 7,715
------- ------- -------- -------
Income tax expense 1,375 1,332 3,742 2,091
Net earnings $ 7,795 $ 3,588 $ 17,264 $ 5,624
======= ======= ======== =======
Earnings per share:
Primary $ 0.42 $ 0.26 $ 0.94 $ 0.45
======= ======= ======== =======
Fully diluted $ 0.42 $ 0.26 $ 0.94 $ 0.45
======= ======= ======== =======
Shares used in per share computation:
Primary 18,426 13,877 18,365 12,527
======= ======= ======== =======
Fully diluted 18,426 13,967 18,368 12,569
======= ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28, 1996 DECEMBER 31, 1995
------------- -----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,875 $ 37,407
Short-term investments -- 18,421
Accounts receivable, less allowances of $570 at
June 28, 1996 and $1,555 at December 31, 1995 36,599 30,114
Inventories 15,484 9,811
Prepaid expenses 6,601 4,551
Deferred income taxes 2,015 2,015
-------- --------
Total current assets 94,574 102,319
Plant and equipment, net 124,006 77,856
Deferred income taxes 576 576
Deposits and other assets 1,148 846
-------- --------
$220,304 $181,597
======== ========
LIABILITIES, PUT OPTIONS AND EQUITY
Current liabilities:
Trade accounts payable $ 34,146 $ 18,997
Current portion of long-term debt 10,014 47
Accrued salaries and benefits 5,105 4,607
Income taxes payable 5,998 3,407
Other accrued expenses 1,321 1,209
-------- --------
Total current liabilities 56,584 28,267
Long-term debt, less current portion 33 111
Put options -- 20,605
Equity:
Common stock, par value $.013 per share 230 230
Additional paid-in capital 122,010 108,106
Retained earnings 41,447 24,278
-------- --------
Total equity 163,687 132,614
-------- --------
$220,304 $181,597
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 28, 1996 JUNE 30, 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 17,264 $ 5,624
Adjustments to reconcile earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 6,961 1,508
Deferred income taxes -- 1
Changes in operating assets and liabilities:
Accounts receivable (6,485) (7,506)
Inventories (5,673) (2,491)
Prepaid expenses (2,050) 249
Other assets (302) (122)
Trade accounts payable 15,149 (202)
Accrued liabilities 610 1,059
Income taxes payable 3,492 (1,249)
-------- --------
Net cash provided by (used in) operating activities 28,966 (3,129)
-------- --------
INVESTING ACTIVITIES
Acquisition of plant and equipment (53,110) (10,229)
Interest capitalized on plant and equipment -- (197)
Sale (purchase) of short-term investments 18,326 (4,000)
-------- --------
Net cash used in investing activities (34,784) (14,426)
-------- --------
FINANCING ACTIVITIES
Short-term borrowings 10,000 (2,785)
Payment of debt obligations -- (12,155)
Payment of long-term obligations (111) --
Proceeds from sale of Common Stock,
net of issuance costs 1,603 42,016
Settlement of put options (1,994) --
Repurchase of Class A Common Stock (7,212) --
Preferred dividends paid -- (178)
-------- --------
Net cash provided by financing activities 2,286 26,898
-------- --------
Increase (decrease) in cash and cash equivalents (3,532) 9,343
Cash and cash equivalents at beginning of period 37,407 2,355
-------- --------
Cash and cash equivalents at end of period $ 33,875 $ 11,698
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ -- $ 1,502
======== ========
Cash paid for income taxes $ -- $ 3,343
======== ========
Non-cash financing and investing activities:
Equipment acquired under capital lease obligations $ -- $ 2,141
======== ========
Equipment acquired under short-term borrowings $ -- $ 1,500
======== ========
Conversion of Preferred Stock to Common Stock $ -- $ 4,750
======== ========
Tax benefit arising from early dispositions of stock
issued upon exercise of stock options $ 901 $ --
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THREE AND SIX MONTHS ENDED JUNE 28, 1996 AND JUNE 30, 1995
IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the condensed consolidated
financial statements include all adjustments which are necessary for a fair
presentation. Operating results for the three and six months ended June 28, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996 or any other interim period. The accompanying unaudited
condensed consolidated financial statements should be read in conjunction with
the Company's audited financial statements included in its Annual Report on Form
10-K for the year ended December 31, 1995.
NOTE 2 - BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
JUNE 28, 1996 DECEMBER 31, 1995
(UNAUDITED)
<S> <C> <C>
Inventories:
Raw material $ 5,637 $ 4,167
Work-in-process 5,237 4,368
Finished goods 4,610 1,276
-------- -------
Total inventories $ 15,484 $ 9,811
======== =======
Plant and equipment:
Leasehold improvements $ 12,880 $ 8,379
Machinery and equipment 68,515 37,381
Construction-in-progress 53,921 36,695
-------- -------
$135,316 $82,455
Less allowance for depreciation and amortization (11,310) (4,599)
-------- -------
Plant and equipment, net $124,006 $77,856
======== =======
</TABLE>
NOTE 3 - STOCK DIVIDEND
The Company effected a three-for-two stock split (paid in the form of a
stock dividend) on May 28, 1996 to stockholders of record as of the close of
business on May 13, 1996. Share and per share amounts presented have been
adjusted to reflect the stock dividend.
NOTE 4 - SUBSEQUENT EVENTS
In July 1996, the Company signed a commitment letter for a $50.0 million
Term Loan Facility and a $25.0 million Revolving Credit Facility with the CIBC
Wood Gundy, an affiliate of Canadian Imperial Bank of Commerce, and Banque
Nationale de Paris (the "Banks"). The Banks have fully underwritten the
facilities and the Company anticipates funding by mid-August assuming all
conditions precedent to the facilities' funding have been met. The facilities
have three-year terms and will replace the previous credit facility with Bank of
America.
In August 1996, Bank of America amended its unsecured revolving credit
facility agreement dated December 1, 1995. Under the amendment, the Company may
borrow up to $10.0 million on a revolving basis through August 30, 1996. The
Company anticipates repayment of the credit facility plus accrued interest upon
funding by the Banks.
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In August 1996, the Board of Directors declared a dividend distribution
of one Preferred Share Purchase Right (the "Right") on each outstanding share of
the Company's Common Stock. Each Right will entitle stockholders to buy 1/1000th
of a share of the Company's Series A Participating Preferred Stock at an
exercise price of $75.00. The Rights will become exercisable following the tenth
day after a person or group announces acquisition of 15% or more of the
Company's Common Stock or announces commencement of a tender offer, the
consummation of which would result in ownership by the person or group of 15% or
more of the Common Stock. The Company will be entitled to redeem the Rights at
$.01 per Right at any time on or before the tenth day following acquisition by a
person or group of 15% or more of the Company's Common Stock. The dividend
distribution will be made on August 16, 1996, payable to stockholders of record
on August 16, 1996. The Rights will expire on August 15, 2006.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those set forth in such
forward-looking statements as a result of the factors set forth under "Factors
Affecting Operating Results " and other risks detailed from time to time in the
Company's reports filed with the Securities and Exchange Commission.
OVERVIEW
During 1995 and the six months ended June 28, 1996, the Company sold its
disks primarily to Seagate Technology, Inc. ("Seagate") and Maxtor Corporation
("Maxtor"), with sales to Maxtor representing 45% and 36% of net sales during
these periods, respectively. In November 1995, the Company entered into a
multi-year Supply Agreement with Maxtor (the "Maxtor Supply Agreement") pursuant
to which Maxtor agreed to purchase specified volumes over a four-year period. In
June 1996, Maxtor notified the Company that it did not intend to purchase the
full committed volumes for the second quarter of 1996 as required by the Maxtor
Supply Agreement. Maxtor subsequently repudiated the Maxtor Supply Agreement.
The Company is continuing to ship products to Maxtor, although in substantially
lesser volumes than in the quarter ended June 28, 1996, under a reservation of
rights and intends to enforce its rights against Maxtor. As a consequence of
Maxtor's actions, the Company has reduced its work force in its Santa Clara,
California facility and taken other steps to reduce its costs in Singapore and
in the United States. The Company is seeking additional customers to utilize the
manufacturing capacity in which it has been manufacturing products for Maxtor.
While the Company expects Seagate to take a portion of this capacity, the
Company will have excess manufacturing capacity as it seeks to qualify its
products in new and existing customers' product programs. The qualification of
new products is a costly and time consuming process and there can be no
assurance that the Company will successfully find new customers or successfully
qualify its products in their product programs on a timely basis. Accordingly,
the Company expects Maxtor's failure to purchase committed volumes and its
repudiation of the Maxtor Supply Agreement to negatively impact its results of
operations at least in the third quarter of 1996.
The Company's gross margins have fluctuated and will continue to fluctuate
quarterly and annually based upon a variety of factors such as the level of
utilization of the Company's production capacity, changes in product mix,
average selling prices, demand or manufacturing yields, increases in production
and engineering costs associated with initial production of new programs,
changes in the cost of or limitations on availability of materials and labor
shortages. During 1995 and for the six months ended June 28, 1996, the Company
reported a gross margin of 27% and 27%, respectively. The Company expects its
gross margins to decline during the third quarter of 1996 due to the expected
reduction in sales to Maxtor and the resulting under-utilization of production
capacity. Additionally, the purchase price of disks under the Seagate Supply
Agreement is calculated based upon a pricing formula which results in gross
margins that are generally lower than the gross margins experienced by the
Company in the first half of 1996. Accordingly, to the extent the Singapore
manufacturing facility, which is dedicated to manufacturing products for Seagate
(the "Dedicated Facility") becomes fully operational in the third quarter of
1996, the Company's overall gross margins are likely to decline. This adverse
impact will be exacerbated to the extent that Seagate shifts its purchase orders
to the Dedicated Facility from the Company's other facilities rather than
increases its level of purchases from the Company.
The Company expects that a substantial portion of its shipments in the
third quarter of 1996 will be of new products. Generally, new products have
higher average selling prices than more mature products but initially have lower
manufacturing yields and generally are initially produced in lower quantities
than more mature products. Manufacturing yields generally improve as the product
matures and production volume increases. There can be no assurance that the
Company's gross margins will not be negatively impacted by the introduction of
new products in the third quarter of 1996.
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RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, JUNE 30, JUNE 28, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ......................... 74.2 74.7 73.1 76.3
----- ----- ----- -----
Gross profit ...................... 25.8 25.3 26.9 23.7
Research and development .............. 7.7 5.7 6.8 5.9
Selling, general and administrative ... 3.7 3.7 3.5 3.6
----- ----- ----- -----
Total operating expenses .............. 11.4 9.4 10.3 9.5
----- ----- ----- -----
Operating earnings ................ 14.4 15.9 16.6 14.2
Interest income (expense) net ......... 1.5 (1.8) 1.1 (1.9)
----- ----- ----- -----
Earnings before income tax expense .... 15.9 14.1 17.7 12.3
Income tax expense .................... 2.4 3.8 3.2 3.3
----- ----- ----- -----
Net earnings ...................... 13.5% 10.3% 14.5% 9.0%
===== ===== ===== =====
</TABLE>
Net Sales
Net sales increased 66.2% to $57.7 million for the three months ended June
28, 1996 from $34.7 million for the three months ended June 30, 1995. For the
six months ended June 28, 1996, net sales increased 89.9% to $118.8 million from
$62.6 million for the six months ended June 30, 1995. The increase in net sales
was primarily due to an increase in unit volume offset by a slight decrease in
average selling price. The principal factors contributing to the increase in
unit volumes were the additional capacity provided by the Company's facilities
in Singapore and the introduction of new products. Although second quarter net
sales increased in 1996 from 1995, net sales in 1996 were negatively impacted by
the failure of Maxtor to purchase the volumes committed to under the Maxtor
Supply Agreement and by reductions in the average selling price of products sold
to Maxtor in June 1996. In June 1996, Maxtor notified the Company that it did
not intend to purchase the full committed volumes required by the Maxtor Supply
Agreement. Maxtor subsequently repudiated the Maxtor Supply Agreement. The
Company is continuing to ship products to Maxtor (although in lesser volumes
than in the quarter ended June 28, 1996) under a reservation of rights and
intends to enforce its rights against Maxtor. The Company expects Maxtor's
failure to purchase committed volumes and its repudiation of the Maxtor Supply
Agreement to negatively impact its results of operations for at least the third
quarter of 1996.
Gross Profit
The Company's gross profit increased 69.4% to $14.9 million for the three
months ended June 28, 1996 from $8.8 million for the three months ended June 30,
1995. For the six months ended June 28, 1996, gross profit increased 115.5% to
$32.0 million from $14.9 million for the six months ended June 30, 1995. Gross
profit as a percentage of net sales for the three and six months ended June 28,
1996 were 25.8% and 26.9%, respectively, as compared to 25.3% and 23.7%,
respectively, for the three and six months ended June 30, 1995. The principal
factors contributing to the increase in gross profit were increased unit volumes
as a result of the additional capacity of the Company's operations in Singapore
and the improved utilization of production capacity. The Company expects gross
margins to decline during the third quarter of 1996 due to the expected
reduction in sales to Maxtor and to under-utilization of production capacity.
Additionally, the purchase price of disks under the Seagate Supply Agreement is
calculated based upon a pricing formula which results in gross margins that are
generally lower than the Company's gross margins experienced in the first half
of 1996. Accordingly, to the extent the Dedicated Facility becomes fully
operational in the third quarter of 1996, the Company's overall gross margins
are likely to decline. Additionally, the Company expects that a substantial
portion of its shipments in the third quarter of 1996 will be of new products.
New products often initially have lower manufacturing yields and generally are
initially produced in lower quantities than more mature products. Manufacturing
yields generally improve as the product matures and production volumes increase.
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Research and Development
Research and development expenses increased 120.6% to $4.4 million for the
three months ended June 28, 1996 from $2.0 million for the three months ended
June 30, 1995, increasing as a percentage of net sales to 7.7% for the three
months ended June 28, 1996 from 5.7% for the comparable prior year three month
period. For the six months ended June 28, 1996, research and development
expenses increased 119.9% to $8.1 million from $3.7 million for the six months
ended June 30, 1995, increasing as a percentage of net sales to 6.8% for the six
months ended June 28, 1996 from 5.9% for the comparable prior year six month
period. The principal factors contributing to the increase in research and
development expense were increased staffing and spending on development work
related to alternative substrates, new magnetic alloys and sputtering
techniques.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 67.2% to $2.1
million for the three months ended June 28, 1996 from $1.3 million for the three
months ended June 30, 1995, remaining flat as a percentage of net sales at 3.7%
for the three months ended June 28, 1996 and for the comparable prior year three
month period. For the six months ended June 28, 1996, selling, general and
administrative expenses increased 83.2% to $4.2 million from $2.3 million for
the six months ended June 30, 1995, declining as a percentage of net sales to
3.5% for the six months ended June 28, 1996 from 3.6% for the comparable prior
year six month period. The increase in selling, general & administrative
expense, on an absolute dollar basis, is due primarily to increased staffing due
primarily to the expanded operations in Singapore.
Interest, Net
Interest, net for the three months ended June 28, 1996 was $0.8 million
income as compared to $0.6 million expense for the three months ended June 30,
1995. Interest, net for the six months ended June 28, 1996, was $1.3 million
income as compared to $1.2 million expense for the comparable prior year six
month period. The change was primarily attributable to decreased borrowings and
increased investments in cash and cash equivalents.
Income Tax Expense
The Company's effective tax rate (which includes federal and state income
tax expense) decreased to 15% and 17.8%, respectively, for the three and six
months ended June 28, 1996 from 27% for the three and six months ended June 30,
1995 primarily due to increased earnings in Singapore. The Company has been
granted a seven year tax holiday in Singapore, which expires in 2001, with the
possibility of a three year extension. The benefit of the Company's income tax
holiday in Singapore is the primary factor contributing to the lower effective
tax rate. The Company expects its effective tax rate to decrease in subsequent
quarters as earnings in Singapore increase as a percentage of consolidated
earnings.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments of $33.9 million as
of June 28, 1996, decreased $22.0 million from December 31, 1995, primarily due
to changes in working capital, acquisition of plant and equipment, repurchase of
Class A Common Stock and the settlement of put options.
During the six months ended June 28, 1996, the Company generated $29.0
million from operating activities. Sources included net earnings of $17.3
million and a $15.8 million increase in accounts payable and accrued
liabilities, offset by an increase of $6.5 million in accounts receivable and an
increase of $5.7 million in inventories. The increase in accounts payable and
accrued liabilities is primarily attributed to the increased deposits placed for
the continuation and completion of facilities expansion, principally in
Singapore, including deposits for equipment for the Company's prospective
substrate facility. The increase in accounts receivable is primarily due to
increased revenue levels. The increase in inventories is primarily due to
increased production levels.
The Company used $34.8 million in investing activities during the six
months ended June 28, 1996. Investing activities consisted primarily of
investments of $53.1 million for capital expenditures for facilities expansion
for its Singapore operations, offset by the sale of short-term investments of
$18.3 million. Capital expenditures are expected to approximate $85 million
during 1996 for expansion of its facilities including investments in the
Dedicated Facility, a plating and polishing facility in Singapore and other
capital expenditures. Of such amount, $53.1 million had been spent at June 28,
1996. In order to finance
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<PAGE> 11
the Company's current capital expenditure plans, the Company is exploring
various debt financing alternatives. The Company believes it will obtain such
financing on reasonable terms. However, if such financing is not available on
reasonable terms, the Company will revise its capital expenditure plan
accordingly. The Company had $12.9 million of noncancellable purchase
commitments for plant and equipment outstanding at June 28, 1996.
In October 1995, the Company's Board of Directors authorized a share
repurchase program. Pursuant to this program, the Company sold put options for
$1.9 million in private placements during October 1995. The put options granted
the holder the right to require the Company to repurchase up to 500,000 shares
of its Class A Common Stock at an aggregate price of $20.6 million, of which the
Company repurchased 175,000 shares at an aggregate cost of $7.2 million and
closed 25,000 put options by cash settlement at an aggregate cost of $0.3
million in January 1996. In April 1996, the Company closed 300,000 put options
by cash settlement at an aggregate cost of $1.7 million.
The Company's principal sources of liquidity at June 28, 1996 consisted of
$33.9 million in cash and cash equivalents and $10.0 million of funds available
under the Company's credit facility with Bank of America (the "B of A Credit
Facility"). In July 1996, the Company signed a commitment letter for a $50.0
million Term Loan Facility and a $25.0 million Revolving Credit Facility with
CIBC Wood Gundy, an affiliate of Canadian Imperial Bank of Commerce, and Banque
Nationale de Paris (the "Banks"). The Banks have fully underwritten the
facilities and the Company anticipates funding in August 1996. The facilities
have three year terms and will replace the previous credit facility with Bank of
America. In August 1996, Bank of America amended its unsecured revolving credit
facility agreement dated December 1, 1995. Under the amendment, the Company may
borrow up to $10.0 million on a revolving basis through August 30, 1996, leaving
no amounts available under the B of A Credit Facility. The Company anticipates
repayment of the B of A Credit Facility plus accrued interest upon funding by
the Banks. The Company believes that the existing cash balances, cash flow from
operations and funds expected to be available under its new credit facilities
with the Banks will be sufficient to meet the Company's operating and capital
expenditures requirements for the next twelve months. If the Company decides to
expand its facilities further or sooner than presently contemplated or requires
capital for other purposes, it would require additional debt or equity
financing. There can be no assurance that such additional funds will be
available to the Company or, if available, will be available on favorable terms.
If the Company is unable to obtain sufficient capital, it could be required to
curtail its capital equipment, working capital and research and development
expenditures which could adversely affect the Company's future years' operations
and competitive position.
FACTORS AFFECTING OPERATING RESULTS
Uncertainties Associated with Supply Agreement with Maxtor; Dependence on
a Limited Number of Customers. During 1995 and the six months ended June 28,
1996, the Company sold its disks primarily to Seagate Technology, Inc.
("Seagate") and Maxtor Corporation ("Maxtor"), with sales to Maxtor representing
45% and 36% of net sales during these periods, respectively. Aggregate shipments
to Seagate and Maxtor in 1993,1994,1995 and the first six months of 1996
represented 52%, 91%, 99% and 97%, respectively, of net sales. As discussed
above, Maxtor has repudiated the Maxtor Supply Agreement. The Company is seeking
additional customers to utilize the manufacturing capacity in which it has been
manufacturing products for Maxtor. While the Company expects Seagate to take a
portion of this capacity, the Company will have excess manufacturing capacity as
it seeks to qualify its products in new and existing customers' product
programs. Qualification is a costly and time consuming process and there can be
no assurance that the Company will successfully find new customers or
successfully qualify its products in their product programs on a timely basis.
Accordingly, the Company expects Maxtor's failure to purchase committed volumes
and its repudiation of the Maxtor Supply Agreement to negatively impact its
results of operation at least in the third quarter of 1996.
Given the relatively small number of independent high performance disk
drive manufacturers, the Company's dependence on a few customers will continue
in the future. The Company's existing and several of its potential customers are
expanding their ability to produce thin film disks internally and, as a result,
could reduce the level of purchases or cease purchasing from the Company, could
sell thin film disks in competition with the Company or might not sustain or
increase their level of orders as the Company increases its capacity. The
significant reduction in purchases by Maxtor and its repudiation of the Maxtor
Supply Agreement has and will materially adversely affect the Company's
operating results at least in the third quarter of 1996. The loss of Seagate as
a customer or of any significant future customer, or a significant reduction in
the level of orders for any reason would materially adversely affect the
Company's business, operating results and financial condition. Additionally, due
to the lengthy product qualification process, any change in customers or product
mix could have a material adverse effect on the Company's business, results of
operations and financial condition during any such transition. Consequently, the
loss of Seagate
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<PAGE> 12
or one or more of the Company's potential customers through consolidations,
adverse financial or market circumstances or otherwise, would have a material
adverse effect on the Company's business, results of operations and financial
condition.
Specifically, Seagate currently produces a portion of its own thin film
disk requirements internally and historically has produced a majority of its
requirements. Seagate's expressed corporate strategy is to significantly
increase its internal capacity to manufacture disks through construction of a
160,000 square foot disk manufacturing facility in Singapore which has been
substantially completed as of August 1996. In February 1996, Seagate also
completed its merger with Conner Peripherals, Inc. ("Conner") and acquired
Conner's internal disk production capacity, which supplied substantially all of
Conner's disk requirements. In addition, prior to the merger, Conner had stated
its intention to double its internal disk capacity through a newly established
facility in Singapore. This facility has begun producing disks and is expected
to be completed in 1997. Seagate's increased internal disk manufacturing
capacity as described above may reduce Seagate's disk needs from external
suppliers. If Seagate were to reduce the level of orders from the Company as a
result of the expansion of its internal disk production, an acquisition of, or
the establishment of a strategic relationship with, another disk supplier or
otherwise, or if Seagate were to begin selling disks in competition with the
Company, the Company's business, results of operations and financial condition
would be materially adversely affected.
Maxtor was recently acquired by Hyundai Electronics Industries, Co. Ltd.
("Hyundai"). Hyundai recently announced its intention to develop and manufacture
disks for use in Maxtor disk drives, supplementing Maxtor's current suppliers
base. As noted above, despite Maxtor's repudiation of the Maxtor Supply
Agreement, it has continued to purchase products from the Company albeit in
quantities substantially lower than committed to under the Maxtor Supply
Agreement. These factors could further negatively impact quantities of the
Company's products purchased by Maxtor in the future.
Consolidation Within the Disk Drive Industry. Consolidation within the
disk drive industry has reduced the number of potential customers to whom the
Company could market its products. In addition to the Seagate acquisition of
Conner, Quantum Corporation ("Quantum") recently announced its intention to
close all of its manufacturing operations in the United States and overseas and
to transfer all manufacturing production to Matsushita Kotobuki Electronics of
Japan ("MKE"), its long-term contract manufacturing partner. While Quantum was a
customer of the Company in 1994, MKE has never been a significant customer of
the Company. Additionally, Maxtor was recently acquired by Hyundai, which has
announced its intention to manufacture disks for Maxtor disk drives internally.
Given the relatively small number of independent hard disk drive manufacturers
who require an independent source of thin film disks, as well as the
consolidations and changes which have occurred and are continuing to occur in
the industry, there can be no assurance that the Company's efforts to diversify
its customer base will be successful. If they are not successful, the Company
will continue to be dependent on a relatively limited number of customers, the
loss of, or the reduction in orders by, any one of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Uncertainties Associated with Supply Agreement with Seagate. In June 1995,
the Company entered into a Supply Agreement with Seagate (the "Seagate Supply
Agreement,") pursuant to which the Company has established the Dedicated
Facility in Singapore to manufacture disks for Seagate. The Company has expended
significant financial and management resources to construct and begin operations
at such facility. While Seagate will be required to purchase the disks
manufactured at the Dedicated Facility through March 31, 1999, each of the
products manufactured at the Dedicated Facility must be qualified by Seagate
before products can be delivered to Seagate. To date, the Company has qualified
all three lines in the Dedicated Facility. Additionally, there is no
requirement that Seagate's purchases from the Dedicated Facility must be in
addition to the level of purchases presently being made by Seagate from the
Company's other facilities. The favorable pricing provisions of the Seagate
Supply Agreement would incentivize Seagate to shift its purchases to the
Dedicated Facility. Seagate is presently the Company's largest customer. To the
extent that Seagate shifts the manufacture of its current level of purchase
orders to the Dedicated Facility from the Company's other facilities,
particularly as it increases its own internal disk manufacturing capacity, the
Seagate Supply Agreement and Dedicated Facility may not result in increased
sales to Seagate and could, absent additional orders from other customers,
result in significant excess capacity for the Company with resulting adverse
impacts on the Company's results of operations. See "--Variability in Gross
Margins and Operating Results."
Variability in Gross Margins and Operating Results. The Company's gross
margins have fluctuated and will continue to fluctuate quarterly and annually
based upon a variety of factors such as the level of utilization of the
Company's production capacity, changes in product mix, average selling prices,
demand or manufacturing yields, increases in production and engineering costs
associated with initial production of new programs, changes in the cost of or
limitations on availability of materials and labor shortages. During 1995 and
for the six months ended June 28, 1996, the Company reported a gross margin of
27% and 27%,
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<PAGE> 13
respectively. The Company expects its gross margins to decline during the third
quarter of 1996 due to the expected reduction in sales to Maxtor and the
resulting under-utilization of production capacity. While the Company has taken
steps to reduce its costs and expenses, its operations have a high level of
fixed costs and expenses. Therefore, operating below capacity will have a
significant impact on gross margins. Additionally, the purchase price of disks
under the Seagate Supply Agreement is calculated based upon a pricing formula
which results in gross margins that are generally lower than the gross margins
experienced by the Company in the first half of 1996. Accordingly, to the extent
the Dedicated Facility becomes fully operational in the third quarter of 1996,
the Company's overall gross margins are likely to decline. This adverse impact
will be exacerbated to the extent that Seagate shifts its purchase orders to the
Dedicated Facility from the Company's other facilities rather than increases its
level of purchases from the Company.
Generally, new products, which have been designed into its customers'
products, have higher average selling prices than more mature products.
Therefore, the Company's ability to introduce new products, which have been
designed into its customers' products, in a timely fashion is an important
factor in its ability to maintain gross and operating margins. Moreover,
manufacturing yields and production capacity utilization impact the Company's
gross margins. New products often initially have lower manufacturing yields and
generally are initially produced in lower quantities than more mature products.
Manufacturing yields generally improve as the product matures and production
volumes increase. The Company expects that a substantial portion of its
shipments in the third quarter of 1996 will be of new products and will
negatively impact the Company's overall yield for the quarter. Manufacturing
yields also vary depending on the complexity and uniqueness of product
specifications. Because the thin film disk industry is capital intensive and
requires a high level of fixed costs, gross margins are also extremely sensitive
to changes in volume. Assuming fixed product prices, small variations in
manufacturing yields and productivity generally have a significant impact on
gross margins. Additionally, decreasing demand for the Company's products
generally results in reduced average selling prices and low capacity utilization
which, in turn, adversely affects gross margins and operating results. Despite
the Seagate Supply Agreement, a significant portion of the Company's business is
also characterized by short term orders and shipment schedules which typically
can be modified or rescheduled without significant penalty to the customer.
Therefore, the Company typically plans its production and inventory based on
forecasts of customer demands, which often fluctuate substantially. These
factors have caused and will continue to cause fluctuations in the Company's
gross margins and results of operations. See "--Uncertainties Associated With
Supply Agreement With Maxtor; Dependence on a Limited Number of Customers."
Dependence on Intensely Competitive Hard Disk Drive Industry; Risk of
Excess Industry Capacity. The demand for the Company's thin film disks depends
solely upon the demand for hard disk drives. This market is characterized by
short product life cycles and rapid technological change and has experienced
large fluctuations in product demand. The disk drive industry also has been
characterized by periods of oversupply, reductions in customer forecasts, price
erosion, and reduced production levels. The effect of these cycles on suppliers,
including thin film disk manufacturers, has been magnified by hard disk drive
manufacturers' practice of ordering components in excess of their needs during
periods of rapid growth, which increases the severity of the drop in the demand
for components during periods of contraction. The effect of these cycles may be
magnified by increased disk production capacity. Over the past twelve months,
the Company's principal customers and many of its competitors and potential
customers engaged in substantial efforts to increase disk manufacturing capacity
in light of the previously existing imbalance between current levels of demand
for disks and existing industry capacity. These efforts are resulting in
significant additional capacity in the industry. During the second quarter of
1996, demand for disks began to decline in tandem with declines in demand for
disk drives which is increasing competition among disk suppliers. To the extent
industry capacity exceeds demand, the Company will continue to experience
increased levels of competition which could materially adversely impact the
Company's business, results of operations, and financial condition. In addition,
in the event of an oversupply of disks, customers who have developed an internal
supply of disks are likely to utilize their internal capacity prior to
purchasing disks from independent suppliers such as the Company.
Rapid Technological Change. The thin film disk industry is characterized
by rapid technological change, short product life cycles, and price erosion.
Product lives are typically six to twelve months in duration. Although the
Company is continually developing new products and production techniques, there
can be no assurance that the Company will be able to anticipate technological
advances and develop products incorporating such advances in a timely manner or
to compete effectively against competitors' new products. In addition, there can
be no assurance that the Company's new products can be produced in full volume
at reasonable yields or that the Company will develop new products or processes
which ultimately are adopted by the industry. The Company's operating results
and financial condition could be materially adversely affected if these efforts
are not successful or if the technologies that the Company has chosen not to
develop prove to be competitive alternatives. See "--Variability in Gross
Margins and Operating Results."
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<PAGE> 14
Rapid Changes in Customer and Product Mix. Due to the rapid and frequent
development of new 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 quarter of 1995 sales to Seagate and Maxtor
represented approximately 41% and 55% of net sales, respectively, while in the
second quarter of 1995 sales to Seagate and Maxtor represented approximately 68%
and 31% of net sales, respectively. In addition, in the fourth quarter of 1995
and the first and second quarter of 1996, 3%, 15% and 8%, respectively, of the
Company's unit sales were of 2 1/2 inch disks. At any one time the Company
typically supplies disks in volume for only five to ten disk drive products,
with the mix of such products shifting continually. Disk drive manufacturers
demand a variety of thin film disks with differing design, performance and cost
characteristics. Thin film disk suppliers, such as the Company, are required to
work closely with such manufacturers in order to develop products that will be
used in the manufacturers' designs. Thin film disk suppliers seek to have their
products "designed in" to a particular disk drive and to be qualified as a
primary supplier for new programs. The design-in process is ongoing and frequent
and the Company must compete for participation in each product program including
those of existing customers. In the event the Company's products do not become
designed into a particular disk drive program on a timely basis, the Company
could be excluded as a supplier of disks for such program entirely or could
become a secondary source of supply for such program, which typically results in
lower sales and lower gross margins. Consistent inability to become designed
into a disk drive program would have a material adverse effect on the Company's
results of operations.
Intense Competition. The disk drive industry and thin film disk industry
are both characterized by intense competition. The Company's primary competitors
are Komag Incorporated, HMT Technology Corporation, Akashic Memories
Corporation, Showa Denko K.K., Mitsubishi Kasei Corporation and Fuji Electric
Company Ltd. among independent disk manufacturers. With respect to disks based
on glass/ceramic substrates, the Company's principal competitor is Hoya Corp.
Most of these companies have significantly greater financial, technical and
marketing resources than the Company. IBM and several disk drive manufacturers,
including Seagate and Western Digital, currently produce thin film disks
internally for their own use. Seagate's expressed corporate strategy is to be a
vertically integrated disk drive manufacturer and to pursue sales to third
parties of its disk drive components. Hyundai recently announced its intention
to develop and manufacture disks for use in Maxtor disk drives. supplementing
Maxtor's current supplier base. These companies could increase their internal
production to supply their requirements and cease purchasing from independent
disk suppliers. Moreover, these companies could make their products available
for distribution in the market as direct competitors of the Company.
Additionally, other disk drive manufacturers, such as Quantum, may decide to
produce disks for internal use. Any of these changes would reduce the already
small number of current and potential customers and increase competition for the
remaining market. Such competition could materially adversely affect the
Company's business and results of operations. See "--Uncertainties Associated
With Supply Agreement With Maxtor; Dependence on a Limited Number of Customers"
and "--Consolidation Within the Disk Drive Industry."
Dependence on Suppliers. The Company relies on a limited number of
suppliers and, in some cases, a sole supplier, for certain materials used in its
manufacturing processes, including glass/ceramic substrates, texturizers,
plating chemicals, tapes, slurries, certifier heads, sputter targets and certain
other materials. In addition, the Company relies on a single source to build and
supply some portions of its customized sputtering equipment. In the past, the
Company has had to provide financial assistance to equipment vendors in order to
maintain sources for such equipment. Shortages may occur in the future or
supplies could be available only with lead times of approximately three to six
months. Changing suppliers for certain materials such as the lube or buffing
tape used in the Company's products would require that the product be
requalified with each customer. Requalification could prevent early design-in
wins or could prevent or delay continued participation in disk drive programs
into which the Company's products have been qualified. In addition, long lead
times of three to six months are required to obtain many materials. Regardless
of whether these materials are available from established or new sources of
supply, these lead times could impede the Company's ability to respond quickly
to changes in demand. Any limitations on the supply of components, materials or
equipment could disrupt or limit the Company's production volume and could have
a material adverse effect on the Company's business, results of operations and
financial condition. Further, a significant increase in the price of one or more
of these components could adversely affect the Company's results of operations.
Risks Associated With New Substrate Facility. The Company has begun
establishing a substrate manufacturing operation in Singapore. This facility
requires the expenditure of significant financial and management resources. In
addition to the usual risks of establishing a new manufacturing facility, such
as the completion of the buildings, installation of equipment, implementation of
systems, procedures and controls and the hiring and training of qualified
personnel, there are unique risks associated with this facility. First, the
Company is vertically expanding its business to include the process of grinding
aluminum blanks which occurs prior to the nickel plating process. While the
Company believes it has the expertise to establish this process, it has never
engaged in this process before and this will be the Company's first substrate
facility. Second, the facility is being
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<PAGE> 15
established in Singapore and will be the first facility of this type in
Singapore. There can be no assurance that it will be completed in a timely,
cost-effective manner or that it will produce high quality and low cost aluminum
substrates. Manufacturing and other problems which occur in connection with the
commencement and expansion of operations at this facility could materially
adversely affect the Company's results of operations and financial condition.
Future Capital Needs. The Company believes that in order to achieve its
expansion objectives, it will need significant additional financial resources
over the next several years for capital expenditures, working capital and
research and development. The Company expects to spend approximately $85.0
million on capital expenditures during 1996 for expansion of its facilities
including investments in the Dedicated Facility, the new Singapore substrate
facility and other capital expenditures. The Company believes it will be able to
fund these expenditures from a combination of debt financing, existing cash
balances and cash from operations. If the Company decides to expand its
facilities further or sooner than presently contemplated or requires capital for
other purposes, it will require additional debt or equity financing. There can
be no assurance that such additional funds will be available to the Company or,
if available, will be available on favorable terms. If the Company is unable to
obtain sufficient capital, it could be required to curtail its capital
equipment, working capital and research and development expenditures which could
adversely affect the Company's future operations and competitive position.
Conversely, overexpansion due to the failure to accurately predict future demand
for its products could have a material adverse effect on the Company's future
operating results and could cause fluctuations in the Company's results of
operations.
Dependence on Personnel. The Company's future operating results depend in
significant part upon the continued contributions of its officers and personnel,
many of whom would be difficult to replace. At present the Company does not have
employment agreements with any employee. The Company maintains a $4.0 million
key person life insurance policy (with $3.0 million of proceeds payable to the
Company) on the life of its Chairman of the Board and Chief Executive Officer,
William J. Almon, but not on the lives of other key persons. The loss of any of
its officers or other key personnel could have a material adverse effect on the
business, financial condition and results of operations of the Company. In
addition, the production of thin film disks requires employees skilled in highly
technical and precise production processes with expertise specific to thin film
disk production. The Company's 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 both in
California and in Singapore. Competition for such personnel is intense,
especially since many of the Company's competitors are located near the
Company's facilities in Santa Clara, California. There can be no assurance that
the Company will be successful in attracting or retaining such personnel. Hiring
qualified personnel in Singapore is made more difficult because Singapore has
substantially full employment at the present time and because the Company was
the first manufacturer of thin film disks and will be the first manufacturer of
substrates with operations in Singapore. The loss of the services of existing
personnel as well as the failure to recruit, train and retain additional
personnel in a timely manner could have a material adverse effect on the
Company's business, results of operations and financial condition.
Intellectual Property and Proprietary Rights. The Company regards elements
of its manufacturing process, product design and equipment as proprietary and
seeks to protect its proprietary rights through a combination of employee and
third party nondisclosure agreements, internal procedures and, increasingly,
patent protection. The Company has had four U.S. patents issued to it has an
additional application allowed and has fifteen additional patent applications
(three of which are provisional applications) pending in the United States. The
Company intends to file additional U.S. applications as appropriate for patents
covering its products and manufacturing processes. There can be no assurance
that patents will be issued with respect to any of the Company's allowed patent
applications, that patents will be issued or be allowed with respect to any of
the Company's other pending applications, or that claims allowed on any existing
or future patents will be sufficiently broad to protect the Company's
technology. There can also be no assurance that any patents now or hereafter
held by the Company will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide proprietary protection to the
Company. In addition, the laws of certain foreign countries may not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Although the Company continues to implement protective measures and
intends to defend its proprietary rights, there can be no assurance that these
measures will be successful. The Company believes, however, that, because of the
rapid pace of technological change in the disk and disk drive industries, the
legal protections for its products are less significant factors in the Company's
success than the innovative skills, experience and technical competence of its
employees.
The Company has from time to time been notified of, or has otherwise been
made aware of, claims that it may be infringing upon patents or other
proprietary intellectual property owned by others. If it appears necessary or
desirable, the Company may seek licenses under such patents or proprietary
intellectual property. Although patent holders commonly offer such licenses, no
assurance can be given that licenses under such patents or proprietary
intellectual property will be offered or that the terms of
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<PAGE> 16
any offered licenses will be acceptable to the Company. The Company has been
contacted by IBM concerning the Company's interest in licensing a patent. Based
upon an opinion of its patent counsel, the Company believes that no license is
required because the Company does not believe that it is practicing any
invention covered by the IBM patent. There can be no assurance, however, that
IBM will not pursue its claim. The Company is also aware of a settlement
agreement between Virgle L. Hedgcoth and Mitsubishi Kasei Corporation regarding
certain disk preparation techniques allegedly patented by Mr. Hedgcoth (the
"Hedgcoth Patents"). These disk preparation techniques are used by most disk
manufacturers, including the Company. The Company believes that the Hedgcoth
Patents are not valid because of prior commercial activities by other companies
utilizing the technology covered. However, should Mr. Hedgcoth prevail in such
litigation and elect to pursue the Company, the Company would be forced to
either litigate any infringement claims, execute a license, if available, or
design around the patents, which the Company believes is possible. The failure
to obtain a key patent license or a license to key proprietary intellectual
property from a third party could cause the Company to incur substantial
liabilities and possibly to suspend the manufacture of the products utilizing
the patented or proprietary invention either of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Environmental Issues. The Company's operations and manufacturing processes
are subject to certain federal, state, local and foreign environmental
protection laws and regulations. These laws and regulations relate to the
Company's use, handing, storage, discharge and disposal of certain hazardous
materials and wastes, the pre-treatment and discharge of process waste waters,
and the control of process air pollutants. The Company has from time to time
been notified of minor violations concerning its waste water discharge permits,
air quality regulations and hazardous material regulations. The Company has
implemented corrective action plans to remedy these violations and has put in
place procedures to effectuate continued compliance with these laws and
regulations. The Company has also initiated safety programs and training of
personnel on safe storage and handling of hazardous materials and wastes. The
Company believes that it is in compliance in all material respects with
applicable environmental regulations and does not anticipate any material
capital expenditures for environmental related matters. Environmental laws and
regulations, however, may become more stringent over time and there can be no
assurances that the Company's failure to comply with either present or future
regulations would not subject the Company to significant compliance expenses,
production suspensions or delay, restrictions on expansion at its present
locations or the acquisition of costly equipment.
The Company's Santa Clara, California facility is located near major
earthquake faults. Disruption of operations at any of the Company's production
facilities for any reason, including work stoppages or natural disasters such as
fire, floods or earthquakes, would cause delays in or an interruption of
production and shipment of products and would negatively affect the Company's
business, results of operations and financial condition.
Risks of International Sales and Manufacturing. In 1995 and in the first
half of 1996, international sales (sales delivered to customers in the Far East,
including foreign subsidiaries of domestic companies) accounted for over 95% of
the Company's net sales, and the Company anticipates that international sales
will continue to represent the substantial majority of its net sales.
Accordingly, the Company's operating results are subject to the risks inherent
in international sales, including compliance with or changes in the law and
regulatory requirements of foreign jurisdictions, fluctuations in exchange
rates, tariffs or other barriers, exposure to taxes in multiple jurisdictions
and transportation delays and interruptions. Although presently all of the
Company's sales are made in U.S. dollars, including sales from its Singapore
facility, a portion of the Company's expenses must be paid in Singapore dollars.
Future international sales may be denominated in foreign currencies. Gains and
losses on the conversion to U.S. dollars of accounts receivable and accounts
payable arising from international operations may contribute to fluctuations in
the Company's results of operations. Additionally, the Company's international
business may be materially adversely affected by fluctuations in currency
exchange rates, increases in duty rates, exchange or price controls or other
restrictions on foreign currencies and difficulties in obtaining export
licenses. Moreover, the Company's efforts to expand its manufacturing operations
are concentrated in Singapore. This expansion requires the Company to implement
and monitor new systems, procedures and controls and to attract, train, motivate
and manage qualified employees effectively. These risks are exacerbated by the
distance of the Singapore facilities from the Company's California headquarters,
the fact that the Company was the first thin film disk manufacturer and will be
the first substrate manufacturer with a facility in Singapore and the fact that
Singapore has substantially full employment. These risks will increase as
production increases at the Singapore facilities. Due to the anticipated
expansion of the Company's manufacturing operations in Singapore, the impact of
the foregoing factors on the Company's business, results of operations and
financial condition could be material and adverse.
Volatility of Stock Price. The trading price of the Company's Class A
Common Stock has been volatile since the Company's initial public offering in
May 1995 and has been and is likely to continue to be subject to wide
fluctuations in response
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<PAGE> 17
to a variety of factors, including quarterly variations in operating results,
volume purchase agreements, announcements of new facilities, new customers,
consolidations in the industry, technological innovations or new products by the
Company or its competitors, developments in patents or other intellectual
property rights, general conditions in the computer industry, revised earnings
estimates, comments or recommendations issued by analysts who follow the
Company, its competitors or the disk drive industry and general economic and
market conditions. In addition, it is possible that in some future period the
Company's operating results may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Class A Common
Stock could be materially adversely affected. Additionally, the stock market in
general, and the market for technology stocks in particular, have experienced
extreme price volatility in recent years. Volatility in price and volume has had
a substantial effect on the market prices of many technology companies for
reasons unrelated or disproportionate to the operating performance of such
companies. These broad market fluctuations could have a significant impact on
the market price of the Class A Common Stock.
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<PAGE> 18
STORMEDIA INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On July 25, 1996, the Board declared a dividend distribution of one
Preferred Shares Purchase Right (the "Right") on each outstanding share of the
Company's Common Stock. Each Right will entitle stockholders to buy 1/1000th of
a share of the Company's Series A Participating Preferred Stock at an exercise
price of $75.00. The Rights will become exercisable following the tenth day
after a person or group announces acquisition of 15% or more of the Company's
Common Stock or announces commencement of a tender offer, the consummation of
which would result in ownership by the person or group of 15% or more of the
Common Stock. The Company will be entitled to redeem the Rights at $0.01 per
Right at any time on or before the tenth day following acquisition by a person
or group of 15% or more of the Company's Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 29, 1996, the Annual Meeting of Stockholders of the Company was
held in Santa Clara, California. An election of Directors was held with a slate
of four candidates, William J. Almon, John A. Downer, Francis J. Lunger and Mark
S. Rossi being elected to the Board of Directors of the Company. The slate of
candidates received 7,478,819 affirmative votes of shares represented and
voting, 31,900 shares voted against the slate and there were 1,133,742 broker
non-votes. Votes withheld from any nominee and broker non-votes were counted for
purposes of determining the presence or absence of a quorum.
The stockholders also approved an amendment of the 1994 Incentive Stock
Option Plan to increase the number of shares of Class A Common stock reserved
for issuance thereunder by 1,000,000 shares from 1,087,500 to 2,087,500. There
were 5,046,562 shares voted for the amendment, 1,400,955 shares voted against
the amendment, 700 shares abstained and 2,196,244 broker non-votes. The
stockholders also approved an amendment and restatement of the Company's 1995
Employee Stock Purchase Plan to (i) increase the number of shares of Class A
Common Stock reserved for issuance thereunder by 175,000 shares from 100,000
shares to 275,000 and (ii) to amend certain provisions of the plan to provide
for offering periods of 24-months in length. There were 5,870,912 shares voted
in favor of the amendment, 579,495 shares voted against the amendment, 800
shares abstained and 2,193,254 broker non-votes. Additionally, the stockholders
ratified the appointment of KPMG Peat Marwick LLP as independent auditors of the
Company for the fiscal year ending December 31, 1996. There were 7,508,929
shares voted in favor of the ratification, 950 shares voted against the
ratification, 840 shares abstained and 1,133,742 broker non-votes. The
affirmative vote of the holders of a majority of the Class A Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting
("Votes Cast") was needed in order to approve the foregoing proposals. Votes
Cast against the proposals were counted for purposes of determining (i) the
presence of absence of a quorum for the transaction of business and (ii) the
number of Votes Cast with respect to each such proposal. An abstention had the
same effect as a vote against the proposal. Broker non-votes were counted for
purposes of determining the presence or absence of a quorum, but were not
counted as Votes Cast.
ITEM 5. OTHER INFORMATION
None.
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<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
3.4 Amendment to Bylaws of Registrant
3.5 Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock
and Series B Participating Preferrred Stock
10.42 Rights Agreement dated July 31, 1996 between Registrant
and BankBoston
11.1 Statement regarding computation of per-share earnings
27.1 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the period for which this
report is filed.
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STORMEDIA INCORPORATED
(Registrant)
Date: August 13, 1996 By: /s/ Stephen M. Abely
------------------------------------
Stephen M. Abely, Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT
3.4 Amendment to Bylaws of Registrant
3.5 Certificate of Designation of Rights, Preferences and privileges
of Series A Participating Preferred Stock and Series B
Participating Preferred Stock
10.42 Rights Agreement dated July 31, 1996 between Registrant and
BankBoston
11.1 Statement regarding computation of earnings per share
27.1 Financial Data Schedule
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EXHIBIT 3.4
CERTIFICATE OF SECRETARY
The undersigned Secretary of StorMedia Incorporated hereby certifies
that at a meeting of the Board of Directors held on July 25, 1996, Section 2 of
Article II of the Bylaws of StorMedia Incorporated was amended and restated in
its entirety to provide as follows:
"Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose (including, without limitation, the filling of
Board vacancies and newly created directorships), and may be held at
such time and place, within or without the State of Delaware, as shall
be stated in a new notice of the meeting or in a duly executed waiver
of notice thereof. Such meetings may be called at any time by two or
more members of the Board of Directors or the President and shall be
called by the President upon written request of holders of fifty
percent (50%) of the voting rights held by the outstanding shares of
any series or class of the corporation's Capital Stock."
IN WITNESS WHEREOF, the undersigned has set her hand hereunto effective
as of July 25, 1996.
/s/ Judith Mayer O'Brien
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Judith Mayer O'Brien, Secretary
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EXHIBIT 3.5
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK AND
SERIES B PARTICIPATING PREFERRED STOCK
OF STORMEDIA INCORPORATED
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Stephen Abely and Judith M. O'Brien, the Vice President, Finance and
Chief Financial Officer and the Secretary, respectively, of StorMedia
Incorporated, a corporation organized and existing under the General Corporation
Law of the State of Delaware, in accordance with the provisions of Section 103
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, the said Board of
Directors on July 25, 1996 adopted the following resolution creating a series of
50,000 shares of Preferred Stock designated as Series A Participating Preferred
Stock and a series of 20,000 shares of Preferred Stock designated as Series B
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the corporation by the Certificate of Incorporation, the Board of Directors
does hereby provide for the issue of a series of Preferred Stock of the
Corporation, to be designated "Series A Participating Preferred Stock," par
value $0.01 per share, initially consisting of 50,000 shares and a series of
Preferred Stock of the Corporation to be designated "Series B Participating
Preferred Stock," par value $0.01 per share, initially consisting of 20,000
shares. To the extent that the designations, powers, preferences and relative
and other special rights and the qualifications, limitations and restrictions of
the Series A Participating Preferred Stock and Series B Participating Preferred
Stock are not stated and expressed in the Certificate of Incorporation, the
Board of Directors does hereby fix and herein state and express such
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
Section 1. Designation and Amount. The shares shall be designated as
"Series A Participating Preferred Stock," par value $0.01 per share, with 50,000
shares constituting such series and "Series B Participating Preferred Stock,"
par value $0.01 per share, with 20,000 shares constituting such series.
Section 2. Dividends and Distributions.
a. Subject to the prior and superior right of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating
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Preferred Stock and Series B Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Participating
Preferred Stock and Series B Participating Preferred Stock shall be
entitled to receive when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the last day of September, December, March and June
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock or Series B
Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Class A Common Stock or
Class B Common Stock or a subdivision of the outstanding shares of
Class A Common Stock or Class B Common Stock (by reclassification or
otherwise), declared on the Class A Common Stock or Class B Common
Stock of the Corporation (jointly, the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating
Preferred Stock or Series B Participating Preferred Stock. In the
event the Corporation shall at any time after August 16, 1996 (the
"Rights Dividend Declaration Date") (i) declare any dividend on Class
A Common Stock payable in shares of Class A Common Stock, (ii)
subdivide the outstanding Class A Common Stock, or (iii) combine the
outstanding Class A Common Stock into a smaller number of shares, then
in each such case the amount to which holders of shares of Series A
Participating Preferred Stock were entitled immediately prior to such
event under the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of
shares of Class A Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Class A
Common Stock that were outstanding immediately prior to such event. In
the event the Corporation shall at any time after August 16, 1996 (the
"Rights Dividend Declaration Date") (i) declare any dividend on Class
B Common Stock payable in shares of Class B Common Stock, (ii)
subdivide the outstanding Class A Common Stock, or (iii) combine the
outstanding Class B Common Stock into a smaller number of shares, then
in each such case the amount to which holders of shares of Series B
Participating Preferred Stock were entitled immediately prior to such
event under the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of
shares of Class B Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Class B
Common Stock that were outstanding immediately prior to such event.
b. The Corporation shall declare a dividend or distribution on the Series
A Participating Preferred Stock and Series B Participating Preferred
Stock as provided in paragraph (A) above immediately after it declares
a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock). No dividends shall be paid with
respect to either the Series A Participating Preferred
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Stock or Series B Participating Preferred Stock unless equal dividends
are paid with respect to the other series of Participating Preferred
Stock.
c. Dividends shall begin to accrue on outstanding shares of Series A
Participating Preferred Stock and Series B Participating Preferred
Stock from the Quarterly Dividend Payment Date next preceding the date
of issue of such shares of Series A Participating Preferred Stock and
Series B Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the
date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Participating Preferred Stock or Series B Participating Preferred
Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Participating Preferred Stock or Series
B Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Participating Preferred Stock and Series B Participating Preferred
Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
Section 3. Conversion.
a. Shares of Series A Participating Preferred Stock held by Prudential
Private Equity Investors III, L.P. ("PPEI") Prudential Insurance
Company of America ("Prudential") or any of their affiliates may be
converted, at the option of the holder thereof at any time, into an
equal number of fully paid and non-assessable shares of Series B
Participating Preferred Stock. The Corporation shall at all times take
such action as is necessary to assure that an adequate number of
shares of Series B Participating Preferred Stock is available and
reserved for issuance upon such a conversion of all outstanding shares
of Series A Participating Preferred Stock. The Corporation will not
take any action with respect to any series or class of its capital
stock if subsequent to such action the provisions of the preceding
sentence could not be complied with.
b. Subject to the terms and conditions of this paragraph 3.B. the holder
of any share or shares of Series B Participating Preferred Stock shall
have the right, at its option, to convert any shares of Series B
Participating Preferred Stock (except that upon any liquidation,
dissolution or winding up of the Corporation the right of conversion
shall terminate at the close of business on the last full business day
next preceding the date fixed for payment of the amount distributable
on Series B Participating Preferred Stock) into an equal number of
fully paid and nonassessable shares of Series A Participating
Preferred Stock upon the occurrence of a Conversion
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Event (as defined below) with respect to such shares of Series B
Participating Preferred Stock, provided that, in the case of any
Conversion Event set forth in subparagraph 5.D.(4) or D.(6) through
D.(8) of this section, such right of conversion shall exist only
during the 60-day period following receipt by such holder of express
notice of the occurrence of such Conversion Event and shall lapse
thereafter until the occurrence of any subsequent Conversion Event.
c. The rights of conversion set forth in paragraphs 3.A. and 3.B. above
shall be exercised by the holder thereof by giving written notice to
the Corporation that the holder elects to convert a stated number of
shares of Series A Participating Preferred Stock into Series B
Participating Preferred Stock or a stated number of shares of Series B
Participating Preferred Stock into Series A Participating Preferred
Stock (as applicable) and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at
its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to
the holder or holders of Series A Participating Preferred Stock or
Series B Participating Preferred Stock, as applicable) at any time
during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Series A Participating
Preferred Stock or Series B Participating Preferred Stock, as
applicable, shall be issued.
d. Each of the following shall constitute a "Conversion Event" with
respect to shares of Series B Participating Preferred Stock:
(1) upon the transfer of such shares by PPEI or a party affiliated
with PPEI or Prudential to a party not affiliated with PPEI or
Prudential;
(2) upon the distribution of such shares to any limited partner of
PPEI other than Prudential Equity Investors, Inc. or any other
affiliate of Prudential;
(3) if, after giving effect to conversion of such shares, PPEI and
Prudential or any affiliate thereof would not collectively hold
more than 19.9% of the aggregate voting capital stock of the
Corporation, provided, that at the time of such conversion either
(a) William J. Almon, his spouse and lineal descendants, or any
trust or partnership controlled by such persons, taken together
or (b) at least one stockholder not affiliated with Prudential or
PPEI owns a larger percentage of the aggregate of Class A Common
Stock and Series A Participating Preferred than PPEI, Prudential
and its affiliates taken together;
(4) if, for two consecutive quarterly periods of the Corporation, the
quarterly financial statement of the Corporation shows that it
has suffered a net loss from
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operations (with the Corporation's net income or loss from
operations to be calculated in accordance with generally accepted
accounting principles consistently applied, but before taking
into account any non-cash or extraordinary items of income or
expense);
(5) upon a sale of all or substantially all the assets of the
Corporation or of the Corporation and its subsidiaries on a
consolidated basis or upon any other acquisition of the
Corporation or any of its subsidiaries by merger, a negotiated
stock purchase or a purchase pursuant to a tender for
substantially all of the outstanding shares of Common Stock of
the Corporation or such subsidiary;
(6) upon any default or event of default under any material agreement
pursuant to which the Corporation or any of its subsidiaries has
incurred indebtedness for borrowed money, provided that the
holder of such shares is not a holder (or in the case of
Prudential or its affiliates, neither Prudential nor any of its
affiliates is a holder) of such indebtedness (unless and until
such default or event of default is cured or waived);
(7) if, during any twelve-month period, more than 30% of the
Corporation's directors resign or are replaced;
(8) upon a failure by the Corporation or any of its subsidiaries to
make payment due (whether principal or interest) on indebtedness
for borrowed money, if the holder of such indebtedness is a
holder of such shares (or in the case of Prudential or its
affiliates, either Prudential or one of its affiliates is a
holder of such indebtedness);
(9) at such time as William J. Almon, his spouse and lineal
descendants, or any trust or partnership controlled by any one of
them, taken together, own less than 423,000 shares of the Class A
Common Stock (as adjusted for stock splits, stock dividends,
recapitalizations and the like effected after the date hereof);
and
(a) at any time PPEI believes conversion is necessary to avoid
any tax, accounting or legal difficulties.
e. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly after the
receipt of the written notice referred to in subparagraph C above and
surrender of the certificate or certificates for the share or shares
of Series A Participating Preferred
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Stock or Series B Participating Preferred Stock (as applicable) to be
converted, the Corporation shall issue and deliver, or cause to be
issued and delivered, to the holder, registered in such name or names
as such holder may direct, a certificate or certificates for the
number of shares of Series A Participating Preferred Stock or Series B
Participating Preferred Stock (as applicable) issuable upon the
conversion of such share or shares. To the extent permitted by law,
such conversion shall be deemed to have been effected immediately
prior to the close of business on the day the certificate or
certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or
shares being converted shall cease, and the person or persons in whose
name or names any certificate or certificates for shares being issued
upon said conversion shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares
represented thereby. At the time of each conversion, the Corporation
shall pay in cash an amount equal to all dividends declared and unpaid
on the shares surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in subparagraph E. In
case the number of shares represented by the certificate or
certificates surrendered pursuant to subparagraph C exceeds the number
of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder thereof, at the expense of the
Corporation, a new certificate or certificates for the number of
shares of the series represented by the certificate or certificates
surrendered which are not to be converted.
f. SUBDIVISION OR COMBINATION OF STOCK. If the Corporation in any manner
subdivides its outstanding shares of Series A Participating Preferred
Stock or Series B Participating Preferred Stock into a greater number
of shares of such series, then the shares of the other series of
Participating Preferred Stock shall be similarly subdivided, and, if
the Corporation in any manner combines its outstanding shares of
Series A Participating Preferred Stock or Series B Participating
Preferred Stock into a smaller number of shares of such series, then
the shares of the other series of Participating Preferred Stock
immediately prior to such combination shall be proportionately
reduced.
g. NOTICE OF ADJUSTMENT. Upon any adjustment made pursuant to
subparagraph F, then and in each such case the Corporation shall give
written notice thereof, by first class mail, postage prepaid,
addressed to each holder of shares of the series of Participating
Preferred Stock not subdivided or combined (the "Unadjusted Series")
at the address of such holder as shown on the books of the
Corporation, which notice shall state the number of shares of the
other series of Participating Preferred Stock issuable upon conversion
of the Unadjusted Series resulting from such adjustment, setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based.
h. OTHER NOTICES. In case at any time:
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a. the Corporation shall declare any dividend upon its Series A
Participating Preferred Stock payable in cash or stock or make
any other distribution to the holders of its Series A
Participating Preferred Stock;
b. the Corporation shall offer for subscription pro rata to the
holders of its Series A Participating Preferred Stock any
additional shares of stock of any class or other rights;
c. there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or
merger of the Corporation with, or a sale of all or substantially
all its assets to, another corporation;
d. there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
e. the Corporation shall take any action or there shall be any event
which would result in a Conversion Event, then, in any one or
more of said cases, the Corporation shall give, by first class
mail, postage prepaid, addressed to each holder of any shares of
Series B Participating Preferred Stock at the address of such
holder as shown on the books of the Corporation, (a) at least 20
days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place, (c) in
the case of the occurrence of a Conversion Event, promptly upon
such occurrence. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the
holders of Series A Participating Preferred Stock shall be
entitled thereto, and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the
holders of Series A Participating Preferred Stock shall be
entitled to exchange their Series A Participating Preferred Stock
for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
i. STOCK TO BE RESERVED. The Corporation will at all times reserve and
keep available out of its authorized Series A Participating Preferred
Stock or its treasury shares, solely for the purpose of issuance upon
the conversion of the Series B Participating Preferred Stock as herein
provided such number of shares of Series A Participating Preferred
Stock as shall then be issuable upon the conversion of all outstanding
shares of Series B Participating Preferred Stock. The Corporation
covenants that all shares of Series A Participating Preferred Stock
which shall be so issued shall be duly and validly issued and fully
paid and nonassessable and free from
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all taxes, liens and charges with respect to the issuance thereof. The
Corporation will take all such action as may be necessary to assure
that all such shares of Series A Participating Preferred Stock may be
so issued without violation of any applicable law or regulation, or of
any requirements of any national securities exchange upon which the
Series A Participating Preferred Stock of the Corporation may be
listed. The Corporation will not take any action which results in any
adjustment of the number of shares of Series A Participating Preferred
Stock issuable upon conversion of the Series B Participating Preferred
Stock if the total number of shares of Series A Participating
Preferred Stock issued and issuable after such action upon conversion
of the Series B Participating Preferred Stock would exceed the total
number of shares of Series A Participating Preferred Stock then
authorized by the Corporation's Certificate of Incorporation.
Section 4. Voting Rights.
a. The holders of shares of Series A Participating Preferred Stock shall
have the following voting rights:
(1) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivides the
outstanding Common Stock, or (iii) combines the outstanding
Common Stock into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of
Series A Participating Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number
by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
b. Holders of Series B Participating Preferred Stock shall have no rights
to vote except as provided in this paragraph 4.B. and as otherwise
expressly provided by law. Each holder of Series B Participating
Preferred Stock (x) shall be entitled to vote, together as a single
class with the holders of the Series A Participating Preferred Stock
and Common Stock, (y) subject to the provision for adjustment
hereinafter set forth, shall be entitled to 1,000 votes for each share
of Series A Participating Preferred Stock issuable to such holder on
conversion of the Series B Participating Preferred Stock, and (z)
shall be entitled to notice of any stockholders' meeting in accordance
with the Bylaws of the Corporation, in each case only with respect to
the following corporate actions (each a "Voting Event"):
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(1) any amendment or modification to the Certificate of Incorporation
or Bylaws of the Corporation;
(2) the liquidation, dissolution, winding-up or bankruptcy of the
Corporation, the reorganization, reclassification or
recapitalization of the capital stock of the Corporation, or the
sale of all or substantially all of the property and assets of
the Corporation (other than sales of inventory in the ordinary
course of business);
(3) at such time as it shall be subject to a vote of the stockholders
of the Corporation, any material change in the nature of the
Corporation's business from that of designing, manufacturing,
marketing and distributing thin film disk media;
(4) any merger, consolidation or other business combination of the
Corporation or any of its subsidiaries with or into another
entity requiring submission for approval to the stockholders of
the Corporation.
Notwithstanding the foregoing, in the event the Corporation shall at
any time after the Rights Dividend Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding Common Stock, or (iii) combines the
outstanding Common Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of shares of
Series B Participating Preferred Stock were entitled immediately prior
to such event (as if a Voting Event had occurred) shall be adjusted by
multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
c. Except as otherwise provided herein or by law, the holders of shares
of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation. In the event of a matter
which is a Series B Participating Preferred Stock Voting Event, the
holders of shares of Series A Participating Preferred Stock, Series B
Participating Preferred Stock and Common Stock shall vote together as
one class.
d. Except as required by law, holders of Series A Participating Preferred
Stock and Series B Participating Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
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Section 5. Certain Restrictions.
a. The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a
share or fraction of a share of Series A Participating Preferred Stock
or Series B Participating Preferred Stock unless concurrently
therewith it shall declare a dividend on, make any distribution on, or
redeem or purchase or otherwise acquire for consideration the Series A
Participating Preferred Stock or Series B Participating Preferred
Stock as required by Section 2 hereof.
b. Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock or Series B
Participating Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A
Participating Preferred Stock or Series B Participating Preferred
Stock, as applicable, outstanding shall have been paid in full, the
Corporation shall not
(1) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A
Participating Preferred Stock or Series B Participating Preferred
Stock;
(2) declare or pay dividends on, or make any other distributions on,
any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock or Series B Participating Preferred
Stock, except dividends paid ratably on the Series A
Participating Preferred Stock and Series B Participating
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(3) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Participating Preferred Stock or Series B Participating Preferred
Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation
or winding up) to the Series A Participating Preferred Stock or
Series B Participating Preferred Stock;
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(4) purchase or otherwise acquire for consideration any shares of
Series A Participating Preferred Stock, Series B Participating
Preferred Stock, or any shares of stock ranking on a parity with
the Series A Participating Preferred Stock or Series B
Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine
in good faith will result in fair and equitable treatment among
the respective series or classes.
c. The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph A. of
this Section 5, purchase or otherwise acquire such shares at such time
and in such manner.
Section 6. Reacquired Shares. Any shares of either Series A Participating
Preferred Stock or Series B Participating Preferred Stock
purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after
the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board
of Directors, subject to the conditions and restrictions on
issuance set forth herein.
Section 7. Liquidation, Dissolution or Winding Up.
a. Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating
Preferred Stock or Series B Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating
Preferred Stock and Series B Participating Preferred Stock shall have
received $7,500 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Liquidation Preference"). Following the
payment of the full amount of the Liquidation Preference, no
additional distributions shall be made to the holders of shares of
Series A Participating Preferred Stock or Series B Participating
Preferred Stock unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the
Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set
forth in subparagraph (C) below to reflect such events as stock
splits, stock dividends and recapitalization with respect to
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the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Liquidation
Preference and the Common Adjustment in respect of all outstanding
shares of Series A Participating Preferred Stock, Series B
Participating Preferred Stock and Common Stock, respectively, holders
of Series A Participating Preferred Stock, Series B Participating
Preferred Stock and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to
such Preferred Stock and Common Stock, on a per share basis,
respectively.
b. In the event, however, that there are not sufficient assets available
to permit payment in full of the Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series A Participating Preferred
Stock or Series B Participating Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In
the event, however, that there are not sufficient assets available to
permit payment in full of the Common Adjustment, then such remaining
assets shall be distributed ratably to the holders of Common Stock.
c. In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number
in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
Section 8. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any
other property, then in any such case the shares of Series A
Participating Preferred Stock and Series B Participating
Preferred Stock shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the
aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding
<PAGE> 13
sentence with respect to the exchange or change of shares of
Series A Participating Preferred Stock and Series B
Participating Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such
event.
Section 9. No Redemption. The shares of Series A Participating Preferred
Stock and Series B Participating Preferred Stock shall not be
redeemable.
Section 10. Ranking. The Series A Participating Preferred Stock and Series
B Participating Preferred Stock shall rank junior to all other
series of the Corporation's Preferred Stock as to the payment
of dividends and the distribution of assets, unless the terms
of any such series shall provide otherwise.
Section 11. Amendment. The Corrected Amended and Restated Certificate of
Incorporation of the Corporation shall not be further amended
in any manner which would materially alter or change the
powers, preference or special rights of the Series A
Participating Preferred Stock or Series B Participating
Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Participating Preferred Stock
and Series B Participating Preferred Stock, voting separately
as a class.
Section 12. Fractional Shares. Series A Participating Preferred Stock and
Series B Participating Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of
Series A Participating Preferred Stock or Series B
Participating Preferred Stock, as applicable.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file (or cause to be prepared and
filed) a Certificate of Designation of Rights, Preferences and Privileges in
accordance with the foregoing resolution and the provisions of Delaware law and
to take such actions as they may deem necessary or appropriate to carry out the
intent of the foregoing resolution."
<PAGE> 14
IN WITNESS WHEREOF, we have executed and subscribed to this Certificate and
do hereby affirm the foregoing as true under the penalties of perjury this 9th
day of August, 1996.
/s/ Stephen Abely
-----------------------------------
Stephen Abely, Vice President,
Finance and Chief Financial Officer
/s/ Judith M. O'Brien
-----------------------------------
Judith M. O'Brien, Secretary
<PAGE> 1
RIGHTS AGREEMENT
Agreement, dated as of July 31, 1996 between StorMedia, Incorporated, a
Delaware corporation (the "COMPANY"), and BankBoston (the "RIGHTS AGENT").
On July 25, 1996 (the "RIGHTS DIVIDEND DECLARATION DATE"), the Board of
Directors of the Company authorized and declared a dividend of one Preferred
Share purchase right (a "RIGHT") for each Common Share (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on August 16, 1996 (the "RECORD DATE"), each Right representing the right to
purchase one one-thousandth (0.001) of a share of Series A Participating
Preferred Stock (as such number may be adjusted pursuant to the provisions of
this Agreement), having the rights, preferences and privileges set forth in the
form of Certificate of Designation of Rights, Preferences and Privileges of
Series A Participating Preferred Stock attached hereto as Exhibit A, upon the
terms and subject to the conditions herein set forth, and further authorized and
directed the issuance of one Right (as such number may be adjusted pursuant to
the provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company or any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall be deemed to be an Acquiring Person as the result of
an acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an Acquiring Person.
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person", as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such Person would no
longer be an "Acquiring Person", as defined pursuant to the foregoing provisions
of this paragraph (a), then such Person shall not be deemed to be an "Acquiring
Person" for any purposes of this Agreement.
<PAGE> 2
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "BENEFICIAL OWNER" of and shall
be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of Section
13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or
successor law or regulation);
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed pursuant to this Section
1(c)(ii)(A) to be the Beneficial Owner of, or to beneficially own, (1)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or (2) securities
which a Person or any of such Person's Affiliates or Associates may be deemed to
have the right to acquire pursuant to any merger or other acquisition agreement
between the Company and such Person (or one or more of its Affiliates or
Associates) if such agreement has been approved by the Board of Directors of the
Company prior to there being an Acquiring Person; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; provided, however, that
a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security under this Section 1(c)(ii)(B) if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding, whether or not in writing (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company; provided, however,
that in no case shall an officer or director of the Company be deemed (x) the
Beneficial Owner of any securities beneficially owned by another officer or
director of the Company solely by reason of actions undertaken by such persons
in their capacity as officers or directors of the Company or (y) the Beneficial
Owner of securities held of record by the trustee of any employee benefit plan
of the Company or any Subsidiary of the Company for the benefit of any employee
of the Company
<PAGE> 3
or any Subsidiary of the Company, other than the officer or director, by reason
of any influence that such officer or director may have over the voting of the
securities held in the plan.
(d) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in California are authorized or
obligated by law or executive order to close.
(e) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M.,
California time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., California time, on the next succeeding
Business Day.
(f) "COMMON SHARES" when used with reference to the Company shall
mean the shares of Class A Common Stock and Class B Common Stock of the Company,
$0.013 par value per share. "Common Shares" when used with reference to any
Person other than the Company shall mean the capital stock (or equity interest)
with the greatest voting power of such other Person or, if such other Person is
a Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person. "CLASS A COMMON STOCK" and "CLASS B COMMON STOCK"
shall mean the Class A Common Stock and Class B Common Stock, respectively, of
the Company, par value $.013 per share.
(g) "CONTINUING DIRECTOR" shall mean (i) any member of the Board
of Directors of the Company who, while a member of the Board, is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who was a member of the Board prior to the date of this Agreement, or (ii) any
Person who subsequently becomes a member of the Board who, while a member of the
Board, is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, if such Person's nomination for election or election to the Board is
recommended or approved by a majority of the Continuing Directors.
(h) "DISTRIBUTION DATE" shall mean the earlier of (i) the Close
of Business on the tenth day (or such later date as may be determined by action
of a majority of Continuing Directors then in office) after the Shares
Acquisition Date (or, if the tenth day after the Shares Acquisition Date occurs
before the Record Date, the Close of Business on the Record Date) or (ii) the
Close of Business on the tenth day (or such later date as may be determined by
action of a majority of Continuing Directors then in office) after the date that
a tender or exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, assuming the successful consummation
thereof, such Person would be the Beneficial Owner of 15% or more of the shares
of Common Stock then outstanding.
(i) "EQUIVALENT SHARES" shall mean Preferred Shares and any other
class or series of capital stock of the Company which is entitled to participate
in dividends and other distributions, including distributions upon the
liquidation, dissolution or winding up of the Company, on a proportional basis
<PAGE> 4
with the Common Shares. In calculating the number of any class or series of
Equivalent Shares for purposes of Section 11 of this Rights Agreement, the
number of shares, or fractions of a share, of such class or series of capital
stock that is entitled to the same dividend or distribution as a whole Common
Share shall be deemed to be one share.
(j) "EXPIRATION DATE" shall mean the earliest of (i) the Close of
Business on the Final Expiration Date, (ii) the Redemption Date, (iii) the time
at which the Board of Directors orders the exchange of the Rights as provided in
Section 24 hereof or (iv) the consummation of a transaction contemplated by
Section 13(d) hereof.
(k) "FINAL EXPIRATION DATE" shall mean August 15, 2006.
(l) "PERMITTED OFFER" shall mean a tender offer for all
outstanding Common Shares made in the manner prescribed by Section 14(d) of the
Exchange Act and the rules and regulations promulgated thereunder; provided,
however, that such tender offer occurs at a time when Continuing Directors are
in office and a majority of the Continuing Directors then in office has
determined that the offer is both adequate and otherwise in the best interests
of the Company and its stockholders (taking into account all factors that such
Continuing Directors deem relevant).
(m) "PERSON" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(n) "PREFERRED SHARES" shall mean shares of Series A
Participating Preferred Stock of the Company.
(o) "PURCHASE PRICE" shall have the meaning set forth in Section
4(a) hereof.
(p) "RECORD DATE" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(q) "REDEMPTION DATE" shall mean the time at which the Board of
Directors of the Company orders redemption of the Rights as provided in Section
23 hereof.
(r) "REDEMPTION PRICE" shall have the meaning set forth in
Section 23(a) hereof.
(s) "RIGHTS DIVIDEND DECLARATION DATE" shall have the meaning set
forth in the recitals at the beginning of this Agreement.
(t) "SECTION 13 EVENT" shall mean any event described in clause
(i), (ii) or (iii) of Section 13(a) hereof.
(u) "SHARES ACQUISITION DATE" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to
<PAGE> 5
Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that
an Acquiring Person has become such; provided that, if such Person is determined
not to have become an Acquiring Person pursuant to Section 1(a) hereof, then no
Shares Acquisition Date shall be deemed to have occurred.
(v) "SUBSIDIARY" of any Person shall mean any corporation or
other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.
(w) "TOTAL EXERCISE PRICE" shall have the meaning set forth in
Section 4(a) hereof.
(x) "TRADING DAY" shall have the meaning set forth in Section
11(d) hereof.
(y) A "TRIGGERING EVENT" shall be deemed to have occurred upon
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the Distribution Date, (i) the Rights will be evidenced
(subject to the provisions of Sections 3(b) and 3(c) hereof) by the certificates
for Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Rights Certificates) and not by separate
Rights Certificates and (ii) the right to receive Rights Certificates will be
transferable only in connection with the transfer of Common Shares. Until the
earlier of the Distribution Date or the Expiration Date, the surrender for
transfer of such certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate, in
substantially the form of Exhibit B hereto (a "RIGHTS CERTIFICATE"), evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per Common Share
has been made pursuant to Section 11(a)(i), Section 11(i) or Section 11(p)
hereof, then at the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are
<PAGE> 6
distributed and cash is paid in lieu of any fractional Rights. As of the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights Certificates
as permitted hereby, separately and apart from any transfer of one or more
Common Shares, and the holders of such Rights Certificates as listed in the
records of the Company or any transfer agent or registrar for the Rights shall
be the record holders thereof.
(b) On the Record Date or as soon as practicable thereafter, the
Company will send (or cause to be sent) a copy of a Summary of Rights in
substantially the form of Exhibit C hereto (the "SUMMARY OF RIGHTS"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company.
(c) Unless the Board of Directors by resolution adopted at or
before the time of the issuance (including pursuant to the exercise of rights
under the Company's benefit plans) of any Common Shares specifies to the
contrary, Rights shall be issued in respect of all Common Shares that are issued
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or, in certain circumstances provided in Section 22 hereof,
after the Distribution Date. Certificates representing such Common Shares shall
also be deemed to be certificates for Rights, and shall bear the following
legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN STORMEDIA INCORPORATED
AND BANKBOSTON AS THE RIGHTS AGENT, DATED AS OF JULY 31, 1996 (THE "RIGHTS
AGREEMENT") OR AS SUBSEQUENTLY AMENDED, THE TERMS OF WHICH ARE HEREBY
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF STORMEDIA INCORPORATED. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE
EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
CERTIFICATE. STORMEDIA INCORPORATED WILL MAIL TO THE HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF
A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR
BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR
ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND
VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented
<PAGE> 7
thereby. In the event that the Company purchases or acquires any Common Shares
after the Record Date but prior to the Distribution Date, any Rights associated
with such Common Shares shall be deemed canceled and retired so that the Company
shall not be entitled to exercise any Rights associated with the Common Shares
which are no longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date (or in the case of Rights issued with respect to
Common Shares issued by the Company after the Record Date, as of the date of
issuance of such Common Shares) and on their face shall entitle the holders
thereof to purchase such number of one-thousandths of a Preferred Share as shall
be set forth therein at the price set forth therein (such exercise price per one
one-thousandth (0.001) of a Preferred Share being hereinafter referred to as the
"PURCHASE PRICE" and the aggregate exercise price of all Preferred Shares
issuable upon exercise of one Right being hereinafter referred to as the "TOTAL
EXERCISE PRICE"), but the number and type of securities purchasable upon the
exercise of each Right and the Purchase Price shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
<PAGE> 8
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(E) OF THE RIGHTS AGREEMENT.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its President
or any Vice President, either manually or by facsimile signature, and by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature, and shall have affixed thereto the Company's seal (if any)
or a facsimile thereof. The Rights Certificates shall be manually countersigned
by the Rights Agent and shall not be valid for any purpose unless countersigned.
In case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred, split
up, combined or exchanged at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial
<PAGE> 9
Owner) or Affiliates or Associates thereof as the Company shall reasonably
request. Thereupon the Rights Agent shall, subject to Sections 7(e), 14 and 24
hereof, countersign and deliver to the person entitled thereto a Rights
Certificate or Rights Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date upon surrender of the Rights Certificate, with the
form of election to purchase on the reverse side thereof duly executed, to the
Rights Agent at the office of the Rights Agent designated for such purpose,
together with payment of the Purchase Price for each one-thousandth of a
Preferred Share as to which the Rights are exercised, at or prior to the
Expiration Date.
(b) The Purchase Price for each one-thousandth (0.001) of a
Preferred Share issuable pursuant to the exercise of a Right shall initially be
Seventy-Five Dollars ($75.00), shall be subject to adjustment from time to time
as provided in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the number of one-thousandths
of a Preferred Share (or other securities or property, as the case may be) to be
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Rights Certificate in accordance with Section 9 hereof in
cash, or by certified check or cashier's check payable to the order of the
Company, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the Preferred Shares (or
make available, if the Rights Agent is the transfer agent for the Preferred
Shares) a certificate or certificates for the number of one-thousandths of a
Preferred Share to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests or (B) if the Company shall
have elected to deposit the total number of one-thousandths of a Preferred Share
issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent of depositary receipts representing such
number of one-thousandths of a Preferred Share as are to be purchased (in which
case certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary
<PAGE> 10
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of
such Rights Certificate, registered in such name or names as may be designated
by such holder and (iv) when appropriate, after receipt thereof, deliver such
cash to or upon the order of the registered holder of such Rights Certificate.
The payment of the Purchase Price (as such amount may be reduced (including to
zero) pursuant to Section 11(a)(iv) hereof) may be made in cash or by certified
bank check or bank draft payable to the order of the Company. In the event that
the Company is obligated to issue other securities of the Company, pay cash
and/or distribute other property pursuant to Section 11(a) hereof, the Company
will make all arrangements necessary so that such other securities, cash and/or
other property are available for distribution by the Rights Agent, if and when
appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event or a Section
13 Event, any Rights beneficially owned by (i) an Acquiring Person or an
Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such (a "POST TRANSFEREE"), (iii) a transferee of
an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e) (a "PRIOR
TRANSFEREE") or (iv) any subsequent transferee receiving transferred Rights from
a Post Transferee or a Prior Transferee, either directly or through one or more
intermediate transferees, shall become null and void without any further action
and no holder of such Rights shall have any rights whatsoever with respect to
such Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to insure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights Certificates or to any other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or any of such Acquiring Person's Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise and (ii) provided such
<PAGE> 11
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of and to the extent of
its authorized and unissued shares of Preferred Stock not reserved for another
purpose (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Class A Common Stock and/or other securities),
the number of Preferred Shares (and, following the occurrence of the Triggering
Event, Class A Common Stock and/or other securities) that will be sufficient to
permit the exercise in full of all outstanding Rights.
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on such exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iv)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing and (iii)
cause such registration statement to remain effective (with a prospectus at all
times meeting the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for such securities
and (B) the date of expiration of the Rights. The Company may temporarily
suspend, for a period not to exceed ninety (90) days after the date set forth in
clause (i) of the first sentence of this Section 9(c), the exercisability of the
Rights in order to prepare and file such registration statement and permit it to
<PAGE> 12
become effective. Upon any such suspension, the Company shall issue a public
announcement stating, and notify the Rights Agent, that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement and
notification to the Rights Agent at such time as the suspension is no longer in
effect. The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction, unless the requisite qualification in such jurisdiction
shall have been obtained, or an exemption therefrom shall be available, and
until a registration statement has been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such Preferred Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the original issuance or delivery of the
Rights Certificates or of any Preferred Shares upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
person other than, or the issuance or delivery of certificates or depositary
receipts for the Preferred Shares in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depositary receipts for Preferred
Shares upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Rights Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for a number of one-thousandths of a Preferred Share is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
multiplied by the number of one-thousandths of a Preferred Share with respect to
which the Rights have been exercised (and any applicable transfer taxes) was
made; provided, however, that if the date of such surrender and payment is a
date upon which the Preferred Shares transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Rights Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
<PAGE> 13
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding
Common Shares (by reverse stock split or otherwise) into a smaller number of
Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11(a) and Section 7(e) hereof: (1) each of the Rights
outstanding at the time of the record date for such dividend or the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted to that number of Rights (calculated to the nearest one
ten-thousandth (1/10,000) of a Right) equal to a fraction (the "EXCHANGE
RATIO"), the numerator of which shall be the total number of Common Shares or
shares of capital stock outstanding immediately following such subdivision,
combination or reclassification and the denominator of which shall be the total
number of Common Shares outstanding immediately prior to such time, and the
number of Rights that shall thereafter be issued with respect to each Common
Share or share of such other capital stock that shall become outstanding
thereafter prior to the Distribution Date shall be equal to the total number of
outstanding Rights immediately after such event (as adjusted pursuant to this
clause (1)) divided by the total number of outstanding Common Shares or shares
of such other capital stock immediately after such event (subject to further
adjustment pursuant to the provisions of this Agreement); (2) the Purchase Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification shall be adjusted so
that the Purchase Price thereafter shall equal the result obtained by dividing
the Purchase Price in effect immediately prior to such time by the Exchange
Ratio; provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of such Right; and
(3) the number of Common Shares or shares of such other capital stock issuable
upon the exercise of each Right shall remain unchanged immediately after such
event, but, in the event of a reclassification, the kind of shares issuable upon
the exercise of each Right immediately after such reclassification shall be
adjusted to be the kind of shares of such other capital stock issued in such
reclassification, rather than Common Shares. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(i) Subject to Section 24 of this Agreement, in the
event a Triggering Event shall have occurred, then promptly following such
Triggering Event, proper provision shall be made so that each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive for each Right, upon exercise thereof in accordance with the terms of
this Agreement and payment of the then-current Total Exercise Price, in lieu of
a number of one-thousandths of a Preferred Share, such number of shares of Class
A Common Stock of the Company as shall equal the result obtained by multiplying
the then-current Purchase Price by the then number of one-thousandths of a
Preferred Share for which
<PAGE> 14
a Right was exercisable (or would have been exercisable if the Distribution Date
had occurred) immediately prior to the first occurrence of a Triggering Event,
and dividing that product by 50% of the current per share market price
(determined pursuant to Section 11(d) hereof) for shares of Class A Common Stock
on the date of occurrence of the Triggering Event (such number of shares being
hereinafter referred to as the "ADJUSTMENT SHARES").
(ii) The right to buy Common Shares of the Company
pursuant to Section 11(a)(ii) hereof shall not arise as a result of any Person
becoming an Acquiring Person through an acquisition of Common Shares pursuant to
a Permitted Offer.
(iii) In lieu of issuing shares of Class A Common
Stock in accordance with Section 11(a)(ii) hereof, the Company may, if the Board
of Directors determines that such action is necessary or appropriate and not
contrary to the interest of holders of Rights (and, in the event that the number
of shares of Class A Common Stock which are authorized by the Company's
Certificate of Incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights are not sufficient to permit the
exercise in full of the Rights, or if any necessary regulatory approval for such
issuance has not been obtained by the Company, the Company shall): (A) determine
the excess of (1) the value of the shares of Class A Common Stock issuable upon
the exercise of a Right (the "CURRENT VALUE") over (2) the Purchase Price (such
excess, the "SPREAD") and (B) with respect to each Right, make adequate
provision to substitute for such shares of Class A Common Stock, upon exercise
of the Rights, (1) cash, (2) a reduction in the Purchase Price, (3) other equity
securities of the Company (including, without limitation, shares or units of
shares of any series of preferred stock which the Board of Directors of the
Company has deemed to have the same value as shares of Class A Common Stock
(such shares or units of shares of preferred stock are herein called "common
stock equivalents")), except to the extent that the Company has not obtained any
necessary stockholder or regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such issuance, (5)
other assets, or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value, where such aggregate value has been determined by
the Board of Directors of the Company based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors of the
Company; provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Triggering Event and (y)
the date on which the Company's right of redemption pursuant to Section 23(a)
expires (the later of (x) and (y) being referred to herein as the "SECTION
11(a)(II) TRIGGER DATE"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of the
Purchase Price, shares of Class A Common Stock (to the extent available), except
to the extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith that it is likely that
sufficient additional shares of Class A Common Stock could be authorized for
issuance upon exercise in full of the Rights or that any necessary regulatory
approval for such issuance will be obtained, the thirty (30) day period set
forth above may be extended to the extent necessary, but not more than ninety
(90) days after the Section 11(a)(ii) Trigger Date, in order that the Company
may seek stockholder approval for the authorization of such additional shares or
take action to obtain such regulatory approval (such period,
<PAGE> 15
as it may be extended, the "SUBSTITUTION PERIOD"). To the extent that the
Company determines that some action need be taken pursuant to the first and/or
second sentences of this Section 11(a)(iv), the Company (x) shall provide,
subject to Section 7(e) hereof, that such action shall apply uniformly to all
outstanding Rights and (y) may suspend the exercisability of the Rights until
the expiration of the Substitution Period in order to seek any authorization of
additional shares, to take any action to obtain any required regulatory approval
and/or to decide the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iv), the value of the shares of Class A Common Stock shall
be the current per share market price (as determined pursuant to Section 11(d)
hereof) of the shares of Class A Common Stock on the Section 11(a)(ii) Trigger
Date and the value of any "common stock equivalent" shall be deemed to have the
same value as the shares of Class A Common Stock on such date.
(b) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Common Shares or of any class or series of Equivalent
Shares entitling such holders (for a period expiring within forty-five (45)
calendar days after such record date) to subscribe for or purchase Common Shares
or Equivalent Shares or securities convertible into Common Shares or Equivalent
Shares at a price per share (or having a conversion price per share, if a
security convertible into Common Shares or Equivalent Shares) less than the then
current per share market price of the Common Shares or Equivalent Shares (as
defined in Section 11(d)) on such record date, then, in each such case, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares and
Equivalent Shares (if any) outstanding on such record date, plus the number of
Common Shares or Equivalent Shares, as the case may be, which the aggregate
offering price of the total number of Common Shares or Equivalent Shares, as the
case may be, so to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such current
market price, and the denominator of which shall be the number of Common Shares
and Equivalent Shares (if any) outstanding on such record date, plus the number
of additional Common Shares or Equivalent Shares, as the case may be, to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Common Shares and Equivalent Shares owned by or
held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights, options
or warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the making of a distribution to all
holders of the Common Shares or of any class or series
<PAGE> 16
of Equivalent Shares (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation) of evidences of indebtedness or assets (other than a regular
quarterly cash dividend, if any, or a dividend payable in Common Shares) or
subscription rights, options or warrants (excluding those referred to in Section
11(b)), then, in each such case, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price (as determined pursuant to Section 11(d)
hereof) of a Common Share or an Equivalent Share on such record date, less the
fair market value per Common Share or Equivalent Share (as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a Common Share or Equivalent
Share, as the case may be, and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) of a Common Share
or Equivalent Share on such record date. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iv) hereof, the "current per share
market price" of any security (a "SECURITY" for the purpose of this Section
11(d)) on any date shall be deemed to be the average of the daily closing prices
per share of such Security for the thirty (30) consecutive Trading Days (as such
term is hereinafter defined) immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iv) hereof, the "current per share
market price" of any Security on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the ten (10) consecutive
Trading Days immediately prior to such date; provided, however, that in the
event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security of (i)
a dividend or distribution on such Security payable in shares of such Security
or securities convertible into such shares or (ii) any subdivision, combination
or reclassification of such Security, and prior to the expiration of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, after the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such case, the
current per share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing price
for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last sale price or, if such last sale
price is not reported, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and
<PAGE> 17
asked prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company. If on any such date
no market maker is making a market in the Common Shares, the fair value of such
shares on such date as determined in good faith by the Board of Directors of the
Company shall be used. The term "TRADING DAY" shall mean a day on which the
principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the Security
is not listed or admitted to trading on any national securities exchange, a
Business Day. If the Common Shares are not publicly held or so listed or traded,
"current per share market price" shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Purchase Price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which requires such adjustment or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a) or 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right and if required, the Purchase Price thereof, shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Shares contained in
Sections 11(a), (b), (c), (e), (h), (i), (j), (k), (l) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Section 11(b), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of Preferred
Shares (calculated to the nearest one hundred-thousandth of a share) obtained by
(i) multiplying (x) the number of Preferred Shares covered by a Right
immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
<PAGE> 18
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price as a result of the calculations made in Section
11(b) to adjust the number of Rights, in substitution for any adjustment in the
number of Preferred Shares purchasable upon the exercise of a Right. Each of the
Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one-thousandths of a Preferred Share for which a
Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one hundred-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of
the Purchase Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued, shall be at least
ten (10) days later than the date of the public announcement. If Rights
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Rights Certificates on such
record date Rights Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Purchase Price per one one-thousandth of a Preferred Share and
the number of one-thousandths of a Preferred Share which were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the par or stated value, if any, of the number
of one-thousandths of a Preferred Share issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a
<PAGE> 19
Preferred Share and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares (fractional or otherwise) upon the occurrence
of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be entitled
to make such reductions in the Purchase Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash
of any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash of Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common Shares,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Company to holders of its Preferred or
Common Shares shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, effect or permit to occur any Triggering Event
or Section 13 Event, if (i) at the time or immediately after such Triggering
Event or Section 13 Event there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would substantially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights or (ii) prior to, simultaneously with or immediately after such Section
13 Event, the stockholders of the Person who constitutes, or would constitute,
the "PRINCIPAL PARTY" for purposes of Section 13(b) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares (by reverse stock split or otherwise) into a
smaller number of Preferred Shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in this Section 11 and Section 7(e) hereof: (1)
each of the Rights outstanding at the time of the record date for such dividend
or the effective date of such subdivision, combination or reclassification shall
be proportionately adjusted to that number of Rights (calculated to the nearest
one ten-thousandth (1/10,000) of a Right) equal to a fraction (the "EXCHANGE
FRACTION"), the numerator of which shall be the total number of Preferred Shares
or shares of capital stock issued in such reclassification of the Preferred
Shares outstanding immediately following such time and the denominator of which
shall be the total number of Preferred
<PAGE> 20
Shares outstanding immediately prior to such time, and the number of Rights that
shall thereafter be issued with respect to each Common Share or share of other
capital stock that shall be issued in a reclassification of the Common Shares
prior to the Distribution Date shall be equal to the total number of outstanding
Rights immediately after such event (as adjusted pursuant to this clause (1))
divided by the total number of outstanding Common Shares or shares of such other
capital stock immediately after such event (subject to further adjustment
pursuant to the provisions of this Agreement); (2) the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification shall be adjusted so that the
Purchase Price thereafter shall equal the result obtained by dividing the
Purchase Price in effect immediately prior to such time by the Exchange
Fraction; provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of such Right; and
(3) the number of one-thousandths of a Preferred Share or share of such other
capital stock issuable upon the exercise of each Right shall remain unchanged
immediately after such event, but, in the event of a reclassification, the kind
of shares issuable upon the exercise of each Right immediately after such
reclassification shall be adjusted to be the kind of shares of such other
capital stock issued in such reclassification, rather than Preferred Shares.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Shares a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 26 hereof. Notwithstanding the foregoing
sentence, the failure of the Company to make such certification or give such
notice shall not affect the validity of such adjustment or the force or effect
of the requirement for such adjustment. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment contained
therein and shall not be deemed to have knowledge of such adjustment unless and
until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Shares Acquisition Date,
directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction the principal purpose of which is to change the state of
incorporation of the Company or which complies with Section 11(o) hereof);
(ii) any Person (other than a Subsidiary of the
Company in a transaction that complies with Section 11(o) hereof) shall
consolidate with the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such consolidation or
merger; or
(iii) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise transfer), in one or
more transactions, assets or earning power
<PAGE> 21
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company or one or more of its wholly owned Subsidiaries in one or more
transactions, each of which complies with Section 11(o) hereof),
then, and in each such case, proper provision shall be made so that
(1) each holder of a Right (except as
otherwise provided herein) shall thereafter have the right to receive, upon the
exercise thereof in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid and nonassessable Common Shares of the
Principal Party (as hereinafter defined), free of any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Purchase Price by the number of
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Triggering Event has occurred prior to the first occurrence of a Section 13
Event, multiplying the number of such one-thousandths of a Preferred Share for
which a Right was exercisable immediately prior to the first occurrence of a
Triggering Event by the Purchase Price in effect immediately prior to such first
occurrence) and (2) dividing that product (which, following the first occurrence
of a Section 13 Event, shall be referred to as the "TOTAL EXERCISE PRICE" for
each Right and for all purposes of this Agreement) by 50% of the current per
share market price (determined pursuant to Section 11(d) hereof) of the Common
Shares of such Principal Party on the date of consummation of such Section 13
Event;
(2) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(3) the term "COMPANY" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
(4) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such transaction
as may be necessary to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights.
(b) "PRINCIPAL PARTY" shall mean, in the case of any
transaction described in clause (i), (ii) or (iii) of Section 13(a), the Person
or Acquiring Person referred to therein (or such Person's or Acquiring Person's
successor, including, if applicable, the Company, if it is the surviving
corporation), provided, however, that in any such case, (i) if such Person is a
direct or indirect Subsidiary of another Person, "PRINCIPAL PARTY" shall refer
to such other Person and (ii) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, "PRINCIPAL PARTY" shall refer to whichever
of such Persons is the issuer of the Common Shares having the greatest aggregate
value, and provided, further, that for purposes of transactions described in
clause (iii) hereof, "PRINCIPAL PARTY" shall refer to that
<PAGE> 22
Person receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions.
(c) If, for any reason, the Rights cannot be exercised for
Common Shares of such Principal Party as provided in Section 13(a), then each
holder of Rights shall have the right to exchange its Rights for cash from such
Principal Party in an amount equal to the number of Common Shares that it would
otherwise be entitled to purchase times 50% of the current per share market
price, as determined pursuant to Section 11(d) hereof, of such Common Shares of
such Principal Party. If, for any reason, the foregoing formulation cannot be
applied to determine the cash amount into which the Rights are exchangeable,
then the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms, and based upon the total value of the
Company, shall determine such amount reasonably and with good faith to the
holders of Rights. Any such determination shall be final and binding on the
Rights Agent.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
clauses (i) and (ii) of Section 13(a) if: (i) such transaction is consummated
with a Person or Persons who acquired Common Shares pursuant to a Permitted
Offer (or a wholly-owned Subsidiary of any such Person or Persons); (ii) the
price per share of Common Shares offered in such transaction is not less than
the price per share of Common Shares paid to all holders of Common Shares whose
shares were purchased pursuant to such Permitted Offer; and (iii) the form of
consideration being offered to the remaining holders of Common Shares pursuant
to such transaction is the same form as the form of consideration paid pursuant
to such Permitted Offer. Upon consummation of any such transaction contemplated
by this Section 13(d), all Rights hereunder shall expire.
(e) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized Common
Shares that have not been issued or reserved for issuance to permit the exercise
in full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such issuer shall have executed and delivered to the
Rights Agent a supplemental agreement confirming that such Principal Party
shall, upon consummation of such Section 13 Event, assume this Agreement in
accordance with Sections 13(a) and (b) hereof, that all rights of first refusal
or preemptive rights in respect of the issuance of Common Shares of such
Principal Party upon exercise of outstanding Rights have been waived, that there
are no rights, warrants, instruments or securities outstanding or any agreements
or arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be afforded
by the Rights and that such transaction shall not result in a default by such
Principal Party under this Agreement, and further providing that, as soon as
practicable after the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under
the Securities Act with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, use its best efforts to
cause such registration statement to become effective as soon as practicable
after such filing and use its best efforts to cause such registration statement
to remain effective (with a
<PAGE> 23
prospectus at all times meeting the requirements of the Securities Act) until
the Expiration Date, and similarly comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon exercise of the
Rights on a national securities exchange or to meet the eligibility requirements
for quotation on Nasdaq; and
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which comply in all respects with
the requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of
a Triggering Event some or all of the Rights shall not have been exercised at
the time of a transaction described in this Section 13, the Rights which have
not theretofore been exercised shall thereafter be exercisable in the manner
described in Section 13(a) (without taking into account any prior adjustment
required by Section 11(a)(ii)).
(f) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant to
the second sentence of Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share). In lieu of fractional Preferred Shares that are not integral multiples
of one one-thousandth of a Preferred Share, the Company shall pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of a Common Share. For purposes of this Section 14(b), the current
market value of a Common Share shall be the closing price of a Common Share (as
determined pursuant to the second sentence of Section 11(d) hereof) for the
Trading Day immediately prior to the date of such exercise.
<PAGE> 24
(c) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
or any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action,
<PAGE> 25
or to receive notice of meetings or other actions affecting stockholders (except
as provided in Section 25 hereof), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by such Rights
Certificate shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Preferred Shares or Common Shares or
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
<PAGE> 26
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current per share market price") be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
or any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Rights
Certificates after receipt by the Rights Agent of a certificate furnished
pursuant to Section 12 describing such change or adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued
<PAGE> 27
pursuant to this Agreement or any Rights Certificate or as to whether any
Preferred Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent 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 its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
<PAGE> 28
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Preferred
Shares and the Common Shares by registered or certified mail, and to the holders
of the Rights Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his or her Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of any state of the United
States, in good standing, which is authorized under such laws to exercise
corporate trust or stockholder services powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Preferred
Shares and the Common Shares, and mail a notice thereof in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common
<PAGE> 29
Shares so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement or upon the exercise, conversion or exchange of the
convertible subordinated debentures of the Company outstanding at the date
hereof or upon the exercise, conversion or exchange of securities hereinafter
issued by the Company and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Company, issue Rights Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) no such Rights Certificate shall be issued
and this sentence shall be null and void ab initio if, and to the extent that,
such issuance or this sentence would create a significant risk of or result in
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued or would create a significant risk of or
result in such options' or employee plans' or arrangements' failing to qualify
for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
(a) The Company may, at its option and with the approval of
the Board of Directors, at any time prior to the Close of Business on the
earlier of (i) the tenth day following the Shares Acquisition Date or such later
date as may be determined by action of a majority of Continuing Directors then
in office and publicly announced by the Company and (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding Rights at a
redemption price of $0.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being herein referred to as the "REDEMPTION PRICE") and
the Company may, at its option, pay the Redemption Price either in Common Shares
(based on the current per share market price thereof (as determined pursuant to
Section 11(d) hereof) at the time of redemption) or cash. Such redemption of the
Rights by the Company may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish;
provided, however, if the Board of Directors of the Company authorizes
redemption of the Rights on or after the time a Person becomes an Acquiring
Person, then there must be Continuing Directors then in office and such
authorization shall require the concurrence of a majority of such Continuing
Directors.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give or any defect in, any such notice shall not
affect the validity of such redemption. Within ten (10) days after the action of
the Board of Directors ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem,
<PAGE> 30
acquire or purchase for value any Rights at any time in any manner other than
that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
(a) Subject to applicable laws, rules and regulations, and
subject to subsection (c) below, the Company may, at its option, by majority
vote of the Board of Directors and a majority vote of the Continuing Directors,
at any time after the occurrence of a Triggering Event, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof) for Class A
Common Stock at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "RATIO OF EXCHANGE"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Ratio of Exchange. The Company
shall give public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company shall mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a), the Company
shall either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay cash
in an amount equal to the Current Value (as hereinafter defined), in lieu of
issuing Common Shares in exchange therefor, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by majority vote of the Board of Directors,
<PAGE> 31
or (iii) deliver any combination of cash, property, Common Shares and/or other
securities having a value equal to the Current Value in exchange for each Right.
For purposes of this Section 24(c) only, the Current Value shall mean the
product of the current per share market price of Common Shares (determined
pursuant to Section 11(d) on the date of the occurrence of the event described
above in subparagraph (a)) multiplied by the number of Common Shares for which
the Right otherwise would be exchangeable if there were sufficient shares
available. To the extent that the Company determines that some action need be
taken pursuant to clauses (i), (ii) or (iii) of this Section 24(c), the Board of
Directors may temporarily suspend the exercisability of the Rights for a period
of up to sixty (60) days following the date on which the event described in
Section 24(a) shall have occurred, in order to seek any authorization of
additional Common Shares and/or to decide the appropriate form of distribution
to be made pursuant to the above provision and to determine the value thereof.
In the event of any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current per share market value of a whole Common Share
(as determined pursuant to the second sentence of Section 11(d) hereof).
(e) The Company may, at its option, by majority vote of the
Board of Directors, at any time before any Person has become an Acquiring
Person, exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good faith by
the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (e) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of rights in exchange therefor as has
been determined by the Board of Directors in accordance with subsection (e)
above. The Company shall give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall mail a notice of any
such exchange to all of the holders of such Rights at their last addresses as
they appear upon the registry books of the transfer agent for the Common Shares
of the Company. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Rights will be
effected.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event having the effects described in Section 11(a)(ii) or
a Section 13 Event, the Company shall give
<PAGE> 32
notice thereof to each holder of Rights in accordance with Section 26 hereof at
least twenty (20) days prior to occurrence of such Triggering Event or such
Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under Sections
11(a)(ii) and 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
STORMEDIA INCORPORATED
390 Reed Street
Santa Clara, CA 95050
Attention: Vice President, Finance
Subject to the provisions of Section 21 hereof, any notice or
demand authorized by this Agreement to be given or made by the Company or by the
holder of any Rights Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as follows:
BANKBOSTON
c/o Boston Equiserve
150 Royall Street
Mail Stop 45-02-62
Canton, MA 02021
Attention: Colleen Shea
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date,
the Company may supplement or amend this Agreement in any respect without the
approval of any holders of Rights and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the Distribution
Date, the Company and the Rights Agent may from time to time supplement or amend
this Agreement without the approval of any holders of Rights in order to (i)
cure any ambiguity, (ii) correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, (iii)
shorten or lengthen any time period hereunder (which lengthening or shortening,
following the first occurrence of an event set forth in the proviso to Section
23(a) hereof,
<PAGE> 33
shall be effective only if there are Continuing Directors and shall require the
concurrence of a majority of such Continuing Directors) or (iv) to change or
supplement the provisions hereunder in any manner that the Company may deem
necessary or desirable and that shall not adversely affect the interests of the
holders of Rights (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person); provided, this Agreement may not be supplemented or
amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time
period relating to when the Rights may be redeemed at such time as the Rights
are not then redeemable or (B) any other time period unless such lengthening is
for the purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company that states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Shares.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company (or, where specifically provided for
herein, the Continuing Directors) shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company (or, where specifically provided for
herein, the Continuing Directors), or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board (or, where
specifically provided for herein, by the Continuing Directors) in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights Certificates and all other parties and (y) not subject the
Board or the Continuing Directors to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
<PAGE> 34
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, 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;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"COMPANY" STORMEDIA INCORPORATED
By: /s/ Stephen Abely
-------------------------------------
Name:
-----------------------------------
Title: Vice President and Chief
---------------------------------
Financial Officer
----------------------------------
"RIGHTS AGENT" BANKBOSTON
By: /s/ Colleen Shea
-------------------------------------
Name:
-----------------------------------
Title: Administrative Manager
----------------------------------
<PAGE> 36
EXHIBIT A
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK AND
SERIES B PARTICIPATING PREFERRED STOCK
OF STORMEDIA INCORPORATED
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Stephen Abely and Judith M. O'Brien, the Vice President, Finance
and Chief Financial Officer and the Secretary, respectively, of StorMedia
Incorporated, a corporation organized and existing under the General Corporation
Law of the State of Delaware, in accordance with the provisions of Section 103
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the said Corporation, the said Board of
Directors on July 25, 1996 adopted the following resolution creating a series of
50,000 shares of Preferred Stock designated as Series A Participating Preferred
Stock and a series of 20,000 shares of Preferred Stock designated as Series B
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation, to be designated "Series A Participating Preferred Stock," par
value $0.01 per share, initially consisting of 50,000 shares and a series of
Preferred Stock of the Corporation to be designated "Series B Participating
Preferred Stock," par value $0.01 per share, initially consisting of 20,000
shares. To the extent that the designations, powers, preferences and relative
and other special rights and the qualifications, limitations and restrictions of
the Series A Participating Preferred Stock and Series B Participating Preferred
Stock are not stated and expressed in the Certificate of Incorporation, the
Board of Directors does hereby fix and herein state and express such
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
Section 35. Designation and Amount. The shares shall be designated as
"Series A Participating Preferred Stock," par value $0.01 per share, with 50,000
shares constituting such series and "Series B Participating Preferred Stock,"
par value $0.01 per share, with 20,000 shares constituting such series.
<PAGE> 37
Section 36. Dividends and Distributions.
A. Subject to the prior and superior right of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Participating Preferred Stock and Series B Participating Preferred
Stock with respect to dividends, the holders of shares of Series A Participating
Preferred Stock and Series B Participating Preferred Stock shall be entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of September, December, March and June in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock or Series B
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to, subject to the provision for adjustment hereinafter set forth,
1,000 times the aggregate per share amount of all cash dividends, and 1,000
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Class A Common
Stock or Class B Common Stock or a subdivision of the outstanding shares of
Class A Common Stock or Class B Common Stock (by reclassification or otherwise),
declared on the Class A Common Stock or Class B Common Stock of the Corporation
(jointly, the "Common Stock") since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series A
Participating Preferred Stock or Series B Participating Preferred Stock. In the
event the Corporation shall at any time after August 16, 1996 (the "Rights
Dividend Declaration Date") (i) declare any dividend on Class A Common Stock
payable in shares of Class A Common Stock, (ii) subdivide the outstanding Class
A Common Stock, or (iii) combine the outstanding Class A Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Participating Preferred Stock were entitled immediately prior
to such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Class A
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Class A Common Stock that were outstanding
immediately prior to such event. In the event the Corporation shall at any time
after August 16, 1996 (the "Rights Dividend Declaration Date") (i) declare any
dividend on Class B Common Stock payable in shares of Class B Common Stock, (ii)
subdivide the outstanding Class A Common Stock, or (iii) combine the outstanding
Class B Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series B Participating Preferred Stock were
entitled immediately prior to such event under the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Class B Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Class B Common
Stock that were outstanding immediately prior to such event.
B. The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock and Series B Participating Preferred
Stock as provided in paragraph (A) above immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock). No dividends shall be paid with respect to either the
Series A
-37-
<PAGE> 38
Participating Preferred Stock or Series B Participating Preferred Stock unless
equal dividends are paid with respect to the other series of Participating
Preferred Stock.
C. Dividends shall begin to accrue on outstanding shares of Series A
Participating Preferred Stock and Series B Participating Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series A Participating Preferred Stock and Series B Participating
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Participating Preferred Stock or Series B Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Participating Preferred Stock
or Series B Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Participating Preferred Stock and Series B
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
Section 37. Conversion.
A. Shares of Series A Participating Preferred Stock held by Prudential
Private Equity Investors III, L.P. ("PPEI") Prudential Insurance Company of
America ("Prudential") or any of their affiliates may be converted, at the
option of the holder thereof at any time, into an equal number of fully paid and
non-assessable shares of Series B Participating Preferred Stock. The Corporation
shall at all times take such action as is necessary to assure that an adequate
number of shares of Series B Participating Preferred Stock is available and
reserved for issuance upon such a conversion of all outstanding shares of Series
A Participating Preferred Stock. The Corporation will not take any action with
respect to any series or class of its capital stock if subsequent to such action
the provisions of the preceding sentence could not be complied with.
B. Subject to the terms and conditions of this paragraph 3.B. the
holder of any share or shares of Series B Participating Preferred Stock shall
have the right, at its option, to convert any shares of Series B Participating
Preferred Stock (except that upon any liquidation, dissolution or winding up of
the Corporation the right of conversion shall terminate at the close of business
on the last full business day next preceding the date fixed for payment of the
amount distributable on Series B Participating Preferred Stock) into an equal
number of fully paid and nonassessable shares of Series A Participating
Preferred Stock upon the occurrence of a Conversion Event (as defined below)
with respect to such shares of Series B Participating Preferred Stock, provided
that, in the case of any Conversion Event set forth in subparagraph 5.D.(4) or
D.(6) through D.(8) of this section, such right of conversion shall exist only
during the 60-day period following receipt by such holder of express
notice of the occurrence of
-38-
<PAGE> 39
such Conversion Event and shall lapse thereafter until the occurrence of any
subsequent Conversion Event.
C. The rights of conversion set forth in paragraphs 3.A. and 3.B. above
shall be exercised by the holder thereof by giving written notice to the
Corporation that the holder elects to convert a stated number of shares of
Series A Participating Preferred Stock into Series B Participating Preferred
Stock or a stated number of shares of Series B Participating Preferred Stock
into Series A Participating Preferred Stock (as applicable) and by surrender of
a certificate or certificates for the shares so to be converted to the
Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holder
or holders of Series A Participating Preferred Stock or Series B Participating
Preferred Stock, as applicable) at any time during its usual business hours on
the date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Series A Participating Preferred Stock or Series B Participating Preferred
Stock, as applicable, shall be issued.
D. Each of the following shall constitute a "Conversion Event" with
respect to shares of Series B Participating Preferred Stock:
(1) upon the transfer of such shares by PPEI or a party
affiliated with PPEI or Prudential to a party not
affiliated with PPEI or Prudential;
(2) upon the distribution of such shares to any limited
partner of PPEI other than Prudential Equity Investors,
Inc. or any other affiliate of Prudential;
(3) if, after giving effect to conversion of such shares,
PPEI and Prudential or any affiliate thereof would not
collectively hold more than 19.9% of the aggregate
voting capital stock of the Corporation, provided, that
at the time of such conversion either (a) William J.
Almon, his spouse and lineal descendants, or any trust
or partnership controlled by such persons, taken
together or (b) at least one stockholder not affiliated
with Prudential or PPEI owns a larger percentage of the
aggregate of Class A Common Stock and Series A
Participating Preferred than PPEI, Prudential and its
affiliates taken together;
(4) if, for two consecutive quarterly periods of the
Corporation, the quarterly financial statement of the
Corporation shows that it has suffered a net loss from
operations (with the Corporation's net income or loss
from operations to be calculated in accordance with
generally accepted accounting principles consistently
applied, but before taking into account any non-cash or
extraordinary items of income or expense);
(5) upon a sale of all or substantially all the assets of
the Corporation or of the Corporation and its
subsidiaries on a consolidated basis or upon any other
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acquisition of the Corporation or any of its
subsidiaries by merger, a negotiated stock purchase or a
purchase pursuant to a tender for substantially all of
the outstanding shares of Common Stock of the
Corporation or such subsidiary;
(6) upon any default or event of default under any
material agreement pursuant to which the Corporation or
any of its subsidiaries has incurred indebtedness for
borrowed money, provided that the holder of such shares
is not a holder (or in the case of Prudential or its
affiliates, neither Prudential nor any of its affiliates
is a holder) of such indebtedness (unless and until such
default or event of default is cured or waived);
(7) if, during any twelve-month period, more than 30% of
the Corporation's directors resign or are replaced;
(8) upon a failure by the Corporation or any of its
subsidiaries to make payment due (whether principal or
interest) on indebtedness for borrowed money, if the
holder of such indebtedness is a holder of such shares
(or in the case of Prudential or its affiliates, either
Prudential or one of its affiliates is a holder of such
indebtedness);
(9) at such time as William J. Almon, his spouse and
lineal descendants, or any trust or partnership
controlled by any one of them, taken together, own less
than 423,000 shares of the Class A Common Stock (as
adjusted for stock splits, stock dividends,
recapitalizations and the like effected after the date
hereof); and
(a) at any time PPEI believes conversion is necessary to
avoid any tax, accounting or legal difficulties.
E. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly after
the receipt of the written notice referred to in subparagraph C above and
surrender of the certificate or certificates for the share or shares of Series A
Participating Preferred Stock or Series B Participating Preferred Stock (as
applicable) to be converted, the Corporation shall issue and deliver, or cause
to be issued and delivered, to the holder, registered in such name or names as
such holder may direct, a certificate or certificates for the number of shares
of Series A Participating Preferred Stock or Series B Participating Preferred
Stock (as applicable) issuable upon the conversion of such share or shares. To
the extent permitted by law, such conversion shall be deemed to have been
effected immediately prior to the close of business on the day the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares
being converted shall cease, and the person or persons in whose name or names
any certificate or certificates for shares being issued upon said conversion
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby. At the time of each
conversion, the Corporation shall pay
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in cash an amount equal to all dividends declared and unpaid on the shares
surrendered for conversion to the date upon which such conversion is deemed to
take place as provided in subparagraph E. In case the number of shares
represented by the certificate or certificates surrendered pursuant to
subparagraph C exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder thereof, at the expense
of the Corporation, a new certificate or certificates for the number of shares
of the series represented by the certificate or certificates surrendered which
are not to be converted.
F. SUBDIVISION OR COMBINATION OF STOCK. If the Corporation in any
manner subdivides its outstanding shares of Series A Participating Preferred
Stock or Series B Participating Preferred Stock into a greater number of shares
of such series, then the shares of the other series of Participating Preferred
Stock shall be similarly subdivided, and, if the Corporation in any manner
combines its outstanding shares of Series A Participating Preferred Stock or
Series B Participating Preferred Stock into a smaller number of shares of such
series, then the shares of the other series of Participating Preferred Stock
immediately prior to such combination shall be proportionately reduced.
G. NOTICE OF ADJUSTMENT. Upon any adjustment made pursuant to
subparagraph F, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to each holder
of shares of the series of Participating Preferred Stock not subdivided or
combined (the "Unadjusted Series") at the address of such holder as shown on the
books of the Corporation, which notice shall state the number of shares of the
other series of Participating Preferred Stock issuable upon conversion of the
Unadjusted Series resulting from such adjustment, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
H. OTHER NOTICES. In case at any time:
a. the Corporation shall declare any dividend upon its
Series A Participating Preferred Stock payable in cash
or stock or make any other distribution to the holders
of its Series A Participating Preferred Stock;
b. the Corporation shall offer for subscription pro rata to
the holders of its Series A Participating Preferred
Stock any additional shares of stock of any class or
other rights;
c. there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially all
its assets to, another corporation;
d. there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
e. the Corporation shall take any action or there shall be
any event which would result in a Conversion Event,
then, in any one or more of said cases, the
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Corporation shall give, by first class mail, postage
prepaid, addressed to each holder of any shares of
Series B Participating Preferred Stock at the address of
such holder as shown on the books of the Corporation,
(a) at least 20 days' prior written notice of the date
on which the books of the Corporation shall close or a
record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up, (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same
shall take place, (c) in the case of the occurrence of a
Conversion Event, promptly upon such occurrence. Such
notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend,
distribution or subscription rights, the date on which
the holders of Series A Participating Preferred Stock
shall be entitled thereto, and such notice in accordance
with the foregoing clause (b) shall also specify the
date on which the holders of Series A Participating
Preferred Stock shall be entitled to exchange their
Series A Participating Preferred Stock for securities or
other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may
be.
I. STOCK TO BE RESERVED. The Corporation will at all times reserve and
keep available out of its authorized Series A Participating Preferred Stock or
its treasury shares, solely for the purpose of issuance upon the conversion of
the Series B Participating Preferred Stock as herein provided such number of
shares of Series A Participating Preferred Stock as shall then be issuable upon
the conversion of all outstanding shares of Series B Participating Preferred
Stock. The Corporation covenants that all shares of Series A Participating
Preferred Stock which shall be so issued shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof. The Corporation will take all such action as
may be necessary to assure that all such shares of Series A Participating
Preferred Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange upon
which the Series A Participating Preferred Stock of the Corporation may be
listed. The Corporation will not take any action which results in any adjustment
of the number of shares of Series A Participating Preferred Stock issuable upon
conversion of the Series B Participating Preferred Stock if the total number of
shares of Series A Participating Preferred Stock issued and issuable after such
action upon conversion of the Series B Participating Preferred Stock would
exceed the total number of shares of Series A Participating Preferred Stock then
authorized by the Corporation's Certificate of Incorporation.
Section 38. Voting Rights.
A. The holders of shares of Series A Participating Preferred Stock
shall have the following voting rights:
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(1) Subject to the provision for adjustment hereinafter
set forth, each share of Series A Participating
Preferred Stock shall entitle the holder thereof to
1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding Common Stock, or (iii)
combines the outstanding Common Stock into a smaller
number of shares, then in each such case the number
of votes per share to which holders of shares of
Series A Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock
outstanding immediately after such event and the
denominator of which is the number of shares of
Common Stock that were outstanding immediately prior
to such event.
B. Holders of Series B Participating Preferred Stock shall have no
rights to vote except as provided in this paragraph 4.B. and as otherwise
expressly provided by law. Each holder of Series B Participating Preferred Stock
(x) shall be entitled to vote, together as a single class with the holders of
the Series A Participating Preferred Stock and Common Stock, (y) subject to the
provision for adjustment hereinafter set forth, shall be entitled to 1,000 votes
for each share of Series A Participating Preferred Stock issuable to such holder
on conversion of the Series B Participating Preferred Stock, and (z) shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation, in each case only with respect to the following corporate
actions (each a "Voting Event"):
(1) any amendment or modification to the Certificate of
Incorporation or Bylaws of the Corporation;
(2) the liquidation, dissolution, winding-up or
bankruptcy of the Corporation, the reorganization,
reclassification or recapitalization of the capital
stock of the Corporation, or the sale of all or
substantially all of the property and assets of the
Corporation (other than sales of inventory in the
ordinary course of business);
(3) at such time as it shall be subject to a vote of the
stockholders of the Corporation, any material change
in the nature of the Corporation's business from that
of designing, manufacturing, marketing and
distributing thin film disk media;
(4) any merger, consolidation or other business
combination of the Corporation or any of its
subsidiaries with or into another entity requiring
submission for approval to the stockholders of the
Corporation.
Notwithstanding the foregoing, in the event the Corporation
shall at any time after the Rights Dividend Declaration Date
(i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivides the outstanding Common Stock, or
(iii) combines the outstanding Common Stock into a smaller
number of shares, then in
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each such case the number of votes per share to which
holders of shares of Series B Participating Preferred
Stock were entitled immediately prior to such event
(as if a Voting Event had occurred) shall be adjusted
by multiplying such number by a fraction, the
numerator of which is the number of shares of Common
Stock outstanding immediately after such event and
the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior
to such event.
C. Except as otherwise provided herein or by law, the holders of shares
of Series A Participating Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation. In the event of a matter which is a Series B
Participating Preferred Stock Voting Event, the holders of shares of Series A
Participating Preferred Stock, Series B Participating Preferred Stock and Common
Stock shall vote together as one class.
D. Except as required by law, holders of Series A Participating
Preferred Stock and Series B Participating Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 39. Certain Restrictions.
A. The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock or Series B Participating
Preferred Stock unless concurrently therewith it shall declare a dividend on,
make any distribution on, or redeem or purchase or otherwise acquire for
consideration the Series A Participating Preferred Stock or Series B
Participating Preferred Stock as required by Section 2 hereof.
B. Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock or Series B Participating
Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Participating Preferred Stock or Series B Participating
Preferred Stock, as applicable, outstanding shall have been paid in full, the
Corporation shall not
(1) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A
Participating Preferred Stock or Series B
Participating Preferred Stock;
(2) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with Series A
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<PAGE> 45
Participating Preferred Stock or Series B
Participating Preferred Stock, except dividends paid
ratably on the Series A Participating Preferred Stock
and Series B Participating Preferred Stock and all
such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to
which the holders of all such shares are then
entitled;
(3) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation,
dissolution or winding up) with the Series A
Participating Preferred Stock or Series B
Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series
A Participating Preferred Stock or Series B
Participating Preferred Stock;
(4) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock,
Series B Participating Preferred Stock, or any shares
of stock ranking on a parity with the Series A
Participating Preferred Stock or Series B
Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by
publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the
Board of Directors, after consideration of the
respective annual dividend rates and other relative
rights and preferences of the respective series and
classes, shall determine in good faith will result in
fair and equitable treatment among the respective
series or classes.
C. The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph A. of this Section 5,
purchase or otherwise acquire such shares at such time and in such manner.
Section 40. Reacquired Shares. Any shares of either Series A
Participating Preferred Stock or Series B Participating Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 41. Liquidation, Dissolution or Winding Up.
A. Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock or
Series B Participating Preferred Stock unless, prior thereto, the holders of
shares of Series A Participating Preferred Stock and Series B Participating
Preferred Stock shall have received $________ per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or
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<PAGE> 46
not declared, to the date of such payment (the "Liquidation Preference").
Following the payment of the full amount of the Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Participating Preferred Stock or Series B Participating Preferred Stock unless,
prior thereto, the holders of shares of Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Liquidation Preference by (ii) 1,000 (as appropriately adjusted
as set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalization with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Liquidation Preference and the Common Adjustment in respect
of all outstanding shares of Series A Participating Preferred Stock, Series B
Participating Preferred Stock and Common Stock, respectively, holders of Series
A Participating Preferred Stock, Series B Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
B. In the event, however, that there are not sufficient assets
available to permit payment in full of the Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series A Participating Preferred Stock or Series B
Participating Preferred Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
C. In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 42. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock and Series B Participating Preferred
Stock shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth) equal to
1,000 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time after the Rights Dividend Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Participating Preferred Stock and Series B
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<PAGE> 47
Participating Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 43. No Redemption. The shares of Series A Participating
Preferred Stock and Series B Participating Preferred Stock shall not be
redeemable.
Section 44. Ranking. The Series A Participating Preferred Stock and
Series B Participating Preferred Stock shall rank junior to all other series of
the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.
Section 45. Amendment. The Corrected Amended and Restated Certificate
of Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preference or special rights
of the Series A Participating Preferred Stock or Series B Participating
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series A
Participating Preferred Stock and Series B Participating Preferred Stock, voting
separately as a class.
Section 46. Fractional Shares. Series A Participating Preferred Stock
and Series B Participating Preferred Stock may be issued in fractions of a share
which shall entitle the holder, in proportion to such holder's fractional
shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series A
Participating Preferred Stock or Series B Participating Preferred Stock, as
applicable.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file (or cause to be prepared and
filed) a Certificate of Designation of Rights, Preferences and Privileges in
accordance with the foregoing resolution and the provisions of Delaware law and
to take such actions as they may deem necessary or appropriate to carry out the
intent of the foregoing resolution."
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<PAGE> 48
IN WITNESS WHEREOF, we have executed and subscribed to this Certificate
and do hereby affirm the foregoing as true under the penalties of perjury this
____ day of August ___, 1996.
___________________________________________
Stephen Abely, Vice President, Finance and
Chief Financial Officer
___________________________________________
Judith M. O'Brien, Secretary
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<PAGE> 49
EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER AUGUST 15, 2006 OR EARLIER IF
TERMINATED BY THE COMPANY OR IF THE COMPANY EXCHANGES THE
RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01
PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT)
AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND
VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE
OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(E) OF SUCH RIGHTS
AGREEMENT.]*
RIGHTS CERTIFICATE
STORMEDIA INCORPORATED
This certifies that ______________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement dated as of July 31, 1996 (the "Rights
Agreement"), between StorMedia Incorporated, a Delaware corporation (the
"Company"), and BankBoston ("Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., California time, on August 15, 2006 at the
office of the Rights Agent designated for such purpose, or at the office of its
successor as Rights Agent, one one-thousandth (0.001) of a fully paid
non-assessable share of Series A Participating
- ------------------------
* The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.
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<PAGE> 50
Preferred Stock, par value $0.01 (the "Preferred Shares"), of the Company, at
a purchase price of Seventy-Five dollars ($75.00) per one-thousandth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Rights Certificate with the Form of Election to Purchase and related Certificate
duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of one-thousandths of a Preferred Share which may be purchased upon
exercise hereof) and the Purchase Price set forth above are the number and
Purchase Price as of August 16, 1996 based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number and kind of Preferred Shares or other securities which may
be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned office of the Rights
Agent.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed by the Company, at its
option, at a redemption price of $0.01 per Right or (ii) may be exchanged by the
Company in whole or in part for Common Shares, substantially equivalent rights
or other consideration as determined by the Company.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate amount of securities as the Rights evidenced by the
Rights Certificate or Rights Certificates surrendered shall have entitled such
holder to purchase. If this Rights Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a
Preferred Share will be issued upon the exercise of any Right or Rights
evidenced hereby but in lieu thereof a cash payment will be made, as provided in
the Rights Agreement.
No holder of this Rights Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action,
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or to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of ___________, 19__.
ATTEST: STORMEDIA INCORPORATED
_________________________________ By: ________________________________________
Secretary, StorMedia Incorporated Steve Abely, Chief Financial Officer
Countersigned:
BANKBOSTON
as Rights Agent
By: _____________________________
Authorized Signature
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<PAGE> 52
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)
FOR VALUE RECEIVED _________________________________ hereby
sells, assigns and transfers unto_______________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _______________, 19___
_________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
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<PAGE> 53
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person, or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19__
_________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
-2-
<PAGE> 54
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Rights Certificate)
To: _____________________
The undersigned hereby irrevocably elects to exercise
_________________________ Rights represented by this Rights Certificate to
purchase the number of one-thousandths of a Preferred Share issuable upon the
exercise of such Rights and requests that certificates for such number of
one-thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________________ , 19__
_________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
-3-
<PAGE> 55
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19__
_________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
-4-
<PAGE> 56
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
NOTICE
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
-5-
<PAGE> 57
Page 1
EXHIBIT C
STORMEDIA INCORPORATED
STOCKHOLDER RIGHTS PLAN
Summary of Rights
Distribution and
Transfer of Rights;
Rights Certificate: The Board of Directors has declared a dividend of
one Right for each share of StorMedia Incorporated
Class A Common Stock and Class B Common Stock
(collectively, the "COMMON STOCK") outstanding.
Prior to the Distribution Date referred to below,
the Rights will be evidenced by and trade with the
certificates for the Common Stock. After the
Distribution Date, StorMedia Incorporated (the
"COMPANY") will mail Rights certificates to the
Company's stockholders and the Rights will become
transferable apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and
become exercisable following the tenth day (or
such later date as may be deter mined by a
majority of the Directors not affiliated with the
acquiring person or group (the "CONTINUING
DIRECTORS")) after a person or group (a) acquires
beneficial ownership of 15% or more of the
Company's Common Stock or (b) announces a tender
or exchange offer, the consummation of which would
result in ownership by a person or group of 15% or
more of the Company's Common Stock.
Preferred Stock
Purchasable Upon
Exercise of Rights: After the Distribution Date, each Right will
entitle the holder to purchase, for Seventy-Five
Dollars ($75.00) a fraction of a share of the
Company's Preferred Stock with economic terms
similar to that of one share of the Company's
Common Stock.
Flip-In: If an acquiror obtains 15% or more of the
Company's Common Stock (other than pursuant to a
tender offer deemed adequate and in the best
interests of the Company
<PAGE> 58
Page 2
and its stockholders by the Board of Directors (a
"PERMITTED OFFER")), thereby becoming an
"ACQUIRING PERSON", then each Right (other than
Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to
purchase, for the exercise price, a number of
shares of the Company's Common Stock having a then
current market value of twice the exercise price.
<PAGE> 59
Page 3
Flip-Over: If, after the Shares Acquisition Date (defined
below), (a) the Company merges into another
entity, (b) an acquiring entity merges into the
Company or (c) the Company sells more than 50% of
the Company's assets or earning power, then each
Right (other than Rights owned by an Acquiring
Person or its affiliates) will entitle the holder
thereof to purchase, for the exercise price, a
number of shares of Common Stock of the person
engaging in the transaction having a then current
market value of twice the exercise price (unless
the transaction satisfies certain conditions and
is consummated with a person who acquired shares
pursuant to a Permitted Offer, in which case the
Rights will expire).
Exchange Provision: At any time after an event triggering the flip-in
or flip-over rights and prior to the acquisition
by the Acquiring Person of 50% or more of the
outstanding Common Stock, the Board of Directors
of the Company may exchange the Rights (other than
Rights owned by the Acquiring Person or its
affiliates), in whole or in part, at an exchange
ratio of one Common Share per Right (subject to
adjustment).
Redemption of
the Rights: Rights will be redeemable at the Company's option
for $0.01 per Right at any time on or prior to the
Distribution Date, (i.e., the tenth day (or such
later date as may be determined by a majority of
the Continuing Directors) after public
announcement that a person has acquired beneficial
ownership of 15% or more of the Company's Common
Stock (the "SHARES ACQUISITION DATE")).
Expiration of
the Rights: The Rights expire on the earliest of (a) August
15, 2006, (b) exchange or redemption of the Rights
as described above, or (c) consummation of a
merger or consolidation resulting in expiration of
the Rights as described above.
Amendment of
Terms of Rights: The terms of the Rights and the Rights Agreement
may be amended in any respect without the consent
of the Rights holders on or prior to the
Distribution Date; thereafter, the terms of the
Rights and the Rights Agreement may be amended
without the consent of the Rights holders in order
<PAGE> 60
Page 4
to cure any ambiguities or to make changes which
do not adversely affect the interests of Rights
holders (other than the Acquiring Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution
Provisions: Rights will have the benefit of certain customary
anti-dilution provisions.
Taxes: The Rights distribution should not be taxable for
federal income tax purposes. However, following an
event which renders the Rights exercisable or upon
redemption of the Rights, stockholders may
recognize taxable income.
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of July 31, 1996 between the Company and the
Rights Agent.
<PAGE> 1
Exhibit 11.1
STORMEDIA INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, JUNE 30, JUNE 28, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY: (UNAUDITED)
Statement of operations data:
Net earnings $ 7,795 $ 3,588 $17,264 $ 5,624
======= ======= ======= =======
Weighted average number of common and dilutive equivalent shares
used in computations:
Common Stock 17,196 12,249 17,122 8,012
Stock options and other common stock equivalents 1,230 1,628 1,243 762
------- ------- ------- -------
Subtotal 18,426 13,877 18,365 8,774
Pursuant to Staff Accounting Bulletin No 83:
Preferred Stock converted on an as-if basis according at exercise
prices less than the anticipated initial public offering price using the
treasury stock method -- -- -- 3,543
Stock options -- -- -- 210
------- ------- ------- -------
Shares used in computing net earnings per share 18,426 13,877 18,365 12,527
======= ======= ======= =======
Net earnings per share $ 0.42 $ 0.26 $ 0.94 $ 0.45
======= ======= ======= =======
FULLY DILUTED:
Statement of operations data:
Net earnings $ 7,795 $ 3,588 $17,264 $ 5,624
======= ======= ======= =======
Weighted average number of common and dilutive equivalent shares
used in computations:
Common Stock 17,196 12,249 17,124 8,012
Stock options and other common stock equivalents 1,230 1,718 1,244 804
------- ------- ------- -------
Subtotal 18,426 13,967 18,368 8,816
Pursuant to Staff Accounting Bulletin No. 83:
Preferred Stock converted on an as-if basis according at exercise
prices less than the anticipated initial public offering price using the
treasury stock method -- -- -- 3,543
Stock options -- -- -- 210
------- ------- ------- -------
Shares used in computing net earnings per share 18,426 13,967 18,368 12,569
======= ======= ======= =======
Net earnings per share $ 0.42 $ 0.26 $ 0.94 $ 0.45
======= ======= ======= =======
</TABLE>
-37-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000942787
<NAME> STORMEDIA INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-28-1996
<EXCHANGE-RATE> 1
<CASH> 33,875
<SECURITIES> 0
<RECEIVABLES> 37,169
<ALLOWANCES> 570
<INVENTORY> 15,484
<CURRENT-ASSETS> 94,574
<PP&E> 135,316
<DEPRECIATION> 11,310
<TOTAL-ASSETS> 220,304
<CURRENT-LIABILITIES> 46,584
<BONDS> 10,033
0
0
<COMMON> 230
<OTHER-SE> 163,457
<TOTAL-LIABILITY-AND-EQUITY> 220,304
<SALES> 118,808
<TOTAL-REVENUES> 118,808
<CGS> 86,808
<TOTAL-COSTS> 86,808
<OTHER-EXPENSES> 12,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> 21,006
<INCOME-TAX> 3,742
<INCOME-CONTINUING> 17,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,264
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
