<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 29, 1998
STORMEDIA INCORPORATED
(Exact name of registrant as specified in Charter)
DELAWARE 0-25796 77-0373062
-------- ------- ----------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification Number)
incorporation)
385 REED STREET
SANTA CLARA, CA 95050-3118
(Address of Principal Executive Offices)
(408) 327-8400
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
ITEM 5 OTHER EVENTS.
On May 29, 1998, Registrant completed the restructuring of its bank
debt with a syndicate of banks led by Canadian Imperial Bank of Commerce
("CIBC"), as agent, as well as a series of financing transactions. As a result
of the restructuring, Registrant is no longer in default under its bank debt.
As part of the restructuring, StorMedia repaid $10 million of principal owing
to the banks and issued warrants to purchase shares of Class A Common Stock.
The balance of the bank debt continues to be outstanding and is fully secured.
Simultaneously with the restructuring of the bank debt, Registrant
completed three financing transactions. The Registrant borrowed $8 million
pursuant to a two-year term loan and entered into a $20 million revolving line
of credit based on eligible receivables with a group of lenders led by Foothill
Capital Corporation. In addition, Registrant borrowed $5 million pursuant to a
convertible note and $3 million pursuant to a secured noted from Seagate
Technology, Inc. ("Seagate"), a customer of the Registrant. In conjunction with
this action, Registrant and Seagate terminated their Volume Purchase Agreement.
In addition to the foregoing financing transactions, StorMedia raised
$8 million through the sale of Preferred Stock and warrants to purchase shares
of Class A Common Stock to Prudential Private Equity Investors, the Company's
largest stockholder, and Heights Capital Management Inc. As mentioned above,
Registrant used a portion of the proceeds to pay down its bank debt and will
use the balance for working capital purposes.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS.
The following exhibits are filed as part of this Report, where
indicated.
<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
2.1 Certificate of Elimination of Registrant, eliminating from
the Amended and Restated Certificate of Incorporation all
reference to the Series A Participating Preferred Stock and
Series B Participating Preferred Stock.
2.2 Certificate of Designations of Series A 9% Convertible
Preferred Stock of Registrant.
10.1 Amended and Restated Credit Agreement dated as of May 29,
1998, by and among StorMedia International, Ltd. ("SMIL")
and Strates Pte. Ltd. ("Strates Singapore", and together
with SMIL, the "Bank Borrowers") as borrowers, StorMedia
Incorporated ("StorMedia") as parent guarantor, the
financial institutions named therein (the "Banks"), Canadian
Imperial Bank of Commerce, New York Agency as agent (the
"Agent"), and Banque Nationale de Paris, San Francisco
Branch as co-agent (the "Co-Agent").
10.2 Amended and Restated Borrower Security Agreement dated as of
May 29, 1998, by and among the Bank Borrowers and the Agent.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
10.3 Amended and Restated Parent Guarantor Security Agreement
dated as of May 29, 1998, by and between StorMedia and the
Agent.
10.4 Amended and Restated Subsidiary Guarantor Security Agreement
dated as of May 29, 1998, by and between StorMedia Foreign
Sales Corporation ("SMFSC") and the Agent.
10.5 Subsidiary Guarantor Security Agreement dated as of May 29,
1998, by and between Akashic Memories Corporation
("Akashic") and the Agent.
10.6 Subsidiary Guarantor Security Agreement dated as of May 29,
1998, by and between Strates Sdn. Bdh. ("Strates Malaysia")
and the Agent.
10.7 Amended and Restated Collateral Assignment, Patent Mortgage
and Security Agreement dated as of May 29, 1998, by and
between SMIL and the Agent.
10.8 Amended and Restated Collateral Assignment, Patent Mortgage
and Security Agreement dated as of May 29, 1998, by and
between Strates Singapore and the Agent.
10.9 Amended and Restated Collateral Assignment, Patent Mortgage
and Security Agreement dated as of May 29, 1998 by and
between StorMedia and the Agent.
10.10 Collateral Assignment, Patent Mortgage and Security
Agreement dated as of May 29, 1998, by and between Akashic
and the Agent.
10.11 Collateral Assignment, Patent Mortgage and Security
Agreement dated as of May 29, 1998, by and between Strates
Malaysia and the Agent.
10.12 Subsidiary Guaranty dated as of May 29, 1998, executed by
SMFSC, Akashic and Strates Malaysia in favor of the Agent.
10.13 Release and Assurance of Future Nonimpairment Agreement
dated as of May 29, 1998, by and among the Bank Borrowers,
StorMedia, SMFSC, Akashic, Strates Malaysia, the Banks, the
Agent and the Co-Agent.
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
10.14 Amended and Restated Interbank Agreement dated as of May 29,
1998, by and among the Agent, the Co-Agent and the Banks and
acknowledged by the Bank Borrowers, StorMedia, SMFSC,
Akashic and Strates Malaysia.
10.15 Subordination Agreement dated as of May 29, 1998, by and
among Seagate (defined below), Foothill (defined below) as
agent for the Lenders (defined below) and the Agent for and
on behalf of the Banks and acknowledged to by StorMedia.
10.16 Warrant Purchase Agreement dated as of May 29, 1998, by and
among StorMedia and CIBC [Asia] Ltd., Banque Nationale de
Paris, Singapore Branch, Union Bank of California, N.A.,
Sanwa Bank California and Fleet National Bank
(collectively, "Purchasers").
10.17 Loan and Security Agreement dated as of May 29, 1998, by and
among StorMedia Incorporated ("StorMedia") and Akashic
Memories Corporation ("Akashic", and together with
StorMedia, the "Borrowers") as borrowers, the financial
institutions named therein as lenders (the "Lenders"), and
Foothill Capital Corporation as agent for the Lenders
("Foothill").
10.18 Stock Pledge Agreement dated as of May 29, 1998, by and
among the Borrowers and Foothill.
10.19 Trademark Security Agreement dated as of May 29, 1998, by
and among the Borrowers and Foothill.
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
10.20 Stock Pledge Agreement dated as of May 29, 1998, by and
among SMFSC, SMIL and Strates Singapore as pledgors, and
Foothill.
10.21 Patent Security Agreement dated as of May 29, 1998, by and
among the Non-Borrower Subsidiaries and Foothill.
10.22 Trademark Security Agreement dated as of May 29, 1998, by
and among the Non-Borrower Subsidiaries and Foothill.
10.23 Assignment and Acceptance Agreement dated May 29, 1998
between Foothill and Madeleine, L.L.C.
10.24 Mortgage dated as of May 29, 1998 executed by StorMedia in
favor of Foothill.
10.25 Intercreditor Agreement dated as of May 29, 1998 by and
among Foothill and the Agent.
10.26 Termination of Supply Agreement and Loan and Security
Agreement dated as of May 15, 1998 by and between StorMedia
and Seagate Technology, Inc. ("Seagate").
10.27 Termination and Mutual Release dated as of May 29, 1998 by
and between StorMedia and Seagate.
10.28 Convertible Promissory Note dated as of May 29, 1998
executed by StorMedia in favor of Seagate.
10.29 Secured Promissory Note dated as of May 29, 1998 executed by
StorMedia in favor of Seagate.
10.30 Securities Purchase Agreement dated as of May 29, 1998 by
and among StorMedia, Prudential Equity Investors III, L.P.
("Prudential") and Capital Ventures International ('CVI").
10.31 Form of Stock Purchase Warrant executed by StorMedia in
favor of each of Prudential and CVI.
10.32 Amended and Restated Registration Rights Agreement dated as
of May 29, 1998 by and among StorMedia, Prudential, CVI,
Seagate, the Banks and Trustees of the Almon Family Trust.
99.1 Press release dated June 1, 1998.
</TABLE>
<PAGE> 6
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 hereunto duly authorized.
STORMEDIA INCORPORATED
Dated: June 18, 1998 By: /s/ Judith M. O'Brien
---------------------
Judith M. O'Brien
Secretary
<PAGE> 7
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
2.1 Certificate of Elimination of Registrant, eliminating from
the Amended and Restated Certificate of Incorporation all
reference to the Series A Participating Preferred Stock and
Series B Participating Preferred Stock.
2.2 Certificate of Designations of Series A 9% Convertible
Preferred Stock of Registrant.
10.1 Amended and Restated Credit Agreement dated as of May 29,
1998, by and among StorMedia International, Ltd. ("SMIL")
and Strates Pte. Ltd. ("Strates Singapore", and together
with SMIL, the "Bank Borrowers") as borrowers, StorMedia
Incorporated ("StorMedia") as parent guarantor, the
financial institutions named therein (the "Banks"), Canadian
Imperial Bank of Commerce, New York Agency as agent (the
"Agent"), and Banque Nationale de Paris, San Francisco
Branch as co-agent (the "Co-Agent").
10.2 Amended and Restated Borrower Security Agreement dated as of
May 29, 1998, by and among the Bank Borrowers and the Agent.
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
10.3 Amended and Restated Parent Guarantor Security Agreement
dated as of May 29, 1998, by and between StorMedia and the
Agent.
10.4 Amended and Restated Subsidiary Guarantor Security Agreement
dated as of May 29, 1998, by and between StorMedia Foreign
Sales Corporation ("SMFSC") and the Agent.
10.5 Subsidiary Guarantor Security Agreement dated as of May 29,
1998, by and between Akashic Memories Corporation
("Akashic") and the Agent.
10.6 Subsidiary Guarantor Security Agreement dated as of May 29,
1998, by and between Strates Sdn. Bdh. ("Strates Malaysia")
and the Agent.
10.7 Amended and Restated Collateral Assignment, Patent Mortgage
and Security Agreement dated as of May 29, 1998, by and
between SMIL and the Agent.
10.8 Amended and Restated Collateral Assignment, Patent Mortgage
and Security Agreement dated as of May 29, 1998, by and
between Strates Singapore and the Agent.
10.9 Amended and Restated Collateral Assignment, Patent Mortgage
and Security Agreement dated as of May 29, 1998 by and
between StorMedia and the Agent.
10.10 Collateral Assignment, Patent Mortgage and Security
Agreement dated as of May 29, 1998, by and between Akashic
and the Agent.
10.11 Collateral Assignment, Patent Mortgage and Security
Agreement dated as of May 29, 1998, by and between Strates
Malaysia and the Agent.
10.12 Subsidiary Guaranty dated as of May 29, 1998, executed by
SMFSC, Akashic and Strates Malaysia in favor of the Agent.
10.13 Release and Assurance of Future Nonimpairment Agreement
dated as of May 29, 1998, by and among the Bank Borrowers,
StorMedia, SMFSC, Akashic, Strates Malaysia, the Banks, the
Agent and the Co-Agent.
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
10.14 Amended and Restated Interbank Agreement dated as of May 29,
1998, by and among the Agent, the Co-Agent and the Banks and
acknowledged by the Bank Borrowers, StorMedia, SMFSC,
Akashic and Strates Malaysia.
10.15 Subordination Agreement dated as of May 29, 1998, by and
among Seagate (defined below), Foothill (defined below) as
agent for the Lenders (defined below) and the Agent for and
on behalf of the Banks and acknowledged to by StorMedia.
10.16 Warrant Purchase Agreement dated as of May 29, 1998, by and
among StorMedia and CIBC [Asia] Ltd., Banque Nationale de
Paris, Singapore Branch, Union Bank of California, N.A.,
Sanwa Bank California and Fleet National Bank
(collectively, "Purchasers").
10.17 Loan and Security Agreement dated as of May 29, 1998, by and
among StorMedia Incorporated ("StorMedia") and Akashic
Memories Corporation ("Akashic", and together with
StorMedia, the "Borrowers") as borrowers, the financial
institutions named therein as lenders (the "Lenders"), and
Foothill Capital Corporation as agent for the Lenders
("Foothill").
10.18 Stock Pledge Agreement dated as of May 29, 1998, by and
among the Borrowers and Foothill.
10.19 Trademark Security Agreement dated as of May 29, 1998, by
and among the Borrowers and Foothill.
</TABLE>
<PAGE> 10
<TABLE>
<S> <C>
10.20 Stock Pledge Agreement dated as of May 29, 1998, by and
among SMFSC, SMIL and Strates Singapore as pledgors, and
Foothill.
10.21 Patent Security Agreement dated as of May 29, 1998, by and
among the Non-Borrower Subsidiaries and Foothill.
10.22 Trademark Security Agreement dated as of May 29, 1998, by
and among the Non-Borrower Subsidiaries and Foothill.
10.23 Assignment and Acceptance Agreement dated May 29, 1998
between Foothill and Madeleine, L.L.C.
10.24 Mortgage dated as of May 29, 1998 executed by StorMedia in
favor of Foothill.
10.25 Intercreditor Agreement dated as of May 29, 1998 by and
among Foothill and the Agent.
10.26 Termination of Supply Agreement and Loan and Security
Agreement dated as of May 15, 1998 by and between StorMedia
and Seagate Technology, Inc. ("Seagate").
10.27 Termination and Mutual Release dated as of May 29, 1998 by
and between StorMedia and Seagate.
10.28 Convertible Promissory Note dated as of May 29, 1998
executed by StorMedia in favor of Seagate.
10.29 Secured Promissory Note dated as of May 29, 1998 executed by
StorMedia in favor of Seagate.
10.30 Securities Purchase Agreement dated as of May 29, 1998 by
and among StorMedia, Prudential Equity Investors III, L.P.
("Prudential") and Capital Ventures International ('CVI").
10.31 Form of Stock Purchase Warrant executed by StorMedia in
favor of each of Prudential and CVI.
10.32 Amended and Restated Registration Rights Agreement dated as
of May 29, 1998 by and among StorMedia, Prudential, CVI,
Seagate, the Banks and Trustees of the Almon Family Trust.
99.1 Press release dated June 1, 1998.
</TABLE>
<PAGE> 1
Exhibit 2.1
CERTIFICATE OF ELIMINATION
OF
STORMEDIA INCORPORATED
StorMedia Incorporated, a corporation organized and existing under the
General Corporation Laws of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors, at a properly noticed meeting held
on May 27, 1998, duly adopted resolutions setting forth the proposed elimination
of the Series A Participating Preferred Stock and Series B Participating
Preferred Stock as set forth herein:
"RESOLVED that no shares of the Series A Participating Preferred
Stock and Series B Participating Preferred Stock are outstanding,
and none will be issued.
FURTHER RESOLVED that a Certificate of Elimination be executed,
which shall have the effect when filed and recorded in Delaware
of eliminating from the Amended and Restated Certificate of
Incorporation and Certificate of Designations all reference to
the Series A Participating Preferred Stock and Series B
Participating Preferred Stock."
SECOND: None of the authorized shares of the Series A Participating
Preferred Stock and Series B Participating Preferred Stock are outstanding, and
none will be issued.
THIRD: In accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Amended and Restated Certificate
of Incorporation and Certificate of Designations are hereby amended to eliminate
all reference to the Series A Participating Preferred Stock and Series B
Participating Preferred Stock.
<PAGE> 2
IN WITNESS WHEREOF, said Board of Directors of StorMedia Incorporated
has caused this certificate to be signed by Stephen Abely, its Vice President,
Finance and Chief Financial Officer and attested by Judith M. O'Brien, its
Secretary, this 29th day of May, 1998.
/s/ STEPHEN ABELY
-------------------------------------------
By: Stephen Abely, Vice President, Finance
and Chief Financial Officer
ATTEST:
/s/ JUDITH M. O'BRIEN
- -------------------------------------
By: Judith M. O'Brien, Secretary
<PAGE> 1
Exhibit 2.2
CERTIFICATE OF DESIGNATIONS
OF SERIES A 9% CONVERTIBLE PREFERRED STOCK
OF STORMEDIA INCORPORATED
StorMedia Incorporated, a Delaware corporation (the
"Corporation"), certificates that pursuant to the authority contained in Article
FOURTH of its Amended and Restated Certificate of Incorporation, and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, its Board of Directors has adopted the following
resolutions creating a series of its Preferred Stock designate as the Series A
9% Convertible Preferred Stock:
"RESOLVED, that a separate series of the class of authorized
Preferred Stock of the Corporation be hereby created, and that the
designation and the amount thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the
shares of each such series and the qualifications, limitations of
restrictions thereof are as follows:
RESOLVED, that the shares shall be designated as "Series A
Preferred Stock," par value $0.01 per share, with 500,000 shares
constituting such series.
Section 1. Cumulative Dividends.
1A. General Obligation. When and as declared by the Corporation's
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware and Section 1D hereof, the Corporation shall pay preferential
cumulative dividends in cash to the holders of the Series A Preferred Stock (the
"Series A Preferred") as provided in this Section 1. Dividends on each share of
the Series A Preferred (a "Share") shall accrue on a daily basis at the rate of
9% per annum of the sum of the Liquidation Value thereof plus all accumulated
and unpaid dividends thereon from and including the date of issuance of such
Share to and including the first to occur of (i) the date on which the
Liquidation Value of such Share (plus all accrued and unpaid dividends thereon)
is paid to the holder thereof in connection with the liquidation of the
Corporation or the redemption of such Share by the Corporation, (ii) the date on
which such Share is converted into shares of Conversion Stock hereunder or (iii)
the date on which such share is otherwise acquired by the Corporation. Such
dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds, shares or other assets of the
Corporation legally available for the payment of dividends, and such dividends
shall be cumulative such that all accrued and unpaid dividends shall be fully
paid or declared with funds irrevocably set apart for payment before any
dividends, distributions, redemptions or other payments may be made with respect
to any Junior Securities. The date on which the Corporation initially issues any
Share shall be deemed to be its "date of issuance" regardless of the number of
times transfer of such Share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates which may be issued
to evidence such Share. Any such dividends which are not paid to the holders in
cash shall be paid by the issuance of additional shares of Series A Preferred
pursuant to Section 1D.
<PAGE> 2
1B. Dividend Reference Dates. To the extent not paid on June 30,
September 30, December 31 and March 31 of each year, beginning September 30,
1998 (the "Dividend Reference Dates"), all dividends which have accrued on each
Share outstanding during the three-month period (or other period in the case of
the initial Dividend Reference Date) ending upon each such Dividend Reference
Date shall be accumulated and shall remain accumulated dividends with respect to
such Share until paid to the holder thereof, provided if the dividends are paid
in stock as provided in Section 1D, the dividends for the immediately preceding
three (3) month period (and all prior periods for which dividends have not been
paid to holder) shall be declared prior to and paid to the holder of the Series
A Preferred on each of June 30, September 30, December 31 and March 31.
1C. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the Series A Preferred,
such payment shall be distributed pro rata among the holders thereof based upon
the number of Shares held by each such holder.
1D. Payment of Dividends with Shares. Notwithstanding any other
provision of this Section 1 or Section 2 hereof, any dividends accruing on the
Series A Preferred on or prior to the 365th day after the Maturity Date (as
defined in Section 11 hereof) or at any time that all or any portion of the Term
Loan (as defined in Section 11 hereof) is outstanding and any other dividends
which are otherwise not paid to the holders in cash, shall be satisfied in lieu
of cash dividends by the issuance of additional Shares of Series A Preferred
(including fractional Shares) having an aggregate Liquidation Value at the time
of such payment equal to the amount of the dividend to be paid; provided that if
the Corporation pays less than the total amount of dividends then accrued on the
Series A Preferred in the form of additional Shares, such payment in Shares
shall be made pro rata among the holders of Series A Preferred based upon the
aggregate accrued but unpaid dividends on the Shares held by each such holder.
If and when any Shares are issued under this paragraph 1D for the payment of
accrued dividends, such Shares shall be deemed to be validly issued and
outstanding and fully paid and nonassessable.
In the event that, notwithstanding the provisions of this
subsection 1D, any dividend or distribution shall be paid or made by the Company
in cash prior to the 365th day after the Maturity Date or at any time that all
or any portion of the Term Loan is outstanding, such cash dividends shall not be
commingled with any asset of the holders of the Series A Preferred, shall be
held in trust for the benefit of the Bank Parties, and shall be paid over or
delivered to the Agent for application to the payment in full of the Term Loan
or such portion such Term Loan as then remains unpaid to the extent necessary to
give effect to this subsection 1D, after giving effect to any concurrent
payments or distributions to the Bank Parties in respect of the Term Loan.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation (whether voluntary or involuntary), each holder of Series A
Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, an amount in cash equal to the aggregate
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<PAGE> 3
Liquidation Value of all Shares held by such holder (plus, subject to the second
paragraph of Section 1D hereof, all accrued and unpaid dividends thereon), and
the holders of Series A Preferred shall not be entitled to any further payment.
If upon any such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets to be distributed among the holders of the Series A
Preferred are insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid under this Section 2, then the entire
assets available to be distributed to the Corporation's stockholders shall be
distributed pro rata among such holders based upon the aggregate Liquidation
Value (plus, subject to the second paragraph of Section 1D hereof, all accrued
and unpaid dividends) of the Series A Preferred held by each such holder. Prior
to the liquidation, dissolution or winding up of the Corporation, the
Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Series A Preferred, but only to the extent permitted by the
second paragraph of Section 1D and thereafter to the extent of funds of the
Corporation legally available for the payment of dividends. Not less than 20
days prior to the payment date stated therein, the Corporation shall mail
written notice of any such liquidation, dissolution or winding up to each record
holder of Series A Preferred, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each Share and each share of Common Stock in
connection with such liquidation, dissolution or winding up. A consolidation or
merger of the Corporation into or with any other entity or entities (whether or
not the Corporation is the surviving entity), as well as the sale or transfer by
the Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 2.
In the event that prior to the 365th day after the Maturity Date
or at any time that all or any portion of the Term Loan is outstanding, any cash
dividend or distribution is paid or made on the Series A Preferred, such cash
dividend or distribution shall not be commingled with any asset of the holders
of the Series A Preferred, shall be held in trust for the benefit of the Bank
Parties, and shall be paid over or delivered to the Agent for application to the
payment in full of the Term Loan or such portion thereof as then remains unpaid
to the extent necessary to give effect to this paragraph, after giving effect to
any concurrent payments or distributions to the Bank Parties in respect of the
Term Loan. Notwithstanding the foregoing, nothing herein shall prevent the
payment of such dividends or distributions in stock or in kind or prevent
payments of any kind whatsoever (including any payments in cash) to the holders
of Series A Preferred as stockholders in connection with a merger or
consolidation of the Corporation with or into any other entity or entities or a
sale of all or substantially all of the Company's assets. If funds are held in
trust pursuant to the first sentence of this paragraph in connection with a
liquidation, dissolution or winding up of the Corporation no distributions shall
be made to the holders of the Common Stock of the Corporation, until the funds
are distributed to the holders of the Series A Preferred.
Section 3. Priority of Series A Preferred on Dividends and Redemptions.
So long as any Series A Preferred remains outstanding, without
the prior written consent of the holders of two-thirds of the outstanding shares
of Series A Preferred, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, nor shall the Corporation directly or indirectly pay or
declare any
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<PAGE> 4
dividend or make any distribution upon any Junior Securities, if at the time of
or immediately after any such redemption, purchase, acquisition, dividend or
distribution the Corporation has failed to pay the full amount of dividends
accrued on the Series A Preferred or the Corporation has failed to make any
redemption of the Series A Preferred required hereunder; provided that the
Corporation may repurchase shares of Common Stock from present or former
employees of the Corporation and its Subsidiaries in accordance with the
provisions of any agreements or option plans approved by 80% of the members of
the Board of Directors.
Section 4. Redemptions.
4A. Change of Ownership.
(i) If the Corporation obtains knowledge that a Change in
Ownership is proposed to occur, the Corporation shall give prompt written notice
of such Change in Ownership describing in reasonable detail the material terms
and date of consummation thereof to each holder of Series A Preferred, but in
any event such notice shall not be given later than five days after the
occurrence of such Change in Ownership, and the Corporation shall give each
holder of Series A Preferred prompt written notice of any material change in the
terms or timing of such transaction. Subject to the provisions of Section 4C,
the holder or holders of two-thirds of the Series A Preferred then outstanding
may require the Corporation to redeem all or any portion of the Series A
Preferred owned by such holders at a price per Share equal to the Liquidation
Value thereof (plus all accrued and unpaid dividends thereon) by giving written
notice to the Corporation of such election prior to the later of (a) 10 days
after receipt of the Corporation's notice and (b) five days prior to the
consummation of the Change in Ownership (the "Expiration Date"). The Corporation
shall give prompt written notice of any such election to all other holders of
Series A Preferred within five days after the receipt thereof, and each such
holder shall have until the later of (a) the Expiration Date or (b) five days
after receipt of such second notice to request redemption hereunder (by giving
written notice to the Corporation) of all or any portion of the Series A
Preferred owned by such holder.
(ii) Upon receipt of such election(s), the Corporation shall be
obligated (subject to the provisions of Section 4C) to redeem the aggregate
number of Shares specified therein on the later of (a) the occurrence of the
Change in Ownership or (b) five days after the Corporation's receipt of such
election(s). If any proposed Change in Ownership does not occur, all requests
for redemption in connection therewith shall be automatically rescinded, or if
there has been a material change in the terms or the timing of the transaction,
any holder of Series A Preferred may rescind such holder's request for
redemption by giving written notice of such rescission to the Corporation.
(iii) The term "Change in Ownership" means any sale, transfer or
issuance or series of sales, transfers and/or issuances of shares of the
Corporation's capital stock by the Corporation or any holders thereof which
results in any Person or group of Persons (as the term "group" is used under the
Securities Exchange Act of 1934), owning capital stock of the Corporation
possessing the voting power (under ordinary circumstances) to elect a majority
of the Corporation's Board of Directors.
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<PAGE> 5
4B. Company Redemption.
(i) At any time after May 31, 2003 but not prior to the 365th day
after the Maturity Date or at any time that all or any portion of the Term Loan
is outstanding, the Corporation may, at the option of the Board of Directors,
redeem out of funds legally available therefor, all or any portion of the Series
A Preferred then outstanding at a price per share equal to the Liquidation Value
thereof (plus all accrued and unpaid dividends thereon) by giving written notice
to the holders thereof.
(ii) Redemption of less than all of the then outstanding shares
of Series A Preferred shall be pro rata among the holders of the Series A
Preferred based on the number of shares held on the date of notice of
redemption.
(iii) At least 30 days' previous notice by mail, postage prepaid,
shall be given to the holders of record of the Series A Preferred for any
redemption (which shall be pro rata among the holders of Series A Preferred as
required by subsection (ii) above), such notice to be addressed to each holder
at the address shown in the Corporation's records and which shall specify the
date of redemption, the number of shares of the holder to be redeemed and the
date as of which conversion rights terminate. On or after the date of redemption
as specified in such notice, each holder shall surrender his certificate for the
number of shares to be redeemed as stated in the notice (except that such number
of shares shall be reduced by the number of shares which have been converted
pursuant to Section 6 hereof between the date of notice and the date on which
conversion rights terminate) to this Corporation at the place specified in such
notice. If less than all of the shares represented by such certificates are
redeemed, a new certificate shall forthwith be issued for the unredeemed shares.
Provided such notice is duly given, and provided that on the redemption date
specified there shall be a source of funds legally available for such redemption
and funds necessary for the redemption shall have been paid or made available at
the place fixed for redemption then all rights with respect to such shares
shall, after the specified redemption date, terminate, whether or not said
certificates have been surrendered, excepting only in the latter instance the
right of the holder to receive the redemption price thereof, without interest,
upon such surrender.
(iv) On or prior to the date of redemption, the Corporation shall
deposit the redemption price of all shares of Series A Preferred designated for
redemption in said notice (and not yet redeemed or converted) with a bank or
trust company having aggregate capital and surplus in excess of $50,000,000 as a
trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed. Any money deposited by the Corporation
pursuant hereto for the redemption of shares thereafter converted into shares of
Class A Common Stock pursuant to Section 6 hereof no later than the fifth (5th)
day preceding the date of redemption shall be returned to the Corporation
forthwith upon such conversion.
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4C. Limitation on Redemption.
(i) Notwithstanding any other provision of Sections 4A and 4B
hereof, prior to the 365th day after the Maturity Date or at any time that all
or any portion of the Term Loan is outstanding, the Corporation may not, nor
shall it permit any Subsidiary to, redeem, purchase or otherwise acquire,
directly or indirectly, any Shares pursuant to the provisions of Sections 4A or
4B.
(ii) In the event that, notwithstanding the provisions of this
Section 4C, any Series A Preferred shall be redeemed, purchased or otherwise
acquired by the Corporation or any Subsidiary for cash pursuant to the
provisions of Sections 4A or 4C in violation of the immediately preceding
sentence, the consideration paid in respect of such redemption, purchase or
other acquisition shall not be commingled with any asset of the holders of the
Series A Preferred, shall be held in trust for the benefit of the Bank Parties,
and shall be paid over or delivered to the Agent for application to the payment
in full of the Term Loan or such portion thereof as then remains unpaid to the
extent necessary to give effect to this Section 4C, after giving effect to any
concurrent payments or distributions to the Bank Parties in respect of the Term
Loan.
Section 5. Voting Rights. The holders of the Series A Preferred shall be
entitled to notice of all stockholders meetings in accordance with the
Corporation's bylaws, and except as otherwise required by applicable law and as
set forth below, the holders of the Series A Preferred shall be entitled to vote
on all matters submitted to the stockholders for a vote together with the
holders of the Common Stock voting together as a single class with each share of
Common Stock entitled to one vote per share and each Share of Series A Preferred
entitled to one vote for each share of Common Stock issuable upon conversion of
the Series A Preferred as of the record date for such vote or, if no record date
is specified, as of the date of such vote. Notwithstanding the foregoing, this
Corporation shall not, without obtaining the affirmative vote or written consent
of the holders of not less than two-thirds (2/3rds) of the then outstanding
shares of Series A Preferred, effect a sale of all or substantially all of the
assets of the Corporation or a merger or consolidation with or into any other
corporation or corporations in which the stockholders of this Corporation do not
own at least 50% of the shares of the entity surviving such merger.
Section 6.Conversion.
6A. Conversion Procedure.
(i) At any time and from time to time, any holder of Series A
Preferred may convert all or any portion of the Series A Preferred held by such
holder into a number of shares of Conversion Stock computed by multiplying the
number of Shares to be converted by $30.75 and dividing the result by the
Conversion Price then in effect.
(ii) Each share of Series A Preferred shall automatically be
converted into a number of shares of Conversion Stock computed by multiplying
the number of Shares to be
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converted by $30.75 and dividing the result by the Conversion Price then in
effect immediately upon the closing of a Public Offering at a purchase price of
$10.00 which raises $20,000,000 gross proceeds for the Company.
(iii) Except as otherwise provided herein, each conversion of
Series A Preferred shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Series A Preferred to be converted have been surrendered for conversion at the
principal office of the Corporation. At the time any such conversion has been
effected, the rights of the holder of the Shares converted as a holder of Series
A Preferred shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(iv) The conversion rights of any Share subject to redemption
hereunder shall terminate on the Redemption Date for such Share unless the
Corporation has failed to pay to the holder thereof the Liquidation Value of
such Share (plus all accrued and unpaid dividends thereon).
(v) Notwithstanding any other provision hereof, if a conversion
of Series A Preferred is to be made in connection with a Public Offering, a
Change in Ownership, a Fundamental Change or other transaction affecting the
Corporation, the conversion of any Shares of Series A Preferred may, at the
election of the holder thereof, be conditioned upon the consummation of such
transaction, in which case such conversion shall not be deemed to be effective
until such transaction has been consummated.
(vi) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of subparagraph (a)
below), the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number
of shares of Conversion Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified;
(b) subject to the provisions of Section 1D, payment in an
amount equal to all accrued dividends (which may be satisfied by the
issuance of shares of Series A Preferred pursuant to Section 1D) with
respect to each Share converted which have not been paid prior thereto,
plus the amount payable under subparagraph (x) below with respect to
such conversion; and
(c) a certificate representing any Shares of Series A
Preferred which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but
which were not converted.
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<PAGE> 8
(vii) Subject to the provisions of Section 1D, the Corporation
shall declare the payment of all dividends payable under subparagraph (vi) (b)
above. If the Corporation is not permitted under applicable law to pay any
portion of the accrued and unpaid dividends on the Series A Preferred being
converted, the Corporation shall satisfy such obligation by the issuance of
shares of Series A Preferred pursuant to Section 1D. At the request of any such
converting holder, the Corporation shall provide such holder with written
evidence of its obligation to such holder.
(viii) The issuance of certificates for shares of Conversion Stock
upon conversion of Series A Preferred shall be made without charge to the
holders of such Series A Preferred for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Conversion Stock. Upon conversion of each
Share of Series A Preferred, the Corporation shall take all such actions as are
necessary in order to insure that the Conversion Stock issuable with respect to
such conversion shall be validly issued, fully paid and nonassessable, free and
clear of all taxes, liens, charges and encumbrances created by the Corporation
with respect to the issuance thereof.
(ix) The Corporation shall not close its books against the
transfer of Series A Preferred or of Conversion Stock issued or issuable upon
conversion of Series A Preferred in any manner which interferes with the timely
conversion of Series A Preferred. The Corporation shall assist and cooperate
with any holder of Shares required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of
Shares hereunder (including, without limitation, making any filings required to
be made by the Corporation).
(x) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of the Series A Preferred, such
number of shares of Conversion Stock issuable upon the conversion of all
outstanding Series A Preferred and any dividends payable in kind pursuant to
Section 1D. All shares of Conversion Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Corporation shall take all such actions as may
be necessary to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Conversion Stock to be less than the number of such
shares required to be reserved hereunder for issuance upon conversion of the
Series A Preferred (including shares of Series A Preferred issued pursuant to
Section 1D hereof.
(xi) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph, be delivered upon any
conversion of the Series A Preferred, the Corporation, in lieu of delivering the
fractional share therefor, shall round up such fractional share to the next
higher number of full shares.
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<PAGE> 9
(xii) If the shares of Conversion Stock issuable by reason of
conversion of Series A Preferred are convertible into or exchangeable for any
other stock or securities of the Corporation, the Corporation shall, at the
converting holder's option, upon surrender of the Shares to be converted by such
holder as provided herein together with any notice, statement or payment
required to effect such conversion or exchange of Conversion Stock, deliver to
such holder or as otherwise specified by such holder a certificate or
certificates representing the stock or securities into which the shares of
Conversion Stock issuable by reason of such conversion are so convertible or
exchangeable, registered in such name or names and in such denomination or
denominations as such holder has specified.
6B. Conversion Price.
(i) The initial Conversion Price shall be $3.075 per share. In
order to prevent dilution of the conversion rights granted under this Section 6,
the Conversion Price shall be subject to adjustment from time to time pursuant
to this paragraph 6B.
(ii) If and whenever on or after the original date of issuance of
the Series A Preferred the Corporation issues or sells, or in accordance with
paragraph 6C is deemed to have issued or sold, any shares of its Common Stock
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then immediately upon such
issue or sale or deemed issue or sale the Conversion Price shall be reduced to
the Conversion Price determined by dividing (a) the sum of (1) the product
derived by multiplying the Conversion Price in effect immediately prior to such
issue or sale by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (2) the consideration, if any,
received by the Corporation upon such issue or sale, by (b) the number of shares
of Common Stock Deemed Outstanding immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be no adjustment
in the Conversion Price as a result of (a) any issue or sale (or deemed issue or
sale) of stock options or stock purchase rights to employees, directors,
consultants or vendors (including equipment lessors, commercial financing
sources and lending institutions) of the Corporation and its Subsidiaries
pursuant to plans or transactions approved by 80% of the members of the
Corporation's Board of Directors and the issuance of shares upon exercise
thereof (b) the issuance of the Series A Preferred or the issuance of shares of
Common Stock issuable upon conversion of the Series A Preferred or on exercise
of the Warrants issued to the Bank Parties in connection with the Credit
Agreement (the "Bank Warrants"), (c) the issuance of the Bank Warrants, (d)
issuance of the Convertible Promissory Note (the "Seagate Note") to Seagate
Technology, Inc. or the issuance of shares upon conversion of the Seagate Note,
or (e) the issuance of Class A Common Stock upon conversion of the outstanding
shares of Class B Common Stock.
6C. Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under paragraph 6B, the following
shall be applicable:
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<PAGE> 10
(i) Issuance of Rights or Options. If the Corporation in any
manner grants or sells any Options and the price per share for which Common
Stock is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such Options,
is less than the Conversion Price in effect immediately prior to the time of the
granting or sale of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Corporation at the time of the granting or sale of
such Options for such price per share. For purposes of this paragraph, the
"price per share for which Common Stock is issuable" shall be determined by
dividing (A) the total amount, if any, received or receivable by the Corporation
as consideration for the granting or sale of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation upon
exercise of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further adjustment of
the Conversion Price shall be made when Convertible Securities are actually
issued upon the exercise of such Options or when Common Stock is actually issued
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is less
than (a) the Conversion Price in effect immediately prior to the time of such
issue or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be made when Common Stock is
actually issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section 6, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities or the rate at
which any Convertible Securities are convertible into or
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<PAGE> 11
exchangeable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be immediately adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of paragraph 6C, if the
terms of any Option or Convertible Security which was outstanding as of the date
of issuance of the Series A Preferred are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change; provided that no
such change shall at any time cause the Conversion Price hereunder to be
increased.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued. For purposes of paragraph 6C, the expiration or termination
of any Option or Convertible Security which was outstanding as of the date of
issuance of the Series A Preferred shall not cause the conversion Price
hereunder to be adjusted unless, and only to the extent that, a change in the
terms of such Option or Convertible Security caused it to be deemed to have been
issued after the date of issuance of the Series A Preferred.
(v) Calculation of Consideration Received. If any Common Stock,
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security is issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Corporation shall be the Market
Price thereof as of the date of receipt. If any Common Stock, Option or
Convertible Security is issued to the owners of the non-surviving entity in
connection with any merger in which the Corporation is the surviving
Corporation, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Option or Convertible Security, as the
case may be. The fair value of any consideration other than cash and securities
shall be determined jointly by the Corporation and the holders of two-thirds of
the outstanding Series A Preferred. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Corporation and the
holders of two-thirds of the outstanding Series A Preferred. The determination
of such appraiser shall be final and binding upon the parties, and the fees and
expenses of such appraiser shall be borne by the Corporation.
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6D. Reorganization or Reclassification. Any recapitalization,
reorganization or reclassification, in each case which is effected in such a
manner that the holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock, is referred to herein as an "Organic Change."
Prior to the consummation of any Organic Change, the Corporation shall make
appropriate provisions to insure that each of the holders of Series A Preferred
shall thereafter have the right to acquire and receive, in lieu of the shares of
Conversion Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series A Preferred, such shares of stock, securities
or assets as such holder would have received in connection with such Organic
Change if such holder had converted its Series A Preferred immediately prior to
such Organic Change.
6E. Notices.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Series A
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Corporation shall give written notice to all holders of
Series A Preferred at least 10 days prior to the date on which the Corporation
closes its books or takes a record (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any capitalization, reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the Corporation's assets,
dissolution or liquidation.
(iii) The Corporation shall also give written notice to the
holders of Series A Preferred at least 20 days prior to the date on which any
recapitalization, reorganization, reclassification, consolidation, merger or
sale of all or substantially all of the Corporation's assets shall take place.
Section 7. Liquidating Dividends.
If the Corporation declares or pays a dividend upon the Common
Stock payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Corporation shall pay to the holders
of Series A Preferred at the time of payment thereof the Liquidating Dividends
which would have been paid on the shares of Conversion Stock had such Series A
Preferred been converted immediately prior to the date on which a record is
taken for such Liquidating Dividend, or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined; provided that if the Liquidating Dividends consist of voting
securities, the Corporation shall make available to each holder of Class A
Preferred, at such holder's request, Liquidating Dividends consisting of
securities which are non-voting (except as otherwise required by law), which are
otherwise identical to the Liquidating Dividends consisting of voting securities
and which are
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<PAGE> 13
convertible into such voting securities on the same terms as Class B Common
Stock is convertible into Class A Common Stock.
Notwithstanding any other provision of this Section 7, in the
event that prior to the 365th day after the Maturity Date or at any time that
all or any portion of the Term Loan is outstanding, any cash Liquidating
Dividend is paid or made on the Series A Preferred, such Liquidating Dividend
shall not be commingled with any asset of the holders of the Series A Preferred,
shall be held in trust for the benefit of the Bank Parties, and shall be paid
over or delivered to the Agent for application to the payment in full of the
Term Loan or such portion thereof as then remains unpaid to the extent necessary
to give effect to this paragraph, after giving effect to any concurrent payments
or distributions to the Bank Parties in respect of the Term Loan. If funds are
held in trust pursuant to the first sentence of this paragraph in connection
with a liquidation, dissolution or winding up of the Corporation no
distributions shall be made to the holders of the Common Stock of the
Corporation, until the funds are distributed to the holders of the Series A
Preferred.
Section 8. Purchase Rights.
If at any time the Corporation grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Series A Preferred
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Series A Preferred immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights;
provided that if the Purchase Rights involve voting securities, the Corporation
shall make available to each holder of Class A Preferred, at such holder's
request, Purchase Rights involving securities which are non-voting (except as
otherwise required by law), which are otherwise identical to the Purchase Rights
involving voting securities and which are convertible into such voting
securities on the same terms as Class B Common Stock is convertible into Class A
Common Stock.
Section 9. Registration of Transfer.
The Corporation shall keep at its principal office a register for
the registration of Series A Preferred. Upon the surrender of any certificate
representing Series A Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Series A Preferred
represented by
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such new certificate from the date to which dividends have been fully paid on
such Series A Preferred represented by the surrendered certificate.
Section 10. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Shares of Series A Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Series A Preferred represented by such new certificate from
the date to which dividends have been fully paid on such lost, stolen, destroyed
or mutilated certificate.
Section 11. Definitions.
"Agent" has the meaning ascribed to that term in the Credit
Agreement.
"Bank Parties" means the Agent, the Co-Agent and the Banks.
"Banks" means CIBC [Asia] Ltd., Banque Nationale de Paris,
Singapore Branch, Union Bank of California N.A., Sanwa Bank California and First
National Bank and their successor and assigns determined in accordance with the
Credit Agreement.
"Change in Ownership" has the meaning set forth in Section 4A
hereof.
"Co-Agent" has the meaning ascribed to that term in the Credit
Agreement.
"Common Stock" means, collectively, the Corporation's Class A
Common Stock, the Corporation's Class B Common Stock and any capital stock of
any class of the Corporation hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock issuable upon conversion or exercise of
outstanding Options, Convertible Securities and Preferred Stock of the
Corporation.
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"Conversion Stock" means shares of the Corporation's Class A
Common Stock, par value $0.013 per share; provided that if there is a change
such that the securities issuable upon conversion of the Series A Preferred are
issued by an entity other than the Corporation or there is a change in the type
or class of securities so issuable, then the term "Conversion Stock" shall mean
one share of the security issuable upon conversion of the Series A Preferred if
such security is issuable in shares, or shall mean the smallest unit in which
such security is issuable if such security is not issuable in shares.
"Conversion Price" has the meaning set forth in Section 6B
hereof.
"Convertible Securities" means any stock or securities directly
or indirectly convertible into or exchangeable for Common Stock.
"Credit Agreement" means that certain Amended and Restated Credit
Agreement dated as of May __, 1998, among StorMedia International, Ltd., Strates
Pte. Ltd., the Company, the financial institutions named therein as the Banks,
Canadian Imperial Bank of Commerce, New York Agency, as Agent for the Banks, and
Banque Nationale de Paris, San Francisco Branch, as Co-Agent, as the same may be
from time to time further amended, supplemented, restated or otherwise modified.
"Fundamental Change" has the meaning set forth in Section 4B
hereof.
"Junior Securities" means any capital stock or other equity
securities of the Corporation, except for the Series A Preferred.
"Liquidation Value" of any Share as of any particular date shall
be equal to $30.75.
"Market Price" of any security means the average of the closing
bid prices of such security's sales on all securities exchanges on the five
trading days (determined as set forth below) on which such security may at the
time be listed, or, if there has been no sales on any such exchange on any day,
the average of the highest bid and lowest ask prices on all such exchanges at
the end of such day, or, if on any day such security is not so listed, the
average of the representative bid and ask prices quoted in the NASDAQ System as
of 4:00 P.M., New York time, or, if on any day such security is not quoted in
the NASDAQ System, the average of the highest bid and lowest ask prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of five days consisting of the day as of which
"Market Price" is being determined and the four consecutive business days prior
to such day. If at any time such security is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the holders of two-thirds of the Series A Preferred. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Corporation and the holders of
two-thirds of the Series A Preferred. The
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determination of such appraiser shall be final and binding upon the parties, and
the Corporation shall pay the fees and expenses of such appraiser.
"Maturity Date" has the meaning ascribed to such term in the
Credit Agreement.
"Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a
limited liability company, a limited liability, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
"Public Offering" means any offering by the Corporation of its
capital stock or equity securities to the public pursuant to an effective
registration statement under the Securities Act of 1933, as then in effect, or
any comparable statement under any similar federal statute then in force.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of May 29, 1998, by and among the Corporation and certain investors, as
such agreement may from time to time be amended in accordance with its terms.
"Redemption Date" as to any Share means the date for redemption
specified in the notice of any redemption at the Corporation's option or at the
holder's option or the applicable date specified herein in the case of any other
redemption; provided that no such date shall be a Redemption Date unless the
Liquidation Value of such Share (plus all accrued and unpaid dividends thereon
and any required premium with respect thereto) is actually paid in full on such
date, and if not so paid in full, the Redemption Date shall be the date on which
such amount is fully paid.
"Subsidiary" means any corporation of which the shares of
outstanding capital stock possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of which
any determination is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.
"Term Loan" has the meaning ascribed to such term in the Credit
Agreement.
Section 12. Amendment and Waiver.
No amendment, modification or waiver shall be binding or
effective with respect to any provision of Sections 1 to 13 hereof without the
prior written consent of the holders of two-thirds of the Series A Preferred
outstanding at the time such action is taken; provided that no such action shall
change (a) the rate at which or the manner in which dividends on the Series A
Preferred accrue or the times at which such dividends become payable or the
amount payable on redemption of the Series A Preferred or the times at which
redemption of Series A Preferred is to occur, without the
-16-
<PAGE> 17
prior written consent of the holders of at least two-thirds of the Series A
Preferred then outstanding, (b) the Conversion Price of the Series A Preferred
or the number of shares or class of stock into which the Series A Preferred is
convertible, without the prior written consent of the holder of at least
two-thirds of the Series A Preferred then outstanding or (c) the percentage
required to approve any change described in clauses (a) and (b) above, without
the prior written consent of the holders of at least two-thirds of the Series A
Preferred then outstanding; and provided further that no change in the terms
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Series A
Preferred then outstanding.
Section 13. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder)."
-17-
<PAGE> 18
IN WITNESS WHEREOF, StorMedia Incorporated has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
William J. Almon, its President, and the same to be attested by Judith M.
O'Brien, its Secretary, this 29th day of May, 1998.
/s/ WILLIAM J. ALMON
------------------------------------
Name: William J. Almon
Title: President and CEO
[CORPORATE SEAL]
ATTEST:
/s/ JUDITH M. O'BRIEN
- ------------------------------------
Name: Judith M. O'Brien
Title: Secretary
-18-
<PAGE> 1
EXHIBIT 10.1
[Execution Copy]
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
------------------------------
Dated as of May 29, 1998
among
STORMEDIA INTERNATIONAL, LTD.
AND
STRATES PTE. LTD.,
As Borrowers
and
STORMEDIA INCORPORATED,
as Parent Guarantor
and
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
as Banks
and
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY,
as Agent
and
BANQUE NATIONALE DE PARIS, SAN FRANCISCO BRANCH
as Co-Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................... 2
SECTION 1.01. DEFINED TERMS.................................................... 2
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS................................... 21
ARTICLE II THE TERM LOAN................................................... 22
SECTION 2.01. THE TERM LOAN................................................... 22
(a) The Term Loan................................................... 22
(b) Notations Regarding Term Loan................................... 22
SECTION 2.02. FEES............................................................ 22
SECTION 2.03. REPAYMENT AND PREPAYMENT........................................ 22
(a) Scheduled Principal Installments................................ 22
(b) Optional Prepayment............................................. 23
(c) Mandatory Prepayment............................................ 23
SECTION 2.04. INTEREST RATE AND PAYMENT DATES................................. 24
(a) Payment of Interest............................................. 24
(b) Base Rate Loans................................................. 24
(c) LIBO Rate Loans................................................. 24
(d) Interest After an Event of Default.............................. 24
SECTION 2.05. CONTINUATION AND CONVERSION OPTIONS............................. 24
SECTION 2.06. COMPUTATION OF INTEREST AND FEES................................ 25
(a) Calculations.................................................... 25
(b) Determination by Agent.......................................... 26
ARTICLE III GENERAL PROVISIONS CONCERNING
THE TERM LOAN................................................... 26
SECTION 3.01. USE OF PROCEEDS................................................. 26
SECTION 3.02. PAYMENTS........................................................ 26
SECTION 3.03. PAYMENT ON NON-BUSINESS DAYS.................................... 26
SECTION 3.04. REDUCED RETURN.................................................. 26
SECTION 3.05. INDEMNITIES..................................................... 27
(a) General Indemnity............................................... 27
(b) Funding Losses.................................................. 28
SECTION 3.06. FUNDING SOURCES................................................. 28
SECTION 3.07. INABILITY TO DETERMINE INTEREST RATE............................ 28
SECTION 3.08. REQUIREMENTS OF LAW............................................. 29
SECTION 3.09. ILLEGALITY...................................................... 30
SECTION 3.10. RIGHT TO REPLACE BANK........................................... 30
SECTION 3.11. TAXES........................................................... 30
(a) Payments........................................................ 30
(b) Other Taxes..................................................... 31
(c) Indemnity....................................................... 31
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(d) Evidence of Payment............................................. 32
(e) Forms........................................................... 32
(f) Change of Booking Office........................................ 32
(g) Indemnities..................................................... 32
SECTION 3.12. SHARING OF PAYMENTS, ETC........................................ 33
ARTICLE IV CONDITIONS TO EFFECTIVENESS..................................... 33
SECTION 4.01. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT......... 33
(a) Documents....................................................... 33
(b) Restructuring Transactions...................................... 34
(c) Perfection and Priority of Liens in Personal and Real Property.. 35
(d) Evidence of Insurance........................................... 36
(e) Financial Statements............................................ 36
(f) Cash Management................................................. 36
(g) No Material Adverse Change...................................... 36
(h) Fees and Expenses............................................... 36
(j) No Legal Impediments............................................ 37
(k) Agent Fees...................................................... 37
(l) Further Documentation........................................... 37
ARTICLE V REPRESENTATIONS AND WARRANTIES.................................. 37
SECTION 5.01. REPRESENTATIONS AND WARRANTIES.................................. 37
(a) Organization; Subsidiaries...................................... 37
(b) Due Authorization; No Conflict.................................. 38
(c) Validity........................................................ 39
(d) Capitalization.................................................. 39
(e) Valid Issuance of Warrants...................................... 40
(f) Financial Condition/Material Adverse Change..................... 40
(g) Litigation...................................................... 40
(h) Employee Benefit Plans.......................................... 41
(i) Disclosure...................................................... 41
(j) Margin Stock.................................................... 41
(k) Environmental Matters........................................... 41
(l) Employee Matters................................................ 42
(m) Insurance....................................................... 42
(n) Year-2000 Compliance............................................ 42
(o) Solvency........................................................ 42
(p) Intellectual Property........................................... 42
(q) No Encumbrances................................................. 43
ARTICLE VI COVENANTS....................................................... 43
SECTION 6.01. AFFIRMATIVE COVENANTS........................................... 43
(a) Accounting System............................................... 43
(b) Financial Information........................................... 43
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
(c) Notices and Information......................................... 45
(d) Corporate Existence, Etc........................................ 46
(e) Tax Returns..................................................... 47
(f) Payment of Taxes................................................ 47
(g) Maintenance of Properties; Insurance............................ 47
(h) Inspection...................................................... 48
(i) Compliance with Laws, Etc....................................... 48
(j) Appraisals...................................................... 49
(k) Outside Consultant.............................................. 49
(l) Year 2000....................................................... 49
(m) No Setoffs or Counterclaims..................................... 49
(n) Employee Benefits............................................... 49
(o) Leases.......................................................... 50
(p) Fiscal Year..................................................... 50
(q) Compliance with Material Contracts.............................. 50
(r) Real Property; Collateral Access Agreements..................... 50
(s) Delivery of Documents After Effective Date...................... 51
(t) Further Assurances.............................................. 51
SECTION 6.02. NEGATIVE COVENANTS.............................................. 51
(a) Indebtedness.................................................... 51
(b) Liens........................................................... 52
(c) Restrictions on Fundamental Changes............................. 52
(d) Disposition of Assets........................................... 52
(e) Change Name..................................................... 52
(f) [Intentionally omitted.]........................................ 52
(g) Acquisitions.................................................... 53
(h) New Subsidiaries................................................ 53
(i) Guarantee....................................................... 53
(j) Nature of Business.............................................. 53
(k) Prepayments and Amendments...................................... 53
(l) Change of Control............................................... 54
(m) Consignments.................................................... 54
(n) Distributions................................................... 54
(o) Accounting Methods.............................................. 54
(p) Investments..................................................... 54
(q) Transactions with Affiliates.................................... 55
(r) Suspension...................................................... 55
(s) Compensation.................................................... 55
(t) Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees............................ 55
(u) No Prohibited Transactions Under ERISA.......................... 55
(v) Financial Covenant.............................................. 56
(w) Capital Expenditures............................................ 56
(x) Securities Accounts............................................. 56
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
(y) Inactive Subsidiary............................................. 57
(z) Sales and Lease-Backs........................................... 57
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES.................................. 57
SECTION 7.01. EVENTS OF DEFAULT............................................... 57
(a) Failure to Pay.................................................. 57
(b) [Intentionally Omitted]......................................... 57
(c) Breach of Certain Representations, Covenants,
Terms and Conditions............................................ 57
(d) Material Adverse Change......................................... 58
(e) Cross Default................................................... 58
(f) Loan Party Insolvency Event..................................... 58
(g) Subsidiary Insolvency Event..................................... 58
(h) Injunction...................................................... 59
(i) Writs and Levies................................................ 59
(j) Government Levy................................................. 59
(k) Judgments and Encumbrances...................................... 59
(l) Material Contracts.............................................. 59
(m) Subordinated Indebtedness....................................... 60
(n) ERISA Violation................................................. 60
(o) Loan Documents.................................................. 60
(p) Dissolution..................................................... 60
(q) Guarantors...................................................... 61
(r) Foothill Overadvances........................................... 61
(s) Failure of Enforceability of Credit Documents; Security......... 61
SECTION 7.02. ACCELERATION.................................................... 61
ARTICLE VIII THE AGENT....................................................... 61
SECTION 8.01. AUTHORIZATION AND ACTION........................................ 61
SECTION 8.02. AGENT'S RELIANCE, ETC........................................... 62
SECTION 8.03. CIBC [ASIA] LTD., CANADIAN IMPERIAL
BANK OF COMMERCE, NEW YORK AGENCY AND AFFILIATES................ 62
SECTION 8.04. BANK CREDIT DECISION............................................ 62
SECTION 8.05. INDEMNIFICATION................................................. 63
SECTION 8.06. SUCCESSOR AGENT................................................. 63
SECTION 8.07. AGENT AUTHORIZATION............................................. 63
ARTICLE IX MISCELLANEOUS................................................... 64
SECTION 9.01. AMENDMENTS, ETC................................................. 64
SECTION 9.02. NOTICES, ETC.................................................... 64
SECTION 9.03. RIGHT OF SETOFF................................................. 64
SECTION 9.04. NO WAIVER; REMEDIES............................................. 65
SECTION 9.05. COSTS AND EXPENSES.............................................. 65
SECTION 9.06. ADDITIONAL BANKS; ASSIGNMENTS; PARTICIPATIONS................... 65
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 9.07. JOINT AND SEVERAL OBLIGATIONS................................... 67
SECTION 9.08. CO-BORROWER PROVISIONS.......................................... 67
(a) Consents........................................................ 67
(b) Waivers......................................................... 68
(c) Additional Waivers.............................................. 70
(d) Subrogation Waiver.............................................. 71
(e) Subordination of Claims......................................... 71
(f) Primary Obligations............................................. 71
SECTION 9.09. EFFECTIVENESS; BINDING EFFECT; GOVERNING LAW.................... 71
SECTION 9.10. SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS................... 71
SECTION 9.11. WAIVER OF JURY TRIAL............................................ 72
SECTION 9.12. CONSENT TO JURISDICTION; VENUE.................................. 72
SECTION 9.13. ENTIRE AGREEMENT................................................ 72
SECTION 9.14. SEPARABILITY OF PROVISIONS...................................... 73
SECTION 9.15. OBLIGATIONS SEVERAL............................................. 73
SECTION 9.16. EXECUTION IN COUNTERPARTS....................................... 73
SECTION 9.17. 1654 INTERPRETATION............................................. 73
SECTION 9.18. CONFIDENTIALITY................................................. 73
SECTION 9.19. NO NOVATION..................................................... 73
SECTION 9.20. MAXIMUM PERMISSIBLE RATE........................................ 74
ARTICLE X GUARANTY........................................................ 74
SECTION 10.01. GUARANTY OF THE GUARANTIED OBLIGATIONS.......................... 74
SECTION 10.02. LIABILITY OF GUARANTOR ABSOLUTE................................. 75
SECTION 10.03. WAIVERS BY GUARANTOR............................................ 77
SECTION 10.04. CONTINUING GUARANTY: TERMINATION OF GUARANTY.................... 78
SECTION 10.05. BANKRUPTCY; POST-PETITION INTEREST;
REINSTATEMENT OF GUARANTY....................................... 78
SECTION 10.06. SUBORDINATION OF CLAIMS......................................... 78
SECTION 10.07. ADDITIONAL WAIVERS.............................................. 79
</TABLE>
ANNEXES
Annex I Financial Institutions and Pro Rata Shares
Annex II Lending Offices
EXHIBITS
Exhibit A Form of Notice of Conversion/Continuance
Exhibit B Assignment Agreement
Exhibit C Form of Collateral Access Agreement
Exhibit D Form of Compliance Certificate
v
<PAGE> 7
SCHEDULES
<TABLE>
<S> <C>
I Items to be Delivered After the Effective Date
II Closing Document List
III Evidence of Insurance
IV List of Subsidiaries
V Common Stock
VI Litigation
VII Employee Benefit Plans
VIII Disclosure
IX Permitted Indebtedness
X Permitted Liens
XI Pro Forma Consolidated Balance Sheet
XII Projections
XIII Environmental Disclosures
</TABLE>
vi
<PAGE> 8
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 29, 1998
(the "Agreement"), is entered into among STORMEDIA INTERNATIONAL, LTD., a Cayman
Islands corporation ("SIL"), STRATES PTE. LTD., a Singapore corporation
("Strates" and together with SIL, the "Borrowers," each a "Borrower"), STORMEDIA
INCORPORATED, a Delaware corporation (the "Parent Guarantor", and collectively
with the Subsidiary Guarantors, as defined below, and the Borrowers, the "Loan
Parties," each a "Loan Party"), the financial institutions named on Annex I
hereof or who become parties hereto pursuant to Section 9.06(a) or otherwise, as
Banks (each a "Bank" and collectively the "Banks"), CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY, as agent for the Banks, (the "Agent"), and BANQUE
NATIONALE DE PARIS, SAN FRANCISCO BRANCH, as co-agent for the Banks (the
"Co-Agent").
RECITALS:
A. The Borrowers, the Parent Guarantor, the Banks, the Agent, the
Co-Agent, and Canadian Imperial Bank of Commerce, Singapore Branch, as the
Designated Issuer ("Designated Issuer") have entered into that certain Credit
Agreement dated as of August 23, 1996 (as amended, supplemented or otherwise
modified through the date hereof, the "Existing Credit Agreement").
B. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC"), acquired all of the outstanding capital stock of Akashic Memories
Corporation, a California corporation ("Akashic") through the merger of
StorMedia Acquisition Corporation, a California corporation and wholly-owned
Subsidiary of FSC with and into Akashic. In connection with such acquisition,
certain of the other Loan Parties purchased the patents and applications pending
in Akashic's parent corporation, Kubota Corporation.
C. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
D. The Parent Guarantor, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
F. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the
<PAGE> 9
Existing Credit Agreement, as so amended and restated, and the Second Amended
and Restated Credit Agreement, as amended, restated, supplemented or otherwise
modified from time to time, collectively, this "Agreement"), it being understood
and agreed that (i) with respect to any date or time period occurring and ending
prior to the Effective Date, the rights and obligations of the parties thereto
shall be governed by the Existing Credit Agreement (including without limitation
the Exhibits and Schedules thereto) and other Loan Documents (as defined
therein), (ii) the aggregate principal amount of the Term Loan outstanding on
the Effective Date (after giving effect to the application of the principal
payment required pursuant to Section 4.01 of this Agreement on the Effective
Date) shall continue to constitute the Term Loan under (and shall be subject to
the terms and provisions of) this Agreement and, together with all other
Obligations, shall continue to be secured by the Collateral and (iii) with
respect to any date or time period occurring or ending on or after the Effective
Date, the rights and obligations of the parties hereto shall be governed by this
Agreement (including without limitation the Exhibits and Schedules hereto) and
the other Loan Documents (as defined herein); provided, however, that, as of the
Effective Date, the rights and obligations of the parties hereto shall be
governed by this Agreement and no Event of Default or Potential Event of Default
under the Existing Credit Agreement shall constitute an Event of Default or
Potential Event of Default under this Agreement.
NOW THEREFORE, in consideration of the promises and the agreements,
provisions and comments herein contained, the Loan Parties, Banks, Co-Agent and
Agent agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings:
"Accounts": All rights of a Person to payment for goods sold or leased
or for services rendered, no matter how evidenced, including accounts
receivable, contract rights, notes, drafts, chattel paper, acceptances and other
forms of obligations and receivables so long as the right to such payment has
been earned (entitlement to recognize revenue under GAAP) but regardless of
whether an invoice for such amount has been rendered so long as the failure to
render such invoice is in accordance with the payment schedule set forth in the
underlying contract.
"Adjusted Net Worth": As of any date of determination, the sum of (i)
the consolidated net worth (determined in accordance with GAAP) of Parent
Guarantor and its Subsidiaries, on a consolidated basis, and (ii) the
outstanding principal balance of Subordinated Indebtedness; and (iii) without
duplication, the outstanding liquidation preference (excluding rights with
respect to dividends) of any preferred stock of Parent Guarantor that is
recharacterized as a liability and not equity under GAAP.
2
<PAGE> 10
"Affiliate": As applied to any Person, any Person directly or indirectly
controlling, controlled by or under common control with, that Person. For the
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Agent": As set forth in the introductory paragraph of this Agreement.
"Agreement": As set forth in the recitals of this Agreement.
"Akashic": As set forth in the recitals of this Agreement.
"Akashic Collateral Assignment": The Collateral Assignment, Patent
Mortgage and Security Agreement dated as of the date hereof between Akashic and
Agent.
"Akashic Security Agreement": The Subsidiary Guarantor Security
Agreement dated as of the date hereof between Akashic and Agent.
"AKT": Strates Sdn. Bhd., a Malaysian corporation formerly known as
Akashic Kubota Technologies Sdn. Bhd. and wholly-owned Subsidiary of Akashic.
"AKT Collateral Assignment": The Collateral Assignment, Patent Mortgage
and Security Agreement dated as of the date hereof between AKT and Agent.
"AKT Debenture": The Debenture dated as of the date hereof between AKT
and Agent.
"AKT Security Agreement": The Subsidiary Guarantor Security Agreement
dated as of the date hereof between AKT and Agent.
"AKT Share Charge": The Memorandum of Deposit/Share Charge dated as of
the date hereof between Akashic and Agent regarding the pledge by Akashic of all
of the issued and outstanding shares of AKT.
"Assignment Agreement": An Assignment Agreement in substantially the
form of Exhibit B.
"Bank" or "Banks": As set forth in the introductory paragraph of this
Agreement.
"Base Rate": The higher of (i) the rate of interest announced from time
to time by Canadian Imperial Bank of Commerce in New York, New York as its Prime
Commercial Lending Rate and (ii) the sum of one-half of one percent (.5%) plus
the Federal Funds Rate on the day prior to the date on which the Base Rate is to
be determined. The Prime Commercial Lending Rate is a reference rate; the Agent
may make loans at, above or below the Prime
3
<PAGE> 11
Commercial Lending Rate. In any event, the Base Rate shall not exceed the
maximum interest rate permitted under applicable law.
"Base Rate Loans": Loans hereunder at such time as they accrue interest
at a rate based upon the Base Rate.
"Benefit Plan": A "defined benefit plan" (as defined in Section 3(35) of
ERISA) for which any of the Loan Parties or any ERISA Affiliate has been an
"employer" (as defined in Section 3(5) of ERISA) within the past six years.
"Borrowers": As set forth in the introductory paragraph of this
Agreement.
"Borrower Security Agreement": The Amended and Restated Borrower
Security Agreement dated as of the date hereof among Borrowers and the Agent.
"Borrowing Base": As defined in Section 2.1 of the Foothill Group
Agreement.
"Business Day": A day other than a Saturday, Sunday or a day on which
commercial banks in Singapore, New York, New York, Boston, Massachusetts, San
Francisco, California or London, England are authorized or required by law to
close.
"Capital Lease": As applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of such Person.
"Certificate of Designation": The Certificate of Designations of Series
A 9% Convertible Preferred Stock in connection with the Equity Investment.
"Change of Control": Shall be deemed to have occurred at such time as:
(a) a "Change of Control" (as such term is defined in the Foothill Group
Agreement) occurs; (b) a "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Act), directly or indirectly, of more
than 10% of the total voting power of all classes of Stock then outstanding of
Parent Guarantor entitled to vote in the election of directors; (c) a majority
of members of the board of directors of Parent Guarantor shall not be Continuing
Directors; or (d) unless disposed of in accordance with the Intercreditor
Agreement, Parent Guarantor shall cease to own and control, directly or
indirectly and of record, 100% of the issued and outstanding capital Stock of
each of the Borrowers and Subsidiary Guarantors. The foregoing notwithstanding,
there shall not be a Change of Control as the result of any increase in Stock
ownership by any shareholder of Parent Guarantor that is a shareholder of Parent
Guarantor on the Effective Date, or as the result of the exercise of any
warrants to acquire Stock of Parent Guarantor outstanding on the Effective Date.
"CIBCAL": As defined in Section 8.03 of this Agreement.
4
<PAGE> 12
"CIBC NYA": As defined in Section 8.03 of this Agreement.
"Class A Common Stock": Class A Common Stock, par value $0.013 per
share, of the Parent Guarantor.
"Closing Document List": As defined in Section 4.01(a)(vi), and attached
hereto as Schedule II.
"Co-Agent": As set forth in the introductory paragraph of this
Agreement.
"Collateral": With respect to (i) any Borrower, "Collateral" as defined
in the Borrower Security Agreement, (ii) the Parent Guarantor, "Collateral" as
defined in the Parent Guarantor Security Agreement and (iii) any Subsidiary
Guarantor, "Collateral" as defined in the Subsidiary Guarantor Security
Agreement to which such Subsidiary Guarantor is a party.
"Collateral Access Agreement": Any landlord waiver substantially in the
form of Exhibit C (with such modifications as the Agent may approve in its
discretion), and any mortgagee waiver, bailee letter or any similar
acknowledgment agreement of any warehouseman or processor in possession of any
Inventory or Equipment in each case in form and substance reasonably
satisfactory to the Agent.
"Collateral Assignments": The Strates Collateral Assignment, the SIL
Collateral Assignment, the Parent Guarantor Collateral Assignment, the FSC
Collateral Assignment, the AKT Collateral Assignment and the Akashic Collateral
Assignment.
"Collections": All cash, checks, notes, instruments and other forms of
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds
and tax refunds).
"Compliance Certificate": A certificate substantially in the form of
Exhibit D and delivered by the chief accounting officer of each Borrower to the
Agent.
"Consolidated Capital Expenditures": For any period, the Dollar amount
of gross expenditures (including that portion of any Capital Lease which is
capitalized on the consolidated balance sheet of the Parent Guarantor and its
Subsidiaries) incurred by the Parent Guarantor and its Subsidiaries during such
period for Fixed Assets, and renewals, improvements and replacements thereto
required to be included in "capital expenditures," "additions to property, plant
or equipment" or comparable items in the consolidated statement of operations of
the Parent Guarantor and its Subsidiaries in conformity with GAAP, excluding,
however, expenditures of insurance proceeds received as the result of damage or
destruction of the property being replaced.
"Consolidated Net Income": For any period, on a consolidated basis in
conformity with GAAP, the net income (or loss) after income taxes of the Parent
Guarantor and its Subsidiaries for such period.
5
<PAGE> 13
"Continuing Directors": As of any date of determination, a member of the
board of directors of Parent Guarantor who (a) was a member of the board of
directors of Parent Guarantor on the Effective Date, or (b) was nominated to be
a member of the board of directors of Parent Guarantor by a majority of the
Continuing Directors then in office to fill a vacancy left by the death,
expiration of term, permanent disability, or resignation of a Continuing
Director.
"Contractual Obligations": With respect to any Person, any provision of
any securities issued by such Person or of any lease, contract, franchise,
agreement, guaranty, instrument or undertaking to which such Person is a party
or by which such Person is a party or by which such Person or any of its
properties is bound.
"Control Agreement": An agreement, in form and substance reasonably
satisfactory to the Agent, between the applicable Loan Party, the Agent, and the
applicable securities intermediary with respect to the applicable Securities
Account and related Investment Property.
"Convertible Securities": As defined in Section 5.01(d)(ii).
"Debenture A": The Debenture dated August 23, 1996 executed by SIL in
favor of the Agent.
"Debenture B": The Debenture dated August 23, 1996 executed by Strates
in favor of the Agent.
"Debenture C": The Debenture dated January 24, 1997 executed by SIL in
favor of the Agent.
"Debenture D: The Debenture dated January 22, 1997 executed by Strates
in favor of the Agent.
"Debenture E": The Debenture dated as of the date hereof executed by SIL
in favor of the Agent.
"Debenture F": The Debenture dated as of the date hereof executed by
Strates in favor of the Agent.
"Debenture G": The Debenture dated as of the date hereof executed by SIL
in favor of the Agent.
"Debenture H": The Debenture dated as of the date hereof executed by
Strates in favor of the Agent.
"Designated Issuer": As defined in the recitals to this Agreement.
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"Dilution": With respect to any Person and in each case based upon the
experience of the immediately prior three (3) months, the result of dividing the
Dollar amount of (a) bad debt write-downs, discounts, advertising, returns,
promotions, credits, or other dilutive items with respect to the Accounts, by
(b) such Person's Collections (excluding extraordinary items) plus the Dollar
amount of clause (a).
"Dollars and $": Dollars in lawful currency of the United States of
America.
"Effective Date": As defined in Section 4.01 hereof.
"Employee Benefit Plan": Any Pension Plan, any employee welfare benefit
plan, or any other employee benefit plan which is described in Section 3(3) of
ERISA and which is maintained for employees of Loan Parties or any ERISA
Affiliate of any Loan Party.
"Equipment": With respect to (i) any Borrower, "Equipment" as defined in
the Borrower Security Agreement, (ii) the Parent Guarantor, "Equipment" as
defined in the Parent Guarantor Security Agreement and (iii) any Subsidiary
Guarantor, "Equipment" as defined in the Subsidiary Guarantor Security Agreement
to which such Subsidiary Guarantor is a party.
"Equity Investment": Investment in the Parent Guarantor pursuant to
which Prudential Private Equity Investors, III, L.P. will purchase $5,000,000 of
convertible preferred stock (8% coupon) and warrants for a number of shares of
Class A Common Stock equal to 2,500,000 divided by the market price of Class A
Common Stock and Capital Ventures International will purchase $3,000,000 of
convertible preferred stock (8% coupon) and warrants for a number of shares of
Class A Common Stock equal to 1,500,000 divided by the market price of Class A
Common Stock, documentation of which shall be in form and substance satisfactory
to the Banks.
"Equity Issuance": As applied to any Person, the sale or issuance by
such Person of (i) any capital stock of such Person, (ii) any options, warrants
or other similar rights exercisable in respect of such capital stock, (iii) any
other security or instrument representing an equity interest (or the right to
obtain an equity interest) in such Person or (iv) any subordinated debt if such
Indebtedness is treated by GAAP as equity.
"ERISA": The Employee Retirement Income Security Act of 1974, 29 U.S.C.
Sections 1000 et seq., amendments thereto, successor statutes, and regulations
or guidance promulgated thereunder.
"ERISA Affiliate": (a) Any corporation subject to ERISA whose employees
are treated as employed by the same employer as the employees of the Loan
Parties under Internal Revenue Code Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer as
the employees of the Loan Parties under Internal Revenue Code Section 414(c),
(c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
organization subject to ERISA that is a member of an affiliated service group of
which
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<PAGE> 15
any Loan Party is a member under Internal Revenue Code Section 414(m), or (d)
solely for purposes of Section 302 of ERISA and Section 412 of the Internal
Revenue Code, any party subject to ERISA that is a party to an arrangement with
any Loan Party and whose employees are aggregated with the employees of any Loan
Party under Internal Revenue Code Section 414(o).
"ERISA Event": (a) A Reportable Event with respect to any Benefit Plan
or Multiemployer Plan, (b) the withdrawal of any Loan Party or any ERISA
Affiliate from a Benefit Plan during a plan year in which it was a "substantial
employer" (as defined in Section 4001(a)(2) of ERISA), (c) the providing of
notice of intent to terminate a Benefit Plan in a distress termination (as
described in Section 4041(c) of ERISA), (d) the institution by the Pension
Benefit Guaranty Corporation of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of any Loan Party or any ERISA
Affiliate from a Multiemployer Plan, or (g) providing any security to any Plan
under Section 401(a)(29) of the Internal Revenue Code by any Loan Party or any
ERISA Affiliate.
"Event of Default": As defined in Section 7.01.
"Excess Cash Flow": With respect to any Fiscal Year of the Parent
Guarantor and its Subsidiaries, the excess, if any, of:
(a) the sum, without duplication, of (i) Consolidated Net Income
for such Fiscal Year, (ii) an amount equal to the amount of all non-cash
charges deducted in arriving at such Consolidated Net Income, (iii)
decreases in Working Capital for such Fiscal Year, (iv) extraordinary
gains which are cash items not included in the calculation of
Consolidated Net Income and (v) the aggregate non-cash loss on the
disposition of property by the Parent Guarantor and its Subsidiaries
during such Fiscal Year (other than sales of inventory in the ordinary
course of business), to the extent deducted in arriving at such
Consolidated Net Income; over
(b) the sum, without duplication, of (i) an amount equal to the
amount of all non-cash credits included in arriving at such Consolidated
Net Income, (ii) the aggregate amount actually paid by the Parent
Guarantor and its Subsidiaries in cash during such Fiscal Year on
account of Consolidated Capital Expenditures (excluding (A) the
principal amount of Indebtedness incurred in connection with such
expenditures, (B) any such expenditures financed with the proceeds from
sales of fixed assets, and (C) any Consolidated Capital Expenditures in
such Fiscal Year to the extent in excess of the amount permitted to be
made in such Fiscal Year under this Agreement), (iii) the aggregate
amount of all payments of revolving loans under the Foothill Group
Agreement and accompanying permanent optional reductions of the
revolving credit commitment of the Foothill Group and all optional
prepayments of the Term Loan during such Fiscal
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<PAGE> 16
Year, (iv) the aggregate amount of all regularly scheduled principal
payments of Funded Debt (including, without limitation, the Term Loan)
of the Parent Guarantor and its Subsidiaries (other than in respect of
any revolving credit facility to the extent there is not an equivalent
permanent reduction in commitments thereunder), (v) increases in Working
Capital for such Fiscal Year, (vi) extraordinary losses which are cash
items not included in the calculation of Consolidated Net Income and
(vii) an amount equal to the aggregate non-cash gain on the disposition
of property by the Parent Guarantor and its Subsidiaries during such
Fiscal Year (other than sales of inventory in the ordinary course of
business), to the extent included in arriving at such Consolidated Net
Income.
"Existing Credit Agreement": As set forth in the recitals to this
Agreement.
"Federal Funds Rate": On any day, a fluctuating interest rate per annum
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from three Federal funds brokers of recognized standing selected by it.
"Fee Letter": That certain letter agreement dated as of May 29, 1998
pursuant to which the Loan Parties agree to pay to the Agent and the Banks
non-refundable fees in an amount separately agreed to between such parties.
"Financial Institution": Any (i) bank, savings bank, savings and loan
association or insurance company, (ii) pension plan or portfolio or investment
fund managed or administered by any bank, savings bank, savings and loan
association or insurance company, (iii) investment company owned by any bank,
savings bank, savings and loan association or insurance company, or (iv)
investment banking company or other investment fund.
"Fiscal Year": The fiscal year of the Loan Parties for accounting and
tax purposes, which shall be the twelve-month period ending on December 31 of
each calendar year.
"Fixed Assets": All real property, plant and Equipment of the Loan
Parties.
"Foothill Bridge Term Loan": As defined in Section 2.2 of the Foothill
Group Agreement.
"Foothill Group": Foothill Capital Corporation in its individual
capacity and as the Foothill Group Agent, Madeleine, L.L.C., and any other
person holding any Foothill Group Claim, and each of them, collectively and
individually.
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"Foothill Group Agent": Foothill Capital Corporation, a California
corporation, acting as agent for the members of the Foothill Group pursuant to
the Foothill Group Financing Documents, and any successor agent thereunder.
"Foothill Group Agreement": That certain Loan and Security Agreement,
dated as of May 29, 1998, between Parent Guarantor and Akashic, on the one hand
and, on the other hand, the Foothill Group, as the same may from time to time be
amended, modified, renewed, extended or restated.
"Foothill Group Claims": All present and future claims of the Foothill
Group against the Loan Parties for the payment of money arising under or related
to the Foothill Group Financing Documents.
"Foothill Group Financing Documents": The Foothill Group Agreement and
all present and future notes, guaranties, reimbursement agreements, security
documents or other documents or agreements in any way related to, evidencing, or
documenting the Foothill Group Claims, as the same may from time to time be
amended, restated, supplemented, modified, renewed, extended, replaced, or
refinanced.
"FSC": As set forth in the recitals to this Agreement.
"FSC Collateral Assignment": The Collateral Assignment, Patent Mortgage
and Security Agreement to be executed by FSC and Agent after the date hereof if
required pursuant to the terms of the FSC Security Agreement.
"FSC Security Agreement": The Amended and Restated Subsidiary Guarantor
Security Agreement dated as of the date hereof between FSC and Agent.
"Funded Debt": With respect to any Person, all Indebtedness for borrowed
money evidenced by notes, bonds, debentures, or similar evidences of
Indebtedness and which by its terms matures more than one year from, or is
directly or indirectly renewable or extendible at such Person's option under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year from the date of creation thereof,
and specifically including Capital Leases, current maturities of long-term debt,
revolving credit and short-term debt extendible beyond one year at the option of
the debtor, and also including, in the case of the Loan Parties, the Obligations
and all other obligations under the Loan Documents.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession.
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"General Intangibles": All of each Loan Party's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents": The certificate or articles of incorporation,
by-laws, or other organizational or governing documents of any Person.
"Governmental Authority": Any nation or government, any state or other
political subdivision thereof and any entity exercising executive legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantied Obligations": As defined in Section 10.01 of this Agreement.
"Guarantors": The Parent Guarantor and the Subsidiary Guarantors.
"Hazardous Materials": (a) Substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate,
if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Term Loan or on other Obligations, as the
case may be, under the laws of any jurisdiction whose laws may be mandatorily
applicable notwithstanding other provisions of this Agreement.
"Indebtedness": As applied to any Person, (a) all obligations of such
Person for borrowed money, (b) all obligations of any Person evidenced by bonds,
debentures, notes, or other similar instruments (except for and excluding notes
given to trade creditors with respect to trade payables of any Loan Party as to
which such Loan Party has been granted extended payment terms) and all
reimbursement or other obligations of any Person in respect of letters of
credit, bankers acceptances, interest rate swaps, or other financial products,
(c) all obligations of any
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Person under Capital Leases, (d) all obligations or liabilities of others
secured by a Lien on any property or asset of any Person, irrespective of
whether such obligation or liability is assumed, (e) any obligation of any
Person guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to such Person) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person, (f)
notes payable and drafts accepted representing extensions of credit whether or
not representing obligations for borrowed money; and (g) any obligation owed for
all or part of the deferred purchase price of property or services which
purchase price is (i) due more than twelve months from the date of incurrence of
the obligation in respect thereof, or (ii) evidenced by a note or similar
written instrument.
"Indemnified Liabilities": As defined in Section 3.05(a) of this
Agreement.
"Indemnified Person": As defined in Section 3.05(a) of this Agreement.
"Insolvency Event": As defined in Section 7.01(f) of this Agreement.
"Intellectual Property": As defined in Section 5.01(p) of this
Agreement.
"Interbank Agreement": That certain Amended and Restated Interbank
Agreement dated as the date hereof by and among the Agent, the Co-Agent, the
Banks and CIBC [Asia] Ltd., and acknowledged and agreed to by each of the Loan
Parties.
"Intercreditor Agreement": That certain Intercreditor Agreement, dated
as of May 29, 1998, between the Foothill Group Agent for and on behalf of the
Foothill Group and the Agent for and on behalf of the Banks, in form and
substance satisfactory to the Agent and the Banks.
"Interest Payment Date": As to any Base Rate Loan until paid in full,
the Maturity Date and, the last day of each calendar month, commencing on the
first of such days to occur after such Loan is made, converted or continued as a
Base Rate Loan. As to any LIBO Rate Loan, until payment in full, the last day of
such Interest Period and the Maturity Date.
"Interest Period": With respect to any LIBO Rate Loan:
(i) initially, the period commencing on the
borrowing or conversion date with respect to such LIBO Rate Loan and ending one
month thereafter as selected by Borrowers in their notice of borrowing or
conversion as provided in Section 2.05, respectively; and
(ii) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such LIBO Rate Loan and
ending one month thereafter as selected by Borrowers in their notice of
continuation as provided in Section 2.05;
provided that all of the foregoing provisions relating to Interest Periods are
subject to the following:
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(a) if any Interest Period for a LIBO Rate Loan would otherwise
end on a day that is not a LIBO Business Day, that Interest Period shall be
extended to the next succeeding LIBO Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding LIBO
Business Day;
(b) Borrowers may not select an Interest Period with respect to
any portion of principal of a LIBO Rate Loan which extends beyond the Maturity
Date; and
(c) there shall be no more than five (5) Interest Periods with
respect to LIBO Rate Loans outstanding at any time.
"Internal Revenue Code" or "IRC": The Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Inventory": With respect to (i) any Borrower, "Inventory", as defined
in the Borrower Security Agreement, (ii) the Parent Guarantor, "Inventory" as
defined in the Parent Guarantor Security Agreement and (iii) any Subsidiary
Guarantor, "Inventory", as defined in the Subsidiary Guarantor Security
Agreement to which such Subsidiary Guarantor is a party.
"Investment": As defined in Section 6.02(p).
"Investment Property": "Investment property" as that term is defined in
Section 9115 of the California Commercial Code.
"Lending Office": For each Bank, the office specified opposite such
Bank's name on Annex II hereto with respect to Base Rate Loans, and LIBO Rate
Loans, respectively.
"Letter of Credit Agreements": Three separate Letter of Credit
Agreements in substantially the form attached to the Interbank Agreement, among
the Agent, the Guarantor and each of Fleet National Bank, Sanwa Bank California,
and Union Bank of California, N.A., respectively.
"LIBO Business Day": A day which is a Business Day and a day on which
dealings in Dollar deposits may be carried out in the London interbank market.
"LIBO Rate": For each Interest Period for which the LIBO Rate is
selected, (i) the rate of interest determined by the Agent that is equal to the
London Interbank Offered Rate for U.S. Dollar deposits for the relevant Interest
Period and in the approximate amount of the relevant LIBO Rate Loan that appears
on the display appearing on page 3750 (under USD) of the Telerate Services
Incorporated Screen (or such other display as may replace such page on the
Telerate Screen) at 11:00 a.m. (London time) on the day that is two (2) LIBO
Business Days prior to the first day of such Interest Period, divided by (ii) a
number equal to 1.00 minus the aggregate (but without duplication) of the rates,
if any (expressed as a decimal) of reserve requirements in effect
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<PAGE> 21
on the day that is two (2) LIBO Business Days prior to the beginning of such
Interest Period (including basic, supplemental, marginal and emergency reserves
under any regulations of the Board of Governors of the Federal Reserve System or
other governmental authority having jurisdiction with respect thereto, as in
effect at the time the Agent quotes the rate to Borrowers) for Eurocurrency
funding of domestic assets (currently referred to as "Eurocurrency liabilities"
in Regulation D of such Board) which are required to be maintained by a member
bank of such System (such rate to be adjusted to the next higher 1/16 of 1%).
"LIBO Rate Loans": Loans hereunder at such time as they accrue interest
at a rate based upon the LIBO Rate.
"Lien": Any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease having the same economic effect as any of the
foregoing, and any agreement to give any security interest).
"Loan": The Term Loan.
"Loan Documents": This Agreement, the Fee Letter, the Security
Agreements, the Collateral Assignments, Debenture A, Debenture B, Debenture C,
Debenture D, Debenture E, Debenture F, Debenture G and Debenture H, the Strates
Legal Assignments, the AKT Debenture, the SIL Share Mortgage, the AKT Share
Charge, the Subsidiary Guaranty, the Interbank Agreement, the Side Letter, the
Letter of Credit Agreements and the letters of credit issued pursuant thereto,
the Intercreditor Agreement, the Seagate Subordination Agreement, the Warrants,
the Warrant Purchase Agreement, the Warrant Agreement Side Letter, the Release
Agreement and each other certificate or document delivered by any of the Loan
Parties to the Agent or any Bank prior to the date hereof or pursuant to Article
IV, any amendment to this Agreement or any other Loan Document, any waiver to
this Agreement or any other Loan Document, and any other agreement entered into
now, or in the future, certificate or document delivered by any Loan Party to
the Agent or any Bank which by its terms states that it is a Loan Document under
this Agreement.
"Loan Party" or "Loan Parties": As set forth in the introductory
paragraph of this Agreement.
"Majority Banks": As of any date of determination, Banks which are
collectively owed at least 51.0% of the then aggregate unpaid principal amount
of the Term Loan. For purposes of this definition, CIBC [Asia] Ltd. shall be
deemed to have fully drawn each letter of credit issued by the Banks party to
the Letter of Credit Agreements.
"Material Adverse Change": (a) A material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of any Loan Party, (b) the material
impairment of any Loan Party's ability to perform its obligations under the Loan
Documents to which it is a party or of the Agent or Banks to enforce the
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Obligations or realize upon the Collateral, (c) a material adverse effect on the
value of the Collateral or the amount that the Banks would be likely to receive
(after giving consideration to delays in payment and costs of enforcement) in
the liquidation of the Collateral, or (d) a material impairment of the priority
of the Liens with respect to the Collateral.
"Material Contract": Any contractual obligation to which a Loan Party is
a party (other than the Loan Documents) for which breach, nonperformance,
cancellation or failure to renew is reasonably likely to create a Material
Adverse Change.
"Maturity Date": May 29, 2000.
"Multiemployer Plan": A "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is maintained for employees of Loan Parties or any
ERISA Affiliate of Loan Parties.
"Negotiable Collateral": All of a Person's present and future letters of
credit, notes, drafts, instruments, Investment Property, documents, personal
property leases (wherein such Person is the lessor), chattel paper, and Books
relating to any of the foregoing.
"Net Sale Consideration": As defined in the Intercreditor Agreement.
"Obligations": The principal balance of the Term Loan, together with all
interest (including any interest that, but for the provisions of the United
States Bankruptcy Code, would have accrued), liabilities, obligations, fees,
charges, costs or expenses (including any fees or expenses that, but for the
provisions of the United States Bankruptcy Code, would have accrued),
guaranties, covenants, and duties owing by Loan Parties to the Banks of any kind
and description arising under, in connection with, related to, or incidental to
or evidenced by the Loan Documents and irrespective of whether for the payment
of money, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and further including all interest not
paid when due and all of the expenses of the Banks pursuant to Section 9.05
hereof that Loan Parties are required to pay or reimburse the Banks by the Loan
Documents, by law or otherwise, as any of the same may from time to time be
amended, modified, extended, renewed, restated, or increased by agreement.
"Option Rights": As defined in Section 5.01(d)(ii).
"Other Taxes": As defined in Section 3.11(b).
"Parent Guarantor": As set forth in the introductory paragraph of this
Agreement.
"Parent Guarantor Collateral Assignment": The Amended and Restated
Collateral Assignment, Patent Mortgage and Security Agreement dated as of the
date hereof between Parent Guarantor and Agent.
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"Parent Guarantor Security Agreement": The Amended and Restated Parent
Guarantor Security Agreement dated as of the date hereof between the Parent
Guarantor and the Agent.
"Pension Plan": Any employee plan which is subject to Section 412 of the
Internal Revenue Code and which is maintained for employees of Guarantor or any
ERISA Affiliate of Guarantor other than a Multiemployer Plan.
"Permitted Investments": (a) Direct obligations of the United States of
America, or any agency thereof if backed by the full faith and credit of the
United States of America, or obligations fully guaranteed by the United States
of America, or any agency thereof if backed by the full faith and credit of the
United States of America, in each case denominated in Dollars and maturing
within one (1) year from the date of creation thereof, (b) commercial paper,
denominated in Dollars, issued by a corporation (other than Loan Parties or any
Affiliate of any Loan Party) organized under the laws of any State of the United
States of America or the District of Columbia maturing within one (1) year from
the date of creation thereof rated in the highest grade by a nationally
recognized credit rating agency, (c) time deposits denominated in Dollars and
maturing within one (1) year from the date of creation thereof with, including
certificates of deposit issued by, any office located in the United States of
America of any bank or trust company which is organized under the laws of the
United States of America or any state thereof and has capital, surplus, and
undivided profits aggregating at least $500,000,000, or (d) shares of any money
market mutual fund holding only obligations denominated in Dollars rated at
least AAA or the equivalent thereof by Standard & Poor's Corporation or at least
AAA or the equivalent thereof by Moody's Investors Service, Inc.; provided that,
to the extent any such investment is made with Collateral, such investment shall
not be a Permitted Investment unless the security interest of the Agent therein
is perfected.
"Permitted Liens": (a) Liens held by the Agent for the benefit of the
Banks, (b) Liens for unpaid taxes that either (i) are not yet due and payable or
(ii) are the subject of Permitted Protests, (c) Liens set forth on Schedule X,
(d) (i) the interests of lessors under operating leases, and (ii) purchase money
Liens and the interests of lessors under Capital Leases to the extent that the
acquisition or lease of the underlying asset is permitted under Section 6.02(w)
and so long as the Lien only attaches to the asset purchased or acquired and
proceeds thereof and only secures the purchase price of the asset, (e) Liens
arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business of the Loan Parties and not in connection with the borrowing of
money, and which Liens either (i) are for sums not yet due and payable, or (ii)
are the subject of Permitted Protests, (f) Liens arising from deposits made in
connection with the procurement of utilities, the securing in ordinary course of
business of guaranties of repatriation of workers expatriated from the Peoples
Republic of China to Singapore or Malaysia, or the obtaining of Worker's
Compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of the Loan Parties and
not in connection with the borrowing of money, (h) Liens arising by reason of
security for surety or appeal bonds in the ordinary course of business of the
Loan Parties, (i) Liens of or resulting from any judgment or award that
reasonably could
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not be expected to result in a Material Adverse Change and as to which the time
for appeal or petition for rehearing of which has not yet expired, or in respect
of which the applicable Loan Party is in good faith prosecuting an appeal or
proceeding for a review and in respect of which a stay of execution pending such
appeal or proceeding for review has been secured, (j) easements, rights of way,
zoning and similar covenants and restrictions, and similar encumbrances that
customarily exist on real property of Persons engaged in similar activities and
similarly situated and that in any event do not materially interfere with or
impair the use or operation of the Collateral by the applicable Loan Party or
the value of any of the Agent's Liens thereon or therein, for the benefit of the
Banks, or materially interfere with the ordinary conduct of the business of the
Loan Parties, (k) subject to the terms and conditions of the Intercreditor
Agreement, Liens on the properties and assets of the Loan Parties in favor of
the Foothill Group Agent for the benefit of the Foothill Group, and (l) subject
to the terms and conditions of the Subordination Agreement with respect to the
Seagate Subordinated Debt, the Lien of Seagate on the Accounts of Parent
Guarantor owed to Parent Guarantor by Seagate.
"Permitted Protest": The right of the Loan Parties to protest any Lien
other than any such Lien that secures the Obligations, tax (other than payroll
taxes or taxes that are the subject of a foreign or United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of the applicable Loan Party in an amount
that is reasonably satisfactory to the Agent, (b) any such protest is instituted
and diligently prosecuted by the applicable Loan Party in good faith, and (c)
the Agent is satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Agent's
Liens in and to the Collateral.
"Person": An individual, partnership, limited liability company,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Plan": means any employee benefit plan, program, or arrangement,
maintained or contributed to by any Loan Party or with respect to which it may
incur liability.
"Potential Event of Default": A condition or event which, after notice
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within any applicable grace or cure period.
"Pro Forma": The unaudited pro forma consolidated balance sheet of the
Loan Parties, dated as of May 29, 1998 after giving effect to the transactions
contemplated by this Agreement and the Restructuring, attached hereto as
Schedule XI.
"Projections": The forecasted; (i) consolidated balance sheet of the
Loan Parties; (ii) consolidated income statements of the Loan Parties; (iii)
consolidated cash flow statements of the Loan Parties; (iv) consolidated
capitalization statements of the Loan Parties and (v) compliance with the
financial covenants set forth herein, all prepared by management of the Loan
Parties on a basis consistent with the Loan Parties' historical financial
statements for the period
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commencing on the Effective Date and ending in 2000, together with appropriate
supporting details and a statement of underlying assumptions, attached hereto as
Schedule XII.
"Real Property" With respect to any Person, all of such Person's present
and future right, title and interest (including, without limitation any
leasehold estate) in any plots, pieces or parcels of land, and any improvements,
buildings, structure and fixtures now or hereafter located or erected thereon or
attached thereto of every nature whatsoever.
"Regulations T, U and X": Regulations T, U and X, respectively,
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
"Release Agreement": The Release and Assurance of Future Nonimpairment
dated as of the date hereof among the Loan Parties on the one hand, and the
Agent, the Co-Agent, the Designated Issuer and the Banks on the other hand.
"Reportable Event": Any of the events described in Section 4043(c) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of thirty (30) days notice to the Pension Benefit Guaranty
Corporation is waived under applicable regulations.
"Requirement": As defined in Section 3.04 of this Agreement.
"Responsible Officer": Any of the President, Chief Financial Officer,
Controller, Assistant Controller or Treasurer of any Loan Party.
"Restructuring": As defined in the recitals to this Agreement.
"Retiree Health Plan": An "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Sale": As defined in the Intercreditor Agreement.
"Seagate": Seagate Technology, Inc., a Delaware corporation.
"Seagate Settlement Documents": The written documentation entered into
or to be entered into between the Parent Guarantor and Seagate relating to the
termination of the existing supply agreement between the parties, the exchange
of releases, and the incurrence of the Seagate Subordinated Debt, the form of
substance of which shall be acceptable to the Agent and the Banks.
"Seagate Subordinated Debt": Investment in the Parent Guarantor pursuant
to which Seagate will purchase from the Parent Guarantor (i) subordinated debt
in the principal amount of not less than $3,000,000 secured by a third priority
security interest in Accounts owing from
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Seagate to the Parent Guarantor and (ii) unsecured subordinated debt convertible
into Class A Common Stock in the principal amount of $5,000,000 in the form of
notes, the form and substance of which shall be acceptable to the Agent and the
Banks.
"Seagate Subordination Agreement": The Subordination Agreement dated as
of May 29, 1998 among the Agent, the Foothill Group Agent and Seagate, in form
and substance satisfactory to the Agent and the Banks.
"S.E.C.": The United States Securities and Exchange Commission and any
successor institution or body which performs the functions or substantially all
of the functions thereof.
"Securities Account": A "securities account" as that term is defined in
Section 8501 of the California Uniform Commercial Code.
"Securities Act": Securities and Exchange Act of 1934.
"Security Agreements": The Borrower Security Agreement, the Parent
Guarantor Security Agreement and the Subsidiary Guarantor Security Agreements.
"Side Letter": The amended and restated side letter agreement dated as
of the date hereof among the Agent, the Co-Agent, the Banks and the Loan
Parties.
"SIL": As set forth in the introductory paragraph of this Agreement.
"SIL Collateral Assignment": The Amended and Restated Collateral
Assignment, Patent Mortgage and Security Agreement dated as of the date hereof
between SIL and Agent.
"SIL Share Mortgage": The Amended and Restated Mortgage dated the date
hereof between the Parent Guarantor and Agent regarding the pledge of all of the
issued and outstanding capital stock of SIL.
"Solvent": With respect to any Person on a particular date, that on such
date (a) at fair valuations, all of the properties and assets of such Person are
greater than the sum of the debts, including contingent liabilities, of such
Person, (b) the present fair salable value of the properties and assets of such
Person (sold location by location to Persons intending to use those facilities
for the purpose for which they were designed and constructed) is not less than
the amount that will be required to pay the probable liability of such Person on
its debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that it will, incur debts beyond such Person's ability
to pay as such debts mature, and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's properties and assets would constitute unreasonably small capital
after giving due consideration to the prevailing practices in the industry in
which such Person is engaged. In computing the amount of contingent liabilities
at any time, it is intended that such liabilities will
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<PAGE> 27
be computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that reasonably can be expected to
become an actual or matured liability.
"Stock": All shares, options, warrants, interests, participations, or
other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or nonvoting, including common stock,
preferred stock, or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the S.E.C. under the
Securities Act, as amended).
"Strates": As set forth in the introductory paragraph of this Agreement.
"Strates Collateral Assignment": The Amended and Restated Collateral
Assignment, Patent Mortgage and Security Agreement dated as of the date hereof
between Strates and Agent.
"Strates Legal Assignments": The Legal Assignments between Strates and
Agent regarding the pledging of certain leasehold real property interests of
Strates.
"Subordinated Indebtedness: Indebtedness of a Loan Party that is the
subject of a Subordination Agreement.
"Subordination Agreement": A written subordination of indebtedness
agreement in form and substance satisfactory to the Agent whereby indebtedness
to a third Person is subordinated in right of payment to the Obligations.
"Subsidiary": With respect to any Person, any corporation, partnership,
limited liability company, joint venture, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
limited liability company or joint venture or (c) the beneficial interest in
such trust or estate, is at the time directly or indirectly owned or controlled
by such Person, but such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries. Unless the context requires
otherwise, any reference to a Subsidiary herein or in any of the Loan Documents
shall be deemed to be a reference to a Subsidiary of a Loan Party.
"Subsidiary Guarantors": Akashic, AKT and FSC, in their capacity as
guarantors pursuant to the Subsidiary Guaranty.
"Subsidiary Guarantor Security Agreements": The FSC Security Agreement,
the AKT Security Agreement and the FSC Security Agreement.
"Subsidiary Guaranty": The Subsidiary Guaranty dated as of the date
hereof executed by Akashic, AKT and FSC in favor of the Agent, the Co-Agent and
the Banks.
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"Taxes": As defined in Section 3.11(a).
"Term Loan": The Loans made in Dollars pursuant to the Existing Credit
Agreement, the outstanding principal amount of which, after giving effect to the
$10,000,000 principal payment to be made on the Effective Date, is
$38,333,333.00.
"Termination Event": (i) a "Reportable Event" described in Section 4043
of ERISA and the regulations issued thereunder (other than a "Reportable Event"
not subject to the provision for 30-day notice to the Pension Benefit Guaranty
Corporation under such regulations), or (ii) the withdrawal of any Loan Party or
any of its ERISA Affiliates from a Pension Plan during a plan year in which it
was a "substantial employer" as defined in Section 4001(l) (2) or 4068(f) of
ERISA, or (iii) the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under Section 4041 of
ERISA, or (iv) the institution of proceedings to terminate a Pension Plan by the
Pension Benefit Guaranty Corporation, or (v) any other event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan, or (vi) the imposition of a Lien
pursuant to Section 412(n) of the Internal Revenue Code.
"Warrant Agreement Side Letter": The Agreement re Exercise of Warrants
by and among the Banks, dated as of the date hereof.
"Warrant Purchase Agreement": The Warrant Purchase Agreement between the
Parent Guarantor on the one hand, and each Bank on the other hand, dated as of
the date hereof.
"Warrants": The Stock Purchase Warrants with respect to the Class A
Common Stock of the Parent Guarantor executed by the Parent Guarantor on the one
hand, and each Bank on the other hand, dated the date hereof.
"Wholly-Owned Subsidiary": A Subsidiary, all of the stock of every class
which, except (a) directors' qualifying shares and (b) any shares issued to
comply with local ownership legal requirements, is owned, directly or
indirectly, by a Loan Party.
"Working Capital": With respect to the Parent Guarantor and its
Subsidiaries on a consolidated basis, (i) all current assets of the Parent
Guarantor and its Subsidiaries as of any date of determination calculated in
accordance with GAAP, but excluding cash, cash equivalents and debts due from
Affiliates, minus (ii) all liabilities which should, in accordance with GAAP, be
classified as current liabilities, and in any event shall include all
Indebtedness payable on demand or within one year from any date of determination
without any option on the part of the obligor to extend or renew beyond such
year, all accruals for federal or other taxes based on or measured by income and
payable within such year, and the current portion of long-term debt required to
be paid within one year.
"Year 2000 Compliant": With regard to any Person, that all software in
goods produced or sold by, or utilized by and material to the business
operations or financial condition of, such
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Person are able to interpret and manipulate data on and involving all calendared
dates correctly and without causing any abnormal ending scenario, including in
relation to dates in and after the year 2000.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any Loan Document or any certificate or other document
made or delivered pursuant hereto, unless otherwise defined therein.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto, accounting
terms not defined in Section 1.01, and accounting terms partly defined in
Section 1.01 to the extent not defined, shall have the respective meanings given
to them under GAAP, unless otherwise defined herein or therein, as the case may
be. In the event that GAAP changes during the term of this Agreement such that
the financial covenants contained in any affected subsection of Section 6.02
would then be calculated in a different manner or with different components, (i)
Loan Parties and the Banks agree to negotiate to amend this Agreement in such
respects as are necessary to conform those covenants as criteria for evaluating
Loan Parties' financial condition to substantially the same criteria as were
effective prior to such change in GAAP and (ii) Loan Parties shall be deemed to
be in compliance with the financial covenants contained in such Sections,
pending reaching agreement on such amendment, following any such change in GAAP
if and to the extent that Loan Parties would have been in compliance therewith
under GAAP as in effect immediately prior to such change.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. All article,
section, subsection, schedule and exhibit references are to this Agreement
unless otherwise specified.
(d) So long as Loan Parties do not have any Subsidiaries,
references to a Subsidiary or Subsidiaries in this Agreement shall be deemed to
be deleted.
(e) The terms defined in this Section 1.01 include the plural as
well as the singular. Pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms. The terms "includes" and "including" shall
not be construed to imply any limitation.
(f) Unless the context otherwise requires, each reference herein
to any agreement, document or instrument (including the Loan Documents) shall be
deemed to be a reference to such agreement, document or instrument as amended,
restated, supplemented or otherwise modified from time to time.
ARTICLE II
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THE TERM LOAN
SECTION 2.01. THE TERM LOAN.
(a) The Term Loan. The Term Loan was advanced to the Borrowers
pursuant to the Existing Credit Agreement and the outstanding principal balance
thereof, as of the Effective Date, shall continue as the Term Loan under this
Agreement. Each of the Loan Parties agree, ratify and confirm to the Agent, the
Co-Agent and the Banks that the Term Loan, together with all accrued and unpaid
interest thereon, is due and owing to the Banks and is not subject to any
offset, counterclaim or defenses.
(b) Notations Regarding Term Loan. Each Bank is hereby authorized
to record in its books and records the amount of the Term Loan and, in the case
of LIBO Rate Loans, the Interest Period and interest rate with respect thereto
and any such recordation shall constitute prima facie evidence of the accuracy
of the information so recorded; provided that failure by any Bank to effect such
recordation shall not affect Borrowers' obligations hereunder.
SECTION 2.02. FEES. From time to time, Borrowers shall pay to the Agent
and the Banks non-refundable fees in the amount agreed to separately between
such parties pursuant to the Fee Letter between Agent and the Loan Parties.
SECTION 2.03. REPAYMENT AND PREPAYMENT.
(a) Scheduled Principal Installments. Subject to subsections (b)
and (c) of this Section 2.03, the Borrowers shall repay the Term Loan in
installments in the following amounts on the following dates:
<TABLE>
<CAPTION>
Installment Due Date Installment Amount
-------------------- ------------------
<S> <C>
October 30, 1998 $5,000,000
May 31, 1999 $5,000,000
August 31, 1999 $5,000,000
November 30, 1999 $5,000,000
February 28, 1999 $5,000,000
</TABLE>
The outstanding principal balance of the Term Loan, together with all accrued
and unpaid interest, fees and other Obligations, shall be paid in full on or
before the Maturity Date. To the extent that any proceeds of Sales are paid to
the Agent on behalf of the Banks in accordance with Section 2.03(c)(1) of this
Agreement and the Intercreditor Agreement prior to the scheduled October 30,
1998 installment, then such payment shall be applied to reduce,
dollar-for-dollar, the amount of such installment amount due and owing on
October 30, 1998.
(b) Optional Prepayment. Borrowers may at their option prepay the
Term Loan, in whole or in part, at any time and from time to time, provided that
the Agent shall
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<PAGE> 31
have received from Borrowers notice of any such payment at least one Business
Day prior to the date of the proposed payment if such date is not the last day
of the then current Interest Period for the Term Loan being paid, in each case
specifying the date and the amount of payment. Partial prepayments hereunder
shall be in an aggregate principal amount of the lesser of (i) One Million
Dollars ($1,000,000) or any integral multiple thereof and (ii) the outstanding
balance of the Loan being paid. Optional prepayments on the Term Loan shall be
applied to reduce scheduled principal installment payments in the inverse order
of maturity.
(c) Mandatory Prepayment. Borrowers shall make the following
mandatory prepayments on the Term Loan:
(i) Immediately upon receipt thereof, the Borrowers shall make a
mandatory prepayment on the Term Loan in an amount equal to that portion
of the Net Sale Consideration with respect to any Sale or the net
proceeds with respect to any other disposition of assets, in each case,
which is required to be paid to the Agent or the Banks pursuant to the
Intercreditor Agreement. To the extent that a Purchaser Note (as defined
in Section 17(a) of the Intercreditor Agreement) is pledged to or
received by the Agent pursuant to the Intercreditor Agreement, such
Purchaser Note shall not constitute a payment in respect of the Term
Loan or any other Obligation unless, and to the extent, cash payments
are actually received by Agent thereunder.
(ii) To the extent permitted to be made pursuant to Section
7.8(a) of the Foothill Group Agreement (as in effect on the Effective
Date) on the earlier of (A) ninety (90) days after the end of each
Fiscal Year of the Parent Guarantor and (B) the date the annual audited
financial statements of the Parent Guarantor are delivered to the Banks
pursuant to Section 6.01(b), the Borrowers shall make a mandatory
prepayment on the Term Loan in an amount equal to 50% of any Excess Cash
Flow for such Fiscal Year.
(iii) To the extent permitted to be made pursuant to Section
7.8(a) of the Foothill Group Agreement (as in effect on the Effective
Date) immediately upon receipt thereof, the Borrowers shall make a
mandatory prepayment on the Term Loan in an amount equal to fifty
percent (50%) of the net proceeds of an Equity Issuance not including
proceeds of exercise of Warrants or Option Rights issued on or prior to
the Effective Date which closes after the Effective Date, provided, that
the prepayment under this Section 2.03(c)(iii) shall be required only in
respect of and to the extent that the aggregate net proceeds from all
Equity Issuances of the Loan Parties exceeds $10,000,000.
All mandatory prepayments of the Term Loan shall be applied to reduce scheduled
principal installment payments in the inverse order of maturity.
SECTION 2.04. INTEREST RATE AND PAYMENT DATES.
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(a) Payment of Interest. Interest with respect to each Loan shall
be payable in arrears on each Interest Payment Date for such Loan.
(b) Base Rate Loans. Loans that are Base Rate Loans at any time
shall bear interest on the unpaid principal amount thereof at a rate per annum
equal to the Base Rate in effect at such time plus two percent (2.00%).
(c) LIBO Rate Loans. Loans that are LIBO Rate Loans shall bear
interest for each Interest Period with respect thereto on the unpaid principal
amount thereof at a rate per annum equal to the lesser of (i) the LIBO Rate
determined for such Interest Period in accordance with the terms hereof plus
three percent (3.00%) and (ii) the maximum interest rate per annum permitted
under applicable law.
(d) Interest After an Event of Default. Effective upon notice
from the Agent or the Majority Banks at any time after an Event of Default has
occurred and until the earlier of (i) the date all Obligations have been paid in
full in cash and (ii) the date as to which such Event of Default is waived or
cured, the Term Loan shall bear interest calculated at a rate per annum equal to
the Base Rate plus four percent (4.00%), payable upon demand or, in the case of
LIBO Rate Loans, all such outstanding LIBO Rate Loans shall bear interest
calculated at a rate per annum equal to the LIBO Rate for the Interest Period,
in each case, in effect for such LIBO Rate Loan plus five percent (5.00%),
payable at the end of such Interest Period. Upon the expiration of the Interest
Period in effect, such LIBO Rate Loans shall thereupon become Base Rate Loans
and shall thereafter bear interest payable upon demand at a rate per annum equal
to the rate set forth in subparagraph (i) above.
SECTION 2.05. CONTINUATION AND CONVERSION OPTIONS. Borrowers may elect
from time to time to convert all or a portion of the outstanding Term Loan
bearing interest at a rate determined by reference to one basis to a Term Loan
bearing interest at a rate determined by reference to an alternative basis by
giving the Agent irrevocable notice in the form of Exhibit A not later than
11:00 a.m., New York time, (i) at least one (1) Business Day prior to an
election to convert LIBO Rate Loans to Base Rate Loans and (ii) at least five
(5) LIBO Business Days' prior to an election to convert Base Rate Loans to LIBO
Rate Loans; provided that any conversion of LIBO Rate Loans shall only be made
on the last day of an Interest Period with respect thereto; provided, further
that no Base Rate Loan may be converted to a LIBO Rate Loan so long as an Event
of Default or Potential Event of Default has occurred and is continuing.
Borrowers may elect from time to time to continue their outstanding LIBO Rate
Loans upon the expiration of the Interest Period(s) applicable thereto by giving
to the Agent irrevocable notice in the form of Exhibit A not later than 11:00
a.m., New York time, at least five (5) LIBO Business Days' prior to continuation
of a LIBO Rate Loan, and the succeeding Interest Period(s) of such continued
LIBO Rate Loan will commence on the last day of the Interest Period of the LIBO
Rate Loan to be continued, provided that no LIBO Rate Loan may be continued as a
LIBO Rate Loan so long as an Event of Default or Potential Event of Default has
occurred and is continuing. Each notice electing to convert or continue all or a
portion of the Term Loan shall specify: (i) the proposed conversion/continuation
date; (ii) the amount of the Term Loan to be converted/continued;
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<PAGE> 33
(iii) the nature of the proposed continuation/conversion; and (iv) in the case
of a conversion to, or continuation of a LIBO Rate Loan, the requested Interest
Period, and shall certify that no Event of Default or Potential Event of Default
has occurred and is continuing. Promptly following receipt of such notice, the
Agent shall notify each Bank of the contents of such notice, and of the
effective interest rate. On the date on which such conversion or continuation is
being made the applicable Lending Office(s) of each Bank shall take such action
as is necessary to effect such conversion or continuation. In the event that no
notice of continuation or conversion is received by the Agent with respect to
outstanding LIBO Rate Loans, upon expiration of the Interest Period(s)
applicable thereto, such LIBO Rate Loans shall convert to Base Rate Loans.
Subject to the limitations set forth in this Section and in the definition of
Interest Period, all or any part of the outstanding Term Loan may be converted
or continued as provided herein, provided that partial conversions or
continuations of any Base Rate Loan to a LIBO Rate Loan shall be in an aggregate
minimum amount of Five Million Dollars ($5,000,000) or an integral multiple of
One Million Dollars ($1,000,000) in excess thereof and any conversion of a LIBO
Rate Loan to a Base Rate Loan shall be in an aggregate minimum amount of One
Million Dollars ($1,000,000) or an integral multiple of Five Hundred Thousand
Dollars ($500,000) in excess thereof. The notice of conversion/continuation may
be given orally (including telephonically), and shall be promptly confirmed by a
notice of conversion/continuation in writing, or in writing (including facsimile
transmission) and any conflict regarding a notice or between an oral notice and
a written notice applicable to a particular Base Rate Loan or LIBO Rate Loan
shall be conclusively determined in the absence of manifest error by the Agent's
books and records. The Agent's failure to receive any written notice of
conversion and continuation of a particular Base Rate Loan or LIBO Rate Loan
shall not relieve Borrowers of their obligations to repay the Term Loan and to
pay interest thereon. The Agent shall not incur any liability to Borrowers in
acting upon any notice of conversion and continuation of a particular Base Rate
Loan or LIBO Rate Loan which the Agent believes in good faith to have been given
by a Person duly authorized to borrow on behalf of Borrowers.
SECTION 2.06. COMPUTATION OF INTEREST AND FEES.
(a) Calculations. Interest in respect of the Base Rate Loans
shall be calculated on the basis of a 365/366 day year for the actual days
elapsed. Any change in the interest rate on a Base Rate Loan resulting from a
change in the Base Rate shall become effective as of the opening of business on
the day on which such change in the Base Rate shall become effective. Interest
in respect of the LIBO Rate Loans and all fees hereunder shall be calculated on
the basis of a 360 day year for the actual days elapsed.
(b) Determination by Agent. Each determination of an interest
rate or fee by the Agent pursuant to any provision of this Agreement shall be
conclusive and binding on Borrowers in the absence of manifest error.
ARTICLE III
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<PAGE> 34
GENERAL PROVISIONS CONCERNING THE TERM LOAN
SECTION 3.01. USE OF PROCEEDS. The proceeds of the Term Loan shall be
used by Borrowers for general corporate purposes, including capital expenditures
and working capital. On, or as soon as practicable after the Effective Date the
Agent and Loan Parties shall jointly provide Bank of America with a written
notification that any and all restrictions on Account #12331-62058 are removed
and the Loan Parties shall be able to use any and all such funds deposited in
such account for any lawful corporate purpose.
SECTION 3.02. PAYMENTS. Borrowers shall make each payment of principal,
interest and fees hereunder, without setoff or counterclaim, not later than
11:00 a.m., New York time, on the day when due in lawful money of the United
States of America to the account of the Agent designated on the signature pages
hereof (or such other account as may be designated by the Agent) in immediately
available funds. The Agent shall promptly pay to the applicable Lending Office
of each Bank its pro rata share of each payment of principal, interest, and fees
received by the Agent.
SECTION 3.03. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business Day,
such payment may be made on the next succeeding Business Day (except as provided
in the definition of Interest Payment Date), and with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
SECTION 3.04. REDUCED RETURN. If any Bank shall have determined that any
applicable law, regulation, rule or regulatory requirement ("Requirement")
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, in any such case, effective or announced
after the date hereof, has or would have the effect of reducing the rate of
return on that Bank's capital as a consequence of the making and holding of the
Term Loan or the issuance of any letter of credit pursuant to the Letter of
Credit Agreements (taking into consideration that Bank's policies with respect
to capital adequacy) by an amount deemed by that Bank to be material (which
amount shall be determined by that Bank's reasonable allocation of the aggregate
of such reductions resulting from such events), then from time to time, within
five (5) Business Days after demand by such Bank, Borrowers jointly and
severally agree to pay to that Bank such additional amount or amounts as will
compensate that Bank for such reduction; provided, however, that Borrowers shall
not be obligated to pay any Bank for any such additional amount incurred more
than one hundred and eighty (180) days prior to the date of demand for payment
by such Bank, provided, further, however, that Borrowers shall not be obligated
to pay any Bank for any additional amount otherwise payable pursuant to this
Section 3.04 to the extent such amount is reflected in adjustments to the
interest rates applicable to the Term Loan. Each Bank making a claim for
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<PAGE> 35
payment under this Section 3.04 shall submit an invoice to the Agent and the
Agent shall promptly transmit such invoice to Borrowers for the amount claimed
to be owed by Borrowers, showing in reasonable detail the calculations necessary
to determine the amount. Such statement shall be conclusive in the absence of
manifest error; provided, further, that this Section shall not apply to any
increased cost or reduced amount receivable as the result of Taxes or Other
Taxes.
SECTION 3.05. INDEMNITIES.
(a) General Indemnity. Whether or not the transactions
contemplated hereby shall be consummated, each Loan Party jointly and severally
agrees to indemnify, pay and hold the Agent, the Co-Agent and each Bank, and the
shareholders, officers, directors, Affiliates, employees and agents of the
Agent, the Co-Agent and each Bank (each, an "Indemnified Person"), harmless from
and against any and all claims, liabilities, losses, damages, costs and
expenses, including reasonable attorneys' fees and costs (including the
reasonable estimate of the allocated cost of in-house legal counsel and staff)
and including costs of investigation, document production, attendance at
deposition or other discovery, that may be incurred by or asserted against any
Indemnified Person, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with the transactions contemplated by this Agreement, any Loan
Document, the Restructuring or any contemplated use of the proceeds of the Term
Loan, or the issuance of any letter of credit pursuant to any Letter of Credit
Agreement, whether or not an Indemnified Person is a party thereto
(collectively, the "Indemnified Liabilities"), except to the extent that such
Indemnified Liabilities result from the gross negligence or wilful misconduct of
the Agent, the Co-Agent or any Bank. If any claim is made, or any action, suit
or proceeding is brought, against any Indemnified Person described in this
Section, the Indemnified Person shall notify Loan Parties of such claim or of
the commencement of such action, suit or proceeding, and Loan Parties shall have
the option to, and at the request of the Indemnified Person shall, jointly
direct and control the defense of such action, suit or proceeding, employing
counsel selected by Loan Parties and reasonably satisfactory to the Indemnified
Person, and pay the fees and expenses of such counsel; provided, however, that
any Indemnified Person may at its own expense retain separate counsel to
participate in such defense. Notwithstanding the foregoing, such Indemnified
Person shall have the right to employ separate counsel at the expense of the
Loan Parties, jointly and severally, and to control and direct its own defense
of such action, suit or proceeding if, in the reasonable opinion of counsel to
such Indemnified Person, (i) there are or may be legal defenses available to
such Indemnified Person or to other Indemnified Persons that are different from
or additional to those available to any Loan Party that such Loan Party cannot
assert, or (ii) a conflict or potential conflict exists between any Loan Party
and such Indemnified Person that would make such separate representation
advisable. Each Loan Party agrees that it will not, without the prior written
consent of the Agent, the Co-Agent and each other Indemnified Person settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding with respect to which the indemnification
provided for in this Section is available (whether or not any Indemnified Person
is a party thereto) unless such settlement, compromise or consent includes an
unconditional release of the Agent, the Co-Agent and each
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other Indemnified Person from all liability arising or that may arise out of
such claim, action, suit or proceeding. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 3.05 may be
unenforceable because it is violative of any law or public policy, each Loan
Party shall contribute the maximum portion which it is permitted to pay and
satisfy under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by any Indemnified Person.
(b) Funding Losses. The Loan Parties jointly and severally agree
to indemnify each Bank and to hold each Bank harmless from any loss or expense
(excluding loss of anticipated profits), including any such loss or expense
arising from interest or fees payable by such Bank to lenders of funds obtained
by it in order to maintain its LIBO Rate Loans hereunder, which such Bank may
sustain or incur as a consequence of (i) default by Borrowers in payment of the
principal amount of or interest on the LIBO Rate Loans, (ii) default by
Borrowers in making a conversion or continuation after Borrowers have given a
notice thereof, (other than pursuant to Section 3.07 or 3.09), (iii) default by
any Loan Party in making any payment after the Loan Party has given a notice of
payment, (iv) Borrowers making any payment of a LIBO Rate Loan, or converting a
LIBO Rate Loan, on a day other than the last day of the Interest Period for such
Loan, or (v) default by the Guarantors in payment of any and all sums due and
payable under Article X or the applicable Subsidiary Guaranty. For purposes of
this Section and Section 3.09, it shall be assumed that the affected Bank had
funded or would have funded 100%, as the case may be, of a LIBO Rate Loan in the
London interbank market for a corresponding amount and term. Each Bank making a
claim for payment under this Section shall submit to the Agent, who shall
promptly transmit it to Loan Parties, an invoice for the amount claimed to be
owed by the Loan Parties, showing in reasonable detail the calculations
necessary to determine the amount. The determination of such amount by such Bank
shall be presumed correct in the absence of manifest error.
SECTION 3.06. FUNDING SOURCES. Except to the extent provided in Sections
3.08, 3.09 and 3.11(f), nothing in this Agreement shall be deemed to obligate
any Bank to obtain funds for any Loan in any particular place or manner or to
constitute a representation by any Bank that it has obtained or will obtain the
funds for all or any portion of the Term Loan in any particular place or manner.
SECTION 3.07. INABILITY TO DETERMINE INTEREST RATE. In the event that
any Bank shall have determined (which determination shall be conclusive and
binding upon Borrowers) that by reason of circumstances affecting the London
interbank market, the LIBO Rate applicable pursuant to Section 2.04 for any
Interest Period with respect to a LIBO Rate Loan does not adequately cover the
cost of funding such Loan, such Bank shall forthwith give notice of such
determination to Borrowers and the Agent not later than 9:00 a.m., New York
time, on the requested funding date, conversion date or the last day of an
Interest Period of a Loan which was to have been continued as a LIBO Rate Loan.
If such notice is given and has not been withdrawn (i) any Loan that was to have
been made as a LIBO Rate Loan, shall be made as a Base Rate Loan, (ii) any Base
Rate Loan that was to have been converted to a LIBO Rate Loan shall be
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continued as a Base Rate Loan and (iii) any outstanding LIBO Rate Loan shall be
converted, on the last day of the then current Interest Period with respect
thereto, to a Base Rate Loan. Until such notice has been withdrawn by such Bank,
Borrowers shall not have the right to convert a Base Rate Loan to a LIBO Rate
Loan. The affected Bank will review the circumstances affecting the London
interbank market from time to time and such Bank will withdraw such notice at
such time as it shall determine that the circumstances giving rise to said
notice no longer exist.
SECTION 3.08. REQUIREMENTS OF LAW. Without duplication of any amounts
payable under Section 3.04 or 3.11, in the event that (i) the enactment or
issuance of or any change in any law, regulation or directive or in the
interpretation or application thereof or (ii) compliance by any Bank with any
request or directive (whether or not having the force of law) from any central
bank or other governmental authority, agency or instrumentality, in any such
case, effective or announced after the date hereof:
(a) does or shall impose, modify or hold applicable any reserve,
assessment rate, special deposit, compulsory loan or other requirement against
assets held by, or deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any other acquisition of
funds by, any office of such Bank which are not otherwise included in the
determination of any LIBO Rate Loan or the conversion or continuation date of
the Term Loan;
(b) does or shall impose on any Bank any other condition; and the
result of any of the foregoing is to increase the cost to any Bank of
maintaining the LIBO Rate Loans, then, in any such case, Borrowers shall pay to
such Bank within three (3) Business Days of its demand, any additional amounts
necessary to compensate such Bank for such additional cost or reduced amount
receivable as determined by such Bank with respect to this Agreement; provided,
however, that Borrowers shall not be obligated to pay any Bank for any such
additional cost or reduced amount incurred more than one hundred and eighty
(180) days prior to the date of demand for payment by such Bank provided,
further, that before making such demand, each Bank agrees to use its reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different lending office if the making of such a
designation would avoid, or reduce the amount of, such additional cost or
reduced amount, and would not, in the reasonable judgment of such Bank, be
otherwise disadvantageous to the Bank; provided, further, that Borrowers shall
not be obligated to pay any Bank for any additional amount otherwise payable
pursuant to this Section 3.08 to the extent such amount is reflected in
adjustments to the interest rates applicable to the Term Loan. Each Bank making
a claim for payment under this Section 3.08 shall submit an invoice to the Agent
and the Agent shall promptly transmit such invoice to Borrowers, for the amount
claimed to be owed by Borrowers, showing in reasonable detail the calculations
necessary to determine the amount. Such statement shall be conclusive in the
absence of manifest error; provided, further, that this Section shall not apply
to any increased cost or reduced amount receivable as the result of Taxes or
Other Taxes.
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SECTION 3.09. ILLEGALITY. Notwithstanding any other provisions herein,
if the introduction of or any change in or in the interpretation or application
of any law, regulation, treaty or directive, in any such case, effective or
announced after the date hereof, shall make it unlawful, or any central bank or
other governmental authority shall assert after the date hereof that it is
unlawful, for any Bank to maintain LIBO Rate Loans as contemplated by this
Agreement, (a) the agreement of such Bank hereunder to make LIBO Rate Loans or
convert Base Rate Loans to LIBO Rate Loans shall forthwith be canceled and (b)
such Bank's Loans then outstanding as LIBO Rate Loans, if any, shall be
converted automatically to Base Rate Loans on the next succeeding Interest
Payment Date or within such earlier period as allowed by law; provided, further,
that before such cancellation and conversion, such Bank agrees to use its
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different lending office if the making of such a
designation would avoid the need for such cancellation and conversion and would
not, in the reasonable judgment of such Bank, be otherwise disadvantageous to
the Bank. Borrowers jointly and severally agree to pay any Bank, within three
(3) Business Days of its demand, any additional amounts necessary to compensate
such Bank for any costs (excluding loss of anticipated profits) incurred by such
Bank in making any conversion in accordance with this Section, including any
interest or fees payable by such Bank to lenders of funds obtained by it in
order to make or maintain its LIBO Rate Loans hereunder (such Bank's notice of
such costs, as certified to Borrowers and the Agent shall be conclusive absent
manifest error).
SECTION 3.10. RIGHT TO REPLACE BANK. If Borrowers shall, as a result of
the requirements of Sections 3.04, 3.05(b), 3.07, 3.08, 3.09, or 3.11 be
required to pay any Bank the additional costs referred to in such Sections or if
any Bank fails to make available its ratable portion of any Loan, Borrowers
shall have the right to substitute another Financial Institution satisfactory to
Agent (whose approval will not be unreasonably withheld or delayed) for such
Bank which has submitted an invoice for such additional costs or has failed to
make available, its ratable portion of the Term Loan. Any such substitution
shall be on terms and conditions satisfactory to the Agent. Until such time as
such substitution shall be consummated, Borrowers shall continue to pay any
additional costs invoiced by such Bank and shall continue to pay all other
amounts payable to such Bank hereunder. The substituting Financial Institution
and the Bank that is being replaced shall execute and deliver an Assignment
Agreement substantially in the form of Exhibit B, and the terms of the second
sentence of Section 9.06(a) shall apply to such substitution. Upon any such
substitution, Borrowers jointly and severally agree to pay or cause to be paid
to the Bank that is being replaced, all principal, interest (to the date of such
substitution) and other amounts owing hereunder to such Bank.
SECTION 3.11. TAXES
(a) Payments. Subject to the following sentence, all payments by
any Loan Party hereunder or under any Loan Document shall be made free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank, the Co- Agent and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the
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jurisdiction under the laws of which such Bank (or the applicable Lending Office
of such Bank), the Co-Agent or the Agent (as the case may be) is organized or
any political subdivision thereof and, in the case of each Bank, the Co-Agent or
the Agent, taxes imposed on its income, and franchise taxes imposed on it, by
the jurisdiction of the office or branch in which such Bank, the Co-Agent or the
Agent books the Term Loan or any political subdivision thereof (all such non-
excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If any Loan Party shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Loan Document to any Bank, the Co-Agent or the Agent, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 3.11) such Bank, the Co-Agent or the Agent, as the case may
be, receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Loan Party shall make such deductions and (iii)
such Loan Party shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law; provided that
any Loan Party shall not be required pursuant to clause (i) above to increase
the sum payable to any Bank, the Co-Agent or the Agent organized under the laws
of a jurisdiction outside of the United States if such Bank, the Co-Agent or the
Agent, as the case may be, shall have failed to provide either the forms or
documents referred to in Section 3.11(e) indicating exemption from (or reduction
via applicable tax treaty of) Singapore withholding tax.
(b) Other Taxes. In addition, Loan Parties jointly and severally
agree to pay any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies (other than those taxes,
levies, imposts, deductions, charges, withholdings and liabilities excluded
pursuant to Section 3.11(a) above) which arise from any payment made hereunder
or from the execution, delivery or registration of, or otherwise with respect to
the Loan Documents (hereinafter referred to as "Other Taxes").
(c) Indemnity. Loan Parties jointly and severally indemnify each
Bank, the Co-Agent and the Agent for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.11) paid by such Bank, the
Co-Agent or the Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted;
provided, in the case of Taxes or Other Taxes imposed by jurisdictions outside
of the United States of America, Loan Parties shall not be required to indemnify
any Bank, the Co-Agent or the Agent for any liability resulting from the failure
of such Bank, the Co-Agent or the Agent to notify Loan Parties on a timely basis
of the assertion of such Taxes or Other Taxes. This indemnification shall be
made within thirty (30) days from the date such Bank, the Co-Agent or the Agent
(as the case may be) makes written demand therefor. Each Bank, the Co-Agent and
the Agent agree to reimburse Loan Parties for amounts paid by Loan Parties
pursuant to this Section 3.11 to the extent that such Bank, the Co-Agent or the
Agent actually recovers all or any portion of such amounts from the applicable
taxing authority which recovery is specifically designated by such taxing
authority as being applicable to such amounts.
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(d) Evidence of Payment. Within sixty (60) days after the date of
any payment of Taxes, Loan Parties will furnish to the Agent, at its address
referred to in Section 9.02, the original or a certified copy of a receipt
evidencing payment thereof or other evidence of the payment thereof satisfactory
to the Agent.
(e) Forms. Prior to the date hereof in the case of the Agent and
each Bank listed on the signature pages hereof, and on the date of the
Assignment Agreement (or any other agreement) pursuant to which it became a Bank
in the case of each other Bank (and, in each case, from time to time thereafter
if requested by Loan Parties or the Agent), the Agent, each Bank (or the
applicable Lending Office of such Bank) if organized under the laws of Singapore
shall provide the Agent and the Loan Parties with the forms prescribed by the
Inland Revenue Authority of Singapore certifying as to such Bank's, or the
Agent's status for purposes of determining exemptions from Singapore withholding
taxes with respect to all payments to be made to such Bank, or the Agent
hereunder or other documents satisfactory to Loan Parties and the Agent
indicating that all payments to be made to such Bank or the Agent, as the case
may be, hereunder are subject to such taxes at a rate reduced by an applicable
tax treaty. Unless Loan Parties and the Agent have received forms or other
documents satisfactory to them indicating that payments hereunder are not
subject to Singapore withholding tax, Loan Parties or the Agent shall withhold
taxes from such payments at the applicable statutory rate or such lower rate as
provided in an applicable tax treaty (if such Bank or the Agent, if applicable,
has provided the required forms entitling it to such reduced withholding rate)
in the case of payments to or for any Bank, or the Agent if organized under the
laws of Singapore.
(f) Change of Booking Office. Any Bank or Agent claiming any
additional amounts payable pursuant to this Section 3.11 shall use its
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of the office or branch in which it
books the Term Loan if the making of such a change would avoid the need for, or
reduce the amount of, any such additional amounts which may thereafter accrue
and would not, in the reasonable judgment of such Bank or Agent, be otherwise
disadvantageous to such Bank or Agent.
(g) Indemnities. Without limiting the generality of Section 3.11
and for the avoidance of doubt, the Loan Parties jointly and severally agree to
indemnify each Bank, the Co-Agent and the Agent against all penalties, fines,
costs or other expenses howsoever suffered or incurred by any Bank, the Co-Agent
or the Agent arising out of or in connection with any Loan Documents or
amendments from time to time made to this Agreement (including any
non-compliance by such Bank, the Co-Agent or the Agent with any taxation or
other laws or regulations of the State of California or any other jurisdiction)
except for any penalties, fines, costs or other expenses suffered or incurred on
account of (i) any gross negligence or wilful misconduct of such Bank, the
Co-Agent or the Agent, or (ii) failure by any Bank, the Co-Agent or the Agent
organized under the laws of a jurisdiction outside of the United States to
provide either the forms or documents referred to in Section 3.11(e) indicating
exemption from (or reduction via applicable tax treaty of) Singapore withholding
tax.
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SECTION 3.12. SHARING OF PAYMENTS, ETC. Except with respect to the
reduction of the Term Loan of any Bank in lieu of making a cash payment upon
exercise of the Warrants in accordance with the terms thereof and the Warrant
Agreement Side Letter, if any Bank shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) on
account of the obligations of the Loan Parties under the Loan Documents, in
excess of its ratable share of payments on account of all obligations of the
Loan Parties under the Loan Documents obtained by all the Banks, then such Bank
shall forthwith purchase from the other Banks such participations in the Term
Loan owing to them as shall be necessary to cause such purchasing Bank to share
the excess payment ratably with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from such purchasing
Bank, such purchase from each Bank shall be rescinded and such Bank shall repay
to the purchasing Bank the purchase price to the extent of such recovery
together with an amount equal to the Bank's ratable share (according to the
proportion of (i) the amount of such Bank's required repayment to (ii) the total
amount so recovered from the purchasing Bank) of any interest or other amount
paid or payable by the purchasing Bank in respect of the total amount so
recovered. Borrowers agree that any Bank so purchasing a participation from
another Bank pursuant to this Section 3.12 or Section 9.06 of this Agreement
may, to the fullest extent permitted by law, exercise all of its rights of
payment (including the right to set-off) with respect to such participation as
fully as if such Bank were the direct creditor of the Loan Parties in the amount
of such participation.
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
SECTION 4.01. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall become effective on the date on or before May 29, 1998 (the
"Effective Date") on which all of the following conditions shall have been
satisfied or waived:
(a) Documents. The Agent shall have received on or before the
date hereof the following, each dated the date hereof (except for the document
referred to in clause (iii)), in form and substance satisfactory to the Agent
and in sufficient copies for each Bank:
(i) Copies of the Certificate of Incorporation or
equivalent document of each Loan Party, certified by the appropriate agency of
the jurisdiction in which it is incorporated or organized (or, if such agency
does not provide such certification, then by the Secretary, Assistant Secretary
or a director of such Loan Party) as being true, correct and complete copies and
in full force and effect as of the date hereof;
(ii) Copies of the Bylaws or the Memorandum and Articles
of Association or equivalent document of each Loan Party, certified by the
Secretary, Assistant Secretary or a director of such Loan Party as being true,
correct and complete copies and in full force and effect as of the date hereof;
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(iii) Copies of resolutions of each Loan Party's
board of directors or other authorizing documents of such Loan Party, approving
the Loan Documents and the Term Loan and ratifying all actions taken by the Loan
Parties with respect to the Existing Credit Agreement and the Loan Documents (as
defined herein) prior to the date hereof, dated prior to the date hereof,
certified by the Secretary, Assistant Secretary or a director of such Loan Party
as being true, correct and complete copies and in full force and effect as of
the date hereof;
(iv) A certificate of each Loan Party, executed by
the Secretary, Assistant Secretary or a director of such Loan Party, certifying
the names and signatures of the officers of such Loan Party or other Persons
authorized to sign the Loan Documents and the other documents to be delivered
hereunder;
(v) A certificate of the chief executive officer of
each Loan Party executed and delivered on behalf of such Loan Party certifying
that all conditions precedent set forth in this Article IV have been satisfied
and that, after giving effect to the transactions contemplated under this
Agreement and the Loan Documents, all representations and warranties in this
Agreement and the Loan Documents are true and correct, no Event of Default has
occurred and is continuing and no change, occurrence, event or development or
event involving prospective change that is reasonable likely to have a Material
Adverse Change has occurred and is continuing;
(vi) An originally executed copy of this Agreement
and all other Loan Documents, agreements, documents, instruments, certificates,
perfection notices and documents and opinions (other than those designated on
Schedule I as items to be delivered after the Effective Date) described in the
Closing Document List attached hereto as Schedule II (the "Closing Document
List"), each duly executed where appropriate; each of the Borrowers and
Guarantors, on behalf of all of the Loan Parties, hereby directs their
respective counsel to prepare and deliver to the Agent and the Banks the
respective opinions described in the Closing Document List;
(vii) Written appraisals of the Fixed Assets based
on "orderly liquidation value"; and
(viii) The Loan Parties shall have engaged KPMG Peat
Marwick for purposes of administering the reporting obligations of the Loan
Parties under this Agreement and the Loan Documents upon terms reasonably
satisfactory to the Agent and the Banks.
(b) Restructuring Transactions. The Agent shall be satisfied in
all material respects that the terms, conditions, form and substance of the
restructuring transactions contemplated by this Agreement have been or
contemporaneously with the effectiveness of this Agreement will be satisfied and
are effective, including without limitation the following:
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(i) The agent shall have received the $10,000,000
principal payment (which payment is to be paid from the proceeds of the Equity
Investment and the Seagate Subordinated Debt) and the Agent shall have received
the Warrants;
(ii) The Agent shall have determined to its
satisfaction that, immediately after giving effect to the financing pursuant to
the Foothill Group Financing Documents, and after having paid all closing costs,
fees, and expenses incurred in connection with the transactions contemplated
hereby (including any costs, fees, and expenses in connection with the related
Equity Investment or issuances of Subordinated Indebtedness, and in connection
with the Foothill Group Financing Documents), the sum of Loan Parties'
Availability (as defined in the Foothill Group Financing Documents) plus
unrestricted cash and cash equivalents (after reserving for any increase in the
trade payables of Loan Parties since the date of completion of the most recent
field survey of Loan Parties completed by Foothill Group Agent but not taking
into account the Foothill Bridge Term Loan) is not less than $7,000,000;
(iii) The Foothill Bridge Term Loan shall have been
fully funded in the amount of not less than $8,000,000;
(iv) The Parent Guarantor shall have received the
proceeds of the Equity Investment in the aggregate amount of not less than
$8,000,000;
(v) The Seagate Subordinated Debt in the aggregate
amount of not less than $8,000,000 shall have been issued and the transactions
contemplated by the Seagate Settlement Documents consummated;
(c) Perfection and Priority of Liens in Personal and Real
Property. Each Loan Party shall have taken or caused to be taken (and the Agent
shall have received satisfactory evidence thereof) such actions (other than the
filing or recording of items (i) through (v) below in such a manner so that the
Agent, for the benefit of the Banks, has a valid and perfected first priority
Lien as of such date in all of the Collateral (subject only to the Intercreditor
Agreement and Permitted Liens). Such actions shall include, without limitation,
(i) except with respect to the shares of FSC and Akashic (which shall be
delivered to the Foothill Group Agent), delivery to the Agent or its designee of
certificates (which certificates shall be properly endorsed in blank for
transfer or accompanied by irrevocable undated stock powers duly endorsed in
blank for transfer, all in form and substance satisfactory to the Agent)
representing the capital stock pledged pursuant to the applicable Security
Agreement and delivery to the Agent or its designee of all other instruments
(duly endorsed where appropriate) evidencing the Collateral; (ii) delivery to
the Agent of Uniform Commercial Code Lien searches in the jurisdictions set
forth in the Closing Document List (other than those searches designated on the
Closing Document List as searches to be delivered after the Effective Date)
which shall disclose no Liens on any Collateral other than Permitted Liens and
Liens with respect to which fully executed release agreements, Uniform
Commercial Code termination statements or payoff letters, in each case in form
and substance satisfactory to the Agent, shall have been delivered to the Agent;
(iii) delivery to the Agent of Uniform Commercial Code financing statements as
to the Collateral for all jurisdictions
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designated by the Agent as necessary or desirable to perfect the Liens granted
to the Agent, for the benefit of the Banks, in the Collateral; (iv) delivery to
the Agent of the Collateral Assignments, together with the cover sheet required
for filing with the United States Patent and Trademark Office; (v) delivery to
the Agent of a Control Agreement; and (vi) delivery to the Agent of such other
documents and instruments that the Agent notifies the Loan Parties are necessary
or advisable to establish, preserve and perfect the first priority Liens granted
to the Agent, for the benefit of the Banks, under the Loan Documents.
(d) Evidence of Insurance. Schedule III shall set forth as of the
Effective Date all insurance policies and programs in effect with respect to the
respective assets and business of the Loan Parties, specifying for each such
policy and program, (i) the amount thereof, (ii) the risks insured against
thereby, (iii) the name of the insurer and each insured party thereunder, (iv)
the policy or other identification number thereof, (v) the expiration date
thereof and (vi) the annual premium with respect thereto. All such policies and
programs shall be in amount and scope and maintained with such carriers as is
customarily carried or maintained under similar circumstance by corporations of
established reputation engaged in similar businesses and similarly situated, all
of which shall be reasonably satisfactory to the Agent. The Agent shall have
received insurance certificates (or other satisfactory evidence of coverage and
endorsements) in form and substance reasonably satisfactory to the Agent
evidencing that such insurance policies and programs are in full force and
effect, and, subject to the Intercreditor Agreement, contain endorsements naming
the Agent, for the benefit of the Banks, as loss payee with respect to all
casualty coverages, and as an additional insured with respect to all general
liability coverages and otherwise comply with the requirements of Section
6.01(g).
(e) Financial Statements. Complete and accurate copies of the Pro
Forma and the Projections shall have been delivered to the Agent. After review
of the foregoing, the Agent shall be satisfied, in its sole discretion, that (i)
the financial condition of the Loan Parties does not differ in any material
adverse respect from the condition evidenced by the financial information
provided to the Agent prior to March 9, 1998 and (ii) the Loan Parties will be
able to comply with the financial covenants set forth herein and in the Foothill
Group Financing Documents.
(f) Cash Management. The Loan Parties shall have in place a cash
management system reasonably satisfactory to the Agent and the Banks consistent
with the terms of the Intercreditor Agreement and the Foothill Group Financing
Documents.
(g) No Material Adverse Change. There shall have been no Material
Adverse Change in the condition (financial or otherwise), business, properties,
assets or prospects of any of the Loan Parties since March 9, 1998 except as has
been previously disclosed to the Agent or as reflected in the Pro Forma or the
Projections;
(h) Fees and Expenses. All fees and expenses payable to the Agent
and the Banks pursuant to Section 9.05 hereof shall have been paid in full.
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(i) Interest Payment. Any interest payment due and owing pursuant
to Section 2.05 of the Existing Credit Agreement shall have been paid in full.
(j) No Legal Impediments. No law, regulation, order, judgment or
decree of any Governmental Authority shall, and the Agent shall not have
received any notice that litigation is pending or threatened which is likely to
enjoin, prohibit or restrain the consummation of the transactions evidenced by
the Loan Documents, or related transactions, except for such laws, regulations,
orders or decrees or pending or threatened litigation that in the aggregate
could not reasonably be expected to result in a Material Adverse Change.
(k) Agent Fees. The Agent shall have received the fees pursuant
to the Fee Letter referred to in Section 2.02.
(l) Further Documentation. All corporate and legal proceedings
and all instruments and documents in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in content, form
and substance to the Agent and its counsel; and each Bank, the Agent and Agent's
counsel shall have received any and all further information and documents which
any Bank, the Agent or such counsel may reasonably have requested in connection
therewith, such documents where appropriate to be certified by proper corporate
or governmental authorities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. REPRESENTATIONS AND WARRANTIES. Each Loan Party represents
and warrants that, as of the Effective Date, the following are true, correct and
complete. Such representations and warranties, and all other representations and
warranties made by any Loan Party in any other Loan Document, shall survive the
execution and delivery of the Loan Documents.
(a) Organization; Subsidiaries.
(i) Each Loan Party is duly organized and existing
and in good standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state or
other jurisdiction where the failure to be so licensed or qualified reasonably
could be expected to constitute a Material Adverse Change.
(ii) Set forth on Schedule IV is a complete and
accurate list of the Parent Guarantor's direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their incorporation; (ii) the number of shares
of each class of common and preferred Stock authorized for each of such
Subsidiaries; and (iii) the number and the percentage of the outstanding shares
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of each such class owned directly or indirectly by Parent Guarantor. All of the
outstanding Stock of each such Subsidiary has been validly issued and is fully
paid and non-assessable.
(iii) Except as set forth on Schedule IV, no Stock
(or any securities, instruments, warrants, options, purchase rights, conversion
or exchange rights, calls, commitments or claims of any character convertible
into or exercisable for Stock) of any direct or indirect Subsidiary of Parent
Guarantor is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
(iv) FSC is merely an inactive holding company for
certain Subsidiaries of Parent Guarantor and has no operations of its own nor
any significant assets except for cash of not more than $500,000 and the Stock
of certain Subsidiaries of Parent Guarantor.
(b) Due Authorization; No Conflict.
(i) The execution, delivery, and performance by
each Loan Party of this Agreement and the Loan Documents to which it is a party
have been duly authorized by all necessary corporate action.
(ii) The execution, delivery, and performance by
each Loan Party of this Agreement and the Loan Documents to which it is a party
do not and will not (i) violate any provision of federal, state, foreign or
local law or regulation (including Regulations T, U, and X of the Federal
Reserve Board) applicable to such Loan Party, the Governing Documents of each
Loan Party, or any order, judgment, or decree of any court or other Governmental
Authority binding on such Loan Party, (ii) conflict with, result in a breach of,
or constitute (with due notice or lapse of time or both) a default under any
material contractual obligation or material lease of such Loan Party, (iii)
result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of such Loan Party, other than
Permitted Liens, or (iv) require any approval of stockholders or any approval or
consent of any Person under any material contractual obligation of such Loan
Party, except for ones that have been obtained.
(iii) Other than the filing of appropriate financing
statements and the filing of certain Loan Documents with the appropriate foreign
Governmental Authorities, the execution, delivery, and performance by each Loan
Party of this Agreement and the Loan Documents to which such Loan Party is a
party do not and will not require any registration with, consent, or approval
of, or notice to, or other action with or by, any federal, state, foreign, or
other Governmental Authority or other Person.
(iv) The Agent's Liens granted by the Loan Parties
to the Agent, for the benefit of the Banks, in and to their properties and
assets and the other Loan Documents are validly created, perfected, and (subject
to the Intercreditor Agreement) first priority Liens, subject only to Permitted
Liens. To the extent that any Liens were granted to the Agent for the
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benefit of the Banks prior to the date hereof, all such Liens are hereby
ratified and confirmed as being in full force and effect; provided, however,
that the priority of all such Liens shall be governed by the Intercreditor
Agreement.
(c) Validity. The Loan Documents and all other documents
contemplated thereby are the legally binding obligations of each Loan Party,
enforceable in accordance with their respective terms; except in each case as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws and equitable principles relating
to or affecting creditors' rights.
(d) Capitalization.
(i) As of May 27, 1998, the Parent Guarantor's
authorized capital stock consisted of: (A) 50,000,000 shares of Class A Common
Stock, of which 16,317,932 shares were issued and outstanding, (B) 5,000,000
shares of Class B Common Stock, of which 4,362,000 shares were issued and
outstanding (all of which have been tendered for conversion into Class A Common
Stock effective as of the date of this Agreement), and (C) 1,000,000 shares of
preferred stock, par value $0.013 per share, of which 500,000 shares had been
designated as Series A Preferred Stock, none of which shares were issued and
outstanding. All of the outstanding shares of capital stock of the Parent
Guarantor (x) have been duly authorized and validly issued, are fully paid and
nonassessable, and free of preemptive rights, and (y) have been offered and
issued without violation of the Securities Act or any applicable state
securities or blue sky law or any preemptive rights of any person. Schedule V
hereto accurately sets forth, as of the date hereof, the number of issued and
outstanding shares of Common Stock held by each person known by the Parent
Guarantor to own beneficially or of record ten percent (10%) of more of the
outstanding shares of any class of the Parent Guarantor's capital stock.
(ii) Except as disclosed on Schedule V hereto: (A)
there are no issued or outstanding securities that are convertible into or
exchangeable for shares of the Parent Guarantor's capital stock ("Convertible
Securities"); (B) there are no issued or outstanding subscriptions, options,
warrants or other rights to purchase or acquire any shares of the capital stock
of the Parent Guarantor or any Convertible Securities ("Option Rights") other
than the Warrants; (C) the Parent Guarantor is not a party to any agreement or
understanding pursuant to which the Parent Guarantor is obligated to purchase,
redeem or otherwise reacquire or cancel any shares of the Parent Guarantor's
capital stock or any Convertible Securities or Option Rights, and the Parent
Guarantor is not otherwise under any obligation to repurchase, redeem or
otherwise acquire any shares of the Parent Guarantor's capital stock or any
Convertible Securities or Option Rights; (D) the Parent Guarantor is not a party
to any agreement or understanding pursuant to which the Parent Guarantor is
obligated to register any shares of its capital stock or other securities under
the Securities Act or any state securities laws; and (E) to the best knowledge
of the Parent Guarantor, no securities holder of the Parent Guarantor is a party
to any voting agree ment, voting trust, irrevocable proxy or other agreement
affecting the voting rights of any shares of the Parent Guarantor's capital
stock or any agreement providing for any call or put option, right of first
refusal or offer or other right to acquire or dispose of any shares of the
Parent
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Guarantor's capital stock or any Convertible Securities or Option Rights.
Other than the shares of Class A Common Stock reserved for issuance upon
exercise of the Warrants, except as disclosed on Schedule V hereto no shares of
Common Stock are issuable upon the exercise of any outstanding Convertible
Securities or Option Rights and no additional shares of Common Stock will become
issuable upon exercise of such Convertible Securities or Option Rights on
account of the issuance of the Warrants.
(e) Valid Issuance of Warrants.
(i) The Warrants have been duly executed and
delivered by the Parent Guarantor, have been duly authorized and validly issued
free and clear of all liens, encumbrances, equities and claims, are fully paid
and non-assessable, and constitute the legal, valid and binding obligations of
the Parent Guarantor, enforceable in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and subject to general
principles of equity.
(ii) The shares of Class A Common Stock issuable
upon exercise of the Warrants have been duly authorized and reserved for
issuance and, when issued in accordance with the terms of the Warrants, will be
validly issued, fully paid and non-assessable, free and clear of all liens,
encumbrances, equities and claims and without violation of any preemptive
rights.
(f) Financial Condition/Material Adverse Change. The Parent
Guarantor's audited consolidated balance sheet for the fiscal year ended
December 31, 1997 and the related consolidated statements of operations and cash
flows for the fiscal year then ended, and the consolidated balance sheet as of
the last day of the fiscal quarter ended March 31, 1998 and the related
consolidated statements of operations and cash flows for the fiscal quarter then
ended, copies of which have been furnished to each Bank, fairly present in all
material respects the consolidated financial condition of the Parent Guarantor
as at such dates and the consolidated results of the operations of the Loan
Parties for the respective periods ended on such dates, all in accordance with
GAAP, consistently applied, subject, in the case of the quarterly financial
statements, to year-end adjustments and the absence of footnotes. Except as has
been previously disclosed to the Agent or as reflected in the Pro Forma or the
Projections, since March 9, 1998, there has been no Material Adverse Change in
the business, operations, prospects, properties, assets or condition (financial
or otherwise) of (i) any Loan Party or (ii) any Loan Party and its Subsidiaries,
taken as a whole. The Pro Forma fairly presents on a pro forma basis the
financial condition of the Loan Parties and their Subsidiaries as of May 29,
1998 after giving effect to the consummation of the transactions contemplated by
this Agreement and the Loan Documents, and reflects on a pro forma basis those
liabilities reflected in the notes thereto and resulting from consummation of
the transactions described therein and the transactions contemplated by the Loan
Documents. The Projections and the assumptions expressed in the Pro Forma are
reasonable based on the information available to the Loan Parties at the time so
furnished.
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(g) Litigation. There are no actions or proceedings pending by or
against any Loan Party before any court or administrative agency and no Loan
Party has any knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving any Loan Party, except for: (a) ongoing collection
matters in which a Loan Party is the plaintiff; (b) matters disclosed on
Schedule VI; and (c) matters arising after the date hereof that, if decided
adversely to any Loan Party, reasonably could not be expected to result in a
Material Adverse Change.
(h) Employee Benefit Plans. None of the Loan Parties, nor any of
its ERISA Affiliates maintains or contributes to any Benefit Plan, other than
those listed on Schedule VII. Each Loan Party and each ERISA Affiliate have
satisfied the minimum funding standards of ERISA and the Internal Revenue Code
with respect to each Benefit Plan to which it is obligated to contribute. No
ERISA Event has occurred nor has any other event occurred that may result in an
ERISA Event that reasonably could be expected to result in a Material Adverse
Change. None of the Loan Parties, any ERISA Affiliate, or any fiduciary of any
Plan is subject to any direct or indirect liability with respect to any Plan
under any applicable law, treaty, rule, regulation, or agreement. None of the
Loan Parties or any ERISA Affiliate is required to provide security to any Plan
under Section 401(a)(29) of the Internal Revenue Code.
(i) Disclosure. The documents, certificates and written
statements (including the Loan Documents) furnished to the Agent or any Bank
prior to or on the date hereof by any Loan Party for use in connection with the
transactions contemplated by this Agreement, taken as a whole, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading (it being recognized by the Agent and the Banks that projections and
forecasts provided by any Loan Party are not to be viewed as facts and that
actual results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results). Except as set
forth in Schedule VIII hereto, as of the date hereof, there is no fact known to
any Loan Party (other than matters of a general economic nature) which
materially adversely affects the (i) business, operations, prospects, property,
assets or condition (financial or otherwise) of (x) any Loan Party or (y) any
Loan Party and its Subsidiaries, taken as a whole, or (ii) on the ability of any
Loan Party to perform, or of the Agent or any of the Banks to enforce, the
obligations of any Loan Party under the Loan Documents, which has not been
disclosed herein or in such other documents, certificates and statements
furnished to the Agent and each Bank for use in connection with the transactions
contemplated hereby.
(j) Margin Stock. The aggregate value of all margin stock (as
defined in Regulation U) directly or indirectly owned by each Loan Party and its
Subsidiaries is less than twenty five percent (25%) of the aggregate market
value of each Loan Party's net assets.
(k) Environmental Matters. Except as disclosed in Schedule XIII,
none of the Loan Parties' properties or assets has ever been used by Loan
Parties or, to the best of Loan Parties' knowledge, by previous owners or
operators in the disposal of, or to produce, store, handle, treat, release, or
transport, any Hazardous Materials. Except as disclosed in
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Schedule XIII, none of Loan Parties' properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a Hazardous Materials disposal site, or a candidate for closure
pursuant to any environmental protection statute. No Lien arising under any
environmental protection statute has attached to any revenues or to any real or
personal property owned or operated by Loan Parties. Except as disclosed in
Schedule XIII, Loan Parties have not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other foreign, federal
or state governmental agency or tribunal concerning any action or omission by
Loan Parties resulting in the releasing or disposing of Hazardous Materials into
the environment.
(l) Employee Matters. There is no strike or work stoppage in
existence or, to the best of the Loan Parties' knowledge, threatened litigation
(except as disclosed in Schedule VI) involving any Loan Party or its
Subsidiaries that could reasonably be expected to have a material adverse effect
(i) on the business, operations, prospects, properties, assets or condition
(financial or otherwise) of (x) any Loan Party or (y) any Loan Party and its
Subsidiaries, taken as a whole, or (ii) on the ability of any Loan Party to
perform, or of any of the Banks to enforce, the obligations of such Loan Party
under the Loan Documents.
(m) Insurance. Each Loan Party maintains with financially sound
and reputable insurers, insurance with respect to its properties and business
and the properties and business of its Subsidiaries against loss or damage of
the kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations. Such insurance is in full force and effect and all
required premiums required to be paid prior to the date hereof have been paid.
(n) Year-2000 Compliance.
(i) On the basis of a comprehensive inventory,
review and assessment currently being undertaken by Loan Parties of Loan
Parties' computer applications utilized by Loan Parties or contained in products
produced or sold by Loan Parties, and upon inquiry made of Loan Parties'
material suppliers and vendors, Loan Parties' management is of the considered
view that Loan Parties, their products, and all such suppliers and vendors will
be Year 2000 Compliant before October 1, 1999.
(ii) Each Loan Party (i) has undertaken a detailed
inventory, review and assessment of all areas within its business and operations
that could be adversely affected by the failure of Loan Parties or their
products to be Year 2000 Compliant on a timely basis, (ii) are developing a
detailed plan and timeline for becoming Year 2000 Compliant on a timely basis,
and (iii) to date, are implementing that plan in accordance with that timetable
in all material respects. Loan Parties reasonably anticipate that they will be
Year 2000 Compliant on a timely basis.
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(o) Solvency. Each Loan Party is Solvent. No transfer of property
is being made by Loan Parties and no obligation is being incurred by Loan
Parties in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Loan Parties.
(p) Intellectual Property. Each Loan Party owns or possesses
adequate licenses or other rights to use all patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, copyrights, source code, mask-works, trade secrets and know-how
(collectively, the "Intellectual Property") that are necessary for the operation
of such Loan Party's business as currently conducted. Except as disclosed in
Schedule VI, no claim is pending or threatened in writing to the effect that a
Loan Party infringes upon, or conflicts with, the asserted rights of any other
Person under any Intellectual Property, and there is no basis for any such claim
(whether pending or threatened, and which, if determined adversely to an Loan
Party, reasonably could be expected to result in a Material Adverse Change). No
claim is pending or threatened in writing to the effect that any such
Intellectual Property owned or licensed by any Loan Party or in which any Loan
Party otherwise has the right to use is invalid or unenforceable by such Loan
Party, and there is no basis for any such claim (whether or not pending or
threatened, and which, if determined adversely to any Loan Party, reasonably
could be expected to result in a Material Adverse Change). No Loan Party has any
registered copyrights. No Loan Party owns any works of authorship that are
registrable as copyrights, except for works of insignificant value that are not
necessary to their business.
(q) No Encumbrances. Each Loan Party has good and indefeasible
title to the Collateral, free and clear of Liens except for Permitted Liens.
ARTICLE VI
COVENANTS
SECTION 6.01. AFFIRMATIVE COVENANTS. So long as any portion of the Term
Loan shall remain outstanding, each Loan Party and its Subsidiaries shall,
unless the Majority Banks otherwise consent in writing:
(a) Accounting System. The Loan Parties and their Subsidiaries
shall maintain a standard and modern system of accounting that enables Loan
Parties and their subsidiaries to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may be requested by the Agent. Loan Parties and
their Subsidiaries shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to the Inventory.
(b) Financial Information. Furnish to each Bank and the Agent:
(i) Collateral Reporting. (A) On a monthly basis
and, in any event, by no later than the 10th Business Day of each month during
the term of this Agreement, (i) a
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detailed calculation of the Borrowing Base, and (ii) a detailed aging, by total,
of the Accounts, together with a reconciliation to the detailed calculation of
the Borrowing Base, (B) on a monthly basis and, in any event, by no later than
the 10th Business Day during the term of this Agreement, a summary aging, by
vendor, of each Loan Party and any Subsidiary's accounts payable and any book
overdraft, (C) upon request, copies of invoices in connection with the Accounts,
customer statements, credit memos, remittance advices and reports, deposit
slips, shipping and delivery documents in connection with the Accounts and for
Inventory and Equipment acquired by Loan Parties, purchase orders and invoices,
(D) on a quarterly basis, a detailed list of the customers of the Loan Parties
and their Subsidiaries, (E) on a monthly basis, a calculation of the Dilution
for the prior month; and (F) such other reports as to the Collateral or the
financial condition of the Loan Parties as the Agent may request from time to
time.
(ii) Financial Statements, Reports, Certificates.
(A) Deliver to the Agent, with copies to each
Bank: (i) as soon as available, but in any event within thirty (30) days after
the end of each month during each Fiscal Year, a company prepared balance sheet,
income statement, and statement of cash flow covering each Loan Party and its
Subsidiaries' operations during such period; and (ii) as soon as available, but
in any event within 90 days after the end of each Fiscal Year, financial
statements of each Loan Party and its Subsidiaries for each such Fiscal Year,
audited by independent certified public accountants reasonably acceptable to the
Agent and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to the Agent stating that such accountants do not have
knowledge of the existence of any Potential Event of Default or Event of
Default. Such audited financial statements shall include a balance sheet, profit
and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. Inasmuch as a Loan Party is a parent company
of one or more Subsidiaries, or Affiliates, or is a Subsidiary or Affiliate of
another company, then, in addition to the financial statements referred to
above, each Loan Party agrees to deliver financial statements prepared on a
consolidating basis so as to present such Loan Party and each such related
entity separately, and on a consolidated basis.
(B) Together with the above, Loan Parties also
shall deliver to the Agent, with copies to each Bank, each Loan Party's Form
10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports,
and any other filings made by Loan Parties or their Subsidiaries with the
S.E.C., if any, as soon as the same are filed, or any other information that is
provided by Loan Party to its shareholders, and any other report reasonably
requested by the Agent or any Bank relating to the financial condition of the
Loan Parties and their Subsidiaries.
(C) Each month, together with the financial
statements provided pursuant to Section 6.01(b)(ii)(A), the Parent Guarantor and
its Subsidiaries shall deliver to the Agent, with copies to each Bank, a
certificate signed by its chief financial officer to the effect that: (i) all
financial statements delivered or caused to be delivered to any one or more of
the Banks and the Agent hereunder have been prepared in accordance with GAAP
(except, in the
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case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present the financial
condition of the Parent Guarantor and any of its Subsidiaries, (ii) the
representations and warranties of the Parent Guarantor and its Subsidiaries
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), (iii) for each month that also is
the date on which a financial covenant in Section 6.02(v) is to be tested, a
Compliance Certificate demonstrating in reasonable detail compliance at the end
of such period with the applicable financial covenants contained in Section
6.02(v), and (iv) on the date of delivery of such certificate to the Agent there
does not exist any condition or event that constitutes a Potential Event of
Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action the Parent Guarantor and its
Subsidiaries have taken, is taking, or proposes to take with respect thereto).
(D) On a monthly basis, (i) a cash receipts and
disbursements report substantially in the form delivered to the Agent and the
Banks on a weekly basis prior to the Effective Date; (ii) a month-end daily
production report, including the "weekly build summary" for each plant,
substantially in the form delivered to the Agent and the Banks prior to the
Effective Date; and (iii) a comparison in reasonable detail of the Projections
to the Loan Parties' actual results of operation for the prior month.
(E) Loan Parties shall issue written instructions
to their independent certified public accountants authorizing them to
communicate with the Agent and to release to the Agent whatever financial
information concerning the Loan Parties that the Agent may request. Each Loan
Party and its Subsidiaries hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to the Agent, at Loan
Parties' expense, copies of the Loan Parties and Subsidiaries' financial
statements, papers related thereto, and other accounting records of any nature
in their possession, and to disclose to the Agent any information they may have
regarding the Loan Parties and Subsidiaries' business affairs and financial
conditions.
(c) Notices and Information. Deliver to the Agent and each Bank:
(i) Promptly upon any Responsible Officer of any
Loan Party obtaining knowledge (A) of any condition or event which constitutes
an Event of Default which is continuing or Potential Event of Default; (B) that
any Person has given any notice to any Loan Party or any Subsidiary of any Loan
Party or taken any other action with respect to (1) a claimed default or event
or condition of the type referred to in Section 7.01; (2) the institution of any
litigation of the type described in Section 5.01(g) or (h); or (3) any condition
or event with respect to any Loan Party or any of its Subsidiaries which
constitutes a Material Adverse Change (a) in the business, operations,
prospects, properties, assets or condition (financial or otherwise) of such Loan
Party and Subsidiaries, taken as a whole, or (b) in the ability of such Loan
Party to perform, or of the Agent or any of the Banks to enforce, the
obligations of such Loan Party and
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Subsidiaries under the Loan Documents: an officers' certificate specifying the
nature and period of existence of any such condition, event, or litigation or
specifying the notice given or action taken by such holder or Person and the
nature of such claimed default, Event of Default, Potential Event of Default,
condition, event, or litigation, and what action Loan Parties and their
Subsidiaries have taken, are taking and propose to take with respect thereto;
(ii) Where applicable, within ten (10) Business Days
after any Responsible Officer of any Loan Party or any of its Subsidiaries
becomes aware of the occurrence of or forthcoming occurrence of any (a)
Termination Event, (b) any "prohibited transaction," as such term is defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA, in connection
with any Employee Benefit Plan or any trust created thereunder in excess of One
Hundred Thousand Dollars ($100,000), or (c) any ERISA Event that reasonably
could be expected to result in a Material Adverse Change, a written notice
specifying the nature thereof, what action such Loan Party or any of its
Subsidiaries has taken, is taking or proposes to take with respect thereto, and,
when known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor, or the Pension Benefit Guaranty Corporation with respect
thereto; provided, however, that this clause (ii) shall not apply to any
prohibited transaction for which an exemption has been granted pursuant to
Section 4975(c)(ii) of the Internal Revenue Code or Section 408 of ERISA;
(iii) Where applicable, within three (3) Business
Days, copies of (a) all notices received by any Loan Party or its Subsidiaries
or any of its ERISA Affiliates of the Pension Benefit Guaranty Corporation's
intent to terminate any Pension Plan or to have a trustee appointed to
administer any Pension Plan; and (b) all notices received by any Loan Party or
Subsidiary or any of its ERISA Affiliates from a Multiemployer Plan sponsor
concerning the imposition or amount of withdrawal liability pursuant to Section
4202 of ERISA;
(iv) Promptly, and in any event within thirty (30)
days after receipt thereof, a copy of any notice, summons, citation, directive,
letter or other form of communication from any Governmental Authority or court
in any way concerning any action or omission on the part of any Loan Party or
any of its Subsidiaries in connection with any Hazardous Materials, or
concerning the filing of a Lien upon, against or in connection with any Loan
Party, its Subsidiaries, or any of their leased or owned real or personal
property, in connection with a Hazardous Substance Superfund or a Post-Closure
Liability Fund as maintained pursuant to Section 9507 of the Internal Revenue
Code, where applicable, which could reasonably be expected to cause a Material
Adverse Change to the business, operations, prospects, properties, assets and
condition (financial or otherwise) of any Loan Party and its Subsidiaries, taken
as a whole, or on the ability of each Loan Party to perform, or of any of the
Banks to enforce, the obligations of such Loan Party and its Subsidiaries under
the Loan Documents, excepting therefrom, however, any such notices, summons,
citations, directives, letters or other communications received in connection
with those matters listed in Schedule XIII.
(v) Promptly, and in any event within ten (10)
Business Days after any Material Contract of any Loan Party or any Subsidiary is
terminated or any new Material
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Contract is entered into, a written statement describing such event and
explaining any action being taken with respect thereto (and, if requested by
Agent, copies of such amendments or new contracts); and
(vi) Promptly, and in any event within ten (10) days
after request, such other information and data with respect to any Loan Party or
any of its Subsidiaries as from time to time may be reasonably requested by any
Bank or the Agent.
(d) Corporate Existence, Etc. Except as permitted in the
Intercreditor Agreement, at all times preserve and keep in full force and effect
its and its Subsidiaries' corporate existence and rights and franchises material
to its business and those of such Subsidiaries.
(e) Tax Returns. Deliver to the Agent copies of each Loan Party
and its Subsidiary's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal Revenue
Service.
(f) Payment of Taxes. Loan Parties shall: (i) cause all
assessments and taxes, whether real, personal, or otherwise, due or payable by,
or imposed, levied, or assessed against any Loan Party and any Subsidiary or any
of its property to be paid in full, before delinquency or before the expiration
of any extension period, except to the extent that the validity of such
assessment or tax shall be the subject of a Permitted Protest; (ii) make due and
timely payment or deposit of all such federal, state, foreign, and local taxes,
assessments, or contributions required of it by law, except to the extent that
the validity of such assessment or tax shall be the subject of a Permitted
Protest, and will execute and deliver to the Agent, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto;
and (iii) make timely payment or deposit of all tax payments and withholding
taxes required of it by those laws concerning F.I.C.A. (or its foreign
equivalent) and F.U.T.A. (or its foreign equivalent), state disability (or its
foreign equivalent), and, upon request, furnish the Agent with proof
satisfactory to Agent indicating that such Loan Party and any Subsidiary have
made such payments or deposits.
(g) Maintenance of Properties; Insurance.
(i) Maintain or cause to be maintained in good
repair, working order and condition (ordinary wear and tear excepted) all
properties material to the continued conduct of the business of each Loan Party
and its Subsidiaries. Each Loan Party shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory in which it has an
interest in such amounts, against such risks, in such form and with such
insurers as is customary for similarly situated businesses. Such insurance shall
include, without limitation, property damage insurance and liability insurance.
Each policy for property damage insurance shall provide for all losses to be
paid directly to Agent in accordance with the Intercreditor Agreement. Each
policy shall in addition name the applicable Loan Party and Agent as insured
parties thereunder (without any representation or warranty by or obligation upon
Agent) as their
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interests may appear and have attached thereto a loss payable clause acceptable
to Agent that shall (A) contain an agreement by the insurer that any loss
thereunder shall be payable to Agent in accordance with the Intercreditor
Agreement notwithstanding any action, inaction or breach of representation or
warranty by any Loan Party and its Subsidiary, (B) provide that there shall be
no recourse against Agent for payment of premiums or other amounts with respect
thereto, and (C) provide that at least thirty (30) days' prior written notice of
cancellation, material amendment, reduction in scope or limits of coverage or of
lapse shall be given to Agent by the insurer. Each Loan Party and its Subsidiary
shall, if so requested by Agent, deliver to Agent original or duplicate policies
of such insurance and, as often as Agent may reasonably request (but no more
frequently than once per year, unless there is a change in the policy or the
insurer), a report of a reputable insurance broker with respect to such
insurance. Further, subject to the Intercreditor Agreement, each Loan Party and
its Subsidiary shall, at the request of Agent, duly execute and deliver
instruments of assignment of such insurance policies to comply with the
requirements of Section 8 of the Security Agreements and cause the respective
insurers to acknowledge notice of such assignment.
(ii) Payments for claims issued by any liability
insurance maintained by any Loan Party pursuant to this Section 6.01(g) may be
paid directly to the Person who shall have incurred liability covered by such
insurance. In case of any loss involving damage to Equipment or Inventory when
subsection (i) of this Section 6.01(g) is not applicable, each Loan Party and
its Subsidiary shall make or cause to be made the necessary repairs to or
replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by such Loan Party and any Subsidiary pursuant to this Section
6.01(g) shall be paid to such Loan Party and any Subsidiary as reimbursement for
the costs of such repairs or replacements.
(iii) Upon (A) the occurrence and during the
continuation of any Event of Default or (B) the actual or constructive loss (in
excess of $100,000 per occurrence) of any Equipment or Inventory, all insurance
payments in respect of such Equipment or Inventory shall be paid to and applied
by Agent as specified in Section 18 of the Security Agreements.
(h) Inspection. Permit any authorized representatives designated
by the Agent or any Bank in writing, upon reasonable notice to such Loan Party
and its Subsidiary, to visit and inspect, test, check, or appraise any of the
properties of such Loan Party or any of its Subsidiaries, including its and
their financial and accounting books and records, to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and accounts
with its and their officers and independent public accountants, all at such
reasonable times during normal business hours, provided that (i) physical visits
and inspections of any Loan Party's properties shall occur no more frequently
than once a year, unless an Event of Default has occurred and is continuing, in
which case visits and inspections may be conducted as frequently as Agent or any
Bank elects, and (ii) inspection of any Loan Party or Subsidiary's books and
records shall be conducted as often as reasonably requested; provided, further,
that inspections by any Bank shall be at that Bank's expense and inspections by
Agent shall be at the expense of the Loan Parties and Subsidiaries.
Notwithstanding any provision of this Agreement to the contrary, no Loan Party
or Subsidiary will be required to disclose, permit the inspection, examination,
copying or
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making extracts of, or discussion of, any document, information or other matter
that (i) constitutes non-financial trade secrets or non-financial proprietary
information (except to the extent necessary to perfect or protect Agent's
security interest in such assets), or (ii) in respect of which disclosure to
Agent or such Bank (or designated representative) is then prohibited by (a) law,
or (b) an agreement binding on such Loan Party that was not entered into by such
Loan Party for the primary purpose of concealing information from Agent or the
Banks. Permit Agent and its authorized representatives to conduct (at such Loan
Party's expense) an audit of such Loan Party's Accounts, provided that such
audits shall not be conducted more frequently than annually unless an Event of
Default is continuing, in which case audits may be conducted as frequently as
Agent elects.
(i) Compliance with Laws, Etc. Exercise reasonable due diligence
in order to comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including all
environmental laws, rules, regulations and orders, noncompliance with which
could reasonably be expected to cause a Material Adverse Change to the business,
operations, prospects, properties, assets or condition (financial or otherwise)
of such Loan Party and any Subsidiary, taken as a whole, or on the ability of
such Loan Party and its Subsidiary to perform, or of the Agent or any of the
Banks to enforce, the obligations of such Loan Party and such Subsidiary under
the Loan Documents.
(j) Appraisals. When requested by the Agent, and in any event at
least semi-annually after the Effective Date, an appraisal report by an
appraiser reasonably satisfactory to the Agent and consented to by the Loan
Parties (which consent shall not be unreasonably withheld), which shall describe
the Collateral and report the original cost, net book value, fair market value,
auction value and orderly liquidation value thereof. The Fixed Assets shall be
appraised pursuant to this Section 6.01(j) by no later than December 31, 1998.
(k) Outside Consultant. Continue to engage KPMG Peat Marwick, on
terms and conditions acceptable to the Agent, for purposes of administering the
reporting obligations of the Loan Parties under this Agreement and the Loan
Documents and, in particular, monitoring and assisting in the production of the
financial reports required thereby.
(l) Year 2000. Loan Parties and their Subsidiaries will be Year
2000 Compliant by October 1, 1999.
(m) No Setoffs or Counterclaims. Loan Parties and their
Subsidiaries agree that the Loan Parties shall make payments hereunder and under
the other Loan Documents by or on behalf of the Loan Parties and their
Subsidiaries without setoff or counterclaim and free and clear of, and without
deduction or withholding for or on account of, any federal, state, local, or
foreign taxes.
(n) Employee Benefits. Cause to be delivered to the Agent, upon
request, each of the following:
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(i) a copy of each Benefit Plan (or, where any such
plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of each Loan Party
or its Subsidiaries;
(ii) the most recent determination letter issued by
the Internal Revenue Service with respect to each Benefit Plan;
(iii) for the three most recent plan years, annual
reports on Form 5500 Series required to be filed with any governmental agency
for each Benefit Plan;
(iv) all actuarial reports prepared for the last
three plan years for each Benefit Plan;
(v) a listing of all Multiemployer Plans, with the
aggregate amount of the most recent annual contributions required to be made by
each Loan Party, its Subsidiary or any ERISA Affiliate to each such plan and
copies of the collective bargaining agreements requiring such contributions;
(vi) any information that has been provided to any
Loan Party, its Subsidiary or any ERISA Affiliate regarding withdrawal liability
under any Multiemployer Plan; and
(vii) the aggregate amount of the most recent annual
payments made to former employees of any Loan Parties or Subsidiaries under any
Retiree Health Plan.
Each Loan Party and its Subsidiary, as applicable, shall be deemed to know all
facts known by the administrator of any Benefit Plan of which it is the plan
sponsor.
(o) Leases. Loan Parties and their Subsidiaries agree that Loan
Parties and their Subsidiaries shall pay when due all rents and other amounts
payable under any leases to which any Loan Party or any of its Subsidiaries is a
party or by which any Loan Party or any of its Subsidiaries' properties and
assets are bound, unless such payments are the subject of a Permitted Protest
and except for rents and other amounts payable under leases of closed facilities
at which Collateral having an OLV (as defined in the Intercreditor Agreement)
less than $1,250,000 is located.
(p) Fiscal Year. Each Loan Party and its Subsidiaries agree to
maintain its Fiscal Year as a year ending December 31.
(q) Compliance with Material Contracts. Each Loan Party shall
perform and observe all material terms and provisions of the Material Contracts
to be performed or observed by it, maintain, and cause each of its Subsidiaries
to maintain the Material Contracts to
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which it is a party in full force and effect during their respective stated
terms, enforce, and cause each of its Subsidiaries to enforce, and cause each of
its Subsidiaries to enforce, the Material Contracts to which it is a party in
accordance with their terms, and take and cause each of its Subsidiaries to
take, all such action to such ends as may from time to time be reasonably
requested by the Agent other than any such failure which would create no
Material Adverse Change; excepting therefrom, (x) Loan Parties' dispute with
Nextar regarding thickness sorters, (y) any failure to make timely payment in
respect of the approximately $2,700,000 unsecured trade note payable to Ohara,
and (z) defaults under leases of closed facilities of the Loan Parties where no
Collateral is located.
(r) Real Property; Collateral Access Agreements. Within thirty
(30) days after the Effective Date, (i) the Loan Parties shall prepare and
deliver to the Agent a list of all leasehold interests of the Loan Parties in
any Real Property as of the Effective Date, and (ii) each Loan Party having a
leasehold interest in Real Property shall use its best efforts to deliver, or
cause to be delivered, to the Agent, Collateral Access Agreements from the
landlords on all Real Property leasehold interests of such Loan Party.
(s) Delivery of Documents After Effective Date. Each Loan Party
and its Subsidiary shall execute and deliver, or shall cause the execution and
delivery of, the agreements, documents, instruments, certificates and opinions
designated on the Closing Document List as items to be delivered after the
Effective Date, as applicable, within the time periods with respect to such
items, as set forth on the Closing Document List.
(t) Further Assurances. Each Loan Party shall take, and shall
cause each of its Subsidiaries to take, all such further actions and execute all
such further documents and instruments as the Agent may at any time reasonably
determine in its sole discretion to be necessary or desirable to further carry
out and consummate the transactions contemplated by the Loan Documents, to cause
the execution, delivery and performance of the Loan Documents to be duly
authorized and to perfect or protect the Liens (and maintain the priority status
thereof) of the Agent, for the benefit of the Banks, on the Collateral.
SECTION 6.02. NEGATIVE COVENANTS. So long as any portion of the Term
Loan shall remain outstanding, none of the Loan Parties nor any of their
Subsidiaries shall, without the written consent of the Majority Banks (except
where all Banks must provide prior written consent in accordance with Section
9.01):
(a) Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(i) Indebtedness evidenced by this Agreement;
(ii) Indebtedness set forth in Schedule IX;
(iii) Indebtedness under the Foothill Group Agreement;
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(iv) Subordinated Indebtedness approved by the Banks;
(v) Indebtedness secured by Permitted Liens; and
(vi) Refinancings, renewals, or extensions of
Indebtedness permitted under clauses (ii), (iii), (iv), and (v) of this Section
6.02(a) (and continuance or renewal of any Permitted Liens associated therewith)
so long as: (i) the terms and conditions of such refinancings, renewals, or
extensions do not materially impair the prospects of repayment of the
Obligations by Loan Parties (ii) the net cash proceeds of such refinancings,
renewals, or extensions do not result in an increase in the aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to the Banks as those applicable to the refinanced Indebtedness, and
(v) such refinancings, renewals or extensions of Indebtedness would not violate
Section 6.02(k)(ii) hereof.
(b) Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 6.02(a)(vi) and so long as the replacement Liens only encumber those
assets or property that secured the original Indebtedness).
(c) Restrictions on Fundamental Changes. Except as permitted by
Section 6.02(d)(ii) or as permitted by the Intercreditor Agreement, enter into
any merger, consolidation, reorganization, or recapitalization, or reclassify
its Stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its property or assets; provided that nothing herein prohibits Parent
Guarantor from permitting the conversion of all or part of its preferred stock
to Class A Common Stock.
(d) Disposition of Assets.
(i) Unauthorized Dispositions of Collateral. Except as
to authorized dispositions of Collateral set forth in Section 6.02(d)(ii) below,
the use by Loan Parties of Collateral constituting cash or cash equivalents in
compliance with the Loan Documents, the making of Permitted Investments or the
licensing of General Intangibles in the ordinary course of business to
licensees, sell, lease, assign, transfer, or otherwise dispose of any of their
properties or assets other than sales of Inventory to buyers in the ordinary
course of the Loan Parties' businesses as currently conducted.
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(ii) Authorized Dispositions of Collateral. So
long as no Event of Default has occurred and is continuing or would result from
giving effect to such Sale, the Loan Parties shall be entitled to dispose of
assets composing the Collateral subject to the terms and conditions set forth in
the Intercreditor Agreement; provided, however, that in the event of any such
Sale, the Company shall: (A) provide immediate notice of the Sale to the Agent
and the Banks; (B) direct the purchaser(s) of assets subject to the Sale to pay
the proceeds of such Sale (to the extent required and calculated in accordance
with the Intercreditor Agreement) directly to the Agent on behalf of the Banks;
provided, further, in the event of any such Sale, the Agent shall, to the extent
of any disposition of Collateral governed by and made in compliance with the
Intercreditor Agreement and, so long as any payments required to be received by
the Agent for the benefit of the Banks under the Loan Documents shall have been
received in connection therewith, release its security interest in the
Collateral being sold concurrent with the sale thereof.
(e) Change Name. Change its name (or any foreign equivalent),
corporate structure (within the meaning of Section 9402(7) of the California
Commercial Code), or identity, or add any new fictitious name.
(f) [Intentionally omitted.]
(g) Acquisitions. Acquire or permit any Subsidiary to acquire any
assets or a going business, whether through purchase of assets, merger or
otherwise, outside of the ordinary course of business.
(h) New Subsidiaries. Create or acquire any new Subsidiaries.
(i) Guarantee. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person (other than the obligations
of another Loan Party upon prior or concurrent written notice to the Agent)
except by endorsement of instruments or items of payment for deposit to the
account of Loan Parties or which are transmitted or turned over to the Agent.
(j) Nature of Business. Engage, or permit any of its Subsidiaries
to engage, in any business other than (i) the businesses engaged in by such Loan
Party and its Subsidiaries on the date of this Agreement and similar or related
businesses, and (ii) such other lines of business as may be consented to by the
Majority Banks.
(k) Prepayments and Amendments.
(i) Except in connection with a refinancing
permitted by Section 6.02(a)(vi), prepay, redeem, retire, defease, purchase, or
otherwise acquire any Indebtedness owing to any third Person, other than in
respect of (A) the Obligations in accordance with this Agreement, (B) any
payment under the revolver facility pursuant to the Foothill Group Agreement,
(C) interest, fees, expenses and mandatory prepayments of the Foothill Bridge
Term
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Loan under Section 2.2 of the Foothill Group Agreement, as in effect on the
Effective Date and (D) prepayment of the Seagate Subordinated Debt solely upon
the conversion of up to $5,000,000 in principal amount thereof into Class A
Common Stock in accordance with the terms thereof, and
(ii) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness
permitted under Sections 6.02(a)(ii), (iii), (iv), (v), or (vi), except that (A)
the Loan Parties may enter into amendments that would be permitted if effected
by a refinancing permitted under Section 6.02(a)(vi), and (B) the Loan Parties
may enter into amendments under the Foothill Group Financing Documents unless
the effect of any such amendment or amendments is to (1) increase the interest
rate or fees payable with respect to the Indebtedness thereunder; (2) change the
dates upon which payments of principal or interest are due on such Indebtedness
other than to extend such dates; (3) change any events constituting a "Default"
or an "Event of Default" (as defined in the Foothill Group Agreement) other than
to delete or make less restrictive any default provision therein, or add or make
more restrictive any covenant with respect to such Indebtedness; (4) change the
redemption or prepayment provisions of such Indebtedness other than to extend
the dates therefor or to reduce the premiums payable in connection therewith;
(5) increase the commitments under the Foothill Group Financing Documents or the
principal amount of the Foothill Group Bridge Term Loan; (6) make more
restrictive the definition of "Revolving Advance Cap" or "Total Obligations Cap"
(as defined in the Foothill Group Agreement as in effect on the Effective Date)
or add any other definitions which would have the effect of decreasing the
amount available for borrowing under the revolving credit provisions of the
Foothill Group Financing Documents to an amount less than the amount calculated
pursuant to Section 2.1 of the Foothill Group Agreement as in effect on the
Effective Date; (7) amend the definition of "Borrowing Base" (as that definition
is in effect on the Effective Date) or any of the components thereof (including,
without limitation, those relating to eligible collateral, advance rates,
dilution and concentration percentages); (8) change or amend any other term if
such change or amendment would materially increase the obligations of the Loan
Parties or confer additional material rights to the Foothill Group in a manner
adverse to the Loan Parties, the Agent, the Co-Agent or any Bank; (9) add any
collateral or security for the obligations of the Loan Parties thereunder; or
(10) enter into any amendment, modification or waiver of Section 1D, the second
paragraph of Section 2, Section 4C or the second paragraph of Section 7 of the
Certificate of Designation.
(l) Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
(m) Consignments. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
(n) Distributions. Make any distribution or declare or pay any
dividends (in cash or other property, other than Stock) on, or purchase,
acquire, redeem, or retire any Stock, of any class, whether now or hereafter
outstanding, provided, however, that
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conversion of the Equity Investment from preferred stock to Class A Common Stock
shall not constitute a purchase, acquisition, redemption, or retirement of any
Stock and provided, further, that any Loan Party may make dividends,
distributions or other payments to any Borrower, and any Loan Party other than a
Borrower may make dividends, distributions and other payments to the Parent
Guarantor, so long as such dividends, distributions and other payments are not
otherwise prohibited by this Agreement.
(o) Accounting Methods. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of the Loan Parties' accounting records
without said accounting firm or service bureau agreeing to provide the Agent
information regarding the Collateral or the Loan Parties' financial condition.
Loan Parties hereby waive in favor of the Agent for the benefit of the Banks,
the right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by the Agent pursuant to or in accordance with this Agreement, and agrees that
the Agent may contact directly any such accounting firm or service bureau in
order to obtain such information.
(p) Investments. Except for Permitted Investments, directly or
indirectly make, acquire, or incur any liabilities (including contingent
obligations) for or in connection with (i) the acquisition of the securities
(whether debt or equity) of, or other interests in, a Person, (ii) loans,
advances, capital contributions, or transfers of property to a Person, or (iii)
the acquisition of all or substantially all of the properties or assets of a
Person.
(q) Transactions with Affiliates. Directly or indirectly, enter
into or permit to exist any material transaction with any Affiliate of any Loan
Party except for transactions that are in the ordinary course of such Loan
Party's business, upon fair and reasonable terms, that are fully disclosed to
the Agent, and that are no less favorable to such Loan Party than would be
obtained in an arm's length transaction with a non-Affiliate.
(r) Suspension. In the aggregate suspend or go out of a
substantial portion of their business.
(s) Compensation. Other than Parent Guarantor, increase the
annual fee or per-meeting fees paid to directors during any year by more than
15% over the prior year; and, no Loan Parties or any of their Subsidiaries shall
pay or accrue total cash compensation, during any year, to officers and senior
management employees in an aggregate amount in excess of 125% of that paid or
accrued in the prior year.
(t) Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Relocate its chief executive office to a new location
without providing thirty (30) days prior written notification thereof to the
Agent and so long as, at the time of such written notification, the relevant
Loan Party provides any financing statements or fixture filings (or foreign
equivalents) necessary to perfect and continue perfected the Agent's Liens and
also
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provides to the Agent a Collateral Access Agreement with respect to such new
location. The Inventory and Equipment shall not at any time now or hereafter be
stored with a bailee, warehouseman, or similar party without the Agent's prior
written consent. The Agent and the Banks hereby consent to the transfer of up to
$1,000,000 in book value of Inventory and up to $1,000,000 of OLV (as defined in
the Intercreditor Agreement) of Equipment to a warehouse selected by Loan
Parties located in California, Singapore or Malaysia; provided, however, that
the Loan Parties shall provide twenty (20) days prior written notification
thereof to the Agent and, at such time, provide financing statements or fixture
filings (or foreign equivalents) necessary to perfect the Agent's Liens.
(u) No Prohibited Transactions Under ERISA. Directly or
indirectly:
(i) Engage, or permit any Subsidiary of Loan
Parties to engage, in any prohibited transaction which is reasonably likely to
result in a civil penalty or excise tax described in Sections 406 of ERISA or
4975 of the Internal Revenue Code for which a statutory or class exemption is
not available or a private exemption has not been previously obtained from the
United States Department of Labor;
(ii) Permit to exist with respect to any Benefit
Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA and
412 of the Internal Revenue Code), whether or not waived;
(iii) Fail, or permit any Subsidiary of Loan Parties
to fail, to pay timely required contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan;
(iv) Terminate, or permit any Subsidiary of Loan
Parties to terminate, any Benefit Plan where such event would result in any
liability of Loan Parties, any of its Subsidiaries or any ERISA Affiliate under
Title IV of ERISA;
(v) Fail, or permit any Subsidiary of Loan Parties
to fail, to make any required contribution or payment to any Multiemployer Plan;
(vi) Fail, or permit any Subsidiary of Loan Parties
to fail, to pay any required installment or any other payment required under
Section 412 of the Internal Revenue Code on or before the due date for such
installment or other payment;
(vii) Amend, or permit any Subsidiary of Loan
Parties to amend, a Plan resulting in an increase in current liability for the
plan year such that any Loan Party or any ERISA Affiliate is required to provide
security to such Plan under Section 401(a)(29) of the Internal Revenue Code; or
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(viii) Withdraw, or permit any Subsidiary of Loan
Parties to withdraw, from any Multiemployer Plan where such withdrawal is
reasonably likely to result in any liability of any such entity under Title IV
of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of any Loan Party or any
ERISA Affiliate in excess of $100,000.
(v) Financial Covenant. Fail to maintain Adjusted Net Worth of at
least the amounts specified below for the relevant periods, measured on a fiscal
quarter-end basis: (A) for the fiscal quarters of Loan Parties ending on June
30, 1998, (A) $32,000,000 and September 30, 1996, (B) $26,000,000; and (C) for
each fiscal quarter of Loan Parties ending thereafter, $32,000,000.
(w) Capital Expenditures. Make Consolidated Capital Expenditures
in any fiscal year in excess of $20,000,000.
(x) Securities Accounts.
(i) Establish or maintain any Securities Account
unless the Agent shall have received a Control Agreement, duly executed and in
full force and effect, in respect of such Securities Account;
(ii) Transfer assets out of any Securities Accounts;
provided, however, that, so long as no Event of Default has occurred and is
continuing or and no Event of Default or Potential Event of Default would result
therefrom, the relevant Loan Parties may use such assets to the extent not
prohibited by this Agreement or the other Loan Documents.
(y) Inactive Subsidiary. Permit FSC to become an active operating
company. Loan Parties shall cause FSC to continue to be an inactive holding
company whose only significant assets are cash of not more than $500,000 and the
Stock of various Subsidiaries.
(z) Sales and Lease-Backs. Become or remain liable, or permit any
of its Subsidiaries to become or remain liable, directly or indirectly, with
respect to any Capital Lease of any property (whether real, personal or mixed),
whether now owned or hereafter acquired, (i) which such Loan Party or any of its
Subsidiaries has sold or transferred or is to sell or transfer to any other
Person or (ii) which such Loan Party or any of its Subsidiaries intends to use
for substantially the same purpose as any other property which has been or is to
be sold or transferred by such Loan Party or any of its Subsidiaries to any
Person in connection with such lease; provided that any Loan Party and its
Subsidiaries may become and remain liable as lessee, guarantor or other surety
with respect to any such lease if and to the extent that any such Loan Party or
any of its Subsidiaries would be permitted to enter into, and remain liable
under, such lease under Sections 6.02(a) and 6.02(f).
ARTICLE VII
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EVENTS OF DEFAULT AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT. Any one or more of the following events
shall constitute an event of default (each an "Event of Default") under this
Agreement:
(a) Failure to Pay. If any Loan Party shall fail to pay any
installment of the principal when due hereunder or under any Loan Document, or
shall fail to pay any installment of interest within three (3) Business Days of
the date when due hereunder or under any Loan Document, or shall fail to pay any
other amount payable within five (5) Business Days of the date when due
hereunder or under any Loan Document.
(b) Failure to Make Principal and Interest Payments as a
Condition to the Effective Date. If the Loan Parties shall fail to pay the
$10,000,000 principal payment required to be paid pursuant to Section 4.01(b)(i)
on or before June 1, 1998 and the interest payment required to be made pursuant
to Section 4.01(i).
(c) Breach of Certain Representations, Covenants, Terms and
Conditions. If any Loan Party fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in Sections 6.01(a),
6.01(b)(i) (but only up to three times during any 12-month period, and only in
relation to Events of Default caused by the failure of third Persons to provide
required information or reporting, and not in relation to Events of Default
caused by a Loan Party), 6.01(b)(ii), 6.01(e), 6.01(g), 6.01(i), 6.01(n), and
6.01(o) of this Agreement and in Sections 4(b), 5(a), 7(a), 7(b), 7(d), and 10
of the Security Agreements or comparable provisions of the other Loan Documents,
within ten (10) days of the date when required, or within five (5) days of the
date when required in the case of Section 6.01(b)(i) or Section 6.01(b)(ii), or
if any Loan Party otherwise fails to perform, keep, or observe any other term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the other Loan Documents, or in any other present or future agreement between
any Loan Party and the Banks or Agent;
(d) Material Adverse Change. If there is a Material Adverse
Change;
(e) Cross Default. If any Loan Party or any of their Subsidiaries
shall (i) fail to pay any principal of, or premium or interest on, any
Indebtedness, the aggregate outstanding principal amount of which is at least
Two Million Dollars ($2,000,000) (excluding the Term Loan) when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any, or (ii)
fail to perform or observe any term, covenant or condition on its part required
to be performed or observed under any agreement or instrument relating to any
Indebtedness, the aggregate outstanding principal of which is at least Two
Million Dollars ($2,000,000) (excluding the Term Loan), and the effect of such
failure is to accelerate or permit the acceleration of the maturity of such
Indebtedness or (iii) fail to perform or observe any term, covenant or condition
on its part to be performed or observed under any agreement or instrument
relating to any Indebtedness, the aggregate outstanding principal amount of
which is at least One Million
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Dollars ($1,000,000) (excluding the Term Loan), and the effect of such failure
is to accelerate the maturity of such Indebtedness; or
(f) Loan Party Insolvency Event. (i) If any Loan Party shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets, or any
Loan Party shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against any Loan Party any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of forty-five (45)
consecutive days; or (iii) there shall be commenced against any Loan Party any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within forty-five (45) consecutive days from the entry thereof; or (iv) any Loan
Party shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i), (ii)
and (iii) above; or (v) any Loan Party shall admit in writing its inability to
pay its debts as they become due (any of the foregoing described in clauses (i)
through (v) of this Section defined hereinafter as an "Insolvency Event");
(g) Subsidiary Insolvency Event. (i) If any Subsidiary of a Loan
Party shall commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets, or any
such Subsidiary shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against any such Subsidiary any
case, proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded for a period
of forty-five (45) consecutive days; or (iii) there shall be commenced against
any such Subsidiary any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within forty-five (45) consecutive days from the entry
thereof; or (iv) any such Subsidiary shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii)
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and (iii) above; or (v) any such Subsidiary shall admit in writing its inability
to pay its debts as they become due;
(h) Injunction. If any Loan Party is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs;
(i) Writs and Levies. If any material portion of the properties
or assets of any Loan Party is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person;
(j) Government Levy. If notices of Lien, levy, or assessment
aggregating more than $100,000 are filed of record with respect to any of the
properties or assets of any Loan Party by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, or by any foreign governmental authority, or
if any taxes or debts aggregating more than $100,000 owing at any time hereafter
to any one or more of such entities become a Lien, whether choate or otherwise,
upon any of the properties or assets of any Loan Party and the same is not paid
(or reserved against) on the payment date thereof;
(k) Judgments and Encumbrances. If a judgment or other claim in
excess of $100,000 becomes a Lien or encumbrance upon any material portion of
any Loan Party's properties or assets and is not fully satisfied, bonded, or
stayed within twenty (20) days;
(l) Material Contracts. If there is a default in any Material
Contract to which any Loan Party is a party with one or more third Persons and
such default (a) occurs at the final maturity of the obligations thereunder, or
(b) results in a right by such third Person(s), irrespective of whether
exercised, to accelerate the maturity of such Loan Party's obligations
thereunder; the foregoing notwithstanding, (x) Loan Parties' dispute with Nextar
regarding thickness sorters, (y) defaults by Loan Parties under the
approximately $2,700,000 unsecured trade note payable to Ohara, and (z) defaults
under leases of closed facilities of the Loan Parties where no Collateral is
located, shall not constitute an Event of Default under this Section 7.01(l).
(m) Subordinated Indebtedness. If any Loan Party makes any
payment on account of Indebtedness of any Loan Party that has been contractually
subordinated in right of payment to the payment of the Obligations, except to
the extent such payment is permitted by the terms of the subordination
provisions applicable to such Indebtedness;
(n) ERISA Violation.
(i) If any Loan Party or any of its ERISA
Affiliates fails to make full payment when due of all amounts which, under the
provisions of any Pension Plan or Section 412 of the Internal Revenue Code, such
Loan Party or such ERISA Affiliate is required to pay as contributions thereto;
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(ii) If any accumulated funding deficiency occurs or
exists, whether or not waived, with respect to any Pension Plan;
(iii) If the excess of the actuarial present value
of all benefit liabilities under all Pension Plans over the fair market value of
the assets of such Pension Plans (excluding in such computation Pension Plans
with assets greater than benefit liabilities) allocable to such benefit
liabilities are greater than Two Million Dollars ($2,000,000);
(iv) If any Loan Party or any of its ERISA
Affiliates enters into any transaction which has as its principal purpose the
evasion of liability under Subtitle D of Title IV of ERISA;
(v) If any Pension Plan maintained by any Loan Party
or any of its ERISA Affiliates shall be terminated within the meaning of Title
IV of ERISA, or (B) a trustee shall be appointed by an appropriate United States
district court to administer any Pension Plan, or (C) the Pension Benefit
Guaranty Corporation (or any successor thereto) shall institute proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension
Plan, or (D) any Loan Party or any of its ERISA Affiliates shall withdraw (under
Section 4063 of ERISA) from a Pension Plan, if as of the date of the event
listed in subclauses (A)-(D) above or any subsequent date, either any Loan Party
or its ERISA Affiliates have any liability (such liability to include, without
limitation, any liability to the Pension Benefit Guaranty Corporation, or any
successor thereto, or to any other party under Sections 4062, 4063 or 4064 of
ERISA or any other provision of law) resulting from or otherwise associated with
the events listed in subclauses (A)-(D) above; (As used in this subsection
7.01(n) the term "accumulated funding deficiency" has the meaning specified in
Section 412 of the Internal Revenue Code, and the terms "actuarial present
value" and "benefit liabilities" have the meanings specified in Section 4001 of
ERISA);
(o) Loan Documents. If an event of default shall occur and be
continuing under any other Loan Document.
(p) Dissolution. If any Loan Party shall dissolve, wind up or
otherwise cease its business unless permitted hereunder.
(q) Guarantors. If the obligation of any Guarantor under or other
third Person under any Loan Document to which it is a party is limited or
terminated by operation of law or by the guarantor or other third Person
thereunder, or any such Guarantor or other third Person becomes the subject of
an Insolvency Event.
(r) Foothill Overadvances. If the aggregate amount of advances
under the Foothill Group Agreement (including, without limitation, overadvances
and protective advances but excluding the Foothill Group Bridge Term Loan),
whether or not requested by any Loan Party, shall (i) remain outstanding for
more than any 120 days within any 365-day period or (ii) at any one time, exceed
availability under the Borrowing Base (as defined in the Foothill
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Group Agreement) by $2 million; provided, further, that the total amount of the
Foothill Group Claim (as defined in the Foothill Group Agreement and including
the Foothill Group Bridge Term Loan) shall not exceed $30,000,000 minus the
aggregate amount of principal repayments made with respect to the Foothill Group
Bridge Term Loan.
(s) Failure of Enforceability of Credit Documents; Security. If
any covenant, agreement or obligation of any Loan Party contained in or
evidenced by any of the Loan Documents shall cease to be enforceable, or shall
be determined to be unenforceable, in accordance with its terms; any Loan Party
shall deny or disaffirm its obligations under any of the Loan Documents or any
Liens granted in connection therewith; or, any Liens granted to the Agent, for
the benefit of the Banks, in any of the Collateral shall be determined to be
void, voidable, invalid or unperfected, are subordinated or not given the
priority contemplated by this Agreement.
SECTION 7.02. ACCELERATION. (i) Upon the occurrence of any Event of
Default described in Subsections (f) and (g) above (Insolvency Event), the Term
Loan, together with accrued interest thereon, and all other amounts owing under
this Agreement, and the other Loan Documents shall automatically become due and
payable, and (ii) upon the occurrence of any other Event of Default, the Agent
shall at the request, or may with the consent of the Majority Banks, by notice
to Loan Parties, declare the Term Loan, together with accrued interest thereon,
and all other amounts owing under this Agreement, and the other Loan Documents
to be due and payable forthwith, whereupon the same shall immediately become due
and payable. Except as expressly provided above in this Section or elsewhere in
this Agreement, each Loan Party expressly waives presentment, demand, protest
and all other notices of any kind.
ARTICLE VIII
THE AGENT
SECTION 8.01. AUTHORIZATION AND ACTION. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement and the other Loan Documents, the Agent shall not be required to
exercise any discretion or take any action, but, subject to Section 9.01, shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority Banks,
and such instructions shall be binding upon all Banks; provided, however, that
the Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or any of the other
Loan Documents or applicable law. The Agent agrees to give to each Bank prompt
notice of each notice given to it by any Loan Party pursuant to the terms of
this Agreement and the other Loan Documents.
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SECTION 8.02. AGENT'S RELIANCE, ETC. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement and
the other Loan Documents, except for its or their own gross negligence or wilful
misconduct. Without limiting the generality of the foregoing, the Agent: (i) may
consult with legal counsel (including counsel for any Loan Party), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (ii) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (iii) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the other Loan Documents on the
part of any Loan Party or to inspect the property (including the books and
records) of any Loan Party; (iv) shall not be responsible to any Bank for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; and (v) shall incur no liability
under or in respect of this Agreement and the other Loan Documents by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telegram, cable or telex) believed by it to be genuine and signed or sent
by the proper party or parties.
SECTION 8.03. CIBC [ASIA] LTD., CANADIAN IMPERIAL BANK OF COMMERCE, NEW
YORK AGENCY AND AFFILIATES. With respect to the Term Loan made by it, CIBC
[Asia] Ltd. ("CIBCAL") shall have the same rights and powers under this
Agreement and the other Loan Documents as any other Bank and may exercise the
same as though CIBCAL was not an Affiliate of the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include CIBCAL in its
individual capacities. CIBCAL, Canadian Imperial Bank of Commerce, New York
Agency ("CIBC NYA") and their respective Affiliates may accept deposits from,
lend money to, act as trustee under indentures of, and generally engage in any
kind of business with any of the Loan Parties, any of its Subsidiaries and any
Person who may do business with or own securities of any Loan Party or any such
subsidiary, all as if CIBCAL and CIBC NYA were not a Bank or Agent and without
any duty to account therefor to the Banks.
SECTION 8.04. BANK CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements referred to in Section 5.01(b) and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Bank
also acknowledges that it will, independently and without reliance upon the
Agent or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement.
SECTION 8.05. INDEMNIFICATION. The Banks agree to indemnify Agent and
Co- Agent (to the extent not reimbursed by Loan Parties) ratably according to
the respective principal amounts outstanding under the Term Loan (for purposes
of this Section 8.05, CIBC [Asia] Ltd.
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shall be deemed to have fully drawn each letter of credit issued by the Banks
party to the Letter of Credit Agreements), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Agent or Co-Agent in any way
relating to or arising out of this Agreement and the other Loan Documents or any
action taken or omitted by the Agent or Co-Agent under this Agreement and the
other Loan Documents, provided that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's or Co-Agent's
gross negligence or wilful misconduct. Without limiting the foregoing, each Bank
agrees to reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent
or Co-Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and the other Loan Documents,
to the extent that the Agent or Co-Agent is not reimbursed for such expenses by
Loan Parties.
SECTION 8.06. SUCCESSOR AGENT. The Agent may resign at any time by
giving written notice thereof to the Banks and Loan Parties and may be removed
at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Agent with the Loan Parties' consent (so long as no Event of Default
or Potential Event of Default is then continuing) which consent shall not be
unreasonably withheld or delayed. If no successor Agent shall have been so
appointed by the Majority Banks, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent from among
the Banks. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other Loan Documents.
SECTION 8.07. AGENT AUTHORIZATION. Each Bank authorizes and directs the
Agent to enter into the Loan Documents concerning the Collateral for the benefit
of the Banks. Each Bank authorizes and directs the Agent to enter into the
Intercreditor Agreement and the Seagate Subordination Agreement. Each Bank
agrees that any action taken by the Agent which is required to be taken in
accordance with the provisions of such documents or is otherwise approved by
this Agreement or the Majority Lenders, together with such other actions as are
reasonably incidental thereto, shall be authorized and binding upon the Agent,
the Co-Agent and each of the Banks.
ARTICLE IX
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MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of the Loan Documents nor consent to any departure by the Loan Parties
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks, do any of the following: (a) waive any of
the conditions specified in Article IV, (b) subject the Banks to any additional
obligations, (c) reduce the principal of, or interest on, the Term Loan or any
fees or other amounts payable hereunder, (d) postpone any date fixed for any
payment of principal of, or interest on, the Term Loan or any fees or other
amounts payable hereunder, (e) change the percentage of the aggregate unpaid
principal amount of the Term Loan, or the number of Banks, which shall be
required for the Banks or any of them to take any action hereunder, (f) amend
any of the provisions in Sections 3.04 through 3.12, (g) amend the definition of
Majority Banks or this Section 9.01, (h) release Parent Guarantor, Subsidiary
Guarantors or any other guarantor, (i) release any material portion of the
Collateral or (j) amend any of the provisions of the Interbank Agreement and the
Side Letter; and provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Banks required
above to take such action, affect the rights or duties of the Agent under this
Agreement or any other Loan Document; and provided, further that no waiver or
consent shall, unless in writing and signed by the affected Bank, waive the
rights of that Bank to receive any payment or compensation under any of Sections
3.04 through 3.12. No amendment to Section 17(a) or 17(c) of the Intercreditor
Agreement shall be made without the consent of the Borrowers.
SECTION 9.02. NOTICES, ETC. Except as otherwise set forth in this
Agreement, all notices and other communications provided for hereunder shall be
in writing (including facsimile communication) and mailed or sent by facsimile
or delivered, if to Loan Parties, at their respective addresses set forth on the
signature page hereof; and if to any Bank or the Agent, at its address set forth
on the signature page hereof; or, as to each party, at such other address as
shall be designated by such party in a written notice to the other parties. All
such notices and communi cations shall (i) when telecopied be effective when
telecopied, (ii) when mailed first class postage prepaid, be effective on the
third Business Day after the date deposited in the mail, and (iii) when
delivered, be effective upon receipt, except that notices and communications to
the Agent pursuant to Article II or VII shall not be effective until received by
the Agent.
SECTION 9.03. RIGHT OF SETOFF. Subject to the Intercreditor Agreement,
upon the occurrence of both (i) any Event of Default and (ii) the making of the
request or the granting of the consent specified by the last paragraph of
Article VII to authorize the Agent to declare the Term Loan and other amounts
due and payable pursuant to the provisions of the last paragraph of Article VII,
each Bank is hereby authorized by each Loan Party, at any time and from time to
time, without notice, (a) to set off against, and to appropriate and apply to
the payment of, the obligations and liabilities of any Loan Party under the Loan
Documents (whether matured or unmatured, fixed or contingent or liquidated or
unliquidated) any and all amounts owing by such
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Bank or any of its Affiliates to any Loan Party (whether payable in Dollars or
any other currency, whether matured or unmatured, and, in the case of deposits,
whether general or special, time or demand and however evidenced) and any
monies, credits or other property belonging to any Loan Party at any time held
by or coming into the possession of such Bank, the Agent or any of their
respective Affiliates, and (b) pending any such action, to the extent necessary,
to hold such amounts as collateral to secure such obligations and liabilities
and to return as unpaid for insufficient funds any and all checks and other
items drawn against any deposits so held as such Bank in its sole discretion may
elect. The rights of each Bank under this Section are in addition to other
rights and remedies (including other rights of set-off) which such Bank may
have.
SECTION 9.04. NO WAIVER; REMEDIES. No failure on the part of the Agent
or any Bank to exercise, and no delay in exercising, any right under any of the
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of the Loan Documents preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 9.05. COSTS AND EXPENSES. Without duplication of any amounts
payable pursuant to Article III, each of the Loan Parties jointly and severally
agree to pay upon receipt of invoice all costs and expenses of the Agent
(including reasonable attorney's fees and the allocated cost of in-house counsel
and staff) in connection with the preparation, amendment, modification,
enforcement, including in appellate, bankruptcy, (including without limitation
in connection with issues concerning cash collateral, relief from the automatic
stay and plan confirmation), insolvency, liquidation, reorganization, moratorium
or other similar proceedings or restructuring of the Loan Documents. In
addition, without duplication of any amounts payable pursuant to Article III,
the Loan Parties agree jointly and severally to pay on demand all costs and
expenses of each Bank (including reasonable attorney's fees and the reasonable
estimate of the allocated cost of in-house counsel and staff) in connection with
the preparation, amendment, modification, enforcement, bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings of any Loan
Party or restructuring of the Loan Documents.
SECTION 9.06. ADDITIONAL BANKS; ASSIGNMENTS; PARTICIPATIONS.
(a) Any Bank may assign, from time to time, all or any portion of
its pro rata share of the Term Loan to an Affiliate of that Bank or to a Federal
Reserve Bank or, (so long as no Event of Default shall have occurred and be
continuing) with the prior written approval of Loan Parties (which approval will
not be unreasonably withheld or delayed), to any other Financial Institution
acceptable to the Agent; provided that the parties to each such assignment shall
execute and deliver to the Agent and Loan Parties an Assignment Agreement
substantially in the form of Exhibit B. Upon such execution and delivery and
payment of a fee equal to $2,500 to the Agent to cover administrative costs,
from and after the effective date specified in such Assignment Agreement (y) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment
Agreement, have the rights and obligations of a Bank hereunder and (z) the Bank
assignor
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thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment Agreement, relinquish its rights and
be released from its obligations under this Agreement (other than pursuant to
Section 9.06(e)), and, in the case of an Assignment Agreement covering all or
the remaining portion of an assigning Bank's rights and obligations under this
Agreement, such Bank shall cease to be a party hereto, subject to its continuing
obligations under Section 9.06(e).
(b) Each Bank may sell, negotiate or grant participations to
other Financial Institutions in all or part of the obligations of Loan Parties
outstanding under the Loan Documents, without notice to or the approval of the
Agent or Loan Parties; provided that any such sale, negotiation or participation
shall be in compliance with the applicable federal, state, and foreign
securities laws and the other requirements of this Section 9.06. No participant
shall constitute a "Bank" under any Loan Document, and Loan Parties shall
continue to deal solely and directly with the Agent and the Banks.
(c) Each Bank may disclose to any proposed assignee or
participant which is a Financial Institution any information relating to Loan
Parties or any of their Subsidiaries; provided, that prior to such disclosure
such proposed assignee or participant shall have agreed in writing to keep any
such information confidential substantially on the terms of Section 9.06(e).
(d) The grant of a participation interest shall be on such terms
as the granting Bank determines are appropriate, provided only that (1) the
holder of such a participation interest shall not have any of the rights of a
Bank under this Agreement except, if the participation agreement so provides,
rights to demand the payment of costs of the type described in Article III, and
(2) the consent of the holder of such a participation interest shall not be
required for amendments or waivers of provisions of the Loan Documents other
than those that (i) extend the term of the Term Loan, (ii) decrease the rate of
interest or the amount of any fee or any other amount payable to the Banks under
the Loan Documents, (iii) reduce the principal amount payable under the Loan
Documents, or (iv) extend the date fixed for the payment of principal or
interest or any other amount payable under the Loan Documents.
(e) Each Bank understands that some of the information and
documents furnished to it pursuant to the Loan Documents may be confidential and
each Bank agrees that it will keep all non-public information, documents and
agreements so furnished to it confidential and will make no disclosure to other
Persons of such information or agreements until it shall have become public,
except (i) to the extent required in connection with matters involving
operations under or enforcement or amendment of the Loan Documents; (ii) in
accordance with such Bank's obligations under law or regulations or pursuant to
subpoenas or other process to make information available to governmental
agencies and examiners or to others; (iii) to any corporate parent of any Bank
so long as such parent agrees to accept such information or agreement subject to
the restrictions provided in this Section 9.06(e); (iv) to any participant bank
or trust company of any Bank so long as such participant shares the corporate
parent with such Bank and agrees to keep such information, documents or
agreement confidential in accordance
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with the restrictions provided in this Section 9.06(e); (v) to the Agent or to
any other Bank and their respective counsel and other professional advisors and
to its own counsel and professional advisors so long as such Persons are
instructed to keep such information confidential in accordance with the
provisions of this Section 9.06(e); (vi) to proposed assignees and participants
that are Financial Institutions in accordance with Section 9.06(c); and (vii)
with the prior written consent of Loan Parties.
SECTION 9.07. JOINT AND SEVERAL OBLIGATIONS. The Obligations are joint
and several obligations of each Borrower. The rights of the Borrower hereunder
are joint and not several, and must be exercised collectively.
SECTION 9.08. CO-BORROWER PROVISIONS.
(a) Consents. Subject to the Intercreditor Agreement, each
Borrower, as the guarantor of the Obligations directly incurred by the other
Borrower authorizes Agent, without giving notice to such Borrower or obtaining
such Borrower's consent and without affecting the liability of such Borrower for
the Obligations directly incurred by the other Borrower, from time to time to:
(i) compromise, settle, renew, extend the time for
payment, change the manner or terms of payment, discharge the performance of,
decline to enforce, or release all or any of the Obligations; grant other
indulgences to the other Borrower in respect thereof; or modify in any manner
any documents relating to the Obligations;
(ii) declare all Obligations due and payable upon
the occurrence and during the continuance of an Event of Default;
(iii) take and hold security for the performance of
the Obligations of the other Borrower and exchange, enforce, waive and release
any such security;
(iv) apply and reapply such security and direct the
order or manner of sale thereof as Agent, in its sole discretion, may determine;
(v) release, surrender or exchange any deposits or
other property securing the Obligations or on which Agent at any time may have a
Lien; release, substitute or add any one or more endorsers or guarantors of the
Obligations of the other Borrower or such Borrower; or compromise, settle,
renew, extend the time for payment, discharge the performance of, decline to
enforce, or release all or any obligations of any such endorser or guarantor or
other Person who is now or may hereafter be liable on any Obligations or
release, surrender or exchange any deposits or other property of any such
Person;
(vi) apply payments received by Agent from either
Borrower to any Obligations, in such order as Agent shall determine, in its sole
discretion; and
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(vii) assign this Agreement in whole or in part.
(b) Waivers. Each Borrower, as the guarantor of the Obligations
directly incurred by the other Borrower, but without affecting its liability as
a primary obligor for that portion of the Obligations for which it is the
Borrower, waives:
(i) any defense based upon any legal disability or
other defense of the other Borrower, or by reason of the cessation or limitation
of the liability of the other Borrower from any cause (other than full payment
of all Obligations), including, but not limited to, failure of consideration,
breach of warranty, statute of frauds, statute of limitations, accord and
satisfaction, and usury;
(ii) any defense based upon any legal disability or
other defense of any guarantor or other Person;
(iii) any defense based upon any lack of authority
of the officers, directors, partners or agents acting or purporting to act on
behalf of any other Borrower or any principal of the other Borrower or any
defect in the formation of the other Borrower or any principal of any other
Borrower;
(iv) any defense based upon the application by any
other Borrower of the proceeds of the Term Loan for purposes other than the
purposes represented by any other Borrower to Agent or intended or understood by
Agent or such Borrower;
(v) any defense based on such Borrower's rights,
under statute or otherwise, to require Agent to sue the other Borrower or
otherwise to exhaust its rights and remedies against the other Borrower or any
other Person or against any collateral before seeking to enforce its right to
require such Borrower to satisfy the Obligations of the other Borrower;
(vi) any defense based on Agent's failure at any
time to require strict performance by either Borrower of any provision of the
Loan Documents. Such Borrower agrees that no such failure shall waive, alter or
diminish any right of Agent thereafter to demand strict compliance and
performance therewith. Nothing contained herein shall prevent Agent from
foreclosing on the Lien of any security agreement, or exercising any rights
available to Agent thereunder, and the exercise of any such rights shall not
constitute a legal or equitable discharge of such Borrower;
(vii) any defense arising from any act or omission
of Agent which changes the scope of such Borrower's risks hereunder;
(viii) any defense based upon Agent's election of
any remedy against such Borrower or the other Borrower or both; any defense
based on the order in which Agent enforces its remedies;
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(ix) any defense based on (A) Agent's surrender,
release, exchange, substitution, dealing with or taking any additional
collateral, (B) Agent's abstaining from taking advantage of or realizing upon
any Lien or other guaranty, and (C) any impairment of collateral securing the
Obligations, including, but not limited to, Agent's failure to perfect or
maintain a Lien in such collateral;
(x) any defense based upon Agent's failure to
disclose to such Borrower any information concerning the other Borrower's
financial condition or any other circumstances bearing on the other Borrower's
ability to pay the Obligations;
(xi) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in any other respects more burdensome than that of a principal;
(xii) any defense based upon Agent's election, in
any proceeding instituted under the Bankruptcy Code, of the application of
Section 1111(b)(2) of the Bankruptcy Code or any successor statute;
(xiii) any defense based upon any borrowing or any
grant of a security interest under Section 364 of the Bankruptcy Code;
(xiv) any defense based on Agent's failure to be
diligent or to satisfy any other standard imposed on a secured party in
exercising rights with respect to collateral securing the Obligations;
(xv) notice of acceptance hereof; notice of the
existence, creation or acquisition of any Obligation; except as provided herein,
notice of any Event of Default; notice of the amount of the Obligations
outstanding from time to time; notice of any other fact which might increase
such Borrower's risk; diligence; presentment; demand of payment; protest; filing
of claims with a court in the event of the other Borrower's receivership or
bankruptcy and all other notices and demands to which such Borrower might
otherwise be entitled (and agrees the same shall not have to be made on the
other Borrower as a condition precedent to such Borrower's obligations
hereunder);
(xvi) any defense based on errors and omissions by
Agent in connection with its administration of the Term Loan, other than those
caused by the Agent's gross negligence or willful misconduct;
(xvii) any defense based on application of
fraudulent conveyance or transfer law or shareholder distribution law to any of
the Obligations or the security therefor;
(xviii) any defense based on Agent's failure to seek
relief from stay or adequate protection in another Borrower's bankruptcy
proceeding or any other act or omission by Agent which impairs such Borrower's
prospective subrogation rights;
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(xix) any defense based on legal prohibition of
Agent's acceleration of the maturity of the Obligations during the occurrence of
an Event of Default or any other legal prohibition on enforcement of any other
right or remedy of Agent with respect to the Obligations and the security
therefor; and
(xx) the benefit of any statute of limitations
affecting the liability of such Borrower hereunder or the enforcement hereof.
(c) Additional Waivers. Each Borrower authorizes Agent to
exercise, in its sole discretion, any right, remedy or combination thereof which
may then be available to Agent, since it is such Borrower's intent that the
Obligations be absolute, independent and unconditional obligations of such
Borrower under all circumstances. Without limiting the generality of the
foregoing or any other provision hereof, each Borrower hereby waives, to the
fullest extent permitted by applicable law in accordance with Section 2856 of
the California Civil Code, all rights and benefits under California Civil Code
Sections 2787 to 2855, inclusive (or any similar laws in other jurisdictions)
and all rights and benefits of California Civil Code Sections 2899 and 3433 (or
any similar laws in any other jurisdiction). In addition, without limiting the
generality of the foregoing or any other provision hereof, each Borrower hereby
waives, in accordance with Section 2856 of the California Civil Code, all rights
and defenses (including, without limitation, all rights and defenses arising out
of an election of remedies by the Agent or any Bank) that such Borrower may have
because the Obligations are or may in the future be secured by real property.
This means, among other things:
(i) the Agent, the Co-Agent or any Bank may collect
from such Borrower without first foreclosing on any real or personal property
collateral pledged to or for the benefit of the Agent or any Bank; and
(ii) if the Agent, the Co-Agent or any Bank
forecloses on any real property collateral pledged by the other Borrower:
(A) the amount of the debt may be reduced only by
the price for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price; and
(B) the Agent, the Co-Agent or any Bank may collect
from such Borrower even if the Agent, the Co-Agent or any Lender, by foreclosing
on the real property collateral, has destroyed any right such Borrower may have
to collect from the other Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses the
Borrowers may have because the Obligations are or may in the future be secured
by real property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d or 726 of the California
Code of Civil Procedure (or any similar laws in any other jurisdiction).
Notwithstanding any foreclosure of any Lien with respect to any or all of any
property securing the Obligations, whether by the exercise of the power of sale
contained therein,
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by an action for judicial foreclosure or by an acceptance of a deed in lieu of
foreclosure, each Borrower shall remain bound under such Borrower's guaranty of
the Obligations directly incurred by the other Borrower.
(d) Subrogation Waiver. Notwithstanding anything to the contrary
contained herein, each Borrower hereby irrevocably waives, and shall not seek to
exercise, until after indefeasible payment in full in cash of the Obligations,
all of the following rights that it may have against the other Borrower, any
guarantor, or any collateral provided by any other Borrower or any other
guarantor, for any amounts paid by such Borrower, or any acts performed by such
Borrower hereunder, in each case, arising under or in respect of the Loan
Documents: (i) subrogation (including all rights arising under Bankruptcy Code
Section 509 and California Civil Code Sections 2848 and 2849, as now and
hereafter in effect), (ii) reimbursement (including all rights arising under
Bankruptcy Code Section 502(e) and California Civil Code Section 2847, as now
and hereafter in effect), (iii) performance (including all rights arising under
California Civil Code Section 2846, as now and hereafter in effect), (iv)
indemnification or contribution (including all rights to indemnification or
contribution arising under Bankruptcy Code Section 502(e), as now and hereafter
in effect), (v) participation in a claim, and (vi) all similar rights arising
under a contract, in equity, common law, statutes or otherwise.
(e) Subordination of Claims. All present and future debts and
other obligations of the Borrowers to each other are hereby postponed in favor,
and subordinated to the full indefeasible payment in cash, of the Obligations.
If an Event of Default has occurred and is continuing, no payments in respect of
any such intra-Borrower indebtedness may be made until all Obligations are
indefeasibly paid in full in cash.
(f) Primary Obligations. This Agreement is a primary and original
obligation of each Borrower and each Borrower shall be liable for all existing
and future Obligations of the other Borrower as fully as if such Obligations
were directly incurred by such Borrower.
SECTION 9.09. EFFECTIVENESS; BINDING EFFECT; GOVERNING LAW. This
Agreement shall become effective when it shall have been executed by Loan
Parties, the Agent, the Co-Agent and each Bank and each of the conditions
precedent set forth in Section 4.01 shall have been satisfied. This Agreement
shall be binding upon and inure to the benefit of Loan Parties, the Agent, the
Co-Agent, each Bank and their respective successors and assigns, except that
Loan Parties shall not have the right to assign their rights hereunder or any
interest herein without the prior written consent of the Agent and all the
Banks. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS TO BE PERFORMED
WITHIN SUCH STATE.
SECTION 9.10. SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. Subject to
the remainder of this Section 9.10, this Agreement shall terminate upon the
indefeasible repayment in full of the Term Loan and all other amounts owing
under this Agreement. All agreements,
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representations and warranties made herein and in any Loan Document shall
survive the execution and delivery of this Agreement and the making of the Term
Loan hereunder. Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements contained in Sections 3.04, 3.05, 3.08, 3.11 and
9.05 shall survive the payment of the Term Loan and the termination of this
Agreement; provided, however, that such Sections (other than Section 9.05) shall
terminate on the fifth anniversary of the termination of this Agreement.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE LOAN PARTIES, THE AGENT
AND EACH BANK HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF
THE OTHER LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THIS LOAN TRANSACTION AND THE DEBTOR/CREDITOR RELATIONSHIP THAT IS
BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including contract claims, tort claims,
breach of duty claims, and all other common law and statutory claims. The Agent,
each Bank and each of the Loan Parties acknowledge that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on the waiver in entering into this Agreement, and that each
will continue to rely on the waiver in their related future dealings. The Agent,
each Bank and each of the Loan Parties further warrant and represent that each
has reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREE MENT, THE OTHER LOAN
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.
SECTION 9.12. CONSENT TO JURISDICTION; VENUE. All judicial proceedings
brought against any Loan Party with respect to this Agreement and the other Loan
Documents may be brought in any state or federal court of competent jurisdiction
in the County of San Francisco in the State of California, and by execution and
delivery of this Agreement, each Loan Party accepts for itself and in connection
with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. Each Loan Party
irrevocably waives any right it may have to assert the doctrine of forum non
conveniens or to object to venue to the extent any proceeding is brought in
accordance with this Section. Nothing herein shall affect the right of the Agent
or any Bank to bring proceedings against any Loan Party in courts of any
jurisdiction.
SECTION 9.13. ENTIRE AGREEMENT. This Agreement with Exhibits and
Schedules and the other Loan Documents embody the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
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SECTION 9.14. SEPARABILITY OF PROVISIONS. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 9.15. OBLIGATIONS SEVERAL. The obligation of each Bank hereunder
is several, and no Bank shall be responsible for the obligation or commitment of
any other Bank hereunder. Nothing contained in this Agreement and no action
taken by the Banks pursuant hereto shall be deemed to constitute the Banks to be
a partnership, an association, a joint venture or any other kind of entity.
SECTION 9.16. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability and binding effect of this Agreement.
SECTION 9.17. 1654 INTERPRETATION. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the matters
dealt with in this Agreement. Each party has been represented by experienced and
knowledgeable legal counsel. Accordingly, any rule of law (including California
Civil Code Section 1654) or legal decision that would require interpretation of
any ambiguities in this Agreement against the party that has drafted it is not
applicable and is waived. The provisions of this Agreement shall be interpreted
in a reasonable manner to effect the purpose of the parties and this Agreement.
SECTION 9.18. CONFIDENTIALITY. Any information provided in connection
herewith to the Agent, Co-Agent or any Bank shall be subject to the
confidentiality provisions of Section 9.06(e) of the Agreement.
SECTION 9.19. NO NOVATION. This Agreement is an amendment and
restatement of the Existing Credit Agreement. The Obligations under this
Agreement are incurred in renewal of and rearrangement and substitution, but not
in payment, for the obligations of the Parent Guarantors and the Borrowers under
the Existing Credit Agreement, it being acknowledged and agreed that the
Indebtedness evidenced by the Existing Credit Agreement and the "Loan Documents"
(as defined therein) constitutes the same Indebtedness evidenced by this
Agreement and the Loan Documents, and this Agreement and the Loan Documents are
in no way intended to constitute a novation of the Existing Credit Agreement or
the outstanding principal amount of the Term Loan; provided, however, that, as
of the Effective Date, the rights and obligations of the parties to this
Agreement shall be governed by this Agreement and not by the Existing Credit
Agreement and no Event of Default or Potential Event of Default under the
Existing Credit
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Agreement shall constitute an Event of Default or Potential Event of Default
under this Agreement.
SECTION 9.20. MAXIMUM PERMISSIBLE RATE. Each provision in this Agreement
and each other Loan Document is expressly limited so that in no event whatsoever
shall the amount paid, or otherwise agreed to be paid, to the Agent, the
Co-Agent or any Bank for the use, forbearance or detention of the money to be
loaned under this Agreement or any Loan Document or otherwise (including any
sums paid as required by any covenant or obligation contained herein or in any
other Loan Document which is for the use, forbearance or detention of such
money), exceed that amount of money which would cause the effective rate of
interest to exceed the Highest Lawful Rate, and all amounts owed under this
Agreement and each other Loan Document shall be held to be subject to reduction
to the effect that such amounts so paid or agreed to be paid which are for the
use, forbearance or detention of money under this Agreement or such Loan
Document shall in no event exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate. Anything in this
Agreement or any other Loan Document to the contrary notwithstanding, Borrowers
shall never be required to pay interest on the Obligations at a rate in excess
of the Highest Lawful Rate, and if the effective rate of interest which would
otherwise be payable with respect to the Obligations would exceed the Highest
Lawful Rate, or if the holder of such Obligations shall receive monies that are
deemed to constitute interest which would increase the effective rate of
interest payable by any Borrower with respect to the Obligations to a rate in
excess of the Highest Lawful Rate, then the amount of interest which would
otherwise be payable by such Borrower with respect to such Obligations shall be
reduced to the Highest Lawful Rate and (ii) any unearned interest paid by such
Borrower or any interest paid by such Borrower in excess of the Highest Lawful
Rate shall be in the first instance credited on the principal of such
Obligations with the excess thereof, if any, refunded to such Borrower.
ARTICLE X
GUARANTY
SECTION 10.01. GUARANTY OF THE GUARANTIED OBLIGATIONS. Parent Guarantor
hereby irrevocably and unconditionally guaranties, as primary obligor and not
merely as surety, the due and punctual payment in full of all Guarantied
Obligations when the same shall become due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)). The term
"Guarantied Obligations" is used herein in its most comprehensive sense and
includes any and all obligations of Borrowers or any Borrower in respect of
advances, borrowings, loans, debts, letters of credit, bankers' acceptances,
interest, fees, costs, expenses (including, without limitation, legal fees and
expenses of counsel and allocated costs of internal counsel), indemnities and
liabilities of whatsoever nature now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or not
due, and however arising under or in connection
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with this Agreement and the other Loan Documents, including those arising under
successive borrowing transactions under this Agreement which shall either
continue such obligations of Borrowers or from time to time renew them after
they have been satisfied.
SECTION 10.02. LIABILITY OF GUARANTOR ABSOLUTE. Parent Guarantor agrees
that its obligations hereunder are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which constitutes a
legal or equitable discharge of a guarantor or surety other than indefeasible
payment in full of the Guarantied Obligations. In furtherance of the foregoing
and without limiting the generality thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) Agent may enforce this Guaranty upon the occurrence of an
Event of Default notwithstanding the existence of any dispute between Banks and
Borrowers with respect to the existence of such Event of Default.
(c) The obligations of Parent Guarantor hereunder are independent
of the obligations of Borrowers under the Loan Documents and the obligations of
any other guarantor of the obligations of Borrowers under the Loan Documents,
and a separate action or actions may be brought and prosecuted against Parent
Guarantor whether or not any action is brought against Borrowers or any of such
other guarantors and whether or not Borrowers are joined in any such action or
actions.
(d) Parent Guarantor's payment of a portion, but not all, of the
Guarantied Obligations shall in no way limit, affect, modify or abridge Parent
Guarantor's liability for any portion of the Guarantied Obligations which has
not been paid. Without limiting the generality of the foregoing, if Agent is
awarded a judgment in any suit brought to enforce Parent Guarantor's covenant to
pay a portion of the Guarantied Obligations, such judgment shall not be deemed
to release Parent Guarantor from its covenant to pay the portion of the
Guarantied Obligations that is not the subject of such suit.
(e) Agent or any Bank, upon such terms as it deems appropriate,
without notice or demand and without affecting the validity or enforceability of
this Parent Guarantor's guaranty hereunder or giving rise to any reduction,
limitation, impairment, discharge or termination of Parent Guarantor's liability
hereunder, as long as any Guarantied Obligations are outstanding and until
indefeasible payment in cash in full of all Guarantied Obligations and
termination of the Credit Agreement from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the time,
place, manner or terms of payment of the Guarantied Obligations; (ii) settle,
compromise, release or discharge, or accept or refuse any offer of performance
with respect to, or substitutions for, the Guarantied Obligations or any
agreement relating thereto and/or subordinate the payment of the same to the
payment of any other obligations; (iii) request and accept other guaranties of
the Guarantied Obligations and take and hold security for the payment of Parent
Guarantor's guaranty hereunder or the Guarantied
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Obligations; (iv) release, surrender, exchange, substitute, compromise, settle,
rescind, waive, alter, subordinate or modify, with or without consideration, any
security for payment of the Guarantied Obligations, any other guaranties of the
Guarantied Obligations, or any other obligation of any Person with respect to
the Guarantied Obligations; (v) enforce and apply any security now or hereafter
held by or for the benefit of Agent or any Bank in respect of Parent Guarantor's
guaranty hereunder or the Guarantied Obligations and direct the order or manner
of sale thereof, or exercise any other right or remedy that Agent or, Banks, or
any of them, may have against any such security, as Agent in its discretion may
determine consistent with this Agreement and any applicable security agreement,
including foreclosure on any such security pursuant to one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
reasonable, and even though such action operates to impair or extinguish any
right of reimbursement or subrogation or other right or remedy of Parent
Guarantor against Borrowers or any security for the Guarantied Obligations; and
(vi) exercise any other rights available to it under the Loan Documents.
(f) Parent Guarantor's guaranty of the Guarantied Obligations and
the obligations of Parent Guarantor hereunder shall be valid and enforceable and
shall not be subject to any reduction, limitation, impairment, discharge or
termination for any reason (other than indefeasible payment in full of the
Guarantied Obligations), including, without limitation, the occurrence of any of
the following, whether or not Parent Guarantor shall have had notice or
knowledge of any of them: (i) any failure or omission to assert or enforce or
agreement or election not to assert or enforce, or the stay or enjoining, by
order of court, by operation of law or otherwise, of the exercise or enforcement
of, any claim or demand or any right, power or remedy (whether arising under the
Loan Documents, at law, in equity or otherwise) with respect to the Guarantied
Obligations or any agreement relating thereto, or with respect to any other
guaranty of or security for the payment of the Guarantied Obligations; (ii) any
rescission, waiver, amendment or modification of, or any consent to departure
from, any of the terms or provisions (including, without limitation, provisions
relating to Events of Default) of this Agreement, any of the other Loan
Documents or any agreement or instrument executed pursuant thereto, or of any
other guaranty or security for the Guarantied Obligations, in each case whether
or not in accordance with the terms of this Agreement or such Loan Document or
any agreement relating to such other guaranty or security; (iii) the Guarantied
Obligations, or any agreement relating thereto, at any time being found to be
illegal, invalid or unenforceable in any respect; (iv) the application of
payments received from any source (other than payments received pursuant to the
other Loan Documents or from the proceeds of any security for the Guarantied
Obligations, except to the extent such security also serves as collateral for
indebtedness other than the Guarantied Obligations) to the payment of
indebtedness other than the Guarantied Obligations, even though Agent or Banks,
or any of them, might have elected to apply such payment to any part or all of
the Guarantied Obligations; (v) any Bank's or Agent's consent to the change,
reorganization or termination of the corporate structure or existence of any
Borrower or any of its Subsidiaries and to any corresponding restructuring of
the Guarantied Obligations; (vi) any failure to perfect or continue perfection
of a security interest in any collateral which secures any of the Guarantied
Obligations; (vii) any defenses, set-offs or counterclaims which Borrowers may
allege or assert against Agent or any Bank in respect of the Guarantied
Obligations,
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including, but not limited to, failure of consideration, breach of warranty,
payment, statute of frauds, statute of limitations, accord and satisfaction and
usury; and (viii) any other act or thing or omission, or delay to do any other
act or thing, which may or might in any manner or to any extent vary the risk of
Parent Guarantor as an obligor in respect of the Guarantied Obligations.
SECTION 10.03. WAIVERS BY GUARANTOR. Parent Guarantor hereby waives, for
the benefit of Banks and Agent:
(a) any right to require Agent or Banks, as a condition of
payment or performance by Parent Guarantor, to (i) proceed against either
Borrower, any other guarantor of the Guarantied Obligations or any other Person,
(ii) proceed against or exhaust any security held from any Borrower, any other
guarantor of the Guarantied Obligations or any other Person, (iii) proceed
against or have resort to any balance of any deposit account or credit on the
books of Agent or any Bank in favor of either Borrower or any other Person, or
(iv) pursue any other remedy in the power of Agent or any Bank whatsoever;
(b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of either Borrower including,
without limitation, any defense based on or arising out of the lack of validity
or the unenforceability of the Guarantied Obligations or any agreement or
instrument relating thereto or by reason of the cessation of the liability of
either Borrower from any cause other than indefeasible payment in full of the
Guarantied Obligations;
(c) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(d) any defense based upon Agent's or any Bank's errors or
omissions in the administration of the Guarantied Obligations other than such
errors or omission arising from Agent's or any such Bank's gross negligence or
willful misconduct;
(e) (i) any principles or provisions of law, statutory or
otherwise, which are or might be in conflict with the terms of Parent
Guarantor's guaranty of the Guarantied Obligations and any legal or equitable
discharge of Parent Guarantor's obligations hereunder, (ii) the benefit of any
statute of limitations affecting Parent Guarantor's liability hereunder or the
enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims,
and (iv) promptness, diligence and any requirement that Agent or any Bank
protect, secure, perfect or insure any security interest or lien or any property
subject thereto; and
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
of Parent Guarantor's guaranty of the Guarantied Obligations hereunder, notices
of default under this Agreement or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Guarantied Obligations
or any agreement related thereto, notices of any extension of credit to
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either Borrower and notices of any of the matters referred to in Section 10.2
and any right to consent to any thereof.
SECTION 10.04. CONTINUING GUARANTY: TERMINATION OF GUARANTY. Parent
Guarantor's guaranty of the Guarantied Obligations is a continuing guaranty and
shall remain in effect until all of the Guarantied Obligations shall have been
indefeasibly paid in full. Anything contained in this Article X to the contrary
notwithstanding, this Guaranty shall not apply to Guarantied Obligations created
after actual receipt by Agent of written notice from Parent Guarantor of its
revocation as to future transactions; provided, however, that any such
revocation shall not affect Parent Guarantor's liability for any Guarantied
Obligations outstanding at the time of receipt of such notice or any extension
or renewal of such Guarantied Obligations.
SECTION 10.05. BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF
GUARANTY.
(a) So long as any Guarantied Obligations remain outstanding,
Parent Guarantor shall not, without the prior written consent of Agent in
accordance with the terms of this Agreement, commence or join with any other
Person in commencing any bankruptcy, reorganization or insolvency proceedings of
or against either Borrower. The obligations of Parent Guarantor hereunder shall
not be reduced, limited, impaired, discharged, deferred, suspended or terminated
by any proceeding, voluntary or involuntary, involving the bankruptcy,
insolvency, receivership, reorganization, liquidation or arrangement of either
Borrower or by any defense which either Borrower may have by reason of the
order, decree or decision of any court or administrative body resulting from any
such proceeding.
(b) Parent Guarantor acknowledges and agrees that any interest on
any portion of the Guarantied Obligations which accrues after the commencement
of any proceeding referred to in clause (a) above (or, if interest on any
portion of the Guarantied Obligations ceases to accrue by operation of law by
reason of the commencement of said proceeding, such interest as would have
accrued on such portion of the Guarantied Obligations if said proceedings had
not been commenced) shall be included in the Guarantied Obligations because it
is the intention of Parent Guarantor and Agent that the Guarantied Obligations
which are guarantied by Parent Guarantor pursuant to this Article X should be
determined without regard to any rule of law or order which may relieve
Borrowers of any portion of such Guarantied Obligations. Parent Guarantor will
permit any trustee in bankruptcy, receiver, debtor in possession, assignee for
the benefit of creditors or similar person to pay Agent, or allow the claim of
Agent in respect of, any such interest accruing after the date on which such
proceeding is commenced.
(c) In the event that all or any portion of the Guarantied
Obligations are paid by Borrowers, the obligations of Parent Guarantor hereunder
shall continue and remain in full force and effect or be reinstated, as the case
may be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from Agent or any Bank as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Article X.
80
<PAGE> 88
SECTION 10.06. SUBORDINATION OF CLAIMS. All present and future debts and
other obligation of any Borrower to the Parent Guarantor are hereby postponed in
favor, and subordinated to the full indefeasible payment in cash, of the
Obligations. If an Event of Default has occurred and is continuing no payments
in respect of any such indebtedness may be made until all Obligations are
indefeasibly paid in full in cash.
SECTION 10.07. ADDITIONAL WAIVERS. The Parent Guarantor authorizes Agent
to exercise, in its sole discretion, any right, remedy or combination thereof
which may then be available to Agent, since it is the Parent Guarantor's intent
that the Guarantied Obligations be absolute, independent and unconditional
obligations of the Parent Guarantor under all circumstances. Without limiting
the generality of the foregoing or any other provision hereof, the Parent
Guarantor hereby waives, to the fullest extent permitted by applicable law in
accordance with Section 2856 of the California Civil Code, all rights and
benefits under California Civil Code Sections 2787 to 2855, inclusive (or any
similar laws in other jurisdictions) and all rights and benefits of California
Civil Code Sections 2899 and 3433 (or any similar laws in any other
jurisdiction). In addition, without limiting the generality of the foregoing or
any other provision hereof, the Parent Guarantor hereby waives, in accordance
with Section 2856 of the California Civil Code, all rights and defenses
(including, without limitation, all rights and defenses arising out of an
election of remedies by the Agent or any Bank) that the Parent Guarantor may
have because the Obligations are or may in the future be secured by real
property. This means, among other things:
(a) The Agent, the Co-Agent or any Bank may collect from the
Parent Guarantor without first foreclosing on any real or personal property
collateral pledged to or for the benefit of the Agent or any Bank; and
(b) If the Agent, the Co-Agent or any Bank forecloses on any real
property collateral pledged by any Borrower:
(i) the amount of the debt may be reduced only by
the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth
more than the sale price; and
(ii) the Agent, the Co-Agent or any Bank may
collect from the Parent Guarantor even if the Agent,
the Co-Agent or any Lender, by foreclosing on the
real property collateral, has destroyed any right
the Parent Guarantor may have to collect from any
Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses the
Borrowers may have because the Obligations are or may in the future be secured
by real property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d or 726 of the California
Code of Civil Procedure (or any similar laws in any other jurisdiction).
Notwithstanding any foreclosure of any Lien with respect to any or all of any
property securing the Obligations, whether by the exercise of the power of sale
contained therein,
81
<PAGE> 89
by an action for judicial foreclosure or by an acceptance of a deed in lieu of
foreclosure, the Parent Guarantor shall remain bound under the Parent
Guarantor's guaranty of the Obligations directly incurred by any Borrower.
82
<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
STORMEDIA INTERNATIONAL, LTD.,
as Borrower
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
9 Tuas Avenue 5
Singapore 639335
Telephone: 65-863-3133
Telecopier: 65-863-6822
Attention: Chief Financial
Officer
STRATES PTE. LTD., as Borrower
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
4 Tuas West Avenue
Singapore 638429
Telephone: 65-863-3031
Telecopier: 65-863-2669
Attention: Chief Financial Officer
S-1
<PAGE> 91
STORMEDIA INCORPORATED, as
Parent Guarantor
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
385 Reed Street
Santa Clara, CA 95050
Telephone: (408) 988-1409
Telephone: (408) 727-4928
Attention: Chief Financial Officer
S-2
<PAGE> 92
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency, as Agent
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
425 Lexington Avenue
Eighth Floor
New York, NY 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
Payment Address:
Chase Manhattan Bank, New York
Chips ID 126193
Account No.: 544-7-11177
Account Name: Canadian Imperial Bank of
Commerce, Singapore
Reference: StorMedia
S-3
<PAGE> 93
BANQUE NATIONALE DE PARIS,
San Francisco Branch,
as Co-Agent
By: /s/
------------------------------------
Title:
---------------------------------
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
180 Montgomery Street
San Francisco, CA 94104
Telephone: (415) 956-0707
Telecopier: (415) 296-8954
Attention: Mr. William LaHerran
S-4
<PAGE> 94
BANKS:
CIBC [Asia] LTD.
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
16 Collyer Quay No. 04-02
Singapore, 0104
Telephone: 65-439-3768
Telecopier: 65-535-5182
Attention: Mr. Chin Foo Chun
Telephone: 65-439-3754
Telecopier: 65-535-5182
Attention: Mr. Harry Wong
S-5
<PAGE> 95
BANQUE NATIONALE DE PARIS,
Singapore Branch
By: /s/
------------------------------------
Title:
---------------------------------
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
Tung Centre
20 Collyer Quay
Singapore 049319
Telephone: 65-539-9327
Telecopier: 65-226-2516
Attention: Mr. Andre Luu
S-6
<PAGE> 96
FLEET NATIONAL BANK
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
40 Westminister Street Mail
Stop RI OP TO5A P.O. Box 366
Providence, RI 02901-0366
Telephone: (401) 459-4910
Telecopier: (401) 459-4962
Attention: Mr. Michael F. O'Neill
S-7
<PAGE> 97
SANWA BANK CALIFORNIA
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
444 Market Street, 22nd Floor
San Francisco, CA 94111
Telephone: (415) 597-5109
Telecopier: (415) 597-5491
Attention: Mr. George Vetek
S-8
<PAGE> 98
UNION BANK OF CALIFORNIA
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
350 California Street, Suite 750
San Francisco, CA 94104
Telephone: (415) 705-7119
Telecopier: (415) 705-7390
Attention: Ms. Christiana Creekpaum
S-9
<PAGE> 99
ACKNOWLEDGMENT
Each of the undersigned (i) acknowledges receipt of a copy of the
foregoing Amended and Restated Credit Agreement, (ii) understands that it is a
"Loan Party" as defined therein, (iii) agrees to comply with the agreements,
covenants and restrictions applicable to Loan Parties thereunder and (iv)
represents and warrants to the Agent, the Co-Agent and the Banks that the
representations and warranties therein regarding the undersigned are true,
complete and correct.
AKASHIC MEMORIES CORPORATION,
as Subsidiary Guarantor
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
390 Reed Street
Santa Clara, CA 95050
Telephone: (408) 988-1409
Telephone: (408) 727-4928
Attention: Chief Financial Officer
STRATES SDN. BHD., formerly known as,
AKASHIC KUBOTA TECHNOLOGIES, as
Subsidiary Guarantor
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
509-G Jalan Abbas
Tanjung Bungah
11200 Penang
Malaysia
S-10
<PAGE> 100
STORMEDIA FOREIGN SALES
CORPORATION, as Subsidiary Guarantor
By: /s/
----------------------------------
Title:
-------------------------------
Notice Address:
59A Kronprindsens Gade
3rd Floor
P.O. Box 1858
St. Thomas, U.S. Virgin Islands
S-11
<PAGE> 101
ANNEX I-1
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED BORROWER SECURITY AGREEMENT
(StorMedia International, Ltd.; Strates Pte. Ltd.)
THIS AMENDED AND RESTATED BORROWER SECURITY AGREEMENT dated as of May
29, 1998 (this "Agreement") is entered into by and among STORMEDIA
INTERNATIONAL, LTD., a Cayman Islands corporation ("SIL"), and STRATES PTE.
LTD., a Singapore corporation (each a "Borrower," and collectively, the
"Borrowers"), and CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as agent
for the Banks, as defined below (the "Agent").
RECITALS
A. Borrowers, StorMedia Incorporated, a Delaware corporation (the
"Parent Guarantor," collectively with the Subsidiary Guarantors, as defined
below, and the Borrowers, the "Loan Parties," each a "Loan Party"), certain
financial institutions named on Annex I thereof or who become parties thereto as
Banks (each a "Bank" and collectively, the "Banks"), Agent, Banque Nationale de
Paris, San Francisco Branch, as co-agent for the Banks (the "Co-Agent"), and
Canadian Imperial Bank of Commerce, Singapore Branch as the Designated Issuer
("Designated Issuer") have entered into that certain Credit Agreement dated as
of August 23, 1996 (as amended, supplemented, or otherwise modified through the
date hereof, the "Existing Credit Agreement").
B. In connection with the Existing Credit Agreement, the Borrowers and
the Agent entered into that certain Security Agreement dated as of August 23,
1996 (as amended, supplemented, or otherwise modified through the date hereof,
the "Existing Borrower Security Agreement").
C. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC"), acquired all of the outstanding capital stock of Akashic Memories
Corporation, a California corporation ("Akashic") through the merger of
StorMedia Acquisition Corporation, a California corporation and wholly-owned
Subsidiary of FSC with and into Akashic. In connection with such acquisition,
certain of the other Loan Parties purchased the patents and applications pending
in Akashic's parent corporation, Kubota Corporation.
D. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
E. The Parent Guarantor, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
F. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing
<PAGE> 2
Credit Agreement, as so amended and restated, and the Amended and Restated
Credit Agreement, as amended, restated, supplemented or otherwise modified from
time to time, collectively, being the "Credit Agreement"). Capitalized terms
used herein and not otherwise defined herein have the meanings ascribed to such
terms in the Credit Agreement. Unless otherwise defined herein or in the Credit
Agreement, terms used in Division 9 of the California Uniform Commercial Code
(as in effect from time to time) are used herein as therein defined.
G. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that the Existing
Borrower Security Agreement be amended and restated in its entirety (the
Existing Borrower Security Agreement, as amended, restated, supplemented or
otherwise modified from time to time, collectively, being this "Agreement");
provided, however, that, as of the Effective Date, the rights and obligations of
the parties hereto shall be governed by this Agreement and not the Existing
Borrower Security Agreement, and no Event of Default or Potential Event of
Default under the Existing Credit Agreement shall constitute an Event of Default
or Potential Event of Default under this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent, and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrowers and Agent hereby agree as follows:
SECTION 1. Grant of Security. In addition and without prejudice to the
security interests and charges created under the Existing Borrower Security
Agreement, each Borrower hereby assigns to Agent, for the benefit of Agent and
Banks, and hereby grants to Agent, for the benefit of Agent and Banks, a
security interest in all of such Borrower's right, title and interest in and to
the property described on Exhibit A attached hereto and in the Pledged
Collateral, as defined in Section 10 hereof, in each case whether now or
hereafter existing or in which any Borrower now has or hereafter acquires an
interest and wherever the same may be located (the "Collateral").
SECTION 2. Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of any Borrower or Borrowers or the Parent Guarantor, now or hereafter
existing, under or arising out of or in connection with the Credit Agreement or
any Loan Documents, and all extensions or renewals thereof, whether for
principal, interest, fees, expenses, indemnities or otherwise, whether voluntary
or involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Agent or a Bank as a preference, fraudulent transfer or
otherwise (all such obligations and liabilities being the "Underlying Debt"),
and all obligations of every nature of any Borrower or Borrowers now or
hereafter existing under this Agreement or any other Loan Document (all such
obligations, together with the Underlying Debt, being the "Secured
Obligations").
SECTION 3. Borrowers Remain Liable. Anything contained herein to the
contrary notwithstanding, (a) each Borrower shall remain liable under any
contracts and agreements included
2
<PAGE> 3
in the Collateral, to the extent set forth therein, to perform all of its duties
and obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Agent of any of its rights hereunder shall not
release any Borrower from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) Agent shall not have any
obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Agent be obligated to perform
any of the obligations or duties of any Borrower thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 4. Representations and Warranties. Each Borrower represents and
warrants as follows:
(a) Ownership of Collateral. Except for the security interest
created by this Agreement and the Permitted Liens, Borrowers own the Collateral
free and clear of any lien, mortgage, security interest, legal or equitable
charge, pledge, deed of trust or other encumbrance. Except such as may have been
filed in favor of Agent relating to this Agreement and the Permitted Liens, no
effective financing statement or other instrument similar in effect covering all
or any part of the Collateral is on file in any filing or recording office.
(b) Condition and Location of Equipment and Inventory. Except for
Nextar thickness sorters whose suitability is in dispute, all of the Equipment
and Inventory is, as of the date hereof, of good and serviceable quality, free
from defects, and located at the places specified in Schedule I annexed hereto.
(c) Office Locations. The chief place of business, the chief
executive office and the office where SIL keeps its records regarding its
Accounts is, and has been for the four month period preceding the date hereof,
located at 9 Tuas Avenue 5, Singapore 639335. The chief place of business, the
chief executive office and the office where Strates Pte. Ltd. keeps its records
regarding its Accounts is, and has been for the four month period preceding the
date hereof, located at 4 Tuas West Avenue, Singapore 638429.
(d) Fictitious Names. No Borrower does any business under any
trade-name or fictitious business name.
(e) Delivery of Certain Collateral. All share certificates
representing the Shares (as defined in Section 10), all notes and other
instruments (excluding checks) comprising any and all items of Collateral have
been delivered to Agent duly endorsed or accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No authorization, approval or
other action by, and no notice to or filing with (except for the filing of
financing statements to perfect Agent's Lien on the Collateral for which filing
of a financing statement is the method of perfection), any governmental
authority or regulatory body is required for either (i) the grant by any
Borrower of the security interest granted hereby or for the execution, delivery
or performance of this Agreement by any Borrower or (ii) the perfection of or
the exercise by Agent of its rights and remedies hereunder, other than such
actions and filings as have already been taken, unless the Credit Agreement does
not require that such authorization, approval, action, notice, or filing be made
until after the Effective Date.
3
<PAGE> 4
(g) Enforceability. All actions necessary to ensure the validity
and enforceability of Agent's Lien on the Collateral, including as against any
bona fide purchaser for value, have been duly taken.
(h) Perfection. This Agreement, together with the filing of a
financing statement with the Secretary of State of California or the deliveries
of certain items of Collateral in accordance with the terms hereof, creates a
valid, perfected and security interest in the Collateral of the priority
specified in the Intercreditor Agreement, securing the payment of the Secured
Obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been duly made or taken, unless the
Credit Agreement does not require that such filing or action be made until after
the Effective Date.
(i) Other Information. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of any Borrower with respect to the
Collateral is (or, as to hereafter supplied information, will be) accurate and
complete in all material respects, and with respect to such information prepared
by a third party, to the best knowledge of the Borrower for which such
information was prepared, such information is accurate and complete in all
material respects.
SECTION 5. Further Assurances.
(a) Each Borrower shall execute and deliver to Agent, prior to or
concurrently with each Borrower's execution and delivery of this Agreement and
at any time thereafter at the request of Agent and at such Borrower's expense,
all financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, mortgages, deeds of trust,
assignments, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents that Agent may reasonably request, in form satisfactory to
Agent, to perfect and continue perfected Agent's security interests in the
Collateral, in order to fully consummate all of the transactions contemplated
under the Loan Documents and to enable Agent to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, such Borrower will: (i) if any Account shall be
evidenced by a promissory note or other instrument (excluding checks), having a
face value in excess of One Thousand Dollars ($1,000) deliver and pledge to
Agent hereunder such note or instrument, duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to Agent; (ii) execute and file such financing or continuation
statements, or amendments thereto, or such other instruments or notices, as may
be necessary or desirable, or as Agent may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby; (iii)
at any reasonable time, allow Agent or such other persons designated by Agent in
accordance with the terms of the Credit Agreement to inspect each Borrower's
books and to check, test, and appraise the Collateral in order to verify each
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral; and (iv) at Agent's request,
appear in and defend any action or proceeding that may affect such Borrower's
title to or Agent's security interest in all or any part of the Collateral.
(b) Each Borrower hereby authorizes Agent to file, register or
record such documents as may be appropriate to protect Agent's security interest
in the Collateral, relative to all or any part of the Collateral without the
signature of such Borrower. Each Borrower agrees that a carbon, photographic or
other reproduction of this Agreement or of a financing statement signed by
4
<PAGE> 5
such Borrower shall be sufficient as a financing statement and may be filed as
a financing statement in any and all jurisdictions.
(c) Each Borrower will furnish to Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail.
(d) Each Borrower will execute and deliver the Amended and
Restated Collateral Assignment in the form of Exhibit B to this Agreement.
SECTION 6. Covenants of Each Borrower. Each Borrower shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral where
violation is reasonably likely to have a material adverse effect on Agent's
rights in the Collateral or the value of the Collateral or Agent's ability to
foreclose on the Collateral;
(b) not change its name or any foreign equivalent, FEIN,
corporate structure (within the meaning of Section 9402(7) of the California
Uniform Commercial Code), or identity, or add any new fictitious name; provided,
however, that such Borrower may change its name upon thirty (30) days' prior
written notification thereof to Agent and so long as, at the time of such
written notification, such Borrower provides any financing statements necessary
to perfect and continue perfected Agent's security interests;
(c) not relocate its chief place of business, chief executive
office or residence to a new location without thirty (30) days' prior written
notification thereof to Agent, and so long as at the time of such written
notification, such Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected Agent's security interests and also
provides to Agent a Collateral Access Agreement with respect to such new
location in form and substance satisfactory to Agent;
(d) if Agent gives value to enable such Borrower to acquire
rights in or the use of any Collateral (as specified in writing by Agent to such
Borrower at the time of the giving of such value), use such value for such
purposes; and
(e) (i) cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against such
Borrower or any of the Collateral to be paid in full, before delinquency or
before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a Permitted Protest;
(ii) make due and timely payment or deposit of all such federal, state, foreign,
and local taxes, assessments, or contributions required of it by law, except to
the extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest, and will execute and deliver to the Agent, on demand,
appropriate certificates attesting to the payment thereof or deposit with
respect thereto; and (iii) make timely payment or deposit of all tax payments
and withholding taxes required of it by those laws concerning F.I.C.A. (or its
foreign equivalent) and F.U.T.A. (or its foreign equivalent), state disability
(or its foreign equivalent), and, upon request, furnish the Agent with proof
satisfactory to
5
<PAGE> 6
Agent indicating that such Borrower has made such payments or deposits; provided
that such Borrower shall in any event pay such taxes, assessments, charges,
levies or claims not later than five days prior to the date of any proposed sale
under any judgement, writ or warrant of attachment entered or filed against such
Borrower or any of the Collateral as a result of the failure to make such
payment.
SECTION 7. Special Covenants With Respect to Equipment and Inventory.
Each Borrower shall:
(a) keep the Equipment and Inventory (other than Equipment
consisting of laptop computers and other than Inventory sold in the ordinary
course of business) at the places specified on Schedule I annexed hereto and to
the extent permitted by subsection (e) of this Section 7 or, upon thirty (30)
days' prior written notice to Agent, at such other places in jurisdictions where
all action that may be necessary or desirable, or that Agent may request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) maintain the Equipment or cause the Equipment to be
maintained in good repair, working order, and condition (ordinary wear and tear
excepted), and in accordance with any manufacturer's manual, and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be preserved, and shall forthwith, or, in the case of
any loss or damage to any of the Equipment when subsection (c) of Section 8 is
not applicable, as quickly as practicable after the occurrence thereof, make or
cause to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Each Borrower shall
promptly furnish to Agent a statement respecting any material loss or damage to
any of the Equipment. Borrowers shall not permit any item of Equipment to become
a fixture to real estate or an accession to other property, and the Equipment is
now and shall at all times remain personal property;
(c) keep correct and accurate records of the Inventory, in
accordance with good business practices, including itemizing Borrower's cost
therefor and (where applicable) the current list prices for the Inventory;
(d) upon Agent's request, deliver to Agent, properly endorsed,
any and all evidences of ownership of, certificates of title, or applications
for title of any items of Equipment;
(e) not, at any time now or hereafter, store any of the Equipment
or Inventory with a bailee, warehouseman, or similar party without Agent's prior
written consent. The Agent and Borrowers hereby consent to the transfer of up to
$1,000,000 in book value of Inventory and up to $1,000,000 of OLV of Equipment
(as defined in the Intercreditor Agreement) to a warehouse selected by Borrowers
located in California, Singapore or Malaysia; provided, however, that Borrowers
shall provide twenty (20) days' prior written notification thereof to the Agent
and, at such time, provide financing statements or fixture filings (or foreign
equivalents) necessary to perfect the Agent's Liens; and
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(f) if any Inventory is in possession or control of any of
Borrower's agents or processors, upon the occurrence of an Event of Default,
instruct such agent or processor to hold all such Inventory for the account of
Agent and subject to the instructions of Agent.
SECTION 8. Insurance.
(a) Each Borrower shall, at its own expense, maintain insurance
with respect to the Equipment and Inventory in which it has an interest in such
amounts, against such risks, in such form and with such insurers as is customary
for similarly situated businesses. Such insurance shall include, without
limitation, property damage insurance and liability insurance. Each policy for
property damage insurance shall provide for all losses to be paid directly to
Agent in accordance with the Intercreditor Agreement. Each policy shall in
addition name the applicable Borrower and Agent as insured parties thereunder
(without any representation or warranty by or obligation upon Agent) as their
interests may appear and have attached thereto a loss payable clause acceptable
to Agent that shall (i) contain an agreement by the insurer that any loss
thereunder shall be payable to Agent in accordance with the Intercreditor
Agreement notwithstanding any action, inaction or breach of representation or
warranty by either Borrower, (ii) provide that there shall be no recourse
against Agent for payment of premiums or other amounts with respect thereto, and
(iii) provide that at least thirty (30) days' prior written notice of
cancellation, material amendment, reduction in scope or limits of coverage or of
lapse shall be given to Agent by the insurer. Each Borrower shall, if so
requested by Agent, deliver to Agent original or duplicate policies of such
insurance and, as often as Agent may reasonably request (but no more frequently
than once per year, unless there is a change in the policy or the insurer), a
report of a reputable insurance broker with respect to such insurance. Further,
in accordance with the Intercreditor Agreement, each Borrower shall, at the
request of Agent, duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of Section 5(a) and cause the
respective insurers to acknowledge notice of such assignment.
(b) Payments for claims issued by any liability insurance
maintained by any Borrower pursuant to this Section 8 may be paid directly to
the Person who shall have incurred liability covered by such insurance. In case
of any loss involving damage to Equipment or Inventory when subsection (c) of
this Section 8 is not applicable, each Borrower shall make or cause to be made
the necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance maintained by such Borrower pursuant to this Section 8
shall be paid to such Borrower as reimbursement for the costs of such repairs or
replacements.
(c) Upon (i) the occurrence and during the continuation of any
Event of Default or (ii) the actual or constructive loss (in excess of $100,000
per occurrence) of any Equipment or Inventory, all insurance payments in respect
of such Equipment or Inventory shall be paid to and applied by Agent as
specified in Section 18.
SECTION 9. Special Covenants with respect to Accounts and Related
Contracts.
(a) Each Borrower shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning the
Accounts and Related Contracts at the location specified in Section 4 or, upon
30 days' prior written notice to Agent, at such other location in a jurisdiction
where all action that may be necessary or desirable, or that Agent may request,
in
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order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Accounts and Related Contracts shall
have been taken. Each Borrower will hold and preserve such records and, subject
to the terms of the Credit Agreement, will permit representatives of Agent
during normal business hours to inspect and make abstracts from such records,
and each Borrower agrees to render to Agent, at such Borrower's cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto. Promptly upon the request of Agent, each Borrower shall deliver
to Agent complete and correct copies of each Related Contract.
(b) Each Borrower shall, for not less than 3 years from the date
on which such Account arose, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all material documentation relating thereto.
(c) Except as otherwise provided in this subsection (c), each
Borrower shall continue to collect, at its own expense, all amounts due or to
become due such Borrower under the Accounts and Related Contracts. In connection
with such collections, each Borrower may take such action as such Borrower or
Agent may deem necessary or advisable to enforce collection of amounts due or to
become due under the Accounts; provided, however, that Agent shall have the
right, subject to the Intercreditor Agreement, at any time, upon the occurrence
and during the continuation of an Event of Default and upon written notice to a
Borrower of its intention to do so, to notify the account debtors or obligors
under any Accounts of the assignment of such Accounts to Agent, and to direct
such account debtors or obligors to make payment of all amounts due or to become
due to such Borrower thereunder directly to Agent, to notify each person
maintaining a lockbox or similar arrangement to which account debtors or
obligors under any Accounts have been directed to make payment to remit all
amounts representing collections on checks and other payment items from time to
time sent to or deposited in such lock box or other arrangement directly to
Agent and, upon such notification and at the expense of such Borrower, to
enforce collection of any such Accounts and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as such
Borrower might have done. After receipt by a Borrower of the notice from Agent
referred to in the proviso to the preceding sentence, (i) all amounts and
proceeds (including checks and other instruments) received by such Borrower in
respect of the Accounts and the Related Contracts shall be received in trust for
the benefit of Agent hereunder, shall be segregated from other funds of such
Borrower and shall be forthwith paid over or delivered to Agent in the same form
as so received (with any necessary endorsement) to be held as cash Collateral
and applied as provided by Section 18, and (ii) such Borrower shall not adjust,
settle or compromise the amount or payment of any Account, or release wholly or
partly any account debtor or obligor thereof, or allow any credit or discount
thereon. If the Event of Default giving rise to the exercise of such remedies by
Agent shall be cured or waived, then Agent shall reinstate the Borrowers'
collection rights with respect to such Accounts.
SECTION 10. Special Provisions with Respect to Investment Property.
(a) Each Borrower hereby pledges, assigns, grants and delivers to
Agent, for the benefit of Banks and grants to Agent, for the benefit of Banks a
security interest in the shares of stock listed on Schedule II hereto (the
"Shares"), together with all proceeds and substitutions thereof, all cash, stock
and other moneys, investment property and property paid thereon, all rights to
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subscribe for securities declared or granted in connection therewith, including,
but not limited to, those arising from or paid in connection with a stock
dividend, stock split, reclassification, reorganization, merger, consolidation,
sale of assets or other exchange of securities or any dividends or other
distributions of any kind and all other cash and noncash proceeds of the
foregoing (all of which shall be part of the "Pledged Collateral"), as security
for the Secured Obligations.
(b) The certificate or certificates for the securities included
in the Pledged Collateral, accompanied by an instrument of assignment duly
executed in blank by each Borrower, have been, or will be immediately upon the
subsequent receipt thereof by such Borrower, delivered by such Borrower to
Agent. Each Borrower shall cause the books of each corporation whose stock is
part of the Collateral to reflect the pledge of the Shares. Upon the occurrence
of an Event of Default hereunder, Agent may effect the transfer of any
securities included in the Pledged Collateral into its name and cause new
certificates representing such securities to be issued in its name, but such
action shall not be a strict foreclosure of its Lien therein. Each Borrower will
execute and deliver such documents, and take or cause to be taken such actions,
as Agent may reasonably request to perfect or continue the perfection of Agent's
security interest in the Collateral.
(c) Each Borrower represents and warrants to and covenants with
Agent, for the benefit of Agent and Banks that there are no subscriptions,
warrants or other options exercisable with respect to the Shares; the Shares
represent the percentage of the issued and outstanding stock of the Subsidiaries
listed on Schedule II; there are no agreements that require any Subsidiaries to
issue any additional shares of such Subsidiaries, and there are no outstanding
options to purchase such additional shares; the Shares have been duly authorized
and validly issued, and are fully paid and non-assessable; and the Pledged
Collateral is not the subject of any present or, to the best knowledge of the
Borrowers, threatened suit, action, arbitration, administrative or other
proceeding, and Borrowers know of no reasonable grounds for the institution of
any such proceedings.
(d) Unless an Event of Default shall have occurred and be
continuing, Borrowers shall be entitled to exercise any voting rights with
respect to the Pledged Collateral and to give consents, waivers and
ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute
or create any violation of any of such terms. All such rights of each Borrower
to vote and give consents, waivers and ratifications shall upon notice to such
Borrower cease in case an Event of Default hereunder shall occur and be
continuing. If the Event of Default giving rise to such exercise of remedies by
Agent shall be cured or waived, then such Borrower shall again have the voting
rights with respect to the stock of any of its Subsidiaries.
(e) Borrowers recognize that Agent may be unable to effect a
public sale of all or a part of the Pledged Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended ("Act") or
other applicable securities laws, so that Agent may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Collateral for
their own account, for investment and without a view to the distribution or
resale thereof. Each Borrower understands that private sales so made may be at
prices and on other terms less favorable to the seller than if the Pledged
Collateral were sold at public sales, and agrees that Agent has no obligation to
delay the sale of any of the Pledged Collateral for the period of time necessary
(even if Agent would agree), to register such
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securities for sale under the Act. Each Borrower agrees that private sales made
under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner.
(f) Borrowers agree that each shall:
(i) not, except as permitted by the Credit Agreement, (a)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Shares (b) create or suffer to
exist any Lien upon or with respect to any of the Shares except for the security
interest under this Agreement and other Permitted Liens, or (c) permit any
issuer of Shares to merge or consolidate unless all the outstanding capital
stock of the surviving or resulting corporation is, upon such merger or
consolidation, pledged hereunder;
(ii) (a) cause each issuer of Shares not to issue any
stock or other securities in addition to or in substitution for the Shares
issued by such issuer, except to such Borrower, (b) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Shares to the
extent necessary to cause the percentage of shares of such issuer pledged
hereunder to equal the percentage of the issued and outstanding shares of all
classes of capital stock of each Subsidiary of Borrowers set forth on Schedule
II hereto, and (c) pledge hereunder, immediately upon its acquisition (directly
or indirectly) thereof, any and all shares of stock of any Person that, after
the date of this Agreement, becomes, as a result of any occurrence, a direct
Subsidiary of such Borrower.
SECTION 11. Special Provisions with Respect to Brokerage and Deposit
Accounts.
(a) All deposit and brokerage accounts of Borrowers existing on the date
hereof are accurately listed on the Schedules to the Credit Agreement. Each
Borrower shall notify Agent within five (5) days of the opening or creating of
any new deposit or brokerage accounts, and shall provide Agent with such
information as Agent may require in order to perfect or protect its security
interest in such deposit or brokerage accounts.
(b) Upon the occurrence and during the continuation of an Event of
Default, Agent may exercise dominion and control over, and refuse to permit
further withdrawals, issuance of entitlement orders or other directions to
effect transactions by any Borrower (whether of money, securities, instruments
or other property) from any brokerage or deposit accounts constituting part of
the Collateral.
SECTION 12. License of Patents, Trademarks, Copyrights, etc. Each
Borrower hereby assigns, transfers and conveys to Agent, for the benefit of
Agent and Banks, effective upon the occurrence of any Event of Default, the
nonexclusive right and license to use all trademarks, trade names, copyrights,
patents or technical processes owned or used (to the extent that such Borrower
has the right to assign such property not owned by it) by such Borrower that
relate to the Collateral and any other collateral granted by such Borrower as
security for the Secured Obligations, together with any goodwill associated
therewith, all to the extent necessary to enable Agent to use, possess and
realize on the Collateral for the benefit of Agent and Banks and to enable any
successor or assign to enjoy the benefits of the Collateral. This right and
license shall inure to the benefit of all successors, assigns and transferees of
Agent and its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure
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or otherwise. Such right and license is granted in consideration of the
extension of credit by the Banks to the Borrowers, without requirement that any
monetary payment whatsoever be made to any Borrower.
SECTION 13. Transfers and Other Liens. No Borrower shall:
(a) except to the extent permitted in the Credit Agreement and
the Intercreditor Agreement, sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or
(b) except for the security interest created by this Agreement,
and except to the extent permitted in the Credit Agreement and the Intercreditor
Agreement, create or suffer to exist any Lien upon or with respect to any of the
Collateral to secure the indebtedness or other obligations of any Person.
SECTION 14. Agent Appointed Attorney-in-Fact. Each Borrower hereby
irrevocably appoints Agent as such Borrower's attorney-in-fact, with full
authority in the place and stead of such Borrower and in the name of such
Borrower, Agent or otherwise, from time to time in Agent's discretion to take
any action and to execute any instrument that Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation: (a) to sign and file on behalf of such Borrower any financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral; (b) upon the occurrence and during the continuation of an Event
of Default, to obtain and adjust insurance required to be maintained by such
Borrower or paid to Agent pursuant to Section 8; (c) upon the occurrence and
during the continuation of an Event of Default, to ask, demand, collect, sue
for, recover, compound, receive and give acquittance and receipts for monies due
and to become due under or in respect of any of the Collateral; (d) upon the
occurrence and during the continuation of an Event of Default, to receive,
endorse and collect any drafts or other instruments, documents and chattel paper
in connection with clauses (a) and (b) above; (e) upon the occurrence and during
the continuation of an Event of Default, to file any claims or take any action
or institute any proceedings that Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of Agent
with respect to any of the Collateral; (f) upon the occurrence and during the
continuation of an Event of Default, to pay or discharge taxes or liens levied
or placed upon or threatened against the Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be determined by
Agent in its sole discretion, any such payments made by Agent to become
obligations of Borrowers to Agent, due and payable immediately without demand;
(g) upon the occurrence and during the continuation of an Event of Default, to
sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and (h) upon the occurrence and during the
continuation of an Event of Default, generally to sell, transfer, pledge, make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though Agent were the absolute owner thereof for all
purposes, and to do, at Agent's option and Borrowers' expense, at any time or
from time to time, all acts and things that Agent deems necessary to protect,
preserve or realize upon the Collateral and Agent's security interest therein in
order to effect the intent of this Agreement, all as fully and effectively as
any Borrower might do.
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SECTION 15. Agent May Perform. If any Borrower fails to perform any
agreement contained herein, Agent may itself perform, or cause performance of,
such agreement, and the expenses of Agent incurred in connection therewith shall
be payable by such Borrower under Section 19.
SECTION 16. Standard of Care. The powers conferred on Agent hereunder
are solely to protect its interest and the interest of the Banks in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder,
and other duties imposed by applicable law, Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Agent accords its own property.
SECTION 17. Remedies. Subject to the terms of the Intercreditor
Agreement, if any Event of Default shall have occurred and be continuing, Agent
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "Code") (whether or not the Code
applies to the affected Collateral), and also may (a) require any Borrower to,
and such Borrower hereby agrees that it will at its expense and upon request of
Agent forthwith, assemble all or part of the Collateral as directed by Agent and
make it available to Agent at a place to be designated by Agent that is
reasonably convenient to both parties, (b) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (c) prior to the disposition of the Collateral, store, process, repair
or recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Agent deems appropriate, (d) take
possession of any Borrower's premises or place custodians in exclusive control
thereof, remain on such premises and use the same and any of such Borrower's
equipment for the purpose of completing any work in process, taking any actions
described in the preceding clause (c) and collecting any Secured Obligation, and
(e) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Agent's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Agent may deem
commercially reasonable. Agent may be the purchaser of any or all of the
Collateral at any such sale and Agent shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Agent at such sale. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
any Borrower, and each Borrower hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Each Borrower agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to such Borrower of
(i) the time and place of any public sale or (ii) the time after which any
private sale is to be made shall constitute reasonable notification. Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed there for, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Each Borrower
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hereby waives any claims against Agent arising by reason of the fact that the
price at which any Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale, even if Agent
accepts the first offer received and does not offer such Collateral to more than
one offeree, provided Agent acted in a commercially reasonable manner. If the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay all the Secured Obligations, each Borrower shall be liable to the maximum
extent permitted by applicable law for the deficiency and the fees of any
attorneys employed by Agent to collect such deficiency.
SECTION 18. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement and the Intercreditor Agreement, all proceeds
received by Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may in the discretion of
Agent, be held by Agent for the benefit of Agent and Banks as Collateral for,
and/or then, or at any other time thereafter, applied in full or in part by
Agent against, the Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Agent and its agents
and counsel, and all other expenses, liabilities and advances made or incurred
by Agent in connection therewith, and all amounts for which Agent is entitled to
indemnification hereunder and all advances made by Agent hereunder for the
account of any Borrower, and to the payment of all costs and expenses paid or
incurred by Agent in connection with the exercise of any right or remedy
hereunder, all in accordance with Section 19;
SECOND: To the payment of all other Secured Obligations (for the ratable
benefit of the holders thereof) in such order as Agent shall elect; and
THIRD: To the payment to or upon the order of Borrowers, or to whosoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
SECTION 19. Indemnity and Expenses.
(a) Each Borrower agrees to indemnify Agent and Banks from and
against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result
solely from Agent's gross negligence or willful misconduct as finally determined
by a court of competent jurisdiction.
(b) Each Borrower will pay to Agent upon demand the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Agent may incur in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of Agent
hereunder, or (iv) the failure by any Borrower to perform or observe any of the
provisions hereof.
SECTION 20. Appointment of Agent. Agent has been appointed to act as
Agent hereunder by Banks as provided in the Credit Agreement. Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and
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to take or refrain from taking any action (including without limitation the
substitution of Collateral) solely in accordance with this Agreement and the
Credit Agreement. As provided in Section 8.01 of the Credit Agreement, the Agent
shall not be required to exercise any discretion or take any action hereunder,
but subject to Section 9.01 of the Credit Agreement, shall be required to act or
refrain from acting upon the instructions of the Majority Banks, and such
instructions shall be binding upon all Banks. Upon the resignation or removal of
the Agent under Section 8.06 of the Credit Agreement, the successor agent shall
be entitled to exercise rights, refrain from exercising rights, take such
actions, and refrain from taking actions, as provided to the Agent hereunder and
under the Credit Agreement.
SECTION 21. Amendments, etc. No amendment or waiver of any provision of
this Agreement, or consent to any departure by any Borrower here from, shall in
any event be effective unless the same shall be in writing and signed by Agent,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it was given.
SECTION 22. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraph, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile or
delivered, if to any Borrower or Agent, at its address set forth on the
signature pages hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective three (3) Business Days after
deposit in the U.S. mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively.
SECTION 23. Failure or Indulgence Not Waiver. Remedies Cumulative. No
failure or delay on the part of Agent in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 25. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 26. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
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SECTION 27. Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COUNTY OF
SAN FRANCISCO, STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT EACH SUCH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT.
SECTION 28. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH SUCH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED
FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of
litigation, this Agreement may he filed as a written consent to a trial by the
court.
SECTION 29. Confidentiality. Any information provided in connection
herewith to the Agent, Co-Agent, Designated Issuer, or any Bank shall be subject
to the confidentiality provisions of Section 9.06(e) of the Credit Agreement.
SECTION 30. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
SECTION 31. Joint and Several. Borrowers shall be jointly and severally
liable for the payment and satisfaction of the Secured Obligations and for the
performance of all of Borrowers' obligations hereunder.
15
<PAGE> 16
IN WITNESS WHEREOF, Borrowers and Agent have caused this Agreement to be
duly executed and delivered by their respective officers there unto duly
authorized as of the date first written above.
STORMEDIA INTERNATIONAL LTD.
By: /s/
-----------------------------------
Title:
--------------------------------
Notice Address:
9 Tuas Avenue 5
Singapore 639335
Attention: Chief Financial Officer
STRATES PTE. LTD., as Borrower
By: /s/
-----------------------------------
Title:
--------------------------------
Notice Address:
4 Tuas West Avenue
Singapore 638429
Attention: Chief Financial Officer
S-1
<PAGE> 17
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency, as
Agent for the Banks
By: /s/
-----------------------------------
Title:
--------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 18
EXHIBIT A
TO
AMENDED AND RESTATED
BORROWER SECURITY AGREEMENT
(SIL; Strates)
Collateral
The Collateral shall consist of all right, title and interest of any
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of any Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and any
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to any
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by any Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by any Borrower
and any Borrower's books relating to any of the foregoing (any and all such
accounts, contract rights, royalties, license rights and other forms of
obligations being the "Accounts," and any and all such credit insurance,
guaranties and security agreements being the "Related Contracts");
(e) All documents, cash, deposit accounts, investment property,
securities, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and any Borrower's books relating to the
foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
A-1
<PAGE> 19
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
A-2
<PAGE> 20
EXHIBIT B
TO
AMENDED AND RESTATED
BORROWER SECURITY AGREEMENT
(SIL; Strates)
Form of Amended and Restated Collateral Assignment, Patent Mortgage and
Security Agreement
Attached.
B-1
<PAGE> 21
SCHEDULE I
TO
AMENDED AND RESTATED
BORROWER SECURITY AGREEMENT
Locations of Equipment:
StorMedia International, Ltd.
Tuas Branch
9 Tuas Avenue 5
Singapore 639335
StorMedia International, Ltd.
Loyang Branch
32 Loyang Drive
Singapore 508964
Strates Pte. Ltd.
4 Tuas West Avenue
Singapore 638429
Locations of Inventory:
StorMedia International, Ltd.
Tuas Branch
9 Tuas Avenue 5
Singapore 639335
StorMedia International, Ltd.
Loyang Branch
32 Loyang Drive
Singapore 508964
Strates Pte. Ltd.
4 Tuas West Avenue
Singapore 638429
I-1
<PAGE> 22
SCHEDULE II
TO
AMENDED AND RESTATED
BORROWER SECURITY AGREEMENT
(SIL; Strates)
Pledged Shares
<TABLE>
<CAPTION>
Pledged Percentage
Subsidiaries of StorMedia Pledged Certificate of ownership
International, Ltd. Shares Number Pledged
- ------------------- ------ ------ -------
<S> <C> <C> <C>
Strates Pte. Ltd. 100%
Subsidiaries of Strates Pte. Ltd.
None N/A N/A N/A
</TABLE>
II-1
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED PARENT GUARANTOR SECURITY AGREEMENT
(StorMedia Incorporated)
THIS AMENDED AND RESTATED PARENT GUARANTOR SECURITY AGREEMENT dated as
of May 29, 1998 (this "Agreement") is entered into by and between STORMEDIA
INCORPORATED, a Delaware corporation ("Parent Guarantor") and CANADIAN IMPERIAL
BANK OF COMMERCE, NEW YORK AGENCY, as agent for the Banks, as defined below (the
"Agent").
RECITALS
A. StorMedia International, Ltd., a Cayman Islands corporation ("SIL"),
and Strates Pte. Ltd., a Singapore corporation ("Strates" and together with SIL,
the "Borrowers," each a "Borrower"), the Parent Guarantor (collectively with the
Subsidiary Guarantors, as defined below, and the Borrowers, the "Loan Parties,"
each a "Loan Party"), certain financial institutions named on Annex I thereof or
who become parties thereto, as Banks (each a "Bank" and collectively, the
"Banks"), Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent
for the Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce,
Singapore Branch as the Designated Issuer ("Designated Issuer") have entered
into that certain Credit Agreement dated as of August 23, 1996 (as amended,
supplemented, or otherwise modified through the date hereof, the "Existing
Credit Agreement").
B. In connection with the Existing Credit Agreement, the Parent
Guarantor and the Agent entered into that certain Guarantor Security Agreement
dated as of August 23, 1996 (as amended, supplemented, or otherwise modified
through the date hereof, the "Existing Parent Guarantor Security Agreement").
C. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC"), acquired all of the outstanding capital stock of Akashic Memories
Corporation, a California corporation ("Akashic") through the merger of
StorMedia Acquisition Corporation, a California corporation and wholly-owned
Subsidiary of FSC with and into Akashic. In connection with such acquisition,
certain of the other Loan Parties purchased the patents and applications pending
in Akashic's parent corporation, Kubota Corporation.
D. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
E. The Parent Guarantor, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
<PAGE> 2
F. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing Credit Agreement, as so amended and
restated, and the Amended and Restated Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement. Unless
otherwise defined herein or in the Credit Agreement, terms used in Division 9 of
the California Uniform Commercial Code (as in effect from time to time) are used
herein as therein defined.
G. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that the Existing Parent
Guarantor Security Agreement be amended and restated in its entirety (the
Existing Parent Guarantor Security Agreement, as amended, restated, supplemented
or otherwise modified from time to time, collectively, being this "Agreement");
provided, however, that, as of the Effective Date, the rights and obligations of
the parties hereto shall be governed by this Agreement and not the Existing
Parent Guarantor Security Agreement and no Event of Default or Potential Event
of Default under the Existing Credit Agreement shall constitute an Event of
Default or Potential Event of Default under this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent, and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Parent Guarantor and Agent hereby agree as follows:
SECTION 1. Grant of Security. In addition and without prejudice to the
security interests and charges created under the Existing Parent Guarantor
Security Agreement, Parent Guarantor hereby assigns to Agent, for the benefit of
Agent and Banks, and hereby grants to Agent, for the benefit of Agent and Banks,
a security interest in all of Parent Guarantor's right, title and interest in
and to the property described on Exhibit A attached hereto and in the Pledged
Collateral, as defined in Section 10 hereof, in each case whether now or
hereafter existing or in which Parent Guarantor now has or hereafter acquires an
interest and wherever the same may be located (the "Collateral").
SECTION 2. Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of Parent Guarantor now or hereafter existing, under or arising out of or
in connection with the Credit Agreement or any Loan Documents, and all
extensions or renewals thereof, whether for principal, interest, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Agent or a Bank as a
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "Underlying Debt"), and all obligations of every nature of
Parent Guarantor now or hereafter existing under this Agreement or any other
Loan Document (all such obligations, together with the Underlying Debt, being
the "Secured Obligations").
2
<PAGE> 3
SECTION 3. Parent Guarantor Remains Liable. Anything contained herein to
the contrary notwithstanding, (a) Parent Guarantor shall remain liable under any
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by Agent of
any of its rights hereunder shall not release Parent Guarantor from any of its
duties or obligations under the contracts and agreements included in the
Collateral, and (c) Agent shall not have any obligation or liability under any
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall Agent be obligated to perform any of the obligations or duties of
Parent Guarantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
SECTION 4. Representations and Warranties. Parent Guarantor represents
and warrants as follows:
(a) Ownership of Collateral. Except for the security interest
created by this Agreement and the Permitted Liens, Parent Guarantor owns the
Collateral free and clear of any lien, mortgage, security interest, legal or
equitable charge, pledge, deed of trust or other encumbrance. Except such as may
have been filed in favor of Agent relating to this Agreement and the Permitted
Liens, no effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
(b) Condition and Location of Equipment and Inventory. Except for
Nextar thickness sorters whose suitability is in dispute, all of the Equipment
and Inventory is, as of the date hereof, of good and serviceable quality, free
from defects, and located at the places specified in Schedule I annexed hereto.
(c) Office Locations. The chief place of business, the chief
executive office and the office where Parent Guarantor keeps its records
regarding its Accounts is, and has been for the four month period preceding the
date hereof, located at 390 Reed Street, Santa Clara, California, 95050-3118.
(d) Fictitious Names. Parent Guarantor does not conduct any
business under any trade-name or fictitious business name.
(e) Delivery of Certain Collateral. All share certificates
representing the Shares (as defined in Section 10), all notes and other
instruments (excluding checks) comprising any and all items of Collateral have
been delivered to Agent duly endorsed or accompanied by duly executed
instruments of transfer or assignment in blank, except for those share
certificates of FSC that have been delivered to the Foothill Group Agent
pursuant to the Intercreditor Agreement.
(f) Governmental Authorizations. No authorization, approval or
other action by, and no notice to or filing with (except for the filing of
financing statements to perfect Agent's Lien on the Collateral for which filing
of a financing statement is the method of perfection), any governmental
authority or regulatory body is required for either (i) the grant by Parent
Guarantor of the security interest granted hereby or for the execution, delivery
or performance of this Agreement by Parent Guarantor or (ii) the perfection of
or the exercise by Agent of its rights and remedies
3
<PAGE> 4
hereunder, other than such actions and filings as have already been taken,
unless the Credit Agreement does not require that such authorization, approval,
action, notice, or filing be made until after the Effective Date.
(g) Enforceability. All actions necessary to ensure the validity
and enforceability of Agent's Lien on the Collateral, including as against any
bona fide purchaser for value, have been duly taken.
(h) Perfection. This Agreement, together with the filing of a
financing statement with the Secretary of State of California or the deliveries
of certain items of Collateral in accordance with the terms hereof, creates a
valid, perfected and, security interest in the Collateral of the priority
specified in the Intercreditor Agreement, securing the payment of the Secured
Obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been duly made or taken, unless the
Credit Agreement does not require that such filing or action be made until after
the Effective Date.
(i) Other Information. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of Parent Guarantor with respect to
the Collateral is (or, as to hereafter supplied information, will be) accurate
and complete in all material respects, and with respect to such information
prepared by a third party, to the best knowledge of the Parent Guarantor for
which such information was prepared, such information is accurate and complete
in all material respects.
SECTION 5. Further Assurances.
(a) Parent Guarantor shall execute and deliver to Agent, prior to
or concurrently with Parent Guarantor's execution and delivery of this Agreement
and at any time thereafter at the request of Agent and at Parent Guarantor's
expense, all financing statements, continuation financing statements, fixture
filings, security agreements, chattel mortgages, pledges, mortgages, deeds of
trust, assignments, endorsements of certificates of title, applications for
title, affidavits, reports, notices, schedules of accounts, letters of
authority, and all other documents that Agent may reasonably request, in form
satisfactory to Agent, to perfect and continue perfected Agent's security
interests in the Collateral, in order to fully consummate all of the
transactions contemplated under the Loan Documents and to enable Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Parent Guarantor
will: (i) if any Account shall be evidenced by a promissory note or other
instrument (excluding checks), having a face value in excess of One Thousand
Dollars ($1,000) deliver and pledge to Agent hereunder such note or instrument,
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to Agent; (ii) execute and
file such financing or continuation statements, or amendments thereto, or such
other instruments or notices, as may be necessary or desirable, or as Agent may
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby; (iii) at any reasonable time, allow Agent or
such other persons designated by Agent in accordance with the terms of the
Credit Agreement to inspect Parent Guarantor's books and to check, test, and
appraise the Collateral in order to verify the Parent Guarantor's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral; and (iv) at Agent's request, appear in and defend
any action or proceeding
4
<PAGE> 5
that may affect Parent Guarantor's title to or Agent's security interest in all
or any part of the Collateral.
(b) Parent Guarantor hereby authorizes Agent to file, register or
record such documents as may be appropriate to protect Agent's security interest
in the Collateral, relative to all or any part of the Collateral without the
signature of Parent Guarantor. Parent Guarantor agrees that a carbon,
photographic or other reproduction of this Agreement or of a financing statement
signed by Parent Guarantor shall be sufficient as a financing statement and may
be filed as a financing statement in any and all jurisdictions.
(c) Parent Guarantor will furnish to Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail.
(d) Parent Guarantor will execute and deliver the Amended and
Restated Collateral Assignment in the form of Exhibit B to this Agreement.
SECTION 6. Covenants of Parent Guarantor. Parent Guarantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral where
violation is reasonably likely to have a material adverse effect on Agent's
rights in the Collateral or the value of the Collateral or Agent's ability to
foreclose on the Collateral;
(b) not change its name or any foreign equivalent, FEIN,
corporate structure (within the meaning of Section 9402(7) of the California
Uniform Commercial Code), or identity, or add any new fictitious name; provided,
however, that Parent Guarantor may change its name upon thirty (30) days' prior
written notification thereof to Agent and so long as, at the time of such
written notification, Parent Guarantor provides any financing statements
necessary to perfect and continue perfected Agent's security interests;
(c) not relocate its chief place of business, chief executive
office or residence to a new location without thirty (30) days' prior written
notification thereof to Agent, and so long as, at the time of such written
notification, Parent Guarantor provides any financing statements or fixture
filings necessary to perfect and continue perfected Agent's security interests
and also provides to Agent a Collateral Access Agreement with respect to such
new location in form and substance satisfactory to Agent;
(d) if Agent gives value to enable Parent Guarantor to acquire
rights in or the use of any Collateral (as specified in writing by Agent to
Parent Guarantor at the time of the giving of such value), use such value for
such purposes; and
(e) (i) cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against the
Parent Guarantor or any of the Collateral to be paid in full, before delinquency
or before the expiration of any extension period, except to the
5
<PAGE> 6
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest; (ii) make due and timely payment or deposit of all such
federal, state, foreign, and local taxes, assessments, or contributions required
of it by law, except to the extent that the validity of such assessment or tax
shall be the subject of a Permitted Protest, and will execute and deliver to the
Agent, on demand, appropriate certificates attesting to the payment thereof or
deposit with respect thereto; and (iii) make timely payment or deposit of all
tax payments and withholding taxes required of it by those laws concerning
F.I.C.A. (or its foreign equivalent) and F.U.T.A. (or its foreign equivalent),
state disability (or its foreign equivalent), and, upon request, furnish the
Agent with proof satisfactory to Agent indicating that Parent Guarantor has made
such payments or deposits; provided that Parent Guarantor shall in any event pay
such taxes, assessments, charges, levies or claims not later than five days
prior to the date of any proposed sale under any judgement, writ or warrant of
attachment entered or filed against Parent Guarantor or any of the Collateral as
a result of the failure to make such payment.
SECTION 7. Special Covenants With Respect to Equipment and Inventory.
Parent Guarantor shall:
(a) keep the Equipment and Inventory (other than Equipment
consisting of laptop computers and other than Inventory sold in the ordinary
course of business) at the places specified on Schedule I annexed hereto and to
the extent permitted by subsection (e) of this Section 7 or, upon thirty (30)
days' prior written notice to Agent, at such other places in jurisdictions where
all action that may be necessary or desirable, or that Agent may request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) maintain the Equipment or cause the Equipment to be
maintained in good repair, working order, and condition (ordinary wear and tear
excepted), and in accordance with any manufacturer's manual, and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be preserved, and shall forthwith, or, in the case of
any loss or damage to any of the Equipment when subsection (c) of Section 8 is
not applicable, as quickly as practicable after the occurrence thereof, make or
cause to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Parent Guarantor shall
promptly furnish to Agent a statement respecting any material loss or damage to
any of the Equipment. Parent Guarantor shall not permit any item of Equipment to
become a fixture to real estate or an accession to other property, and the
Equipment is now and shall at all times remain personal property;
(c) keep correct and accurate records of the Inventory, in
accordance with good business practices, including itemizing Parent Guarantor's
cost therefor and (where applicable) the current list prices for the Inventory;
(d) upon Agent's request, deliver to Agent, properly endorsed,
any and all evidences of ownership of, certificates of title, or applications
for title of any items of Equipment;
6
<PAGE> 7
(e) not, at any time now or hereafter, store any of the Equipment
or Inventory with a bailee, warehouseman, or similar party without Agent's prior
written consent. The Agent and Parent Guarantor hereby consent to the transfer
of up to $1,000,000 in book value of Inventory and up to $1,000,000 of OLV of
Equipment (as defined in the Intercreditor Agreement) to a warehouse selected by
Parent Guarantor located in California, Singapore or Malaysia; provided,
however, that Parent Guarantor shall provide twenty (20) days' prior written
notification thereof to the Agent and, at such time, provide financing
statements or fixture filings (or foreign equivalents) necessary to perfect the
Agent's Liens; and
(f) if any Inventory is in possession or control of any of Parent
Guarantor's agents or processors, upon the occurrence of an Event of Default,
instruct such agent or processor to hold all such Inventory for the account of
Agent and subject to the instructions of Agent.
SECTION 8. Insurance.
(a) Parent Guarantor shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory in which it has an
interest in such amounts, against such risks, in such form and with such
insurers as is customary for similarly situated businesses. Such insurance shall
include, without limitation, property damage insurance and liability insurance.
Each policy for property damage insurance shall provide for all losses to be
paid directly to Agent in accordance with the Intercreditor Agreement. Each
policy shall in addition name Parent Guarantor and Agent as insured parties
thereunder (without any representation or warranty by or obligation upon Agent)
as their interests may appear and have attached thereto a loss payable clause
acceptable to Agent that shall (i) contain an agreement by the insurer that any
loss thereunder shall be payable to Agent in accordance with the Intercreditor
Agreement notwithstanding any action, inaction or breach of representation or
warranty by Parent Guarantor, (ii) provide that there shall be no recourse
against Agent for payment of premiums or other amounts with respect thereto, and
(iii) provide that at least thirty (30) days' prior written notice of
cancellation, material amendment, reduction in scope or limits of coverage or of
lapse shall be given to Agent by the insurer. Parent Guarantor shall, if so
requested by Agent, deliver to Agent original or duplicate policies of such
insurance and, as often as Agent may reasonably request (but no more frequently
than once per year, unless there is a change in the policy or the insurer), a
report of a reputable insurance broker with respect to such insurance. Further,
and in accordance with the Intercreditor Agreement, Parent Guarantor shall, at
the request of Agent, duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of Section 5(a) and cause the
respective insurers to acknowledge notice of such assignment.
(b) Payments for claims issued by any liability insurance
maintained by Parent Guarantor pursuant to this Section 8 may be paid directly
to the Person who shall have incurred liability covered by such insurance. In
case of any loss involving damage to Equipment or Inventory when subsection (c)
of this Section 8 is not applicable, Parent Guarantor shall make or cause to be
made the necessary repairs to or replacements of such Equipment or Inventory,
and any proceeds of insurance maintained by Parent Guarantor pursuant to this
Section 8 shall be paid to Parent Guarantor as reimbursement for the costs of
such repairs or replacements.
7
<PAGE> 8
(c) Upon (i) the occurrence and during the continuation of any
Event of Default or (ii) the actual or constructive loss (in excess of $100,000
per occurrence) of any Equipment or Inventory, all insurance payments in respect
of such Equipment or Inventory shall be paid to and applied by Agent as
specified in Section 18.
SECTION 9. Special Covenants with respect to Accounts and Related
Contracts.
(a) Parent Guarantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning the
Accounts and Related Contracts at the location specified in Section 4 or, upon
30 days' prior written notice to Agent, at such other location in a jurisdiction
where all action that may be necessary or desirable, or that Agent may request,
in order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Accounts and Related Contracts shall
have been taken. Parent Guarantor will hold and preserve such records and,
subject to the terms of the Credit Agreement, will permit representatives of
Agent during normal business hours to inspect and make abstracts from such
records, and Parent Guarantor agrees to render to Agent, at Parent Guarantor's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Promptly upon the request of Agent, Parent
Guarantor shall deliver to Agent complete and correct copies of each Related
Contract.
(b) Parent Guarantor shall, for not less than 3 years from the
date on which such Account arose, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all material documentation relating thereto.
(c) Except as otherwise provided in this subsection (c), Parent
Guarantor shall continue to collect, at its own expense, all amounts due or to
become due Parent Guarantor under the Accounts and Related Contracts. In
connection with such collections, Parent Guarantor may take such action as
Parent Guarantor or Agent may deem necessary or advisable to enforce collection
of amounts due or to become due under the Accounts; provided, however, that
Agent shall have the right, subject to the Intercreditor Agreement, at any time,
upon the occurrence and during the continuation of an Event of Default, and upon
written notice to Parent Guarantor of its intention to do so, to notify the
account debtors or obligors under any Accounts of the assignment of such
Accounts to Agent, and to direct such account debtors or obligors to make
payment of all amounts due or to become due to Parent Guarantor thereunder
directly to Agent, to notify each person maintaining a lockbox or similar
arrangement to which account debtors or obligors under any Accounts have been
directed to make payment to remit all amounts representing collections on checks
and other payment items from time to time sent to or deposited in such lock box
or other arrangement directly to Agent and, upon such notification and at the
expense of Parent Guarantor, to enforce collection of any such Accounts and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as Parent Guarantor might have done. After receipt by
Parent Guarantor of the notice from Agent referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including checks and other
instruments) received by Parent Guarantor in respect of the Accounts and the
Related Contracts shall be received in trust for the benefit of Agent hereunder,
shall be segregated from other funds of Parent Guarantor and shall be forthwith
paid over or delivered to Agent in the same form as so received (with any
necessary
8
<PAGE> 9
endorsement) to be held as cash Collateral and applied as provided by Section
18, and (ii) Parent Guarantor shall not adjust, settle or compromise the amount
or payment of any Account, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon. If the Event of
Default giving rise to the exercise of such remedies by Agent shall be cured or
waived, then Agent shall reinstate the Parent Guarantor's collection rights with
respect to such Accounts.
SECTION 10. Special Provisions with Respect to Investment Property.
(a) Parent Guarantor hereby pledges, assigns, grants and delivers
to Agent, for the benefit of Banks and grants to Agent, for the benefit of Banks
a security interest in the shares of stock listed on Schedule II hereto (the
"Shares"), together with all proceeds and substitutions thereof, all cash, stock
and other moneys, investment property and property paid thereon, all rights to
subscribe for securities declared or granted in connection therewith, including,
but not limited to, those arising from or paid in connection with a stock
dividend, stock split, reclassification, reorganization, merger, consolidation,
sale of assets or other exchange of securities or any dividends or other
distributions of any kind and all other cash and noncash proceeds of the
foregoing (all of which shall be part of the "Pledged Collateral"), as security
for the Secured Obligations.
(b) The certificate or certificates for the securities included
in the Pledged Collateral, accompanied by an instrument of assignment duly
executed in blank by Parent Guarantor have been, or will be immediately upon the
subsequent receipt thereof by Parent Guarantor, delivered by Parent Guarantor to
Agent, except for those certificates for the securities of FSC that have been or
will be delivered to the Foothill Group Agent pursuant to the Intercreditor
Agreement. Parent Guarantor shall cause the books of each corporation whose
stock is part of the Collateral to reflect the pledge of the Shares. Upon the
occurrence of an Event of Default hereunder, Agent may effect the transfer of
any securities included in the Pledged Collateral into its name and cause new
certificates representing such securities to be issued in its name, but such
action shall not be a strict foreclosure of its Lien therein. Parent Guarantor
will execute and deliver such documents, and take or cause to be taken such
actions, as Agent may reasonably request to perfect or continue the perfection
of Agent's security interest in the Collateral.
(c) Parent Guarantor represents and warrants to and covenants
with Agent, for the benefit of Agent and Banks, that there are no subscriptions,
warrants or other options exercisable with respect to the Shares; the Shares
represent the percentage of the issued and outstanding stock of the Subsidiaries
listed on Schedule II; there are no agreements that require any Subsidiaries to
issue any additional shares of such Subsidiaries, and there are no outstanding
options to purchase such additional shares; the Shares have been duly authorized
and validly issued, and are fully paid and non-assessable; and the Pledged
Collateral is not the subject of any present or, to the best knowledge of the
Parent Guarantor, threatened suit, action, arbitration, administrative or other
proceeding, and Parent Guarantor knows of no reasonable grounds for the
institution of any such proceedings.
(d) Unless an Event of Default shall have occurred and be
continuing, Parent Guarantor shall be entitled to exercise any voting rights
with respect to the Pledged Collateral and to give consents, waivers and
ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the
9
<PAGE> 10
terms of this Agreement or which would constitute or create any violation of any
of such terms. All such rights of Parent Guarantor to vote and give consents,
waivers and ratifications shall upon notice to Parent Guarantor cease in case an
Event of Default hereunder shall occur and be continuing. If the Event of
Default giving rise to such exercise of remedies by Agent shall be cured or
waived, then Parent Guarantor shall again have the voting rights with respect to
the stock of any of its Subsidiaries.
(e) Parent Guarantor recognizes that Agent may be unable to
effect a public sale of all or a part of the Pledged Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended ("Act")
or other applicable securities laws, so that Agent may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Collateral for
their own account, for investment and without a view to the distribution or
resale thereof. Parent Guarantor understands that private sales so made may be
at prices and on other terms less favorable to the seller than if the Pledged
Collateral were sold at public sales, and agrees that Agent has no obligation to
delay the sale of any of the Pledged Collateral for the period of time necessary
(even if Agent would agree), to register such securities for sale under the Act.
Parent Guarantor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
(f) Parent Guarantor shall:
(i) not, except as permitted by the Credit Agreement, (a)
sell assign (by operation of law or otherwise) or otherwise dispose of, or grant
any option with respect to, any of the Shares (b) create or suffer to exist any
Lien upon or with respect to any of the Shares except for the security interest
under this Agreement and the Permitted Liens, or (c) permit any issuer of Shares
to merge or consolidate unless all the outstanding capital stock of the
surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder;
(ii) (a) cause each issuer of Shares not to issue any
stock or other securities in addition to or in substitution for the Shares
issued by such issuer, except to Parent Guarantor, (b) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Shares to the
extent necessary to cause the percentage of shares of such issuer pledged
hereunder to equal the percentage of the issued and outstanding shares of all
classes of capital stock of each Subsidiary of Parent Guarantor set forth on
Schedule II hereto, and (c) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all shares of stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Parent Guarantor.
SECTION 11. Special Provisions with Respect to Brokerage and Deposit
Accounts.
(a) All deposit and brokerage accounts of Parent Guarantor
existing on the date hereof are accurately listed on Schedule III hereto (which
shall be deemed to be an addendum to the Schedules to the Credit Agreement).
Parent Guarantor shall notify Agent within five (5) days of the opening or
creating of any new deposit or brokerage accounts, and shall provide Agent with
such information as Agent may require in order to perfect or protect its
security interest in such deposit or brokerage accounts.
10
<PAGE> 11
(b) Upon the occurrence and during the continuation of an Event
of Default, Agent may exercise dominion and control over, and refuse to permit
further withdrawals, issuance of entitlement orders or other directions to
effect transactions by Parent Guarantor (whether of money, securities,
instruments or other property) from any brokerage or deposit accounts
constituting part of the Collateral.
SECTION 12. License of Patents, Trademarks, Copyrights, etc. Parent
Guarantor hereby assigns, transfers and conveys to Agent, for the benefit of
Agent and Banks, effective upon the occurrence of any Event of Default, the
nonexclusive right and license to use all trademarks, trade names, copyrights,
patents or technical processes owned or used (to the extent that the Parent
Guarantor has the right to assign such property not owned by it) by Parent
Guarantor that relate to the Collateral and any other collateral granted by
Parent Guarantor as security for the Secured Obligations, together with any
goodwill associated therewith, all to the extent necessary to enable Agent to
use, possess and realize on the Collateral for the benefit of Agent and Banks
and to enable any successor or assign to enjoy the benefits of the Collateral.
This right and license shall inure to the benefit of all successors, assigns and
transferees of Agent and its successors, assigns and transferees, whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise. Such right and license is granted in
consideration of the extension of credit by the Banks under the Credit
Agreement, without requirement that any monetary payment whatsoever be made to
Parent Guarantor.
SECTION 13. Transfers and Other Liens. Parent Guarantor shall not:
(a) except to the extent permitted in the Credit Agreement and
the Intercreditor Agreement, sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or
(b) except for the security interest created by this Agreement,
and except to the extent permitted in the Credit Agreement and the Intercreditor
Agreement, create or suffer to exist any Lien upon or with respect to any of the
Collateral to secure the indebtedness or other obligations of any Person.
SECTION 14. Agent Appointed Attorney-in-Fact. Parent Guarantor hereby
irrevocably appoints Agent as Parent Guarantor's attorney-in-fact, with full
authority in the place and stead of Parent Guarantor and in the name of Parent
Guarantor, Agent or otherwise, from time to time in Agent's discretion to take
any action and to execute any instrument that Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation: (a) to sign and file on behalf of Parent Guarantor any financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral; (b) upon the occurrence and during the continuation of an Event
of Default, to obtain and adjust insurance required to be maintained by Parent
Guarantor or paid to Agent pursuant to Section 8; (c) upon the occurrence and
during the continuation of an Event of Default, to ask, demand, collect, sue
for, recover, compound, receive and give acquittance and receipts for monies due
and to become due under or in respect of any of the Collateral; (d) upon the
occurrence and during the continuation of an Event of Default, to receive,
endorse and collect any drafts or other instruments, documents and chattel paper
in connection with clauses (a) and (b) above; (e) upon the occurrence and during
the continuation of an Event of
11
<PAGE> 12
Default, to file any claims or take any action or institute any proceedings that
Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of Agent with respect to any of
the Collateral; (f) upon the occurrence and during the continuation of an Event
of Default, to pay or discharge taxes or liens levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Agent in its sole
discretion, any such payments made by Agent to become obligations of Parent
Guarantor to Agent, due and payable immediately without demand; (g) upon the
occurrence and during the continuation of an Event of Default, to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts and other documents relating to the
Collateral; and (h) upon the occurrence and during the continuation of an Event
of Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Agent were the absolute owner thereof for all purposes, and to do, at
Agent's option and Parent Guarantor's expense, at any time or from time to time,
all acts and things that Agent deems necessary to protect, preserve or realize
upon the Collateral and Agent's security interest therein in order to effect the
intent of this Agreement, all as fully and effectively as Parent Guarantor might
do.
SECTION 15. Agent May Perform. If Parent Guarantor fails to perform any
agreement contained herein, Agent may itself perform, or cause performance of,
such agreement, and the expenses of Agent incurred in connection therewith shall
be payable by Parent Guarantor under Section 19.
SECTION 16. Standard of Care. The powers conferred on Agent hereunder
are solely to protect its interest and the interest of the Banks in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder
and other duties imposed by applicable law, Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Agent accords its own property.
SECTION 17. Remedies. Subject to the terms of the Intercreditor
Agreement, if any Event of Default shall have occurred and be continuing, Agent
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "Code") (whether or not the Code
applies to the affected Collateral), and also may (a) require Parent Guarantor
to, and Parent Guarantor hereby agrees that it will at its expense and upon
request of Agent forthwith, assemble all or part of the Collateral as directed
by Agent and make it available to Agent at a place to be designated by Agent
that is reasonably convenient to both parties, (b) enter onto the property where
any Collateral is located and take possession thereof with or without judicial
process, (c) prior to the disposition of the Collateral, store, process, repair
or recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Agent deems appropriate, (d) take
possession of Parent Guarantor's premises or place custodians in exclusive
control thereof, remain on such premises and use the same
12
<PAGE> 13
and any of Parent Guarantor's equipment for the purpose of completing any work
in process, taking any actions described in the preceding clause (c) and
collecting any Secured Obligation, and (e) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at
public or private sale, at any of Agent's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Agent may deem commercially reasonable. Agent may
be the purchaser of any or all of the Collateral at any such sale and Agent
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply any of the Secured Obligations as a credit on
account of the purchase price for any Collateral payable by Agent at such sale.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of Parent Guarantor, and Parent Guarantor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Parent Guarantor agrees that, to the extent notice of sale shall be required by
law, at least ten days' notice to Parent Guarantor of (i) the time and place of
any public sale or (ii) the time after which any private sale is to be made
shall constitute reasonable notification. Agent shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed there for, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Parent Guarantor hereby waives
any claims against Agent arising by reason of the fact that the price at which
any Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Agent accepts the first
offer received and does not offer such Collateral to more than one offeree,
provided Agent acted in a commercially reasonable manner. If the proceeds of any
sale or other disposition of the Collateral are insufficient to pay all the
Secured Obligations, Parent Guarantor shall be liable to the maximum extent
permitted by applicable law for the deficiency and the fees of any attorneys
employed by Agent to collect such deficiency.
SECTION 18. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement and the Intercreditor Agreement, all proceeds
received by Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may in the discretion of
Agent, be held by Agent for the benefit of Agent and Banks as Collateral for,
and/or then, or at any other time thereafter, applied in full or in part by
Agent against, the Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Agent and its agents
and counsel, and all other expenses, liabilities and advances made or incurred
by Agent in connection therewith, and all amounts for which Agent is entitled to
indemnification hereunder and all advances made by Agent hereunder for the
account of Parent Guarantor, and to the payment of all costs and expenses paid
or incurred by Agent in connection with the exercise of any right or remedy
hereunder, all in accordance with Section 19;
SECOND: To the payment of all other Secured Obligations (for the ratable
benefit of the holders thereof) in such order as Agent shall elect; and
13
<PAGE> 14
THIRD: To the payment to or upon the order of Parent Guarantor, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. Indemnity and Expenses.
(a) Parent Guarantor agrees to indemnify Agent and Banks from and
against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result
solely from Agent's gross negligence or willful misconduct as finally determined
by a court of competent jurisdiction.
(b) Parent Guarantor will pay to Agent upon demand the amount of
any and all costs and expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
Agent hereunder, or (iv) the failure by Parent Guarantor to perform or observe
any of the provisions hereof.
SECTION 20. Appointment of Agent. Agent has been appointed to act as
Agent hereunder by Banks as provided in the Credit Agreement. Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including without limitation the substitution of Collateral)
solely in accordance with this Agreement and the Credit Agreement. As provided
in Section 8.01 of the Credit Agreement, the Agent shall not be required to
exercise any discretion or take any action hereunder, but subject to Section
9.01 of the Credit Agreement, shall be required to act or refrain from acting
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks. Upon the resignation or removal of the Agent under
Section 8.06 of the Credit Agreement, the successor agent shall be entitled to
exercise rights, refrain from exercising rights, take such actions, and refrain
from taking actions, as provided to the Agent hereunder and under the Credit
Agreement.
SECTION 21. Amendments, etc. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Parent Guarantor here from, shall
in any event be effective unless the same shall be in writing and signed by
Agent, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 22. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraph, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile or
delivered, if to Parent Guarantor or Agent, at its address set forth on the
signature pages hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective three (3) Business Days after
deposit in the U.S. mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively.
14
<PAGE> 15
SECTION 23. Failure or Indulgence Not Waiver. Remedies Cumulative. No
failure or delay on the part of Agent in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 25. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 26. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
SECTION 27. Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COUNTY OF
SAN FRANCISCO, STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT SUCH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
SECTION 28. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH SUCH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED
FUTURE DEALINGS. EACH PARTY HERETO FURTHER
15
<PAGE> 16
WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. In the event of litigation, this Agreement may he filed as a
written consent to a trial by the court.
SECTION 29. Confidentiality. Any information provided in connection
herewith to the Agent, Co-Agent, Designated Issuer, or any Bank shall be subject
to the confidentiality provisions of Section 9.06(e) of the Credit Agreement.
SECTION 30. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
16
<PAGE> 17
IN WITNESS WHEREOF, Parent Guarantor and Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
STORMEDIA INCORPORATED
By: /s/
-----------------------------------
Title:
--------------------------------
Notice Address:
390 Reed Street
Santa Clara, CA 95050-3118
Telephone: (408) 327-8400
Telecopier: (408) 727-4928
Attention:__________________________________
S-1
<PAGE> 18
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency,
as Agent for the Banks
By: /s/
-----------------------------------
Title:
--------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 19
EXHIBIT A
TO
AMENDED AND RESTATED
PARENT GUARANTOR SECURITY AGREEMENT
(StorMedia Incorporated)
Collateral
The Collateral shall consist of all right, title and interest of Parent
Guarantor in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Parent Guarantor's custody or possession or
in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Parent Guarantor's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Parent
Guarantor arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Parent Guarantor, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Parent
Guarantor and Parent Guarantor's books relating to any of the foregoing (any and
all such accounts, contract rights, royalties, license rights and other forms of
obligations being the "Accounts," and any and all such credit insurance,
guaranties and security agreements being the "Related Contracts");
(e) All documents, cash, deposit accounts, investment property,
securities, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Parent Guarantor's books relating to
the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or
A-1
<PAGE> 20
unpublished, now owned or hereafter acquired; all trade secret rights, including
all rights to unpatented inventions, know-how, operating manuals, license rights
and agreements and confidential information, now owned or hereafter acquired;
all mask work or similar rights available for the protection of semiconductor
chips, now owned or hereafter acquired; all claims for damages by way of any
past, present and future infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
A-2
<PAGE> 21
EXHIBIT B
TO
AMENDED AND RESTATED
PARENT GUARANTOR SECURITY AGREEMENT
(StorMedia Incorporated)
Form of Amended and Restated Collateral Assignment, Patent Mortgage and
Security Agreement
Attached.
B-1
<PAGE> 22
SCHEDULE I
TO
AMENDED AND RESTATED
PARENT GUARANTOR SECURITY AGREEMENT
(StorMedia Incorporated)
Locations of Equipment:
385/390 Reed Street
Santa Clara, California 95050
Locations of Inventory:
385/390 Reed Street
Santa Clara, California 95050
I-1
<PAGE> 23
SCHEDULE II
TO
AMENDED AND RESTATED
PARENT GUARANTOR SECURITY AGREEMENT
(StorMedia Incorporated)
Pledged Shares
<TABLE>
<CAPTION>
Pledged Percentage
Subsidiaries of Pledged Certificate of ownership
StorMedia Incorporated Shares Number Pledged
- ---------------------- ------ ------ -------
<S> <C> <C> <C>
StorMedia
International, Ltd. 2 2 100%
StorMedia Foreign
Sales Corporation 1,000 1 100%
</TABLE>
II-1
<PAGE> 24
SCHEDULE III
TO
AMENDED AND RESTATED
PARENT GUARANTOR SECURITY AGREEMENT
(StorMedia Incorporated)
Brokerage and Deposit Accounts
None, except:
<TABLE>
<CAPTION>
Institution Type Account No.
- ----------- ---- -----------
<S> <C> <C>
Bank of America Deposit 12334-21230
Bank of America Money Market 12331-62058
Montgomery Securities Investment 107-89383-011
Morgan Stanley & Company Investment 14-78260
Paine Webber Investment CP 22037 G2
Merrill Lynch Investment 296-07S59
Donaldson, Lufkin & Jenrette Investment 201-381100
</TABLE>
III-1
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(FSC)
THIS AMENDED AND RESTATED SUBSIDIARY GUARANTOR SECURITY AGREEMENT dated
as of May 29, 1998 (this "Agreement") is entered into by and between STORMEDIA
FOREIGN SALES CORPORATION, a U.S. Virgin Islands corporation (a "Subsidiary
Guarantor" or "FSC") and CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as
agent for the Banks, as defined below (the "Agent").
RECITALS
A. StorMedia International, Ltd., a Cayman Islands corporation ("SIL"),
and Strates Pte. Ltd., a Singapore corporation ("Strates" and together with SIL,
the "Borrowers," each a "Borrower"), StorMedia Incorporated, a Delaware
corporation (the "Parent Guarantor," collectively with the Subsidiary
Guarantors, as defined below, and the Borrowers, the "Loan Parties," each a
"Loan Party"), certain financial institutions named on Annex I thereof or who
become parties thereto as Banks (each a "Bank" and collectively, the "Banks"),
Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent for the
Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce, Singapore Branch
as the Designated Issuer ("Designated Issuer") have entered into that certain
Credit Agreement dated as of August 23, 1996 (as amended, supplemented, or
otherwise modified through the date hereof, the "Existing Credit Agreement").
B. On December 31, 1997, FSC, a wholly-owned Subsidiary of Parent
Guarantor, acquired all of the outstanding capital stock of Akashic Memories
Corporation, a California corporation ("Akashic") through the merger of
StorMedia Acquisition Corporation, a California corporation and wholly-owned
Subsidiary of FSC with and into Akashic. In connection with such acquisition,
certain of the other Loan Parties purchased the patents and applications pending
in Akashic's parent corporation, Kubota Corporation.
C. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
D. In connection with the consents and limited waivers, FSC entered into
that certain Security Agreement dated as of January 9, 1998 (as amended,
supplemented, or otherwise modified through the date hereof, the "Existing
Subsidiary Guarantor Security Agreement").
E. The Parent Guarantor, FSC, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
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F. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing Credit Agreement, as so amended and
restated, and the Amended and Restated Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement. Unless
otherwise defined herein or in the Credit Agreement, terms used in Division 9 of
the California Uniform Commercial Code (as in effect from time to time) are used
herein as therein defined.
G. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that the Existing
Subsidiary Guarantor Security Agreement be amended and restated in its entirety
(the Existing Subsidiary Guarantor Security Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being this
"Agreement"); provided, however, that, as of the Effective Date, the rights and
obligations of the parties hereto shall be governed by this Agreement and not
the Existing Subsidiary Guarantor Security Agreement and no Event of Default or
Potential Event of Default under the Existing Credit Agreement shall constitute
an Event of Default or Potential Event of Default under this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Subsidiary Guarantor and Agent hereby agree as follows:
SECTION 1. Grant of Security. In addition and without prejudice to the
security interests and charges created under the Existing Subsidiary Guarantor
Security Agreement, Subsidiary Guarantor hereby assigns to Agent, for the
benefit of Agent and Banks, and hereby grants to Agent, for the benefit of Agent
and Banks, a security interest in all of Subsidiary Guarantor's right, title and
interest in and to the property described on Exhibit A attached hereto and in
the Pledged Collateral, as defined in Section 10 hereof, in each case whether
now or hereafter existing or in which Subsidiary Guarantor now has or hereafter
acquires an interest and wherever the same may be located (the "Collateral").
SECTION 2. Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of Subsidiary Guarantor now or hereafter existing, under or arising out
of or in connection with the Credit Agreement or any Loan Documents, and all
extensions or renewals thereof, whether for principal, interest, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Agent or a Bank as a
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "Underlying Debt"), and all obligations of every nature of
Subsidiary Guarantor now or hereafter existing under this Agreement, the Amended
and Restated
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Subsidiary Guaranty or any other Loan Document (all such obligations, together
with the Underlying Debt being the "Secured Obligations").
SECTION 3. Subsidiary Guarantor Remains Liable. Anything contained
herein to the contrary notwithstanding, (a) Subsidiary Guarantor shall remain
liable under any contracts and agreements included in the Collateral, to the
extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Agent of any of its rights hereunder shall not release
Subsidiary Guarantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) Agent shall not have any
obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Agent be obligated to perform
any of the obligations or duties of Subsidiary Guarantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
SECTION 4. Representations and Warranties. Subsidiary Guarantor
represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest
created by this Agreement and the Permitted Liens, Subsidiary Guarantor owns the
Collateral free and clear of any lien, mortgage, security interest, legal or
equitable charge, pledge, deed of trust or other encumbrance. Except such as may
have been filed in favor of Agent relating to this Agreement and the Permitted
Liens, no effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
(b) Condition and Location of Equipment and Inventory. Except for
Nextar thickness sorters whose suitability is in dispute, all of the Equipment
and Inventory is, as of the date hereof, of good and serviceable quality, free
from defects, and located at the places specified in Schedule I annexed hereto.
(c) Office Locations. The chief place of business, the chief
executive office and the office where Subsidiary Guarantor keeps its records
regarding its Accounts is, and has been for the four month period preceding the
date hereof, located at 59 A Kronprindsens Gade, 3rd Floor, P.O. Box 1858, St.
Thomas, U.S. Virgin Islands.
(d) Fictitious Names. Subsidiary Guarantor does not conduct any
business under any trade-name or fictitious business name.
(e) Delivery of Certain Collateral. All share certificates
representing the Shares (as defined in Section 10), all notes and other
instruments (excluding checks) comprising any and all items of Collateral have
been delivered to Agent duly endorsed or accompanied by duly executed
instruments of transfer or assignment in blank, except for those share
certificates of Akashic that have been delivered to the Foothill Group Agent
pursuant to the Intercreditor Agreement.
(f) Governmental Authorizations. No authorization, approval or
other action by, and no notice to or filing with (except for the filing of
financing statements to perfect Agent's Lien on the Collateral for which filing
of a financing statement is the method of perfection), any
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governmental authority or regulatory body is required for either (i) the grant
by Subsidiary Guarantor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by Subsidiary Guarantor or
(ii) the perfection of or the exercise by Agent of its rights and remedies
hereunder, other than such actions and filings as have already been taken,
unless the Credit Agreement does not require that such authorization, approval,
action, notice or filing be made until after the Effective Date.
(g) Enforceability. All actions necessary to ensure the validity
and enforceability of the Agent's Lien on the Collateral, including as against
any bona fide purchaser for value, have been duly taken.
(h) Perfection. This Agreement, together with the filing of a
financing statement with the Secretary of State of California or the deliveries
of certain items of Collateral in accordance with the terms hereof, creates a
valid, perfected and, security interest in the Collateral of the priority
specified in the Intercreditor Agreement, securing the payment of the Secured
Obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been duly made or taken, unless the
Credit Agreement does not require that such filing or action be made until after
the Effective Date.
(i) Other Information. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of Subsidiary Guarantor with respect
to the Collateral is (or, as to hereafter supplied information, will be)
accurate and complete in all material respects, and with respect to such
information prepared by a third party, to the best knowledge of the Subsidiary
Guarantor for which such information was prepared, such information is accurate
and complete in all material respects.
SECTION 5. Further Assurances.
(a) Subsidiary Guarantor shall execute and deliver to Agent,
prior to or concurrently with Subsidiary Guarantor's execution and delivery of
this Agreement and at any time thereafter at the request of Agent and at
Subsidiary Guarantor's expense, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
mortgages, deeds of trust, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Agent may reasonably request,
in form satisfactory to Agent, to perfect and continue perfected Agent's
security interests in the Collateral, in order to fully consummate all of the
transactions contemplated under the Loan Documents and to enable Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Subsidiary
Guarantor will: (i) if any Account shall be evidenced by a promissory note or
other instrument (excluding checks), having a face value in excess of One
Thousand Dollars ($1,000) deliver and pledge to Agent hereunder such note or
instrument, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Agent; (ii)
execute and file such financing or continuation statements, or amendments
thereto, or such other instruments or notices, as may be necessary or desirable,
or as Agent may request, in order to perfect and preserve the security interests
granted or purported to be granted hereby; (iii) at any reasonable time, allow
Agent or such other persons designated by Agent in accordance with the terms of
the Credit Agreement to inspect the Subsidiary Guarantor's books and to check,
test, and appraise the
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Collateral in order to verify the Subsidiary Guarantor's financial condition or
the amount, quality, value, condition of, or to any other matter relating to,
the Collateral; and (iv) at Agent's request, appear in and defend any action or
proceeding that may affect Subsidiary Guarantor's title to or Agent's security
interest in all or any part of the Collateral.
(b) Subsidiary Guarantor hereby authorizes Agent to file,
register or record such documents as may be appropriate to protect Agent's
security interest in the Collateral, relative to all or any part of the
Collateral without the signature of Subsidiary Guarantor. Subsidiary Guarantor
agrees that a carbon, photographic or other reproduction of this Agreement or of
a financing statement signed by Subsidiary Guarantor shall be sufficient as a
financing statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Subsidiary Guarantor will furnish to Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail.
(d) In the event Subsidiary Guarantor acquires any intellectual
property (including, without limitation, any patents, trademarks or copyrights)
Subsidiary Guarantor will execute and deliver the Amended and Restated
Collateral Assignment in the form of Exhibit B to this Agreement.
SECTION 6. Covenants of Subsidiary Guarantor. Subsidiary Guarantor
shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral where
violation is reasonably likely to have a material adverse effect on Agent's
rights in the Collateral or the value of the Collateral or Agent's ability to
foreclose on the Collateral;
(b) not change its name or any foreign equivalent, FEIN,
corporate structure (within the meaning of Section 9402(7) of the California
Uniform Commercial Code), or identity, or add any new fictitious name; provided,
however, that Subsidiary Guarantor may change its name upon thirty (30) days'
prior written notification thereof to Agent and so long as, at the time of such
written notification, Subsidiary Guarantor provides any financing statements
necessary to perfect and continue perfected Agent's security interests;
(c) not relocate its chief place of business, chief executive
office or residence to a new location without thirty (30) days' prior written
notification thereof to Agent and so long as, at the time of such written
notification, Subsidiary Guarantor provides any financing statements or fixture
filings necessary to perfect and continue perfected Agent's security interests
and also provides to Agent a Collateral Access Agreement with respect to such
new location in form and substance satisfactory to Agent;
(d) if Agent gives value to enable Subsidiary Guarantor to
acquire rights in or the use of any Collateral (as specified in writing by Agent
to Subsidiary Guarantor at the time of the giving of such value), use such value
for such purposes; and
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(e) (i) cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against any
Subsidiary Guarantor or any of the Collateral to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest; (ii) make due and timely payment or deposit of all such
federal, state, foreign, and local taxes, assessments, or contributions required
of it by law, except to the extent that the validity of such assessment or tax
shall be the subject of a Permitted Protest, and will execute and deliver to the
Agent, on demand, appropriate certificates attesting to the payment thereof or
deposit with respect thereto; and (iii) make timely payment or deposit of all
tax payments and withholding taxes required of it by those laws concerning
F.I.C.A. (or its foreign equivalent) and F.U.T.A. (or its foreign equivalent),
state disability (or its foreign equivalent), and, upon request, furnish the
Agent with proof satisfactory to Agent indicating that such Subsidiary Guarantor
has made such payments or deposits; provided that Subsidiary Guarantor shall in
any event pay such taxes, assessments, charges, levies or claims not later than
five (5) days prior to the date of any proposed sale under any judgement, writ
or warrant of attachment entered or filed against Subsidiary Guarantor or any of
the Collateral as a result of the failure to make such payment.
SECTION 7. Special Covenants With Respect to Equipment and Inventory.
Subsidiary Guarantor shall:
(a) keep the Equipment and Inventory (other than Equipment
consisting of laptop computers and other than Inventory sold in the ordinary
course of business) at the places specified on Schedule I annexed hereto and to
the extent permitted by subsection (e) of this Section 7 or, upon thirty (30)
days' prior written notice to Agent, at such other places in jurisdictions where
all action that may be necessary or desirable, or that Agent may request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) maintain the Equipment or cause the Equipment to be
maintained in good repair, working order, and condition (ordinary wear and tear
excepted), and in accordance with any manufacturer's manual, and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be preserved, and shall forthwith, or, in the case of
any loss or damage to any of the Equipment when subsection (c) of Section 8 is
not applicable, as quickly as practicable after the occurrence thereof, make or
cause to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Subsidiary Guarantor
shall promptly furnish to Agent a statement respecting any material loss or
damage to any of the Equipment. Subsidiary Guarantor shall not permit any item
of Equipment to become a fixture to real estate or an accession to other
property, and the Equipment is now and shall at all times remain personal
property;
(c) keep correct and accurate records of the Inventory, in
accordance with good business practices, including itemizing Subsidiary
Guarantor's cost therefor and (where applicable) the current list prices for the
Inventory;
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(d) upon Agent's request, deliver to Agent, properly endorsed,
any and all evidences of ownership of, certificates of title, or applications
for title of any items of Equipment;
(e) not, at any time now or hereafter, store any of the Equipment
or Inventory with a bailee, warehouseman, or similar party without Agent's prior
written consent The Agent and Subsidiary Guarantor hereby consent to the
transfer of up to $1,000,000 in book value of Inventory and up to $1,000,000 of
OLV of Equipment (as defined in the Intercreditor Agreement) to a warehouse
selected by Subsidiary Guarantor located in California, Singapore or Malaysia;
provided, however, that Subsidiary Guarantor shall provide twenty (20) days'
prior written notification thereof to the Agent and, at such time, provide
financing statements or fixture filings (or foreign equivalents) necessary to
perfect the Agent's Liens; and
(f) if any Inventory is in possession or control of any of
Subsidiary Guarantor's agents or processors, upon the occurrence of an Event of
Default, instruct such agent or processor to hold all such Inventory for the
account of Agent and subject to the instructions of Agent.
SECTION 8. Insurance.
(a) Subsidiary Guarantor shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory in which it has an
interest in such amounts, against such risks, in such form and with such
insurers as is customary for similarly situated businesses. Such insurance shall
include, without limitation, property damage insurance and liability insurance.
Each policy for property damage insurance shall provide for all losses to be
paid directly to Agent in accordance with the Intercreditor Agreement. Each
policy shall in addition name Subsidiary Guarantor and Agent as insured parties
thereunder (without any representation or warranty by or obligation upon Agent)
as their interests may appear and have attached thereto a loss payable clause
acceptable to Agent that shall (i) contain an agreement by the insurer that any
loss thereunder shall be payable to Agent in accordance with the Intercreditor
Agreement notwithstanding any action, inaction or breach of representation or
warranty by Subsidiary Guarantor, (ii) provide that there shall be no recourse
against Agent for payment of premiums or other amounts with respect thereto, and
(iii) provide that at least thirty (30) days' prior written notice of
cancellation, material amendment, reduction in scope or limits of coverage or of
lapse shall be given to Agent by the insurer. Subsidiary Guarantor shall, if so
requested by Agent, deliver to Agent original or duplicate policies of such
insurance and, as often as Agent may reasonably request (but no more frequently
than once per year, unless there is a change in the policy or the insurer), a
report of a reputable insurance broker with respect to such insurance. Further,
in accordance with the Intercreditor Agreement, Subsidiary Guarantor shall, at
the request of Agent, duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of Section 5(a) and cause the
respective insurers to acknowledge notice of such assignment.
(b) Payments for claims issued by any liability insurance
maintained by Subsidiary Guarantor pursuant to this Section 8 may be paid
directly to the Person who shall have incurred liability covered by such
insurance. In case of any loss involving damage to Equipment or Inventory when
subsection (c) of this Section 8 is not applicable, Subsidiary Guarantor shall
make or cause to be made the necessary repairs to or replacements of such
Equipment or Inventory, and
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any proceeds of insurance maintained by Subsidiary Guarantor pursuant to this
Section 8 shall be paid to Subsidiary Guarantor as reimbursement for the costs
of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuation of any
Event of Default or (ii) the actual or constructive loss (in excess of $100,000
per occurrence) of any Equipment or Inventory, all insurance payments in respect
of such Equipment or Inventory shall be paid to and applied by Agent as
specified in Section 18.
SECTION 9. Special Covenants with respect to Accounts and Related
Contracts.
(a) Subsidiary Guarantor shall keep its chief place of business
and chief executive office and the office where it keeps its records concerning
the Accounts and Related Contracts at the location specified in Section 4 or,
upon thirty (30) days' prior written notice to Agent, at such other location in
a jurisdiction where all action that may be necessary or desirable, or that
Agent may request, in order to perfect and protect any security interest granted
or purported to be granted hereby, or to enable Agent to exercise and enforce
its rights and remedies hereunder, with respect to such Accounts and Related
Contracts shall have been taken. Subsidiary Guarantor will hold and preserve
such records and, subject to the terms of the Credit Agreement, will permit
representatives of Agent during normal business hours to inspect and make
abstracts from such records, and Subsidiary Guarantor agrees to render to Agent,
at Subsidiary Guarantor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto. Promptly upon the request of
Agent, Subsidiary Guarantor shall deliver to Agent complete and correct copies
of each Related Contract.
(b) Subsidiary Guarantor shall, for not less than three (3) years
from the date on which such Account arose, maintain (i) complete records of each
Account, including records of all payments received, credits granted and
merchandise returned, and (ii) all material documentation relating thereto.
(c) Except as otherwise provided in this subsection (c),
Subsidiary Guarantor shall continue to collect, at its own expense, all amounts
due or to become due Subsidiary Guarantor under the Accounts and Related
Contracts. In connection with such collections, Subsidiary Guarantor may take
such action as Subsidiary Guarantor or Agent may deem necessary or advisable to
enforce collection of amounts due or to become due under the Accounts; provided,
however, that Agent shall have the right, subject to the Intercreditor
Agreement, at any time, upon the occurrence and during the continuation of an
Event of Default, and upon written notice to Subsidiary Guarantor of its
intention to do so, to notify the account debtors or obligors under any Accounts
of the assignment of such Accounts to Agent, and to direct such account debtors
or obligors to make payment of all amounts due or to become due to Subsidiary
Guarantor thereunder directly to Agent, to notify each person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lock box or other arrangement directly to Agent and, upon such
notification and at the expense of Subsidiary Guarantor, to enforce collection
of any such Accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Subsidiary Guarantor might
have done. After receipt by Subsidiary Guarantor of the notice from Agent
referred to in the
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proviso to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by Subsidiary Guarantor in respect of the
Accounts and the Related Contracts shall be received in trust for the benefit of
Agent hereunder, shall be segregated from other funds of Subsidiary Guarantor
and shall be forthwith paid over or delivered to Agent in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 18, and (ii) Subsidiary Guarantor shall not
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon. If the Event of Default giving rise to the exercise of such
remedies by Agent shall be cured or waived, then Agent shall reinstate the
Subsidiary Guarantor's collection rights with respect to such Accounts.
SECTION 10. Special Provisions with Respect to Investment Property.
(a) Subsidiary Guarantor hereby pledges, assigns, grants and
delivers to Agent, for the benefit of Banks and grants to Agent, for the benefit
of Banks a security interest in the shares of stock listed on Schedule II hereto
(the "Shares"), together with all proceeds and substitutions thereof, all cash,
stock and other moneys, investment property and property paid thereon, all
rights to subscribe for securities declared or granted in connection therewith,
including, but not limited to, those arising from or paid in connection with a
stock dividend, stock split, reclassification, reorganization, merger,
consolidation, sale of assets or other exchange of securities or any dividends
or other distributions of any kind and all other cash and noncash proceeds of
the foregoing (all of which shall be part of the "Pledged Collateral"), as
security for the Secured Obligations.
(b) The certificate or certificates for the securities included
in the Pledged Collateral, accompanied by an instrument of assignment duly
executed in blank by Subsidiary Guarantor have been, or will be immediately upon
the subsequent receipt thereof by Subsidiary Guarantor, delivered by Subsidiary
Guarantor to Agent, except for those certificates for the securities of Akashic
that have been or will be delivered to the Foothill Group Agent pursuant to the
Intercreditor Agreement. Subsidiary Guarantor shall cause the books of each
corporation whose stock is part of the Collateral to reflect the pledge of the
Shares. Upon the occurrence of an Event of Default hereunder, Agent may effect
the transfer of any securities included in the Pledged Collateral into its name
and cause new certificates representing such securities to be issued in its
name, but such action shall not be a strict foreclosure of its Lien therein.
Subsidiary Guarantor will execute and deliver such documents, and take or cause
to be taken such actions, as Agent may reasonably request to perfect or continue
the perfection of Agent's security interest in the Collateral.
(c) Subsidiary Guarantor represents and warrants to and covenants
with Agent, for the benefit of Agent and Banks, that there are no subscriptions,
warrants or other options exercisable with respect to the Shares; the Shares
represent the percentage of the issued and outstanding stock of the Subsidiaries
listed on Schedule II; there are no agreements that require any Subsidiaries to
issue any additional shares of such Subsidiaries, and there are no outstanding
options to purchase such additional shares; the Shares have been duly authorized
and validly issued, and are fully paid and non-assessable; and the Pledged
Collateral is not the subject of any present or, to the best knowledge of the
Subsidiary Guarantor, threatened suit, action, arbitration, administrative or
other proceeding, and Subsidiary Guarantor knows of no reasonable grounds for
the institution of any such proceedings.
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(d) Unless an Event of Default shall have occurred and be
continuing, Subsidiary Guarantor shall be entitled to exercise any voting rights
with respect to the Pledged Collateral and to give consents, waivers and
ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute
or create any violation of any of such terms. All such rights of Subsidiary
Guarantor to vote and give consents, waivers and ratifications shall upon notice
to Subsidiary Guarantor cease in case an Event of Default hereunder shall occur
and be continuing. If the Event of Default giving rise to such exercise of
remedies by Agent shall be cured or waived, then Subsidiary Guarantor shall
again have the voting rights with respect to the stock of any of its
Subsidiaries.
(e) Subsidiary Guarantor recognizes that Agent may be unable to
effect a public sale of all or a part of the Pledged Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended ("Act")
or other applicable securities laws, so that Agent may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Collateral for
their own account, for investment and without a view to the distribution or
resale thereof. Subsidiary Guarantor understands that private sales so made may
be at prices and on other terms less favorable to the seller than if the Pledged
Collateral were sold at public sales, and agrees that Agent has no obligation to
delay the sale of any of the Pledged Collateral for the period of time necessary
(even if Agent would agree), to register such securities for sale under the Act.
Subsidiary Guarantor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
(f) Subsidiary Guarantor shall:
(i) not, except as permitted by the Credit Agreement, (a)
sell assign (by operation of law or otherwise) or otherwise dispose of, or grant
any option with respect to, any of the Shares (b) create or suffer to exist any
Lien upon or with respect to any of the Shares except for the security interest
under this Agreement and the Permitted Liens, or (c) permit any issuer of Shares
to merge or consolidate unless all the outstanding capital stock of the
surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder;
(ii) (a) cause each issuer of Shares not to issue any
stock or other securities in addition to or in substitution for the Shares
issued by such issuer, except to Subsidiary Guarantor, (b) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Shares to the
extent necessary to cause the percentage of shares of such issuer pledged
hereunder to equal the percentage of the issued and outstanding shares of all
classes of capital stock of each Subsidiary of Subsidiary Guarantor set forth on
Schedule II hereto, and (c) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all shares of stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Subsidiary Guarantor.
10
<PAGE> 11
SECTION 11. Special Provisions with Respect to Brokerage and Deposit
Accounts.
(a) All deposit and brokerage accounts of Subsidiary Guarantor existing
on the date hereof are accurately listed on Schedule III hereto (which shall be
deemed to be an addendum to the Schedules to the Credit Agreement). Subsidiary
Guarantor shall notify Agent within five (5) days of the opening or creating of
any new deposit or brokerage accounts, and shall provide Agent with such
information as Agent may require in order to perfect or protect its security
interest in such deposit or brokerage accounts.
(b) Upon the occurrence and during the continuation of an Event of
Default, Agent may exercise dominion and control over, and refuse to permit
further withdrawals, issuance of entitlement orders or other directions to
effect transactions by Subsidiary Guarantor (whether of money, securities,
instruments or other property) from any brokerage or deposit accounts
constituting part of the Collateral.
SECTION 12. License of Patents, Trademarks, Copyrights, etc. Subsidiary
Guarantor hereby assigns, transfers and conveys to Agent, for the benefit of
Agent and Banks, effective upon the occurrence of any Event of Default, the
nonexclusive right and license to use all trademarks, trade names, copyrights,
patents or technical processes owned or used (to the extent that the Subsidiary
Guarantor has the right to assign such property not owned by it) by Subsidiary
Guarantor that relate to the Collateral and any other collateral granted by
Subsidiary Guarantor as security for the Secured Obligations, together with any
goodwill associated therewith, all to the extent necessary to enable Agent to
use, possess and realize on the Collateral for the benefit of Agent and Banks
and to enable any successor or assign to enjoy the benefits of the Collateral.
This right and license shall inure to the benefit of all successors, assigns and
transferees of Agent and its successors, assigns and transferees, whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise. Such right and license is granted in
consideration of the extension of credit by the Banks under the Credit
Agreement, without requirement that any monetary payment whatsoever be made to
Subsidiary Guarantor.
SECTION 13. Transfers and Other Liens. Subsidiary Guarantor shall not:
(a) except to the extent permitted in the Credit Agreement and
the Intercreditor Agreement, sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or
(b) except for the security interest created by this Agreement,
and except to the extent permitted in the Credit Agreement and the Intercreditor
Agreement, create or suffer to exist any Lien upon or with respect to any of the
Collateral to secure the indebtedness or other obligations of any Person.
SECTION 14. Agent Appointed Attorney-in-Fact. Subsidiary Guarantor
hereby irrevocably appoints Agent as Subsidiary Guarantor's attorney-in-fact,
with full authority in the place and stead of Subsidiary Guarantor and in the
name of Subsidiary Guarantor, Agent or otherwise, from time to time in Agent's
discretion to take any action and to execute any instrument that Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:
11
<PAGE> 12
(a) to sign and file on behalf of Subsidiary Guarantor any financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral; (b) upon the occurrence and during the continuation of an Event
of Default, to obtain and adjust insurance required to be maintained by
Subsidiary Guarantor or paid to Agent pursuant to Section 8; (c) upon the
occurrence and during the continuation of an Event of Default, to ask, demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for monies due and to become due under or in respect of any of the Collateral;
(d) upon the occurrence and during the continuation of an Event of Default, to
receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clauses (a) and (b) above; (e) upon the
occurrence and during the continuation of an Event of Default, to file any
claims or take any action or institute any proceedings that Agent may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Agent with respect to any of the Collateral; (f) upon
the occurrence and during the continuation of an Event of Default, to pay or
discharge taxes or liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Agent in its sole discretion, any such
payments made by Agent to become obligations of Subsidiary Guarantor to Agent,
due and payable immediately without demand; (g) upon the occurrence and during
the continuation of an Event of Default, to sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral; and (h) upon the
occurrence and during the continuation of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Agent were the
absolute owner thereof for all purposes, and to do, at Agent's option and
Subsidiary Guarantor's expense, at any time or from time to time, all acts and
things that Agent deems necessary to protect, preserve or realize upon the
Collateral and Agent's security interest therein in order to effect the intent
of this Agreement, all as fully and effectively as Subsidiary Guarantor might
do.
SECTION 15. Agent May Perform. If Subsidiary Guarantor fails to perform
any agreement contained herein, Agent may itself perform, or cause performance
of, such agreement, and the expenses of Agent incurred in connection therewith
shall be payable by Subsidiary Guarantor under Section 19.
SECTION 16. Standard of Care. The powers conferred on Agent hereunder
are solely to protect its interest and the interest of the Banks in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder
and other duties imposed by applicable law, Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Agent accords its own property.
SECTION 17. Remedies. Subject to the terms of the Intercreditor
Agreement, if any Event of Default shall have occurred and be continuing, Agent
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform Commercial Code as in
effect
12
<PAGE> 13
in any relevant jurisdiction (the "Code") (whether or not the Code applies to
the affected Collateral), and also may (a) require Subsidiary Guarantor to, and
Subsidiary Guarantor hereby agrees that it will at its expense and upon request
of Agent forthwith, assemble all or part of the Collateral as directed by Agent
and make it available to Agent at a place to be designated by Agent that is
reasonably convenient to both parties, (b) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (c) prior to the disposition of the Collateral, store, process, repair
or recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Agent deems appropriate, (d) take
possession of Subsidiary Guarantor's premises or place custodians in exclusive
control thereof, remain on such premises and use the same and any of Subsidiary
Guarantor's equipment for the purpose of completing any work in process, taking
any actions described in the preceding clause (c) and collecting any Secured
Obligation, and (e) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Agent may be the purchaser of
any or all of the Collateral at any such sale and Agent shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any such public sale, to use
and apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Agent at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of Subsidiary Guarantor, and Subsidiary Guarantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Subsidiary Guarantor agrees
that, to the extent notice of sale shall be required by law, at least ten (10)
days' notice to Subsidiary Guarantor of (i) the time and place of any public
sale or (ii) the time after which any private sale is to be made shall
constitute reasonable notification. Agent shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed there for, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Subsidiary Guarantor hereby
waives any claims against Agent arising by reason of the fact that the price at
which any Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale, even if Agent accepts the
first offer received and does not offer such Collateral to more than one
offeree, provided Agent acted in a commercially reasonable manner. If the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay all the Secured Obligations, Subsidiary Guarantor shall be liable to the
maximum extent permitted by applicable law for the deficiency and the fees of
any attorneys employed by Agent to collect such deficiency.
SECTION 18. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement and in the Intercreditor Agreement, all proceeds
received by Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may in the discretion of
Agent, be held by Agent for the benefit of Agent and Banks as Collateral for,
and/or then, or at any other time thereafter, applied in full or in part by
Agent against, the Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Agent and its agents
and counsel, and all other expenses,
13
<PAGE> 14
liabilities and advances made or incurred by Agent in connection therewith, and
all amounts for which Agent is entitled to indemnification hereunder and all
advances made by Agent hereunder for the account of Subsidiary Guarantor, and to
the payment of all costs and expenses paid or incurred by Agent in connection
with the exercise of any right or remedy hereunder, all in accordance with
Section 19;
SECOND: To the payment of all other Secured Obligations (for the ratable
benefit of the holders thereof) in such order as Agent shall elect; and
THIRD: To the payment to or upon the order of Subsidiary Guarantor, or
to whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. Indemnity and Expenses.
(a) Subsidiary Guarantor agrees to indemnify Agent and Banks from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result
solely from Agent's gross negligence or willful misconduct as finally determined
by a court of competent jurisdiction.
(b) Subsidiary Guarantor will pay to Agent upon demand the amount
of any and all costs and expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
Agent hereunder, or (iv) the failure by Subsidiary Guarantor to perform or
observe any of the provisions hereof.
SECTION 20. Appointment of Agent. Agent has been appointed to act as
Agent hereunder by Banks as provided in the Credit Agreement. Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including without limitation the substitution of Collateral)
solely in accordance with this Agreement and the Credit Agreement. As provided
in Section 8.01 of the Credit Agreement, the Agent shall not be required to
exercise any discretion or take any action hereunder, but subject to Section
9.01 of the Credit Agreement, shall be required to act or refrain from acting
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks. Upon the resignation or removal of the Agent under
Section 8.06 of the Credit Agreement, the successor agent shall be entitled to
exercise rights, refrain from exercising rights, take such actions, and refrain
from taking actions, as provided to the Agent hereunder and under the Credit
Agreement.
SECTION 21. Amendments, etc. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Subsidiary Guarantor here from,
shall in any event be effective unless the same shall be in writing and signed
by Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given.
14
<PAGE> 15
SECTION 22. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraph, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile or
delivered, if to Subsidiary Guarantor or Agent, at its address set forth on the
signature pages hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective three (3) Business Days after
deposit in the U.S. mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively.
SECTION 23. Failure or Indulgence Not Waiver. Remedies Cumulative. No
failure or delay on the part of Agent in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 25. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 26. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
SECTION 27. Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COUNTY OF
SAN FRANCISCO, STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT SUCH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
SECTION 28. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
15
<PAGE> 16
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH SUCH PARTY HAS ALREADY RELIED ON
THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY
ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER
WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. In the event of litigation, this Agreement may he filed as a
written consent to a trial by the court.
SECTION 29. Confidentiality. Any information provided in connection
herewith to the Agent, Co-Agent, Designated Issuer, or any Bank shall be subject
to the confidentiality provisions of Section 9.06(e) of the Credit Agreement.
SECTION 30. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
16
<PAGE> 17
IN WITNESS WHEREOF, Subsidiary Guarantor and Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
STORMEDIA FOREIGN SALES CORPORATION
By: /s/
-----------------------------------
Title:
--------------------------------
Notice Address:
59 A Kronprindsens Gade
3rd Floor
P.O. Box 1858
St. Thomas, U.S. Virgin Islands
Attention: Chief Financial Officer
S-1
<PAGE> 18
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency,
as Agent for the Banks
By: /s/
-----------------------------------
Title:
--------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 19
EXHIBIT A
TO
AMENDED AND RESTATED
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(FSC)
Collateral
The Collateral shall consist of all right, title and interest of
Subsidiary Guarantor in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Subsidiary Guarantor's custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Subsidiary Guarantor's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Subsidiary
Guarantor arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Subsidiary Guarantor, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Subsidiary
Guarantor and Subsidiary Guarantor's books relating to any of the foregoing (any
and all such accounts, contract rights, royalties, license rights and other
forms of obligations being the "Accounts," and any and all such credit
insurance, guaranties and security agreements, being the "Related Contracts");
(e) All documents, cash, deposit accounts, investment property,
securities, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Subsidiary Guarantor's books relating
to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or
A-1
<PAGE> 20
unpublished, now owned or hereafter acquired; all trade secret rights, including
all rights to unpatented inventions, know-how, operating manuals, license rights
and agreements and confidential information, now owned or hereafter acquired;
all mask work or similar rights available for the protection of semiconductor
chips, now owned or hereafter acquired; all claims for damages by way of any
past, present and future infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
A-2
<PAGE> 21
EXHIBIT B
TO
AMENDED AND RESTATED
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(FSC)
Form of Amended and Restated Collateral Assignment, Patent Mortgage and
Security Agreement
Attached.
B-1
<PAGE> 22
SCHEDULE I
TO
AMENDED AND RESTATED
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(FSC)
Locations of Equipment:
None
Locations of Inventory:
None
I-1
<PAGE> 23
SCHEDULE II
TO
AMENDED AND RESTATED
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(FSC)
Pledged Shares
<TABLE>
<CAPTION>
Pledged Percentage
Subsidiaries of StorMedia Pledged Certificate of ownership
Foreign Sales Corporation Shares Number Pledged
<S> <C> <C> <C>
Akashic Memories Corporation
(successor by merger to
StorMedia Acquisition Corporation) 1,000 1 100%
</TABLE>
II-1
<PAGE> 24
SCHEDULE III
TO
AMENDED AND RESTATED
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(FSC)
Brokerage and Deposit Accounts
None, except:
<TABLE>
<CAPTION>
Institution Type Account No.
<S> <C> <C>
Citibank N.A. Deposit 0012902018
</TABLE>
III-1
<PAGE> 1
EXHIBIT 10.5
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(Akashic)
THIS SUBSIDIARY GUARANTOR SECURITY AGREEMENT dated as of May 29, 1998
(this "Agreement") is entered into by and between AKASHIC MEMORIES CORPORATION,
a California corporation (a "Subsidiary Guarantor" or "Akashic") and CANADIAN
IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as agent for the Banks, as defined
below (the "Agent").
RECITALS
A. StorMedia International, Ltd., a Cayman Islands corporation ("SIL"),
and Strates Pte. Ltd., a Singapore corporation ("Strates" and together with SIL,
the "Borrowers," each a "Borrower"), StorMedia Incorporated, a Delaware
corporation (the "Parent Guarantor," collectively with the Subsidiary
Guarantors, as defined below, and the Borrowers, the "Loan Parties," each a
"Loan Party"), certain financial institutions named on Annex I thereof or who
become parties thereto as Banks (each a "Bank" and collectively, the "Banks"),
Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent for the
Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce, Singapore Branch
as the Designated Issuer ("Designated Issuer") have entered into that certain
Credit Agreement dated as of August 23, 1996 (as amended, supplemented, or
otherwise modified through the date hereof, the "Existing Credit Agreement").
B. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC," and together with Akashic, the "Subsidiary Guarantors"), acquired all of
the outstanding capital stock of Akashic through the merger of StorMedia
Acquisition Corporation, a California corporation and wholly-owned Subsidiary of
FSC with and into Akashic. In connection with such acquisition, certain of the
other Loan Parties purchased the patents and applications pending in Akashic's
parent corporation, Kubota Corporation.
C. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
D. The Parent Guarantor, FSC, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
E. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing Credit Agreement, as so amended and
restated, and the Amended and Restated Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement. Unless
otherwise defined herein or in the
<PAGE> 2
Credit Agreement, terms used in Division 9 of the California Uniform Commercial
Code (as in effect from time to time) are used herein as therein defined.
F. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that Akashic grant the
security interest and undertake the obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Subsidiary Guarantor and Agent hereby agree as follows:
SECTION 1. Grant of Security. Subsidiary Guarantor hereby assigns to
Agent, for the benefit of Agent and Banks, and hereby grants to Agent, for the
benefit of Agent and Banks, a security interest in all of Subsidiary Guarantor's
right, title and interest in and to the property described on Exhibit A attached
hereto and in the Pledged Collateral, as defined in SECTION 10 hereof, in each
case whether now or hereafter existing or in which Subsidiary Guarantor now has
or hereafter acquires an interest and wherever the same may be located (the
"Collateral").
SECTION 2. Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of Subsidiary Guarantor now or hereafter existing, under or arising out
of or in connection with the Credit Agreement or any Loan Documents, and all
extensions or renewals thereof, whether for principal, interest, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Agent or a Bank as a
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "Underlying Debt"), and all obligations of every nature of
Subsidiary Guarantor now or hereafter existing under this Agreement, the
Subsidiary Guaranty or any other Loan Document (all such obligations, together
with the Underlying Debt being the "Secured Obligations").
SECTION 3. Subsidiary Guarantor Remains Liable. Anything contained
herein to the contrary notwithstanding, (a) Subsidiary Guarantor shall remain
liable under any contracts and agreements included in the Collateral, to the
extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Agent of any of its rights hereunder shall not release
Subsidiary Guarantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) Agent shall not have any
obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Agent be obligated to perform
any of the obligations or duties of Subsidiary Guarantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
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SECTION 4. Representations and Warranties. Subsidiary Guarantor
represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest
created by this Agreement and the Permitted Liens, Subsidiary Guarantor owns the
Collateral free and clear of any lien, mortgage, security interest, legal or
equitable charge, pledge, deed of trust or other encumbrance. Except such as may
have been filed in favor of Agent relating to this Agreement and the Permitted
Liens, no effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
(b) Condition and Location of Equipment and Inventory. Except for
Nextar thickness sorters whose suitability is in dispute, all of the Equipment
and Inventory is, as of the date hereof, of good and serviceable quality, free
from defects, and located at the places specified in Schedule I annexed hereto.
(c) Office Locations. The chief place of business, the chief
executive office and the office where Subsidiary Guarantor keeps its records
regarding its Accounts is, and has been for the four month period preceding the
date hereof, located at 390 Reed Street, Santa Clara, California, 95050-3118.
(d) Fictitious Names. Subsidiary Guarantor does not conduct any
business under any trade-name or fictitious business name.
(e) Delivery of Certain Collateral. All share certificates
representing the Shares (as defined in Section 10), all notes and other
instruments (excluding checks) comprising any and all items of Collateral have
been delivered to Agent duly endorsed or accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No authorization, approval or
other action by, and no notice to or filing with (except for the filing of
financing statements to perfect Agent's Lien on the Collateral for which filing
of a financing statement is the method of perfection), any governmental
authority or regulatory body is required for either (i) the grant by Subsidiary
Guarantor of the security interest granted hereby or for the execution, delivery
or performance of this Agreement by Subsidiary Guarantor or (ii) the perfection
of or the exercise by Agent of its rights and remedies hereunder, other than
such actions and filings as have already been taken, unless the Credit Agreement
does not require that such authorization, approval, action, notice or filing be
made until after the Effective Date.
(g) Enforceability. All actions necessary to ensure the validity
and enforceability of the Agent's Lien on the Collateral, including as against
any bona fide purchaser for value, have been duly taken.
(h) Perfection. This Agreement, together with the filing of a
financing statement with the Secretary of State of California or the deliveries
of certain items of Collateral in accordance with the terms hereof, creates a
valid, perfected and, security interest in the Collateral of the priority
specified in the Intercreditor Agreement, securing the payment of the Secured
Obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been
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duly made or taken, unless the Credit Agreement does not require that such
filing or action be made until after the Effective Date.
(i) Other Information. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of Subsidiary Guarantor with respect
to the Collateral is (or, as to hereafter supplied information, will be)
accurate and complete in all material respects, and with respect to such
information prepared by a third party, to the best knowledge of the Subsidiary
Guarantor for which such information was prepared, such information is accurate
and complete in all material respects.
SECTION 5. Further Assurances.
(a) Subsidiary Guarantor shall execute and deliver to Agent,
prior to or concurrently with Subsidiary Guarantor's execution and delivery of
this Agreement and at any time thereafter at the request of Agent and at
Subsidiary Guarantor's expense, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
mortgages, deeds of trust, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Agent may reasonably request,
in form satisfactory to Agent, to perfect and continue perfected Agent's
security interests in the Collateral, in order to fully consummate all of the
transactions contemplated under the Loan Documents and to enable Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Subsidiary
Guarantor will: (i) if any Account shall be evidenced by a promissory note or
other instrument (excluding checks), having a face value in excess of One
Thousand Dollars ($1,000) deliver and pledge to Agent hereunder such note or
instrument, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Agent; (ii)
execute and file such financing or continuation statements, or amendments
thereto, or such other instruments or notices, as may be necessary or desirable,
or as Agent may request, in order to perfect and preserve the security interests
granted or purported to be granted hereby; (iii) at any reasonable time, allow
Agent or such other persons designated by Agent in accordance with the terms of
the Credit Agreement to inspect the Subsidiary Guarantor's books and to check,
test, and appraise the Collateral in order to verify the Subsidiary Guarantor's
financial condition or the amount, quality, value, condition of, or to any other
matter relating to, the Collateral; and (iv) at Agent's request, appear in and
defend any action or proceeding that may affect Subsidiary Guarantor's title to
or Agent's security interest in all or any part of the Collateral.
(b) Subsidiary Guarantor hereby authorizes Agent to file,
register or record such documents as may be appropriate to protect Agent's
security interest in the Collateral, relative to all or any part of the
Collateral without the signature of Subsidiary Guarantor. Subsidiary Guarantor
agrees that a carbon, photographic or other reproduction of this Agreement or of
a financing statement signed by Subsidiary Guarantor shall be sufficient as a
financing statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Subsidiary Guarantor will furnish to Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail.
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(d) Subsidiary Guarantor will execute and deliver the Collateral
Assignment in the form of Exhibit B to this Agreement.
SECTION 6. Covenants of Subsidiary Guarantor. Subsidiary Guarantor
shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral where
violation is reasonably likely to have a material adverse effect on Agent's
rights in the Collateral or the value of the Collateral or Agent's ability to
foreclose on the Collateral;
(b) not change its name or any foreign equivalent, FEIN,
corporate structure (within the meaning of Section 9402(7) of the California
Uniform Commercial Code), or identity, or add any new fictitious name; provided,
however, that Subsidiary Guarantor may change its name upon thirty (30) days'
prior written notification thereof to Agent and so long as, at the time of such
written notification, Subsidiary Guarantor provides any financing statements
necessary to perfect and continue perfected Agent's security interests;
(c) not relocate its chief place of business, chief executive
office or residence to a new location without thirty (30) days' prior written
notification thereof to Agent and so long as, at the time of such written
notification, Subsidiary Guarantor provides any financing statements or fixture
filings necessary to perfect and continue perfected Agent's security interests
and also provides to Agent a Collateral Access Agreement with respect to such
new location in form and substance satisfactory to Agent;
(d) if Agent gives value to enable Subsidiary Guarantor to
acquire rights in or the use of any Collateral (as specified in writing by Agent
to Subsidiary Guarantor at the time of the giving of such value), use such value
for such purposes; and
(e) (i) cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Subsidiary Guarantor or any of the Collateral to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest; (ii) make due and timely payment or deposit of all such
federal, state, foreign, and local taxes, assessments, or contributions required
of it by law, except to the extent that the validity of such assessment or tax
shall be the subject of a Permitted Protest, and will execute and deliver to the
Agent, on demand, appropriate certificates attesting to the payment thereof or
deposit with respect thereto; and (iii) make timely payment or deposit of all
tax payments and withholding taxes required of it by those laws concerning
F.I.C.A. (or its foreign equivalent) and F.U.T.A. (or its foreign equivalent),
state disability (or its foreign equivalent), and, upon request, furnish the
Agent with proof satisfactory to Agent indicating that Subsidiary Guarantor has
made such payments or deposits; provided that Subsidiary Guarantor shall in any
event pay such taxes, assessments, charges, levies or claims not later than five
(5) days prior to the date of any proposed sale under any judgement, writ or
warrant of attachment entered or filed against Subsidiary Guarantor or any of
the Collateral as a result of the failure to make such payment.
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SECTION 7. Special Covenants With Respect to Equipment and Inventory.
Subsidiary Guarantor shall:
(a) keep the Equipment and Inventory (other than Equipment
consisting of laptop computers and other than Inventory sold in the ordinary
course of business) at the places specified on Schedule I annexed hereto and to
the extent permitted by subsection (e) of this Section 7 or, upon thirty (30)
days' prior written notice to Agent, at such other places in jurisdictions where
all action that may be necessary or desirable, or that Agent may request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) maintain the Equipment or cause the Equipment to be
maintained in good repair, working order, and condition (ordinary wear and tear
excepted), and in accordance with any manufacturer's manual, and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be preserved, and shall forthwith, or, in the case of
any loss or damage to any of the Equipment when subsection (c) of Section 8 is
not applicable, as quickly as practicable after the occurrence thereof, make or
cause to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Subsidiary Guarantor
shall promptly furnish to Agent a statement respecting any material loss or
damage to any of the Equipment. Subsidiary Guarantor shall not permit any item
of Equipment to become a fixture to real estate or an accession to other
property, and the Equipment is now and shall at all times remain personal
property;
(c) keep correct and accurate records of the Inventory, in
accordance with good business practices, including itemizing Subsidiary
Guarantor's cost therefor and (where applicable) the current list prices for the
Inventory;
(d) upon Agent's request, deliver to Agent, properly endorsed,
any and all evidences of ownership of, certificates of title, or applications
for title of any items of Equipment;
(e) not, at any time now or hereafter, store any of the Equipment
or Inventory with a bailee, warehouseman, or similar party without Agent's prior
written consent. The Agent and Subsidiary Guarantor hereby consent to the
transfer of up to $1,000,000 in book value of Inventory and up to $1,000,000 of
OLV of Equipment (as defined in the Intercreditor Agreement) to a warehouse
selected by Subsidiary Guarantor located in California, Singapore or Malaysia;
provided, however, that Subsidiary Guarantor shall provide twenty (20) days'
prior written notification thereof to the Agent and, at such time, provide
financing statements or fixture filings (or foreign equivalents) necessary to
perfect the Agent's Liens; and
(f) if any Inventory is in possession or control of any of
Subsidiary Guarantor's agents or processors, upon the occurrence of an Event of
Default, instruct such agent or processor to hold all such Inventory for the
account of Agent and subject to the instructions of Agent.
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SECTION 8. Insurance.
(a) Subsidiary Guarantor shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory in which it has an
interest in such amounts, against such risks, in such form and with such
insurers as is customary for similarly situated businesses. Such insurance shall
include, without limitation, property damage insurance and liability insurance.
Each policy for property damage insurance shall provide for all losses to be
paid directly to Agent in accordance with the Intercreditor Agreement. Each
policy shall in addition name Subsidiary Guarantor and Agent as insured parties
thereunder (without any representation or warranty by or obligation upon Agent)
as their interests may appear and have attached thereto a loss payable clause
acceptable to the Agent that shall (i) contain an agreement by the insurer that
any loss thereunder shall be payable to Agent in accordance with the
Intercreditor Agreement notwithstanding any action, inaction or breach of
representation or warranty by Subsidiary Guarantor, (ii) provide that there
shall be no recourse against Agent for payment of premiums or other amounts with
respect thereto, and (iii) provide that at least thirty (30) days' prior written
notice of cancellation, material amendment, reduction in scope or limits of
coverage or of lapse shall be given to Agent by the insurer. Subsidiary
Guarantor shall, if so requested by Agent, deliver to Agent original or
duplicate policies of such insurance and, as often as Agent may reasonably
request (but no more frequently than once per year, unless there is a change in
the policy or the insurer), a report of a reputable insurance broker with
respect to such insurance. Further, and in accordance with the Intercreditor
Agreement, Subsidiary Guarantor shall, at the request of Agent, duly execute and
deliver instruments of assignment of such insurance policies to comply with the
requirements of Section 5(a) and cause the respective insurers to acknowledge
notice of such assignment.
(b) Payments for claims issued by any liability insurance
maintained by Subsidiary Guarantor pursuant to this Section 8 may be paid
directly to the Person who shall have incurred liability covered by such
insurance. In case of any loss involving damage to Equipment or Inventory when
subsection (c) of this Section 8 is not applicable, Subsidiary Guarantor shall
make or cause to be made the necessary repairs to or replacements of such
Equipment or Inventory, and any proceeds of insurance maintained by Subsidiary
Guarantor pursuant to this Section 8 shall be paid to Subsidiary Guarantor as
reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuation of any
Event of Default or (ii) the actual or constructive loss (in excess of $100,000
per occurrence) of any Equipment or Inventory, all insurance payments in respect
of such Equipment or Inventory shall be paid to and applied by Agent as
specified in Section 18.
SECTION 9. Special Covenants with respect to Accounts and Related
Contracts.
(a) Subsidiary Guarantor shall keep its chief place of business
and chief executive office and the office where it keeps its records concerning
the Accounts and Related Contracts at the location specified in Section 4 or,
upon thirty (30) days' prior written notice to Agent, at such other location in
a jurisdiction where all action that may be necessary or desirable, or that
Agent may request, in order to perfect and protect any security interest granted
or purported to be granted hereby, or to enable Agent to exercise and enforce
its rights and remedies hereunder, with respect to such Accounts and Related
Contracts shall have been taken. Subsidiary Guarantor will hold and preserve
such records and, subject to the terms of the Credit Agreement, will permit
representatives
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of Agent during normal business hours to inspect and make abstracts from such
records, and Subsidiary Guarantor agrees to render to Agent, at Subsidiary
Guarantor's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. Promptly upon the request of Agent,
Subsidiary Guarantor shall deliver to Agent complete and correct copies of each
Related Contract.
(b) Subsidiary Guarantor shall, for not less than three (3) years
from the date on which such Account arose, maintain (i) complete records of each
Account, including records of all payments received, credits granted and
merchandise returned, and (ii) all material documentation relating thereto.
(c) Except as otherwise provided in this subsection (c),
Subsidiary Guarantor shall continue to collect, at its own expense, all amounts
due or to become due Subsidiary Guarantor under the Accounts and Related
Contracts. In connection with such collections, Subsidiary Guarantor may take
such action as Subsidiary Guarantor or Agent may deem necessary or advisable to
enforce collection of amounts due or to become due under the Accounts; provided,
however, that Agent shall have the right, subject to the Intercreditor
Agreement, at any time, upon the occurrence and during the continuation of an
Event of Default, and upon written notice to Subsidiary Guarantor of its
intention to do so, to notify the account debtors or obligors under any Accounts
of the assignment of such Accounts to Agent, and to direct such account debtors
or obligors to make payment of all amounts due or to become due to Subsidiary
Guarantor thereunder directly to Agent, to notify each person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lock box or other arrangement directly to Agent and, upon such
notification and at the expense of Subsidiary Guarantor, to enforce collection
of any such Accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Subsidiary Guarantor might
have done. After receipt by Subsidiary Guarantor of the notice from Agent
referred to in the proviso to the preceding sentence, (i) all amounts and
proceeds (including checks and other instruments) received by Subsidiary
Guarantor in respect of the Accounts and the Related Contracts shall be received
in trust for the benefit of Agent hereunder, shall be segregated from other
funds of Subsidiary Guarantor and shall be forthwith paid over or delivered to
Agent in the same form as so received (with any necessary endorsement) to be
held as cash Collateral and applied as provided by Section 18, and (ii)
Subsidiary Guarantor shall not adjust, settle or compromise the amount or
payment of any Account, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon. If the Event of
Default giving rise to the exercise of such remedies by Agent shall be cured or
waived, then Agent shall reinstate the Subsidiary Guarantor's collection rights
with respect to such Accounts.
SECTION 10. Special Provisions with Respect to Investment Property.
(a) Subsidiary Guarantor hereby pledges, assigns, grants and
delivers to Agent, for the benefit of Banks and grants to Agent, for the benefit
of Banks a security interest in the shares of stock listed on Schedule II hereto
(the "Shares"), together with all proceeds and substitutions thereof, all cash,
stock and other moneys, investment property and property paid thereon, all
rights to subscribe for securities declared or granted in connection therewith,
including, but not limited to, those arising from or paid in connection with a
stock dividend, stock split, reclassification,
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reorganization, merger, consolidation, sale of assets or other exchange of
securities or any dividends or other distributions of any kind and all other
cash and noncash proceeds of the foregoing (all of which shall be part of the
"Pledged Collateral"), as security for the Secured Obligations.
(b) The certificate or certificates for the securities included
in the Pledged Collateral, accompanied by an instrument of assignment duly
executed in blank by Subsidiary Guarantor have been, or will be immediately upon
the subsequent receipt thereof by Subsidiary Guarantor, delivered by Subsidiary
Guarantor to Agent. Subsidiary Guarantor shall cause the books of each
corporation whose stock is part of the Collateral to reflect the pledge of the
Shares. Upon the occurrence of an Event of Default hereunder, Agent may effect
the transfer of any securities included in the Pledged Collateral into its name
and cause new certificates representing such securities to be issued in its
name, but such action shall not be a strict foreclosure of its Lien therein.
Subsidiary Guarantor will execute and deliver such documents, and take or cause
to be taken such actions, as Agent may reasonably request to perfect or continue
the perfection of Agent's security interest in the Collateral.
(c) Subsidiary Guarantor represents and warrants to and covenants
with Agent, for the benefit of Agent and Banks, that there are no subscriptions,
warrants or other options exercisable with respect to the Shares; the Shares
represent the percentage of the issued and outstanding stock of the Subsidiaries
listed on Schedule II; there are no agreements that require any Subsidiaries to
issue any additional shares of such Subsidiaries, and there are no outstanding
options to purchase such additional shares; the Shares have been duly authorized
and validly issued, and are fully paid and non-assessable; and the Pledged
Collateral is not the subject of any present or, to the best knowledge of the
Subsidiary Guarantor, threatened suit, action, arbitration, administrative or
other proceeding, and Subsidiary Guarantor knows of no reasonable grounds for
the institution of any such proceedings.
(d) Unless an Event of Default shall have occurred and be
continuing, Subsidiary Guarantor shall be entitled to exercise any voting rights
with respect to the Pledged Collateral and to give consents, waivers and
ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute
or create any violation of any of such terms. All such rights of Subsidiary
Guarantor to vote and give consents, waivers and ratifications shall upon notice
to Subsidiary Guarantor cease in case an Event of Default hereunder shall occur
and be continuing. If the Event of Default giving rise to such exercise of
remedies by Agent shall be cured or waived, then Subsidiary Guarantor shall
again have the voting rights with respect to the stock of any of its
Subsidiaries.
(e) Subsidiary Guarantor recognizes that Agent may be unable to
effect a public sale of all or a part of the Pledged Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended ("Act")
or other applicable securities laws, so that Agent may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Collateral for
their own account, for investment and without a view to the distribution or
resale thereof. Subsidiary Guarantor understands that private sales so made may
be at prices and on other terms less favorable to the seller than if the Pledged
Collateral were sold at public sales, and agrees that Agent has no obligation to
delay the sale of any of the Pledged Collateral for the period of time necessary
(even if Agent would
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agree), to register such securities for sale under the Act. Subsidiary Guarantor
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.
(f) Subsidiary Guarantor shall:
(i) not, except as permitted by the Credit Agreement,
(a) sell assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Shares (b) create or suffer to
exist any Lien upon or with respect to any of the Shares except for the security
interest under this Agreement and the Permitted Liens, or (c) permit any issuer
of Shares to merge or consolidate unless all the outstanding capital stock of
the surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder;
(ii) (a) cause each issuer of Shares not to issue any
stock or other securities in addition to or in substitution for the Shares
issued by such issuer, except to Subsidiary Guarantor, (b) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Shares to the
extent necessary to cause the percentage of shares of such issuer pledged
hereunder to equal the percentage of the issued and outstanding shares of all
classes of capital stock of each Subsidiary of Subsidiary Guarantor set forth on
Schedule II hereto, and (c) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all shares of stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Subsidiary Guarantor.
SECTION 11. Special Provisions with Respect to Brokerage and Deposit
Accounts.
(a) All deposit and brokerage accounts of Subsidiary Guarantor existing
on the date hereof are accurately listed on Schedule III hereto (which shall be
deemed to be an addendum to the Schedules to the Credit Agreement). Subsidiary
Guarantor shall notify Agent within five (5) days of the opening or creating of
any new deposit or brokerage accounts, and shall provide Agent with such
information as Agent may require in order to perfect or protect its security
interest in such deposit or brokerage accounts.
(b) Upon the occurrence and during the continuation of an Event of
Default, Agent may exercise dominion and control over, and refuse to permit
further withdrawals, issuance of entitlement orders or other directions to
effect transactions by Subsidiary Guarantor (whether of money, securities,
instruments or other property) from any brokerage or deposit accounts
constituting part of the Collateral.
SECTION 12. License of Patents, Trademarks, Copyrights, etc. Subsidiary
Guarantor hereby assigns, transfers and conveys to Agent, for the benefit of
Agent and Banks, effective upon the occurrence of any Event of Default, the
nonexclusive right and license to use all trademarks, trade names, copyrights,
patents or technical processes owned or used (to the extent that the Subsidiary
Guarantor has the right to assign such property not owned by it) by Subsidiary
Guarantor that relate to the Collateral and any other collateral granted by
Subsidiary Guarantor as security for the Secured Obligations, together with any
goodwill associated therewith, all to the extent necessary to enable Agent to
use, possess and realize on the Collateral for the benefit of Agent and Banks
and to enable any successor or assign to enjoy the benefits of the Collateral.
This right and license shall
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inure to the benefit of all successors, assigns and transferees of Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted in consideration of the extension
of credit by the Banks under the Credit Agreement, without requirement that any
monetary payment whatsoever be made to Subsidiary Guarantor.
SECTION 13. Transfers and Other Liens. Subsidiary Guarantor shall not:
(a) except to the extent permitted in the Credit Agreement and
the Intercreditor Agreement, sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or
(b) except for the security interest created by this Agreement,
and except to the extent permitted in the Credit Agreement and the Intercreditor
Agreement, create or suffer to exist any Lien upon or with respect to any of the
Collateral to secure the indebtedness or other obligations of any Person.
SECTION 14. Agent Appointed Attorney-in-Fact. Subsidiary Guarantor
hereby irrevocably appoints Agent as Subsidiary Guarantor's attorney-in-fact,
with full authority in the place and stead of Subsidiary Guarantor and in the
name of Subsidiary Guarantor, Agent or otherwise, from time to time in Agent's
discretion to take any action and to execute any instrument that Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation: (a) to sign and file on behalf of Subsidiary Guarantor any
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral; (b) upon the occurrence and during the continuation
of an Event of Default, to obtain and adjust insurance required to be maintained
by Subsidiary Guarantor or paid to Agent pursuant to Section 8; (c) upon the
occurrence and during the continuation of an Event of Default, to ask, demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for monies due and to become due under or in respect of any of the Collateral;
(d) upon the occurrence and during the continuation of an Event of Default, to
receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clauses (a) and (b) above; (e) upon the
occurrence and during the continuation of an Event of Default, to file any
claims or take any action or institute any proceedings that Agent may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Agent with respect to any of the Collateral; (f) upon
the occurrence and during the continuation of an Event of Default, to pay or
discharge taxes or liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Agent in its sole discretion, any such
payments made by Agent to become obligations of Subsidiary Guarantor to Agent,
due and payable immediately without demand; (g) upon the occurrence and during
the continuation of an Event of Default, to sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral; and (h) upon the
occurrence and during the continuation of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Agent were the
absolute owner thereof for all purposes, and to do, at Agent's option and
Subsidiary Guarantor's expense, at any time or from time to time, all acts and
things that Agent deems necessary to protect, preserve or realize upon the
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Collateral and Agent's security interest therein in order to effect the intent
of this Agreement, all as fully and effectively as Subsidiary Guarantor might
do.
SECTION 15. Agent May Perform. If Subsidiary Guarantor fails to perform
any agreement contained herein, Agent may itself perform, or cause performance
of, such agreement, and the expenses of Agent incurred in connection therewith
shall be payable by Subsidiary Guarantor under Section 19.
SECTION 16. Standard of Care. The powers conferred on Agent hereunder
are solely to protect its interest and the interest of the Banks in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder
and other duties imposed by applicable law, Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Agent accords its own property.
SECTION 17. Remedies. Subject to the terms of the Intercreditor
Agreement, if any Event of Default shall have occurred and be continuing, Agent
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "Code") (whether or not the Code
applies to the affected Collateral), and also may (a) require Subsidiary
Guarantor to, and Subsidiary Guarantor hereby agrees that it will at its expense
and upon request of Agent forthwith, assemble all or part of the Collateral as
directed by Agent and make it available to Agent at a place to be designated by
Agent that is reasonably convenient to both parties, (b) enter onto the property
where any Collateral is located and take possession thereof with or without
judicial process, (c) prior to the disposition of the Collateral, store,
process, repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Agent deems appropriate,
(d) take possession of Subsidiary Guarantor's premises or place custodians in
exclusive control thereof, remain on such premises and use the same and any of
Subsidiary Guarantor's equipment for the purpose of completing any work in
process, taking any actions described in the preceding clause (c) and collecting
any Secured Obligation, and (e) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Agent may be the purchaser of
any or all of the Collateral at any such sale and Agent shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any such public sale, to use
and apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Agent at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of Subsidiary Guarantor, and Subsidiary Guarantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Subsidiary Guarantor agrees
that, to the extent notice of sale shall be required by law, at least ten (10)
days' notice to Subsidiary Guarantor of (i) the time and place of any public
sale or (ii) the time after which any private sale is to be made shall
constitute
12
<PAGE> 13
reasonable notification. Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed there for, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Subsidiary Guarantor hereby waives any
claims against Agent arising by reason of the fact that the price at which any
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Agent accepts the first
offer received and does not offer such Collateral to more than one offeree,
provided Agent acted in a commercially reasonable manner. If the proceeds of any
sale or other disposition of the Collateral are insufficient to pay all the
Secured Obligations, Subsidiary Guarantor shall be liable to the maximum extent
permitted by applicable law for the deficiency and the fees of any attorneys
employed by Agent to collect such deficiency.
SECTION 18. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement and the Intercreditor Agreement, all proceeds
received by Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may in the discretion of
Agent, be held by Agent for the benefit of Agent and Banks as Collateral for,
and/or then, or at any other time thereafter, applied in full or in part by
Agent against, the Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Agent and its agents
and counsel, and all other expenses, liabilities and advances made or incurred
by Agent in connection therewith, and all amounts for which Agent is entitled to
indemnification hereunder and all advances made by Agent hereunder for the
account of Subsidiary Guarantor, and to the payment of all costs and expenses
paid or incurred by Agent in connection with the exercise of any right or remedy
hereunder, all in accordance with Section 19;
SECOND: To the payment of all other Secured Obligations (for the ratable
benefit of the holders thereof) in such order as Agent shall elect; and
THIRD: To the payment to or upon the order of Subsidiary Guarantor, or
to whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. Indemnity and Expenses.
(a) Subsidiary Guarantor agrees to indemnify Agent and Banks from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result
solely from Agent's gross negligence or willful misconduct as finally determined
by a court of competent jurisdiction.
(b) Subsidiary Guarantor will pay to Agent upon demand the amount
of any and all costs and expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
13
<PAGE> 14
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
Agent hereunder, or (iv) the failure by Subsidiary Guarantor to perform or
observe any of the provisions hereof.
SECTION 20. Appointment of Agent. Agent has been appointed to act as
Agent hereunder by Banks as provided in the Credit Agreement. Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including without limitation the substitution of Collateral)
solely in accordance with this Agreement and the Credit Agreement. As provided
in Section 8.01 of the Credit Agreement, the Agent shall not be required to
exercise any discretion or take any action hereunder, but subject to Section
9.01 of the Credit Agreement, shall be required to act or refrain from acting
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks. Upon the resignation or removal of the Agent under
Section 8.06 of the Credit Agreement, the successor agent shall be entitled to
exercise rights, refrain from exercising rights, take such actions, and refrain
from taking actions, as provided to the Agent hereunder and under the Credit
Agreement.
SECTION 21. Amendments, etc. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Subsidiary Guarantor here from,
shall in any event be effective unless the same shall be in writing and signed
by Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given.
SECTION 22. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraph, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile or
delivered, if to Subsidiary Guarantor or Agent, at its address set forth on the
signature pages hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective three (3) Business Days after
deposit in the U.S. mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively.
SECTION 23. Failure or Indulgence Not Waiver. Remedies Cumulative. No
failure or delay on the part of Agent in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 25. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 26. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL
14
<PAGE> 15
LAWS OF THE STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF
LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
CALIFORNIA.
SECTION 27. Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COUNTY OF
SAN FRANCISCO, STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT SUCH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
SECTION 28. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH SUCH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED
FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of
litigation, this Agreement may he filed as a written consent to a trial by the
court.
SECTION 29. Confidentiality. Any information provided in connection
herewith to the Agent, Co-Agent, Designated Issuer, or any Bank shall be subject
to the confidentiality provisions of Section 9.06(e) of the Credit Agreement.
SECTION 30. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
15
<PAGE> 16
IN WITNESS WHEREOF, Subsidiary Guarantor and Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
AKASHIC MEMORIES CORPORATION
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
390 Reed Street
Santa Clara, CA 95050-3118
Telephone: (408) 327-8400
Telecopier: (408) 727-4928
Attention: Chief Financial Officer
S-1
<PAGE> 17
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency,
as Agent for the Banks
By: /s/
------------------------------------
Title:
---------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 18
EXHIBIT A
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(Akashic)
Collateral
The Collateral shall consist of all right, title and interest of
Subsidiary Guarantor in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Subsidiary Guarantor's custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Subsidiary Guarantor's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Subsidiary
Guarantor arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Subsidiary Guarantor, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Subsidiary
Guarantor and Subsidiary Guarantor's books relating to any of the foregoing (any
and all such accounts, contract rights, royalties, license rights and other
forms of obligations being the "Accounts," and any and all such credit
insurance, guaranties and security agreements, being the "Related Contracts");
(e) All documents, cash, deposit accounts, investment property,
securities, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Subsidiary Guarantor's books relating
to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or
A-1
<PAGE> 19
unpublished, now owned or hereafter acquired; all trade secret rights, including
all rights to unpatented inventions, know-how, operating manuals, license rights
and agreements and confidential information, now owned or hereafter acquired;
all mask work or similar rights available for the protection of semiconductor
chips, now owned or hereafter acquired; all claims for damages by way of any
past, present and future infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
A-2
<PAGE> 20
EXHIBIT B
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(Akashic)
Form of Collateral Assignment, Patent Mortgage
and Security Agreement
Attached.
B-1
<PAGE> 21
SCHEDULE I
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(Akashic)
Locations of Equipment:
385/390 Reed Street
Santa Clara, CA 95050
Locations of Inventory:
385/390 Reed Street
Santa Clara, CA 95050
I-1
<PAGE> 22
SCHEDULE II
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(Akashic)
Pledged Shares
<TABLE>
<CAPTION>
Pledged Percentage
Subsidiaries of Akashic Pledged Certificate of ownership
Memories Corporation Shares Number Pledged
- -------------------- ------ ------ -------
<S> <C> <C> <C>
Strates Sdn. Bhd., f/k/a
Akashic Kubota Technologies
Sdn. Bhd. 37,499,997 4 100%
3 5 100%
</TABLE>
II-1
<PAGE> 23
SCHEDULE III
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(Akashic)
Brokerage and Deposit Accounts
None, except:
<TABLE>
<CAPTION>
Institution Type Account No.
<S> <C> <C>
Bank of America Deposit 14952-00222
</TABLE>
III-1
<PAGE> 1
EXHIBIT 10.6
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(AKT)
THIS SUBSIDIARY GUARANTOR SECURITY AGREEMENT dated as of May 29, 1998
(this "Agreement") is entered into by and between STRATES SDN. BHD., a Malaysian
corporation formerly known as AKASHIC KUBOTA TECHNOLOGIES SDN. BHD. (a
"Subsidiary Guarantor" or "AKT") and CANADIAN IMPERIAL BANK OF COMMERCE, NEW
YORK AGENCY, as agent for the Banks, as defined below (the "Agent").
RECITALS
A. StorMedia International, Ltd., a Cayman Islands corporation ("SIL"),
and Strates Pte. Ltd., a Singapore corporation ("Strates" and together with SIL,
the "Borrowers," each a "Borrower"), StorMedia Incorporated, a Delaware
corporation (the "Parent Guarantor," collectively with the Subsidiary
Guarantors, as defined below, and the Borrowers, the "Loan Parties," each a
"Loan Party"), certain financial institutions named on Annex I thereof or who
become parties thereto as Banks (each a "Bank" and collectively, the "Banks"),
Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent for the
Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce, Singapore Branch
as the Designated Issuer ("Designated Issuer") have entered into that certain
Credit Agreement dated as of August 23, 1996 (as amended, supplemented, or
otherwise modified through the date hereof, the "Existing Credit Agreement").
B. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC," and together with Akashic Memories Corporation ("Akashic"), a California
corporation and wholly-owned Subsidiary of Parent Guarantor, the "Subsidiary
Guarantors"), acquired all of the outstanding capital stock of Akashic through
the merger of StorMedia Acquisition Corporation, a California corporation and
wholly-owned Subsidiary of FSC with and into Akashic. In connection with such
acquisition, certain of the other Loan Parties purchased the patents and
applications pending in Akashic's parent corporation, Kubota Corporation.
C. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
D. The Parent Guarantor, FSC, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
E. In connection with the Restructuring, the Loan Parties, the Banks, the
Agent and the Co-Agent desire to amend and restate the Existing Credit Agreement
in its entirety (the Existing Credit Agreement, as so amended and restated, and
the Amended and Restated Credit Agreement, as amended, restated, supplemented or
otherwise modified from time to time, collectively, being the
<PAGE> 2
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement. Unless
otherwise defined herein or in the Credit Agreement, terms used in Division 9 of
the California Uniform Commercial Code (as in effect from time to time) are used
herein as therein defined.
F. As a condition precedent to the effectiveness of the Credit Agreement,
the Banks, Agent, and Co-Agent have required that AKT, a wholly-owned Subsidiary
of Akashic, grant the security interest and undertake the obligations
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Subsidiary Guarantor and Agent hereby agree as follows:
SECTION 1. Grant of Security. Subsidiary Guarantor hereby assigns to
Agent, for the benefit of Agent and Banks, and hereby grants to Agent, for the
benefit of Agent and Banks, a security interest in all of Subsidiary Guarantor's
right, title and interest in and to the property described on Exhibit A attached
hereto and in the Pledged Collateral, as defined in Section 10 hereof, in each
case whether now or hereafter existing or in which Subsidiary Guarantor now has
or hereafter acquires an interest and wherever the same may be located (the
"Collateral").
SECTION 2. Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of Subsidiary Guarantor now or hereafter existing, under or arising out
of or in connection with the Credit Agreement or any Loan Documents, and all
extensions or renewals thereof, whether for principal, interest, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Agent or a Bank as a
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "Underlying Debt"), and all obligations of every nature of
Subsidiary Guarantor now or hereafter existing under this Agreement, the
Subsidiary Guaranty or any other Loan Document (all such obligations, together
with the Underlying Debt being the "Secured Obligations").
SECTION 3. Subsidiary Guarantor Remains Liable. Anything contained herein
to the contrary notwithstanding, (a) Subsidiary Guarantor shall remain liable
under any contracts and agreements included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by
Agent of any of its rights hereunder shall not release Subsidiary Guarantor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) Agent shall not have any obligation or liability under
any contracts and agreements included in the Collateral by reason of this
Agreement, nor shall Agent be obligated to perform any of the obligations or
duties of Subsidiary Guarantor thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
2
<PAGE> 3
SECTION 4. Representations and Warranties. Subsidiary Guarantor represents
and warrants as follows:
(a) Ownership of Collateral. Except for the security interest
created by this Agreement and the Permitted Liens, Subsidiary Guarantor owns the
Collateral free and clear of any lien, mortgage, security interest, legal or
equitable charge, pledge, deed of trust or other encumbrance. Except such as may
have been filed in favor of Agent relating to this Agreement and the Permitted
Liens, no effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
(b) Condition and Location of Equipment and Inventory. Except for
Nextar thickness sorters whose suitability is in dispute, all of the Equipment
and Inventory is, as of the date hereof, of good and serviceable quality, free
from defects, and located at the places specified in Schedule I annexed hereto.
(c) Office Locations. The chief place of business, the chief
executive office and the office where Subsidiary Guarantor keeps its records
regarding its Accounts is, and has been for the four month period preceding the
date hereof, located at 509-G Jalan Abbas, Tanjung Bungah, 11200 Penang,
Malaysia.
(d) Fictitious Names. Subsidiary Guarantor does not conduct any
business under any trade-name or fictitious business name.
(e) Delivery of Certain Collateral. All share certificates
representing the Shares (as defined in Section 10), all notes and other
instruments (excluding checks) comprising any and all items of Collateral have
been delivered to Agent duly endorsed or accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No authorization, approval or other
action by, and no notice to or filing with (except for the filing of financing
statements to perfect Agent's Lien on the Collateral for which filing of a
financing statement is the method of perfection), any governmental authority or
regulatory body is required for either (i) the grant by Subsidiary Guarantor of
the security interest granted hereby or for the execution, delivery or
performance of this Agreement by Subsidiary Guarantor or (ii) the perfection of
or the exercise by Agent of its rights and remedies hereunder, other than such
actions and filings as have already been taken, unless the Credit Agreement does
not require that such authorization, approval, action, notice or filing be made
until after the Effective Date.
(g) Enforceability. All actions necessary to ensure the validity and
enforceability of the Agent's Lien on the Collateral, including as against any
bona fide purchaser for value, have been duly taken.
(h) Perfection. This Agreement, together with the filing of a
financing statement with the Secretary of State of California or the deliveries
of certain items of Collateral in accordance with the terms hereof, creates a
valid, perfected and, security interest in the Collateral of the priority
specified in the Intercreditor Agreement, securing the payment of the Secured
Obligations, and all
3
<PAGE> 4
filings and other actions necessary or desirable to perfect and protect such
security interest have been duly made or taken, unless the Credit Agreement does
not require that such filing or action be made until after the Effective Date.
(i) Other Information. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of Subsidiary Guarantor with respect
to the Collateral is (or, as to hereafter supplied information, will be)
accurate and complete in all material respects, and with respect to such
information prepared by a third party, to the best knowledge of the Subsidiary
Guarantor for which such information was prepared, such information is accurate
and complete in all material respects.
SECTION 5. Further Assurances.
(a) Subsidiary Guarantor shall execute and deliver to Agent, prior
to or concurrently with Subsidiary Guarantor's execution and delivery of this
Agreement and at any time thereafter at the request of Agent and at Subsidiary
Guarantor's expense, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
mortgages, deeds of trust, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Agent may reasonably request,
in form satisfactory to Agent, to perfect and continue perfected Agent's
security interests in the Collateral, in order to fully consummate all of the
transactions contemplated under the Loan Documents and to enable Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Subsidiary
Guarantor will: (i) if any Account shall be evidenced by a promissory note or
other instrument (excluding checks), having a face value in excess of One
Thousand Dollars ($1,000) deliver and pledge to Agent hereunder such note or
instrument, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Agent; (ii)
execute and file such financing or continuation statements, or amendments
thereto, or such other instruments or notices, as may be necessary or desirable,
or as Agent may request, in order to perfect and preserve the security interests
granted or purported to be granted hereby; (iii) at any reasonable time, allow
Agent or such other persons designated by Agent in accordance with the terms of
the Credit Agreement to inspect the Subsidiary Guarantor's books and to check,
test, and appraise the Collateral in order to verify the Subsidiary Guarantor's
financial condition or the amount, quality, value, condition of, or to any other
matter relating to, the Collateral; and (iv) at Agent's request, appear in and
defend any action or proceeding that may affect Subsidiary Guarantor's title to
or Agent's security interest in all or any part of the Collateral.
(b) Subsidiary Guarantor hereby authorizes Agent to file, register
or record such documents as may be appropriate to protect Agent's security
interest in the Collateral, relative to all or any part of the Collateral
without the signature of Subsidiary Guarantor. Subsidiary Guarantor agrees that
a carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by Subsidiary Guarantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Subsidiary Guarantor will furnish to Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail.
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(d) Subsidiary Guarantor will execute and deliver the Collateral
Assignment in the form of Exhibit B to this Agreement.
SECTION 6. Covenants of Subsidiary Guarantor. Subsidiary Guarantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral where
violation is reasonably likely to have a material adverse effect on Agent's
rights in the Collateral or the value of the Collateral or Agent's ability to
foreclose on the Collateral;
(b) not change its name or any foreign equivalent, FEIN, corporate
structure (within the meaning of Section 9402(7) of the California Uniform
Commercial Code), or identity, or add any new fictitious name; provided,
however, that Subsidiary Guarantor may change its name upon thirty (30) days'
prior written notification thereof to Agent and so long as, at the time of such
written notification, Subsidiary Guarantor provides any financing statements
necessary to perfect and continue perfected Agent's security interests;
(c) not relocate its chief place of business, chief executive office
or residence to a new location without thirty (30) days' prior written
notification thereof to Agent and so long as, at the time of such written
notification, Subsidiary Guarantor provides any financing statements or fixture
filings necessary to perfect and continue perfected Agent's security interests
and also provides to Agent a Collateral Access Agreement with respect to such
new location in form and substance satisfactory to Agent;
(d) if Agent gives value to enable Subsidiary Guarantor to acquire
rights in or the use of any Collateral (as specified in writing by Agent to
Subsidiary Guarantor at the time of the giving of such value), use such value
for such purposes; and
(e) (i) cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Subsidiary
Guarantor or any of the Collateral to be paid in full, before delinquency or
before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a Permitted Protest;
(ii) make due and timely payment or deposit of all such federal, state, foreign,
and local taxes, assessments, or contributions required of it by law, except to
the extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest, and will execute and deliver to the Agent, on demand,
appropriate certificates attesting to the payment thereof or deposit with
respect thereto; and (iii) make timely payment or deposit of all tax payments
and withholding taxes required of it by those laws concerning F.I.C.A. (or its
foreign equivalent) and F.U.T.A. (or its foreign equivalent), state disability
(or its foreign equivalent), and, upon request, furnish the Agent with proof
satisfactory to Agent indicating that Subsidiary Guarantor has made such
payments or deposits; provided that Subsidiary Guarantor shall in any event pay
such taxes, assessments, charges, levies or claims not later than five days
prior to the date of any proposed sale under any judgement, writ or warrant of
attachment entered or filed against Subsidiary Guarantor or any of the
Collateral as a result of the failure to make such payment.
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SECTION 7. Special Covenants With Respect to Equipment and Inventory.
Subsidiary Guarantor shall:
(a) keep the Equipment and Inventory (other than Equipment
consisting of laptop computers and other than Inventory sold in the ordinary
course of business) at the places specified on Schedule I annexed hereto and to
the extent permitted by subsection (e) of this Section 7 or, upon thirty (30)
days' prior written notice to Agent, at such other places in jurisdictions where
all action that may be necessary or desirable, or that Agent may request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) maintain the Equipment or cause the Equipment to be maintained
in good repair, working order and condition (ordinary wear and tear excepted),
and in accordance with any manufacturer's manual, and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be preserved, and shall forthwith, or, in the case of any loss or
damage to any of the Equipment when subsection (c) of Section 8 is not
applicable, as quickly as practicable after the occurrence thereof, make or
cause to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Subsidiary Guarantor
shall promptly furnish to Agent a statement respecting any material loss or
damage to any of the Equipment. Subsidiary Guarantor shall not permit any item
of Equipment to become a fixture to real estate or an accession to other
property, and the Equipment is now and shall at all times remain personal
property;
(c) keep correct and accurate records of the Inventory, in
accordance with good business practices, including itemizing Subsidiary
Guarantor's cost therefor and (where applicable) the current list prices for the
Inventory;
(d) upon Agent's request, deliver to Agent, properly endorsed, any
and all evidences of ownership of, certificates of title, or applications for
title of any items of Equipment;
(e) not, at any time now or hereafter, store any of the Equipment or
Inventory with a bailee, warehouseman, or similar party without Agent's prior
written consent. The Agent and Subsidiary Guarantor hereby consent to the
transfer of up to $1,000,000 in book value of Inventory and up to $1,000,000 of
OLV of Equipment (as defined in the Intercreditor Agreement) to a warehouse
selected by Subsidiary Guarantor located in California, Singapore or Malaysia;
provided, however, that Subsidiary Guarantor shall provide twenty (20) days'
prior written notification thereof to the Agent and, at such time, provide
financing statements or fixture filings (or foreign equivalents) necessary to
perfect the Agent's Liens; and
(f) if any Inventory is in possession or control of any of
Subsidiary Guarantor's agents or processors, upon the occurrence of an Event of
Default, instruct such agent or processor to hold all such Inventory for the
account of Agent and subject to the instructions of Agent.
SECTION 8. Insurance.
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(a) Subsidiary Guarantor shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory in which it has an
interest in such amounts, against such risks, in such form and with such
insurers as is customary for similarly situated businesses. Such insurance shall
include, without limitation, property damage insurance and liability insurance.
Each policy for property damage insurance shall provide for all losses to be
paid directly to Agent in accordance with the Intercreditor Agreement. Each
policy shall in addition name Subsidiary Guarantor and Agent as insured parties
thereunder (without any representation or warranty by or obligation upon Agent)
as their interests may appear and have attached thereto a loss payable clause
acceptable to Agent that shall (i) contain an agreement by the insurer that any
loss thereunder shall be payable to Agent in accordance with the Intercreditor
Agreement notwithstanding any action, inaction or breach of representation or
warranty by Subsidiary Guarantor, (ii) provide that there shall be no recourse
against Agent for payment of premiums or other amounts with respect thereto, and
(iii) provide that at least thirty (30) days' prior written notice of
cancellation, material amendment, reduction in scope or limits of coverage or of
lapse shall be given to Agent by the insurer. Subsidiary Guarantor shall, if so
requested by Agent, deliver to Agent original or duplicate policies of such
insurance and, as often as Agent may reasonably request (but no more frequently
than once per year, unless there is a change in the policy or the insurer), a
report of a reputable insurance broker with respect to such insurance. Further,
and in accordance with the Intercreditor Agreement, Subsidiary Guarantor shall,
at the request of Agent, duly execute and deliver instruments of assignment of
such insurance policies to comply with the requirements of Section 5(a) and
cause the respective insurers to acknowledge notice of such assignment.
(b) Payments for claims issued by any liability insurance maintained
by Subsidiary Guarantor pursuant to this Section 8 may be paid directly to the
Person who shall have incurred liability covered by such insurance. In case of
any loss involving damage to Equipment or Inventory when subsection (c) of this
Section 8 is not applicable, Subsidiary Guarantor shall make or cause to be made
the necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance maintained by Subsidiary Guarantor pursuant to this
Section 8 shall be paid to Subsidiary Guarantor as reimbursement for the costs
of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuation of any Event
of Default or (ii) the actual or constructive loss (in excess of $100,000 per
occurrence) of any Equipment or Inventory, all insurance payments in respect of
such Equipment or Inventory shall be paid to and applied by Agent as specified
in Section 18.
SECTION 9. Special Covenants with respect to Accounts and Related
Contracts.
(a) Subsidiary Guarantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning the
Accounts and Related Contracts at the location specified in Section 4 or, upon
thirty (30) days' prior written notice to Agent, at such other location in a
jurisdiction where all action that may be necessary or desirable, or that Agent
may request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Agent to exercise and enforce its
rights and remedies hereunder, with respect to such Accounts and Related
Contracts shall have been taken. Subsidiary Guarantor will hold and preserve
such records and, subject to the terms of the Credit Agreement, will permit
representatives of Agent during normal business hours to inspect and make
abstracts from such records, and Subsidiary Guarantor agrees to render to Agent,
at Subsidiary Guarantor's cost and expense, such
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clerical and other assistance as may be reasonably requested with regard
thereto. Promptly upon the request of Agent, Subsidiary Guarantor shall deliver
to Agent complete and correct copies of each Related Contract.
(b) Subsidiary Guarantor shall, for not less than three (3) years
from the date on which such Account arose, maintain (i) complete records of each
Account, including records of all payments received, credits granted and
merchandise returned, and (ii) all material documentation relating thereto.
(c) Except as otherwise provided in this subsection (c), Subsidiary
Guarantor shall continue to collect, at its own expense, all amounts due or to
become due Subsidiary Guarantor under the Accounts and Related Contracts. In
connection with such collections, Subsidiary Guarantor may take such action as
Subsidiary Guarantor or Agent may deem necessary or advisable to enforce
collection of amounts due or to become due under the Accounts; provided,
however, that Agent shall have the right, subject to the Intercreditor
Agreement, at any time, upon the occurrence and during the continuation of an
Event of Default, and upon written notice to Subsidiary Guarantor of its
intention to do so, to notify the account debtors or obligors under any Accounts
of the assignment of such Accounts to Agent, and to direct such account debtors
or obligors to make payment of all amounts due or to become due to Subsidiary
Guarantor thereunder directly to Agent, to notify each person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lock box or other arrangement directly to Agent and, upon such
notification and at the expense of Subsidiary Guarantor, to enforce collection
of any such Accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Subsidiary Guarantor might
have done. After receipt by Subsidiary Guarantor of the notice from Agent
referred to in the proviso to the preceding sentence, (i) all amounts and
proceeds (including checks and other instruments) received by Subsidiary
Guarantor in respect of the Accounts and the Related Contracts shall be received
in trust for the benefit of Agent hereunder, shall be segregated from other
funds of Subsidiary Guarantor and shall be forthwith paid over or delivered to
Agent in the same form as so received (with any necessary endorsement) to be
held as cash Collateral and applied as provided by Section 18, and (ii)
Subsidiary Guarantor shall not adjust, settle or compromise the amount or
payment of any Account, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon. If the Event of
Default giving rise to the exercise of such remedies by Agent shall be cured or
waived, then Agent shall reinstate the Subsidiary Guarantor's collection rights
with respect to such Accounts.
SECTION 10. Special Provisions with Respect to Investment Property.
(a) Subsidiary Guarantor hereby pledges, assigns, grants and
delivers to Agent, for the benefit of Banks and grants to Agent, for the benefit
of Banks a security interest in the shares of stock listed on Schedule II hereto
(the "Shares"), together with all proceeds and substitutions thereof, all cash,
stock and other moneys, investment property and property paid thereon, all
rights to subscribe for securities declared or granted in connection therewith,
including, but not limited to, those arising from or paid in connection with a
stock dividend, stock split, reclassification, reorganization, merger,
consolidation, sale of assets or other exchange of securities or any dividends
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or other distributions of any kind and all other cash and noncash proceeds of
the foregoing (all of which shall be part of the "Pledged Collateral"), as
security for the Secured Obligations.
(b) The certificate or certificates for the securities included in
the Pledged Collateral, accompanied by an instrument of assignment duly executed
in blank by Subsidiary Guarantor have been, or will be immediately upon the
subsequent receipt thereof by Subsidiary Guarantor, delivered by Subsidiary
Guarantor to Agent. Subsidiary Guarantor shall cause the books of each
corporation whose stock is part of the Collateral to reflect the pledge of the
Shares. Upon the occurrence of an Event of Default hereunder, Agent may effect
the transfer of any securities included in the Pledged Collateral into its name
and cause new certificates representing such securities to be issued in its
name, but such action shall not be a strict foreclosure of its Lien therein.
Subsidiary Guarantor will execute and deliver such documents, and take or cause
to be taken such actions, as Agent may reasonably request to perfect or continue
the perfection of Agent's security interest in the Collateral.
(c) Subsidiary Guarantor represents and warrants to and covenants
with Agent, for the benefit of Agent and Banks, that there are no subscriptions,
warrants or other options exercisable with respect to the Shares; the Shares
represent the percentage of the issued and outstanding stock of the Subsidiaries
listed on Schedule II; there are no agreements that require any Subsidiaries to
issue any additional shares of such Subsidiaries, and there are no outstanding
options to purchase such additional shares; the Shares have been duly authorized
and validly issued, and are fully paid and non-assessable; and the Pledged
Collateral is not the subject of any present or, to the best knowledge of the
Subsidiary Guarantor, threatened suit, action, arbitration, administrative or
other proceeding, and Subsidiary Guarantor knows of no reasonable grounds for
the institution of any such proceedings.
(d) Unless an Event of Default shall have occurred and be
continuing, Subsidiary Guarantor shall be entitled to exercise any voting rights
with respect to the Pledged Collateral and to give consents, waivers and
ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute
or create any violation of any of such terms. All such rights of Subsidiary
Guarantor to vote and give consents, waivers and ratifications shall upon notice
to Subsidiary Guarantor cease in case an Event of Default hereunder shall occur
and be continuing. If the Event of Default giving rise to such exercise of
remedies by Agent shall be cured or waived, then Subsidiary Guarantor shall
again have the voting rights with respect to the stock of any of its
Subsidiaries.
(e) Subsidiary Guarantor recognizes that Agent may be unable to
effect a public sale of all or a part of the Pledged Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended ("Act")
or other applicable securities laws, so that Agent may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Collateral for
their own account, for investment and without a view to the distribution or
resale thereof. Subsidiary Guarantor understands that private sales so made may
be at prices and on other terms less favorable to the seller than if the Pledged
Collateral were sold at public sales, and agrees that Agent has no obligation to
delay the sale of any of the Pledged Collateral for the period of time necessary
(even if Agent would agree), to register such securities for sale under the Act.
Subsidiary Guarantor agrees that private
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sales made under the foregoing circumstances shall be deemed to have been made
in a commercially reasonable manner.
(f) Subsidiary Guarantor shall:
(i) not, except as permitted by the Credit Agreement, (a) sell
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Shares (b) create or suffer to exist any Lien
upon or with respect to any of the Shares except for the security interest under
this Agreement and other Permitted Liens, or (c) permit any issuer of Shares to
merge or consolidate unless all the outstanding capital stock of the surviving
or resulting corporation is, upon such merger or consolidation, pledged
hereunder;
(ii) (a) cause each issuer of Shares not to issue any stock or
other securities in addition to or in substitution for the Shares issued by such
issuer, except to Subsidiary Guarantor, (b) pledge hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all additional shares
of stock or other securities of each issuer of Shares to the extent necessary to
cause the percentage of shares of such issuer pledged hereunder to equal the
percentage of the issued and outstanding shares of all classes of capital stock
of each Subsidiary of Subsidiary Guarantor set forth on Schedule II hereto, and
(c) pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all shares of stock of any Person that, after the date of this
Agreement, becomes, as a result of any occurrence, a direct Subsidiary of
Subsidiary Guarantor.
SECTION 11. Special Provisions with Respect to Brokerage and Deposit
Accounts.
(a) All deposit and brokerage accounts of Subsidiary Guarantor
existing on the date hereof are accurately listed on Schedule III hereto (which
shall be deemed to be an addendum to the Schedules to the Credit Agreement).
Subsidiary Guarantor shall notify Agent within five (5) days of the opening or
creating of any new deposit or brokerage accounts, and shall provide Agent with
such information as Agent may require in order to perfect or protect its
security interest in such deposit or brokerage accounts.
(b) Upon the occurrence and during the continuation of an Event of
Default, Agent may exercise dominion and control over, and refuse to permit
further withdrawals, issuance of entitlement orders or other directions to
effect transactions by Subsidiary Guarantor (whether of money, securities,
instruments or other property) from any brokerage or deposit accounts
constituting part of the Collateral.
SECTION 12. License of Patents, Trademarks, Copyrights, etc. Subsidiary
Guarantor hereby assigns, transfers and conveys to Agent, for the benefit of
Agent and Banks, effective upon the occurrence of any Event of Default, the
nonexclusive right and license to use all trademarks, trade names, copyrights,
patents or technical processes owned or used (to the extent that the Subsidiary
Guarantor has the right to assign such property not owned by it) by Subsidiary
Guarantor that relate to the Collateral and any other collateral granted by
Subsidiary Guarantor as security for the Secured Obligations, together with any
goodwill associated therewith, all to the extent necessary to enable Agent to
use, possess and realize on the Collateral for the benefit of Agent and Banks
and to enable any successor or assign to enjoy the benefits of the Collateral.
This right and license shall inure to the benefit of all successors, assigns and
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transferees of Agent and its successors, assigns and transferees, whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise. Such right and license is granted in
consideration of the extension of credit by the Banks under the Credit
Agreement, without requirement that any monetary payment whatsoever be made to
Subsidiary Guarantor.
SECTION 13. Transfers and Other Liens. Subsidiary Guarantor shall not:
(a) except to the extent permitted in the Credit Agreement and the
Intercreditor Agreement, sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or
(b) except for the security interest created by this Agreement, and
except to the extent permitted in the Credit Agreement and the Intercreditor
Agreement, create or suffer to exist any Lien upon or with respect to any of the
Collateral to secure the indebtedness or other obligations of any Person.
SECTION 14. Agent Appointed Attorney-in-Fact. Subsidiary Guarantor hereby
irrevocably appoints Agent as Subsidiary Guarantor's attorney-in-fact, with full
authority in the place and stead of Subsidiary Guarantor and in the name of
Subsidiary Guarantor, Agent or otherwise, from time to time in Agent's
discretion to take any action and to execute any instrument that Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation: (a) to sign and file on behalf of Subsidiary Guarantor any
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral; (b) upon the occurrence and during the continuation
of an Event of Default, to obtain and adjust insurance required to be maintained
by Subsidiary Guarantor or paid to Agent pursuant to Section 8; (c) upon the
occurrence and during the continuation of an Event of Default, to ask, demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for monies due and to become due under or in respect of any of the Collateral;
(d) upon the occurrence and during the continuation of an Event of Default, to
receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clauses (a) and (b) above; (e) upon the
occurrence and during the continuation of an Event of Default, to file any
claims or take any action or institute any proceedings that Agent may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Agent with respect to any of the Collateral; (f) upon
the occurrence and during the continuation of an Event of Default, to pay or
discharge taxes or liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Agent in its sole discretion, any such
payments made by Agent to become obligations of Subsidiary Guarantor to Agent,
due and payable immediately without demand; (g) upon the occurrence and during
the continuation of an Event of Default, to sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral; and (h) upon the
occurrence and during the continuation of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Agent were the
absolute owner thereof for all purposes, and to do, at Agent's option and
Subsidiary Guarantor's expense, at any time or from time to time, all acts and
things that Agent deems necessary to protect, preserve or realize upon the
Collateral and Agent's security interest therein in order to effect the intent
of this Agreement, all as fully and effectively as Subsidiary Guarantor might
do.
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SECTION 15. Agent May Perform. If Subsidiary Guarantor fails to perform
any agreement contained herein, Agent may itself perform, or cause performance
of, such agreement, and the expenses of Agent incurred in connection therewith
shall be payable by Subsidiary Guarantor under Section 19.
SECTION 16. Standard of Care. The powers conferred on Agent hereunder are
solely to protect its interest and the interest of the Banks in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except for
the exercise of reasonable care in the custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder and
other duties imposed by applicable law, Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Agent accords its own property.
SECTION 17. Remedies. Subject to the terms of the Intercreditor Agreement,
if any Event of Default shall have occurred and be continuing, Agent may
exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "Code") (whether or not the Code
applies to the affected Collateral), and also may (a) require Subsidiary
Guarantor to, and Subsidiary Guarantor hereby agrees that it will at its expense
and upon request of Agent forthwith, assemble all or part of the Collateral as
directed by Agent and make it available to Agent at a place to be designated by
Agent that is reasonably convenient to both parties, (b) enter onto the property
where any Collateral is located and take possession thereof with or without
judicial process, (c) prior to the disposition of the Collateral, store,
process, repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Agent deems appropriate,
(d) take possession of Subsidiary Guarantor's premises or place custodians in
exclusive control thereof, remain on such premises and use the same and any of
Subsidiary Guarantor's equipment for the purpose of completing any work in
process, taking any actions described in the preceding clause (c) and collecting
any Secured Obligation, and (e) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Agent may be the purchaser of
any or all of the Collateral at any such sale and Agent shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any such public sale, to use
and apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Agent at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of Subsidiary Guarantor, and Subsidiary Guarantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Subsidiary Guarantor agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to Subsidiary Guarantor of (i) the time and place of any public sale or
(ii) the time after which any private sale is to be made shall constitute
reasonable notification. Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed there for, and such sale may, without further notice, be
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made at the time and place to which it was so adjourned. Subsidiary Guarantor
hereby waives any claims against Agent arising by reason of the fact that the
price at which any Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale, even if Agent
accepts the first offer received and does not offer such Collateral to more than
one offeree, provided Agent acted in a commercially reasonable manner. If the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay all the Secured Obligations, Subsidiary Guarantor shall be liable to the
maximum extent permitted by applicable law for the deficiency and the fees of
any attorneys employed by Agent to collect such deficiency.
SECTION 18. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement and the Intercreditor Agreement, all proceeds
received by Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may in the discretion of
Agent, be held by Agent for the benefit of Agent and Banks as Collateral for,
and/or then, or at any other time thereafter, applied in full or in part by
Agent against, the Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Agent and its agents
and counsel, and all other expenses, liabilities and advances made or incurred
by Agent in connection therewith, and all amounts for which Agent is entitled to
indemnification hereunder and all advances made by Agent hereunder for the
account of Subsidiary Guarantor, and to the payment of all costs and expenses
paid or incurred by Agent in connection with the exercise of any right or remedy
hereunder, all in accordance with Section 19;
SECOND: To the payment of all other Secured Obligations (for the ratable
benefit of the holders thereof) in such order as Agent shall elect; and
THIRD: To the payment to or upon the order of Subsidiary Guarantor, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. Indemnity and Expenses.
(a) Subsidiary Guarantor agrees to indemnify Agent and Banks from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result
solely from Agent's gross negligence or willful misconduct as finally determined
by a court of competent jurisdiction.
(b) Subsidiary Guarantor will pay to Agent upon demand the amount of
any and all costs and expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
Agent hereunder, or (iv) the failure by Subsidiary Guarantor to perform or
observe any of the provisions hereof.
13
<PAGE> 14
SECTION 20. Appointment of Agent. Agent has been appointed to act as Agent
hereunder by Banks as provided in the Credit Agreement. Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including without limitation the substitution of Collateral)
solely in accordance with this Agreement and the Credit Agreement. As provided
in Section 8.01 of the Credit Agreement, the Agent shall not be required to
exercise any discretion or take any action hereunder, but subject to Section
9.01 of the Credit Agreement, shall be required to act or refrain from acting
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks. Upon the resignation or removal of the Agent under
Section 8.06 of the Credit Agreement, the successor agent shall be entitled to
exercise rights, refrain from exercising rights, take such actions, and refrain
from taking actions, as provided to the Agent hereunder and under the Credit
Agreement.
SECTION 21. Amendments, etc. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Subsidiary Guarantor here from,
shall in any event be effective unless the same shall be in writing and signed
by Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given.
SECTION 22. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraph, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile or
delivered, if to Subsidiary Guarantor or Agent, at its address set forth on the
signature pages hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective three (3) Business Days after
deposit in the U.S. mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively.
SECTION 23. Failure or Indulgence Not Waiver. Remedies Cumulative. No
failure or delay on the part of Agent in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 25. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 26. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER,
14
<PAGE> 15
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
SECTION 27. Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COUNTY OF
SAN FRANCISCO, STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT SUCH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
SECTION 28. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH SUCH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED
FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of
litigation, this Agreement may he filed as a written consent to a trial by the
court.
SECTION 29. Confidentiality. Any information provided in connection
herewith to the Agent, Co-Agent, Designated Issuer, or any Bank shall be subject
to the confidentiality provisions of Section 9.06(e) of the Credit Agreement.
SECTION 30. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
15
<PAGE> 16
IN WITNESS WHEREOF, Subsidiary Guarantor and Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
STRATES SDN. BHD., formerly known as
AKASHIC KUBOTA TECHNOLOGIES
SDN. BHD.
By: /s/
---------------------------------
Title:
---------------------------------
Notice Address:
509-G Jalan Abbas
Tanjung Bungah
11200 Penang
Malaysia
Attention: Chief Financial Officer
S-1
<PAGE> 17
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency,
as Agent for the Banks
By: /s/
---------------------------------
Title:
---------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 18
EXHIBIT A
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(AKT)
Collateral
The Collateral shall consist of all right, title and interest of
Subsidiary Guarantor in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Subsidiary Guarantor's custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Subsidiary Guarantor's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Subsidiary
Guarantor arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Subsidiary Guarantor, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Subsidiary
Guarantor and Subsidiary Guarantor's books relating to any of the foregoing (any
and all such accounts, contract rights, royalties, license rights and other
forms of obligations being the "Accounts," and any and all such credit
insurance, guaranties and security agreements, being the "Related Contracts");
(e) All documents, cash, deposit accounts, investment property,
securities, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Subsidiary Guarantor's books relating
to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to
A-1
<PAGE> 19
unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; all
mask work or similar rights available for the protection of semiconductor chips,
now owned or hereafter acquired; all claims for damages by way of any past,
present and future infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
A-2
<PAGE> 20
EXHIBIT B
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
Form of Collateral Assignment, Patent Mortgage and Security agreement
Attached.
B-1
<PAGE> 21
SCHEDULE I
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(AKT)
Locations of Equipment:
509G Jalan Abbas Tanjung Bungah
11200 Penang, Malaysia
Locations of Inventory:
509G Jalan Abbas Tanjung Bungah
11200 Penang, Malaysia
I-1
<PAGE> 22
SCHEDULE II
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(AKT)
Pledged Shares
<TABLE>
<CAPTION>
Pledged Percentage
Subsidiaries of Strates Pledged Certificate of ownership
Sdn. Bhd. Shares Number Pledged
- ----------------------- ------- ----------- ------------
<S> <C> <C> <C>
None N/A N/A N/A
</TABLE>
II-1
<PAGE> 23
SCHEDULE III
TO
SUBSIDIARY GUARANTOR SECURITY AGREEMENT
(AKT)
Brokerage and Deposit Accounts
None, except:
<TABLE>
<CAPTION>
Institution Type Account No.
- ----------- ---- -----------
<S> <C> <C>
Maybank International Ltd Deposit 702036000213
</TABLE>
III-1
<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT
(StorMedia International, Ltd.)
THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT dated as of May 29, 1998 (this "Assignment") is entered into
by and among STORMEDIA INTERNATIONAL, LTD., a Cayman Islands corporation ("SIL",
the "Assignor"), and CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as
agent for the Banks, as defined below (the "Agent" or "Assignee").
RECITALS
A. Assignor, Strates Pte. Ltd, a Singapore corporation (together with
Assignor, the "Borrowers"), StorMedia Incorporated, a Delaware corporation (the
"Parent Guarantor," collectively with the Subsidiary Guarantors, as defined
below, and the Borrowers, the "Loan Parties," each a "Loan Party"), certain
financial institutions named on Annex I thereof or who become parties thereto as
Banks (each a "Bank" and collectively, the "Banks"), Agent, Banque Nationale de
Paris, San Francisco Branch, as co-agent for the Banks (the "Co-Agent"), and
Canadian Imperial Bank of Commerce, Singapore Branch as the Designated Issuer
("Designated Issuer") have entered into that certain Credit Agreement dated as
of August 23, 1996 (as amended, supplemented, or otherwise modified through the
date hereof, the "Existing Credit Agreement").
B. In connection with the Existing Credit Agreement, SIL and the Agent
entered into that certain Collateral Assignment, Patent Mortgage and Security
Agreement dated as of August 23, 1996 (as amended, supplemented, or otherwise
modified through the date hereof, the "Existing Borrower Collateral
Assignment").
C. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC"), acquired all of the outstanding capital stock of Akashic Memories
Corporation, a California corporation ("Akashic") through the merger of
StorMedia Acquisition Corporation, a California corporation and wholly-owned
Subsidiary of FSC with and into Akashic. In connection with such acquisition,
certain of the other Loan Parties purchased the patents and applications pending
in Akashic's parent corporation, Kubota Corporation.
D. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
E. The Parent Guarantor, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more
<PAGE> 2
of the Loan Parties will consummate (i) the financing transactions contemplated
by the Foothill Group Financing Documents, (ii) the Equity Investment and (iii)
the issuance of the Seagate Subordinated Debt;
F. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing Credit Agreement, as so amended and
restated, and the Amended and Restated Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement.
G. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that the Existing
Borrower Collateral Assignment be amended and restated in its entirety (the
Existing Borrower Collateral Assignment, as amended, restated, supplemented or
otherwise modified from time to time, collectively, being this "Assignment");
provided, however, that as of the Effective Date, the rights and obligations of
the parties hereto shall be governed by this Assignment and no Event of Default
or Potential Event of Default under the Existing Credit Agreement shall
constitute an Event of Default or Potential Event of Default under this
Assignment.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent, and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, SIL and Agent hereby agree as follows:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, in and to Assignor's entire
right, title and interest in, to and under the following (all of which shall
collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held, including without limitation those set forth on Exhibit A
attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Assignor
now or hereafter existing, created, acquired or held;
2
<PAGE> 3
(d) All patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Assignor connected with
and symbolized by such trademarks, including without limitation those set forth
on Exhibit C attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such licenses or rights; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS AN ABSOLUTE CONVEYANCE OF THE ASSIGNOR'S OWNERSHIP INTERESTS, BUT
AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER
THE CREDIT AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
United States Copyright Office and the Commissioner of Patents and Trademarks
record this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants
and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business;
(b) Performance of this Assignment does not conflict with or
result in a breach of any agreement to which Assignor is party or by which
Assignor is bound, except to the extent that certain intellectual property
agreements prohibit the assignment of the rights thereunder to a third party
without the licensor's or other party's consent and this Assignment constitutes
an assignment;
3
<PAGE> 4
(c) During the term of this Assignment, Assignor will not
transfer or otherwise encumber any interest in the Collateral, except for
non-exclusive licenses granted by Assignor in the ordinary course of business or
as set forth in this Assignment or in the Permitted Liens;
(d) To its knowledge, each of the Patents is valid and
enforceable, and no part of the Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Collateral violates the rights of any third party;
(e) Assignor shall promptly advise Assignee of any material
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate.
(g) Assignor shall promptly register the most recent version of
any of Assignor's Copyrights, if not so already registered, and shall, from time
to time, execute and file such other instruments, and take such further actions
as Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral. Assignor shall, and shall
cause its Subsidiaries to promptly Register and record all newly created or
acquired Patents and Trademarks with the United States Commission of Patents and
Trademarks;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected
security interest of the priority specified in the Intercreditor Agreement in
the Collateral in the United States securing the payment and performance of the
obligations under the Credit Agreement and the Loan Documents (as defined in the
Credit Agreement) upon making the filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the United States Copyright Office with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any U.S. governmental
authority or U.S. regulatory body is required either (i) for the grant by
Assignor of the security interest granted hereby or for the execution, delivery
or performance of this Assignment by Assignor in the U.S. or (ii) for the
perfection in the United States or the exercise by Assignee of its rights and
remedies hereunder;
4
<PAGE> 5
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects, and with respect to such information
prepared by a third party, to the best knowledge of the Assignor for which such
information was prepared, such information is accurate and complete in all
material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interests
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.
(l) Upon any executive officer of Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral, the ability
of Assignor to dispose of any Collateral or the rights and remedies of Assignee
in relation thereto, including the levy of any legal process against any of the
Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, any of Assignor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor in accordance with the terms
of the Credit Agreement.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the United States Copyright
Office, and take all such action as may reasonably be deemed necessary or
advisable, or as requested by Assignee, to perfect Assignee's security interest
in all Copyrights, Patents and Trademarks and otherwise to carry out the intent
and purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
5
<PAGE> 6
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, from time to time in Assignee's discretion, to take any
action and to execute any instrument which Assignee may deem necessary or
advisable to accomplish the purposes of this Collateral Assignment, including
(i) to modify, in its sole discretion, this Collateral Assignment without first
obtaining Assignor's approval of or signature to such modification by amending
Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Assignor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right, title or
interest, (ii) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law and (iii)
after the occurrence and during the continuance of an Event of Default, to
transfer the Collateral into the name of Assignee or a third party to the extent
permitted under the California Uniform Commercial Code.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor
in this Assignment and, as to any breach that is capable of cure, Assignor fails
to cure such breach within five (5) days of the knowledge of such breach by a
responsible officer.
8. Remedies. Subject to the terms of the Credit Agreement and the
Intercreditor Agreement, upon the occurrence and continuance of an Event of
Default, Assignee shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Assignor to assemble the Collateral and any tangible
property in which Assignee has a security interest and to make it available to
Assignee at a place designated by Assignee. Assignee shall have a nonexclusive,
royalty free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorneys' fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in disposing of the Collateral. All of Assignee's rights and remedies
with respect to the Collateral shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Assignment, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including without limitation reasonable
6
<PAGE> 7
attorneys' fees and reasonable expenses), except for losses arising from or out
of Assignee's gross negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. Confidentiality. Any information provided in connection herewith to
the Agent, Co-Agent, Designated Issuer or any Bank shall be subject to the
confidentiality provisions of Section 9.06(e) of the Credit Agreement.
16. California Law and Jurisdiction; Jury Waiver. This Assignment shall
be governed by the laws of the State of California, without regard for choice of
law provisions. Assignor and Assignee consent to the exclusive jurisdiction of
any state or federal court located in San Francisco County, California. ASSIGNOR
AND ASSIGNEE EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE CREDIT AGREEMENT, THIS
ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
STORMEDIA INTERNATIONAL LTD.
By: /s/
----------------------------------
Title:
-------------------------------
Notice Address:
9 Tuas Avenue 5
Singapore 639335
Attention: Chief Financial Officer
S-1
<PAGE> 9
CANADIAN IMPERIAL BANK OF COMMERCE,
New York Agency, as
Agent for the Banks
By: /s/
----------------------------------
Title:
-------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 10
EXHIBIT A
TO
AMENDED AND RESTATED
BORROWER COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(SIL)
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Date
<S> <C> <C>
None.
</TABLE>
A-1
<PAGE> 11
EXHIBIT B
TO
AMENDED AND RESTATED
BORROWER COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(SIL)
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
<S> <C> <C>
None.
</TABLE>
B-1
<PAGE> 12
EXHIBIT C
TO
AMENDED AND RESTATED
BORROWER COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(SIL)
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
<S> <C> <C>
None.
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.8
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT
(Strates Pte. Ltd.)
THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT dated as of May 29, 1998 (this "Assignment") is entered into
by and among STRATES PTE. LTD., a Singapore corporation (the "Assignor"), and
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as agent for the Banks, as
defined below (the "Agent" or "Assignee").
RECITALS
A. Assignor, StorMedia International, Ltd., a Cayman Islands corporation
(together with Assignor, the "Borrowers"), StorMedia Incorporated, a Delaware
corporation (the "Parent Guarantor," collectively with the Subsidiary
Guarantors, as defined below, and the Borrowers, the "Loan Parties," each a
"Loan Party"), certain financial institutions named on Annex I thereof or who
become parties thereto as Banks (each a "Bank" and collectively, the "Banks"),
Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent for the
Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce, Singapore Branch
as the Designated Issuer ("Designated Issuer") have entered into that certain
Credit Agreement dated as of August 23, 1996 (as amended, supplemented, or
otherwise modified through the date hereof, the "Existing Credit Agreement").
B. In connection with the Existing Credit Agreement, Assignor and the
Agent entered into that certain Collateral Assignment, Patent Mortgage and
Security Agreement dated as of August 23, 1996 (as amended, supplemented, or
otherwise modified through the date hereof, the "Existing Borrower Collateral
Assignment").
C. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC"), acquired all of the outstanding capital stock of Akashic Memories
Corporation, a California corporation ("Akashic") through the merger of
StorMedia Acquisition Corporation, a California corporation and wholly-owned
Subsidiary of FSC with and into Akashic. In connection with such acquisition,
certain of the other Loan Parties purchased the patents and applications pending
in Akashic's parent corporation, Kubota Corporation.
D. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
E. The Parent Guarantor, the Borrowers and the other Loan Parties propose
to enter into a financial restructuring (the "Restructuring"), pursuant to
which, among other things, one or more
<PAGE> 2
of the Loan Parties will consummate (i) the financing transactions contemplated
by the Foothill Group Financing Documents, (ii) the Equity Investment and (iii)
the issuance of the Seagate Subordinated Debt;
F. In connection with the Restructuring, the Loan Parties, the Banks, the
Agent and the Co-Agent desire to amend and restate the Existing Credit Agreement
in its entirety (the Existing Credit Agreement, as so amended and restated, and
the Amended and Restated Credit Agreement, as amended, restated, supplemented or
otherwise modified from time to time, collectively, being the "Credit
Agreement"). Capitalized terms used herein and not otherwise defined herein have
the meanings ascribed to such terms in the Credit Agreement.
G. As a condition precedent to the effectiveness of the Credit Agreement,
the Banks, Agent, and Co-Agent have required that the Existing Borrower
Collateral Assignment be amended and restated in its entirety (the Existing
Borrower Collateral Assignment, as amended, restated, supplemented or otherwise
modified from time to time, collectively, being this "Assignment"); provided,
however, that as of the Effective Date, the rights and obligations of the
parties hereto shall be governed by this Assignment and no Event of Default or
Potential Event of Default under the Existing Credit Agreement shall constitute
an Event of Default or Potential Event of Default under this Assignment.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent, and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Assignor and Agent hereby agree as follows:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, in and to Assignor's entire
right, title and interest in, to and under the following (all of which shall
collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held, including without limitation those set forth on Exhibit A attached hereto
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Assignor now
or hereafter existing, created, acquired or held;
2
<PAGE> 3
(d) All patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including without limitation
the patents and patent applications set forth on Exhibit B attached hereto
(collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Assignor connected with and symbolized by
such trademarks, including without limitation those set forth on Exhibit C
attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such licenses or rights; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS AN ABSOLUTE CONVEYANCE OF THE ASSIGNOR'S OWNERSHIP INTERESTS, BUT
AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER
THE CREDIT AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
United States Copyright Office and the Commissioner of Patents and Trademarks
record this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants and
agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business;
(b) Performance of this Assignment does not conflict with or result
in a breach of any agreement to which Assignor is party or by which Assignor is
bound, except to the extent that certain intellectual property agreements
prohibit the assignment of the rights thereunder to a third party without the
licensor's or other party's consent and this Assignment constitutes an
assignment;
3
<PAGE> 4
(c) During the term of this Assignment, Assignor will not transfer
or otherwise encumber any interest in the Collateral, except for non-exclusive
licenses granted by Assignor in the ordinary course of business or as set forth
in this Assignment or transfers constituting Permitted Liens;
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Collateral has been judged invalid or unenforceable, in whole
or in part, and no claim has been made that any part of the Collateral violates
the rights of any third party;
(e) Assignor shall promptly advise Assignee of any material change
in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate.
(g) Assignor shall promptly register the most recent version of any
of Assignor's Copyrights, if not so already registered, and shall, from time to
time, execute and file such other instruments, and take such further actions as
Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral. Assignor shall, and shall
cause its Subsidiaries to promptly Register and record all newly created or
acquired Patents and Trademarks with the United States Commission of Patents and
Trademarks;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected
security interest of the priority specified in the Intercreditor Agreement in
the Collateral in the United States securing the payment and performance of the
obligations under the Credit Agreement and the Loan Documents (as defined in the
Credit Agreement) upon making the filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the United States Copyright Office with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any U.S. governmental
authority or U.S. regulatory body is required either (i) for the grant by
Assignor of the security interest granted hereby or for the execution, delivery
or performance of this Assignment by Assignor in the U.S. or (ii) for the
perfection in the United States or the exercise by Assignee of its rights and
remedies hereunder;
4
<PAGE> 5
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects, and with respect to such information
prepared by a third party, to the best knowledge of the Assignor for which such
information was prepared, such information is accurate and complete in all
material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interests
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.
(l) Upon any executive officer of Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral, the ability
of Assignor to dispose of any Collateral or the rights and remedies of Assignee
in relation thereto, including the levy of any legal process against any of the
Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, any of Assignor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor in accordance with the terms
of the Credit Agreement.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will make, execute, acknowledge
and deliver, and file and record in the proper filing and recording places in
the United States, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office and the United States Copyright Office, and
take all such action as may reasonably be deemed necessary or advisable, or as
requested by Assignee, to perfect Assignee's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
5
<PAGE> 6
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, from time to time in Assignee's discretion, to take any
action and to execute any instrument which Assignee may deem necessary or
advisable to accomplish the purposes of this Collateral Assignment, including
(i) to modify, in its sole discretion, this Collateral Assignment without first
obtaining Assignor's approval of or signature to such modification by amending
Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Assignor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right, title or
interest, (ii) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law and (iii)
after the occurrence and during the continuance of an Event of Default, to
transfer the Collateral into the name of Assignee or a third party to the extent
permitted under the California Uniform Commercial Code.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor in
this Assignment and, as to any breach that is capable of cure, Assignor fails to
cure such breach within five (5) days of the knowledge of such breach by a
responsible officer.
8. Remedies. Subject to the terms of the Credit Agreement and the
Intercreditor Agreement, upon the occurrence and continuance of an Event of
Default, Assignee shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Assignor to assemble the Collateral and any tangible
property in which Assignee has a security interest and to make it available to
Assignee at a place designated by Assignee. Assignee shall have a nonexclusive,
royalty free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorneys' fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in disposing of the Collateral. All of Assignee's rights and remedies
with respect to the Collateral shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Assignment, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including without limitation reasonable
6
<PAGE> 7
attorneys' fees and reasonable expenses), except for losses arising from or out
of Assignee's gross negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all of
the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. Course of Dealing. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Assignment is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. Confidentiality. Any information provided in connection herewith to
the Agent, Co-Agent, Designated Issuer or any Bank shall be subject to the
confidentiality provisions of Section 9.06(e) of the Credit Agreement.
16. California Law and Jurisdiction; Jury Waiver. This Assignment shall be
governed by the laws of the State of California, without regard for choice of
law provisions. Assignor and Assignee consent to the exclusive jurisdiction of
any state or federal court located in San Francisco County, California. ASSIGNOR
AND ASSIGNEE EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE CREDIT AGREEMENT, THIS
ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
STRATES PTE. LTD.
By: /s/
-------------------------------
Title:
-------------------------------
Notice Address:
4 Tuas West Avenue
Singapore 638429
Attention: Chief Financial Officer
S-1
<PAGE> 9
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency, as
Agent for the Banks
By: /s/
-------------------------------
Title:
-------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 10
EXHIBIT A
TO
AMENDED AND RESTATED
BORROWER COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(Strates)
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- -------------
<S> <C> <C>
None.
</TABLE>
A-1
<PAGE> 11
EXHIBIT B
TO
AMENDED AND RESTATED
BORROWER COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(Strates)
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- -------------
<S> <C> <C>
None.
</TABLE>
B-1
<PAGE> 12
EXHIBIT C
TO
AMENDED AND RESTATED
BORROWER COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(Strates)
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- -------------
<S> <C> <C>
None.
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT
(StorMedia Incorporated)
THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT dated as of May 29, 1998 (this "Assignment") is entered into
by and among STORMEDIA INCORPORATED, a Delaware corporation (the "Parent
Guarantor" or "Assignor") and CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK
AGENCY, as agent for the Banks, as defined below (the "Agent" or "Assignee").
RECITALS
A. StorMedia International, Ltd., a Cayman Islands corporation ("SIL"),
and Strates Pte. Ltd., a Singapore corporation ("Strates" and together with SIL,
the "Borrowers," each a "Borrower"), the Parent Guarantor (collectively with the
Subsidiary Guarantors, as defined below, and the Borrowers, the "Loan Parties,"
each a "Loan Party"), certain financial institutions named on Annex I thereof or
who become parties thereto, as Banks (each a "Bank" and collectively, the
"Banks"), Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent
for the Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce,
Singapore Branch as the Designated Issuer ("Designated Issuer") have entered
into that certain Credit Agreement dated as of August 23, 1996 (as amended,
supplemented, or otherwise modified through the date hereof, the "Existing
Credit Agreement").
B. In connection with the Existing Credit Agreement, the Parent
Guarantor and the Agent entered into that certain Collateral Assignment, Patent
Mortgage and Security Agreement dated as of August 23, 1996 (as amended,
supplemented, or otherwise modified through the date hereof, the "Existing
Parent Guarantor Collateral Assignment").
C. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC"), acquired all of the outstanding capital stock of Akashic Memories
Corporation, a California corporation ("Akashic") through the merger of
StorMedia Acquisition Corporation, a California corporation and wholly-owned
Subsidiary of FSC with and into Akashic. In connection with such acquisition,
certain of the other Loan Parties purchased the patents and applications pending
in Akashic's parent corporation, Kubota Corporation.
D. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
<PAGE> 2
E. The Parent Guarantor, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
F. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing Credit Agreement, as so amended and
restated, and the Amended and Restated Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement.
G. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that the Existing Parent
Guarantor Collateral Assignment be amended and restated in its entirety (the
Existing Parent Guarantor Collateral Assignment, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being this
"Assignment"); provided, however, that as of the Effective Date, the rights and
obligations of the parties hereto shall be governed by this Assignment and no
Event of Default or Potential Event of Default under the Existing Credit
Agreement shall constitute an Event of Default or Potential Event of Default
under this Assignment.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent, and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Parent Guarantor and Agent hereby agree as follows:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, in and to Assignor's entire
right, title and interest in, to and under the following (all of which shall
collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held, including without limitation those set forth on Exhibit A
attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
2
<PAGE> 3
(c) Any and all design rights which may be available to Assignor
now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Assignor connected with
and symbolized by such trademarks, including without limitation those set forth
on Exhibit C attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such licenses or rights; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS AN ABSOLUTE CONVEYANCE OF THE ASSIGNOR'S OWNERSHIP INTERESTS, BUT
AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER
THE CREDIT AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
United States Copyright Office and the Commissioner of Patents and Trademarks
record this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants
and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business;
3
<PAGE> 4
(b) Performance of this Assignment does not conflict with or
result in a breach of any agreement to which Assignor is party or by which
Assignor is bound, except to the extent that certain intellectual property
agreements prohibit the assignment of the rights thereunder to a third party
without the licensor's or other party's consent and this Assignment constitutes
an assignment;
(c) During the term of this Assignment, Assignor will not
transfer or otherwise encumber any interest in the Collateral, except for
non-exclusive licenses granted by Assignor in the ordinary course of business or
as set forth in this Assignment or transfers constituting Permitted Liens;
(d) To its knowledge, each of the Patents is valid and
enforceable, and no part of the Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Collateral violates the rights of any third party, except for that certain
claim regarding the Hedgcoth Patents;
(e) Assignor shall promptly advise Assignee of any material
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate.
(g) Assignor shall promptly register the most recent version of
any of Assignor's Copyrights, if not so already registered, and shall, from time
to time, execute and file such other instruments, and take such further actions
as Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral. Assignor shall, and shall
cause its Subsidiaries to, promptly Register and record all newly created or
acquired Patents and Trademarks with the United States Commissioner of Patents
and Trademarks;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected
security interest of the priority specified in the Intercreditor Agreement in
the Collateral in the United States securing the payment and performance of the
obligations under the Credit Agreement and the Loan Documents (as defined in the
Credit Agreement) upon making the filings referred to in clause (i) below;
4
<PAGE> 5
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the United States Copyright Office with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any U.S. governmental
authority or U.S. regulatory body is required either (i) for the grant by
Assignor of the security interest granted hereby or for the execution, delivery
or performance of this Assignment by Assignor in the U.S. or (ii) for the
perfection in the United States or the exercise by Assignee of its rights and
remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects, and with respect to such information
prepared by a third party, to the best knowledge of the Assignor for which such
information was prepared, such information is accurate and complete in all
material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interests
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.
(l) Upon any executive officer of Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral, the ability
of Assignor to dispose of any Collateral or the rights and remedies of Assignee
in relation thereto, including the levy of any legal process against any of the
Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, any of Assignor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor in accordance with the terms
of the Credit Agreement.
5
<PAGE> 6
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the United States Copyright
Office, and take all such action as may reasonably be deemed necessary or
advisable, or as requested by Assignee, to perfect Assignee's security interest
in all Copyrights, Patents and Trademarks and otherwise to carry out the intent
and purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, from time to time in Assignee's discretion, to take any
action and to execute any instrument which Assignee may deem necessary or
advisable to accomplish the purposes of this Collateral Assignment, including
(i) to modify, in its sole discretion, this Collateral Assignment without first
obtaining Assignor's approval of or signature to such modification by amending
Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Assignor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right, title or
interest, (ii) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law and (iii)
after the occurrence and during the continuance of an Event of Default, to
transfer the Collateral into the name of Assignee or a third party to the extent
permitted under the California Uniform Commercial Code.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor
in this Assignment and, as to any breach that is capable of cure, Assignor fails
to cure such breach within five (5) days of the knowledge of such breach by a
responsible officer.
8. Remedies. Subject to the terms of the Credit Agreement and the
Intercreditor Agreement, upon the occurrence and continuance of an Event of
Default, Assignee shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Assignor to assemble the Collateral and any tangible
property in which Assignee has a security interest and to make it available to
Assignee at a place designated by Assignee. Assignee shall have a nonexclusive,
royalty free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to
6
<PAGE> 7
exercise its rights and remedies upon the occurrence of an Event of Default.
Assignor will pay any expenses (including reasonable attorneys' fees) incurred
by Assignee in connection with the exercise of any of Assignee's rights
hereunder, including without limitation any expense incurred in disposing of the
Collateral. All of Assignee's rights and remedies with respect to the Collateral
shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Assignment, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including without limitation reasonable attorneys' fees and
reasonable expenses), except for losses arising from or out of Assignee's gross
negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. Confidentiality. Any information provided in connection herewith to
the Agent, Co-Agent, Designated Issuer or any Bank shall be subject to the
confidentiality provisions of Section 9.06(e) of the Credit Agreement.
16. California Law and Jurisdiction; Jury Waiver. This Assignment shall
be governed by the laws of the State of California, without regard for choice of
law provisions. Assignor and Assignee consent to the exclusive jurisdiction of
any state or federal court located in San Francisco County, California. ASSIGNOR
AND ASSIGNEE EACH WAIVE THEIR RESPECTIVE RIGHTS
7
<PAGE> 8
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THE CREDIT AGREEMENT, THIS ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
STORMEDIA INCORPORATED
By: /s/
----------------------------------
Title:
-------------------------------
Notice Address:
390 Reed Street
Santa Clara, CA 95050-3118
Telephone: (408) 327-8400
Telecopier: (408) 727-4928
Attention: Chief Financial Officer
S-1
<PAGE> 10
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency,
as Agent for the Banks
By: /s/
----------------------------------
Title:
-------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 11
EXHIBIT A
TO
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(StorMedia Incorporated)
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration
Application Application
Description Number Date
<S> <C> <C>
None
</TABLE>
A-1
<PAGE> 12
EXHIBIT B
TO
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(StorMedia Incorporated)
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
<S> <C> <C>
See attached
</TABLE>
B-1
<PAGE> 13
EXHIBIT C
TO
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(StorMedia Incorporated)
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
<S> <C> <C>
None
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.10
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT
(Akashic)
THIS COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY
AGREEMENT dated as of May 29, 1998 (this "Assignment") is entered into by and
between AKASHIC MEMORIES CORPORATION, a California corporation (a "Subsidiary
Guarantor" or "Assignor") and CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK
AGENCY, as agent for the Banks, as defined below (the "Agent" or "Assignee").
RECITALS
A. StorMedia International, Ltd., a Cayman Islands corporation ("SIL"),
and Strates Pte. Ltd., a Singapore corporation ("Strates" and together with SIL,
the "Borrowers," each a "Borrower"), StorMedia Incorporated, a Delaware
corporation (the "Parent Guarantor," collectively with the Subsidiary
Guarantors, as defined below, and the Borrowers, the "Loan Parties," each a
"Loan Party"), certain financial institutions named on Annex I thereof or who
become parties thereto as Banks (each a "Bank" and collectively, the "Banks"),
Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent for the
Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce, Singapore Branch
as the Designated Issuer ("Designated Issuer") have entered into that certain
Credit Agreement dated as of August 23, 1996 (as amended, supplemented, or
otherwise modified through the date hereof, the "Existing Credit Agreement").
B. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC," and together with Assignor, the "Subsidiary Guarantors"), acquired all
of the outstanding capital stock of Assignor through the merger of StorMedia
Acquisition Corporation, a California corporation and wholly-owned Subsidiary of
FSC with and into Assignor. In connection with such acquisition, certain of the
other Loan Parties purchased the patents and applications pending in Assignor's
parent corporation, Kubota Corporation.
C. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
D. The Parent Guarantor, FSC, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill Group Financing
Documents, (ii) the Equity Investment and (iii) the issuance of the Seagate
Subordinated Debt;
<PAGE> 2
E. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing Credit Agreement, as so amended and
restated, and the Amended and Restated Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being the
"Credit Agreement"), Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement.
F. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that Subsidiary
Guarantor grant the security interest and undertake the obligations contemplated
by this Assignment.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Subsidiary Guarantor and Agent hereby agree as follows:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, in and to Assignor's entire
right, title and interest in, to and under the following (all of which shall
collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held, including without limitation those set forth on Exhibit A
attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Assignor
now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business
2
<PAGE> 3
of Assignor connected with and symbolized by such trademarks, including without
limitation those set forth on Exhibit C attached hereto (collectively, the
"Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such licenses or rights; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS AN ABSOLUTE CONVEYANCE OF THE ASSIGNOR'S OWNERSHIP INTERESTS, BUT
AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER
THE CREDIT AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
United States Copyright Office and the Commissioner of Patents and Trademarks
record this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants
and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business;
(b) Performance of this Assignment does not conflict with or
result in a breach of any agreement to which Assignor is party or by which
Assignor is bound, except to the extent that certain intellectual property
agreements prohibit the assignment of the rights thereunder to a third party
without the licensor's or other party's consent and this Assignment constitutes
an assignment;
(c) During the term of this Assignment, Assignor will not
transfer or otherwise encumber any interest in the Collateral, except for
non-exclusive licenses granted by Assignor in the ordinary course of business or
as set forth in this Assignment or transfers constituting Permitted Liens;
3
<PAGE> 4
(d) To its knowledge, each of the Patents is valid and
enforceable, and no part of the Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Collateral violates the rights of any third party;
(e) Assignor shall promptly advise Assignee of any material
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate.
(g) Assignor shall promptly register the most recent version of
any of Assignor's Copyrights, if not so already registered, and shall, from time
to time, execute and file such other instruments, and take such further actions
as Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral. Assignor shall, and shall
cause its Subsidiaries to, promptly Register and record all newly created or
acquired Patents and Trademarks with the United States Commissioner of Patents
and Trademarks;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected
security interest of the priority specified in the Intercreditor Agreement in
the Collateral in the United States securing the payment and performance of the
obligations under the Credit Agreement and the Loan Documents (as defined in the
Credit Agreement) upon making the filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the United States Copyright Office with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any U.S. governmental
authority or U.S. regulatory body is required either (i) for the grant by
Assignor of the security interest granted hereby or for the execution, delivery
or performance of this Assignment by Assignor in the U.S. or (ii) for the
perfection in the United States or the exercise by Assignee of its rights and
remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects, and with respect to such information
prepared by a third party, to the best knowledge of the Assignor
4
<PAGE> 5
for which such information was prepared, such information is accurate and
complete in all material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interests
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.
(l) Upon any executive officer of Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral, the ability
of Assignor to dispose of any Collateral or the rights and remedies of Assignee
in relation thereto, including the levy of any legal process against any of the
Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, any of Assignor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor in accordance with the terms
of the Credit Agreement.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the United States Copyright
Office, and take all such action as may reasonably be deemed necessary or
advisable, or as requested by Assignee, to perfect Assignee's security interest
in all Copyrights, Patents and Trademarks and otherwise to carry out the intent
and purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
5
<PAGE> 6
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, from time to time in Assignee's discretion, to take any
action and to execute any instrument which Assignee may deem necessary or
advisable to accomplish the purposes of this Collateral Assignment, including
(i) to modify, in its sole discretion, this Collateral Assignment without first
obtaining Assignor's approval of or signature to such modification by amending
Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Assignor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right, title or
interest, (ii) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law and (iii)
after the occurrence and during the continuance of an Event of Default, to
transfer the Collateral into the name of Assignee or a third party to the extent
permitted under the California Uniform Commercial Code.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor
in this Assignment and, as to any breach that is capable of cure, Assignor fails
to cure such breach within five (5) days of the knowledge of such breach by a
responsible officer.
8. Remedies. Subject to the terms of the Credit Agreement and the
Intercreditor Agreement, upon the occurrence and continuance of an Event of
Default, Assignee shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Assignor to assemble the Collateral and any tangible
property in which Assignee has a security interest and to make it available to
Assignee at a place designated by Assignee. Assignee shall have a nonexclusive,
royalty free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorneys' fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in disposing of the Collateral. All of Assignee's rights and remedies
with respect to the Collateral shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Assignment, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee
6
<PAGE> 7
and Assignor, whether under this Assignment or otherwise (including without
limitation reasonable attorneys' fees and reasonable expenses), except for
losses arising from or out of Assignee's gross negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. Confidentiality. Any information provided in connection herewith to
the Agent, Co-Agent, Designated Issuer or any Bank shall be subject to the
confidentiality provisions of Section 9.06(e) of the Credit Agreement.
16. California Law and Jurisdiction; Jury Waiver. This Assignment shall
be governed by the laws of the State of California, without regard for choice of
law provisions. Assignor and Assignee consent to the exclusive jurisdiction of
any state or federal court located in San Francisco County, California. ASSIGNOR
AND ASSIGNEE EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE CREDIT AGREEMENT, THIS
ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
AKASHIC MEMORIES CORPORATION
By: /s/
---------------------------------------
Title:
------------------------------------
Notice Address:
390 Reed Street
Santa Clara, CA 95050-3118
Telephone: (408) 327-8400
Telecopier: (408) 727-4928
Attention: Chief Financial Officer
S-1
<PAGE> 9
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency,
as Agent for the Banks
By: /s/
--------------------------------------
Title:
-----------------------------------
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 10
EXHIBIT A
TO
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
(Akashic)
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
None
</TABLE>
A-1
<PAGE> 11
EXHIBIT B
TO
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
(Akashic)
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
None
</TABLE>
B-1
<PAGE> 12
EXHIBIT C
TO
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
(Akashic)
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
None
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.11
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT
(AKT)
THIS COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY
AGREEMENT dated as of May 29, 1998 (this "Assignment") is entered into by and
between STRATES SDN. BHD., a Malaysian corporation formerly known as AKASHIC
KUBOTA TECHNOLOGIES SDN. BHD. (a "Subsidiary Guarantor" or "Assignor") and
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as agent for the Banks, as
defined below (the "Agent" or "Assignee").
RECITALS
A. StorMedia International, Ltd., a Cayman Islands corporation ("SIL"),
and Strates Pte. Ltd., a Singapore corporation ("Strates" and together with SIL,
the "Borrowers," each a "Borrower"), StorMedia Incorporated, a Delaware
corporation (the "Parent Guarantor," collectively with the Subsidiary
Guarantors, as defined below, and the Borrowers, the "Loan Parties," each a
"Loan Party"), certain financial institutions named on Annex I thereof or who
become parties thereto as Banks (each a "Bank" and collectively, the "Banks"),
Agent, Banque Nationale de Paris, San Francisco Branch, as co-agent for the
Banks (the "Co-Agent"), and Canadian Imperial Bank of Commerce, Singapore Branch
as the Designated Issuer ("Designated Issuer") have entered into that certain
Credit Agreement dated as of August 23, 1996 (as amended, supplemented, or
otherwise modified through the date hereof, the "Existing Credit Agreement").
B. On December 31, 1997, StorMedia Foreign Sales Corporation, a U.S.
Virgin Islands corporation and wholly-owned Subsidiary of Parent Guarantor
("FSC," and together with Akashic Memories Corporation ("Akashic"), a California
corporation and wholly-owned Subsidiary of Parent Guarantor, the "Subsidiary
Guarantors"), acquired all of the outstanding capital stock of Akashic through
the merger of StorMedia Acquisition Corporation, a California corporation and
wholly-owned Subsidiary of FSC with and into Akashic. In connection with such
acquisition, certain of the other Loan Parties purchased the patents and
applications pending in Akashic's parent corporation, Kubota Corporation.
C. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
D. The Parent Guarantor, FSC, the Borrowers and the other Loan Parties
propose to enter into a financial restructuring (the "Restructuring"), pursuant
to which, among other things, one or more of the Loan Parties will consummate
(i) the financing transactions contemplated by the Foothill
<PAGE> 2
Group Financing Documents, (ii) the Equity Investment and (iii) the issuance of
the Seagate Subordinated Debt;
E. In connection with the Restructuring, the Loan Parties, the Banks,
the Agent and the Co-Agent desire to amend and restate the Existing Credit
Agreement in its entirety (the Existing Credit Agreement, as so amended and
restated, and the Amended and Restated Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time, collectively, being the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Credit Agreement.
F. As a condition precedent to the effectiveness of the Credit
Agreement, the Banks, Agent, and Co-Agent have required that Assignor, a
wholly-owned Subsidiary of Akashic, grant the security interest and undertake
the obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks, Agent and Co-Agent to enter into the Credit Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Subsidiary Guarantor and Agent hereby agree as follows:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, in and to Assignor's entire
right, title and interest in, to and under the following (all of which shall
collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held, including without limitation those set forth on Exhibit A
attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Assignor
now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
2
<PAGE> 3
(e) Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Assignor connected with
and symbolized by such trademarks, including without limitation those set forth
on Exhibit C attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such licenses or rights; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS AN ABSOLUTE CONVEYANCE OF THE ASSIGNOR'S OWNERSHIP INTERESTS, BUT
AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER
THE CREDIT AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
United States Copyright Office and the Commissioner of Patents and Trademarks
record this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants
and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business;
(b) Performance of this Assignment does not conflict with or
result in a breach of any agreement to which Assignor is party or by which
Assignor is bound, except to the extent that certain intellectual property
agreements prohibit the assignment of the rights thereunder to a third party
without the licensor's or other party's consent and this Assignment constitutes
an assignment;
(c) During the term of this Assignment, Assignor will not
transfer or otherwise encumber any interest in the Collateral, except for
non-exclusive licenses granted by Assignor in the
3
<PAGE> 4
ordinary course of business or as set forth in this Assignment or transfers
constituting Permitted Liens;
(d) To its knowledge, each of the Patents is valid and
enforceable, and no part of the Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Collateral violates the rights of any third party;
(e) Assignor shall promptly advise Assignee of any material
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate.
(g) Assignor shall promptly register the most recent version of
any of Assignor's Copyrights, if not so already registered, and shall, from time
to time, execute and file such other instruments, and take such further actions
as Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral. Assignor shall, and shall
cause its Subsidiaries to, promptly Register and record all newly created or
acquired Patents and Trademarks with the United States Commissioner of Patents
and Trademarks;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected
security interest of the priority specified in the Intercreditor Agreement in
the Collateral in the United States securing the payment and performance of the
obligations under the Credit Agreement and the Loan Documents (as defined in the
Credit Agreement) upon making the filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the United States Copyright Office with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any U.S. governmental
authority or U.S. regulatory body is required either (i) for the grant by
Assignor of the security interest granted hereby or for the execution, delivery
or performance of this Assignment by Assignor in the U.S. or (ii) for the
perfection in the United States or the exercise by Assignee of its rights and
remedies hereunder;
4
<PAGE> 5
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects, and with respect to such information
prepared by a third party, to the best knowledge of the Assignor for which such
information was prepared, such information is accurate and complete in all
material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interests
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.
(l) Upon any executive officer of Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral, the ability
of Assignor to dispose of any Collateral or the rights and remedies of Assignee
in relation thereto, including the levy of any legal process against any of the
Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, any of Assignor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor in accordance with the terms
of the Credit Agreement.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the United States Copyright
Office, and take all such action as may reasonably be deemed necessary or
advisable, or as requested by Assignee, to perfect Assignee's security interest
in all Copyrights, Patents and Trademarks and
5
<PAGE> 6
otherwise to carry out the intent and purposes of this Collateral Assignment, or
for assuring and confirming to Assignee the grant or perfection of a security
interest in all Collateral.
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, from time to time in Assignee's discretion, to take any
action and to execute any instrument which Assignee may deem necessary or
advisable to accomplish the purposes of this Collateral Assignment, including
(i) to modify, in its sole discretion, this Collateral Assignment without first
obtaining Assignor's approval of or signature to such modification by amending
Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Assignor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right, title or
interest, (ii) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law and (iii)
after the occurrence and during the continuance of an Event of Default, to
transfer the Collateral into the name of Assignee or a third party to the extent
permitted under the California Uniform Commercial Code.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor
in this Assignment and, as to any breach that is capable of cure, Assignor fails
to cure such breach within five (5) days of the knowledge of such breach by a
responsible officer.
8. Remedies. Subject to the terms of the Credit Agreement and the
Intercreditor Agreement, upon the occurrence and continuance of an Event of
Default, Assignee shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Assignor to assemble the Collateral and any tangible
property in which Assignee has a security interest and to make it available to
Assignee at a place designated by Assignee. Assignee shall have a nonexclusive,
royalty free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorneys' fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in disposing of the Collateral. All of Assignee's rights and remedies
with respect to the Collateral shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities
6
<PAGE> 7
claimed or asserted by any other party in connection with the transactions
contemplated by this Assignment, and (b) all losses or expenses in any way
suffered, incurred, or paid by Assignee as a result of or in any way arising out
of, following or consequential to transactions between Assignee and Assignor,
whether under this Assignment or otherwise (including without limitation
reasonable attorneys' fees and reasonable expenses), except for losses arising
from or out of Assignee's gross negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. Confidentiality. Any information provided in connection herewith to
the Agent, Co-Agent, Designated Issuer or any Bank shall be subject to the
confidentiality provisions of Section 9.06(e) of the Credit Agreement.
16. California Law and Jurisdiction; Jury Waiver. This Assignment shall
be governed by the laws of the State of California, without regard for choice of
law provisions. Assignor and Assignee consent to the exclusive jurisdiction of
any state or federal court located in San Francisco County, California. ASSIGNOR
AND ASSIGNEE EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE CREDIT AGREEMENT, THIS
ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
STRATES SDN. BHD., formerly known as
AKASHIC KUBOTA TECHNOLOGIES
SDN. BHD.
By: /s/
----------------------------------------
Title:
-------------------------------------
Notice Address:
509-G Jalan Abbas
Tanjung Bungah
11200 Penang
Malaysia
Attention: Chief Financial Officer
S-1
<PAGE> 9
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency,
as Agent for the Banks
By: /s/
Title:
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-3549
Telecopier: (212) 856-4135
Attention: Mr. Marc Bilbao
S-2
<PAGE> 10
EXHIBIT A
TO
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
None
</TABLE>
A-1
<PAGE> 11
EXHIBIT B
TO
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
None
</TABLE>
A-2
<PAGE> 12
EXHIBIT C
TO
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND
SECURITY AGREEMENT
(AKT)
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
None
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.12
SUBSIDIARY GUARANTY
(FSC; Akashic; AKT)
THIS SUBSIDIARY GUARANTY (as the same may be amended, restated,
supplemented or otherwise modified from time to time, this "Guaranty") is made
as of May 29, 1998, by STORMEDIA FOREIGN SALES CORPORATION, a U.S. Virgin
Islands corporation ("FSC"), AKASHIC MEMORIES CORPORATION, a California
corporation ("Akashic"), and STRATES SDN. BHD., a Malaysian corporation formerly
known as Akashic Kubota Technologies Sdn. Bhd. ("AKT") (FSC, Akashic and AKT are
referred to herein individually from time to time as a "Guarantor" and
collectively as the "Guarantors") in favor of the "Agent," "Co-Agent," and
"Banks" under that certain Amended and Restated Credit Agreement, dated as of
May 29, 1998, by and among StorMedia International Ltd., a Cayman Islands
corporation ("SIL") and Strates Pte. Ltd. (together with SIL, the "Borrowers"),
StorMedia Incorporated, a Delaware corporation (the "Parent Guarantor" and,
together with the Borrowers, the "Primary Obligors"), the financial institutions
from time to time parties thereto (collectively the "Banks"), Banque Nationale
de Paris, San Francisco Branch, as Co-Agent (the "Co-Agent") and Canadian
Imperial Bank of Commerce, New York Agency, in its capacity as Agent for the
Banks (the "Agent") (as previously amended and as further amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement").
Capitalized terms used herein and not otherwise defined herein have the meanings
ascribed to such terms in the Credit Agreement.
1. Guaranty. For value received and in consideration of any Loan,
advance or financial accommodation of any kind whatsoever heretofore, now or
hereafter made, given or granted by the Agent, the Co-Agent or the Banks to any
Primary Obligor, the Guarantors, jointly and severally, unconditionally guaranty
for the benefit of each of the Agent, the Co-Agent and the Banks the full and
prompt payment and performance when due, whether at maturity or earlier, by
reason of acceleration or otherwise, and at all times thereafter, of all of the
Obligations of the Borrowers and all Obligations of the Parent Guarantor under
or with respect to the Letter of Credit Agreements and the "L/Cs" issued
pursuant thereto (and as defined therein) (including, without limitation,
interest, fees and expenses that, but for the provisions of the Bankruptcy Code,
would have accrued, at the applicable rate specified in the Loan Documents,
whether or not such interest is allowed as a claim in bankruptcy) (collectively,
the "Guarantied Obligations"). At any time after the occurrence and during the
continuance of an Event of Default, the Guarantors shall pay to the Agent, for
the benefit of the Agent, the Co-Agent and the Banks, on demand and in
immediately available funds, the full amount of the Guarantied Obligations
(including any portion thereof which is not yet due and payable). The Guarantors
further jointly and severally agree to pay to the Agent, for the benefit of the
Agent, the Co-Agent and the Banks, on demand and in immediately available funds,
(i) all losses (including, without limitation, lost profits), fees, costs and
expenses (including, without limitation, all court costs and reasonable
attorneys' and paralegals' fees, costs and expenses) paid or incurred by the
Agent, the Co-Agent or any Bank in: (A) enforcing or defending such Person's
rights under or in respect of this Guaranty, the other Credit Documents or any
other document or instrument now or hereafter executed and delivered in
connection herewith, (B) in collecting all or any part of the Guarantied
Obligations or the obligations of any Guarantor under this Guaranty, (C) in
foreclosing or otherwise collecting upon the Collateral for the Guarantied
Obligations or the obligations of any Guarantor under this Guaranty or any part
thereof and (D) obtaining any legal, accounting or other
<PAGE> 2
advice in connection with any of the foregoing and (ii) interest on (A) the
Guarantied Obligations which do not constitute interest, (B) to the extent
permitted by applicable law, the Guarantied Obligations which constitute
interest, and (C) the expenses described in clause (i) above, from the date of
demand hereunder until paid in full at the applicable per annum rate of interest
described in Section 2.04(d) of the Credit Agreement. Each of the Guarantors
hereby agrees that this Guaranty is an absolute guaranty of payment and is not a
guaranty of collection.
2. Guaranty Absolute. Each of the Guarantors agrees that its
obligations under this Guaranty are independent of the Guarantied Obligations,
the obligations of the other Guarantors hereunder and any other guarantor of all
or any part of the Guarantied Obligations, and a separate action or actions may
be brought and prosecuted against such Guarantor whether or not any action is
brought against any Primary Obligor, any other Guarantor or any of such other
guarantors and whether or not any Primary Obligor is joined in any such action
or actions. The liability of each Guarantor under this Guaranty and the Loan
Documents securing such Guarantor's obligations under this Guaranty shall be
absolute and unconditional, and shall not be affected or released in any way,
irrespective of:
(a) the validity, enforceability, avoidance, novation or
subordination of any of the Guarantied Obligations, the obligations of the
other Guarantors under the Loan Documents or any other guarantor of all or
any part of the Guarantied Obligations or any of the Loan Documents;
(b) the absence of any attempt by, or on behalf of, any Bank, the
Co-Agent or the Agent to collect, or to take any other action to enforce,
all or any part of the Guarantied Obligations, any obligations of any
other Guarantor under the Loan Documents or the obligations of any other
guarantor of all or any part of the Guarantied Obligations or any other
Person;
(c) the election of any remedy by, or on behalf of, any Bank, the
Co-Agent or the Agent with respect to all or any part of the Guarantied
Obligations, any obligations of any other Guarantor under the Loan
Documents or the obligations of any other guarantor of all or any part of
the Guarantied Obligations;
(d) the waiver, consent, extension, forbearance or granting of any
indulgence by, or on behalf of, any Bank, the Co-Agent or the Agent with
respect to any provision of any of the Loan Documents;
(e) the failure of the Agent to take any steps to perfect and
maintain its security interest in, or to preserve its rights to, any
security or collateral for the Guarantied Obligations, any obligations of
any other Guarantor under the Loan Documents or the obligations of any
other guarantor of all or any part of the Guarantied Obligations;
(f) the election by, or on behalf of, any one or more of the Banks,
the Co-Agent and the Agent, in any proceeding instituted under Chapter 11
of the Bankruptcy Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code;
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(g) any borrowing or grant of a security interest by any Primary
Obligor, as debtor-in-possession, under Section 364 of the Bankruptcy
Code;
(h) the disallowance, under Section 502 of the Bankruptcy Code, of
all or any portion of the claims of any of the Banks, the Co-Agent or the
Agent for repayment of all or any part of the Guarantied Obligations, any
obligations of any other Guarantor under the Loan Documents or the
obligations of any other guarantor of all or any part of the Guarantied
Obligations or any expenses described in Section 1;
(i) any refusal of payment by the Agent, the Co-Agent or any Bank,
in whole or in part, from any obligor or guarantor in connection with any
of the Guarantied Obligations, whether or not with notice to, or further
assent by, or any reservation of rights against, any of the Guarantors;
(j) any change, restructuring or termination of the corporate
structure or existence of any Loan Party, or any modification,
compounding, compromise, settlement or release by the Agent, the Co-Agent,
any Bank or any other Person (or by operation of law or otherwise),
collection or other liquidation of the Guarantied Obligations or the
liability of any Loan Party, or of the Collateral, in whole or in part; or
(k) any other circumstance (other than indefeasible payment in cash
of the Guarantied Obligations) which might otherwise constitute a legal or
equitable discharge or defense of any Primary Obligor, any Guarantor or
any other guarantor of all or any part of the Guarantied Obligations.
3. Enforcement; Application of Payments. Upon the occurrence and
during the continuance of an Event of Default, the Agent may proceed directly
and at once, without notice, against any Guarantor to obtain performance of and
to collect and recover the full amount, or any portion, of the Guarantied
Obligations, without first proceeding against any Primary Obligor, any other
Guarantor or any other Person, or against any security or collateral for the
Guarantied Obligations, any obligations of any other Guarantor under the Loan
Documents or the obligations of any other guarantor of all or any part of the
Guarantied Obligations. Subject only to the terms and provisions of the Loan
Documents, the Agent shall have the exclusive right to determine the application
of payments and credits, if any, from the Guarantors, any Primary Obligor or
from any other Person on account of the Guarantied Obligations or any other
liability of the Guarantors to the Agent, the Co-Agent or any Bank, without
affecting the liability of the Guarantors hereunder.
4. Waivers. (a) Each of the Guarantors hereby waives:
(i) diligence, presentment, demand of payment (except as
expressly required hereunder), filing of claims with a court in the
event of receivership or bankruptcy of any Primary Obligor, protest
or notice with respect to the Guarantied Obligations, all setoffs
and counterclaims and all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of
dishonor and notices of acceptance of this Guaranty, the benefits of
all statutes of limitation, and all other
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demands (except as expressly required hereunder) whatsoever (and
shall not require that the same be made on any Primary Obligor as a
condition precedent to the Guarantors' obligations hereunder);
(ii) all notices of the existence, creation or incurring of
new or additional indebtedness, arising either from additional loans
extended to any Primary Obligor or otherwise;
(iii) all notices that the principal amount, or any portion
thereof, and/or any interest on any instrument or document
evidencing all or any part of the Guarantied Obligations is due
(except as expressly required hereunder), notices of any and all
proceedings to collect from the maker, any endorser or any other
guarantor of all or any part of the Guarantied Obligations, or from
any other Person, and, to the extent permitted by law, notices of
exchange, sale, surrender or other handling of any security or
collateral given to the Agent to secure payment of all or any part
of the Guarantied Obligations; and
(iv) any defense based upon any Requirement of Law which
provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the
principal;
(b) Without limiting the generality of the foregoing or any other
provision hereof, each of the Guarantors hereby waives, to the fullest extent
permitted by applicable law in accordance with Section 2856 of the California
Civil Code, all rights and benefits under California Civil Code Sections 2787 to
2855, inclusive (or any similar laws in other jurisdictions) and all rights and
benefits of California Civil Code Sections 2899 and 3433 (or any similar laws in
any other jurisdiction). In addition, without limiting the generality of the
foregoing or any other provision hereof, each of the Guarantors hereby waives,
in accordance with Section 2856 of the California Civil Code, all rights and
defenses (including, without limitation, all rights and defenses arising out of
an election of remedies by the Agent, the Co-Agent or any Bank) that the
Guarantor may have because the Guarantied Obligations are secured by real
property. This means, among other things:
(i) the Agent, the Co-Agent or any Bank may collect from any
of the Guarantors without first foreclosing on any real or personal
property collateral pledged to or for the benefit of the Agent, the
Co-Agent or any Bank; and
(ii) if the Agent, the Co-Agent or any Bank forecloses on any
real property collateral pledged by any Primary Obligor:
(A) the amount of the debt may be reduced only by the
price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale
price; and
(B) the Agent, the Co-Agent or any Bank may collect from
any of the Guarantors even if the Agent, the Co-Agent or any
Bank, by foreclosing on
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the real property collateral, has destroyed any right any of
the Guarantors may have to collect from any Primary Obligor.
This is an unconditional and irrevocable waiver of any rights and defenses any
of the Guarantors may have because the Guarantied Obligations are secured by
real property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d or 726 of the California
Code of Civil Procedure (or any similar laws in any other jurisdiction).
(c) The Agent, the Co-Agent and the Banks, either themselves or
acting through the Agent, are hereby authorized, subject to the Intercreditor
Agreement, without notice or demand and without affecting the liability of the
Guarantors hereunder, from time to time, (i) to renew, extend, accelerate or
otherwise change the time for payment of, or other terms relating to, all or any
part of the Guarantied Obligations, or to otherwise modify, amend or change the
terms of any of the Loan Documents; (ii) to accept partial payments on all or
any part of the Guarantied Obligations; (iii) to take and hold security or
collateral for the payment of all or any part of the Guarantied Obligations,
this Guaranty, or any other guaranties of all or any part of the Guarantied
Obligations or other liabilities of any Primary Obligor, (iv) to exchange,
enforce, waive and release any such security, collateral or guaranties; (v) to
apply such security or collateral and direct the order or manner of sale thereof
as in their reasonable discretion they may determine; and (vi) to settle,
release, exchange, enforce, waive, compromise or collect or otherwise liquidate
all or any part of the Guarantied Obligations, this Guaranty, any other guaranty
of all or any part of the Guarantied Obligations, and any security or collateral
for the Guarantied Obligations or for any such guaranty. Any of the foregoing
may be done in any manner, without affecting or impairing the Guarantied
Obligations of the Guarantors hereunder.
5. Setoff. Upon the occurrence of any Event of Default, each Bank is
hereby authorized by Guarantors, subject to the Intercreditor Agreement, at any
time and from time to time, without notice, (a) to set off against, and to
appropriate and apply to the payment of, the obligations and liabilities of any
Loan under the Loan Documents (whether matured or unmatured, fixed or contingent
or liquidated or unliquidated) any and all amounts owing by such Bank or any of
its Affiliates to any Loan Party (whether payable in Dollars or any other
currency, whether matured or unmatured, and, in the case of deposits, whether
general or special, time or demand and however evidenced) and any moneys,
credits or other property belonging to any Loan Party at any time held by or
coming into the possession of such Bank, the Agent or any of their respective
Affiliates, and (b) pending any such action, to the extent necessary, to hold
such amounts as collateral to secure such obligations and liabilities and to
return as unpaid for insufficient funds any and all checks and other items drawn
against any deposits so held as such Bank in its sole discretion may elect. The
rights of each Bank under this Section are in addition to other rights and
remedies (including other rights of set-off) which such Bank may have.
6. Financial Information. Each of the Guarantors hereby assumes
responsibility for keeping itself informed of the financial condition of any
Primary Obligor and any and all endorsers and/or other guarantors of all or any
part of the Guarantied Obligations, and of all other circumstances bearing upon
the risk of nonpayment of the Guarantied Obligations, or any part thereof, that
diligent inquiry would reveal, and each of the Guarantors hereby agrees that
none of the
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Agent, the Co-Agent or the Banks shall have any duty to advise such Guarantor of
information known to any of them regarding such condition or any such
circumstances. In the event the Agent, the Co-Agent or any Bank, in its sole
discretion, undertakes at any time or from time to time to provide any such
information to any Guarantor, such Person shall be under no obligation (a) to
undertake any investigation not a part of its regular business routine, (b) to
disclose any information which such Person, pursuant to accepted or reasonable
commercial finance or banking practices, wishes to maintain confidential or (c)
to make any other or future disclosures of such information or any other
information to any Guarantor.
7. No Marshaling; Reinstatement. Each of the Guarantors consents and
agrees that none of the Agent, the Co-Agent or the Banks shall be under any
obligation to marshal any assets in favor of such Guarantor or any other party
or against or in payment of any or all of the Guarantied Obligations. Each of
the Guarantors further agrees that, to the extent that any Primary Obligor, such
Guarantor or any other guarantor of all or any part of the Guarantied
Obligations makes a payment or payments to any Bank, the Co-Agent or the Agent,
or any such Person receives any proceeds of Collateral, which payment or
payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to any
Primary Obligor, such Guarantor, such other guarantor or any other Person, or
their respective estates, trustees, receivers or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, the part of the Guarantied Obligations
or obligations of such Guarantor or such other guarantor which has been paid,
reduced or satisfied by such amount shall be reinstated and continued in full
force and effect as of the time immediately preceding such initial payment,
reduction or satisfaction.
8. Subrogation Waiver. Notwithstanding anything to the contrary
contained herein, each Guarantor hereby irrevocably waives, and shall not seek
to exercise, until after indefeasible payment in full in cash of the
Obligations, all of the following rights that it may have against any other
Guarantor for any amounts paid by such Guarantor, or any acts performed by such
Guarantor hereunder, in each case, arising under or in respect of the Loan
Documents: (i) subrogation (including all rights arising under Bankruptcy Code
Section 509 and California Civil Code Sections 2848 and 2849, as now and
hereafter in effect), (ii) reimbursement (including all rights arising under
Bankruptcy Code Section 502(e) and California Civil Code Section 2847, as now
and hereafter in effect), (iii) performance (including all rights arising under
California Civil Code Section 2846, as now and hereafter in effect), (iv)
indemnification or contribution (including all rights to indemnification or
contribution arising under Bankruptcy Code Section 502(e), as now and hereafter
in effect), (v) participation in a claim, and (vi) all similar rights arising
under a contract, in equity, common law, statutes or otherwise.
9. Subordination. Each of the Guarantors agrees that any and all
claims of such Guarantor against any Primary Obligor, any endorser or any other
guarantor of all or any part of the Guarantied Obligations, or against any of
their respective properties, shall be subordinate and subject in right of
payment to the indefeasible payment, in full and in cash, of all Guarantied
Obligations
10. Enforcement; Amendments; Waivers. No delay on the part of any of
the Banks, the Co-Agent or the Agent in the exercise of any right or remedy
arising under this Guaranty, the Credit Agreement, any of the other Loan
Documents or otherwise with respect to all or any part of
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the Guarantied Obligations, the Collateral or any other guaranty of or security
for all or any part of the Guarantied Obligations shall operate as a waiver
thereof, and no single or partial exercise by any such Person of any such right
or remedy shall preclude any further exercise thereof. No modification or waiver
of any of the provisions of this Guaranty shall be binding upon the Banks, the
Co-Agent or the Agent, except for such modifications and waivers made in
accordance with the Credit Agreement. Failure by any of the Banks, the Co-Agent
or the Agent at any time or times hereafter to require strict performance by any
Primary Obligor, any Guarantor, any other guarantor of all or any part of the
Guarantied Obligations or any other Person of any of the provisions, warranties,
terms and conditions contained in any of the Loan Documents now or at any time
or times hereafter executed by such Persons and delivered to the Agent, the
Co-Agent or any Bank shall not waive, affect or diminish any right of the Agent,
the Co-Agent or such Bank at any time or times hereafter to demand strict
performance thereof and such right shall not be deemed to have been waived by
any act or knowledge of the Agent, the Co-Agent or any Bank, or their respective
agents, officers or employees, unless such waiver is contained in an instrument
in writing, directed and delivered to the Primary Obligors or the Guarantors, as
applicable, specifying such waiver, and is signed by the party or parties
necessary to give such waiver under the Credit Agreement. No waiver of any Event
of Default by the Agent, the Co-Agent or any Bank shall operate as a waiver of
any other Event of Default or the same Event of Default on a future occasion,
and no action by the Agent, the Co-Agent or any Bank permitted hereunder shall
in any way affect or impair the Agent's, the Co-Agent's or any Bank's rights and
remedies or the obligations of the Guarantors under this Guaranty. Any
determination by a court of competent jurisdiction of the amount of any
principal and/or interest owing by any Primary Obligor to the Agent, the
Co-Agent or any of the Banks shall be conclusive and binding on the Guarantor
irrespective of whether the Guarantor was a party to the suit or action in which
such determination was made.
11. Effectiveness; Termination. Except to the extent that any
Guarantor is released from its obligations hereunder pursuant to the terms of
the Intercreditor Agreement, this Guaranty shall become effective upon its
execution by the Guarantors and shall continue in full force and effect and may
not be terminated or otherwise revoked until the Guarantied Obligations shall
have been fully paid in cash. Each of the Guarantors hereby expressly waives the
benefits of Section 2815 of the California Civil Code (or any similar law in any
other jurisdiction) purporting to allow a guarantor to revoke a continuing
guaranty with respect to any transactions occurring after the date of the
guaranty. If, notwithstanding the foregoing, any Guarantor shall have any right
under applicable law to terminate or revoke its guaranty of the Guarantied
Obligations, such Guarantor agrees that such termination or revocation shall not
be effective until a written notice of such revocation or termination,
specifically referring hereto, signed by such Guarantor, is actually received by
the Agent. Such notice shall not affect the right and power of any Bank, the
Co-Agent or the Agent to enforce rights arising prior to receipt thereof by the
Agent. If the Agent, the Co-Agent or any Bank grants loans or takes other action
after such Guarantor terminates or revokes this Guaranty but before the Agent
receives such written notice, the rights of such Person with respect thereto
shall be the same as if such termination or revocation had not occurred.
12. Successors and Assigns. This Guaranty shall be binding upon the
Guarantors and upon its successors and permitted assigns and shall inure to the
benefit of the Banks, the Co-Agent and the Agent and their respective successors
and permitted assigns under the Credit Agreement; all
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references herein to the Primary Obligors and to the Guarantors shall be deemed
to include their respective successors and assigns. The successors of the
Guarantors and the Primary Obligors shall include, without limitation, their
respective receivers, trustees or debtors-in-possession.
13. Advice of Counsel. Each of the Guarantors represents and
warrants that it has consulted with its legal counsel regarding all waivers
under this Guaranty, including without limitation those under Section 4 and
Section 17 hereof, that it believes that it fully understands all rights that it
is waiving and the effect of such waivers, that it assumes the risk of any
misunderstanding that it may have regarding any of the foregoing, and that it
intends that such waivers shall be a material inducement to the Agent, the
Co-Agent and the Banks to extend the indebtedness guaranteed hereby.
14. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraph, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile or
delivered, if to any Guarantor or Agent, at its address set forth on the
signature pages hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective three (3) Business Days after
deposit in the U.S. mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively.
15. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW.
16. SUBMISSION TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS GUARANTY SHALL BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COUNTY OF
SAN FRANCISCO, STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
GUARANTY EACH SUCH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
GUARANTY.
17. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS GUARANTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO A BUSINESS
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RELATIONSHIP, THAT EACH SUCH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING
INTO THIS GUARANTY AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS
RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT
EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of
litigation, this Guaranty may be filed as a written consent to a trial by the
court.
20. Severability. Wherever possible, each provision of this Guaranty
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
21. Collateral. Each of the Guarantors hereby acknowledges and
agrees that its obligations under this Guaranty are secured pursuant to the
terms and provisions of certain of the Loan Documents to which it is a party.
22. Merger. This Guaranty represents the final agreement of the
Guarantors with respect to the matters contained herein and may not be
contradicted by evidence of prior or contemporaneous agreements, or subsequent
oral agreements, between the Guarantors and the Agent, the Co-Agent or any Bank.
23. Construction. (a) The parties acknowledge that each party and
its counsel have reviewed and revised this Guaranty and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Guaranty or
any amendments hereto.
(b) The words "hereof", "herein" and "hereunder" and words of like
import when used in this Guaranty shall refer to this Guaranty as a whole and
not to any particular provision of this Guaranty.
(c) All references in this Guaranty in the singular shall be deemed
to include the plural where the context so requires, and vice versa, unless
otherwise specified.
24. Independent Obligations of Guarantors. Each Guarantor expressly
agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Guarantor with respect to
this Guaranty. This Guaranty shall be fully effective as to any Guarantor that
is a party hereto regardless of whether any other Person becomes, fails to
become or ceases to be a party hereto.
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25. Execution in Counterparts. This Guaranty may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantors as of the day and year first set forth above.
STORMEDIA FOREIGN SALES CORPORATION
By: /s/
---------------------------------
Title:
---------------------------------
Notice Address:
59 A Kronprindsens Gade
3rd Floor
P.O. Box 1858
St. Thomas, U.S. Virgin Islands
Attention: Chief Financial Officer
S-1
<PAGE> 12
AKASHIC MEMORIES CORPORATION
By: /s/
---------------------------------
Title:
---------------------------------
Notice Address:
390 Reed Street
Santa Clara, CA 95050-3118
Telephone: (408) 327-8400
Telecopier: (408) 727-4928
Attention: Chief Financial Officer
S-2
<PAGE> 13
STRATES SDN. BHD., formerly known as
AKASHIC KUBOTA TECHNOLOGIES
SDN. BHD.
By: /s/
---------------------------------
Title:
---------------------------------
Notice Address:
509-G Jalan Abbas
Tanjung Bungah
11200 Penang
Malaysia
S-3
<PAGE> 1
EXHIBIT 10.13
EXECUTION COPY
RELEASE AND ASSURANCES OF FUTURE NONIMPAIRMENT
This Agreement to release claims and provide assurances of nonimpairment
("Agreement") is entered into as of May 29, 1998, by and among StorMedia
International, Ltd., a Cayman Islands corporation, and Strates Pte. Ltd, a
Singapore corporation (each a "Borrower" and collectively, the "Borrowers"),
StorMedia Incorporated, a Delaware corporation (The "Parent Guarantor"),
StorMedia Foreign Sales Corporation, a U.S. Virgin Islands Corporation ("FSC"),
Akashic Memories Corporation, a California Corporation ("Akashic") and Strates
Sdn. Bhd., a Malaysian corporation formerly known as Akashic Kubota Technologies
Sdn. Bhd. ("AKT"), (FSC, Akashic and AKT shall collectively be referred to
hereinafter as the "Subsidiary Guarantors" and together with the Borrowers and
the Guarantor, shall be referred to as the "Loan Parties", each a "Loan Party"),
Canadian Imperial Bank of Commerce, New York Agency, as Agent ("Agent"), Banque
Nationale de Paris, San Francisco Branch, as Co-Agent ("Co-Agent"), Banque
Nationale de Paris, Singapore Branch, Fleet National Bank, Sanwa Bank
California, Union Bank of California, N.A., CIBC [Asia] Ltd. (each a "Bank" and
collectively the "Banks") and Canadian Imperial Bank of Commerce, Singapore
Branch (the "Designated Issuer") (the Agent, Co-Agent, Banks and Designated
Issuer shall be collectively referred to as the "Lenders"; the Agent, the
Co-Agent and the Banks shall be collectively referred to as the "Continuing
Lenders").
<PAGE> 2
EXECUTION COPY
RECITALS
A. The Borrowers, the Parent Guarantor, and Lenders are parties to that
certain Credit Agreement dated as of August 23, 1996, as amended by that certain
First Amendment and Limited Waiver dated as of September 30, 1996, that certain
Second Amendment to Credit Agreement and First Amendment to Certain Security
Documents dated as of January 24, 1997, that certain Third Amendment to Credit
Agreement and Limited Waiver dated as of June 6, 1997, that certain Fourth
Amendment to Credit Agreement, Limited Waiver and First Amendment to Interbank
Agreement and Side Letter (the "Fourth Amendment"), and as supplemented by that
certain Limited Waiver entered into as of August 22, 1997 (the "August 22
Limited Waiver"), that certain Amended and Restated Limited Waiver entered into
as of November 17, 1997 ("November 17 Limited Waiver"), that certain Amended and
Restated Limited Waiver entered into as of December 3, 1997 ("December 3 Limited
Waiver") and that certain Amended and Restated Limited Waiver entered into as of
January 9, 1998 (the "January 9 Limited Waiver") (as so amended, supplemented or
modified, the "Credit Agreement").
B. The Agent, the Co-Agent, the Designated Issuer and the Banks are
parties to that certain Interbank Agreement dated as of January 24, 1997,
acknowledged and agreed to by the Borrowers and the Guarantor. The Borrowers,
the Parent Guarantor, the Agent, the Co- Agent, the Banks, and the Designated
Issuer are parties to that certain side letter agreement (the "Side Letter")
dated as January 24, 1997. In connection with the January 9 Limited Waiver, FSC
executed and delivered to Lenders that certain Subsidiary Guaranty under which
FSC guaranteed
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EXECUTION COPY
Borrowers' obligations (the "Subsidiary Guarantee"). The Credit Agreement, the
Interbank Agreement, the Side Letter, the Subsidiary Guarantee, and all other
related and supporting documents are hereinafter referred to in this Agreement
as the "Existing Loan Documents".
C. As of the date hereof, there is due and owing under the Existing Loan
Documents the aggregate principal amount of $48,333,333.00, together with
accrued and unpaid interest, fees, attorneys' fees and costs. Such amount, plus
accruing interest, fees and ongoing attorneys' fees and costs and all other
obligations are hereinafter referred to as the "Existing Debt."
D. One or more Events of Default have occurred under the Existing Loan
Documents, including, without limitation, a principal payment Default pursuant
to Section 2.04(b) of the Credit Agreement, Section 7 of the November 17 Limited
Waiver and Section 7 of the December 3 Limited Waiver, and Section 7 of the
January 9, Limited Waiver.
E. Since July of 1997, the Loan Parties have been continuously involved
in extensive negotiations with the Lenders regarding changes in the terms and
conditions of the Existing Loan Documents. As a result of these negotiations,
the Loan Parties, concurrently with this Agreement, are executing and entering
into an "Amended and Restated Credit Agreement" and certain other Loan Documents
as defined in the Amended and Restated Credit Agreement (the "Amended and
Restated Loan Documents"). Capitalized terms used in this Agreement
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<PAGE> 4
EXECUTION COPY
which are not otherwise defined herein shall have the meanings ascribed in the
Amended and Restated Loan Documents.
F. Concurrently with the negotiation of the Amended and Restated Loan
Documents, the Loan Parties have engaged in extensive negotiations with numerous
other parties to provide additional capital, in the form of equity, subordinated
debt and senior secured debt, to finance the ongoing operations of the Loan
Parties, to pay down a portion of the Existing Debt and to restructure their
financial obligations. Such transactions are collectively referred to herein as
the "StorMedia Restructuring" and include the following:
(1) The Equity Investment which will constitute an investment in
StorMedia, Inc. pursuant to which Cornerstone Equity Investors will purchase
$5,000,000 of convertible preferred stock (8% coupon) and warrants for a certain
number of shares of Class A Common Stock, and Heis Capital will purchase
$3,000,000 of convertible preferred stock (8% coupon) and warrants for a certain
number of shares of Class A Common Stock;
(2) The Foothill Group Financing under which the Foothill Group will
provide for term and revolving loan facilities providing for a maximum
commitment of $28,000,000 with respect to which the maximum amount available for
borrowing on Effective Date will be at least $15,000,000.
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(3) The Seagate Subordinated Debt pursuant to which StorMedia
Incorporated will issue to Seagate subordinated secured debt in the principal
amount of $3,000,000 and subordinated unsecured debt, convertible into Class A
Common Stock, in the principal amount of $5,000,000.
G. The Loan Parties cannot effectuate the StorMedia Restructuring
without the consent and cooperation of the Lenders. Among other things, the
Lenders have agreed to extend the Maturity Date of the Existing Debt,
subordinate their first priority lien on working capital (their most liquid
collateral), in favor of the Foothill Group as a prerequisite to and in order to
enable the Foothill Group Financing which, among other things, will provide
funds for a partial payment on the Existing Debt as a result of the value made
available to the Loan Parties by such subordination, and defer the commencement
of regularly scheduled principal amortization payments until almost one year
after such principal payments would have otherwise become due under the Existing
Loan Documents. As a material inducement to the Lenders to enter into the
Amended and Restated Loan Documents and otherwise support the StorMedia
Restructuring, the Loan Parties have agreed to provide the following releases
and assurances that the interests of the Lenders shall not be further impaired.
NOW THEREFORE, for good and adequate consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
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AGREEMENT
1.0 RELEASES.
1.1 No Present Claims. Each of the Loan Parties acknowledges and agrees
that it does not have nor does it expect to have any claim or cause of action
against the Lenders arising from or in connection with any of the Existing Loan
Documents; and it has no offset, recoupment, or defense against any of its
obligations to the Lenders under the Existing Loan Documents. Although the
Lenders regard their conduct as proper and do not believe that the Loan Parties
or any of them has any claim, cause of action, set off, recoupment or other
defense, the Lenders have requested the Loan Parties to provide the release set
forth herein, and the Loan Parties have agreed to provide such release if the
Lenders provide the releases set forth herein.
1.2 Release of Lender Parties. Each Loan Party for itself, and on behalf
of its respective officers and directors, and its respective predecessors,
successors and assigns, does hereby forever and unconditionally (i) release,
discharge and acquit each of the Lenders and their respective parent
corporation, Subsidiaries and Affiliates, officers, directors, shareholders,
employees, attorneys, professionals, agents and servants, and their respective
predecessors, successors, heirs and assigns (collectively, the "Lender
Parties"), of and from any and all claims, demands, obligations, liabilities,
indebtedness, responsibilities, disputes, breaches of contract, breaches of duty
or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes
of action (whether at law or in equity), debts, sums of money, accounts,
compensations, contracts, controversies, promises, damages, costs, rights of
offset, losses and expenses, of every
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type, kind, nature, description or character, known and unknown, whensoever
arising out of any actions or omissions of the Lender Parties, or any of them,
occurring at any time up to and through the date hereof, whether known or
unknown, suspected or unsuspected, liquidated or unliquidated, matured or
unmatured, fixed or contingent, against the Lender Parties, or any of them,
which in any way arise out of, are connected with or relate to the Existing Loan
Documents and all negotiations, actions, or conduct that arose out of or related
to the negotiation, enforcement, supervision or modification of the Existing
Loan Documents or the liabilities and obligations thereunder, (collectively,
"Claims") and (ii) agree not to bring any action in any judicial, administrative
or other proceeding against the Lender Parties, or any of them, alleging any
such Claim or otherwise arising in connection with any such Claim, or support
any shareholder of any of the respective Lender Parties in any such action
brought by such shareholder.
1.3 Release of StorMedia Parties. Except as provided in paragraph 1.4
below, each Lender for itself, and on behalf of its respective officers and
directors, and its respective predecessors, successors and assigns, does hereby
forever and unconditionally (i) release, discharge and acquit each of the Loan
Parties and their respective officers, directors, employees, attorneys,
professionals, agents and servants, and their respective predecessors,
successors, heirs and assigns (collectively, the "StorMedia Parties"), of and
from any and all claims, demands, obligations, liabilities, indebtedness,
responsibilities, disputes, breaches of contract, breaches of duty or any
relationship, acts, omissions, misfeasance, malfeasance, cause or causes of
action (whether at law or in equity), debts, sums of money, accounts,
compensations, contracts,
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controversies, promises, damages, costs, rights of offset, losses and expenses,
of every type, kind, nature, description or character, known and unknown,
whensoever arising out of any actions or omissions of the StorMedia Parties, or
any of them, occurring at any time up to and through the date hereof, whether
known or unknown, suspected or unsuspected, liquidated or unliquidated, matured
or unmatured, fixed or contingent, against the StorMedia Parties, or any of
them, which in any way arise out of, are connected with or relate to the
Existing Loan Documents and all negotiations, actions, or conduct that arose out
of or related to the negotiation, enforcement, supervision or modification of
the Existing Loan Documents or the liabilities and obligations thereunder,
(collectively, "Claims") and (ii) agree not to bring any action in any judicial,
administrative or other proceeding against the StorMedia Parties, or any of
them, alleging any such Claim or otherwise arising in connection with any such
Claim.
1.4 Reservation of Rights. Notwithstanding anything to the contrary in
this release, (i) all rights and obligations of the Lender Parties and all of
the Loan Parties' rights and obligations with respect to the Amended and
Restated Loan Documents (including, without limitation, any Existing Loan
Documents which will remain in effect after the Effective Date) shall survive
the effectiveness of this release; and (ii) to the extent that any payments or
proceeds heretofore received by the Lender Parties or any part thereof shall be
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, re ceiver or any other party under
any bankruptcy law, state or federal law, common law or equitable cause then, to
the extent of such payment or proceeds received, the obligations or part thereof
which were intended to be satisfied, and all guarantees in respect of such
obligations,
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shall be revived and continue in full force and effect, as if such payment or
proceeds had never been received, and this release shall be ineffective to the
extent of such revived obligations
1.5 Waiver of Statutory Benefits. Except as provided in
paragraph 1.4 above, the parties intend that the foregoing shall be effective as
a full and final accord and satisfaction of all Claims hereby released and, each
of the Parties hereby agrees, represents and warrants that the matters released
herein are not limited to matters which are known or disclosed. In this
connection, each of the Parties hereby agrees, represents and warrants that it
realizes and acknowledges that (a) factual matters now existing and unknown to
it may have given or may hereafter give rise to Claims which are presently
unknown, unsuspected, unliquidated, unmatured and/or contingent, (b) such Claims
may be unknown, unsuspected, unliquidated, unmatured and/or contingent due to
ignorance, oversight, error, negligence or otherwise, and (c) if such Claims had
been known, suspected, liquidated, matured and/or unconditional, such party's
decision to enter into this release may have been materially affected. Each
party further agrees, represents and warrants that this release has been
negotiated and agreed upon in view of these realizations. Nevertheless, except
as provided in paragraph 1.4 above, each party granting a release hereby intends
to release, discharge, and acquit the parties receiving a release of and from
any such unknown, unsuspected, unliquidated, unmatured and/or contingent Claims
which are in any way set forth in or related to the matters identified
hereinabove. EACH PARTY HEREBY EXPLICITLY WAIVES ALL RIGHTS UNDER AND ANY
BENEFITS OF ANY COMMON LAW OR STATUTORY RULE OR PRINCIPLE WITH RESPECT TO THE
RELEASE OF
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SUCH CLAIMS, INCLUDING, WITHOUT LIMITATION, SECTION 1542 OF THE CALIFORNIA CIVIL
CODE, WHICH PROVIDES AS FOLLOWS:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
EACH PARTY AGREES THAT NO SUCH COMMON LAW OR STATUTORY RULE OR PRINCIPLE,
INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE, SHALL AFFECT THE VALIDITY
OR SCOPE OR ANY OTHER ASPECT OF THIS RELEASE.
1.6 No Waiver. The acceptance of delivery of this release by Lenders on
behalf of the Lender Parties shall not be deemed or construed as an admission of
liability with respect to the Claims or otherwise by the Lender Parties, or any
of them, and the Lender Parties hereby expressly deny liability of any nature
whatsoever arising from or related to the subject of this release.
1.7 No Assignment. Each of the parties hereto agree, represent, and
warrant that such party has not voluntarily, by operation of law or otherwise,
assigned, conveyed,
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transferred or encumbered, either directly or indirectly, in whole or in part,
any right to or interest in any of the Claims purported to be released by this
release.
2.0 ASSURANCES OF FUTURE NON-IMPAIRMENT. The Continuing Lenders have expressed
their intent and expectation (i) that the concessions, modifications, and
accommodations set forth in the Amended and Restated Loan Documents constitute
the final and conclusive statement of their lending relationship with the Loan
Parties, (ii) that the Loan Parties will fully, faithfully and completely pay
all obligations and comply with all other terms and conditions in the Amended
and Restated Loan Documents, and (iii) that the Continuing Lenders shall not be
subject to any additional business or legal risks with respect to payment of the
Obligations under the Amended and Restated Loan Documents. To confirm and
realize this expectation and intent, the Loan Parties provide the following
representations, acknowledgments, warranties, and agreements.
2.1 Borrowers and Parent Guarantor acknowledge that commencing as of September,
1996 they have from time to time been in default under the Existing Loan
Documents, and that certain of such defaults have, from time to time, been
waived under the Limited Waivers identified in Recital A to this Agreement. The
most recent Limited Waiver expired on March 13, 1998, and since that date
Borrowers and Parent Guarantor have been in continuing default under the
Existing Loan Documents up to the execution of this Agreement and the Amended
and Restated Loan Documents. Notwithstanding the existence of such defaults, the
Lenders have, subject to the terms and conditions of the various Limited
Waivers, forebeared
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from enforcing their various rights and remedies under the Existing Loan
Documents in order to afford the Loan Parties the time needed to effectuate the
StorMedia Restructuring.
2.2 The Loan Parties acknowledge and accept that, by entering into the
Amended and Restated Loan Documents, Continuing Lenders are willing to afford
the Loan Parties a reasonable opportunity to operate in a successful manner and
satisfy all of the Obligations in accordance with the terms and conditions in
the Amended and Restated Loan Documents, provided, however, that the Continuing
Lenders are not willing to accept the additional risk of a future restructuring,
renegotiation, or modification of any terms and conditions in the Amended and
Restated Loan Documents. The Loan Parties further acknowledge and agree that the
representations, acknowledgments, agreements, and warranties in this Agreement
made by the Loan Parties constitute a material inducement to the Continuing
Lenders to enter into the Amended and Restated Loan Documents, and that the
Continuing Lenders are relying on such representations and warranties, have
changed and will continue to change their position in reliance thereon, and that
the Continuing Lenders would not have entered into the Amended and Restated Loan
Documents without such representations, acknowledgments, agreements, and
warranties.
2.3 Lenders contend that the cumulative effect of the StorMedia
Restructuring and, in particular, the restructuring of the Lenders' claims under
the Existing Loan Documents will provide the Loan Parties with a comprehensive
financial restructuring which could have been realized in a plan of
reorganization under chapter 11 of the Bankruptcy Code.
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2.4 The Loan Parties represent and warrant that the Amended and Restated
Loan Documents and the StorMedia Restructuring will successfully effectuate a
financial restructuring of the Term Loan, if the Loan Parties successfully
restructure overdue trade payables, they will be able to continue with their
business operations without the need for additional financial restructuring, and
the performance of all other terms and conditions under the Amended and Restated
Loan Documents is feasible, realistic, and achievable.
2.5 The Loan Parties acknowledge and agree that the Continuing Lenders
have no obligation to, and do not intend to agree to, accept any subsequent
restructuring proposal or make any subsequent loans or other financial
accommodations to the Loan Parties. The Continuing Lenders have not, directly or
indirectly, encouraged the Loan Parties to anticipate or expect any favorable
consideration of any future business plans or requests for additional
modifications, amendments or supplements of or to the Amended and Restated Loan
Documents; provided, however, that the Continuing Lenders have acknowledged that
the Loan Parties may request consents contemplated by the Amended and Restated
Loan Documents or waivers of nonmonetary defaults under the Amended and Restated
Loan Documents, and that the Continuing Lenders will respond to such requests.
The Loan Parties acknowledge and agree that the Continuing Lenders' present
objectives and goals may include, without limitation, insistence upon full,
timely and strict compliance with all terms and conditions of the Amended and
Restated Loan Documents, and a refusal to consider or accept any subsequent
proposals for restructuring or modifications of the Amended and Restated Loan
Documents. The Loan Parties
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acknowledge that in order to perform all the terms and conditions of the Amended
and Restated Loan Documents they may ultimately have to liquidate assets or
implement business plans to raise capital even though such conduct may
ultimately diminish the long term going concern potential of the Loan Parties'
business enterprise. The Loan Parties willingly accept such risk and obligation,
and agree to perform such disposition of assets or modified business plans as
and when necessary to fully comply with the terms and conditions of the Amended
and Restated Loan Documents.
2.6 At no time shall the prior or subsequent course of conduct by the
Loan Parties or by the Lenders, directly or indirectly, limit, impair or
adversely affect any of the rights and/or remedies of the Continuing Lenders
under the Amended and Restated Loan Documents.
2.7 The Loan Parties shall not under any circumstances fail to or delay
in the performance of any of their respective Obligations under the Amended and
Restated Loan Documents because of any alleged offsetting claim, right of
recoupment, defense or cause of action against the Continuing Lenders
(collectively, a "Set Off") which has not been determined and established by a
final judgment of a court of a competent jurisdiction, and hereby waive the
enforcement of any such Set Off until the entry of such final judgment. The Loan
Parties further agree that upon the identification by any Loan Party of any
potential Set Off, it shall deliver to the Continuing Lenders no later than
seven (7) days following the date when the Loan Party knew of the potential Set
Off, a written notice of such Set Off with a detailed description of the nature,
extent and basis for Set Off. Failure to provide such a written notice in a
timely manner
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<PAGE> 15
shall constitute a full and complete waiver of any Set Off. The Continuing
Lenders in their future course of conduct with the Loan Parties will expressly
rely upon the Loan Parties' timely performance of this obligation to deliver a
notice, and the Loan Parties, upon the failure of any Loan Party to provide a
timely notice, shall be estopped from asserting any Set Off.
2.8 The Loan Parties represent and warrant that they have no present
intention to currently or in the future file a voluntary petition for bankruptcy
under any chapter of the Bankruptcy Code or any other proceeding to liquidate,
reorganize or rehabilitate a Loan Party under any state or other federal law or
under any law of a foreign jurisdiction (collectively an "Insolvency
Proceeding").
2.9. The Loan Parties shall not under any circumstances resist, hinder,
or delay the Continuing Lenders' enforcement of any rights or remedies they may
have under the Amended and Restated Loan Documents, including, without
limitation, (a) seeking in any state or federal court or any foreign tribunal an
injunction or order which may stay or limit the Continuing Lenders' enforcement
of such rights and remedies, (b) filing a voluntary petition for bankruptcy
under any title of the Bankruptcy Code or any Insolvency Proceeding, and (c)
inducing, supporting, or encouraging any third party to file an involuntary
petition against any of the Loan Parties under the Bankruptcy Code or any
Insolvency Proceeding. The provisions in this paragraph shall not be enforceable
to the extent the Loan Parties' agreement herein shall constitute a breach of
duty to another person or entity.
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2.10 If, for any reason, any Loan Party becomes a debtor in a case under
the Bankruptcy Code, then each of the Loan Parties (including the Loan Party
that is a debtor in the case) hereby agrees as follows:
(a) The Loan Parties shall consent to any termination or modification of
the automatic stay under Section 362 of Bankruptcy Code as may be requested by
the Continuing Lenders, and hereby expressly waive any and all rights,
protections, and benefits of the automatic stay or similar injunctive relief
available under the Bankruptcy Code. The Loan Parties shall not seek a
supplementary injunction under Section 105 of the Bankruptcy Code or otherwise
to further stay or hinder the Continuing Lenders in the enforcement of their
rights and remedies.
(b) The Loan Parties acknowledge and agree that the minimum that would
constitute "adequate protection" for the interests of the Continuing Lenders
must, at a minimum, include the following: (i) a cure of all prepetition
monetary defaults under the Amended and Restated Loan Documents within sixty
(60) days from the commencement of the case; (ii) the timely performance of all
monetary obligations under the Amended and Restated Loan Documents arising from
and after the commencement of the case; and (iii) such debtor shall file within
sixty (60) days of the commencement of the case a plan of reorganization which
provides for a treatment which is acceptable to the Continuing Lenders, or which
leaves the interests of the Continuing Lenders unimpaired. Failure to provide
adequate protection on such terms shall constitute a separate and distinct cause
for the termination of the automatic stay in the case.
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(c) The Loan Parties shall not seek to modify, impair, or limit the
rights and remedies of the Lenders under Sections 506(c) or 552(b) of the
Bankruptcy Code or otherwise, and shall not seek to obtain credit or incur debt
to be secured by a senior or equal lien on any property which constitutes
Collateral of the Continuing Lenders under the Amended and Restated Loan
Documents pursuant to Section 364(b) or otherwise.
(d) The Loan Parties shall not propose, support, encourage, induce, or
vote in favor of any plan of reorganization which seeks to alter, modify,
abridge, or eliminate, in any respect, any of the rights and remedies of the
Continuing Lenders under the Amended and Restated Loan Documents.
(e) The parties hereto have made no agreement as to whether the
foregoing subparagraphs shall be binding upon the debtor in possession in a
chapter 11 case, and all parties reserve the right to take conflicting positions
with respect to this issue.
3.0 MISCELLANEOUS.
3.1 Choice of Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied to
agreements among parties resident therein. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision
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of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
3.2 Advise of Counsel. Each Loan Party has had advice of independent
counsel of its own choosing in negotiations for and the preparation of this
Agreement, has read this Agreement in full and final form, has had this
Agreement fully explained to it to its satisfaction.
3.3 No Third Party Beneficiaries. This Agreement is executed for the
parties hereto, and no other person, corporation, partnership or other entity
not a party to this Agreement shall have any rights herein as a third party
beneficiary or otherwise, except to the extent specifically provided herein.
3.4 Limitation on Liability of Officers and Directors. Loan Parties
agree to advise all current and future officers and directors of the Loan
Parties, that the Continuing Lenders contend that the officers and directors may
have under applicable law a fiduciary duty to the Continuing Lenders as
creditors such that a breach of this Agreement may also constitute a breach of
that duty. Notwithstanding anything to the contrary in this Agreement, no
officer or director shall have personal liability for such alleged breach of
duty, if such officer or director acted in the good faith belief and opinion
that he/she was acting pursuant to duties owed to other parties or entities.
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<PAGE> 19
3.5 Effectiveness. This Agreement shall become effective on the
Effective Date under the Amended and Restated Loan Documents.
3.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which together shall constitute one and the same instrument.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
STORMEDIA INTERNATIONAL, LTD., as
a Borrower
By: /s/
----------------------------------
Title:
-------------------------------
STRATES PTE. LTD., as a Borrower
By: /s/
----------------------------------
Title:
-------------------------------
STORMEDIA INCORPORATED, as a
Guarantor
By: /s/
----------------------------------
Title:
-------------------------------
S-1
<PAGE> 21
STORMEDIA FOREIGN SALES
CORPORATION, as a Guarantor
By: /s/
----------------------------------
Title:
-------------------------------
AKASHIC MEMORIES CORPORATION, as a
Guarantor
By: /s/
----------------------------------
Title:
-------------------------------
STRATES SDN. BHD., formerly known as
AKASHIC KUBOTA TECHNOLOGIES SDN.
BHD., as a Guarantor
By: /s/
----------------------------------
Title:
-------------------------------
S-2
<PAGE> 22
CANADIAN IMPERIAL BANK OF
COMMERCE, New York Agency, as Agent
By: /s/
----------------------------------
Title:
-------------------------------
S-3
<PAGE> 23
BANQUE NATIONALE DE PARIS,
San Francisco Branch, as Co-Agent
By: /s/
----------------------------------
Title:
-------------------------------
By: /s/
----------------------------------
Title:
-------------------------------
S-4
<PAGE> 24
BANKS:
CIBC [Asia] LTD.
By: /s/
----------------------------------
Title:
-------------------------------
S-5
<PAGE> 25
BANQUE NATIONALE DE PARIS,
Singapore Branch
By: /s/
----------------------------------
Title:
-------------------------------
By: /s/
----------------------------------
Title:
-------------------------------
S-6
<PAGE> 26
FLEET NATIONAL BANK
By: /s/
----------------------------------
Title:
-------------------------------
S-7
<PAGE> 27
SANWA BANK CALIFORNIA
By: /s/
----------------------------------
Title:
-------------------------------
S-8
<PAGE> 28
UNION BANK OF CALIFORNIA, N.A.
By: /s/
----------------------------------
Title:
-------------------------------
S-9
<PAGE> 29
CANADIAN IMPERIAL BANK OF COMMERCE,
SINGAPORE BRANCH, as Designated Issuer
By: /s/
----------------------------------
Title:
-------------------------------
S-10
<PAGE> 1
EXHIBIT 10.14
[EXECUTION COPY]
AMENDED AND RESTATED INTERBANK AGREEMENT
This Amended and Restated Interbank Agreement (this "Agreement") is made
as of May 29, 1998 by and among Canadian Imperial Bank of Commerce, New York
Agency (the "Agent"), Banque Nationale de Paris, San Francisco Branch (the
"Co-Agent") and each of the Banks listed on the signature pages hereof (each, a
"Bank" and collectively, the "Banks"), and CIBC [Asia] Ltd., as assuming bank
(the "Assuming Bank"), and is acknowledged and agreed to by StorMedia
International, Ltd. and Strates Pte. Ltd., (the "Borrowers"), StorMedia
Incorporated (the "Parent Guarantor"), and StorMedia Foreign Sales Corporation
("FSC"), Akashic Memories Corporation ("Akashic") and Strates Sdn. Bhd. ("AKT")
(FSC, Akashic and AKT are collectively referred to hereinafter as the
"Subsidiary Guarantors"). The Borrowers, the Parent Guarantor and the Subsidiary
Guarantors shall collectively be referred to hereinafter as the "Loan Parties",
each a "Loan Party". Capitalized terms used in this Agreement without definition
shall have the respective meanings assigned to such terms, whether directly or
indirectly by reference, in the Amended and Restated Credit Agreement (as
defined below), and the "Other Definitional Provisions" in Section 1.02 of the
Amended and Restated Credit Agreement shall likewise govern this Agreement.
RECITALS
A. The Borrowers, the Parent Guarantor, the Banks, the Agent, the
Co-Agent, and Canadian Imperial Bank of Commerce, Singapore Branch, as the
Designated Issuer ("Designated Issuer") entered into that certain Credit
Agreement dated as of August 23, 1996 (as amended, supplemented or otherwise
modified through the date hereof, the "Existing Credit Agreement").
B. The Agent, the Co-Agent, the Banks, and the Designated Issuer entered
into that certain Interbank Agreement dated as of January 24, 1997, acknowledged
and agreed to by the Borrowers and the Parent Guarantor (the "Existing Interbank
Agreement"). The Existing Interbank Agreement sets forth the terms pursuant to
which some Banks issued letters of credit for the account of the Parent
Guarantor and for the benefit of the Assuming Bank (the "L/Cs") and the Assuming
Bank agreed to fund certain loans on behalf of those Banks, all in connection
with and as required by the Existing Credit Agreement. In addition, the
Borrowers, the Parent Guarantor, the Agent, the Co-Agent, the Banks, and
Designated Issuer, are parties to that certain side letter agreement (the "Side
Letter") dated as of January 24, 1997.
C. On December 31, 1997, FSC, a wholly-owned Subsidiary of Parent
Guarantor, acquired all of the outstanding capital stock of Akashic, through the
merger of StorMedia Acquisition Corporation, a wholly-owned Subsidiary of FSC,
with and into Akashic. In connection with such acquisition, certain of the other
Loan Parties purchased the patents and applications pending in Akashic's parent
corporation, Kubota Corporation.
<PAGE> 2
D. Pursuant to a series of consents and limited waivers, the Agent, the
Co-Agent, the Banks and the Designated Issuer deferred certain principal
payments in respect of the Term Loan and waived certain Events of Default
arising out of the Loan Parties' failure to comply with certain provisions of
the Existing Credit Agreement.
E. The Parent Guarantor, the Subsidiary Guarantors, the Borrowers and the
other Loan Parties propose to enter into a financial restructuring (the
"Restructuring"), pursuant to which, among other things, one or more of the Loan
Parties will (i) enter into certain financing transactions with Foothill Capital
Corporation pursuant to which funds in the minimum amount of no less than
$15,000,000 will be made available on the Effective Date, (ii) receive the
proceeds of an Equity Investment in the aggregate amount of $8,000,000, and
(iii) issue $8,000,000 in subordinated debt to Seagate Technology, Inc. In
connection with the Restructuring, the Loan Parties are executing and entering
into an "Amended and Restated Credit Agreement", dated as of May 29, 1998 and
certain other Loan Documents as defined therein.
F. As a further condition to the Restructuring, the Loan Parties, the
Banks, the Agent and the Co-Agent desire to amend and restate the Existing
Interbank Agreement in its entirety pursuant to this Agreement and to amend and
restate the Side Letter, it being understood and agreed that with respect to any
date or time period occurring and ending prior to the Effective Date, the rights
and obligations of the parties thereto shall be governed by the Existing
Interbank Agreement, the Side Letter and the other Loan Documents (as defined in
the Existing Credit Agreement).
G. The Borrowers and the Parent Guarantor are willing to confirm and agree
to repay amounts drawn under the L/Cs and otherwise ratify, acknowledge and
agree to the arrangements among the Banks and the Assuming Bank set forth in
this Agreement.
H. The Banks and the Assuming Bank are willing to agree to the requests of
the Borrowers and the Parent Guarantor, provided that the parties confirm,
acknowledge and agree to their respective rights and duties with respect to the
L/Cs and the ratable sharing of amounts collected from Borrowers and the Parent
Guarantor under the Amended and Restated Credit Agreement and this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained in this Agreement, the parties hereto agree as follows:
AGREEMENT
1. Defined Terms. As used in this Agreement, the following terms have the
following meanings:
"Aggregate Assumed Funding Amount": The aggregate amount of the Term Loan
funded by the Assuming Bank.
2
<PAGE> 3
"Assumed Funding Amount": The amount of each L/C Bank's pro rata share of
the Term Loan funded by the Assuming Bank.
"Assuming Bank": CIBC [Asia] Ltd., in its capacity as Assuming Bank under
this Agreement.
"BNP": Banque Nationale de Paris, Singapore Branch.
"Collateral": As defined in the Security Agreements.
"Cost of Funds": As to any Loan, (i) with respect to LIBO Rate Loans, the
LIBO Rate, and (ii) with respect to Base Rate Loans, the interest rate per annum
quoted by the Assuming Bank as its cost of funds at the time of the requested
Loan.
"Fleet": Fleet National Bank.
"Funding Banks": BNP and CIBC [Asia] Ltd., each in its capacity as a
funding bank under this Agreement.
"Funding Date": The date established by the Agent and communicated to the
other parties hereto as the Funding Date.
"L/C": The letters of credit issued by the L/C Banks in an amount equal to
their pro rata share of the Term Loan, in favor of the Assuming Bank,
substantially in the form attached hereto as Exhibit B.
"L/C Bank": Sanwa, Union, and Fleet, each of which has issued an L/C in
accordance with the terms of this Agreement. The term "L/C Bank" shall also
apply to any purchasers from and successors and assigns of Sanwa, Union and
Fleet which issue an L/C in accordance with the terms of this Agreement.
"L/C Fee": The fee payable for the account of the L/C Banks as described
in Section 3(a) hereof.
"Letter of Credit Agreements": The Letter of Credit Agreements among the
L/C Banks and the Parent Guarantor and the Agent, copies of which are attached
hereto as Exhibit A.
"Sanwa": Sanwa Bank California.
"Union": Union Bank of California, N.A.
2. THE TERM LOAN, LETTERS OF CREDIT AND L/Cs.
(a) L/C Banks, Funding Banks, and Assuming Bank. Sanwa, Union and
Fleet each agree to act as an L/C Bank with respect to the Term Loan on the
terms and conditions set
3
<PAGE> 4
forth herein. BNP and CIBC [Asia] Ltd. each agree to act as a Funding Bank with
respect to the Term Loan subject to the terms and conditions of the Amended and
Restated Credit Agreement. CIBC [Asia] Ltd. agrees to act as the Assuming Bank
for the L/C Banks for the Term Loan, on the terms and conditions set forth
herein. Each L/C Bank has entered into a separate Letter of Credit Agreement
with the Guarantor and the Agent (copies of which are attached as Exhibit A
hereto). Each L/C Bank has issued its L/C in the form attached as Exhibit B
hereto. Each L/C shall cover only the payment of principal (and not interest) of
the Term Loan. The parties agree that the issuance by each L/C Bank of its L/C
on the terms set forth herein and other provisions of the L/Cs as described
herein, together with the funding of the Term Loan (by the Assuming Bank or
otherwise), satisfies such L/C Bank's obligations under the Amended and Restated
Credit Agreement to make the Term Loan, for all purposes of the Loan Documents.
The parties further agree that each L/C Bank shall constitute a "Bank" (as
defined in the Amended and Restated Credit Agreement) for all purposes of the
Loan Documents, and that each L/C Bank is entitled to all of the rights,
benefits, protections, and privileges of a Bank under the Loan Documents.
(b) The Term Loan.
(i) As of the Effective Date, the outstanding principal balance of
the Term Loan shall total not less than $38,333,333.
(ii) Demands for payments under each L/C shall not in the aggregate
exceed the Effective Stated Amount. The Effective Stated Amount of an L/C Bank's
L/C shall at all times be equal to its respective pro rata share of the Term
Loan. The "Effective Stated Amount" of each L/C initially equaled each L/C
Bank's respective pro rata share of the outstanding Term Loan, and has been and
shall thereafter be reduced as follows: (i) each drawing made under each L/C
shall automatically and permanently reduce the Effective Stated Amount of each
L/C by the amount of the drawing; (ii) the Effective Stated Amount of each L/C
shall be permanently reduced by the amount of any regularly scheduled payment of
principal paid to the Agent for the benefit of the Assuming Bank and applied to
the outstanding principal portion of each L/C Bank's respective pro rata share
of the Term Loan; and (iii) the Effective Stated Amount of each L/C shall be
permanently reduced by the amount of any mandatory or optional prepayment made
by or on behalf of Borrowers and paid to the Agent for the benefit of the
Assuming Bank and applied towards the principal of each L/C Bank's respective
pro rata share of the Term Loan. The Effective Stated Amount of the L/Cs once
reduced shall not be reinstated for any reason.
3. Fees and Interest.
(a) L/C Fees and Interest. Guarantor will pay to the Agent, for the
benefit of each L/C Bank (ratably in accordance with the Effective Stated Amount
of their respective L/Cs), in arrears on each Interest Payment Date, an L/C Fee
equal to three percent (3.00%) on the average daily balance of the Effective
Stated Amount of the L/Cs; provided, however, that effective upon notice from
the Agent or Majority Banks under Section 2.04(d) of the Amended and Restated
Credit Agreement, the L/C Fee shall equal five percent (5%) on the average daily
balance of the Effective Stated Amount of their respective L/Cs. Borrowers'
obligation to pay
4
<PAGE> 5
interest on the Term Loan as provided in Section 2.04 of the Amended and
Restated Credit Agreement shall only apply to the principal amount of the Term
Loan funded by the Funding Banks.
(b) Cost of Funds. Borrowers will pay to the Agent, for the benefit
of the Assuming Bank, in arrears on each Interest Payment Date, the Assuming
Bank's Cost of Funds on the average daily balance of the Aggregate Assumed
Funding Amount.
(c) Administrative Fee. Parent Guarantor will pay to the Agent, for
the benefit of the Assuming Bank, in arrears on each Interest Payment Date, an
administrative fee equal to twenty basis points on the average daily balance of
the aggregate Effective Stated Amount of all L/Cs outstanding during that
period.
4. Drawings. Upon the failure by Borrowers to make a required principal
payment (whether scheduled, following notice of prepayment, upon acceleration or
otherwise) under the Amended and Restated Credit Agreement with respect to the
Term Loan, which failure results in an Event of Default as defined in the
Amended and Restated Credit Agreement, or upon the commencement of a proceeding
relating to bankruptcy, insolvency, reorganization, or relief of debtors in
respect of one or more of the Loan Parties, which has resulted in an Event of
Default as defined in the Amended and Restated Credit Agreement, the Agent shall
notify the Assuming Bank of such Event of Default not later than 1:00 p.m., New
York time, on the date such Event of Default occurs, and the Assuming Bank may
draw on the L/Cs in such amounts as are allowed therein.
5. Payments.
(a) Payments under Amended and Restated Credit Agreement and Loan
Documents. All payments from the Loan Parties under the Amended and Restated
Credit Agreement or other Loan Documents shall be made to the Agent. In the
event any Bank shall receive any payment directly from any of the Loan Parties,
such payment shall be delivered to Agent in the original form as received. The
Agent shall distribute and apply all payments received from the Loan Parties
under the Amended and Restated Credit Agreement and other Loan Documents as
follows:
(i) If a payment received by the Agent is in the exact amount
due according to the records of the Agent such that upon distribution of such
payment to the Assuming Bank, the Funding Banks, or other Banks, as the case may
be, no amount will remain due and owing to such Assuming Bank, Funding Banks or
other Banks under any of the Loan Documents, the Agent shall distribute and
apply the payment in accordance with the terms of the Loan Documents.
(ii) If a payment received by the Agent is in an amount other
than the exact amount due according to the records of the Agent, notwithstanding
any provision in the Security Agreements or other Loan Document to the contrary,
the Agent shall distribute and apply such payment as follows:
5
<PAGE> 6
1. Such payment shall first be applied to interest, L/C
Fees, Cost of Funds and principal then due and payable, and distributed to the
Banks, the Assuming Bank, and the Funding Banks, as applicable, ratably in
accordance with the amounts of interest, L/C Fees, Cost of Funds and principal
then due and payable to each such Bank, Assuming Bank or Funding Bank. Principal
payments shall be distributed to the Assuming Bank, the Funding Banks or other
Banks ratably in accordance with the then outstanding amount of the Term Loan
funded by each of the Assuming Bank, the Funding Banks or other Banks. For
purposes of this Section, payments by L/C Banks of drawings made on L/Cs shall
constitute "funding" of the Term Loan to the extent of such payments, and
payments received by the Assuming Bank from drawings made on L/Cs shall be
deducted from the amount of the Term Loan funded by the Assuming Bank.
2. The remainder of such payment shall then be applied
to Administrative Fees and Agent fees then due and payable, and distributed to
the Banks, Assuming Bank, and Agent, as applicable, ratably in accordance with
the amounts of Administrative Fees and Agent fees then due and payable to each
such Bank, Assuming Bank or Agent.
3. The remainder of such payment shall then be applied
to other fees, expenses, and other amounts then due and payable, and distributed
to such Banks or other parties that are owed such amounts, as determined by
Agent.
(b) Sharing of Payments. For the purposes of Section 3.12 of the
Amended and Restated Credit Agreement, the Obligations of the Loan Parties under
the Loan Documents shall include (i) the obligation of the Parent Guarantor to
reimburse each L/C Bank for amounts drawn under the L/Cs and (ii) the obligation
of the Parent Guarantor to pay L/C Fees to the L/C Banks.
(c) Majority Banks. For purposes of determining the "Majority Banks"
under the Amended and Restated Credit Agreement, the Effective Stated Amount
under each L/C Bank's issued L/C shall be deemed to constitute a "Term Loan" by
such L/C Bank. CIBC [Asia] Ltd., in its capacity as the Assuming Bank, shall not
be considered a "Bank" under the Amended and Restated Credit Agreement except as
expressly provided in this Agreement.
(d) Returned Payments. If any payment received by the Agent or any
Bank and paid over, distributed or applied as contemplated hereby is
subsequently set aside, avoided, or for any reason required to be returned, each
Person that received a distribution in respect of such payment shall, upon
demand by the Agent or such Bank, as the case may be, pay to the Agent or such
Bank the amount of the distribution received by such Person, and the obligations
owing to such Person, in respect of which such payment was originally made,
shall be restored to the extent such payment was set aside, avoided, or
returned.
6. Letter of Credit Agreements. All reimbursement payments made pursuant
to a Letter of Credit Agreement shall be made to the Agent, who shall apply and
distribute such payments in accordance with Section 5 hereof. Each L/C Bank
irrevocably appoints and
6
<PAGE> 7
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under each Letter of Credit Agreement as are delegated to the Agent
by the terms thereof, including remedial and enforcement actions and powers,
together with such powers as are reasonably incidental thereto, all subject to
the terms of Article VIII of the Amended and Restated Credit Agreement. No L/C
Bank may unilaterally exercise any rights or powers it may have under a Letter
of Credit Agreement except upon the instructions of the Majority Banks, and such
instructions shall be binding upon all Banks.
7. Ratable Interests.
(a) Rights in Collateral. Subject to Section 10, the Agent, the Loan
Parties and each Bank acknowledge and agree that the rights and interests
inuring to each Bank under the Amended and Restated Credit Agreement, Security
Agreements or other Loan Documents with respect to such Bank's rights to
participate in, or receive any distribution in respect of any collateral,
security, guaranty, or other credit support, shall be allocated ratably without
preference or priority among the Banks in accordance with their pro rata shares
of the Term Loan and reimbursement obligations under L/Cs. Without limiting the
foregoing, any proceeds of sales of Collateral, or any other payments or
distributions in respect of the Collateral, or in respect of the Guaranty shall
be distributed and applied in accordance with the provisions of Section 5
hereof.
(b) No Impairment. Nothing contained in this Agreement shall be
construed to limit or impair the rights of the Agent or the Banks under the Loan
Documents or otherwise. The Agent, the Banks, the Borrowers, and the Parent
Guarantor agree that the ratable sharing and distribution provisions set forth
in this Agreement shall apply notwithstanding the fact that the Parent Guarantor
or a Borrower is the primary obligor with respect to any particular, Obligation
or Loan Document.
8. Assignment to Assuming Bank. The parties agree that notwithstanding any
provision of the Amended and Restated Credit Agreement to the contrary
(including, but not limited to, Section 9.06), any Bank may assign, from time to
time, all or any portion of its pro rata share of the Term Loan to the Assuming
Bank, without notice to or the consent of the Agent, the Borrowers, the Parent
Guarantor, or any other Bank, on such terms as the assigning Bank and the
Assuming Bank determine are appropriate. Upon any such assignment, and to the
extent thereof, the Assuming Bank shall constitute a "Bank" under the Amended
and Restated Credit Agreement and the Loan Documents, entitled to all of the
rights, benefits, protections and privileges of a Bank under the Loan Documents.
9. Yield Protection Provisions. The Assuming Bank shall at all times
constitute a "Bank" under the Amended and Restated Credit Agreement for purposes
of Sections 3.04, 3.05, 3.07, 3.08 and 3.09 thereof.
10. Subrogation Rights of Assuming Bank. Notwithstanding any other
provision in this Agreement, if for any reason any L/C Bank shall fail to honor
a drawing attempted by the Assuming Bank under a L/C which attempted drawing was
made in accordance with the terms of this Agreement and the L/C, then at
Assuming Bank's option, the rights of the Assuming Bank
7
<PAGE> 8
shall be subrogated to the rights of such L/C Bank under the Amended and
Restated Credit Agreement and the other Loan Documents to the extent of that
portion of the Loan for which such drawing was attempted, and the Assuming Bank
shall constitute a "Bank" under the Amended and Restated Credit Agreement and
the other Loan Documents to the extent of that portion of the Loan for which
such drawing was attempted.
11. Resignation of Assuming Bank. The Assuming Bank may resign at any time
for any reason, or without any reason, by giving written notice thereof to the
Agent, which resignation shall be effective on the date specified in the notice
regardless of whether a successor Assuming Bank is selected pursuant to the
remainder of this Section. Upon any such resignation, the L/C Banks shall have
the right (a) to select a successor Assuming Bank with the Loan Parties' consent
(so long as no Event of Default or Potential Event of Default is then
continuing) which consent shall not be unreasonably withheld or delayed; or (b)
to not select a successor Assuming Bank. At the time such resignation shall
become effective, (i) each L/C Bank shall deposit immediately available funds in
the amount of the outstanding portion of such L/C Bank's Assumed Funding Amount
to the account of the Agent for the benefit of the resigning Assuming Bank
within five (5) Business Days of receipt of an invoice for such amounts, and
(ii) the Loan Parties agree to pay all accrued and unpaid Cost of Funds,
Administrative Fees and other fees in respect of that part of the Term Loan
funded by the Assuming Bank prior to such resignation to the Agent, for the
benefit of the Assuming Bank, within five (5) Business Days of receipt of an
invoice for such amounts. The acceptance of any selection as the Assuming Bank
hereunder by a successor Assuming Bank shall be evidenced by an agreement
entered into by such successor, in a form satisfactory to the Agent, and, from
and after the effective date of such agreement (i) such successor shall have all
the rights and obligations of the resigning Assuming Bank under this Agreement
and the other Loan Documents and (ii) references herein and in the other Loan
Documents to the term "Assuming Bank" shall be deemed to refer to such successor
or to any previous Assuming Bank, or to such successor Assuming Bank and all
previous Assuming Banks, as the context shall require. After the effective date
of the resignation of the Assuming Bank hereunder, the resigning Assuming Bank
shall remain a party hereto and shall continue to have all the rights of the
Assuming Bank under this Agreement and the Loan Documents to the extent
necessary to collect amounts due the Assuming Bank (or to the Agent for the
benefit of the Assuming Bank) in respect of that part of the Term Loan funded by
the Assuming Bank prior to such resignation, but shall not be required to comply
with any other obligation of the Assuming Bank hereunder or under any other Loan
Document. In the event the Assuming Bank resigns hereunder, and provided that no
successor shall have been selected and shall have accepted such selection as
specified herein prior to the effective date of the Assuming Bank's resignation,
then upon the date of the final indefeasible payment to the Assuming Bank of all
amounts owing to it hereunder and under the other Loan Documents, (A) this
Agreement shall be void and (B) the Side Letter shall be void.
12. Resignation. Upon the downgrading of the credit rating of any L/C Bank
to BBB+ or below as determined by Moody's (or if Moody's no longer publishes
bank credit ratings, an equivalent credit rating determined by a reputable firm
which publishes such ratings), the Assuming Bank may, at its option, require
such L/C Bank to provide a facing letter of credit from
8
<PAGE> 9
a bank to which Moody's has assigned a credit rating of at least AAA-, or resign
as specified herein.
13. Records. Agent shall keep and maintain internal records of the Term
Loan and other amounts funded by each Bank, Funding Bank, or Assuming Bank,
including all amounts of principal, interest, fees, expenses or other amounts
owing hereunder to each Bank, Funding Bank, Assuming Bank or Agent; all amounts
in respect of the L/Cs, including the Effective Stated Amount under the L/Cs,
and drawings made thereon; and all payments made by or on account of any Loan
Parties. The records maintained by the Agent in respect of such amounts shall be
deemed conclusive absent manifest error.
14. Indemnification of Assuming Bank. The Assuming Bank shall at all times
constitute a "Bank" under the Amended and Restated Credit Agreement for purposes
of Sections 3.05 and 3.11 thereof.
15. Further Assurances. At any time and from time to time each of the
parties hereto shall execute and deliver such further instruments and take such
further action as may reasonably be necessary to effectuate the purposes of this
Agreement.
16. General Provisions.
(a) Loan Document. This Agreement is a Loan Document under the
Amended and Restated Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
(b) Incorporation by Reference of Certain Provisions. Any provision
in the Amended and Restated Credit Agreement or in any other Loan Document that
is of general applicability to the Loan Documents shall be and hereby is
incorporated in this Agreement as though set forth in full.
(c) Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
(d) Severability. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
(e) Entire Agreement. This Agreement, together with the Amended and
Restated Credit Agreement and the other Loan Documents, constitute the entire
agreement of the parties with respect to the subject matter hereof.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
9
<PAGE> 10
(f) Binding Effect; Governing Law. This Agreement shall be binding
upon and inure to the benefit of all the parties hereto, except that Loan
Parties shall not have the right to assign their rights hereunder or any
interest herein without the prior written consent of the Agent and all the
Banks. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California without giving effect to its choice of law
doctrine.
(g) Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect until the termination of
the Amended and Restated Credit Agreement and the final indefeasible payment in
full in cash of all amounts owing thereunder.
(h) Obligations Several. The obligation of each Bank hereunder is
several, and no Bank shall be responsible for the obligation or commitment of
any other Bank hereunder. Nothing contained in this Agreement and no action
taken by the Banks pursuant hereto shall be deemed to constitute the Banks to be
a partnership, an association, a joint venture or any other kind of entity.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CANADIAN IMPERIAL BANK OF COMMERCE,
New York Agency, as Agent
By:
---------------------------------
Title:
---------------------------------
S-1
<PAGE> 12
BANQUE NATIONALE DE PARIS,
San Francisco Branch,
as Co-Agent
By:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Title:
---------------------------------
S-2
<PAGE> 13
ASSUMING BANK:
CIBC [Asia] LTD.
By:
---------------------------------
Title:
---------------------------------
S-3
<PAGE> 14
BANKS:
CIBC [Asia] LTD.
By:
---------------------------------
Title:
---------------------------------
S-4
<PAGE> 15
BANQUE NATIONALE DE PARIS,
Singapore Branch
By:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Title:
---------------------------------
S-5
<PAGE> 16
FLEET NATIONAL BANK
By:
---------------------------------
Title:
---------------------------------
S-6
<PAGE> 17
SANWA BANK CALIFORNIA
By:
---------------------------------
Title:
---------------------------------
S-7
<PAGE> 18
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------
Title:
---------------------------------
S-8
<PAGE> 19
Each of the undersigned (i) acknowledges its receipt of a copy of the
foregoing Amended and Restated Interbank Agreement dated as of May 29, 1998 (the
"Amended and Restated Interbank Agreement") and agrees to the terms thereof,
(ii) confirms and ratifies its obligations under the Letter of Credit Agreements
and forms of L/Cs attached as Exhibits A and B, respectively, to the Amended and
Restated Interbank Agreement, (iii) acknowledges that such Letter of Credit
Agreements and L/Cs remain in full force and effect and (iv) agrees that each
reference in the Letter of Credit Agreements and the L/Cs to (A) the Credit
Agreement shall be deemed to a reference to the Amended and Restated Credit
Agreement (as defined in the Amended and Restated Interbank Agreement), (B) the
Interbank Agreement shall be deemed to be a reference to the Amended and
Restated Interbank Agreement and (C) the Side Letter shall be deemed to be a
reference to Side Letter, as amended and restated in connection with the Amended
and Restated Interbank Agreement.
STORMEDIA INTERNATIONAL, LTD.,
as a Borrower
By:
---------------------------------
Title:
---------------------------------
STRATES PTE. LTD., as a Borrower
By:
---------------------------------
Title:
---------------------------------
STORMEDIA INCORPORATED,
as Parent Guarantor
By:
---------------------------------
Title:
---------------------------------
S-9
<PAGE> 20
ACKNOWLEDGED AND AGREED:
STORMEDIA FOREIGN SALES CORPORATION,
as a Subsidiary Guarantor
By:
---------------------------------
Title:
---------------------------------
AKASHIC MEMORIES CORPORATION,
as a Subsidiary Guarantor
By:
---------------------------------
Title:
---------------------------------
STRATES SDN. BHD.,
as a Subsidiary Guarantor
By:
---------------------------------
Title:
---------------------------------
S-10
<PAGE> 21
EXHIBIT A
[LETTER OF CREDIT AGREEMENTS]
(please see attached)
A-1
<PAGE> 22
EXHIBIT A
[FORM OF LC]
(please see attached)
A-2
<PAGE> 23
EXHIBIT A
[FORM OF L/C]
A-3
<PAGE> 24
EXHIBIT B
[FORM OF L/C]
(please see attached)
B-1
<PAGE> 1
Exhibit 10.15
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (as the same may be amended, restated,
supplemented or otherwise modified from time to time, this "Agreement") is
entered into as of May 27, 1998 by and among (i) Seagate Technology, Inc.
(together with any of its successors, transferees and assigns, collectively, the
"Subordinated Holder" (ii) the Foothill Group Agent (as defined below) for and
on behalf of the Foothill Group (as defined below) and (iii) the Bank Group
Agent (as defined below) for and on behalf of the Bank Group (as defined below)
with reference to the following facts:
1. Definitions. When used in this Agreement, the following terms have
the following respective meanings:
"Agreement" shall have the meaning assigned thereto in the preamble to
this Agreement.
"Bank Group" shall mean the Bank Group Agent, CIBC [Asia] Ltd., Banque
Nationale de Paris, San Francisco Branch, as Co-Agent, Banque Nationale de
Paris, Singapore Branch, Fleet National Bank, Sanwa Bank California, Union Bank
of California, N.A., and any of other Person holding any Bank Group Claim, and
each of them, collectively and individually.
"Bank Group Agent " shall mean Canadian Imperial Bank of Commerce, New
York Agency, acting as agent for the Bank Group pursuant to the Bank Group
Financing Documents, and successor agent thereunder. Unless the Subordinated
Lender shall have been notified otherwise in accordance with Section 21, the
Subordinated Lender may presume that Canadian Imperial Bank of Commerce, New
York Agency, continues to be the Bank Group Agent.
"Bank Group Agreement" shall mean the Amended and Restated Credit
Agreement dated as of May 29, 1998 among StorMedia International, Ltd. and
Strates Pte. Ltd., as Borrowers, StorMedia, as Parent Guarantor, and the Bank
Group, as the same may from time to time be amended, restated, supplemented,
modified, renewed, extended, replaced or refinanced,
"Bank Group Claims" shall mean all present and future claims of the Bank
Group against StorMedia or any of its Subsidiaries for the payment of money
arising under or related to the Bank Group Financing Documents, including all
claims for principal and interest (including interest accruing after the
commencement of a bankruptcy case by or against StorMedia or any of its
Subsidiaries irrespective of whether a claim for such interest is allowed in
such case), or for reimbursement in connection with amounts paid under letters
of credit or for cash collateralization of amounts available to be drawn under
letters of credit, or for reimbursement of late charges, fees, costs or
expenses, or otherwise, whether fixed or contingent, matured or unmatured,
liquidated or unliquidated, and whether arising under contract, in tort or
otherwise.
"Bank Group Financing Documents" shall mean the Bank Group Agreement
arid all present and fixture notes, guaranties, letters of credit, reimbursement
agreements, security
<PAGE> 2
documents or other documents or agreements in any way related to, evidencing or
documenting the Bank Group Claims, as any of the same may from time to dine be
amended, restated, supplemented, modified, renewed, extended, replaced or
refinanced.
"Bankruptcy Code" shall mean Title 11 of the United States Code (11
U.S.C. Sections 101 et seq.), as amended from time to time.
"Borrower" shall mean StorMedia Incorporated. The term "Borrower" shall
include any successor or assign of Borrower, including, without limitation, a
receiver, trustee or debtor-in-possession for Borrower.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a
day on which banks are required or permitted to be closed in the State of
California or New York.
"Default" shall mean any event which, with the passage of time or notice
or both, would, unless cured or waived, become an Event of Default.
"Event of Default" shall mean an "Event of Default" under (and as
defined in) any of the Senior Debt Documents.
"Foothill Group" shall mean Foothill Capital Corporation in its
individual capacity and as the Foothill Group Agent, Madeleine, L.L.C., and any
other Person holding any Foothill Group Claim, and each of them, collectively
and individually.
"Foothill Group Agent" shall mean Foothill Capital Corporation, a
California corporation, acting as agent for the members of the Foothill Group
pursuant to the Foothill Group Financing Documents, and any successor agent
thereunder. Unless the Subordinated Holder shall have been notified otherwise in
accordance with Section 21, the Subordinated Holder may presume that Foothill
Capital Corporation continues to be the Foothill Group Agent.
"Foothill Group Agreement" shall mean the Loan and Security Agreement
dated as of May 29, 1998, between StorMedia and Akashic Memories Corporation, on
the one hand, and, on the other hand, the Foothill Group, as the same may from
time to time be amended, restated, supplemented, modified, renewed, extended,
replaced or refinanced.
"Foothill Group Claims" shall mean all present and future claims of the
Foothill Group against StorMedia or any of its Subsidiaries for the payment of
money arising under or related to the Foothill Group Financing Documents,
including all claims for principal and interest (including interest accruing
after the commencement of a bankruptcy case by or against StorMedia or any of
its Subsidiaries irrespective of whether a claim for such interest is allowed in
such case), or for reimbursement in connection with amounts paid under letters
of credit (or guaranties in respect thereof) or for cash collateralization of
amounts available to be drawn under letters of credit (or guaranties in respect
thereof), or for reimbursement of late charges, fees, costs or expenses, or
otherwise, whether fixed or contingent, matured or unmatured, liquidated or
unliquidated, and whether arising under contract, in tort or otherwise.
2
<PAGE> 3
"Foothill Group Financing Documents" shall mean the Foothill Group
Agreement and all present and future notes, guaranties, letters of credit (or
guaranties in respect thereof), reimbursement agreement, security documents or
other documents or agreements in any way related to, evidencing or documenting
the Foothill Group Claims, as any of the same may from time to time be amended,
restated, supplemented, modified, renewed, extended, replaced or refinanced.
"Permitted Payment" shall have the meaning assigned thereto in Section
2(b).
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, other entity
or government (whether federal, state, county, city, municipal, local, foreign,
or otherwise, including any instrumentality, division, agency, body or
department thereof).
"Satisfied" shall mean, with respect to the Senior Debt, (i) any and all
Senior Debt shall have been paid in full in cash, (ii) all financing
arrangements and accommodations between Senior Lender and Borrower shall have
been terminated and (iii) Senior Lender shall have no obligation to make loans,
financial accommodations or advance funds which would constitute Senior Debt to
Borrower or any of its Subsidiaries.
"Senior Debt" shall mean the Bank Group Claims and the Foothill Group
Claims.
"Senior Debt Documents" shall mean the Bank Group Financing Documents
and the Foothill Group Financing Documents, as any of the same may be amended,
modified, supplemented, consolidated, replaced, renewed or refinanced.
"Senior Lenders" shall mean the Bank Group and the Foothill Group.
"Subordinated Debt" shall mean all present and future claims of the
Subordinated Lender against StorMedia or any of its Subsidiaries for the payment
of money arising under or related to the Subordinated Debt Documents, including
all claims for principal and interest (including interest accruing after the
commencement of a bankruptcy case by or against StorMedia or any of its
Subsidiaries irrespective of whether a claim for such interest is allowed in
such case), or for reimbursement in connection with amounts paid under letters
of credit (or guaranties in respect thereof) or for cash collateralization of
amounts available to be drawn under letters of credit (or guaranties in respect
thereof), or for reimbursement of late charges, fees, costs or expenses, or
otherwise, whether fixed or contingent, matured or unmatured, liquidated or
unliquidated, and whether arising under contract, in tort or otherwise.
"Subordinated Debt Documents" shall mean the Subordinated Loan Agreement
and all present and fixture notes, guaranties, letters of credit (or guaranties
in respect thereof), reimbursement agreements, security documents or other
documents or agreements in any way related to, evidencing or documenting the
Subordinated Debt, as any of the same may from time to time be amended restated
supplemented, modified, renewed, extended, replaced or refinanced.
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"Subordinated Holder" shall have the meaning assigned thereto in the
preamble to this Agreement.
"Subordinated Loan Agreement" shall mean the Termination of Supply
Agreement and Loan and Security Agreement entered into as of May 29, 1998 by and
between StorMedia and the Subordinated Lender, as the same may from time to time
be amended, restated, supplemented, modified, renewed, extended, replaced or
refinanced,
"Subsidiary" shall mean, with respect to any Person, (a) any corporation
of which an aggregate of more than fifty percent (50%) of the outstanding
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the time, capital
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned legally or beneficially by such Person and/or one
or more Subsidiaries of such Person, or with respect to which any such Person
has the right to vote or designate the vote of fifty percent (50%) or more of
such capital stock whether by proxy, agreement, operation of law or otherwise,
and (b) any partnership or limited liability company in which such Person and/or
one or more Subsidiaries of such Person shall have an interest (whether in the
form of voting or participation in profits or capital contribution) of more than
fifty percent (50%) or of which any such Person is a general partner or may
exercise the powers of a general partner.
Unless otherwise specified, references in this Agreement to a Section,
subsection, clause or Exhibit refer to such Section, subsection, clause or
Exhibit as contained in, or attached to, this Agreement. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole, including all Exhibits, and not to any particular Section,
subsection or clause contained in this Agreement or any such Exhibit.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to Persons include their respective successors and assigns (to the
extent and only to the extent permitted by this Agreement) or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations. Whenever
any provision in this Agreement refers to the knowledge (or an analogous phrase)
of any party hereto, such words are intended to signify that such party has
actual knowledge or awareness of a particular fact or circumstance or that such
party, if it had exercised reasonable diligence, would have known or been aware
of such fact or circumstance.
2. Payment Subordination.
(a) General. The Subordinated Holder hereby subordinates the
payments and performance of all Subordinated Debt and all claims, rights and
demands arising therefrom to the payment and performance of all Senior Debt and
all claims, rights and demands arising therefrom. Until the Senior Debt is
Satisfied, (i) Borrower will not make, and Subordinated
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<PAGE> 5
Holder will not accept, either directly or indirectly, payment (or any kind or
character) or all or any part of the principal of, premium, if any, or interest
on or any claim or amount with respect to any of the Subordinated Debt, (ii)
Borrower will not purchase, repurchase, acquire or redeem any Subordinated Debt,
and (iii) the Subordinated Holder will not demand or accelerate any of the
Subordinated Debt, institute any court proceedings against Borrower to collect
any Subordinated Debt, or exercise any rights or remedies against Borrower or
its assets, unless such payment, purchase, acquisition, redemption or other
action is expressly permitted by this Agreement.
(b) Permitted Payments. The Subordinated Holder may receive
regularly scheduled payments as required under the Subordinated Debt Documents
("Permitted Payments"). Notwithstanding the foregoing, no payments shall be made
on or in respect of the principal of, premium, if any, or interest on or any
claim or amount with respect to any of the Subordinated Debt, and Subordinated
Holder will not demand or accelerate any of the Subordinated Debt, institute any
court proceedings against Borrower to collect any Subordinated Debt or exercise
any rights or remedies against Borrower or its assets, if any of the following
events have occurred:
(i) Any bankruptcy, insolvency, reorganization,
liquidation, receivership or similar proceeding has been
commenced against or by Borrower, or
(ii) Any Default or Event of Default has occurred and is
continuing, unless and until such Default or Event of Default is
waived in writing by Senior Lender.
(c) Prepayments. Notwithstanding anything herein or elsewhere to
the contrary, Borrower may not acquire, purchase, repurchase, redeem, or
otherwise make any prepayment (mandatory or voluntary) of any principal,
premium, if any, or interest on any of the Subordinated Debt without the prior
written consent of Senior Lenders.
(d) Acceleration and Other Remedies. Notwithstanding anything
herein or in any of the Subordinated Debt Documents to the contrary, the
Subordinated Holder agrees that, until the Senior Debt has been Satisfied, it
will not accelerate any of the Subordinated Debt, institute any court
proceedings against Borrower to collect any Subordinated Debt, or exercise any
rights or remedies against Borrower or its assets (including any collateral), as
a result of any default with respect to the Subordinated Debt owing to the
Subordinated Holder, or otherwise, including Borrower's failure to make a
Permitted Payment, unless an event described in Section 2(b)(i) has occurred or
the maturity date of all Senior Debt has been accelerated.
(e) Subrogation. After the Senior Debt has been Satisfied, the
Subordinated Holder shall be subrogated to the rights of the Senior Lender to
receive payments or distributions of cash, property or securities of Borrower
applicable to the Senior Debt until the Subordinated Debt shall be paid in full,
and, for the purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
Subordinated Holders would be entitled except for the provisions of this
Agreement, and no payment over
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<PAGE> 6
pursuant to the provisions of this Agreement to the Senior Lender by holders of
Subordinated Debt shall, as among Borrower, its creditors other than holders of
Senior Debt, and the holders of Subordinated Debt, be deemed to be a payment by
Borrower to or on account of the Senior Debt.
(f) Enforcement. The right of Senior Lenders to enforce the
subordination provisions and any other provisions hereof shall not in any way be
prejudiced or impaired by any act or failure to act on the part of Senior
Lenders, Borrower or the Subordinated Holder, or by any noncompliance by
Borrower or the Subordinated holder with the terms, provisions and covenants of
this Agreement.
3. Lein Subordination. To the extent the Subordinated Holder becomes
the holder of any collateral, lien or security interest on any property securing
the payment or performance of the obligations evidenced by the Subordinated Debt
Documents, the Subordinated Holder's rights with respect to such collateral, and
all such liens and security interests, whether now or hereafter arising and
howsoever existing, in any assets of Borrower or any assets securing the Senior
Debt shall be and hereby are subordinated to the rights and interests of the
Senior Lenders in those assets irrespective of the time or order of attachment
or perfection of any liens or security interests, irrespective of the time or
order of filing of any financing statement or other document, and irrespective
of any statute, rule, law, or court decision to the contrary. The Subordinated
Holder shall not have any right to possession of any such assets or to foreclose
upon any such assets or to exercise any other remedy with respect to such
assets, whether by judicial action or otherwise, unless and until all of the
Senior Debt shall have been Satisfied. The Subordinated Holder will not seek or
obtain any collateral for the Subordinated Debt other than receivables owed by
Seagate to borrower.
4. In Furtherance of Subordination.
(a) Upon any distribution of any of the assets of Borrower, any
guarantor of any of the Subordinated Debt or any collateral securing the
Subordinated Debt, upon or in connection with any dissolution, recapitalization,
distribution, winding up, liquidation, arrangements or reorganization of
Borrower, any guarantor of any of the Subordinated Debt or any other Person, or
upon any assignment for the benefit of creditors or any other marshaling of the
assets and/or liabilities of Borrower, or any guarantor of any of the
Subordinated Debt or otherwise, any payment, dividend or distribution of any
kind (whether in cash, securities or other property) which would otherwise be
payable or deliverable with respect to the Subordinated Debt, shall be paid or
delivered directly to any Senior Lender for application (in the case of cash) to
or as collateral (in the case of securities or other property) for the Senior
Debt.
(b) In the event that any payment or payments made to Senior
Lenders with respect to any of the Senior Debt or otherwise made to Senior
Lenders pursuant to this Agreement, or any part thereof, are subsequently
invalidated, declared to be fraudulent or preferential, set aside or are
required to be repaid to any trustee, receiver or any other Person under any
bankruptcy statute, state or federal law, common law or equitable cause, then
(i) to the extent of such payment or payments, the obligations or part thereof
intended to be satisfied shall be revived and continued as Senior Debt in full
force and effect, as if such payment or payments
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<PAGE> 7
had not been made, (ii) Senior Lenders shall continue to have all rights under
this Agreement related to such revived obligations which shall constitute Senior
Debt, and (iii) the Subordinated Holder agrees to pay to any Senior Lender any
payments which were received by the Subordinated Holder with respect to the
Subordinated Debt owing to the Subordinated Holder or in connection with any
subrogation rights of the Subordinated Holder to the extend necessary to pay in
full such revived and continued Senior Debt obligations.
(c) In the event that Subordinated Holder is required to turn
over or deliver to any Senior Lender any amount or property paid or delivered to
Subordinated Holder pursuant to this Section 4, Section 6 or otherwise, the
obligations of Borrower under the Subordinated Debt Loan Documents with respect
to any such amount or property shall be revived and continued as Subordinated
Debt in full force and effect, as if such amount or property had not been paid
or received.
5. [TEXT HAS BEEN DELETED]
6. Payment Received in Trust. Except for Permitted Payments received by
the Subordinated Holder permitted by Section 2(b), should any payment or
distribution or security or instrument or proceeds thereof be received by the
Subordinated Holder upon or with respect to the Subordinated Debt or any other
obligations of Borrower to the Subordinated Holder prior to all of the Senior
Debt being Satisfied, the Subordinated Holder shall receive and hold the same in
trust, as trustee, for the benefit of Senior Lender, and shall forthwith deliver
the same to Senior Lenders, in precisely the form received (except for the
endorsement or assignment of the Subordinated Holder where necessary), for
application on (in the case of cash) or to be held as collateral for (in the
case of securities or other property) any of the Senior Debt, due or not due,
and, until so delivered, the same shall be held in trust by the Subordinated
Holder as the property of Senior Lenders. In the event of the failure of the
Subordinated Holder to make any such endorsement or assignment to Senior
Lenders, Senior Lenders or any of their officers or employees, are hereby
irrevocably authorized to make the same. Notwithstanding the foregoing, unless
the Subordinated Holder has actual knowledge that a payment purportedly made as
a Permitted Payment hereunder was not in fact a Permitted Payment or shall have
received notice from Borrower or Senior Lenders of the existence of any
condition which would prohibit the receipt of a Permitted Payment hereunder
within one year following the date any payment purportedly made as a Permitted
Payment is received, the Subordinated Holder receiving such purportedly
Permitted Payment shall not be required to deliver the proceeds of such
purportedly Permitted Payment to the Senior Lenders pursuant to this Section 6.
7. Instrument Legend. Any instrument at any time evidencing any of the
Subordinated Debt, or any portion thereof, will be conspicuously marked with a
legend substantially in the form of the following:
THIS INSTRUMENT IS SUBJECT TO THE TERM OF A SUBORDINATION AGREEMENT IN
FAVOR OF FOOTHILL CAPITAL CORPORATION AND CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENT, ON BEHALF OF ITSELF AND A SYNDICATE OF BANKS,
WHICH
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<PAGE> 8
SUBORDINATION AGREEMENT CONTAINS CERTAIN SUBORDINATION PROVISIONS AND IS
INCORPORATED HEREIN BY REFERENCE. NOTWITHSTANDING ANY CONTRARY STATEMENT
CONTAINED IN THIS INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL,
PREMIUM, IF ANY, OR INTEREST HEREOF, OR ANY PROCEEDS OF COLLATERAL
SECURING THE INDEBTEDNESS EVIDENCED HEREBY, SHALL BECOME DUE OR BE PAID
EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH SUBORDINATION AGREEMENT.
Borrower will deliver to Senior Lenders a copy of each instrument evidencing the
Subordinated Debt, or any portion thereof, as of the date hereof on or before
the date hereof. Borrower will deliver to Senior Lenders a copy of each
instrument evidencing any of the Subordinated Debt, or any portion thereof,
which is hereafter executed by Borrower within five (5) Business Days after the
execution thereof.
8. Senior Lender's Rights. Without notice to the Subordinated Holder
and without affecting or releasing any obligation or agreement of the
Subordinated Holder under this Agreement, Senior Lenders may at any time or
times do any of the following with respect to any of the Senior Debt: (a) waive
or rescind any Default, Event or Default or other default, or other default, (b)
exercise any rights or remedies, with respect to the Senior Debt, (c) amend,
modify, alter or waive any of the terms of any of the Senior Debt Documents, (d)
renew or extend the time for payments of all or any part of the Senior Debt, (e)
increase or decrease the amount of the Senior Debt, (f) accept additional
collateral security or guaranties for all or any part of the Senior Debt and
sell, exchange, fail to perfect, release or otherwise deal with all or any part
of any such collateral or guaranties, (g) release any party primarily or
secondarily obligated on the Senior Debt, (h) grant indulgences and take or
refrain from taking any action with regard to the collection of enforcement of
all or any part of the Senior Debt and (i) take any action which might otherwise
give rise to any claim by the Subordinated Holder. Nothing in this Agreement
shall impair any right of the Senior Lenders with respect to any of the Senior
Debt or any collateral security or guaranties therefor or the proceeds thereof.
9. Representations and Warranties of Subordinated Holders. The
Subordinated Holder represents and warrants to the Senior Lenders that each of
the following statements are true and correct:
(a) The Subordinated Holder has not previously assigned any
interest in the Subordinated Debt owing to the Subordinated Holder or any
security interest in connection therewith, that no other party owns an interest
in such Subordinated Debt or security therefor other than the Subordinated
Holder (whether as joint holders of such Subordinated Debt, participants or
otherwise) and that all of such Subordinated Debt is owing only to the
Subordinated Holder.
(b) The Indebtedness evidenced by the Subordinated Debt Documents
as of the date hereof, copies of which are attached hereto as Exhibit A,
constitute as of the date hereof, all of the now existing liabilities of any
nature whatsoever of Borrower to such Subordinated
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<PAGE> 9
Holder. To the knowledge of the Subordinated Holder, there is no event of
default which with the giving of notice, passage of time or both would
constitute an event of default existing under the Subordinated Debt Documents.
(c) [TEXT HAS BEEN DELETED]
(d) This Agreement has been duly authorized (if the Subordinated
Holder is a corporation, partnership or limited liability company), executed and
delivered by or on behalf of the Subordinated Holder and constitutes the legal,
valid and binding obligation of the Subordinated Holder, enforceable in
accordance with its terms.
10. Covenants.
(a) [TEXT HAS BEEN DELETED]
(b) The Subordinated Holder covenants that the entire
Subordinated Debt owing to the Subordinated Holder as of the date hereof (or the
date of any transfer to a Subordinated Holder after the date hereof) shall
continue to be owing only to the Subordinated Holder and all collateral therefor
shall continue to be held solely for the benefit of the Subordinated Holder
unless the Subordinated Holder has obtained and delivered to Senior Lender the
assignee's or transferee's written agreement to be bound by this Agreement.
(c) In the event the Subordinated Holder at any time has any
indebtedness or obligations owing to Borrower or any of its Subsidiaries, the
Subordinated Holder hereby irrevocably agrees that it shall repay such
indebtedness or obligations and shall not deduct from or setoff against any
amounts owing to the Subordinated Holder by Borrower or such Subsidiary in
connection therewith.
(d) Promptly upon obtaining knowledge thereof, the Subordinated
Holder shall deliver written notice to Senior Lender of the occurrence of an
event of default or default which with the giving of notice, passage of time or
both would constitute an event of default existing under the Subordinated Debt
Documents, together with a description of the nature thereof.
(e) No Subordinated Holder will change or amend the terms of the
Subordinated Debt owing to it if the effect of such amendment is to: (i)
increase the interest rate on such Subordinated Debt; (ii) change the dates upon
which payments of principal or interest are due on such Subordinated Debt other
than to extend such dates; (iii) change any default or event of default other
than to delete or make less restrictive any default provision therein, or add
any covenant with respect to such Subordinated Debt; (iv) change the redemption
or prepayment provisions of the Subordinated Debt Documents other than to extend
the dates therefor or to reduce the premiums payable in connection therewith; or
(v) change or amend any other term if such change or amendment would materially
increase the obligations of Borrower or confer additional material rights to the
Subordinated Holder in a manner adverse to Borrower, any of its Subsidiaries or
Senior Lender.
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(f) The Subordinated Holder shall not initiate or prosecute or
encourage any other Person to initiate or prosecute any claim, action or other
proceeding (i) challenging the enforceability or priority of the Senior Lenders'
claim, (ii) challenging the enforceability or priority of any liens or security
interests in assets securing the Senior Debt or (iii) asserting any claims which
the Borrower may hold with respect to the Senior Lenders.
(g) Until the Senior Debt is Satisfied, the Subordinated Holder
will not file or join with any other Person in filing against, Borrower or any
of its Subsidiaries any (i) involuntary bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding under the Bankruptcy Code or any similar
Federal or state law or (ii) any motion for the substantive consolidation of any
case of Borrower with the case of any Subsidiary of Borrower which is a party to
the Senior Debt Documents in any voluntary or involuntary bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding under the
Bankruptcy Code or any similar Federal or state law file or join with any other
Person; provided, however, that (x) the Subordinated Holder shall have no duty,
liability or responsibility with respect to any such filing by any other Person
except for duties expressly created by this Section 10(g); and (y) the foregoing
shall not limit the rights of the Subordinated Holder to file any claim in or
otherwise take any action (not inconsistent with the express provisions of this
Agreement) permitted or required by applicable law with respect to any
insolvency proceeding instituted against Borrower or its Subsidiaries by any
other Person.
11. Continuing Nature of Subordination. This Agreement shall be
effective and may not be terminated or otherwise revoked by the Subordinated
Holder until the Senior Debt shall have been Satisfied. In the event the
Subordinated Holder shall have any right under applicable law otherwise to
terminate or revoke this Agreement which right cannot be waived, such
termination or revocation shall not be effective until written notice of such
termination or revocation, signed by the Subordinated Holder, is actually
received by Senior Lenders in accordance with Section 21. In the absence of the
circumstances described in the immediately preceding sentence, this is a
continuing agreement of subordination and Senior Lenders may continue, at any
time and without notice to the Subordinated Holder, to extend credit or other
financial accommodations and loan moneys to or for the benefit of Borrower and
its Subsidiaries on the faith hereof. Any termination or revocation described
hereinabove shall not affect this Agreement in relation to (a) any of the Senior
Debt which arose prior to receipt thereof or(b) any of the Senior Debt created
after receipt thereof, if such Senior Debt was incurred for the purpose of
protecting any collateral or in respect of enforcement costs, expenses, and
attorneys' and paralegals' fees, whensoever made, advanced or incurred by Senior
Lenders in connection with the Senior Debt. If, in reliance on this Agreement,
Senior Lenders make loans or other advances to or for the benefit of Borrower or
any of its Subsidiaries or takes other action under the Senior Debt Documents
after such aforesaid termination or revocation by such Subordinated Holder but
prior to the receipt by Senior Lenders of said written notice as set forth
above, the rights of Senior Lenders shall be the same as if such termination or
revocation had not occurred; and, in any event, no obligation of the
Subordinated Holder hereunder shall be affected pursuant to this Section 11 by
the death or incapacity of the Subordinated Holder or any other subordinated
party, pledgor, endorser, or guarantor, if any.
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(12) Waivers of Subordinated Holders. All of the Senior Debt shall be
deemed to have been made or incurred in reliance upon this Agreement. The
Subordinated Holder expressly waives all notice of the acceptance by Senior
Lender of the subordination and other provisions of this Agreement and all other
notices not specifically required pursuant to the terms of this Agreement
whatsoever, and each Subordinated Holder expressly waives reliance by the Senior
Lenders upon the subordination and other agreements as herein provided.
Subordinated Holder hereby waives any right that it may have whether such right
arises under Sections 9504 or 9505 of the Uniform Commercial Code as in effect
on the date hereof in the State of California or other applicable law, to
receive notice of Senior Lenders' intended disposition of (or a portion thereof)
or of Senior Lenders' proposed retention of such assets in assets securing the
Senior Debt, or any part thereof satisfaction of the Senior Debt (or a portion
thereof). The Subordinated Holder further agrees that in the event Borrower
consents or fails to object to a proposed retention of such assets (or a portion
thereof) by Senior Lenders in satisfaction of the Senior Debt (or a portion
thereof), the Subordinated Holder hereby consents to such proposed retention
regardless of whether the Subordinated Holder is provided with notice of such
proposed retention. The Subordinated Holder agrees that it will not interfere
with or in any manner oppose a disposition of any assets securing the Senior
Debt by Senior Lenders. Each Subordinated Holder agrees that Senior Lenders have
made no warranties or representations with respect to the due execution,
legality, validity, completeness or enforceability of the Senior Debt Documents,
or the collectibility of the Senior Debt, that Senior Lenders shall be entitled
to manage and supervise the Senior Debt in accordance with applicable law and
Senior Lenders' usual practices, modified from time to time as Senior Lenders
deems appropriate under the circumstances, without regard to the existence of
any rights that the Subordinated Holder may now or hereafter have in or to any
of the assets of Borrower, and that Senior Lenders shall have no liability to
the Subordinated Holder for, and waives any claim, except claims arising out of
gross negligence or willful misconduct on the part of the Senior Lenders or any
Senior Lender, which the Subordinated Holder may now or hereafter have against,
Senior Lenders arising out of any and all actions which Senior Lenders, in good
faith, take or omits to take (including, without limitation, actions with
respect to the creation, perfection or continuation of lines or security
interests in the "Collateral" (as defined in the Senior Debt Documents)) and
other security for the Senior Debt, actions with respect to the occurrence of an
Event of Default, actions with respect to the foreclosure upon, sale, release,
or depreciation of, or failure to realize upon, any of the Collateral and
actions with respect to the collection of any claim for all or any part of the
Senior Debt from any account debtor, guarantor or any other party) with respect
to the Senior Debt Documents or any other agreement related thereto or to the
collection of the Senior Debt or the valuation, use, protection or release of
the Collateral and/or other security for the Senior Debt.
13. Bankruptcy Issues. The Subordinated Holder agrees the Senior Lenders
may consent to the use of cash collateral or provide financing to Borrower
and/or any of its Subsidiaries on such terms and conditions and in such amounts
as Senior Lenders, in their sole discretion, may decide and that, in connection
with such cash collateral usage or such financing, Borrower or such Subsidiary
(or a trustee appointed for the estate of any or all of them) may grant to
Senior Lenders lines and security interests upon all assets of Borrower or such
Subsidiary, as applicable, which liens and security interests (i) shall secure
payment of all Senior Debt (whether such Senior Debt arose prior to the filing
of the petition for relief or arise
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thereafter); and (ii) shall be superior in priority to the liens and security
interests, held by the Subordinated Holder on the assets of Borrower or such
Subsidiary. All allocations of payments between Senior Lenders and the
Subordinated Holder shall, subject to any court order, continue to be made after
the filing of a petition under the Bankruptcy Code on the same basis that the
payments were to be allocate prior to the date of such filing. The Subordinated
Holder waives any claim it may now or hereafter have arising out of Senior
Lenders' elections, in any proceeding instituted under Chapter 11 of the
Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy
Code, and/or any borrowing or grant of a security interest under Section 364 of
the Bankruptcy Code by Borrower, as debtor in possession.
14. Senior Lenders' Waivers. No waiver shall be deemed to be made by
Senior Lenders of any of Senior Lenders' rights hereunder, unless the same shall
be in writing signed on behalf of Senior Lenders, and each waiver, if any, shall
be a waiver only with respect to the specific instance involved and shall in no
way impair the rights of Senior Lender or the obligations of the Subordinated
Holder to Senior Lenders in any other respect at any other time.
15. Information Concerning Financial Condition of Borrower. The
Subordinated Holder hereby assumes responsibility for keeping itself informed of
the financial condition of Borrower, any and all endorsers and any and all
guarantors of the senior Debt and of all other circumstances bearing upon the
risk of nonpayment of the Senior Debt and/or Subordinated Debt that diligent
inquiry would reveal, and the Subordinated Holder hereby agrees that Senior
Lender shall have no duty to advise any Subordinated Holder of information known
to Senior Lender regarding such condition or any such circumstances. In the
event Senior Lenders, in Senior Lenders' sole discretion, undertakes, at any
time or from time to time, to provide any such information to any Subordinated
Holder, Senior Lenders shall be under no obligation (i) to provide any such
information to any Subordinated Holder on any subsequent occasion or (ii) to
undertake any investigation not a part of Senior Lenders' regular business
routine and shall be under no obligation to disclose any information which,
pursuant to accepted or reasonable commercial finance practices, Senior Lender
wishes to maintain confidential. Each Subordinated Holder hereby agrees that all
payments received by Senior Lenders may be applied, reversed, and reapplied, in
whole or in part, to any of the Senior Debt, as Senior Lenders, in Senior
Lenders' sole discretion, deems appropriate and assents to any extension or
postponement of the time of payments of the Senior Debt or to any other
indulgence with respect thereto, to any substitution, exchange or release of
collateral which may at any time secure the Senior Debt and to the addition or
release of any other party or Person primarily or secondarily liable therefor.
16. No Waiver. Senior Lenders' failure, at any time or times, to require
strict performance by any Subordinated Holder of any provision of this Agreement
shall not waive, affect or diminish any right of Senior Lenders thereafter to
demand strict compliance and performance therewith. None of the undertakings,
agreements, warranties, covenants and representations of the Subordinated Holder
contained in this Agreement shall be deemed to have been suspended or waived by
Senior Lenders, unless such waiver or suspension is by an instrument in writing
signed by an officer of or other authorized employee of Senior Lenders and
directed to the Subordinated Holders specifying such suspension or waiver.
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17. Remedies. Senior Lenders' rights and remedies under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies which
Senior Lenders may have under any other agreement, by operation of law or
otherwise. Recourse to Senior Lenders' collateral shall not be required.
18. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement.
19. Conflict of Terms. Subordinated Holder acknowledges and agrees that,
to the extent the terms and provisions of either this Agreement or the Senior
Debt Documents are inconsistent with any Subordinated Debt Document, such
Subordination Debt Document shall be deemed to be subject to the Senior Debt
Documents and this Agreement.
20. GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. EACH PARTY HERETO HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN LOS ANGELES COUNTY OR ORANGE COUNTY,
CALIFORNIA SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE SUBORDINATED HOLDERS (OR ANY OF THEM) AND SENIOR LENDER
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT, PROVIDED, THAT ALL PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF LOS ANGELES OR
ORANGE COUNTY, CALIFORNIA AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO PRECLUDE SENIOR LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON ANY COLLATERAL
GRANTED TO ANY SUBORDINATED HOLDER OR ANY OTHER SECURITY FOR THE SUBORDINATED
DEBT, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SENIOR LENDER.
EACH PARTY HERETO EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PARTY HERETO HEREBY
WAIVES ANY OBJECTION WHICH SUCH PARTY MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH PARTY HERETO HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
13
<PAGE> 14
REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET
FORTH IN EXHIBIT B OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
21. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other parties, or whenever any of the parties desires to give or
serve upon any other parties any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and three (3)
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
21), (c) one (1) Business Day after deposit with a reputable overnight courier
with all charges prepaid or (d) when delivered, if hand-delivered by messenger,
all of which shall be addressed to the party to be notified and sent to the
address or facsimile number indicated on Exhibit B or to such other address (or
facsimile number) as may be substituted by notice given as herein provided. The
giving of any notice required hereunder may be waived in writing by the party
entitled to receive such notice.
22. Section Titles. The Section titles contained in this Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.
23. Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
24. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, BETWEEN ANY SUBORDINATED HOLDER AND SENIOR LENDER
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR THE TRANSACTIONS
RELATED HERETO.
14
<PAGE> 15
25. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Borrower
and/or any of its Subsidiaries for liquidation or reorganization, should
Borrower and/or any of its Subsidiaries become insolvent or make an assignment
for the benefit of any creditor or creditors or should a receiver or trustee be
appointed for all or any significant part of the assets of Borrower and/or any
of its Subsidiaries, and shall continue to be effective or to be reinstated, as
the case may be, if at any time payment and performance of the Senior Debt, or
any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Senior
Debt, whether as a "voidable preference," "fraudulent conveyance," or otherwise,
all as though such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored or returned,
the Senior Debt shall be reinstated and deemed reduced only by such amount paid
and not so rescinded, reduced, restored or returned.
26. Advice of Counsel. Each of the parties represents to each other
party hereto that it has discussed this Agreement and, specifically, the
provisions of Section 20 and 24, with its counsel.
27. No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event as ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
15
<PAGE> 16
IN WITNESS WHEREOF, this instrument has been executed by the duly
authorized officer of the undersigned as of the date first above written.
SEAGATE TECHNOLOGY, INC.,
as the Subordinated Holder
By: /s/
--------------------------------------
Title:
-----------------------------------
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY,
as Bank Group Agent
By: /s/
--------------------------------------
Title:
-----------------------------------
FOOTHILL CAPITAL CORPORATION,
as Foothill Group Agent
By: /s/
--------------------------------------
Title:
-----------------------------------
16
<PAGE> 17
ACKNOWLEDGMENT OF STORMEDIA INCORPORATED
The undersigned hereby approves of, an agrees and consents to, the
foregoing Subordination Agreement, and agrees not to make any payments on
account of Subordinated Debt except as expressly permitted therein or to take
any action which is inconsistent with the provisions thereof.
STORMEDIA INCORPORATED
By: /s/
--------------------------------------
Title:
-----------------------------------
17
<PAGE> 1
EXHIBIT 10.16
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (this "Agreement") dated as of May
29, 1998, by and between StorMedia Incorporated, a Delaware corporation (the
"Company"), and CIBC [Asia] Ltd., Banque Nationale de Paris, Singapore Branch,
Union Bank of California N.A., Sanwa Bank California and Fleet National Bank
(each a "Purchaser" and collectively the "Purchasers").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of
August 23, 1996, as amended, among StorMedia International, Ltd.
("International"), Strates Pte. Ltd. ("Strates"), the Company, the Purchasers,
Canadian Imperial Bank of Commerce, New York Agency as Agent for the Purchasers
(the "Agent") and Banque Nationale de Paris as Co-Agent (the "Co-Agent"), the
Purchasers made certain loans (the "Loans") to International and Strates, each
of which is a subsidiary of the Company;
WHEREAS, repayment of the Loans heretofore has been guaranteed by
the Company and by StorMedia Foreign Sales Corporation, another subsidiary of
the Company;
WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement of even date herewith, among International, Strates, the Company, the
Purchasers, the Agent and the Co-Agent (the "Amended and Restated Credit
Agreement"), the Purchasers are extending the maturity and otherwise amending
the terms, of the Loans and Akashic Memories Corporation, another subsidiary of
the Company, also is guarantying the repayment of the Loans;
WHEREAS, in order to induce the Purchasers to enter into the Amended
and Restated Credit Agreement, the Company has agreed to issue and sell to the
Purchasers warrants initially exercisable for an aggregate of 2,000,000 shares
of the Class A Common Stock, par value $0.013 per share, of the Company (the
"Class A Common Stock");
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which is hereby acknowledged, the parties mutually agree as follows:
SECTION 1. DEFINITIONS
The terms hereinafter set forth when used herein shall have the
following meanings, and any terms not otherwise defined herein that are defined
in the Amended and Restated Credit Agreement shall have the respective meanings
specified in the Amended and Restated Credit Agreement:
<PAGE> 2
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor statute.
"Common Stock" shall mean the Class A Common Stock and the Class B
Common Stock, par value $0.013 per share, of the Company ("Class B Common
Stock").
"Commission" shall mean the Securities and Exchange Commission, or
any other federal agency then administering the Securities Act.
"Contractual Obligation" shall mean, with respect to any person, any
provision of any mortgage or security issued by such person or of any lease,
franchise, agreement, guaranty, instrument or undertaking to which such person
is a party or by which such person or any of its properties is bound.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any entity, body or official
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Requirement of Law" shall mean any applicable law, statute, treaty,
rule, regulation, arbitration award, judgment, decree, order or other
determination of any Governmental Authority.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"Warrant" shall have the meaning assigned in Section 2.01 hereof.
SECTION 2. ISSUE AND SALE OF WARRANTS
2.01 Issue of Warrants. Concurrently with the execution and delivery
hereof, the Company is issuing and selling to the Purchasers, and the Purchasers
are purchasing from the Company, five warrants (each a "Warrant"), one issuable
to each Purchaser, initially exercisable for the purchase of an aggregate of
2,000,000 shares of Class A Common Stock.
2.02 Consideration; Nature of Warrants. The parties hereto
acknowledge that the Warrants are being issued in consideration of services
rendered to the Company in connection with the transactions contemplated by the
Amended and Restated Credit Agreement and will be treated by all parties for
federal and state income tax purposes as options without a readily ascertainable
fair market value.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company,
severally and not jointly with any other Purchaser or Purchasers, as follows:
2
<PAGE> 3
3.01 Authority. Such Purchaser has full legal right, power and
authority to enter into and perform this Agreement, and the execution and
delivery of this Agreement by such Purchaser and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of such Purchaser. This Agreement constitutes the legal, valid
and binding obligation of such Purchaser, enforceable against it in accordance
with the terms hereof, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and subject to general principles of equity.
3.02 Investment Intention. Each Purchaser is acquiring the Warrant
issued to the that Purchaser for investment and not with a view to the
distribution thereof. Each Purchaser acknowledges that the Warrants and the
Class A Common Stock issuable on exercise thereof have not been and will not be
registered under the Securities Act or under any state securities laws and are
being offered and sold in reliance upon exemptions, for transactions not
involving any public offering. Each Purchaser acknowledges that it has had an
opportunity to ask questions of and receive answers from officers of the Company
regarding the Warrants, the Company and its business prospects and financial
condition.
3.03 Brokers and Finders. No brokerage or finder's commissions or
fees are payable in connection with the transactions contemplated by this
Agreement on account of any action taken by such Purchaser or its
representatives, and such Purchaser will indemnify the Company against and hold
the Company harmless from any liability, loss or expense (including, without
limitation, reasonable attorneys' fees) arising in connection with any claim for
any such commissions or fees.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as
follows:
4.01 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with all requisite power to own its properties and assets and to conduct its
business as now conducted, and is duly qualified as a foreign corporation and is
in good standing in all other jurisdictions in which such qualification is
required.
4.02 Capitalization. (a) As of May 27, 1998, the Company's
authorized capital stock consists of: (i) 50,000,000 shares of Class A Common
Stock, of which 16,317,932 shares were issued and outstanding, (ii) 5,000,000
shares of Class B Common Stock, of which 4,362,000 shares were issued and
outstanding (all of which have been tendered for conversion into Class A Common
Stock effective as of the date of this Agreement), and (iii) 1,000,000 shares of
preferred stock, par value $0.01 per share, of which 500,000 shares are being
designated Series A Preferred Stock, none of which shares were issued and
outstanding. All of the outstanding shares of capital stock of the Company (x)
have been duly authorized and validly issued, are fully paid and nonassessable,
and free of preemptive rights, and (y) have been offered and issued without
violation of the Securities Act or any applicable state securities or blue sky
law or any preemptive rights of any person. Schedule A hereto accurately sets
forth, as of the
3
<PAGE> 4
date hereof, the number of issued and outstanding shares of Common Stock held by
each person known by the Company to own beneficially or of record five percent
(5%) of more of the outstanding shares of any class of the Company's capital
stock.
(b) Except as disclosed on Schedule B hereto: (i) there are no
issued or outstanding securities that are convertible into or exchangeable for
shares of the Company's capital stock ("Convertible Securities"); (ii) there are
no issued or outstanding subscriptions, options, warrants or other rights to
purchase or acquire any shares of the capital stock of the Company or any
Convertible Securities ("Option Rights") other than the Warrants; (iii) the
Company is not a party to any agreement or understanding pursuant to which the
Company is obligated to purchase, redeem or otherwise reacquire or cancel any
shares of the Company's capital stock or any Convertible Securities or Option
Rights, and the Company is not otherwise under any obligation to repurchase,
redeem or otherwise acquire any shares of the Company's capital stock or any
Convertible Securities or Option Rights; (iv) the Company is not a party to any
agreement or understanding pursuant to which the Company is obligated to
register any shares of its capital stock or other securities under the
Securities Act or any state securities laws; and (v) to the best knowledge of
the Company, no securities holder of the Company is a party to any voting
agreement, voting trust, irrevocable proxy or other agreement affecting the
voting rights of any shares of the Company's capital stock or any agreement
providing for any call or put option, right of first refusal or offer or other
right to acquire or dispose of any shares of the Company's capital stock or any
Convertible Securities or Option Rights. Other than the shares of Class A Common
Stock reserved for issuance upon exercise of the Warrants, except as disclosed
on Schedule B hereto no shares of Common Stock are issuable upon the exercise of
any outstanding Convertible Securities or Option Rights and no additional shares
of Common Stock will become issuable upon exercise of such Convertible
Securities or Option Rights on account of the issuance of the Warrants.
4.03 Valid Issuance of Warrants. (a) The Warrants have been duly
executed and delivered by the Company, have been duly authorized and validly
issued free and clear of all liens, encumbrances, equities and claims created by
the Company, are fully paid and non-assessable, and constitute the legal, valid
and binding obligations the Company, enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and subject
to general principles of equity.
(b) The shares of Class A Common Stock issuable upon exercise of the
Warrants have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of the Warrants, will be validly issued, fully paid
and non-assessable, free and clear of all liens, encumbrances, equities and
claims created by the Company and without violation of any preemptive rights.
4.04 Authority. The Company has full legal right, power and
authority (i) to enter into and perform this Agreement and (ii) to issue the
Warrants and to perform all of the Company's obligations relating thereto. The
execution and delivery of this Agreement, the issuance of the Warrants by the
Company and the consummation of the transactions contemplated hereby and thereby
have all been duly authorized by the Board of Directors of the
4
<PAGE> 5
Company and, where required, the shareholders of the Company. No consent, waiver
or authorization of, or filing with any other Person (including without
limitation, any Governmental Authority) is required in connection with any of
the foregoing or with the validity or enforceability against the Company of this
Agreement or the Warrants. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and subject to general principles of equity.
4.05 No Conflict. The execution, delivery and performance of this
Agreement and the Warrants and the consummation of the transactions contemplated
hereby and thereby do not and will not, with or without the passage of time or
the giving of notice or both, (i) conflict with or violate any provision of the
Company's certificate of incorporation or by-laws, (ii) conflict with or violate
any Requirement of Law or Contractual Obligation applicable to the Company or
any of its subsidiaries, (iii) result in, or require, the creation or imposition
of any Lien on any of the properties or revenues of the Company or any of its
subsidiaries pursuant to any Requirement of Law or Contractual Obligation or
(iv) require any action by or in respect of, or filing with, any Governmental
Authority other than filings under applicable securities laws and listing of the
Class A Common Stock with the Nasdaq National Market.
4.06 Litigation. No action, suit, claim, litigation, investigation
or proceeding (formal or informal) of or before any arbitrator or Governmental
Authority is pending or (to the best of the Company's knowledge) threatened by
or against the Company or any of its subsidiaries against any of their
respective properties or revenues with respect to this Agreement or the Warrants
or any of the transactions contemplated hereby or thereby.
4.07 Compliance With Laws. The Company and its subsidiaries are in
compliance, in all material respects, with all laws, ordinances, governmental
rules and regulations to which the Company or any such subsidiary is subject,
where the failure to so comply would have an adverse effect on the
enforceability against the Company of this Agreement or the Warrants or the
ability of the Company to perform its obligations hereunder and thereunder.
4.08 Brokers and Finders. Except as disclosed in the Amended and
Restated Credit Agreement and the schedules thereto, no brokerage or finder's
commissions or fees are payable in connection with the transactions contemplated
by this Agreement on account of any action taken by the Company, its
subsidiaries or other affiliates or their respective representatives, and the
Company will indemnify each Purchaser against and hold each Purchaser harmless
from any liability, loss or expense (including, without limitation, reasonable
attorneys' fees) arising in connection with any claim for any such commissions
or fees.
4.09 Securities Law Compliance. The offer and sale of the Warrants
hereunder is exempt from the registration and prospectus delivery requirements
of the Securities Act, and the rules and regulations thereunder, and all
applicable state securities laws. The Company has not offered the Warrants to
anyone other than the Purchasers.
5
<PAGE> 6
4.10 Transfer Taxes. Except as have been paid by the Company or any
of its subsidiaries prior to the date hereof, no fees, taxes, charges or other
amounts imposed by any federal, state or local taxing or other Governmental
Authority are or will become payable by the Company or any Subsidiary or any
Purchaser as a consequence of the consummation of any of the transactions
contemplated hereby (including, without limitation, transfer taxes and filing
fees).
4.11 Full Disclosure. This Agreement, together with the Amended and
Restated Credit Agreement and the exhibits, schedules, attachments, documents,
certificates and other written items and materials prepared and supplied to the
Purchasers by or on behalf of the Company with respect to the transactions
contemplated hereby and thereby, taken as a whole, do not and will not, as the
case may be, as of the dates made contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
contained therein not misleading in the context made. There is no fact known to
the Company or any of its subsidiaries that the Company has not disclosed to the
Purchasers in writing and that is reasonably likely to have a material adverse
effect on the business, operations, property, prospects or condition (financial
or otherwise) of the Company or any subsidiary or would have an adverse effect
on the enforceability against the Company of this Agreement or the Warrants or
the ability of the Company to perform its obligations hereunder or thereunder.
SECTION 5. MISCELLANEOUS
5.01 Expenses. The Company agrees to pay, and save each Purchaser
harmless against liability for the payment of, all reasonable expenses arising
in connection with the transactions contemplated by this Agreement or by the
Warrants, including, without limitation, any stamp or similar taxes (including
interest and penalties, if any) that may be determined to be payable in respect
of the execution, delivery, issue and sale of the Warrants, the reasonable fees
and out-of-pocket expenses of counsel to the Purchasers or any of them in
connection with the preparation of this Agreement and the issuance of the
Warrants, including any and all amendments or other modifications, waivers or
consents to or with respect to such agreements, the expense of preparing and
issuing the Warrants, the cost of delivering the Warrants to such place as the
Purchasers shall determine, insured to their satisfaction, and the costs and
expenses incurred in the preparation of all certificates and letters on behalf
of the Company and of the performance by the Company of and compliance with all
agreements and conditions contained herein to be performed or complied with.
5.02 Notices.
(a) All communications under this Agreement shall be in writing and
shall be mailed by first class mail, postage prepaid,
(1) if to the Purchasers, to their respective addresses set forth in
the Credit Agreement or at such other address as such Purchaser may have
furnished the Company in writing, or
6
<PAGE> 7
(2) if to the Company, to its address as set forth in the Amended
and Restated Credit Agreement or at such other address as the Company may
have furnished to each of the Purchasers in writing.
(b) Any notice so addressed and mailed by registered or certified
mail shall be deemed to have been given when mailed.
5.03 Survival. All warranties, representations and covenants made
herein or in any certificate or other instrument delivered by the parties hereto
or on their behalf under this Agreement shall be considered to have been relied
upon and shall survive the delivery of the Warrants and payment therefor,
regardless of any investigation made by any such party or on their behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representations by such party hereunder.
5.04 Amendment. This Agreement may be amended or otherwise modified
only by a written instrument signed by the Majority Warrant Holders (as defined
in the Warrants) and the Company.
5.05 Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Any transfer of a Warrant in whole or in part shall be
deemed to constitute an automatic assignment of the rights of the transferor
hereunder (or, in the event of a partial transfer of a Warrant, an automatic
assignment of a pro rata portion of such rights) to the transferee.
5.06 Severability. Should any part of this Agreement for any reason
be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and effect
as if this Agreement had been executed with the invalid portion thereof
eliminated and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement without
including therein any such part or parts that may, for any reason, be hereafter
declared invalid.
5.07 Captions. The descriptive headings of the various Sections or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
5.08 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO THE CONFLICTS OF LAW RULES THEREOF.
5.09 Waiver of Jury Trial. The Company and the Purchasers each
hereby expressly acknowledges that any dispute arising out of, connected with,
or incidental to the relationships established between the Company, on the one
hand, and any one or more Purchasers, on the other, in connection with, this
Agreement, will be a highly complex commercial matter inappropriate for
resolution by a jury. The Company, on the one hand, and each of the Purchasers,
on the other, each hereby waives any right to have a jury participate in
7
<PAGE> 8
resolving any such dispute, whether sounding in contract, tort or otherwise.
Instead, any and all disputes resolved in court will be resolved in a bench
trial without a jury.
5.10 Entire Agreement. This Agreement, together with the Amended and
Restated Credit Agreement, the Warrants and the other Loan Documents (as such
term is defined in the Amended and Restated Credit Agreement), is intended by
the parties as a final expression of, and a complete and exclusive statement, of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There is no restriction, promise, warranty
or undertaking by any party or between any of the parties hereto with respect to
such subject matter other than those set forth or referred to herein and
therein. This Agreement, together with the other Loan Documents, supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
5.11 Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement or any Warrant, or where any provision hereof or
thereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees in addition to any other available remedy.
5.12 Counterparts. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
STORMEDIA INCORPORATED
By: /s/
---------------------------------
Title:
---------------------------------
S-1
<PAGE> 10
CIBC [Asia] LTD.
By: /s/
---------------------------------
Title:
---------------------------------
S-2
<PAGE> 11
BANQUE NATIONALE DE PARIS,
Singapore Branch,
By: /s/
---------------------------------
Title:
---------------------------------
By: /s/
---------------------------------
Title:
---------------------------------
S-3
<PAGE> 12
FLEET NATIONAL BANK
By: /s/
---------------------------------
Title:
---------------------------------
S-4
<PAGE> 13
SANWA BANK CALIFORNIA
By: /s/
---------------------------------
Title:
---------------------------------
S-5
<PAGE> 14
UNION BANK OF CALIFORNIA, N.A.
By: /s/
---------------------------------
Title:
---------------------------------
S-6
<PAGE> 15
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS..................................................... 1
SECTION 2. ISSUE AND SALE OF WARRANTS...................................... 2
2.01 Sale of Warrants......................................... 2
2.02 Allocated Purchase Price................................. 2
SECTION 3. REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS............................................... 2
3.01 Authority................................................. 3
3.02 Investment................................................ 3
3.03 Brokers and Finders....................................... 3
SECTION 4. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY.................................................. 3
4.01 Organization.............................................. 3
4.02 Capitalization............................................ 3
4.03 Valid Issuance of Warrants................................ 4
4.04 Authority................................................. 4
4.05 No Conflict............................................... 5
4.06 Litigation................................................ 5
4.07 Compliance With Laws...................................... 5
4.08 Brokers and Finders....................................... 5
4.09 Securities Law Compliance................................. 5
4.10 Transfer Taxes............................................ 5
4.11 Full Disclosure........................................... 6
SECTION 5. MISCELLANEOUS................................................... 6
5.01 Expenses.................................................. 6
5.02 Notices................................................... 6
5.03 Survival.................................................. 7
5.04 Amendment................................................. 7
5.05 Successors and Assigns.................................... 7
5.06 Severability.............................................. 7
5.07 Captions.................................................. 7
5.08 Governing Law............................................. 7
5.09 Waiver of Jury Trial...................................... 7
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C>
5.10 Entire Agreement.......................................... 7
5.11 Attorneys' Fee............................................ 8
5.12 Counterparts.............................................. 8
</TABLE>
Schedule A -- Schedule of 5% Holders of Capital Stock
Schedule B -- Schedule of Outstanding Convertible
Securities and Option Rights and Shares Issuable
<PAGE> 17
================================================================================
WARRANT PURCHASE AGREEMENT
dated as of May 29, 1998,
by and between
StorMedia Incorporated
and
CIBC [Asia] Ltd.,
Banque Nationale de Paris, Singapore Branch,
Union Bank of California N.A.,
Sanwa Bank California
and
Fleet National Bank
================================================================================
<PAGE> 1
EXHIBIT 10.17
================================================================================
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
STORMEDIA INCORPORATED AND
AKASHIC MEMORIES CORPORATION
AS BORROWER
AND
THE FINANCIAL INSTITUTIONS NAMED HEREIN
AS THE LENDERS,
AND
FOOTHILL CAPITAL CORPORATION
AS FOOTHILL GROUP AGENT
DATED AS OF MAY 29, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
1. DEFINITIONS AND CONSTRUCTION.................................................... 1
1.1 Definitions............................................................. 1
1.2 Accounting Terms........................................................ 30
1.3 UCC..................................................................... 30
1.4 Construction............................................................ 30
1.5 Schedules and Exhibits.................................................. 31
1.6 Obligors................................................................ 31
2. LOAN AND TERMS OF PAYMENT....................................................... 31
2.1 Revolving Advances...................................................... 31
2.2 Bridge Term Loan........................................................ 38
2.3 [intentionally omitted]................................................. 40
2.4 Payments................................................................ 40
2.5 Overadvances............................................................ 42
2.6 Interest: Rates, Payments, and Calculations............................ 42
2.7 Collection of Accounts.................................................. 43
2.8 Crediting Payments; Application of Collections.......................... 44
2.9 Designated Account...................................................... 44
2.10 Maintenance of Loan Account; Statements of Obligations.................. 45
2.11 Fees.................................................................... 45
3. CONDITIONS; TERM OF AGREEMENT................................................... 46
3.1 Conditions Precedent to the Initial Advance and Bridge Term
Loan.................................................................... 46
3.2 Conditions Precedent to all Advances.................................... 50
3.3 Condition Subsequent.................................................... 50
3.4 Term; Automatic Renewal................................................. 51
3.5 Effect of Termination................................................... 51
3.6 Early Termination by Borrower........................................... 51
3.7 Termination Upon Event of Default....................................... 51
4. CREATION OF SECURITY INTEREST................................................... 52
4.1 Grant of Security Interest.............................................. 52
4.2 Negotiable Collateral................................................... 53
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral.............................................................. 53
4.4 Delivery of Additional Documentation Required........................... 53
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
4.5 Power of Attorney....................................................... 54
4.6 Right to Inspect........................................................ 54
4.7 Control Agreements...................................................... 54
5. REPRESENTATIONS AND WARRANTIES.................................................. 55
5.1 No Encumbrances......................................................... 55
5.2 Eligible Accounts....................................................... 55
5.3 [intentionally omitted]................................................. 55
5.4 Equipment............................................................... 55
5.5 Location of Inventory and Equipment..................................... 56
5.6 Inventory Records....................................................... 56
5.7 Location of Chief Executive Office; FEIN................................ 56
5.8 Due Organization and Qualification; Subsidiaries........................ 56
5.9 Due Authorization; No Conflict.......................................... 57
5.10 Litigation.............................................................. 58
5.11 No Material Adverse Change. ............................................ 59
5.12 Solvency................................................................ 59
5.13 Employee Benefits....................................................... 59
5.14 Environmental Condition................................................. 59
5.15 Brokerage Fees.......................................................... 60
5.16 Intellectual Property................................................... 60
6. AFFIRMATIVE COVENANTS........................................................... 61
6.1 Accounting System....................................................... 61
6.2 Collateral Reporting.................................................... 61
6.3 Financial Statements, Reports, Certificates............................. 62
6.4 Tax Returns............................................................. 63
6.5 Guarantor Reports....................................................... 63
6.6 Returns................................................................. 63
6.7 Title to Worldwide Collateral........................................... 64
6.8 Maintenance of Equipment................................................ 64
6.9 Taxes................................................................... 64
6.10 Insurance............................................................... 64
6.11 No Setoffs or Counterclaims............................................. 66
6.12 Location of Inventory and Equipment..................................... 67
6.13 Compliance With Laws.................................................... 67
6.14 Employee Benefits....................................................... 67
6.15 Leases.................................................................. 68
6.16 Brokerage Commissions. ................................................. 68
7. NEGATIVE COVENANTS.............................................................. 68
7.1 Indebtedness............................................................ 69
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
7.2 Liens................................................................... 69
7.3 Restrictions on Fundamental Changes..................................... 69
7.4 Disposition of Assets................................................... 70
7.5 Change Name............................................................. 76
7.6 Guarantee............................................................... 76
7.7 Nature of Business...................................................... 76
7.8 Prepayments and Amendments.............................................. 76
7.9 Change of Control....................................................... 77
7.10 Consignments............................................................ 77
7.11 Distributions........................................................... 77
7.12 Accounting Methods...................................................... 77
7.13 Investments............................................................. 77
7.14 Transactions with Affiliates............................................ 77
7.15 Suspension.............................................................. 78
7.16 Compensation............................................................ 78
7.17 Use of Proceeds......................................................... 78
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees.................................................. 78
7.19 No Prohibited Transactions Under ERISA.................................. 78
7.20 Financial Covenant...................................................... 79
7.21 Capital Expenditures.................................................... 79
7.22 Securities Accounts..................................................... 79
7.23 Inactive Subsidiary..................................................... 80
8. EVENTS OF DEFAULT............................................................... 80
9. FOOTHILL'S RIGHTS AND REMEDIES.................................................. 82
9.1 Rights and Remedies..................................................... 82
9.2 Remedies Cumulative..................................................... 85
10. TAXES AND EXPENSES.............................................................. 85
11. WAIVERS; INDEMNIFICATION........................................................ 85
11.1 Demand; Protest; etc.................................................... 85
11.2 The Foothill Group's Liability for Worldwide Collateral................. 86
11.3 Indemnification......................................................... 86
12. NOTICES......................................................................... 86
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...................................... 88
14. DESTRUCTION OF OBLIGORS' DOCUMENTS.............................................. 88
</TABLE>
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<TABLE>
<S> <C>
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS...................................... 89
15.1 Assignments and Participations.......................................... 89
15.2 Successors.............................................................. 92
16. AMENDMENTS; WAIVERS............................................................. 92
16.1 Amendments and Waivers.................................................. 92
16.2 No Waivers; Cumulative Remedies......................................... 93
17. FOOTHILL GROUP AGENT; THE FOOTHILL GROUP........................................ 94
17.1 Appointment and Authorization of Foothill Group Agent................... 94
17.2 Delegation of Duties.................................................... 95
17.3 Liability of Foothill Group Agent....................................... 95
17.4 Reliance by Foothill Group Agent........................................ 95
17.5 Notice of Default or Event of Default................................... 96
17.6 Credit Decision......................................................... 96
17.7 Costs and Expenses; Indemnification..................................... 97
17.8 Foothill Group Agent in Individual Capacity............................. 98
17.9 Successor Foothill Group Agent.......................................... 98
17.10 Withholding Tax......................................................... 99
17.11 Worldwide Collateral Matters............................................100
17.12 Restrictions on Actions by Lenders; Sharing of Payments.................101
17.13 Agency for Perfection...................................................102
17.14 Payments by Foothill Group Agent to the Lenders.........................102
17.15 Concerning the Worldwide Collateral and Related Loan
Documents...............................................................103
17.16 Field Audits and Examination Reports; Confidentiality;
Disclaimers by Lenders; Other Reports and Information...................103
17.17 Several Obligations; No Liability.......................................104
18. GENERAL PROVISIONS..............................................................105
18.1 Effectiveness...........................................................105
18.2 Section Headings........................................................105
18.3 Interpretation..........................................................105
18.4 Severability of Provisions..............................................105
18.5 Amendments in Writing...................................................105
18.6 Counterparts; Telefacsimile Execution...................................105
18.7 Revival and Reinstatement of Obligations................................106
18.8 Integration.............................................................106
</TABLE>
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<PAGE> 6
SCHEDULES AND EXHIBITS
Schedule P-1 Permitted Liens
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.14 Environmental Matters
Schedule 5.16 Intellectual Property Matters
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Indebtedness
Exhibit C-1 Form of Compliance Certificate
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<PAGE> 7
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as
of May 29, 1998, among the financial institutions listed on the signature pages
hereof (such financial institutions, together with their respective successors
and assigns, are referred to hereinafter each individually as a "Lender" and
collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), as agent for the Lenders ("Foothill Group Agent"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333 and STORMEDIA INCORPORATED, a Delaware
corporation ("StorMedia"), with its chief executive office located at 385 Reed
Street, Santa Clara, California 95050 and AKASHIC MEMORIES CORPORATION, a
California corporation ("Akashic"), with its chief executive office located at
385 Reed Street, Santa Clara, California 95050.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Above OLV Sale" means any Sale of Worldwide Collateral by
Debtor as to which the Net Sale Consideration received is equal to or greater
than 90% of the OLV of the assets subject to such Sale.
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
one or more of the Obligors arising out of the sale, license, or lease of goods
or the rendition of services by one or more of the Obligors, irrespective of
whether earned by performance, and any and all credit insurance, guaranties, or
security therefor.
"Adjusted Net Worth" means, as of any date of determination,
the sum of (a) the consolidated net worth (determined in accordance with GAAP)
of StorMedia and its Subsidiaries, on a consolidated basis, (b) the outstanding
principal balance of Subordinated Indebtedness, and (c) without duplication, the
outstanding liquidation preference (excluding rights with respect to dividends)
of any preferred stock of StorMedia that is recharacterized as a liability and
not equity under GAAP.
"Advances" has the meaning set forth in Section 2.1(a).
-1-
<PAGE> 8
"Affiliate" means, as applied to any Person, any other
Person who, directly or indirectly, controls, is controlled by, is under common
control with, or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 10% or more of the Stock having ordinary voting power for the election
of directors (or comparable managers) or the direct or indirect power to direct
the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble
hereto.
"Akashic" means Akashic Memories Corporation, a California
corporation.
"Akashic Collateral" means any Worldwide Collateral owned by
any Akashic Entity.
"Akashic Domestic Collateral" means any Akashic Collateral
that is Domestic Collateral.
"Akashic Entities" means Akashic and Strates Malaysia,
collectively and individually.
"Akashic Foreign Collateral" means any Akashic Collateral
that is Foreign Collateral.
"Alternative Minimum Availability Condition" means, with
respect to any mandatory prepayment due the Bank Group under Sections
2.03(c)(ii) or (iii) of the Bank Group Agreement, that, after giving effect
thereto, and provided that the trade payables of Borrower have not increased
from the most recent field survey completed by Foothill Group Agent (or, to the
extent of any such increase, after reserving for same), there will exist at
least $12,000,000 of combined Availability and unrestricted cash and cash
equivalents of Borrower (including, in the case of a mandatory prepayment due
the Bank Group under Section 2.03(c)(iii) of the Bank Group Agreement, any such
unrestricted cash or cash equivalents that Borrower is entitled to receive and
retain in connection with the related "Equity Issuance" (as defined in the Bank
Group Agreement), giving effect to such Equity Issuance and the related required
mandatory prepayment).
"Applicable Percentage" means, from and after the Closing
Date and through November 30, 1998, 75%; and, thereafter, declining one percent
during each successive calendar month (e.g., 74% during December, 1998, 73%
during January, 1998, etc.).
"Assignee" has the meaning set forth in Section 15.1(a).
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<PAGE> 9
"Assignment and Acceptance" has the meaning set forth in
Section 15.1(a).
"Authorized Person" means any officer or other employee of
Borrower.
"Availability" means the amount that Borrower is entitled to
borrow as Advances under Section 2.1, such amount being the difference derived
when (a) the sum of the principal amount of Advances (including Foothill Group
Agent Advances and Foothill Loans) then outstanding (including any amounts that
the Foothill Group may have paid for the account of Borrower pursuant to any of
the Loan Documents and that have not been reimbursed by Borrower) is subtracted
from (b) the least of (i) the Maximum Revolving Amount, (ii) the Borrowing Base,
and (iii) the Revolving Advance Cap.
"Bank" means any individual member of the Bank Group.
"Bank Group" means the Bank Group Agent, CIBC [Asia] Ltd.,
Banque Nationale de Paris, San Francisco Branch, as Co-Agent, Banque National de
Paris, Singapore Branch, Fleet National Bank, Sanwa Bank California, Union Bank
of California, N.A., and any other Person holding any Bank Group Claim, and each
of them, collectively and individually.
"Bank Group Agent" means Canadian Imperial Bank of Commerce,
New York Agency, acting as agent for the Banks pursuant to the Bank Group
Financing Documents, and any successor agent thereunder. Unless Foothill Group
Agent shall have been notified otherwise in accordance with Section 21 of the
Intercreditor Agreement, Foothill Group Agent may presume that Canadian Imperial
Bank of Commerce continues to be Bank Group Agent.
"Bank Group Agreement" means that certain Amended and
Restated Credit Agreement, dated as of May 29, 1998, among International and
Strates, as borrowers, StorMedia, as parent guarantor, and the Bank Group, as
the same may from time to time be amended, restated, supplemented, modified,
renewed, extended, replaced, or refinanced.
"Bank Group Claims" means all present and future claims of
the Bank Group against Debtor for the payment of money arising under or related
to the Bank Group Financing Documents, including all claims for principal and
interest (including interest accruing after the commencement of a bankruptcy
proceeding by or against Debtor irrespective of whether a claim for such
interest is allowed in such proceeding), or for reimbursement in connection with
amounts paid under letters of credit or for cash collateralization of amounts
available to be drawn under letters of credit, or for reimbursement of late
charges, fees, costs or expenses, or otherwise, whether fixed or
-3-
<PAGE> 10
contingent, matured or unmatured, liquidated or unliquidated, and whether
arising under contract, in tort or otherwise; provided that "Bank Group Claims"
shall not refer to such claims to the extent the aggregate principal amount
thereof exceeds $38,400,000.
"Bank Group Enforcement Notice" means a written notice from
the Bank Group Agent to the Foothill Group Agent, given in accordance with
Section 21 of the Intercreditor Agreement, stating that (a) a Bank Group Event
of Default has occurred and is continuing, and (b) the Bank Group desires and
intends (subject to any applicable waiting periods or other restrictions
provided for in the Intercreditor Agreement) to take Enforcement Action(s)
against the Foothill Group Priority Collateral or the Equal Priority Collateral.
"Bank Group Event of Default" means an "Event of Default" as
defined under the Bank Group Financing Documents.
"Bank Group Financing Documents" means the Bank Group
Agreement and all present and future notes, guaranties, reimbursement
agreements, security documents or other documents or agreements in any way
related to, evidencing, or documenting the Bank Group Claims, as the same may
from time to time be amended, restated, supplemented, modified, renewed,
extended, replaced, or refinanced.
"Bank Group Priority Collateral" means (a) all Fixed Assets
of any StorMedia Entity, irrespective of whether they constitute StorMedia
Domestic Collateral or StorMedia Foreign Collateral, and (b) all Fixed Assets of
any Akashic Entity that constitute Akashic Foreign Collateral, (c) all Stock of
any Bank Group Priority Subsidiary, (d) all Identifiable Proceeds of any Bank
Group Priority Collateral, and (e) all Purchaser Notes delivered to or pledged
to the Bank Group Agent pursuant to Section 17(a) of the Intercreditor
Agreement.
"Bank Group Priority Subsidiaries" means the StorMedia
Subsidiaries other than the Foothill Group Priority Subsidiaries.
"Below OLV Sale" means any Sale of Worldwide Collateral by
Debtor as to which the Net Sale Consideration received for such Sale is less
than 90% of the OLV of the assets subject to such Sale.
"Books" means all of books and records of any Obligor,
including: ledgers; records indicating, summarizing, or evidencing the Obligors'
properties or assets (including any of the Worldwide Collateral) or liabilities;
all information relating to any Obligors' business operations or financial
condition; and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
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"Borrower" means, individually and collectively, and jointly
and severally, StorMedia and Akashic.
"Borrower Patent Security Agreement" means that certain
Patent Security Agreement, dated as of even date herewith, between Borrower and
Foothill Group Agent, in form and content satisfactory to Foothill Group Agent.
"Borrower Stock Pledge Agreement" means that certain Stock
Pledge Agreement, dated as of even date herewith, between Borrower and Foothill
Group Agent, in form and content satisfactory to Foothill Group Agent.
"Borrower Supplemental Security Documents" means,
individually and collectively: (a) the Borrower Patent Security Agreement; (b)
the Borrower Stock Pledge Agreement; and (c) the Borrower Trademark Security
Agreement.
"Borrower Trademark Security Agreement" means that certain
Trademark Security Agreement, dated as of even date herewith, between Borrower
and Foothill Group Agent, in form and content satisfactory to Foothill Group
Agent.
"Borrowing" means a borrowing hereunder consisting of
Advances made on the same day by the Lenders to Borrower, or by Foothill in the
case of a Foothill Loan, or by Foothill Group Agent in the case of an Foothill
Group Agent Advance.
"Borrowing Base" has the meaning set forth in Section
2.1(a).
"Bridge Term Loan" has the meaning set forth in Section 2.2.
"Bridge Term Loan Facility Fee" has the meaning set forth in
Section 2.11(c)(ii). . "Bridge Term Loan Funding Date" means the date the Bridge
Term Loan is funded by the Foothill Group.
"Bridge Term Loan Obligations" means any Obligations with
respect to the Bridge Term Loan (including, without limitation, the principal
thereof, interest thereon (including payment in kind interest), and fees or
expenses specifically related thereto).
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"Carryforward Reduction Amount" means, with respect to any
Below OLV Sale, an amount equal to (a) the Minimum Prepayment Amount applicable
to such
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<PAGE> 12
Sale, minus (b) the amount of the prepayment paid to the Bank Group with respect
to such Sale.
"Change of Control" shall be deemed to have occurred at such
time as: (a) a "Change of Control" (as such term is defined in the Bank Group
Agreement) occurs; (b) a "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of more than 10% of the total voting power of
all classes of Stock then outstanding of StorMedia entitled to vote in the
election of directors; (c) a majority of members of the board of directors of
StorMedia shall not be Continuing Directors; (d) StorMedia shall cease to own
and control, directly and of record, 100% of the issued and outstanding capital
Stock of Akashic; or (e) Borrower shall cease to own and control, directly and
of record, 100% of the issued and outstanding capital Stock of each Guarantor
unless disposed of in accordance with the Intercreditor Agreement. The foregoing
notwithstanding, there shall not be a Change of Control as the result of any
increase in Stock ownership by any shareholder of StorMedia that is a
shareholder of StorMedia on the Closing Date, or as the result of the exercise
of any warrants to acquire Stock of StorMedia outstanding on the Closing Date.
"Claims" means the Foothill Group Claims and the Bank Group
Claims.
"Closing Date" means (b) the earlier of (i) the date of the
satisfaction by Borrower and/or waiver by Foothill Group Agent of the conditions
set forth in Section 3.1 (other than subsection 3.1(r)) and (ii) the date of
funding of the Bridge Term Loan, or (b) such other date as may be mutually
agreed upon in writing among Borrower and the Foothill Group.
"Collateral" means all right, title, and interest of
Borrower in or to each of the following:
(a) the Accounts,
(b) the Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
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<PAGE> 13
(h) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of any member of the
Foothill Group, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Books, Equipment,
General Intangibles, Inventory, Negotiable Collateral, real property, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Inventory, in each
case, in form and substance satisfactory to Foothill Group Agent.
"Collections" means all cash, checks, notes, instruments,
and other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds).
"Commitment" means, at any time with respect to a Lender,
the principal amount set forth beside such Lender's name under the heading
"Commitment" on Schedule C-1 attached hereto or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 15.1, as such Commitment
may be adjusted from time to time in accordance with the provisions of Section
15.1, and "Commitments" means, collectively, the aggregate amount of the
commitments of all of the Lenders.
"Compliance Certificate" means a certificate substantially
in the form of Exhibit C-1 and delivered by the chief accounting officer of
Borrower to Foothill Group Agent.
"Continuing Director" means, as of any date of
determination, a member of the board of directors of StorMedia who (a) was a
member of the board of directors of StorMedia on the Closing Date, or (b) was
nominated to be a member of the board of directors of StorMedia by a majority of
the Continuing Directors then in office to fill a vacancy left by the death,
expiration of term, permanent disability, or resignation of a Continuing
Director.
"Control Agreement" means a control agreement, in form and
substance reasonably satisfactory to Foothill Group Agent, between Borrower,
Foothill Group Agent, and the applicable securities intermediary with respect to
the applicable Securities Account and related Investment Property.
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"Creditor Event of Default" means a Bank Group Event of
Default or a Foothill Group Event of Default, as the context requires.
"Creditors" means the Foothill Group, represented by
Foothill Group Agent, and the Bank Group, represented by Bank Group Agent.
"Cumulative Blockage" means, as of any date of
determination, the sum of Individual Blockages to date with respect to all
instances where the Foothill Group Agent received proceeds of Sales of Inventory
or Fixed Assets in which the Foothill Group Agent had a first priority Lien
pursuant to the Intercreditor Agreement (or proceeds of sales of Stock on
account thereof).
"Debtor" means StorMedia and each and every one of its
present and future direct and indirect Subsidiaries, collectively and
individually, including each and every such Subsidiary that now is, or at any
time hereafter becomes, a party to any one or more of the Financing Documents
(including International, Strates, StorMedia Foreign Sales, and the Akashic
Entities).
"deems itself insecure" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the UCC.
"Default" means an event, condition, or default that, with
the giving of notice, the passage of time, or both, would be an Event of
Default.
"Defaulting Lender" means any Lender that fails to make any
Advance that it is required to make hereunder on any Funding Date and that has
not cured such failure by making such Advance within 1 Business Day after
written demand upon it by Foothill Group Agent to do so.
"Defaulting Lenders Rate" means the Reference Rate for the
first 3 days from and after the date the relevant payment is due and,
thereafter, at the interest rate then applicable to Advances.
"Designated Account" means account number 1233421230 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) that has been
designated, in writing and from time to time, by Borrower to Foothill Group
Agent.
"Designated Account Bank" means Bank of America N.T. & S.A.,
whose relevant office is located at 1850 Gateway Blvd., Concord, California, and
whose ABA number is 121 000 358.
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<PAGE> 15
"Dilution" means, with respect to any Person and in each
case based upon the experience of the immediately prior 3 months, the result of
dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising,
returns, promotions, credits, or other dilutive items with respect to the
Accounts, by (b) such Person's Collections (excluding extraordinary items) plus
the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination,
an amount sufficient to reduce the advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution with respect to
Eligible Accounts is in excess of 7%.
"Disbursement Letter" means an instructional letter executed
and delivered by Borrower to Foothill Group Agent regarding any extensions of
credit to be made on the Closing Date, the form and substance of which shall be
satisfactory to Foothill Group Agent.
"Dollars or $" means United States dollars.
"Domestic Collateral" means (a) in the case of tangible
Worldwide Collateral, any such Worldwide Collateral located within the United
States of America or its possessions, dependencies, or territories, and (b) in
the case of intangible Worldwide Collateral, any such Worldwide Collateral of an
entity composing Debtor that is organized under the laws of, or maintains its
principal place of business in, the United States of America, its possessions,
dependencies, or territories, or any of the States composing the United States
of America. The Stock of International, Strates, and Strates Malaysia shall be
deemed Foreign Collateral and not Domestic Collateral. The Stock of StorMedia
Foreign Sales and Akashic shall be deemed Domestic Collateral and not Foreign
Collateral.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"Eligible Accounts" means Eligible Domestic Accounts and
Eligible Foreign Accounts.
"Eligible Domestic Accounts" means those Accounts (net of
unapplied cash and variances between the general ledger and the accounts
receivable aging report) created by Borrower (or by Strates or Strates Malaysia,
provided that the only Accounts of those Subsidiaries that may be eligible are
ones with respect to which the Account Debtor is a Specified Account Debtor and
with respect to which all amounts are billed in Dollars and collected in the
U.S. through the Lockboxes) in the ordinary course of business, that arise out
of Borrower's (or Strates or Strates Malaysia's, as applicable) sale of goods or
rendition of services, that strictly comply with each and all of the
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representations and warranties respecting Accounts made by Borrower (or Strates
or Strates Malaysia, as applicable) to Foothill Group Agent in the Loan
Documents, and that are and at all times continue to be acceptable to Foothill
Group Agent in all respects; provided, however, that standards of eligibility
may be fixed and revised from time to time by Foothill Group Agent in Foothill
Group Agent's reasonable credit judgment. Eligible Accounts shall not include
the following:
(a) Accounts that the Account Debtor has failed to pay
within 90 days of invoice date or Accounts with selling terms of more than 45
days;
(b) Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of any Obligor;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts with respect to which the Account Debtor: (i)
does not maintain its chief executive office in the United States, or (ii) is
not organized under the laws of the United States or any State thereof, or (iii)
is the government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof, unless
(y) the Account is supported by an irrevocable letter of credit satisfactory to
Foothill Group Agent (as to form, substance, and issuer or domestic confirming
bank) that has been delivered to Foothill Group Agent and is directly drawable
by Foothill Group Agent, or (z) the Account is covered by credit insurance in
form and amount, and by an insurer, satisfactory to Foothill;
(f) Accounts that are not billed and collected in U.S.
Dollars;
(g) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill Group Agent, with the
Assignment of Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the
United States (exclusive, however, of Accounts owed by any State that does not
have a statutory counterpart to the Assignment of Claims Act);
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(h) Accounts with respect to which the Account Debtor is a
creditor of an Obligor (except for Seagate Technology, Inc.), has or has
asserted a right of setoff, has disputed its liability, or has made any claim
with respect to the Account;
(i) (i) with respect to Account Debtors other than Specified
Account Debtors, Accounts with respect to an Account Debtor (including its
Affiliates) whose total obligations owing to the Obligors exceed 10% of all
Eligible Accounts, to the extent of the obligations owing by such Account Debtor
(or its Affiliates) in excess of such percentage, (ii) Accounts with respect to
a Specified Account Debtor (including its Affiliates) whose total obligations
owing to the Obligors exceed 60% of all Eligible Accounts, to the extent of the
obligations owing by such Specified Account Debtor (or its Affiliates) in excess
of such percentage, and (iii) Accounts with respect to any 2 Specified Account
Debtors (including their Affiliates) whose total obligations owing to the
Obligors exceed 80% of all Eligible Accounts, to the extent of the obligations
owing by such Specified Account Debtors (or their Affiliates) in excess of such
percentage; provided that the percentages stated in clauses (ii) and (iii) above
may be decreased by Foothill Group Agent in the good faith exercise of its
discretion if Foothill Group Agent in good faith determines that the
creditworthiness of one or more Specified Account Debtors has deteriorated
sufficiently to justify such decrease;
(j) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(k) Accounts the collection of which Foothill Group Agent,
in its reasonable credit judgment, believes to be doubtful by reason of the
Account Debtor's financial condition;
(l) Accounts with respect to which the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
(m) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;
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(n) Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by Borrower
(or Strates or Strates Malaysia, as applicable) of the subject contract for
goods or services; and
(o) Accounts that result from Sales of Fixed Assets.
The foregoing notwithstanding, Accounts of Strates shall not be
eligible until the Singapore Security Documents are registered in Singapore, and
Accounts of Strates Malaysia shall not be Eligible Accounts until the Malaysian
Security Documents are registered in Malaysia.
"Eligible Foreign Account" means any Account of Borrower (or
Strates or Strates Malaysia to the extent covered in the definition of "Eligible
Accounts") billed from within the U.S., and that by its terms is to be collected
in the U.S. in U.S. Dollars: (a) that does not qualify as an Eligible Domestic
Account solely because such Account is excluded from "Eligible Domestic
Accounts" by virtue of the exclusion contained in clause (e) of such definition;
and (b) with respect to which the Account Debtor is a wholly-owned Subsidiary of
a large, multinational corporation that is located in the United States of
America or in other jurisdictions acceptable to Foothill Group Agent (or, in the
case of Strates and Strates Malaysia, a Specified Account Debtor), or an Account
Debtor that is a Subsidiary of Samsung Electronics Co., Ltd. The foregoing
notwithstanding, Accounts of Strates shall not be eligible until the Singapore
Security Documents are registered in Singapore, and Accounts of Strates Malaysia
shall not be Eligible Accounts until the Malaysian Security Documents are
registered in Malaysia.
"Eligible Transferee" means: (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having total
assets in excess of $100,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development or a political subdivision of any such country, and
having total assets in excess of $100,000,000; provided that such bank is acting
through a branch or agency located in the United States; (c) a finance company,
insurance company or other financial institution or fund that is engaged in
making, purchasing or otherwise investing in commercial loans in the ordinary
course of its business and having total assets in excess of $50,000,000; (d) any
Affiliate (other than individuals) of a pre-existing Lender; (e) so long as no
Event of Default has occurred and is continuing, any other Person approved by
Foothill Group Agent and Borrower; and (f) during the continuation of an Event
of Default, any other Person approved by Foothill Group Agent.
"Enforcement Action" means, with respect to any Creditor and
with respect to any item of Worldwide Collateral (a) repossessing, selling,
leasing, or otherwise disposing of all or any part of such Worldwide Collateral,
or exercising notification or collection rights with respect to all or any
portion thereof, or attempting to do so, (b)
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commencing the enforcement with respect to such Worldwide Collateral of any of
the default remedies under any of such Creditor's Financing Documents, the UCC,
or other applicable laws, including the commencement of any lawsuit or
proceeding against Debtor to collect or enforce such Creditor's Claim, (c)
appropriating, setting off, or applying any part or all of such Worldwide
Collateral in the possession of, or coming into the possession of, such Creditor
or its agent or bailee, to such Creditor's Claim, or (d) filing by such Creditor
of, or the joining in the filing by such Creditor of, an involuntary bankruptcy
or insolvency proceeding against Debtor; provided, however, that, with respect
to any filing by any Person other than a Creditor of a proceeding, motion, or
suit described in clause (d), the filing by any Creditor of any claim in or the
taking of any other action (not inconsistent with the express provisions of the
Intercreditor Agreement) permitted or required by applicable law with respect to
any such proceeding, motion, or suit shall not be deemed to be an Enforcement
Action.
"Enforcement Period" means, with respect to the Claims of
any Creditor, any period of time commencing upon the earliest to occur of (a)
the actual taking by such Creditor of any Enforcement Action (other than an
insignificant or immaterial Enforcement Action) under circumstances where such
Creditor is entitled to do so under the terms of its Financing Documents, (b)
the acceleration by such Creditor of the maturity of its Claims, (c) the
maturation of such Creditor's Claims in accordance with their terms if such
Claims are not paid or satisfied on such date of maturation, (d) the
commencement of an Insolvency Proceeding with respect to Debtor, (e) the
permanent termination (as opposed to temporary suspension) by such Creditor of
its obligations to Debtor under its Financing Documents based on the existence
of an Event of Default, (f) the giving of a Bank Group Enforcement Notice, (g)
the giving of a Foothill Group Enforcement Notice, or (h) the giving or a
Foothill Group Equal Priority Collateral Enforcement Notice, and continuing
until the earlier to occur of (y) the final payment or satisfaction in full of
such Creditor's Claims, or (z) the waiver in writing by such Creditor of such
Creditor Event of Default.
"Equal Priority Collateral" means all General Intangibles
(other than and excluding deposit accounts) of Debtor other than Identifiable
Proceeds described in clause (d) of the definition of Bank Group Priority
Collateral. For purposes of clarity, Equal Priority Collateral does not include
Stock, Investment Property, Accounts, Inventory, or Fixed Assets.
"Equipment" means all of each Obligor's present and
hereafter acquired machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles (including motor vehicles and trailers), tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, including, any interest of any Obligor in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
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"Equity Contribution" means a Dollar contribution to the
equity capital of StorMedia either in the form of common stock or in the form of
preferred stock the rights, preferences, and privileges of which are
satisfactory in form and substance to Foothill Group Agent.
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to
any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of
its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its Subsidiaries
or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to
any Plan under Section 401(a)(29) of the IRC by Borrower or its Subsidiaries or
any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Excess Prepayment Amount" means an amount equal to 50% of
the Net Sale Consideration in excess of the Minimum Prepayment Amount.
"Existing Lenders" means the Bank Group.
"FEIN" means Federal Employer Identification Number.
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"Financing Documents" means the Foothill Group Financing
Documents and the Bank Group Financing Documents.
"Fixed Assets" means all real property, plant, and Equipment
(including fixtures) of Debtor.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Group" means, individually and collectively, each
of the individual Lenders and Foothill Group Agent.
"Foothill Group Agent" means Foothill Capital Corporation, a
California corporation, acting as agent for the members of the Foothill Group
pursuant to the Foothill Group Financing Documents, and any successor agent
thereunder. Unless Bank Group Agent shall have been notified otherwise in
accordance with Section 21 of the Intercreditor Agreement, Bank Group Agent may
presume that Foothill Capital Corporation continues to be Foothill Group Agent.
"Foothill Group Agent Account" has the meaning set forth in
Section 2.7(a).
"Foothill Group Agent Advances" has the meaning set forth in
Section 2.1(h)(i).
"Foothill Group Agent's Bridge Term Loan Liens" has the
meaning set forth in Section 4.1(A).
"Foothill Group Agent's Liens" has the meaning set forth in
Section 4.1.
"Foothill Group Agent-Related Persons" means Foothill Group
Agent and any successor agent, together with their respective Affiliates, and
the officers, directors, employees, counsel, agents, and attorneys-in-fact of
such Persons and their Affiliates.
"Foothill Group Agreement" means this Agreement, as the same
may from time to time be amended, modified, renewed, extended or restated.
"Foothill Group Claims" means all present and future claims
of Foothill Group against Debtor for the payment of money arising under or
related to the
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Foothill Group Financing Documents, including all claims for principal and
interest (including interest accruing after the commencement of a bankruptcy
proceeding by or against Debtor irrespective of whether a claim for such
interest is allowed in such proceeding), or for reimbursement in connection with
amounts paid under letters of credit (or guaranties in respect thereof) or for
cash collateralization of amounts available to be drawn under letters of credit
(or guaranties in respect thereof), or for reimbursement of late charges, fees,
costs or expenses, or otherwise, whether fixed or contingent, matured or
unmatured, liquidated or unliquidated, and whether arising under contract, in
tort or otherwise; provided that "Foothill Group Claims" shall not refer to such
claims to the extent the aggregate principal amount thereof exceeds, as of any
date of determination, $30,000,000 minus (b) the aggregate amount of principal
repayments made with respect to the Bridge Term Loan.
"Foothill Group Enforcement Notice" means a written notice
from the Foothill Group Agent to the Bank Group Agent, given in accordance with
Section 21 of the Intercreditor Agreement, stating that (a) a Foothill Group
Event of Default has occurred and is continuing, and (b) the Foothill Group
desires and intends (subject to any applicable waiting periods or other
restrictions provided for in the Intercreditor Agreement) to take Enforcement
Action(s) against the Bank Group Priority Collateral.
"Foothill Group Equal Priority Collateral Enforcement
Notice" means a written notice from the Foothill Group Agent to the Bank Group
Agent, given in accordance with Section 21 of the Intercreditor Agreement,
stating that (a) a Foothill Group Event of Default has occurred and is
continuing, and (b) the Foothill Group desires and intends (subject to any
applicable provisions of the Intercreditor Agreement) to take Enforcement
Action(s) against the Equal Priority Collateral.
"Foothill Group Event of Default" means an "Event of
Default" as defined in the Foothill Group Agreement.
"Foothill Group Expenses" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by any Obligor
under any of the Loan Documents that are actually paid or incurred by the
Foothill Group; reasonable fees or charges paid or incurred by the Foothill
Group in connection with the Foothill Group's transactions with the Obligor's,
including, actual out-of-pocket fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including
tax lien, litigation, and UCC (or equivalent) searches and including searches
with the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording, publication, appraisal (including periodic
Worldwide Collateral appraisals); real estate surveys, real estate title
policies and endorsement, and environmental audits; actual out-of-pocket costs
and expenses incurred by Foothill Group Agent in the disbursement of funds to
Borrower (by wire transfer or otherwise); actual out-of-pocket charges paid or
incurred by Foothill Group Agent resulting from the dishonor of
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checks; reasonable costs and expenses paid or incurred by the Foothill Group to
correct any default or enforce any provision of the Loan Documents, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Worldwide Collateral, or
any portion thereof, irrespective of whether a sale is consummated; reasonable
costs and expenses paid or incurred by the Foothill Group in examining the
Books; reasonable costs and expenses of third party claims or any other suit
paid or incurred by the Foothill Group in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or the Foothill Group's relationship with Borrower or any Guarantor,
and the Foothill Group's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including reasonable attorneys fees and expenses
incurred in connection with a "workout," a "restructuring," or an Insolvency
Proceeding concerning Borrower or any Guarantor of the Obligations), defending,
or concerning the Loan Documents, irrespective of whether suit is brought;
provided, however, that the term "Foothill Group Expenses" shall not include any
costs and expenses paid or incurred by the Foothill Group solely with respect to
disputes that (i) arise between two or more members of the Foothill Group and
(ii) are not in connection with third party claims or the Foothill Group's
relationship with Borrower or any Guarantor of the Obligations.
"Foothill Group Financing Documents" means the Foothill
Group Agreement and all present and future notes, guaranties, reimbursement
agreements, security documents or other documents or agreements in any way
related to, evidencing, or documenting the Foothill Group Claims, as the same
may from time to time be amended, restated, supplemented, modified, renewed,
extended, replaced, or refinanced.
"Foothill Group Priority Collateral" means all Worldwide
Collateral other than the Bank Group Priority Collateral and the Equal Priority
Collateral.
"Foothill Group Priority Subsidiaries" means StorMedia
Foreign Sales and Akashic.
"Foothill Loan" has the meaning ascribed thereto in Section
2.1(g)(i).
"Foreign Collateral" means any Worldwide Collateral that is
not Domestic Collateral. The Stock of International, Strates, and Strates
Malaysia shall be deemed Foreign Collateral and not Domestic Collateral. The
Stock of StorMedia Foreign Sales and Akashic shall be deemed Domestic Collateral
and not Foreign Collateral.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
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"General Intangibles" means all of any Obligor's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Guarantees" means, individually and collectively, one or
more general continuing guaranties executed and delivered by the Guarantors.
"Guarantor" means, individually and collectively, any one or
more of International, Strates, StorMedia Foreign Sales, and Strates Malaysia.
"Guarantor Collateral" means any and all right, title, and
interest of any Guarantor in or to any and all property (whether real or
personal, tangible or intangible) in which a Lien is granted to Foothill Group
Agent in any of the Guarantor Security Documents.
"Guarantor Patent Security Agreement" means that certain
Patent Security Agreement, dated as of even date herewith, between each
Guarantor and Foothill Group Agent, in form and content satisfactory to Foothill
Group Agent.
"Guarantor Security Agreement" means that certain Security
Agreement, dated as of even date herewith, between each Guarantor and Foothill
Group Agent, in form and content satisfactory to Foothill Group Agent.
"Guarantor Security Documents" means, individually and
collectively: (a) the Guarantor Patent Security Agreement; (b) the Guarantor
Security Agreement; (c) the Guarantor Stock Pledge Agreement; (d) the Guarantor
Trademark Security Agreement; (e) the Singapore Security Documents; and (f) the
Malaysian Security Documents.
"Guarantor Stock Pledge Agreement" means that certain Stock
Pledge Agreement, dated as of even date herewith, between each Guarantor and
Foothill Group Agent, in form and content satisfactory to Foothill Group Agent.
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"Guarantor Trademark Security Agreement" means that certain
Trademark Security Agreement, dated as of even date herewith, between each
Guarantor and Foothill Group Agent, in form and content satisfactory to Foothill
Group Agent.
"Hazardous Materials" means (a) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Identifiable Proceeds" means, with respect to any
Collateral, any "proceeds" (as defined in the UCC) or other sums received in
respect of such Collateral that are identifiable and traceable under the
identification and tracing rules and principles that exist under California
state law (including the UCC), without regard to where such Collateral or
proceeds are located, provided that Identifiable Proceeds included within clause
(d) of the definition of "Bank Group Priority Collateral" shall not include (a)
Inventory of any Obligor, (b) any Accounts of any Obligor arising from the sale,
transfer, lease, license, or other disposition of Inventory by any Obligor, or
(c) Fixed Assets that are Akashic Domestic Collateral.
"Indebtedness" means: (a) all obligations of any Obligor for
borrowed money, (b) all obligations of any Obligor evidenced by bonds,
debentures, notes, or other similar instruments (except for and excluding notes
given to trade creditors with respect to trade payables of any Obligor as to
which such Obligor has been granted extended payment terms) and all
reimbursement or other obligations of any Obligor in respect of letters of
credit, bankers acceptances, interest rate swaps, or other financial products,
(c) all obligations of any Obligor under capital leases, (d) all obligations or
liabilities of others secured by a Lien on any property or asset of any Obligor,
irrespective of whether such obligation or liability is assumed, and (e) any
obligation of any Obligor guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with recourse to such
Obligor) any indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person.
"Individual Blockage" means, with respect to each instance
where the Foothill Group Agent receives proceeds of Sales of Inventory or Fixed
Assets in which the Foothill Group Agent has a first priority Lien pursuant to
the Intercreditor Agreement (or
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proceeds of sales of Stock on account thereof), as of the date of such receipt
an amount equal to (a) the amount of such proceeds minus (b) the amount of the
Related Bridge Term Loan Reduction Amount.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the United States Bankruptcy Code or
under any other bankruptcy or insolvency law, assignments for the benefit of
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Intercreditor Agreement" means an intercreditor agreement,
dated as of even date herewith, between Foothill Group Agent and Bank Group
Agent on behalf of the Existing Lenders, in form and substance satisfactory to
Foothill Group Agent.
"International" means StorMedia International Ltd., a
company organized under the laws of the Cayman Islands.
"Inventory" means all present and future inventory in which
any Obligor has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of each Obligor's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"Investment Property" means "investment property" as that
term is defined in Section 9115 of the UCC.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"Lender" and "Lenders" have the respective meanings set
forth in the preamble to this Agreement, and shall include any other Person made
a party to this Agreement in accordance with the provisions of Section 15.1
hereof.
"Lender-Related Persons" means, with respect to any Lender,
such Lender, together with such Lender's Affiliates, and the officers,
directors, employees, counsel, agents, and attorneys-in-fact of such Lender and
such Lender's Affiliates.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some
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future event or events or the existence of some future circumstance or
circumstances, including the lien or security interest arising from a mortgage,
deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, security agreement, adverse claim or charge, conditional sale or
trust receipt, or from a lease, consignment, or bailment for security purposes
and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting real property.
"Loan Account" has the meaning set forth in Section 2.13.
"Loan Documents" means this Agreement, the Borrower
Supplemental Security Documents, the Disbursement Letter, the Lockbox
Agreements, the Guarantees, the Guarantor Security Documents, the Suretyship
Agreement, the Intercreditor Agreement, the Control Agreements, any note or
notes executed by Borrower and payable to the Foothill Group, and any other
agreement entered into, now or in the future, in connection with this Agreement.
"Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill Group Agent, each of which is among
Borrower, Foothill Group Agent, and one of the Lockbox Banks.
"Lockbox Banks" means Wells Fargo Bank, N.A.
"Lockboxes" has the meaning set forth in Section 2.10.
"Malaysian Security Documents" means that certain Debenture,
dated of even date herewith, by Strates Malaysia in favor of Foothill Group
Agent, in form and substance satisfactory to Foothill Group Agent, and such
other instruments, guaranties, agreements, and documents governed by the laws of
Malaysia, or any political subdivision thereof, as Foothill or its Malaysian
foreign counsel may reasonably require to now or at any time hereafter secure
the whole or any part of the Obligations or of the obligations of Strates
Malaysia in respect of the Obligations, and in each case in form and substance
satisfactory to Foothill Group Agent.
"Material Adverse Change" means (a) a material adverse
change in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of any Obligor, (b) the
material impairment of any Obligor's ability to perform its obligations under
the Loan Documents to which it is a party or of the Foothill Group to enforce
the Obligations or realize upon the Collateral, (c) a material
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adverse effect on the value of the Collateral or the amount that the Foothill
Group would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of the Collateral, or (d) a
material impairment of the priority of Foothill Group Agent's Liens or Foothill
Group Agent's Bridge Term Loan Liens with respect to the Collateral.
"Maturity Date" means the last day of the original term of
this Agreement if the term is not renewed, and the last day of any applicable
renewal term, if the term hereof is renewed, in each case in accordance with
Section 3.4.
"Maximum Amount" means the sum of (a) the Maximum Revolving
Amount, plus (b) the Maximum Bridge Term Loan Amount.
"Maximum Bridge Term Loan Amount" means $8,000,000.
"Maximum Foothill Amount" means that portion of the Maximum
Amount for which Foothill shall be responsible, exclusive of any participations
with Participants.
"Maximum Revolving Amount" means, as of any date of
determination, $20,000,000 minus the Syquest Availability Amount.
"Minimum Availability Condition" means, with respect to any
Sale governed by Section 7.4(b) (other than Section 7.4(b)(ii)), that, after
giving effect thereto, and provided that the trade payables of Borrower have not
increased from the most recent field survey completed by Foothill Group Agent
(or, to the extent of any such increase, after reserving for same), there will
exist at least $7,500,000 of combined Availability and unrestricted cash and
cash equivalents of Borrower (including any such unrestricted cash or cash
equivalents that Borrower is entitled to receive and retain in connection with
such Sale at the time of giving effect to such Sale).
"Minimum Prepayment Amount" means, as to any Sale of
Worldwide Collateral, an amount equal to 90% of the OLV of the assets subject to
such Sale.
"Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which Borrower, any of its
Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to
contribute, within the past six years.
"Negotiable Collateral" means all of a Person's present and
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein such Person is the lessor), chattel
paper, and Books relating to any of the foregoing.
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"Net Sale Consideration" means the (a) total purchase
consideration received by Debtor in any Sale of Worldwide Collateral, less (b)
the amount of any reasonable out-of-pocket expenses (including taxes) incurred
by Debtor in connection with such Sale.
"Obligations" means all loans (including the Bridge Term
Loan), Advances, debts, principal, interest (including any interest that, but
for the provisions of the United States Bankruptcy Code, would have accrued),
premiums (including Early Termination Premiums), liabilities (including all
amounts charged to Borrower's Loan Account pursuant hereto), obligations, fees,
charges, costs, or Foothill Group Expenses (including any fees or expenses that,
but for the provisions of the United States Bankruptcy Code, would have
accrued), guaranties, covenants, and duties owing by Borrower to the Foothill
Group of any kind and description arising under, in connection with, related to,
or incidental to or evidenced by the Loan Documents, and irrespective of whether
for the payment of money, whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, further including all
interest not paid when due and all the Foothill Group Expenses that Borrower is
required to pay or reimburse by the Loan Documents, by law, or otherwise, as any
of the same may from time to time be amended, modified, extended, renewed,
restated, or increased by agreement.
"Obligors" means any one or more of the Borrowers or the
Guarantors.
"OLV" means, as to any item of Worldwide Collateral, an
amount equal to the orderly liquidation value for such item of Worldwide
Collateral, as determined from time to time by Dovetech, Inc. or another
appraiser satisfactory to Foothill Group Agent, updated to exclude any sold
assets.
"Other Obligations" means any Obligations other than the
Bridge Term Loan Obligations.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" has the meaning set forth in Section 15.1(e).
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Investments" means (a) direct obligations of the
United States of America, or any agency thereof if backed by the full faith and
credit of the United States of America, or obligations fully guaranteed by the
United States of America, or any agency thereof if backed by the full faith and
credit of the United States of America, in each case denominated in Dollars and
maturing within one (1) year from the
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date of creation thereof, (b) commercial paper, denominated in Dollars, issued
by a corporation (other than Obligors or any Affiliate of any Obligor) organized
under the laws of any State of the United States of America or the District of
Columbia maturing within one (1) year from the date of creation thereof rated in
the highest grade by a nationally recognized credit rating agency, (c) time
deposits denominated in Dollars and maturing within one (1) year from the date
of creation thereof with, including certificates of deposit issued by, any
office located in the United States of America of any bank or trust company
which is organized under the laws of the United States of America or any state
thereof and has capital, surplus, and undivided profits aggregating at least
$500,000,000, or (d) shares of any money market mutual fund holding only
obligations denominated in Dollars rated at least AAAm or the equivalent
thereof by Standard & Poor's Corporation or at least Aaa or the equivalent
thereof by Moody's Investors Service, Inc.; provided that, to the extent any
such investment is made with Collateral, such investment shall not be a
Permitted Investment unless the security interest of Foothill Group Agent
therein is perfected.
"Permitted Liens" means (a) Liens held by Foothill Group
Agent for the benefit of the Foothill Group, (b) Liens for unpaid taxes that
either (i) are not yet due and payable or (ii) are the subject of Permitted
Protests, (c) Liens set forth on Schedule P-1, (d) (i) the interests of lessors
under operating leases, and (ii) purchase money Liens and the interests of
lessors under capital leases to the extent that the acquisition or lease of the
underlying asset is permitted under Section 7.21 and so long as the Lien only
attaches to the asset purchased or acquired and proceeds thereof and only
secures the purchase price of the asset, (e) Liens arising by operation of law
in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers,
or suppliers, incurred in the ordinary course of business of the Obligors and
not in connection with the borrowing of money, and which Liens either (i) are
for sums not yet due and payable, or (ii) are the subject of Permitted Protests,
(f) Liens arising from deposits made in connection with the procurement of
utilities, the securing in ordinary course of business of guaranties of
repatriation of workers expatriated from the People's Republic of China to
Singapore or Malaysia, or the obtaining of worker's compensation or other
unemployment insurance, (g) Liens or deposits to secure performance of bids,
tenders, or leases (to the extent permitted under this Agreement), incurred in
the ordinary course of business of the Obligors and not in connection with the
borrowing of money, (h) Liens arising by reason of security for surety or appeal
bonds in the ordinary course of business of the Obligors, (i) Liens of or
resulting from any judgment or award that reasonably could not be expected to
result in a Material Adverse Change and as to which the time for the appeal or
petition for rehearing of which has not yet expired, or in respect of which the
applicable Obligor is in good faith prosecuting an appeal or proceeding for a
review and in respect of which a stay of execution pending such appeal or
proceeding for review has been secured, (j) easements, rights of way, zoning and
similar covenants and restrictions, and similar encumbrances that customarily
exist on real property of Persons engaged in similar activities and similarly
situated and that in any event do not materially interfere with or impair the
use or operation of the Collateral by the applicable Obligor or the value of any
of Foothill Group
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Agent's Liens or Foothill Group Agent's Bridge Term Loan Liens thereon or
therein, for the benefit of the Foothill Group, or materially interfere with the
ordinary conduct of the business of Borrower, (k) subject to the terms and
conditions of the Intercreditor Agreement, Liens on the properties and assets of
the Obligors in favor of Bank Group Agent for the benefit of the Existing
Lenders, and (l) subject to the terms and conditions of the Subordination
Agreement with respect to the Seagate Subordinated Indebtedness, the Lien of
Seagate on the Accounts of StorMedia owed to StorMedia by Seagate.
"Permitted Protest" means the right of the Obligors to
protest any Lien (other than any such Lien that secures the Obligations), tax
(other than payroll taxes or taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) a reserve with respect
to such obligation is established on the books of the applicable Obligor in an
amount that is reasonably satisfactory to Foothill Group Agent, (b) any such
protest is instituted and diligently prosecuted by the applicable Obligor in
good faith, and (c) Foothill Group Agent is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of Foothill Group Agent's Liens or Foothill Group Agent's
Bridge Term Loan Liens in and to the Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with respect to which it
may incur liability.
"Prepayment Carryforward" means, as of any date of
determination, an amount equal to (a) the aggregate of the Excess Prepayment
Amount (or portions thereof) paid to the Bank Group with respect to each Above
OLV Sale consummated prior to such date, if any, minus (b) the aggregate
Carryforward Reduction Amount with respect to each Below OLV Sale consummated
prior to such date, if any.
"Pro Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the aggregate amount of the
Commitments. If and to the extent that, pursuant to Section 15.1 hereof, an
assignor Lender makes in favor of an Assignee a non-ratable assignment of 100%
of the Commitments and the Bridge Term Loan Obligations, then, anything in the
Loan Agreement or the other Loan Documents to the contrary notwithstanding, for
purposes of determining "ratability" among the Lenders under the Loan Agreement
and the other Loan Document: (a) when used solely in the context of a Lender's
obligation or Commitment to make the Bridge Term
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Loan or a Lender's right to receive payments in respect of the Bridge Term Loan
Obligations, the term "Pro Rata Share" shall mean (i) 100% with respect to such
Assignee and (ii) -0-% with respect to such assignor Lender; (b) when used in
the context of a Lender's obligation or Commitment to make Advances (including
Foothill Loans and Foothill Group Agent Advances) or a Lender's right to receive
payment in respect of Other Obligations, the term "Pro Rata Share" shall mean
(i) 100% with respect to the assignor Lender and (ii) -0-% with respect to the
Assignee; (c) from and after the Closing Date, the then outstanding principal
amount of the Bridge Term Loan shall be deemed to be the amount of the total
Commitments in respect of the Bridge Term Loan; and (d) in all other cases, the
term "Pro Rata Share" shall have the meaning set forth in the first sentence of
this definition.
"Purchaser Note" shall have the meaning set forth in Section
7.4(b)(1) of this Agreement.
"Reference Rate" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Related Bridge Term Loan Reduction Amount" means, with
respect to each instance where the Foothill Group Agent receives proceeds of
Sales of Inventory or Fixed Assets in which the Foothill Group Agent has a first
priority Lien pursuant to the Intercreditor Agreement (or proceeds of sales of
Stock on account thereof), as of the date of such receipt, an amount equal to
the lesser of: (a) the amount of such proceeds; and (b) the greater of (i) zero
Dollars; and (ii) the amount of Availability as of such date minus $5,000,000.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Required Lenders" means, at any time, Lenders whose Pro
Rata Shares aggregate 51% or more of the Commitments, or, if the Commitments
have been terminated irrevocably, 51% or more of the Obligations then
outstanding.
"Retiree Health Plan" means an "employee welfare benefit
plan" within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
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"Revolving Advance Cap" means, as of any date of
determination, an amount equal to (a) the Applicable Percentage of the net
orderly liquidation value of Akashic's machinery and equipment located in the
continental U.S., as determined from time to time by Dovetech, Inc. or another
appraiser satisfactory to Foothill Group Agent, updated to exclude any sold
assets, minus (b) the Syquest Availability Amount.
"Revolving Facility Usage" means, as of any date of
determination, without duplication, the sum of outstanding Advances, Foothill
Loans, and Foothill Group Agent Advances.
"Revolving Loan Facility Fee" has the meaning set forth in
Section 2.11(c)(i).
"Sale" means the sale, lease, or other disposition by Debtor
of any item of the Worldwide Collateral (other than the Stock of any direct or
indirect Subsidiary of StorMedia, whether or not made or entered into in the
ordinary course of business).
"Seagate" means Seagate Technology, Inc., a Delaware
corporation.
"Seagate Non-Offset Agreement" means a written agreement of
Seagate, in form and substance satisfactory to Foothill Group Agent, pursuant to
which Seagate waives and relinquishes any right to offset all or any part of the
Seagate Subordinated Indebtedness against any obligations of Seagate to any
Obligor with respect to any Account.
"Seagate Settlement Documents" means the written
documentation entered into or to be entered into between StorMedia and Seagate
relating to the termination of existing supply arrangements between those
parties, the exchange of releases, and the incurrence of the Seagate
Subordinated Indebtedness, the form and substance of the documentation of which
shall be acceptable to Foothill Group Agent.
"Seagate Subordinated Indebtedness" means $8,000,000 in the
aggregate of Subordinated Indebtedness of StorMedia to Seagate, in the form of a
$5,000,000 convertible note, and a $3,000,000 note, the form and substance of
the documentation of which shall be acceptable to Foothill Group Agent.
"Securities Account" means a "securities account" as that
term is defined in Section 8501 of the UCC.
"Singapore Security Documents" means those certain
Debentures, dated of even date herewith, by Strates and International in favor
of Foothill Group Agent, in form and substance satisfactory to Foothill Group
Agent, and such other instruments, guaranties, agreements, and documents
governed by the laws of Singapore, or any political
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subdivision thereof, as Foothill or its Singapore foreign counsel may reasonably
require to now or at any time hereafter secure the whole or any part of the
Obligations or of the obligations of Strates or International in respect of the
Obligations, and in each case in form and substance satisfactory to Foothill
Group Agent.
"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person (sold location by location to Persons
intending to use those facilities for the purposes for which they were designed
and constructed) is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (d)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Specified Account Debtors" means Quantum Corporation,
Seagate Technology, Inc., Samsung Electronics Co., Ltd., Western Digital, and
Syquest, Inc.
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities Exchange Commission under the Securities Exchange Act of 1934).
"Stock Sale" means any sale or transfer of the Stock of any
StorMedia Subsidiary, whether by the Obligor owning same with any necessary
Creditor consents (in accordance with the provisions of Section 17(c) of the
Intercreditor Agreement), or by a Creditor in realization of its security
interest therein in accordance with the provisions of the Intercreditor
Agreement.
"StorMedia" means StorMedia Incorporated, a Delaware
corporation.
"StorMedia Domestic Collateral" means any StorMedia
Collateral that is Domestic Collateral.
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"StorMedia Foreign Collateral" means any StorMedia
Collateral that is Foreign Collateral.
"StorMedia Foreign Sales" means StorMedia Foreign Sales
Corporation, a U.S. Virgin Islands corporation.
"StorMedia Subsidiaries" means the Subsidiaries of
StorMedia, including International, Strates, StorMedia Foreign Sales, Akashic,
and Strates Malaysia.
"Strates" means Strates Pte. Ltd., a company organized under
the laws of Singapore.
"Strates Malaysia" means Strates Sdn. Bhd., formerly known
as Akashic Kubota Technologies, Sdn. Bhd., a company organized under the laws of
Malaysia, which as of the Closing Date is a first-tier Subsidiary of Akashic.
"Subordinated Indebtedness" means Indebtedness of an Obligor
that is the subject of a Subordination Agreement.
"Subordination Agreement" means a written subordination of
indebtedness agreement in form and substance satisfactory to Foothill Group
Agent whereby indebtedness to a third Person is subordinated in right of payment
to the Obligations.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
\indirectly owns or controls the shares of Stock having ordinary voting power to
elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
"Suretyship Agreement" means a suretyship agreement, in form
and substance satisfactory to Foothill Group Agent, between each Borrower and
Foothill Group Agent.
"Syndicated Amount" means that portion of the Maximum Amount
equal to the aggregate financing commitments (to the extent not breached or
terminated) of all Participants.
"Syquest Availability Amount" means, as of any date of
determination, the amount of Section 2.1 borrowing availability created by
Accounts with respect to which Syquest, Inc. is the Account Debtor.
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"Tasman Facility" means Akashic Domestic Collateral
consisting of the Fixed Assets located on the Closing Date at 305 and/or 2101
Tasman, Milpitas, California.
"Total Obligations Cap" means, as of any date of
determination, the lesser of: (a) an amount equal to Borrower's Collections with
respect to Accounts for the immediately preceding 90 day period; and (b) an
amount equal to 66.67% of the sum of (i) the least of the Maximum Revolving
Amount, the Borrowing Base, and the Revolving Advance Cap, plus (ii) the net
orderly liquidation value of Akashic's machinery and equipment located in the
continental U.S., as determined from time to time by Dovetech, Inc. or another
appraiser satisfactory to Foothill Group Agent, updated to exclude any sold
assets.
"UCC" means the California Uniform Commercial Code, as in
effect from time to time.
"Voidable Transfer" has the meaning set forth in Section
15.8.
"Worldwide Collateral" means the Collateral and the
Guarantor Collateral.
"Year 2000 Compliant" means, with regard to any Person, that
all software in goods produced or sold by, or utilized by and material to the
business operations or financial condition of, such entity are able to interpret
and manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in relation to dates in and
after the Year 2000.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 UCC. Any terms used in this Agreement that are defined in
the UCC shall be construed and defined as set forth in the UCC unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An
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Event of Default shall "continue" or be "continuing" until such Event of Default
has been waived in writing by Foothill Group Agent. Section, subsection, clause,
schedule, and exhibit references are to this Agreement unless otherwise
specified. All references to statutes or regulations shall be construed as
including all statutory and regulatory provisions consolidating, amending, or
replacing the statute or regulation referred to. Any reference in this Agreement
or in the Loan Documents to this Agreement or any of the Loan Documents shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
1.6 OBLIGORS. By its execution and delivery of its Guaranty or
any Guarantor Security Document, or any joinder thereto, any Obligor that is not
a party to this Agreement nevertheless shall be deemed to have agreed to be
bound by each provision herein relating to the Obligors or their assets with the
same force and effect as though such Obligor were party to this Agreement,
mutatis mutandis.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
and during the term of this Agreement, each Lender agrees to make advances
("Advances") to Borrower in an amount at any one time outstanding not to exceed
such Lender's Pro Rata Share of an amount equal to the least of (i) the Maximum
Revolving Amount, (ii) the Borrowing Base, and (iii) the Revolving Advance Cap.
For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the result of:
(y) the lesser of: (i) 80% of Eligible Accounts, less
the amount, if any, of the Dilution Reserve; and (ii) an amount
equal to Borrower's Collections with respect to Accounts for the
immediately preceding 60 day period; minus
(z) the sum of (i) the aggregate amount of reserves, if
any, established by Foothill Group Agent under Section 2.1(b),
and (ii) the Cumulative Blockage.
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill Group Agent may create reserves against the
Borrowing Base or reduce its advance rates based upon Eligible Accounts without
declaring an Event of Default if it determines, acting in good faith, that there
has occurred a Material Adverse Change.
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(c) Foothill Group Agent shall have no obligation to make
Advances hereunder to the extent they would cause the outstanding Obligations
(exclusive of any amount of the Revolving Loan Facility Fee that was not yet due
and payable, and exclusive of payment in kind interest that is not currently due
and payable) to exceed the lesser of (i) the Maximum Foothill Amount plus the
Syndicated Amount, and (ii) the Total Obligations Cap. Amounts borrowed pursuant
to this Section 2.1 may be repaid and, subject to the terms and conditions of
this Agreement, reborrowed at any time during the term of this Agreement.
(d) Procedure for Borrowing. Each Borrowing shall be made
upon Borrower's irrevocable request therefor delivered to Foothill Group Agent
(which notice must be received by Foothill Group Agent no later than 10:00 a.m.
(California time) on the Business Day that is the requested Funding Date)
specifying (i) the amount of the Borrowing; and (ii) the requested Funding Date,
which shall be a Business Day.
(e) Foothill Group Agent's Election. Promptly after receipt
of a request for a Borrowing pursuant to Section 2.1(d), Foothill Group Agent
shall elect, in its discretion, (i) to have the terms of Section 2.1(f) apply to
such requested Borrowing, or (ii) to request Foothill to make a Foothill Loan
pursuant to the terms of Section 2.1(g) in the amount of the requested
Borrowing; provided, however, that if Foothill declines in its sole discretion
to make a Foothill Loan pursuant to Section 2.1(g), Foothill Group Agent shall
elect to have the terms of Section 2.1(f) apply to such requested Borrowing.
(f) Making of Advances.
(i) In the event that Foothill Group Agent shall elect
to have the terms of this Section 2.1(f) apply to a requested Borrowing as
described in Section 2.1(e), then promptly after receipt of a request for a
Borrowing pursuant to Section 2.1(d), Foothill Group Agent shall notify the
Lenders, not later than 11:00 a.m. (California time) on the Business Day that is
the requested Funding Date applicable thereto, by telecopy, telephone, or other
similar form of transmission, of the requested Borrowing. Each Lender shall make
the amount of such Lender's Pro Rata Share of the requested Borrowing available
to Foothill Group Agent in immediately available funds, to such account of
Foothill Group Agent as Foothill Group Agent may designate, not later than 12:00
p.m. (California time) on the Funding Date applicable thereto. After Foothill
Group Agent's receipt of the proceeds of such Advances, upon satisfaction of the
applicable conditions precedent set forth in Section 3 hereof, Foothill Group
Agent shall make the proceeds of such Advances available to Borrower on the
applicable Funding Date by transferring same day funds equal to the proceeds of
such Advances received by Foothill Group Agent to Borrower's Designated Account;
provided, however, that, subject to the provisions of Section 2.1(l), Foothill
Group Agent shall not request any Lender to make, and no Lender shall have the
obligation to make, any Advance if Foothill Group Agent shall have received
written notice from any Lender, or otherwise has actual knowledge, that (1) one
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or more of the applicable conditions precedent set forth in Section 3 will not
be satisfied on the requested Funding Date for the applicable Borrowing unless
such condition has been waived, or (2) the requested Borrowing would exceed the
Availability of Borrower on such Funding Date.
(ii) Unless Foothill Group Agent receives notice from a
Lender on or prior to the Closing Date or, with respect to any Borrowing after
the Closing Date, at least 1 Business Day prior to the date of such Borrowing,
that such Lender will not make available as and when required hereunder to
Foothill Group Agent for the account of Borrower the amount of that Lender's Pro
Rata Share of the Borrowing, Foothill Group Agent may assume that each Lender
has made or will make such amount available to Foothill Group Agent in
immediately available funds on the Funding Date and Foothill Group Agent may
(but shall not be so required), in reliance upon such assumption, make available
to Borrower on such date a corresponding amount. If and to the extent any Lender
shall not have made its full amount available to Foothill Group Agent in
immediately available funds and Foothill Group Agent in such circumstances has
made available to Borrower such amount, that Lender shall on the Business Day
following such Funding Date make such amount available to Foothill Group Agent,
together with interest at the Defaulting Lenders Rate for each day during such
period. A notice submitted by Foothill Group Agent to any Lender with respect to
amounts owing under this subsection shall be conclusive, absent manifest error.
If such amount is so made available, such payment to Foothill Group Agent shall
constitute such Lender's Advance on the date of Borrowing for all purposes of
this Agreement. If such amount is not made available to Foothill Group Agent on
the Business Day following the Funding Date, Foothill Group Agent will notify
Borrower of such failure to fund and, upon demand by Foothill Group Agent,
Borrower shall pay such amount to Foothill Group Agent for Foothill Group
Agent's account, together with interest thereon for each day elapsed since the
date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Advances composing such Borrowing. The failure of
any Lender to make any Advance on any Funding Date shall not relieve any other
Lender of any obligation hereunder to make an Advance on such Funding Date, but
no Lender shall be responsible for the failure of any other Lender to make the
Advance to be made by such other Lender on any Funding Date.
(iii) Foothill Group Agent shall not be obligated to
transfer to a Defaulting Lender any payments made by Borrower to Foothill Group
Agent for the Defaulting Lender's benefit; nor shall a Defaulting Lender be
entitled to the sharing of any payments hereunder. Amounts payable to a
Defaulting Lender shall instead be paid to or retained by Foothill Group Agent.
Foothill Group Agent may hold and, in its discretion, re-lend to Borrower the
amount of all such payments received or retained by it for the account of such
Defaulting Lender. Solely for the purposes of voting or consenting to matters
with respect to the Loan Documents and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a "Lender" and such Lender's
Commitment
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shall be deemed to be zero (-0-). This section shall remain effective with
respect to such Lender until (x) the Obligations under this Agreement shall have
been declared or shall have become immediately due and payable or (y) the
requisite non- Defaulting Lenders and Foothill Group Agent shall have waived
such Lender's default in writing. The operation of this section shall not be
construed to increase or otherwise affect the Commitment of any Lender, or
relieve or excuse the performance by Borrower of its duties and obligations
hereunder.
(g) Making of Foothill Loans.
(i) In the event Foothill Group Agent shall elect, with
the consent of Foothill as a Lender, to have the terms of this Section 2.1(g)
apply to a requested Borrowing as described in Section 2.1(e), Foothill as a
Lender shall make an Advance in the amount of such Borrowing (any such Advance
made solely by Foothill as a Lender pursuant to this Section 2.1(g) being
referred to as a "Foothill Loan" and such Advances being referred to
collectively as "Foothill Loans") available to Borrower on the Funding Date
applicable thereto by transferring same day funds to Borrower's Designated
Account. Each Foothill Loan is an Advance hereunder and shall be subject to all
the terms and conditions applicable to other Advances, except that all payments
thereon shall be payable to Foothill as a Lender solely for its own account (and
for the account of the holder of any participation interest with respect to such
Advance). Subject to the provisions of Section 2.1(l), Foothill Group Agent
shall not request Foothill as a Lender to make, and Foothill as a Lender shall
not make, any Foothill Loan if Foothill Group Agent shall have received written
notice from any Lender, or otherwise has actual knowledge, that (i) one or more
of the applicable conditions precedent set forth in Section 3 will not be
satisfied on the requested Funding Date for the applicable Borrowing unless such
condition has been waived, or (ii) the requested Borrowing would exceed the
Availability of Borrower on such Funding Date. Foothill as a Lender shall not
otherwise be required to determine whether the applicable conditions precedent
set forth in Section 3 have been satisfied on the Funding Date applicable
thereto prior to making, in its sole discretion, any Foothill Loan.
(ii) The Foothill Loans shall be secured by the
Worldwide Collateral and shall constitute Advances and Obligations hereunder,
and shall bear interest at the rate applicable from time to time to Advances
pursuant to Section 2.6 hereof.
(h) Foothill Group Agent Advances.
(i) Subject to the limitations set forth in the proviso
contained in this Section 2.1(h), Foothill Group Agent hereby is authorized by
Borrower and the Lenders, from time to time in Foothill Group Agent's sole
discretion, (1) after the occurrence and during the continuance of a Default or
an Event of Default, or (2) at any time that any of the other applicable
conditions precedent set forth in Section 3 have not
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been satisfied, to make Advances to Borrower on behalf of the Lenders that
Foothill Group Agent, in its reasonable business judgment, deems necessary or
desirable (A) to preserve or protect the Worldwide Collateral, or any portion
thereof, (B) to enhance the likelihood of repayment of the Obligations, or (C)
to pay any other amount chargeable to Borrower pursuant to the terms of this
Agreement, including Foothill Group Expenses and the costs, fees, and expenses
described in Section 10 (any of the Advances described in this Section 2.1(h)
being hereinafter referred to as "Foothill Group Agent Advances"); provided,
that the Required Lenders may at any time revoke Foothill Group Agent's
authorization contained in this Section 2.1(h) to make Foothill Group Agent
Advances, any such revocation to be in writing and to become effective upon
Foothill Group Agent's receipt thereof.
(ii) Foothill Group Agent Advances shall be repayable on
demand and secured by the Worldwide Collateral, shall constitute Advances and
Obligations hereunder, and shall bear interest at the rate applicable from time
to time to the Advances pursuant to Section 2.6 hereof.
(i) Settlement. It is agreed that the funded portion of the
Advances of each Lender with a Commitment to make Advances is intended by such
Lenders to equal, at all times, such Lender's Pro Rata Share of the outstanding
Advances. Such agreement notwithstanding, Foothill Group Agent, Foothill, and
such other Lenders agree (which agreement shall not be for the benefit of or
enforceable by Borrower) that in order to facilitate the administration of this
Agreement and the other Loan Documents, settlement among them as to the
Advances, the Foothill Loans, and the Foothill Group Agent Advances shall take
place on a periodic basis in accordance with the following provisions:
(i) Foothill Group Agent shall request settlement
("Settlement") with the Lenders with a Commitment to make Advances on a weekly
basis, or on a more frequent basis if so determined by Foothill Group Agent, (1)
on behalf of Foothill, with respect to each outstanding Foothill Loan, (2) for
itself, with respect to each Foothill Group Agent Advance, and (3) with respect
to Collections received, as to each by notifying the Lenders by telecopy,
telephone, or other similar form of transmission, of such requested Settlement,
no later than 2:00 p.m. (California time) on the Business Day immediately prior
to the date of such requested Settlement (the date of such requested Settlement
being the "Settlement Date"). Such notice of a Settlement Date shall include a
summary statement of the amount of outstanding Advances, Foothill Loans, and
Foothill Group Agent Advances for the period since the prior Settlement Date,
the amount of repayments received in such period, and the amounts allocated to
each Lender of the interest, fees, and other charges for such period. Subject to
the terms and conditions contained herein (including Section 2.1(f)(iii)): (y)
if any such Lender's balance of the Advances, Foothill Loans, and Foothill Group
Agent Advances exceeds such Lender's Pro Rata Share of the Advances, Foothill
Loans, and Foothill Group Agent Advances as of a
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Settlement Date, then Foothill Group Agent shall by no later than 12:00 p.m
(California time) on the Settlement Date transfer in immediately available funds
to the account of such Lender as such Lender may designate, an amount such that
each such Lender shall, upon receipt of such amount, have as of the Settlement
Date, its Pro Rata Share of the Advances, Foothill Loans, and Foothill Group
Agent Advances; and (z) if any such Lender's balance of the Advances, Foothill
Loans, and Foothill Group Agent Advances is less than such Lender's Pro Rata
Share of the Advances, Foothill Loans, and Foothill Group Agent Advances as of a
Settlement Date, such Lender shall no later than 12:00 p.m. (California time) on
the Settlement Date transfer in immediately available funds to such account of
Foothill Group Agent as Foothill Group Agent may designate, an amount such that
each such Lender shall, upon transfer of such amount, have as of the Settlement
Date, its Pro Rata Share of the Advances, Foothill Loans, and Foothill Group
Agent Advances. Such amounts made available to Foothill Group Agent under clause
(z) of the immediately preceding sentence shall be applied against the amounts
of the applicable Foothill Loan or Foothill Group Agent Advance and, together
with the portion of such Foothill Loan or Foothill Group Agent Advance
representing Foothill's Pro Rata Share thereof, shall constitute Advances of
such Lenders. If any such amount is not made available to Foothill Group Agent
by any Lender on the Settlement Date applicable thereto to the extent required
by the terms hereof, Foothill Group Agent shall be entitled to recover for its
account such amount on demand from such Lender together with interest thereon at
the Defaulting Lenders Rate.
(ii) In determining whether any such Lender's balance of
the Advances, Foothill Loans, and Foothill Group Agent Advances is less than,
equal to, or greater than such Lender's Pro Rata Share of the Advances, Foothill
Loans, and Foothill Group Agent Advances as of a Settlement Date, Foothill Group
Agent shall, as part of the relevant Settlement, apply to such balance the
portion of payments actually received in good funds by Foothill Group Agent or
Foothill with respect to principal, interest, fees payable by Borrower and
allocable to the Lenders hereunder, and proceeds of Worldwide Collateral. To the
extent that a net amount is owed to any such Lender after such application, such
net amount shall be distributed by Foothill Group Agent or Foothill to that
Lender as part of such next Settlement.
(iii) Between Settlement Dates, Foothill Group Agent, to
the extent no Foothill Group Agent Advances or Foothill Loans are outstanding,
may pay over to Foothill any payments received by Foothill Group Agent, that in
accordance with the terms of this Agreement would be applied to the reduction of
the Advances, for application to Foothill's Pro Rata Share of the Advances. If,
as of any Settlement Date, Collections received since the then immediately
preceding Settlement Date have been applied to Foothill's Pro Rata Share of the
Advances other than to Foothill Loans or Foothill Group Agent Advances, as
provided for in the previous sentence, Foothill shall pay to Foothill Group
Agent for the accounts of the Lenders with a Commitment to make Advances, and
Foothill Group Agent shall pay to such Lenders, to be applied to the outstanding
Advances
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of such Lenders, an amount such that each such Lender shall, upon receipt of
such amount, have, as of such Settlement Date, its Pro Rata Share of the
Advances. During the period between Settlement Dates, Foothill with respect to
Foothill Loans, Foothill Group Agent with respect to Foothill Group Agent
Advances, and each such Lender with respect to the Advances other than Foothill
Loans and Foothill Group Agent Advances, shall be entitled to interest at the
applicable rate or rates payable under this Agreement on the daily amount of
funds employed by Foothill, Foothill Group Agent, or the Lenders, as applicable.
(j) Notation. Foothill Group Agent shall record on its books
the principal amount of the Advances owing to each Lender with a Commitment to
make Advances, including the Foothill Loans owing to Foothill, and Foothill
Group Agent Advances owing to Foothill Group Agent, and the interests therein of
each such Lender, from time to time. In addition, each Lender is authorized, at
such Lender's option, to note the date and amount of each payment or prepayment
of principal of such Lender's Advances in its books and records, including
computer records, such books and records constituting rebuttably presumptive
evidence, absent manifest error, of the accuracy of the information contained
therein.
(k) Lenders' Failure to Perform. All Advances (other than
Foothill Loans and Foothill Group Agent Advances) shall be made by the Lenders
with a Commitment to make Advances simultaneously and in accordance with their
Pro Rata Shares. It is understood that (i) no such Lender shall be responsible
for any failure by any other Lender to perform its obligation to make any
Advances hereunder, nor shall any Commitment of any such Lender be increased or
decreased as a result of any failure by any other Lender to perform its
obligation to make any Advances hereunder, and (ii) no failure by any such
Lender to perform its obligation to make any Advances hereunder shall excuse any
other such Lender from its obligation to make any Advances hereunder.
(l) Optional Overadvances. Any contrary provision of this
Agreement notwithstanding, if the conditions for borrowing under Section 3.2
cannot be fulfilled, the Lenders nonetheless hereby authorize Foothill Group
Agent or Foothill, as applicable, and Foothill Group Agent or Foothill, as
applicable, may, but is not obligated to, knowingly and intentionally continue
to make Advances (including Foothill Loans) to Borrower such failure of
condition notwithstanding, so long as, at any time, (i) the outstanding
Revolving Facility Usage does not exceed the Borrowing Base by more than ten
percent (10%) and (ii) the outstanding Revolving Facility Usage (except for and
excluding amounts charged to the Loan Account for interest, fees, or Foothill
Group Expenses) does not exceed the Maximum Revolving Amount. The foregoing
provisions are for the sole and exclusive benefit of Foothill Group Agent,
Foothill, and the Lenders with a Commitment to make Advances and are not
intended to benefit Borrower in any way. The Advances and Foothill Loans, as
applicable, that are made pursuant to this Section 2.1(l) shall be subject to
the same terms and conditions as any other Advance or Foothill Loan, as
applicable, except that the rate of interest applicable thereto shall be the
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rates set forth in Section 2.6(b) hereof without regard to the presence or
absence of a Default or Event of Default; provided, that the Required Lenders
may, at any time during the continuance of an Event of Default or if Borrower
fails to satisfy any other material lending condition, revoke Foothill Group
Agent's authorization contained in this Section 2.1(l) to make Overadvances
(except for and excluding amounts charged to the Loan Account for interest,
fees, or Foothill Group Expenses), any such revocation to be in writing and to
become effective upon Foothill Group Agent's receipt thereof.
In the event Foothill Group Agent obtains actual knowledge
that Revolving Facility Usage exceeds the amount permitted by the preceding
paragraph, regardless of the amount of or reason for such excess, Foothill Group
Agent shall notify the Lenders as soon as practicable (and prior to making any
(or any further) intentional Overadvances (except for and excluding amounts
charged to the Loan Account for interest, fees, or Foothill Group Expenses)
unless Foothill Group Agent determines that prior notice would result in
imminent harm to the Worldwide Collateral or its value), and the Lenders
thereupon shall, together with Foothill Group Agent, jointly determine the terms
of arrangements that shall be implemented with Borrower intended to reduce,
within a reasonable time, the outstanding principal amount of the Advances to
Borrower to an amount permitted by the preceding paragraph. In the event any
Lender disagrees over the terms of reduction and/or repayment of any
Overadvance, the terms of reduction and/or repayment thereof shall be
implemented according to the determination of the Required Lenders.
Each Lender with a Commitment to make Advances shall be
obligated to settle with Foothill Group Agent as provided in Section 2.1(i) for
the amount of such Lender's Pro Rata Share of any unintentional Overadvances by
Foothill Group Agent reported to such Lender, any intentional Overadvances made
as permitted under this Section 2.1(l), and any Overadvances resulting from the
charging to the Loan Account of interest, fees, or Foothill Group Expenses.
2.2 BRIDGE TERM LOAN.
(a) Bridge Term Loan. Subject to the terms and conditions of
this Agreement, each Lender agrees to make a one-time advance on the Bridge Term
Loan Funding Date (which advance is referred to herein as the "Bridge Term
Loan") to Borrower in an aggregate principal amount not to exceed such Lender's
Pro Rata Share of the Maximum Bridge Term Loan Amount. If the Bridge Term Loan
Funding Date is to be a date after the Closing Date, Borrower shall provide
Foothill Group Agent at least five (5) Business Days advance prior notice of the
proposed Bridge Term Loan Funding Date. The outstanding principal balance and
all accrued and unpaid interest under the Bridge Term Loan shall be due and
payable on the earlier of (i) May 29, 2000, or (ii) the termination of this
Agreement, whether by its terms, by prepayment, by acceleration, or otherwise.
So long as no Event of Default has occurred and is continuing at the time of the
proposed
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prepayment thereof, the unpaid principal balance of the Bridge Term Loan may be
prepaid, in whole or in part, at any time during the term of this Agreement upon
10 days prior written notice by Borrower to Foothill Group Agent, and such
prepayment shall be without penalty or premium. All amounts outstanding under
the Bridge Term Loan shall constitute Obligations. On each occasion that the
Foothill Group Agent receives proceeds of Sales of Inventory or Fixed Assets in
which the Foothill Group Agent has a first priority Lien pursuant to the
Intercreditor Agreement (or proceeds of sales of Stock on account thereof), a
mandatory prepayment of the Bridge Term Loan in the amount equal to the Related
Bridge Term Loan Reduction Amount shall be due at the time such proceeds are
received, to be applied as set forth in Section 2.4(b)(ii) as if Borrower
specified in writing that such amount was to be applied to the repayment of the
Bridge Term Loan.
(b) Making the Bridge Term Loan.
(i) Unless Foothill Group Agent receives notice from a
Lender on or prior to the Bridge Term Loan Funding Date that such Lender will
not make available as and when required hereunder to Foothill Group Agent for
the account of Borrower the amount of that Lender's Pro Rata Share of the
Borrowing, Foothill Group Agent may assume that each Lender has made or will
make such amount available to Foothill Group Agent in immediately available
funds on the Bridge Term Loan Funding Date and Foothill Group Agent may (but
shall not be so required), in reliance upon such assumption, make available to
Borrower on the Bridge Term Loan Funding Date a corresponding amount. If and to
the extent any Lender shall not have made its full amount available to Foothill
Group Agent in immediately available funds and Foothill Group Agent in such
circumstances has made available to Borrower such amount, that Lender shall on
the Business Day following the Bridge Term Loan Funding Date make such amount
available to Foothill Group Agent, together with interest at the Defaulting
Lenders Rate for each day during such period. A notice submitted by Foothill
Group Agent to any Lender with respect to amounts owing under this subsection
shall be conclusive, absent manifest error. If such amount is so made available,
such payment to Foothill Group Agent shall constitute such Lender's Bridge Term
Loan on the date of Borrowing for all purposes of this Agreement. If such amount
is not made available to Foothill Group Agent on the Business Day following the
Bridge Term Loan Funding Date, Foothill Group Agent will notify Borrower of such
failure to fund and, upon demand by Foothill Group Agent, Borrower shall pay
such amount to Foothill Group Agent for Foothill Group Agent's account, together
with interest thereon for each day elapsed since the date of such Borrowing, at
a rate per annum equal to the interest rate applicable at the time to the Bridge
Term Loan. The failure of any Lender to make the Bridge Term Loan on the Bridge
Term Loan Funding Date shall not relieve any other Lender of any obligation
hereunder to make the Bridge Term Loan on the Bridge Term Loan Funding Date, but
no Lender shall be responsible for the failure of any other Lender to make the
Bridge Term Loan to be made by such other Lender on the Bridge Term Loan Funding
Date.
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(ii) Foothill Group Agent shall not be obligated to
transfer to a Defaulting Lender any payments made by Borrower to Foothill Group
Agent for the Defaulting Lender's benefit; nor shall a Defaulting Lender be
entitled to the sharing of any payments hereunder. Amounts payable to a
Defaulting Lender shall instead be paid to or retained by Foothill Group Agent.
Foothill Group Agent may hold and, in its discretion, re-lend to Borrower the
amount of all such payments received or retained by it for the account of such
Defaulting Lender (except that payments with respect to the Bridge Term Loan
shall not be re-lent). Solely for the purposes of voting or consenting to
matters with respect to the Loan Documents and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a "Lender" and such Lender's
Commitment shall be deemed to be zero (-0-). This section shall remain effective
with respect to such Lender until (x) the Obligations under this Agreement shall
have been declared or shall have become immediately due and payable or (y) the
requisite non- Defaulting Lenders, Foothill Group Agent, and Borrower shall have
waived such Lender's default in writing. The operation of this section shall not
be construed to increase or otherwise affect the Commitment of any Lender, or
relieve or excuse the performance by Borrower of its duties and obligations
hereunder.
(c) Lenders' Failure to Perform. The Bridge Term Loan shall
be made by the Lenders simultaneously and in accordance with their Pro Rata
Shares. It is understood that (i) no Lender shall be responsible for any failure
by any other Lender to perform its obligation to make the Bridge Term Loan
hereunder, nor shall any Commitment of any Lender be increased or decreased as a
result of any failure by any other Lender to perform its obligation to make the
Bridge Term Loan hereunder, and (ii) no failure by any Lender to perform its
obligation to make the Bridge Term Loan hereunder shall excuse any other Lender
from its obligation to make the Bridge Term Loan hereunder.
2.3 [INTENTIONALLY OMITTED].
2.4 PAYMENTS.
(a) Payments by Borrower.
(i) All payments to be made by Borrower shall be made
without set-off, recoupment, deduction, or counterclaim, except as otherwise
required by law. Except as otherwise expressly provided herein, all payments by
Borrower shall be made to Foothill Group Agent for the account of the Lenders at
Foothill Group Agent's address set forth in Section 12, and shall be made in
immediately available funds, no later than 11:00 a.m. (California time) on the
date specified herein. Any payment received by Foothill Group Agent later than
11:00 a.m. (California time), at the option of Foothill Group Agent, shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue until such following Business Day.
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(ii) Whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(iii) Unless Foothill Group Agent receives notice from
Borrower prior to the date on which any payment is due to the Lenders that
Borrower will not make such payment in full as and when required, Foothill Group
Agent may assume that Borrower has made such payment in full to Foothill Group
Agent on such date in immediately available funds and Foothill Group Agent may
(but shall not be so required), in reliance upon such assumption, distribute to
each Lender on such due date an amount equal to the amount then due such Lender.
If and to the extent Borrower has not made such payment in full to Foothill
Group Agent, each Lender shall repay to Foothill Group Agent on demand such
amount distributed to such Lender, together with interest thereon at the
Reference Rate for each day from the date such amount is distributed to such
Lender until the date repaid.
(b) Apportionment, Application, and Reversal of Payments.
(i) All Collections (including all proceeds of
Accounts or other Worldwide Collateral received by Foothill Group Agent) shall
be applied:
first, to pay any fees or other Foothill Group Expenses then due to
Foothill Group Agent from Borrower until paid in full;
second, to pay any fees or other Foothill Group Expenses then due to the
Lenders from Borrower;
third, to pay interest due in respect of all Foothill Loans and Foothill
Group Agent Advances until paid in full;
fourth, to pay interest due in respect of all other Advances until paid
in full;
fifth, so long as no Event of Default has occurred and is continuing or,
if an Event of Default has occurred and is continuing, and Foothill Group Agent
agrees in Foothill Group Agent's sole discretion, to pay interest due in respect
of the Bridge Term Loan until paid in full (if an Event of Default has occurred
and is continuing and Foothill Group Agent has not so agreed, the priority of
such amounts is deferred to item "eighth");
sixth, to pay or prepay principal of Foothill Loans and Foothill Group
Agent Advances until paid in full;
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seventh, to pay principal of the Advances (other than Foothill Loans and
Foothill Group Agent Advances) until paid in full;
eighth, upon the occurrence and during the continuation of an Event of
Default, to pay interest due in respect of the Bridge Term Loan until paid in
full;
ninth, when due and payable, to pay in cash the Bridge Term Loan until
paid in full.
(ii) In each instance so long as no Event of Default
has occurred and is continuing, Section 2.4(b)(i) shall not be deemed to apply
to any payment by Borrower specified by Borrower to Foothill Group Agent to be
for the payment of Bridge Term Loan Obligations when due and payable under any
provision of this Agreement or the prepayment of all or part of the principal of
the Bridge Term Loan pursuant to Section 2.2(a).
(iii) For purposes of the foregoing, "payment in full"
with respect to interest shall include interest accrued after the commencement
of any Insolvency Proceeding irrespective of whether a claim for such interest
is allowable in such Insolvency Proceeding.
2.5 OVERADVANCES. If, at any time or for any reason, the amount
of Obligations pursuant to Sections 2.1 and 2.2 is greater than either the
Dollar or percentage limitations set forth in Sections 2.1 or 2.2 (an
"Overadvance"), Borrower immediately shall pay to Foothill Group Agent, in cash,
the amount of such excess, which amount shall be used by Foothill Group Agent to
reduce the Obligations in accordance with the priorities set forth in Section
2.4(b).
2.6 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations owed in connection with
the Revolving Advances shall bear interest at a per annum rate of 1 percentage
point above the Reference Rate. All Bridge Term Loan Obligations shall bear
interest at a per annum rate of fourteen and one-half percent (14.50%), of which
ten percent (10%) per annum shall be payable in cash and four and one-half
percent (4.50%) per annum shall be payable "in kind" and therewith added to the
then-outstanding principal balance of the Bridge Term Loan.
(b) [intentionally omitted].
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, all Obligations shall bear interest at a
per annum rate equal to 4 percentage points above the rate that otherwise would
be applicable hereunder.
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(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7% per annum. To the extent that
interest accrued hereunder at the rate set forth herein would be less than the
foregoing minimum daily rate, the interest rate chargeable hereunder for such
day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest fees payable hereunder shall be due
and payable, in arrears, on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest, all Foothill Expenses (as and when incurred),
the fees and charges provided for in Section 2.11 (as and when payable), and all
other payments due under the Loan Documents to Borrower's Loan Account, which
amounts thereafter shall accrue interest at the rate then applicable to Advances
hereunder. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is 8.5% per annum. In the event the Reference Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.7 COLLECTION OF ACCOUNTS. (a) Borrower shall at all times
maintain lockboxes (the "Lockboxes") and, immediately after the Closing Date,
shall instruct all Account Debtors with respect to the Accounts, General
Intangibles, and Negotiable Collateral of Borrower to remit all Collections in
respect thereof to such Lockboxes. Borrower, Foothill, and the Lockbox Banks
shall enter into the Lockbox Agreements, which among other things shall provide
for the opening of a Lockbox Account for the deposit of Collections at a Lockbox
Bank. Borrower agrees that all Collections and other amounts received by
Borrower from any Account Debtor or any other source immediately
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upon receipt shall be deposited into a Lockbox Account. No Lockbox Agreement or
arrangement contemplated thereby shall be modified by Borrower without the prior
written consent of Foothill Group Agent. Upon the terms and subject to the
conditions set forth in the Lockbox Agreements, all amounts received in each
Lockbox Account shall be wired each Business Day into an account (the "Foothill
Group Agent Account") maintained by Foothill Group Agent at a depositary
selected by Foothill Group Agent.
(b) Borrower shall, immediately after the Closing Date, cause
each of the Guarantors to instruct all of their account debtors with respect to
their Accounts to remit all Collections in respect thereof to the Lockboxes.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any Collections by Foothill Group Agent (whether from transfers to Foothill
Group Agent by the Lockbox Banks pursuant to the Lockbox Agreements or
otherwise) immediately shall be applied provisionally to reduce the Obligations
outstanding under Section 2.1, but shall not be considered a payment on account
unless such Collection item is a wire transfer of immediately available federal
funds and is made to the Foothill Group Agent Account or unless and until such
Collection item is honored when presented for payment. From and after the
Closing Date, Foothill Group Agent shall be entitled to charge Borrower for 1
Business Day of `clearance' or `float' at the rate set forth in Section 2.6(a)
or Section 2.6(c), as applicable, on all Collections that are received by
Foothill (regardless of whether forwarded by the Lockbox Banks to Foothill,
whether provisionally applied to reduce the Obligations under Section 2.1, or
otherwise). This across-the-board 1 Business Day clearance or float charge on
all Collections is acknowledged by the parties to constitute an integral aspect
of the pricing of the Foothill Group's financing of Borrower, and shall apply
irrespective of the characterization of whether receipts are owned by Borrower
or Foothill Group Agent, and whether or not there are any outstanding Advances,
the effect of such clearance or float charge being the equivalent of charging 1
Business Day of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrower shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill Group Agent only if it is received into the Agent
Account on a Business Day on or before 11:00 a.m. California time. If any
Collection item is received into the Foothill Group Agent Account on a
non-Business Day or after 11:00 a.m. California time on a Business Day, it shall
be deemed to have been received by Foothill as of the opening of business on the
immediately following Business Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances and the Bridge Term Loan under this Agreement based upon telephonic or
other instructions received from anyone purporting to be an Authorized Person,
or without instructions if pursuant to Section 2.6(e). Borrower agrees to
establish and maintain the Designated Account with the Designated Account Bank
for the purpose of receiving the
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proceeds of the Advances and the Bridge Term Loan requested by Borrower and made
by Foothill Group Agent hereunder. Unless otherwise agreed by Foothill Group
Agent and Borrower, any Advance or the Bridge Term Loan requested by Borrower
and made hereunder shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill Group Agent shall maintain an account on its books in the name of
Borrower (the "Loan Account") on which Borrower will be charged with all
Advances Loans and the Bridge Term Loan made by Foothill Group Agent or the
Lenders to Borrower or for Borrower's account, including, accrued interest,
Foothill Group Expenses, and any other payment Obligations of Borrower. In
accordance with Section 2.8, the Loan Account will be credited with all payments
received by Foothill Group Agent from Borrower or for Borrower's account,
including all amounts received in the Foothill Account from any Lockbox Bank.
Foothill shall render statements regarding the Loan Account to Borrower,
including principal, interest, fees, and including an itemization of all charges
and expenses constituting Foothill Group Expenses owing, and such statements
shall be conclusively presumed to be correct and accurate and constitute an
account stated between Borrower and the Foothill Group unless, within 30 days
after receipt thereof by Borrower, Borrower shall deliver to Foothill Group
Agent written objection thereto describing the error or errors contained in any
such statements.
2.11 FEES. Borrower shall pay to Foothill Group Agent for the
ratable benefit of the Foothill Group (except as otherwise indicated or as
otherwise agreed among the Lenders) the following fees:
(a) Origination Fee. An origination fee of $460,000, earned
in full and non-refundable on the Closing Date,
(b) [Intentionally omitted].
(c) Facility Fees.
(i) Revolving Loan Facility Fee. On the Closing Date, a
facility fee (the "Revolving Loan Facility Fee") of $300,000 which fee would be
earned in full and would constitute an Obligation as of the Closing Date, but
which would be payable in equal monthly installments of $12,500 per month which
installments would be payable on the first day of each month; provided, however,
that the entire unpaid balance of the Facility Fee would be due and payable in
full on the earlier of the date on which the other Obligations are prepaid in
full or are due in full, whether at maturity or as a result of acceleration;
provided further, however, that, until a portion of the Facility Fee is due and
payable, it shall not accrue interest hereunder and shall not reduce
Availability; and
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(ii) Bridge Term Loan Facility Fee. Commencing on the
date that is three months after the Bridge Term Loan Funding Date and continuing
thereafter on the first day of every third month until the Bridge Term Loan is
paid in full, a facility fee (the "Bridge Term Loan Facility Fee") payable in
the following amounts:
<TABLE>
<CAPTION>
# Months After % of Initial Bridge
Closing Term Loan Amount
-------------- -------------------
<S> <C>
3 0.25%
6 0.50%
9 0.75%
12 1.00%
15 1.25%
18 1.50%
21 1.75%
24 2.00%
</TABLE>
(d) Financial Examination, Documentation, and Appraisal
Fees. For the sole and separate account of Foothill Group Agent: (i) Foothill
Group Agent's customary fee of $650 per day per examiner; plus (ii) Foothill
Group Agent's out-of-pocket expenses for each financial analysis and examination
(i.e., audits) of Borrower performed by personnel employed by Foothill Group
Agent; plus (iii) Foothill Group Agent's customary appraisal fee of $1,500 per
day per appraiser; plus (iv) Foothill Group Agent's out-of-pocket expenses for
each appraisal of the Worldwide Collateral performed by personnel employed by
Foothill Group Agent and, the actual charges paid or incurred by Foothill Group
Agent if it elects to employ the services of one or more third Persons to
perform such financial analyses and examinations (i.e., audits) of Borrower or
to appraise the Worldwide Collateral.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND BRIDGE
TERM LOAN. The obligation of the Foothill Group (or any member thereof) to make
the initial Advance and the Bridge Term Loan, is subject to the fulfillment, to
the satisfaction of Foothill Group Agent and its counsel, of each of the
following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before May 31,
1998;
(b) Foothill Group Agent shall have received all
financing statements and fixture filings required by Foothill Group Agent, duly
executed by the
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Obligors, Foothill Group Agent shall have received searches reflecting the
filing of all such financing statements and fixture filings, Foothill Group
Agent shall have had an opportunity to reconcile the searches with the Permitted
Liens provided for herein and with the information in the Foothill Group Agent's
possession concerning the Fixed Assets and known Liens thereon, and Foothill
Group Agent shall have received any releases or terminations of Liens necessary
to ensure that no Liens exist on the Closing Date other than Permitted Liens;
(c) Foothill Group Agent shall have received each of the
following documents, in form and substance satisfactory to Foothill Group Agent,
duly executed, and each such document shall be in full force and effect:
i. the Borrower Supplemental Security Documents;
ii. the Lockbox Agreements;
iii. the Disbursement Letter;
iv. the Suretyship Agreement;
v. the Guarantees;
vi. the Guarantor Security Documents;
vii. the Seagate Non-Offset Agreement;
viii. an Assignment and Acceptance, in form and
substance and with an Assignee satisfactory to
Foothill Group Agent, relative to the Bridge Term
Loan; and
ix. the Intercreditor Agreement;
(d) Foothill Group Agent shall have received a
certificate from the Secretary or Assistant Secretary of each Obligor attesting
to the resolutions of such Obligor's Board of Directors authorizing its
execution, delivery, and performance of the Loan Documents to which such Obligor
is a party and authorizing specific officers of such Obligor to execute the
same;
(e) Foothill Group Agent shall have received copies of
each Obligor's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary or Assistant Secretary of the
applicable Obligor;
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(f) Foothill Group Agent shall have received a
certificate of status with respect to each Obligor, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate officer of the
jurisdiction of organization of each applicable Obligor, which certificate shall
indicate that such Obligor is in good standing in such jurisdiction;
(g) Foothill Group Agent shall have received
certificates of status with respect to each Obligor, each dated within 15 days
of the Closing Date, such certificates to be issued by the appropriate officer
of the jurisdictions in which its failure to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall indicate that
each Obligor is in good standing in such jurisdictions;
(h) Foothill Group Agent shall have received a copy of
the fully executed and delivered Seagate Settlement Documents and satisfactory
evidence that the transactions contemplated thereby are being consummated prior
to or concurrently with the initial extension of credit hereunder;
(i) Foothill Group Agent shall have received
satisfactory evidence that not less than $16,000,000 in the aggregate of new
Subordinated Indebtedness and/or Equity Contributions have been received by
Borrower (including the Seagate Subordinated Indebtedness) immediately prior to
or concurrently with the initial extension of credit hereunder;
(j) Foothill Group Agent shall have received a
certificate of insurance, together with the endorsements thereto, as are
required by Section 6.10, the form and substance of which shall be satisfactory
to Foothill Group Agent and its counsel;
(k) Foothill Group Agent shall have received such
Collateral Access Agreements from lessors, warehousemen, bailees, and other
third persons as Foothill Group Agent may require;
(l) Foothill Group Agent shall have received opinions of
the Obligors' counsel in form and substance satisfactory to Foothill Group Agent
in its sole discretion;
(m) Foothill Group Agent shall have received a copy of
the fully executed and delivered Bank Group Agreement and related Bank Group
Financing Documents providing for, among other things, a release or waiver by
the Bank Group (or the equivalent) of any Bank Group Events of Default that
occurred prior to the Closing Date, and a resetting of various covenants,
warranties, and other terms and provisions of the Bank Group Agreement and
related Bank Group Financing Documents, and such Bank Group Agreement and
related Bank Group Financing Documents shall be in form and substance
satisfactory to Foothill and Borrower;
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<PAGE> 55
(n) Foothill Group Agent shall have received the results
of reference checks on key management personnel of Borrower, which results shall
be satisfactory to Foothill in its sole discretion;
(o) Foothill Group Agent shall have completed audits and
"field surveys" in respect of the Obligors' properties and assets and the
results of them shall be satisfactory to Foothill;
(p) Foothill Group Agent shall have determined to its
satisfaction that immediately after giving effect to the making of the initial
Advances contemplated hereby (including those referenced in Section 7.17), and
paid all closing costs, fees, and expenses incurred in connection with the
transactions contemplated hereby (including any costs, fees, and expenses in
connection with related Equity Contributions or issuances of Subordinated
Indebtedness, or in connection with the restructuring of the Bank Group
Financing Documents), the sum of Borrower's Availability plus its unrestricted
cash and cash equivalents (after reserving for any increase in the trade
payables of Borrower since the date of completion of the most recent field
survey of Borrower completed by Foothill Group Agent) is not less than
$15,000,000;
(q) Foothill Group Agent shall have received
satisfactory evidence that all tax returns required to be filed by Borrower have
been timely filed and all taxes upon Borrower or its properties, assets, income,
and franchises (including real property taxes and payroll taxes) have been paid
prior to delinquency, except such taxes that are the subject of a Permitted
Protest;
(r) prior to or concurrent with the funding of any
Advance under Section 2.1, the Bridge Term Loan shall have been fully funded;
(s) all original certificates evidencing any Stock
pledged under the Loan Documents to the Foothill Group Agent, together with
related signed, undated, blank stock powers, shall have been delivered to
Foothill Group Agent, or to Bank Group Agent as bailee of Foothill Group Agent,
in accordance with the requirements of the Intercreditor Agreement;
(t) except to the extent, if any, that the receipt of
same may be deferred by the Foothill Group to a post-closing condition
subsequent, Foothill Group Agent shall have received any executed and delivered
Control Agreements from any brokers or securities intermediaries with which
Borrower maintains any securities accounts in compliance with Sections 4.1 and
4.7 hereof; and
(u) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
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Execution and delivery to Foothill Group Agent by a Lender of a counterpart of
this Agreement shall be deemed confirmation by such Lender that (i) all
conditions precedent in this Section 3.1 have been fulfilled to the satisfaction
of such Lender and (ii) the decision of such Lender to execute and deliver to
Foothill Group Agent an executed counterpart of this Agreement was made by such
Lender independently and without reliance on Foothill Group Agent or any other
Lender as to the satisfaction of any condition precedent set forth in this
Section 3.1.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The following
shall be conditions precedent to all Advances hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor shall either
result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental authority
against Borrower, Foothill Group Agent, the Foothill Group, or any of their
Affiliates.
The foregoing conditions precedent are not conditions to each Lender
participating in or reimbursing Foothill or Foothill Group Agent for such
Lenders' Pro Rata Share of any Foothill Loan or Foothill Group Agent Advance as
provided herein.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to
initial closing hereunder, Borrower shall perform or cause to be performed the
following (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):
(a) within 30 days of the Closing Date, deliver to
Foothill Group Agent the certified copies of the policies of insurance, together
with the endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill Group Agent and its
counsel.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and the Foothill
Group and shall continue in full force and effect for a term ending on the date
(the "Renewal Date") that is two years from the Closing Date and automatically
shall be renewed for successive
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one year periods thereafter, unless sooner terminated pursuant to the terms
hereof. Either party may terminate this Agreement effective on the Renewal Date
or on any one year anniversary of the Renewal Date by giving the other party at
least 90 days prior written notice. The foregoing notwithstanding, the Foothill
Group shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of
this Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's duties, Obligations, or covenants hereunder or
under the other Loan Documents, and Foothill Group Agent's continuing security
interests in the Worldwide Collateral, for the benefit of the Foothill Group,
shall remain in effect until all Obligations have been fully and finally
discharged and the Foothill Group's obligations to provide additional credit
hereunder have been terminated.
3.6 EARLY TERMINATION BY BORROWER. Borrower has the option,
at any time upon 90 days prior written notice to Foothill Group Agent, to
terminate this Agreement by paying to Foothill Group Agent, for the ratable
benefit of the Lender Group, in cash, the Obligations, in full, together with a
premium (the "Early Termination Premium") equal to the greater of (a) the total
interest for the immediately preceding 3 months, and (b) $400,000. The Early
Termination Fee shall be solely for the benefit of the Lenders holding the Other
Obligations. The Early Termination Premium does not apply to any prepayment of
the Bridge Term Loan so long as this Agreement remains in effect and the
revolving facility provided for in Section 2.1 hereof remains in place.
3.7 TERMINATION UPON EVENT OF DEFAULT. If the Foothill Group
terminates this Agreement upon the occurrence of an Event of Default, in view of
the impracticability and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of the
Foothill Group's lost profits as a result thereof, Borrower shall pay to
Foothill Group Agent, for the ratable benefit of the Foothill Group, upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by the Foothill Group as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this Section
3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. (a) Each Borrower hereby
grants to Foothill Group Agent, for the benefit of the Foothill Group,
continuing Liens on and security interests in all right, title, and interest of
Borrower in and to all currently existing
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and hereafter acquired or arising Collateral in order to secure prompt repayment
of any and all Obligations (other than the Bridge Term Loan) and in order to
secure prompt performance by Borrower of each of Borrower's covenants and duties
with respect to the Obligations other than the Bridge Term Loan, under the Loan
Documents (the "Foothill Group Agent's Liens"). Foothill Group Agent's Liens in
and to the Collateral shall attach to all Collateral without further act on the
part of the Foothill Group or Borrower. Anything contained in this Agreement or
any other Loan Document to the contrary notwithstanding, except for the sale of
Inventory to buyers, the license of General Intangibles to licensees, the use by
Borrower of Collateral constituting cash or cash equivalents in compliance with
the Loan Documents, or the making of Permitted Investments, in each case, in the
ordinary course of business, and except for the making of dispositions permitted
by Section 7.4(b), and the making of Stock Sales to the extent expressly
permitted by and subject to the terms and provisions of the Intercreditor
Agreement, including, without limitation, Section 17(c) thereof, Borrower has no
authority, express or implied, to dispose of any item or portion of the
Collateral. Subject to Section 2.4(b), the secured claims of the Foothill Group
with respect to the Obligations other than the Bridge Term Loan, secured by the
Collateral shall be of equal priority, and ratable according to the respective
Obligations (other than the Bridge Term Loan) due each member of the Foothill
Group.
(b) Borrower hereby grants to Foothill Group Agent, for
the benefit of the Foothill Group, continuing Liens on and security interests in
all right, title, and interest of Borrower in and to all currently existing and
hereafter acquired or arising Collateral in order to secure prompt repayment of
the Bridge Term Loan and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents with respect to the
Bridge Term Loan (the "Foothill Group Agent's Bridge Term Loan Liens"). Foothill
Group Agent's Bridge Term Loan Liens in and to the Collateral shall attach to
all Collateral without further act on the part of the Foothill Group or
Borrower. Anything contained in this Agreement or any other Loan Document to the
contrary notwithstanding, except for the sale of Inventory to buyers, the
license of General Intangibles to licensees, the use by Borrower of Collateral
constituting cash or cash equivalents in compliance with the Loan Documents, or
the making of Permitted Investments, in each case, in the ordinary course of
business, and except for the making of dispositions permitted by Section 7.4(b),
and the making of Stock Sales to the extent expressly permitted by and subject
to the terms and provisions of the Intercreditor Agreement, including, without
limitation, Section 17(c) thereof, Borrower has no authority, express or
implied, to dispose of any item or portion of the Collateral. Subject to Section
2.4(b), the secured claims of the Foothill Group with respect to the Bridge Term
Loan, secured by the Collateral shall be of equal priority, and ratable
according to the respective Bridge Term Loan due each member of the Foothill
Group.
4.2 NEGOTIABLE COLLATERAL. In the event that any Worldwide
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral,
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immediately upon the request of Foothill Group Agent, Borrower shall, and shall
cause each Guarantor to, endorse and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. Borrower agrees, and shall cause each Guarantor to agree,
that, after the occurrence and during the continuance of a Default or an Event
of Default, or if the Foothill Group deems itself insecure, Foothill Group Agent
or Foothill Group Agent's designee may (a) notify customers or Account Debtors
of the Obligors that the Accounts, General Intangibles, or Negotiable Collateral
have been assigned to Foothill Group Agent for the benefit of the Foothill
Group, or that Foothill Group Agent, for the benefit of the Foothill Group, has
a security interest therein, and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to the Loan Account. Borrower shall, and shall cause each Guarantor to, agree
that they will hold in trust for the Foothill Group, as the Foothill Group's
trustee, any Collections that they receive and immediately will deliver said
Collections to Foothill Group Agent in their original form as received by such
Obligor.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any
time upon the request of Foothill Group Agent, Borrower shall, and shall cause
each Guarantor to, execute and deliver to Foothill Group Agent all financing
statements, continuation financing statements, fixture filings, security
agreements, pledges, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Foothill Group Agent
reasonably may request, in form satisfactory to Foothill Group Agent, to perfect
and continue perfected the Foothill Group Agent's Liens and the Foothill Group
Agent's Bridge Term Loan Liens on the Worldwide Collateral (whether now owned or
hereafter arising or acquired), and in order to consummate fully all of the
transactions contemplated hereby and under the other the Loan Documents. Without
limiting the foregoing, Borrower agrees to, and shall cause each Guarantor to,
execute and deliver any Control Agreements, security agreements, financing
statements, or other documents reasonably required by Foothill Group Agent to
create, perfect, or maintain the perfection or priority of, Foothill Group
Agent's Liens on the Obligors' Securities Accounts and related Investment
Property. If at any time the Borrowing Base is a negative number as the result
of the Cumulative Blockage, Foothill Group Agent may require Borrower to pledge
to Foothill Group Agent cash collateral in an amount equal to the absolute value
of such negative number.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints, and shall cause each Guarantor to irrevocably make,
constitute, and appoint, Foothill Group Agent (and any of Foothill's officers,
employees, or agents designated by Foothill Group Agent) as Obligor's true and
lawful attorney, with power to (a) if such Obligor refuses to, or fails timely
to execute and deliver any of the documents
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described in Section 4.4, sign the name of such Obligor on any of the documents
described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing or Foothill Group Agent deems itself insecure, sign such
Obligor's name on any invoice or bill of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse such Obligor's name on any Collection item that may come
into the Foothill Group's possession, (e) at any time that an Event of Default
has occurred and is continuing or the Foothill Group deems itself insecure,
notify the post office authorities to change the address for delivery of such
Obligor's mail to an address designated by Foothill Group Agent, to receive and
open all mail addressed to such Obligor, and to retain all mail relating to the
Collateral and forward all other mail to such Obligor, (f) at any time that an
Event of Default has occurred and is continuing or Foothill Group Agent deems
itself insecure, make, settle, and adjust all claims under such Obligor's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Foothill Group Agent deems itself insecure, settle
and adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Foothill Group Agent determines to be
reasonable, and Foothill Group Agent may cause to be executed and delivered any
documents and releases that Foothill determines to be necessary. Borrower
agrees, and shall cause each Guarantor to agree, that the appointment of
Foothill Group Agent's attorney, and each and every one of Foothill Group
Agent's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully and finally repaid and performed and the
Foothill Group's obligations to extend credit hereunder are terminated.
4.6 Right to Inspect. Borrower hereby agrees, and shall
cause each Guarantor to agree, that Foothill Group Agent (through any of its
officers, employees, or agents) shall have the right, from time to time
hereafter to inspect the Books of the Obligors and to check, test, and appraise
the Worldwide Collateral in order to verify the Obligors' financial condition or
the amount, quality, value, condition of, or any other matter relating to, the
Worldwide Collateral. Without limitation of the generality of the foregoing,
Foothill Group Agent shall have the right to obtain semi-annual appraisals of
the Fixed Assets, the first of which shall be completed no later than the end of
October, 1998.
4.7 CONTROL AGREEMENTS. Borrower agrees to, and shall cause
each Guarantor to, not transfer assets out of any Securities Accounts other than
as permitted under Section 7.22 and, if to another securities intermediary,
unless each of the applicable Obligors, Foothill Group Agent, and the substitute
securities intermediary have entered into a Control Agreement. No arrangement
contemplated hereby or by any Control Agreement in respect of any Securities
Accounts or other Investment Property shall be modified by any Obligor without
the prior written consent of Foothill Group
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Agent. Upon the occurrence and during the continuance of an Event of Default or
if Foothill Group Agent deems the Foothill Group insecure, Foothill Group Agent
may notify any securities intermediary to liquidate or transfer the applicable
Securities Account or any Investment Property maintained or held thereby and
remit the proceeds thereof to the Foothill Group Agent Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Foothill Group to enter into this
Agreement, Borrower makes the following representations and warranties to the
Foothill Group which shall be true, correct, and complete in all respects as of
the date hereof, and shall be true, correct, and complete in all respects as of
the Closing Date, and at and as of the date of the making of each Advance made
thereafter, as though made on and as of the date of such Advance (except to the
extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens except for Permitted Liens.
Each Guarantor has good and indefeasible title to the Guarantor Collateral
pledged or hypothecated by it, free and clear of Liens except for Permitted
Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale, license, or lease and delivery of
Inventory or the rendition of services to Account Debtors in the ordinary course
of the applicable Obligors' business, unconditionally owed to such Obligor
without defenses, disputes, offsets, counterclaims, or rights of return or
cancellation. The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for immediate
shipment to and unconditional acceptance by the Account Debtor. No Obligor has
received any notice of actual or imminent bankruptcy, insolvency, or material
impairment of the financial condition of any Account Debtor regarding any
Eligible Account.
5.3 [INTENTIONALLY OMITTED].
5.4 EQUIPMENT. Except for Nextar thickness sorters whose
suitability is in dispute, all of the Equipment is used or held for use in
Borrower's business and is fit for such purposes. Akashic does not own more than
a de minimis amount of Fixed Assets that are Foreign Collateral.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Agent's
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prior written consent) and are located only at the locations identified on
Schedule 6.12 or otherwise permitted by Section 6.12.
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of each Borrower is located at the address indicated in the
preamble to this Agreement. StorMedia's FEIN is 77-0373062. Akashic's FEIN is
77-0438632.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Obligor is duly organized and existing and in
good standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected to
constitute a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and
accurate list of Borrower's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each class of
common and preferred Stock authorized for each of such Subsidiaries; and (iii)
the number and the percentage of the outstanding shares of each such class owned
directly or indirectly by Borrower. All of the outstanding Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no Stock (or
any securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for Stock) of any direct or indirect Subsidiary of Borrower is
subject to the issuance of any security, instrument, warrant, option, purchase
right, conversion or exchange right, call, commitment or claim of any right,
title, or interest therein or thereto.
(d) StorMedia Foreign Sales is merely a inactive holding
company for certain Subsidiaries of StorMedia and has no operations of its own
nor any significant assets except for cash of not more than $500,000 and the
Stock of certain Subsidiaries of StorMedia.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
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(b) The execution, delivery, and performance by each
Guarantor of the Loan Documents to which it is a party have been duly authorized
by all necessary corporate action.
(c) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party do not and will
not (i) violate any provision of federal, state, or local law or regulation
(including Regulations T, U, and X of the Federal Reserve Board) applicable to
Borrower, the Governing Documents of Borrower, or any order, judgment, or decree
of any court or other Governmental Authority binding on Borrower, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation or material lease of
Borrower, (iii) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (iv) require any approval of stockholders or any approval or
consent of any Person under any material contractual obligation of Borrower,
except for ones that have been obtained.
(d) The execution, delivery, and performance by each
Guarantor of the Loan Documents to which it is a party do not and will not (i)
violate any provision of the laws and regulations applicable to such Guarantor,
the Governing Documents of such Guarantor, or any order, judgment, or decree of
any court or other Governmental Authority binding on such Guarantor, (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material contractual obligation or material
lease of such Guarantor, (iii) result in or require the creation or imposition
of any Lien of any nature whatsoever upon any properties or assets of such
Guarantor, other than Permitted Liens, or (iv) require any approval of
stockholders or any approval or consent of any Person under any material
contractual obligation of such Guarantor, except for ones that have been
obtained.
(e) Other than the filing of appropriate financing
statements, the execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which Borrower is a party do not and will
not require any registration with, consent, or approval of, or notice to, or
other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
(f) Other than the filing of appropriate financing
statements and the applicable Guarantor Security Documents, the execution,
delivery, and performance by any Guarantor of the Loan Documents to which such
Guarantor is a party do not and will not require any registration with, consent,
or approval of, or notice to, or other action with or by, any federal, state,
foreign, or other Governmental Authority or other Person.
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(g) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(h) As to each Guarantor, the Loan Documents to which
such Guarantor is a party, and all other documents contemplated hereby and
thereby, when executed and delivered by such Guarantor will be the legally valid
and binding obligations of such Guarantor, enforceable against such Guarantor in
accordance with their respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors' rights generally.
(i) The Liens granted by Borrower to Foothill in and to
its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and (subject to the Intercreditor
Agreement) first priority Liens, subject only to Permitted Liens.
(j) The Foothill Group Agent's Liens and the Foothill
Group Agent's Bridge Term Loan Liens granted by Borrower to Foothill Group
Agent, for the benefit of the Foothill Group, in and to its properties and
assets pursuant to this Agreement and the other Loan Documents are validly
created, perfected, and (subject to the Intercreditor Agreement) first priority
Liens, subject only to Permitted Liens.
(k) As to each Guarantor, the Liens granted by such
Guarantor to Foothill Group Agent, for the benefit of Foothill Group in and to
its properties and assets pursuant to the Loan Documents to which it is a party
are validly created, perfected, and (subject to the Intercreditor Agreement)
first priority Liens, subject only to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending
by or against any Obligor before any court or administrative agency and no
Obligor has any knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving any Obligor, except for: (a) ongoing collection matters
in which an Obligor is the plaintiff; (b) matters disclosed on Schedule 5.10;
and (c) matters arising after the date hereof that, if decided adversely to any
Obligor, reasonably could not be expected to result in a Material Adverse
Change.
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5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to the Obligors that have been delivered by Borrower to the Foothill
Group have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present the Obligors' financial condition
as of the date thereof and the Obligors' results of operations for the period
then ended. There has not been a Material Adverse Change with respect to the
Obligors since the date of the latest financial statements submitted to the
Foothill Group on or before the Closing Date.
5.12 SOLVENCY.
(a) Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
(b) Each Guarantor is Solvent. No transfer of property
is being made by such Guarantor and no obligation is being incurred by such
Guarantor in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of such Guarantor.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan, other than those listed on Schedule 5.13. Borrower, each of its
Subsidiaries and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it is
obligated to contribute. No ERISA Event has occurred nor has any other event
occurred that may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. None of Borrower or its Subsidiaries, any
ERISA Affiliate, or any fiduciary of any Plan is subject to any direct or
indirect liability with respect to any Plan under any applicable law, treaty,
rule, regulation, or agreement. None of Borrower or its Subsidiaries or any
ERISA Affiliate is required to provide security to any Plan under Section
401(a)(29) of the IRC.
5.14 ENVIRONMENTAL CONDITION. Except as disclosed on
Schedule 5.14, none of Borrower's properties or assets has ever been used by
Borrower or, to the best of Borrower's knowledge, by previous owners or
operators in the disposal of, or to produce, store, handle, treat, release, or
transport, any Hazardous Materials. Except as disclosed on Schedule 5.14, none
of Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by Borrower. Except as disclosed on Schedule 5.14, Borrower has not
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any
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other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.15 BROKERAGE FEES. No brokerage commission or finders fees
has or shall be incurred or payable in connection with or as a result of
Borrower's obtaining financing from the Foothill Group under this Agreement, and
Borrower has not utilized the services of any broker or finder in connection
with Borrower's obtaining financing from the Foothill Group under this
Agreement.
5.16 INTELLECTUAL PROPERTY. Each Obligor owns or possesses
adequate licenses or other rights to use all patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, copyrights, source code, mask-works, trade secrets and know-how
(collectively, the "Intellectual Property") that are necessary for the operation
of the Obligors' business as currently conducted. Except as disclosed on
Schedule 5.16, no claim is pending or threatened in writing to the effect that
an Obligor infringes upon, or conflicts with, the asserted rights of any other
Person under any Intellectual Property, and there is no basis for any such claim
(whether pending or threatened, and which, if determined adversely to an
Obligor, reasonably could be expected to result in a Material Adverse Change).
No claim is pending or threatened in writing to the effect that any such
Intellectual Property owned or licensed by any Obligor or in which any Obligor
otherwise has the right to use is invalid or unenforceable by such Obligor, and
there is no basis for any such claim (whether or not pending or threatened, and
which, if determined adversely to any Obligor, reasonably could be expected to
result in a Material Adverse Change). No Obligor has any registered copyrights.
No Obligor owns any works of authorship that are registrable as copyrights,
except for works of insignificant value that are not necessary to their
business.
5.17 YEAR 2000 COMPLIANCE.
(a) On the basis of a comprehensive inventory, review
and assessment currently being undertaken by Borrower of Borrower's computer
applications utilized by Borrower or contained in products produced or sold by
Borrower, and upon inquiry made of Borrower's material suppliers and vendors,
Borrower's management is of the considered view that Borrower, its products, and
all such suppliers and vendors will be Year 2000 Compliant before October 1,
1999.
(b) Borrower (i) has undertaken a detailed inventory,
review and assessment of all areas within its business and operations that could
be adversely affected by the failure of Borrower or its products to be Year 2000
Compliant on a timely basis, (ii) is developing a detail plan and timeline for
becoming Year 2000 Compliant on a timely basis, and (iii) to date, is
implementing that plan in accordance with that timetable in all material
respects. Borrower reasonably anticipates that it will be Year 2000 Compliant on
a timely basis.
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6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless the Foothill Group shall otherwise consent in writing,
Borrower shall do (and, where specified, shall cause the applicable other
Obligors to do) all of the following:
6.1 ACCOUNTING SYSTEM. The Obligors shall maintain a
standard and modern system of accounting that enables Borrower to produce
financial statements in accordance with GAAP, and maintain records pertaining to
the Worldwide Collateral that contain information as from time to time may be
requested by Foothill Group Agent. Borrower shall keep a modern inventory
reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill Group Agent with
the following documents at the following times in form satisfactory to Foothill
Group Agent: (a) on each Business Day (or less frequently, as agreed to by
Foothill Group Agent), a sales journal, collection journal, and credit register
since the last such schedule and a calculation of the Borrowing Base as of such
date, (b) on a monthly basis and, in any event, by no later than the 10th day of
each month during the term of this Agreement, (i) a detailed calculation of the
Borrowing Base, and (ii) a detailed aging, by total, of the Accounts, together
with a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill Group Agent, (c) on a monthly basis and, in any
event, by no later than the 10th day of each month during the term of this
Agreement, a summary aging, by vendor, of each Obligor's accounts payable and
any book overdraft, (d) [intentionally omitted], (e) on each Business Day,
notice of all returns, disputes, or claims, (f) upon request, copies of invoices
in connection with the Accounts, customer statements, credit memos, remittance
advices and reports, deposit slips, shipping and delivery documents in
connection with the Accounts and for Inventory and Equipment acquired by
Borrower, purchase orders and invoices, (g) on a quarterly basis, a detailed
list of the customers of the Obligors, (h) on a monthly basis, a calculation of
the Dilution for the prior month; and (i) such other reports as to the Worldwide
Collateral or the financial condition of Borrower as Foothill Group Agent may
request from time to time. Original sales invoices evidencing daily sales shall
be mailed by the Obligors to each of their respective Account Debtors and, at
Foothill Group Agent's direction, the invoices shall indicate on their face that
the Account has been assigned to Foothill Group Agent and that all payments are
to be made directly to Foothill Group Agent.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill Group Agent, with copies to each Lender: (a) as soon as available, but
in any event within 30 days after the end of each month during each of
Borrower's fiscal years, a company prepared balance sheet, income statement, and
statement of cash flow covering Borrower's operations during such period; and
(b) as soon as available, but in any event
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within 90 days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill Group Agent and
certified, without any qualifications, by such accountants to have been prepared
in accordance with GAAP, together with a certificate of such accountants
addressed to Foothill Group Agent stating that such accountants do not have
knowledge of the existence of any Default or Event of Default. Such audited
financial statements shall include a balance sheet, profit and loss statement,
and statement of cash flow and, if prepared, such accountants' letter to
management. Inasmuch as Borrower is a parent company of one or more
Subsidiaries, or Affiliates, or is a Subsidiary or Affiliate of another company,
then, in addition to the financial statements referred to above, Borrower agrees
to deliver financial statements prepared on a consolidating basis so as to
present Borrower and each such related entity separately, and on a consolidated
basis.
Together with the above, Borrower also shall deliver to
Foothill Group Agent, with copies to each Lender, Borrower's Form 10-Q Quarterly
Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other
filings made by Borrower with the Securities and Exchange Commission, if any, as
soon as the same are filed, or any other information that is provided by
Borrower to its shareholders, and any other report reasonably requested by the
Foothill Group relating to the financial condition of Borrower.
Each month, together with the financial statements provided
pursuant to Section 6.3(a), Borrower shall deliver to Foothill Group Agent, with
copies to each Lender, a certificate signed by its chief financial officer to
the effect that: (i) all financial statements delivered or caused to be
delivered to any one or more members of the Foothill Group hereunder have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present the financial condition of Borrower, (ii) the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date), (iii) for each month that also is the date on which a financial covenant
in Section 7.20 is to be tested, a Compliance Certificate demonstrating in
reasonable detail compliance at the end of such period with the applicable
financial covenants contained in Section 7.20, and (iv) on the date of delivery
of such certificate to Foothill Group Agent there does not exist any condition
or event that constitutes a Default or Event of Default (or, in the case of
clauses (i), (ii), or (iii), to the extent of any non-compliance, describing
such non- compliance as to which he or she may have knowledge and what action
Borrower has taken, is taking, or proposes to take with respect thereto).
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Borrower shall issue, and shall cause each of the
Guarantors to issue, written instructions to their independent certified public
accountants authorizing them to communicate with Foothill Group Agent and to
release to Foothill Group Agent whatever financial information concerning the
Obligors that Foothill Group Agent may request. Borrower hereby irrevocably
authorizes and directs, and shall cause each Guarantor to irrevocably authorize
and direct, all auditors, accountants, or other third parties to deliver to
Foothill Group Agent, at Borrower's expense, copies of the Obligors' financial
statements, papers related thereto, and other accounting records of any nature
in their possession, and to disclose to Foothill Group Agent any information
they may have regarding the Obligors' business affairs and financial conditions.
Prior to making any mandatory prepayment to the Bank
Group under Section 2.03(c) of the Bank Group Agreement, Borrower shall provide
Foothill Group Agent with documentation that is reasonably satisfactory to
Foothill Group Agent establishing that no Event of Default would result from the
making of such mandatory prepayment and that the Minimum Availability Condition
or Alternative Minimum Availability Condition, as applicable, will be satisfied
with respect thereto after giving effect to such mandatory prepayment.
6.4 TAX RETURNS. Deliver to Foothill Group Agent copies of
each of Borrower's future federal income tax returns, and any amendments
thereto, within 30 days of the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations to deliver its annual financial statements at the time when Borrower
provides its audited financial statements to Foothill Group Agent and copies of
all federal income tax returns as soon as the same are available and in any
event no later than 30 days after the same are required to be filed by law.
6.6 RETURNS. Borrower hereby agrees, and shall cause each
Guarantor, to cause all returns and allowances, if any, as between such Obligor
and its Account Debtors, to be on the same basis and in accordance with the
usual customary practices of such Obligor, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill Group Agent) in the appropriate amount to such Account Debtor. If,
at a time when an Event of Default has occurred and is continuing, any Account
Debtor returns any Inventory to Borrower, Borrower promptly shall determine the
reason for such return and, if Foothill Group Agent consents (which consent
shall not be unreasonably withheld), issue a credit memorandum (with a copy to
be sent to Foothill Group Agent) in the appropriate amount to such Account
Debtor.
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6.7 TITLE TO WORLDWIDE COLLATERAL. Upon Foothill Group
Agent's request, Borrower shall, and shall cause each Guarantor to, immediately
deliver to Foothill Group Agent's properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items of
Worldwide Collateral.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in
good operating condition and repair (ordinary wear and tear excepted), and make
all necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 TAXES. Borrower shall, and shall cause each Guarantor
to: (a) cause all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against any Obligor any of
its property to be paid in full, before delinquency or before the expiration of
any extension period, except to the extent that the validity of such assessment
or tax shall be the subject of a Permitted Protest; (b) make due and timely
payment or deposit of all such federal, state, foreign, and local taxes,
assessments, or contributions required of it by law, except to the extent that
the validity of such assessment or tax shall be the subject of a Permitted
Protest, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto;
and (c) make timely payment or deposit of all tax payments and withholding taxes
required of it by those laws concerning F.I.C.A. (or its foreign equivalent)
and, F.U.T.A. (or its foreign equivalent), state disability (or its foreign
equivalent), and, upon request, furnish Foothill with proof satisfactory to
Foothill indicating that such Obligor has made such payments or deposits.
6.10 INSURANCE.
(a) Borrower shall cause the Obligors, at their
expense, to keep the Worldwide Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as are ordinarily insured against by other owners in similar
businesses. Borrower also shall cause the Obligors to maintain business
interruption, public liability, product liability, and property damage insurance
relating to the Obligors' ownership and use of the Worldwide Collateral, as well
as insurance against larceny, embezzlement, and criminal misappropriation.
(b) Borrower, at its expense, shall obtain and maintain
(i) insurance of the type necessary to insure any real property, for the full
replacement cost thereof, against any loss by fire, lightning, windstorm, hail,
explosion, aircraft, smoke damage, vehicle damage, elevator collision, and other
risks from time to time included under "extended coverage" policies, in such
amounts as Foothill Group Agent may require,
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but in any event in amounts sufficient to prevent Borrower from becoming a
co-insurer under such policies, (ii) combined single limit bodily injury and
property damages insurance against any loss, liability, or damages on, about, or
relating to each parcel of real property, in an amount of not less than
$10,000,000 per location; and (iii) insurance for such other risks as Foothill
Group Agent may require. Replacement costs, at Foothill Group Agent's option,
may be redetermined by an insurance appraiser, satisfactory to Foothill Group
Agent, not more frequently than once every 12 months at Borrower's cost.
(c) At its expense, maintain key man life insurance
policies with respect to the following individuals and in the following amounts:
Name
Amount
William J. Almon $3,000,000
Borrower shall furnish Foothill Group Agent with an
"Absolute Assignment" of each such life insurance policy, shall record each such
"Absolute Assignment" with the issuer of the respective policy, and shall
furnish proof of such issuer's acceptance of such assignment. Except as
otherwise required by the Intercreditor Agreement, all proceeds payable under
such life insurance policies shall be payable to Foothill Group Agent to be
applied on account of the Obligations.
(d) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably satisfactory
to Foothill Group Agent. All insurance required herein shall be written by
companies which are authorized to do insurance business in the state or other
jurisdiction where the relevant Obligor or property is located. All hazard
insurance and such other insurance as Foothill Group Agent shall specify, shall
contain a Form 438BFU (NS) lender's loss payable endorsement, or an equivalent
endorsement satisfactory to Foothill Group Agent, showing Foothill Group Agent
as loss payee thereof as its interests may appear, and shall contain a waiver of
warranties. Every policy of insurance referred to in this Section 6.10 shall
contain an agreement by the insurer that it will not cancel such policy except
after 30 days prior written notice to Foothill Group Agent and that any loss
payable thereunder shall be payable notwithstanding any act or negligence of any
Obligor which might, absent such agreement, result in a forfeiture of all or a
part of such insurance payment and notwithstanding (i) occupancy or use of any
real property for purposes more hazardous than permitted by the terms of such
policy, (ii) any foreclosure or other action or proceeding taken by Foothill
Group Agent pursuant to the Loan Documents upon the happening of an Event of
Default, or (iii) any change in title or ownership of any real property.
Borrower shall cause the Obligors to deliver to Foothill Group Agent certified
copies of such policies of insurance and evidence of the payment of all premiums
therefor.
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(e) Original policies or certificates thereof
satisfactory to Foothill Group Agent evidencing such insurance shall be
delivered to Foothill Group Agent at least 30 days prior to the expiration of
the existing or preceding policies. Borrower shall cause the Obligors to give
Foothill Group Agent prompt notice of any loss covered by such insurance. If an
Event of Default has occurred and is continuing, or in the case of any claim in
excess of $5,000,000, Foothill Group Agent shall have the right to adjust any
loss. In other circumstances, Borrower shall have the right to adjust the loss,
but, if the claim is in excess of $50,000, Borrower shall not enter into any
binding agreement with respect to any such adjustment without the prior written
consent of Foothill Group Agent, which shall not be unreasonably delayed,
conditioned, or withheld. Under circumstances where Foothill Group Agent has the
right to adjust a loss, so long as Foothill Group Agent acts in good faith it
shall have no liability whatsoever to the Obligors in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy, including the insurance policies mentioned above, shall be paid over to
Foothill Group Agent to be applied at the option of the Required Lenders either
to the prepayment of the Obligations without premium, in such order or manner as
Foothill Group Agent may elect, or shall be disbursed to the relevant Obligor
under staged payment terms satisfactory to Foothill for application to the cost
of repairs, replacements, or restorations, subject, however, to the provisions
of the Intercreditor Agreement. All repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a value at least equal to
the value of the items or property destroyed prior to such damage or
destruction. Borrower agrees, and shall cause each Guarantor to agree, that upon
the occurrence of an Event of Default, the Foothill Group shall have the right
to apply all prepaid premiums to the payment of the Obligations in such order or
form as Foothill Group Agent shall determine, subject, however, to the
provisions of the Intercreditor Agreement.
(f) Borrower shall cause the Obligors not to take out
separate insurance concurrent in form or contributing in the event of loss with
that required to be maintained under this Section 6.10, unless Foothill Group
Agent is included thereon as named insured with the loss payable to Foothill
Group Agent under a standard 438BFU (NS) lender's loss payable endorsement, or
its local equivalent. Borrower shall cause the Obligors to immediately notify
Foothill Group Agent whenever such separate insurance is taken out, specifying
the insurer thereunder and full particulars as to the policies evidencing the
same, and provide originals of such policies immediately shall be provided to
Foothill Group Agent.
6.11 NO SETOFFS OR COUNTERCLAIMS. Borrower agrees, and shall
cause each of the Guarantors to agree, that the Obligors shall make payments
hereunder and under the other Loan Documents by or on behalf of the Obligors
without setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, local, or foreign taxes.
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6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory
and Equipment only at the locations identified on Schedule 6.12; provided,
however, that Borrower may amend Schedule 6.12 so long as such amendment occurs
by written notice to Foothill Group Agent not less than 30 days prior to the
date on which the Inventory or Equipment is moved to such new location, so long
as such new location is within the continental United States, and so long as, at
the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Foothill Group Agent's Liens and the Foothill Group Agent's Bridge Term Loan
Liens on such assets and also provides to Foothill Group Agent a Collateral
Access Agreement.
6.13 COMPLIANCE WITH LAWS. Borrower shall, and shall cause
each of the Guarantors to, comply with the requirements of all applicable laws,
rules, regulations, and orders of any Governmental Authority, including the Fair
Labor Standards Act (or its foreign equivalent) and the Americans With
Disabilities Act (or its foreign equivalent), other than laws, rules,
regulations, and orders the non-compliance with which, individually or in the
aggregate, would not result in and reasonably could not be expected to result in
a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Cause to be delivered to Foothill Group Agent each
of the following: (i) promptly, and in any event within 10 Business Days after
any Obligor knows or has reason to know that an ERISA Event has occurred that
reasonably could be expected to result in a Material Adverse Change, a written
statement of the chief financial officer or chief executive officer of such
Obligor describing such ERISA Event and any action that is being taking with
respect thereto by such Obligor or ERISA Affiliate, and any action taken or
threatened by the IRS, Department of Labor, or PBGC. Such Obligor, as
applicable, shall be deemed to know all facts known by the administrator of any
Benefit Plan of which it is the plan sponsor, (ii) promptly, and in any event
within 3 Business Days after the filing thereof with the IRS, a copy of each
funding waiver request filed with respect to any Benefit Plan and all
communications received by such Obligor or, to the knowledge of the Obligors,
any ERISA Affiliate with respect to such request, and (iii) promptly, and in any
event within 3 Business Days after receipt by the Obligors or, to the knowledge
of the Obligors, any ERISA Affiliate, of the PBGC's intention to terminate a
Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies
of each such notice.
(b) Cause to be delivered to Foothill Group Agent, upon
Foothill Group Agent's request, each of the following: (i) a copy of each Plan
(or, where any such plan is not in writing, complete description thereof) (and
if applicable, related trust agreements or other funding instruments) and all
amendments thereto, all written interpretations thereof and written descriptions
thereof that have been distributed to
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employees or former employees of Borrower or its Subsidiaries; (ii) the most
recent determination letter issued by the IRS with respect to each Benefit Plan;
(iii) for the three most recent plan years, annual reports on Form 5500 Series
required to be filed with any governmental agency for each Benefit Plan; (iv)
all actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of the
most recent annual contributions required to be made by Borrower or any ERISA
Affiliate to each such plan and copies of the collective bargaining agreements
requiring such contributions; (vi) any information that has been provided to
Borrower or any ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 LEASES. Borrower agrees, and shall cause each Guarantor
to agree, as follows: (a) The Obligors shall pay when due all rents and other
amounts payable under any leases to which any Obligor is a party or by which any
Obligor's properties and assets are bound, unless such payments are the subject
of a Permitted Protest and except for rents and other amounts payable under
leases of closed facilities at which no Worldwide Collateral is located not to
exceed $1,000,000 in the aggregate; and (b) to the extent that any Obligor fails
timely to make payment of such rents and other amounts payable when due under
its leases or licenses, Foothill Group Agent shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.16 BROKERAGE COMMISSIONS. Pay any and all brokerage
commission or finders fees incurred by in connection with or as a result of
Borrower's obtaining financing from the Foothill Group under this Agreement.
6.17 YEAR 2000 COMPLIANCE. Borrower will be Year 2000
Compliant by October 1, 1999.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower shall not (and, where specified, shall not cause, suffer,
or permit the applicable other Obligors to) do any of the following without the
Foothill Group's prior written consent:
7.1 INDEBTEDNESS. The Obligors shall not create, incur,
assume, permit, guarantee, or otherwise become or remain, directly or
indirectly, liable with respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in Schedule 7.1;
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(c) Indebtedness under the Bank Group Agreement;
(d) Subordinated Indebtedness approved by Foothill Group
Agent;
(e) Indebtedness secured by Permitted Liens; and
(f) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b), (c), (d), and (e) of this Section 7.1
(and continuance or renewal of any Permitted Liens associated therewith) so long
as: (i) the terms and conditions of such refinancings, renewals, or extensions
do not materially impair the prospects of repayment of the Obligations by
Borrower or Guarantor, as the case may be, (ii) the net cash proceeds of such
refinancings, renewals, or extensions do not result in an increase in the
aggregate principal amount of the Indebtedness so refinanced, renewed, or
extended, (iii) such refinancings, renewals, refundings, or extensions do not
result in a shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness that
is refinanced was subordinated in right of payment to the Obligations, then the
subordination terms and conditions of the refinancing Indebtedness must be at
least as favorable to the Foothill Group as those applicable to the refinanced
Indebtedness.
7.2 LIENS. The Obligors shall not create, incur, assume, or
permit to exist, directly or indirectly, any Lien on or with respect to any of
its property or assets, of any kind, whether now owned or hereafter acquired, or
any income or profits therefrom, except for Permitted Liens (including Liens
that are replacements of Permitted Liens to the extent that the original
Indebtedness is refinanced under Section 7.1(e) and so long as the replacement
Liens only encumber those assets or property that secured the original
Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except as permitted
by Section 7.4(b), the Obligors shall not enter into any merger, consolidation,
reorganization, or recapitalization, or reclassify its Stock, or liquidate, wind
up, or dissolve itself (or suffer any liquidation or dissolution), or convey,
sell, assign, lease, transfer, or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its property or assets;
provided that nothing herein prohibits StorMedia from permitting the conversion
of all or part of its preferred Stock to common Stock.
7.4 DISPOSITION OF ASSETS.
(a) Unauthorized Dispositions of Worldwide Collateral.
Except as to authorized dispositions of Worldwide Collateral set forth in
Section 7.4(b) below or Section 4.1 above, the Obligors shall not sell, lease,
assign, transfer, or
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otherwise dispose of any of their properties or assets other than sales of
Inventory to buyers in the ordinary course of the Obligors' businesses as
currently conducted.
(b) Authorized Dispositions of Worldwide Collateral. So
long as no Creditor Event of Default has occurred and is continuing or would
result from giving effect to such Sale, and so long as the Minimum Availability
Condition is satisfied (provided that the Minimum Availability Condition shall
not be applicable to Sales by Debtor pursuant to Section 7.4(b)(2) of this
Agreement), Debtor shall be entitled to make Sales of the Fixed Assets composing
the Worldwide Collateral subject to the following terms and conditions and so
long as the Net Sale Consideration from such Sales of Fixed Assets is
distributed as follows:
(1) The consideration for each such Sale shall be
all cash; provided, however, in the event that the Net
Sales Consideration received in any such Sale is in excess
of $15,000,000, the consideration for such Sale may
consist of (y) cash, and (z) promissory notes (each such
note a "Purchaser Note") in an aggregate principal amount
not to exceed the lesser of:
i. 50% of the aggregate proceeds received in such
Sale; or
ii. the aggregate Net Sale Consideration received in
connection with such Sale minus the aggregate
OLV of the assets subject to such Sale;
provided, further, that (x) subject to subsection 17(a)(v)
of the Intercreditor Agreement, each such Purchaser Note
shall be pledged to the Bank Group Agent for the benefit
of the Bank Group and the Foothill Group Agent for the
benefit of the Foothill Group, (y) if more than one Person
is purchasing assets in any Sale in which one or more
Purchaser Notes are issued, each such Person shall be
jointly and severally liable on each such Purchaser Note,
and (z) the creditworthiness of the issuer(s) of any such
Purchaser Notes and the terms of any such Purchaser Notes
shall be reasonably satisfactory to the Creditor(s), as
applicable, entitled to receive the pledge of such
Purchaser Note(s).
(2) With respect to any Sale of Fixed Assets that
compose Akashic Foreign Collateral, StorMedia Foreign
Collateral, or StorMedia Domestic Collateral, Debtor shall
apply the proceeds of any such Sale to the prepayment of
the Bank Group Claims in the following amounts:
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i. in the case of any Above OLV Sale, the
prepayment shall be in an amount equal to the
lesser of (1) the Net Sale Consideration for
such Sale, and (2) the sum of (a) the Minimum
Prepayment Amount, plus (b) the Excess
Prepayment Amount, plus (c) if the
Prepayment Carryforward is then a negative
number, an amount equal to the absolute value
of the Prepayment Carryforward; and
ii. in the case of any Below OLV Sale, the
prepayment shall be in an amount equal to the
greater of (1) the Minimum Prepayment Amount
minus the aggregate amount of the
Prepayment Carryforward (if a positive number)
at the time of the Sale, and (2) the Net Sale
Consideration for such Sale. Unless the Bank
Group Agent and each of the members of the Bank
Group have otherwise consented thereto, Debtor
may not commit to enter into, or consummate, a
Below OLV Sale if, after giving effect to such
Below OLV Sale and any prepayment made to the
Bank Group Agent for the benefit of the Bank
Group in connection therewith, the Prepayment
Carryforward would be a negative number.
iii. If the consideration for any such Sale is
permitted to consist of Purchaser Notes
pursuant to clause (i) of subsection 17(a) of
the Intercreditor Agreement, then up to 50% of
the amount payable to the Bank Group pursuant
to clause (ii) of subsection 17(a) of the
Intercreditor Agreement may consist of
Purchaser Notes; provided, however, that:
a. the issuer(s) of Purchaser Notes shall issue
two such Purchaser Notes each equal to
one-half of the amount to be evidenced by
Purchaser Notes;
b. Debtor shall irrevocably instruct the
issuer(s) of Purchaser Notes in such Sale
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to make payments on one such note directly
to the Bank Group Agent for the benefit of
the Bank Group;
c. so long as there is no Bank Group Event of
Default, payments under the other Purchaser
Note issued in such Sale may be made
directly to the Lockbox Account for the
account of Debtor;
d. anything contained in Section 3 of the
Intercreditor Agreement to the contrary
notwithstanding, after the occurrence of a
Bank Group Event of Default, upon notice
from the Bank Group Agent, the issuer(s) of
such other Purchaser Note(s) shall be
irrevocably instructed to make payments on
all such other Purchaser Note(s) directly to
the Bank Group Agent for the benefit of the
Bank Group;
e. any such payments made to the Bank Group
Agent shall be applied to the prepayment of
the Bank Group Claims in accordance with the
provisions of the Bank Group Agreement; and
f. the principal amount of any Purchaser Note
shall not be included in the calculation of
the Prepayment Carryforward or the
Carryforward Reduction Amount.
(3) With respect to any Sale of Fixed Assets that
compose Akashic Domestic Collateral (other than the Tasman
Facility), Debtor shall retain or apply the proceeds of
any such Sale to the prepayment of the Bank Group Claims
and the Foothill Group Claims in the following amounts:
i. Debtor may retain the first $7,000,000 in net
cash proceeds from any such Sale and use the
same, consistent with the terms and provisions
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of the Loan Documents, for any lawful general
corporate purpose; and
ii. to the extent that the net cash proceeds of all
such Sales of Akashic Domestic Collateral are
in excess of $7,000,000, Debtor shall make a
mandatory prepayment of the Bank Group Claims
in accordance with the provisions of the Bank
Group Agreement in an amount equal to 50% of
such excess. The remaining 50% shall be paid to
Foothill Group Agent for application to the
Foothill Group Claims.
(4) With respect to any Sale of Fixed Assets that
compose the Tasman Facility portion of the Akashic
Domestic Collateral, Debtor shall apply the proceeds of
any such Sale to the prepayment of the Bank Group Claims
and the Foothill Group Claims in accordance with the
provisions of the Bank Group Agreement and the Foothill
Group Agreement in the following order:
i. Unless Foothill Group Agent agrees otherwise in
its sole discretion, Debtor shall make a
mandatory prepayment of the Foothill Group
Claims in the amount of 100% of such proceeds
to be applied in accordance with the provisions
of Section 2.2 and/or Section 2.4 of this
Agreement, as applicable;
ii. Debtor shall make a mandatory prepayment of the
Bank Group Claims in accordance with the
provisions of the Bank Group Agreement in an
amount equal to 50% of the Net Sale
Consideration of any such Sale, if any,
remaining after making any prepayment required
by the immediately preceding paragraph of this
Agreement; and
iii. Debtor may retain the remainder of any such
proceeds from any such Sale, if any, and use
the same, consistent with the terms and
provisions of the Loan Documents, for any
general corporate purpose.
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(5) To the extent that the consideration for any
Permitted Sale is paid in the form of Purchaser Notes in
accordance with subsection 17(a)(i) of the Intercreditor
Agreement, such Purchaser Notes shall be issued as
follows;
i. with respect to Purchaser Notes that are
proceeds of Foothill Group Priority Collateral:
a. to the extent such proceeds would have been
payable to the Bank Group if received in
cash, a Purchaser Note for such amount shall
be payable directly to the Bank Group Agent
for the benefit of the Bank Group and such
Purchaser Note shall be pledged to the Bank
Group Agent; and
b. to the extent such proceeds would have been
payable to the Foothill Group or to Debtor,
a Purchaser Note for such amount shall be
payable to the Debtor and pledged to the
Foothill Group Agent, with any payments or
collections thereon to be applied in
accordance with the terms of the Foothill
Group Financing Documents; and
ii. with respect to Purchaser Notes that are
proceeds of Bank Group Priority Collateral:
a. to the extent such proceeds would have been
payable to the Bank Group if received in
cash, a Purchaser Note for such amount shall
be payable directly to the Bank Group Agent
for the benefit of the Bank Group and such
Purchaser Note shall be pledged to the Bank
Group Agent; and
b. to the extent such proceeds would have been
payable to the Debtor, a Purchaser Note for
such amount shall be payable to Debtor and
pledged to the Bank Group
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Agent, with any payments or collections
thereon to be applied in accordance with the
terms of the Bank Group Financing Documents,
provided that, until the Bank Group Agent
notifies the obligor under such Purchaser
Note that a Bank Group Event of Default has
occurred, any payments with respect thereto
shall be treated as Collections and shall be
directed into and through the Lockboxes.
(6) The principal amount of any Purchaser Note shall
not be included in the calculation of the Prepayment
Carryforward or the Carryforward Reduction Amount.
(7) To the extent of any disposition of Worldwide
Collateral made in compliance with this Section 7.4(b),
Foothill Group Agent agrees to release its security
interest in the Worldwide Collateral being sold
concurrent with the sale thereof.
(8) Prior to conducting any Sale of Fixed Assets of
Akashic that are Domestic Assets, Borrower shall provide
Foothill Group Agent with documentation that is
reasonably satisfactory to Foothill Group Agent
establishing that no Event of Default would result from
the consummation of such Sale and that the Minimum
Availability Condition will be satisfied with respect
thereto after giving effect thereto.
(9) Anything to the contrary in Section 7.4(b)(3) or
(4) notwithstanding, Debtor must obtain the prior
consent of the Foothill Group to effect a Sale of
Domestic Collateral consisting of Fixed Assets of
Akashic, except that such consent shall not be required
for Sales: (A) not to exceed $2,000,000 of OLV in the
aggregate of Fixed Assets with individual OLV of less
than or equal to $250,000; or (B) with Net Sale
Consideration of at least 70% of the OLV of the Fixed
Assets being sold.
7.5 CHANGE NAME. No Obligor shall change its name, FEIN
(or any foreign equivalent), corporate structure (within the meaning of Section
9402(7) of the UCC), or identity, or add any new fictitious name.
7.6 GUARANTEE. Except as permitted by Section 7.1, The
Obligors shall not guarantee or otherwise become in any way liable with respect
to the obligations of
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any third Person (other than the obligations of another Obligor upon prior or
concurrent written notice to Foothill Group Agent) except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill Group Agent.
7.7 NATURE OF BUSINESS. No Obligor shall make any change in
the principal nature of its business. Akashic shall not acquire more than a de
minimis amount of Fixed Assets that are Foreign Collateral.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
Section 7.1(e), the Obligors shall not prepay (except for mandatory prepayments
required by Section 2.03(c)(i) of the Bank Group Agreement, if no Event of
Default has occurred and is continuing, or would result from such prepayment,
and if the Minimum Availability Condition, to the extent applicable, is
satisfied after giving effect thereto, and except for mandatory prepayments
required by Section 2.03(c)(ii) and (iii) of the Bank Group Agreement, if no
Event of Default has occurred and is continuing, or would result from such
prepayment, and if the Alternative Minimum Availability Condition is satisfied
after giving effect thereto), redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness owing to any third Person, other than in respect of the
Obligations in accordance with this Agreement.
(b) The Obligors shall not, directly or indirectly,
amend, modify, alter, increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing evidencing or
concerning Indebtedness permitted under Sections 7.1(b), (c), (d), (e) or (f),
except that (i) the Obligors may enter into amendments that would be permitted
if effected by a refinancing permitted under Section 7.1(f), and (ii) with
respect to the Bank Group Financing Documents, the Obligors may enter into
amendments, modifications, extensions, renewals, restatements, alterations,
supplements, or changes thereof that do not, individually or in the aggregate,
(A) increase the rate of interest on obligations thereunder or increase fees
payable with respect thereto, (B) change the dates upon which payments of
principal or interest are due other than to extend such dates, (C) change any
events constituting a Bank Group Event of Default (or any events that, with the
giving of notice or the passage of time, or both, would give rise to a Bank
Group Event of Default) other than to delete or make less restrictive any
default provision therein, (D) add any covenants with respect thereto, (E)
change any redemption or prepayment provisions thereof other than to extend the
dates therefor or reduce the premiums payable in connection therewith, (F) add
any collateral or security for the obligations of the Obligors thereunder, or
(G) change or amend any other term if such change or amendment would materially
increase the obligations of any Obligor with respect thereto or confer
additional material rights to the Bank Group in a manner adverse to any Obligor
or the Foothill Group.
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7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly
or indirectly, any Change of Control.
7.10 CONSIGNMENTS. The Obligors shall not consign any
Inventory or sell any Inventory on bill and hold, sale or return, sale on
approval, or other conditional terms of sale.
7.11 DISTRIBUTIONS. The Obligors shall not make any
distribution or declare or pay any dividends (in cash or other property, other
than Stock) on, or purchase, acquire, redeem, or retire any of Borrower's Stock,
of any class, whether now or hereafter outstanding.
7.12 ACCOUNTING METHODS. The Obligors shall not modify or
change its method of accounting or enter into, modify, or terminate any
agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
the Obligors' accounting records without said accounting firm or service bureau
agreeing to provide Foothill Group Agent information regarding the Worldwide
Collateral or the Obligors' financial condition. Borrower hereby waives, and
hereby causes each Guarantor to hereby waives in favor of the Foothill Group
Agent for the benefit of the Lenders, the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Foothill Group Agent pursuant to or
in accordance with this Agreement, and agrees that Foothill Group Agent may
contact directly any such accounting firm or service bureau in order to obtain
such information.
7.13 INVESTMENTS. Except for Permitted Investments, the
Obligors shall not, directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b) loans, advances, capital contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person.
7.14 TRANSACTIONS WITH AFFILIATES. No Obligor shall,
directly or indirectly, enter into or permit to exist any material transaction
with any Affiliate of any Obligor except for transactions that are in the
ordinary course of such Obligor's business, upon fair and reasonable terms, that
are fully disclosed to Foothill Group Agent, and that are no less favorable to
such Obligor than would be obtained in an arm's length transaction with a
non-Affiliate.
7.15 SUSPENSION. The Obligors in the aggregate shall not
suspend or go out of a substantial portion of their business.
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7.16 COMPENSATION. No Obligor other than StorMedia shall
increase the annual fee or per-meeting fees paid to directors during any year by
more than 15% over the prior year; and, no Obligor shall pay or accrue total
cash compensation, during any year, to officers and senior management employees
in an aggregate amount in excess of 125% of that paid or accrued in the prior
year.
7.17 USE OF PROCEEDS. Use (a) the proceeds of the Advances
made hereunder for any purpose other than (i) on the Closing Date, to pay
transactional costs, fees, and expenses incurred in connection with this
Agreement, and (ii) thereafter, consistent with the terms and conditions hereof,
for its lawful and permitted corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. No Obligor shall relocate its chief executive office
to a new location without providing 30 days prior written notification thereof
to Foothill Group Agent and so long as, at the time of such written
notification, the relevant Obligor provides any financing statements or fixture
filings (or foreign equivalents) necessary to perfect and continue perfected the
Foothill Group Agent's Liens and the Foothill Group Agent's Bridge Term Loan
Liens and also provides to Foothill Group Agent a Collateral Access Agreement
with respect to such new location. The Inventory and Equipment shall not at any
time now or hereafter be stored with a bailee, warehouseman, or similar party
without Foothill Group Agent's prior written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of Borrower to
engage, in any prohibited transaction which is reasonably likely to result in a
civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the
IRC for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan
any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412
of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail,
to pay timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
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(e) fail, or permit any Subsidiary of Borrower to fail,
to make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail,
to pay any required installment or any other payment required under Section 412
of the IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to
amend, a Plan resulting in an increase in current liability for the plan year
such that either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate
is required to provide security to such Plan under Section 401(a)(29) of the
IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 FINANCIAL COVENANT. Fail to maintain Adjusted Net Worth
of at least the amounts specified below for the relevant periods, measured on a
fiscal quarter-end basis: (a) For the fiscal quarter of Borrower ending on June
30, 1998, $32,000,000; (b) for the fiscal quarter of Borrower ending on
September 30, 1998, $26,000,000; and (c) for each fiscal quarter of Borrower
ending thereafter, $32,000,000.
7.21 CAPITAL EXPENDITURES. The Obligors shall not make
capital expenditures in any fiscal year in excess of $20,000,000.
7.22 SECURITIES ACCOUNTS. (a) The Obligors shall not
establish or maintain any Securities Account unless Foothill Group Agent shall
have received a Control Agreement, duly executed and in full force and effect,
in respect of such Securities Account;
(b) The Obligors shall not transfer assets out of any
Securities Accounts; provided, however, that, so long as no Event of Default has
occurred and is continuing or would result therefrom, the relevant Obligors may
use such assets to the extent not prohibited by this Agreement or the other Loan
Documents.
7.23 INACTIVE SUBSIDIARY. StorMedia shall not permit
StorMedia Foreign Sales to become an active operating company, and shall cause
it to continue to be an inactive holding company whose only significant assets
are cash of not more than $500,000 and the Stock of various Subsidiaries of
StorMedia.
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8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the United
States Bankruptcy Code, would have accrued on such amounts), fees and charges
due the Foothill Group, reimbursement of the Foothill Group Expenses, or other
amounts constituting Obligations);
8.2 If any Obligor fails to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in Sections 6.1,
6.2 (but only up to three times during any 12-month period, and only in relation
to Defaults caused by the failure of third Persons to provide required
information or reporting, and not in relation to Defaults caused by an Obligor),
6.3, 6.4, 6.5, 6.7, 6.8, 6.12, 6.13, 6.14, 6.15, and 6.16 of this Agreement, or
comparable provisions of the other Loan Documents, within 10 days of the date
when required (or within 5 days of the date when required in the case of Section
6.2 or Section 6.3), or if any Obligor otherwise fails to perform, keep, or
observe any other term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the other Loan Documents, or in any other present
or future agreement between any Obligor and any member of the Foothill Group;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of the properties or assets of
any Obligor is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by any Obligor;
8.6 If an Insolvency Proceeding is commenced against any
Obligor and any of the following events occur: (a) such Obligor consents to the
institution of the Insolvency Proceeding against it; (b) the petition commencing
the Insolvency Proceeding is not timely controverted; (c) the petition
commencing the Insolvency Proceeding is not dismissed within 45 calendar days of
the date of the filing thereof; provided, however, that, during the pendency of
such period, Foothill Group Agent and any other member of the Foothill Group
shall be relieved of its obligation to extend credit hereunder; (d) an interim
trustee is appointed to take possession of all or a substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, any Obligor; or (e) an order for relief shall have been issued or
entered therein;
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8.7 If any Obligor is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notices of Lien, levy, or assessments aggregating
more than $100,000 are filed of record with respect to any of the properties or
assets of any Obligor by the United States Government, or any department,
agency, or instrumentality thereof, or by any state, county, municipal, or
governmental agency, or by any foreign governmental authority, or if any taxes
or debts aggregating more than $100,000 owing at any time hereafter to any one
or more of such entities become a Lien, whether choate or otherwise, upon any of
the properties or assets of any Obligor and the same is not paid on the payment
date thereof; provided that Foothill Group Agent may create reserves against
Availability for all such Liens (whether aggregating less than or equal to or
more than $100,000).
8.9 If a judgment or other claim in excess of $100,000
becomes a Lien or encumbrance upon any material portion of Borrower's properties
or assets and is not fully satisfied, bonded, or stayed within 20 days;
8.10 If there is a default in any material agreement to
which any Obligor is a party with one or more third Persons and such default (a)
occurs at the final maturity of the obligations thereunder, or (b) results in a
right by such third Person(s), irrespective of whether exercised, to accelerate
the maturity of such Obligor's obligations thereunder; the foregoing
notwithstanding, (x) Obligors' dispute with Nextar regarding thickness sorters,
(y) defaults by Obligors under the approximately $2,700,000 unsecured trade note
payable to Ohara, and (z) defaults under leases of closed facilities of Obligors
where no Worldwide Collateral is located involving aggregate claims not in
excess of $1,000,000, shall not constitute Events of Default under this Section
8.10;
8.11 If any Obligor makes any payment on account of
Indebtedness of any Obligor that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.12 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to the
Foothill Group by any Obligor or any officer, employee, agent, or director
thereof, or if any such warranty or representation is withdrawn; or
8.13 If an event of default shall occur and be continuing
under any other Loan Document; or
8.14 If the obligation of any Guarantor under or other third
Person under any Loan Document to which it is a party is limited or terminated
by operation of
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law or by the Guarantor or other third Person thereunder, or any such Guarantor
or other third Person becomes the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default, the Required Lenders (at their election
but without notice of their election and without demand) may, except to the
extent otherwise expressly provided or required below, authorize and instruct
Foothill Group Agent to do any one or more of the following on behalf of the
Foothill Group (and Foothill Group Agent, acting upon the instructions of the
Required Lenders, shall do the same on behalf of the Foothill Group), all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and the Foothill Group;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Foothill Group, but
without affecting Foothill Group Agent's rights and security interests, for the
benefit of the Foothill Group, in the Worldwide Collateral, and without
affecting the Obligations or the obligations of the Guarantors with respect to
the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill Group Agent considers
advisable, and in such cases, Foothill Group Agent will credit Borrower's Loan
Account with only the net amounts received by Foothill Group Agent in payment of
such disputed Accounts after deducting all Foothill Group Expenses incurred or
expended in connection therewith;
(e) Cause any Obligor to hold all returned inventory in
trust for the Foothill Group, segregate all returned inventory from all other
property of any Obligor's or in any Obligor's possession and conspicuously label
said returned inventory as the property of the Foothill Group;
(f) Without notice to or demand upon Borrower or any
Guarantor, make such payments and do such acts as Foothill Group Agent considers
necessary or reasonable to protect its security interests in the Worldwide
Collateral. Borrower agrees, and shall cause each Guarantor to agree, to
assemble the Worldwide
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Collateral if Foothill Group Agent so requires, and to make the Collateral
available to Foothill as Foothill Group Agent, Foothill Group Agent as Foothill
Group Agent may designate. Borrower authorizes, and shall cause each Guarantor
to authorize, Foothill Group Agent to enter the premises where any Worldwide
Collateral is located, to take and maintain possession of any Worldwide
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Foothill Group Agent's determination
appears to conflict with the Foothill Group Agent's Liens or the Foothill Group
Agent's Bridge Term Loan Liens and to pay all expenses incurred in connection
therewith. Subject to the Intercreditor Agreement, with respect to any of the
owned or leased premises of any Obligor, Borrower hereby grants, and shall cause
each Guarantor to grant, Foothill Group Agent a license to enter into possession
of such premises and to occupy the same, without charge by any Obligor, for up
to 120 days in order to exercise any of the Foothill Group's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to any Obligor (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the UCC),
set off and apply to the Obligations any and all (i) balances and deposits of
the Obligors held by the Foothill Group (including any amounts received in the
Lockbox Accounts), or (ii) indebtedness at any time owing to or for the credit
or the account of Borrower held by the Foothill Group;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower or any Guarantor held by the Foothill Group, and any
amounts received in the Lockbox Accounts, to secure the full and final repayment
of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Worldwide Collateral. Obligors hereby grants to Foothill Group
Agent a license or other right to use, without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to any Worldwide Collateral, in completing production of,
advertising for sale, and selling any Worldwide Collateral and the Obligors'
rights under all licenses and all franchise agreements shall inure to the
Foothill Group's benefit;
(j) Sell the Worldwide Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as Foothill Group Agent determines is commercially reasonable. It is not
necessary that the Worldwide Collateral be present at any such sale;
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(k) Foothill Group Agent shall give notice of the
disposition of the Worldwide Collateral as follows:
(1) Foothill Group Agent shall give the relevant
Obligor and each holder of a security interest in such Worldwide Collateral who
has filed with Foothill Group Agent a written request for notice, a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale is to be made of the
Worldwide Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to the relevant Obligor as provided in Section 12, at
least 5 days before the date fixed for the sale, or at least 5 days before the
date on or after which the private sale or other disposition is to be made; no
notice needs to be given prior to the disposition of any portion of the
Worldwide Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized market. Notice to
Persons other than an Obligor claiming an interest in the Worldwide Collateral
shall be sent to such addresses as they have furnished to Foothill Group Agent;
(3) If the sale is to be a public sale, Foothill
Group Agent also shall give notice of the time and place by publishing a notice
one time at least 5 days before the date of the sale in a newspaper of general
circulation in the county (or equivalent jurisdiction) in which the sale is to
be held;
(l) The Foothill Group may credit bid and purchase at
any public sale;
(m) The Foothill Group shall have all other rights and
remedies available to it at law or in equity pursuant to any other Loan
Documents; and
(n) Any deficiency that exists after disposition of the
Worldwide Collateral as provided above will be paid immediately by Borrower or
the relevant other Guarantor. Any excess will be returned, without interest and
subject to the rights of third Persons, by Foothill Group Agent to Borrower or
the relevant other Guarantor.
9.2 REMEDIES CUMULATIVE. The rights and remedies of the
Foothill Group under this Agreement, the other Loan Documents, and all other
agreements shall be cumulative. The Foothill Group shall have all other rights
and remedies not inconsistent herewith as provided under the UCC, by law, or in
equity. No exercise by the Foothill Group of one right or remedy shall be deemed
an election, and no waiver by the Foothill Group of any Event of Default shall
be deemed a continuing waiver. No delay by the Foothill Group shall constitute a
waiver, election, or acquiescence by it.
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10. TAXES AND EXPENSES.
If any Obligor fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fails
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
Group Agent determines that such failure by such Obligor could result in a
Material Adverse Change, in its discretion and without prior notice to such
Borrower, Foothill Group Agent may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in such
Obligor's Loan Account as Foothill Group Agent deems necessary to protect the
Foothill Group from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in Section 6.10, and take any
action with respect to such policies as Foothill Group Agent deems prudent. Any
such amounts paid by Foothill Group Agent shall constitute Foothill Group
Expenses. Any such payments made by Foothill Group Agent shall not constitute an
agreement by the Foothill Group to make similar payments in the future or a
waiver by the Foothill Group of any Event of Default under this Agreement.
Foothill Group Agent need not inquire as to, or contest the validity of, any
such expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower hereby waives, shall
cause each Guarantor to waive, demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by the Foothill
Group on which any Obligor may in any way be liable.
11.2 THE FOOTHILL GROUP'S LIABILITY FOR WORLDWIDE
COLLATERAL. Borrower agrees, and shall cause each Guarantor to agree, that, so
long as the Foothill Group complies with its obligations, if any, under Section
9207 of the UCC, the Foothill Group shall not in any way or manner be liable or
responsible for: (i) the safekeeping of the Worldwide Collateral; (ii) any loss
or damage thereto occurring or arising in any manner or fashion from any cause;
(iii) any diminution in the value thereof; (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other Person; and (v) all
risk of loss, damage, or destruction of the Worldwide Collateral shall be borne
by the Obligors.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend,
and hold the Foothill Group Agent-Related Persons (when acting in such
capacity), the Lender-Related Persons (when acting in such capacity) with
respect to each Lender, each
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Participant, and each of their respective officers, directors, employees,
counsel, agents, and attorneys-in-fact (each, when acting in such capacity, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents, and with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to the relevant
party at its address set forth below:
<TABLE>
<S> <C>
IF TO ANY OBLIGOR: C/O STORMEDIA INCORPORATED
390 Reed Street
Santa Clara, California 95050
Attn: Mr. Henry Lo
Fax No. 408.727.4928
WITH COPIES TO: HENNIGAN MERCER & BENNETT
601 South Figueroa Street, Suite 3300
Los Angeles, California 90017
Attn: Bruce S. Bennett, Esq.
Fax No. 213.694.1234
WITH COPIES TO: WILSON SONSINI GOODRICH &
ROSATI, P.C.
650 Page Mill Road
</TABLE>
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<TABLE>
<S> <C>
Palo Alto, California 94304
Attn: Judy O'Brien, Esq.
Fax No. 650.493.6811
IF TO FOOTHILL GROUP FOOTHILL CAPITAL
AGENT OR THE CORPORATION
FOOTHILL GROUP IN CARE 11111 Santa Monica Boulevard
OF FOOTHILL GROUP AGENT: Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division
Manager
Fax No. 310.478.9788
WITH COPIES TO: BROBECK, PHLEGER &
HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: Jeffrey S. Turner, Esq.
Fax No. 213.745.3345
</TABLE>
The parties hereto may change the address at which they are
to receive notices hereunder, by notice in writing in the foregoing manner given
to the all other parties. All notices or demands sent in accordance with this
Section 12, other than notices by the Foothill Group in connection with Sections
9504 or 9505 of the UCC, shall be deemed received on the earlier of the date of
actual receipt or 3 days after the deposit thereof in the mail. Borrower
acknowledges and agrees, and shall cause each Guarantor to acknowledge and
agree, that notices sent by the Foothill Group in connection with Sections 9504
or 9505 of the UCC shall be deemed sent when deposited in the mail or personally
delivered, or, where permitted by law, transmitted telefacsimile or other
similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. Borrower agrees,
and shall cause each Guarantor to agree, that:
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN SUCH OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL
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MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER
COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF THE
OBLIGORS AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. THE OBLIGORS AND THE FOOTHILL GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF THE OBLIGORS AND FOOTHILL REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
14. DESTRUCTION OF OBLIGORS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to any one or more members of the Foothill Group may be destroyed or
otherwise disposed of by such member of the Foothill Group 4 months after they
are delivered to or received by such member of the Foothill Group, unless
Obligor Borrower requests, in writing, the return of said documents, schedules,
or other papers and makes arrangements, at the Obligors' expense, for their
return.
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
15.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Any Lender may, with the written consent of
Foothill Group Agent, assign and delegate to one or more assignees (provided
that no written consent of Foothill Group Agent shall be required in connection
with any assignment and
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delegation by a Lender to an Eligible Transferee) (each an "Assignee") all, or
any ratable (or, if otherwise agreed among the Foothill Group, any non-ratable)
part of all, of the Obligations, the Commitments and the other rights and
obligations of such Lender hereunder and under the other Loan Documents, in a
minimum amount of $5,000,000; provided, however, that the foregoing Dollar
restriction shall not apply to any such assignment by an existing Lender to any
Affiliate of such Lender; provided further that Borrower and Foothill Group
Agent may continue to deal solely and directly with such Lender in connection
with the interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to Borrower and
Foothill Group Agent by such Lender and the Assignee; (ii) such Lender and its
Assignee shall have delivered to Borrower and Foothill Group Agent an Assignment
and Acceptance in form and substance satisfactory to Foothill Group Agent
("Assignment and Acceptance"); and (iii) other than with respect to the
Assignment and Acceptance to be executed and delivered pursuant to Section
3.1(c)(ix) and other than with respect to an assignment by an existing Lender to
any Affiliate of such Lender, the assignor Lender or Assignee has paid to
Foothill Group Agent for Foothill Group Agent's sole and separate account a
processing fee in the amount of $2,500. Anything contained herein to the
contrary notwithstanding, the consent of Foothill Group Agent shall not be
required (and payment of any fees shall not be required) if such assignment is
in connection with any merger, consolidation, sale, transfer, or other
disposition of all or any substantial portion of the business or loan portfolio
of such Lender.
(b) From and after the date that Foothill Group Agent
notifies the assignor Lender that it has received an executed Assignment and
Acceptance and payment of the above-referenced processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (except
with respect to Section 11.3 hereof) and be released from its obligations under
this Agreement (and in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and obligations under this
Agreement and the other Loan Documents, such Lender shall cease to be a party
hereto and thereto), and such assignment shall effect a novation between
Borrower and the Assignee.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm
to and agree with each other and the other parties hereto as follows: (1) other
than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality,
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validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other Loan Document furnished pursuant hereto; (2) such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of Borrower or the performance or observance by
Borrower of any of its obligations under this Agreement or any other Loan
Document furnished pursuant hereto; (3) such Assignee confirms that it has
received a copy of this Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (4) such Assignee will,
independently and without reliance upon Foothill Group Agent, such assigning
Lender or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (5) such Assignee appoints and
authorizes Foothill Group Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement as are delegated to Foothill Group
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (6) such Assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) Immediately upon the relevant assigning Lender and
Assignee's execution and delivery of the related Assignment and Acceptance and
Foothill Group Agent's acceptance thereof, and the making of any required
processing fee payment under the Assignment and Acceptance, if any, this
Agreement shall be deemed to be amended to the extent, but only to the extent,
necessary to reflect the addition of the Assignee and the resulting adjustment
of the Commitments arising therefrom. The Commitment allocated to each Assignee
shall reduce such Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written consent
of Foothill Group Agent, sell to one or more commercial banks, financial
institutions, or other Persons not Affiliates of such Lender (a "Participant")
participating interests in the Obligations, the Commitment, and the other rights
and interests of that Lender (the "originating Lender") hereunder and under the
other Loan Documents (provided that no written consent of Foothill Group Agent
shall be required in connection with any sale of any such participating
interests by a Lender to an Eligible Transferee or an Affiliate of such Lender);
provided, however, that (i) the originating Lender's obligations under this
Agreement shall remain unchanged, (ii) the originating Lender shall remain
solely responsible for the performance of such obligations, (iii) Borrower and
Foothill Group Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has the sole and exclusive right to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment to, or consent or waiver with respect to this Agreement or
of
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any other Loan Document would (A) extend the final maturity date of the
Obligations hereunder in which such Participant is participating; (B) reduce the
interest rate applicable to the Obligations hereunder in which such Participant
is participating; (C) release all or a material portion of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating; (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through such Lender; or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums; and (v) all amounts payable by Borrower hereunder shall be determined
as if such Lender had not sold such participation; except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement. The rights of any Participant only shall be
derivative through the originating Lender with whom such Participant
participates and no Participant shall have any direct rights as to the other
Lenders, Foothill Group Agent, Borrower, the Collections, the Collateral, or
otherwise in respect of the Obligations. No Participant shall have the right to
participate directly in the making of decisions by the Lenders among themselves.
(f) In connection with any such assignment or
participation or proposed assignment or participation, a Lender may disclose all
documents and information which it now or hereafter may have relating to
Borrower or Borrower's business, subject to the confidentiality provisions of
this Agreement.
(g) Any other provision in this Agreement
notwithstanding, any Lender may at any time create a security interest in, or
pledge, all or any portion of its rights under and interest in this Agreement in
favor of any Federal Reserve Bank in accordance with Regulation A of the Federal
Reserve Bank or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal
Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.
(h) Foothill, in its capacity as a Lender, and an
Assignee have executed and delivered the Assignment and Acceptance specified in
Section 3.1(c)(ix) as of the Closing Date and the rights and duties of Foothill
as a Lender, and of any other Assignee of Foothill as a Lender, are subject to
such Assignment and Acceptance.
15.2 SUCCESSORS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without the Lenders' prior written consent and any prohibited
assignment shall be absolutely void ab initio. No consent to assignment by the
Lenders shall release Borrower from its
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Obligations. A Lender may assign this Agreement and the other Loan Documents and
its rights and duties hereunder and thereunder pursuant to Section 15.1 hereof
and, except as expressly required pursuant to Section 15.1 hereof, no consent or
approval by Borrower is required in connection with any such assignment.
16. AMENDMENTS; WAIVERS.
16.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by Borrower therefrom, shall be effective unless the
same shall be in writing and signed by the Required Lenders (or by Foothill
Group Agent at the written request of the Required Lenders) and Borrower and
then any such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that no such
waiver, amendment, or consent shall, unless in writing and signed by all the
Lenders and Borrower and acknowledged by Foothill Group Agent, do any of the
following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement
or any other Loan Document for any payment of principal, interest, fees or other
amounts due to the Lenders (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable hereunder or
under any other Loan Document;
(d) change the percentage of the Commitments that is
required for the Lenders or any of them to take any action hereunder;
(f) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders;
(g) release Worldwide Collateral other than as permitted
by Section 17.11;
(h) change the definitions of "Pro Rata Share",
"Required Lenders", or "Total Obligations Cap";
(i) amend Section 2.1(l);
(j) subordinate any of the Obligations in favor of any
obligations owing by Borrower to any Person other than the Foothill Group;
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(k) release Borrower from any Obligation for the payment
of money; or
(l) amend any of the provisions of Article 17.
and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Foothill Group Agent, affect the rights or
duties of Foothill Group Agent under this Agreement or any other Loan Document;
and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Foothill in its individual capacity as a Lender,
affect the specific rights or duties of Foothill in its individual capacity as a
Lender (as contrasted with rights or duties of Foothill as a member of the
Foothill Group) under this Agreement or any other Loan Document. The foregoing
notwithstanding, any amendment, modification, waiver, consent, termination, or
release of or with respect to any provision of this Agreement or any other Loan
Document that relates only to the relationship of the Foothill Group among
themselves, and that does not affect the rights or obligations of Borrower,
shall not require consent by or the agreement of Borrower.
16.2 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Foothill
Group Agent or any Lender to exercise any right, remedy, or option under this
Agreement, any other Loan Document, or any present or future supplement hereto
or thereto, or in any other agreement between or among Borrower and Foothill
Group Agent or any Lender, or delay by Foothill Group Agent or any Lender in
exercising the same, will operate as a waiver thereof. No waiver by Foothill
Group Agent or any Lender will be effective unless it is in writing, and then
only to the extent specifically stated. No waiver by Foothill Group Agent or the
Lenders on any occasion shall affect or diminish Foothill Group Agent's and each
Lender's rights thereafter to require strict performance by Borrower of any
provision of this Agreement. Foothill Group Agent's and each Lender's rights
under this Agreement and the other Loan Documents will be cumulative and not
exclusive of any other right or remedy which Foothill Group Agent or any Lender
may have.
17. FOOTHILL GROUP AGENT; THE FOOTHILL GROUP.
17.1 APPOINTMENT AND AUTHORIZATION OF FOOTHILL GROUP AGENT.
Each Lender hereby designates and appoints Foothill as its agent under this
Agreement and the other Loan Documents and each Lender hereby irrevocably
authorizes Foothill Group Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Foothill Group Agent agrees to act as such on the
express conditions contained in this Article 17. The provisions of this Article
17 are solely for the benefit of Foothill Group Agent and the Lenders, and
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no Obligor shall have no rights as a third party beneficiary of any of the
provisions contained herein; provided, however, that certain of the provisions
of Section 17.10 hereof and the confidentiality provisions of Section 7.16(d)
hereof also shall be for the benefit of Borrower. Any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document
notwithstanding, Foothill Group Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Foothill
Group Agent have or be deemed to have any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Foothill Group Agent; it being expressly
understood and agreed that the use of the word "Foothill Group Agent" is for
convenience only, that Foothill is merely the representative of the Lenders, and
has only the contractual duties set forth herein. Except as expressly otherwise
provided in this Agreement, Foothill Group Agent shall have and may use its sole
discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which
Foothill Group Agent is expressly entitled to take or assert under or pursuant
to this Agreement and the other Loan Documents. Without limiting the generality
of the foregoing, or of any other provision of the Loan Documents that provides
rights or powers to Foothill Group Agent, Lenders agree that Foothill Group
Agent shall have the right to exercise the following powers as long as this
Agreement remains in effect: (a) maintain, in accordance with its customary
business practices, ledgers and records reflecting the status of the Advances,
the Letters of Credit, the Bridge Term Loan, the Worldwide Collateral, the
Collections, and related matters; (b) execute or file any and all financing or
similar statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim, notices and other written agreements with respect
to the Loan Documents; (c) make Advances and the Bridge Term Loan, for itself or
on behalf of Lenders as provided in the Loan Documents; (d) exclusively receive,
apply, and distribute the Collections as provided in the Loan Documents; (e)
open and maintain such bank accounts and lock boxes as Foothill Group Agent
deems necessary and appropriate in accordance with the Loan Documents for the
foregoing purposes with respect to the Worldwide Collateral and the Collections;
(f) perform, exercise, and enforce any and all other rights and remedies of the
Foothill Group with respect to any Obligor, the Obligations, the Worldwide
Collateral, the Collections, or otherwise related to any of same as provided in
the Loan Documents; and (g) incur and pay such Foothill Group Expenses as
Foothill Group Agent may deem necessary or appropriate for the performance and
fulfillment of its functions and powers pursuant to the Loan Documents.
17.2 DELEGATION OF DUTIES. Except as otherwise provided in
this section, Foothill Group Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Foothill Group Agent shall not be responsible
for the negligence or misconduct of any agent or attorney-in-fact that it
selects as long as such selection was made in compliance with this section and
without gross negligence or willful misconduct.
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17.3 LIABILITY OF FOOTHILL GROUP AGENT. None of the Foothill
Group Agent-Related Persons shall (i) be liable for any action taken or omitted
to be taken by any of them under or in connection with this Agreement or any
other Loan Document or the transactions contemplated hereby (except for its own
gross negligence or willful misconduct), or (ii) be responsible in any manner to
any of the Lenders for any recital, statement, representation or warranty made
by any Obligor or any Subsidiary or Affiliate of any Obligor, or any officer or
director thereof, contained in this Agreement or in any other Loan Document, or
in any certificate, report, statement or other document referred to or provided
for in, or received by Foothill Group Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of any Obligor or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Foothill Group
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of any Obligor or any of any Obligor's
Subsidiaries or Affiliates.
17.4 RELIANCE BY FOOTHILL GROUP AGENT. Foothill Group Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent, or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to any Obligor or counsel to any Lender),
independent accountants and other experts selected by Foothill Group Agent.
Foothill Group Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Lenders as it deems appropriate and
until such instructions are received, Foothill Group Agent shall act, or refrain
from acting, as it deems advisable. If Foothill Group Agent so requests, it
shall first be indemnified to its reasonable satisfaction by Lenders against any
and all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action. Foothill Group Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Lenders
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all of the Lenders.
17.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Foothill Group
Agent shall not be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default, except with respect to defaults in the payment of
principal, interest, fees, and expenses required to be paid to Foothill Group
Agent for the account of the Lenders, except with respect to Events of Default
of which Foothill Group Agent has actual knowledge, unless Foothill Group Agent
shall have received written notice from a Lender
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or Borrower referring to this Agreement, describing such Default or Event of
Default, and stating that such notice is a "notice of default." Foothill Group
Agent promptly will notify the Lenders of its receipt of any such notice or of
any Event of Default of which Foothill Group Agent has actual knowledge. If any
Lender obtains actual knowledge of any Event of Default, such Lender promptly
shall notify the other Lenders and Foothill Group Agent of such Event of
Default. Each Lender shall be solely responsible for giving any notices to its
Participants, if any. Subject to Section 17.4, Foothill Group Agent shall take
such action with respect to such Default or Event of Default as may be requested
by the Required Lenders in accordance with Section 9; provided, however, that
unless and until Foothill Group Agent has received any such request, Foothill
Group Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable.
17.6 CREDIT DECISION. Each Lender acknowledges that none of
the Foothill Group Agent-Related Persons has made any representation or warranty
to it, and that no act by Foothill Group Agent hereinafter taken, including any
review of the affairs of any Obligor and its Subsidiaries or Affiliates, shall
be deemed to constitute any representation or warranty by any Foothill Group
Agent-Related Person to any Lender. Each Lender represents to Foothill Group
Agent that it has, independently and without reliance upon any Foothill Group
Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of any Obligor and any other Person (other than the Foothill
Group) party to a Loan Document, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to any Obligor. Each Lender also
represents that it will, independently and without reliance upon any Foothill
Group Agent-Related Person and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of any Obligor and any other Person
(other than the Foothill Group) party to a Loan Document. Except for notices,
reports and other documents expressly herein required to be furnished to the
Lenders by Foothill Group Agent, Foothill Group Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of any Obligor and any other Person party to a
Loan Document that may come into the possession of any of the Foothill Group
Agent-Related Persons.
17.7 COSTS AND EXPENSES; INDEMNIFICATION. Foothill Group
Agent may incur and pay Foothill Group Expenses to the extent Foothill Group
Agent deems reasonably necessary or appropriate for the performance and
fulfillment of its functions,
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powers, and obligations pursuant to the Loan Documents, including without
limiting the generality of the foregoing, court costs, reasonable attorneys fees
and expenses, costs of collection by outside collection agencies and auctioneer
fees and costs of security guards or insurance premiums paid to maintain the
Worldwide Collateral, whether or not any Obligor is obligated to reimburse
Foothill Group Agent or Lenders for such expenses pursuant to the Loan Agreement
or otherwise. Foothill Group Agent is authorized and directed to deduct and
retain sufficient amounts from Collections to reimburse Foothill Group Agent for
such out-of-pocket costs and expenses prior to the distribution of any amounts
to Lenders. In the event Foothill Group Agent is not reimbursed for such costs
and expenses from Collections, each Lender hereby agrees that it is and shall be
obligated to pay to or reimburse Foothill Group Agent for the amount of such
Lender's Pro Rata Share thereof. Whether or not the transactions contemplated
hereby are consummated, the Lenders shall indemnify upon demand the Foothill
Group Agent-Related Persons (to the extent not reimbursed by or on behalf of any
Obligor and without limiting the obligation of any Obligor to do so), according
to their Pro Rata Shares, from and against any and all Indemnified Liabilities;
provided, however, that no Lender shall be liable for the payment to the
Foothill Group Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse
Foothill Group Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including attorneys fees and expenses) incurred by
Foothill Group Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that Foothill
Group Agent is not reimbursed for such expenses by or on behalf of any Obligor.
The undertaking in this section shall survive the payment of all Obligations
hereunder and the resignation or replacement of Foothill Group Agent.
17.8 FOOTHILL GROUP AGENT IN INDIVIDUAL CAPACITY. Foothill
and its Affiliates may make loans to, issue letters of credit for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
with any Obligor and its Subsidiaries and Affiliates and any other Person (other
than the Foothill Group) party to any Loan Documents as though Foothill were not
Foothill Group Agent hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that, pursuant to such activities, Foothill or its
Affiliates may receive information regarding Obligors or their Affiliates and
any other Person (other than the Foothill Group) party to any Loan Documents
that is subject to confidentiality obligations in favor of Obligors or such
other Person and that prohibit the disclosure of such information to the
Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver Foothill
Group Agent will use its reasonable best efforts to obtain), Foothill Group
Agent shall be under no obligation to provide such information to
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them. With respect to the Foothill Loans and Foothill Group Agent Advances,
Foothill shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not Foothill Group Agent, and
the terms "Lender" and "Lenders" include Foothill in its individual capacity.
17.9 SUCCESSOR FOOTHILL GROUP AGENT. Foothill Group Agent
may resign as Foothill Group Agent upon 45 days notice to the Lenders. If
Foothill Group Agent resigns under this Agreement, the Required Lenders shall
appoint a successor Foothill Group Agent for the Lenders. If no successor
Foothill Group Agent is appointed prior to the effective date of the resignation
of Foothill Group Agent, Foothill Group Agent may appoint, after consulting with
the Lenders, a successor Foothill Group Agent. If Foothill Group Agent has
materially breached or failed to perform any material provision of this
Agreement or of applicable law, the Required Lenders may agree in writing to
remove and replace Foothill Group Agent with a successor Foothill Group Agent
from among the Lenders. In any such event, upon the acceptance of its
appointment as successor Foothill Group Agent hereunder, such successor Foothill
Group Agent shall succeed to all the rights, powers and duties of the retiring
Foothill Group Agent and the term "Foothill Group Agent" shall mean such
successor Foothill Group Agent and the retiring Foothill Group Agent's
appointment, powers and duties as Foothill Group Agent shall be terminated.
After any retiring Foothill Group Agent's resignation hereunder as Foothill
Group Agent, the provisions of this Section 17 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Foothill Group Agent
under this Agreement. If no successor Foothill Group Agent has accepted
appointment as Foothill Group Agent by the date which is 45 days following a
retiring Foothill Group Agent's notice of resignation, the retiring Foothill
Group Agent's resignation shall nevertheless thereupon become effective and the
Lenders shall perform all of the duties of Foothill Group Agent hereunder until
such time, if any, as the Lenders appoint a successor Foothill Group Agent as
provided for above.
17.10 WITHHOLDING TAX. (a) If any Lender is a "foreign
corporation, partnership or trust" within the meaning of the IRC and such Lender
claims exemption from, or a reduction of, U.S. withholding tax under Sections
1441 or 1442 of the IRC, such Lender agrees with and in favor of Foothill Group
Agent and Borrower, to deliver to Foothill Group Agent and Borrower:
(i) if such Lender claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8 before the payment of any interest in the first
calendar year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under
this Agreement is exempt from United States withholding tax because it is
effectively
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connected with a United States trade or business of such Lender, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under
the IRC or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees promptly to notify Foothill Group Agent and Borrower of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of Borrower to another such Lender, such
transferor Lender agrees to notify Foothill Group Agent of the percentage amount
in which it is no longer the beneficial owner of Obligations of Borrower to such
Lender. To the extent of such percentage amount, Foothill Group Agent will treat
such transferor Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with Foothill Group Agent sells,
assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of Borrower to another such Lender, such transferee Lender agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the IRC.
(d) If any Lender is entitled to a reduction in the
applicable withholding tax, Foothill Group Agent may withhold from any interest
payment to such Lender an amount equivalent to the applicable withholding tax
after taking into account such reduction. If the forms or other documentation
required by subsection (a) of this Section are not delivered to Foothill Group
Agent, then Foothill Group Agent may withhold from any interest payment to such
Lender not providing such forms or other documentation an amount equivalent to
the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that Foothill Group Agent
did not properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify Foothill Group Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender shall
indemnify Foothill Group Agent fully for all amounts paid, directly or
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indirectly, by Foothill Group Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to Foothill Group Agent under this Section, together with all costs and
expenses (including attorneys fees and expenses). The obligation of the Lenders
under this subsection shall survive the payment of all Obligations and the
resignation or replacement of Foothill Group Agent.
17.11 WORLDWIDE COLLATERAL MATTERS.
(a) The Lenders hereby irrevocably authorize Foothill
Group Agent, at its option and in its sole discretion, to release any Lien on
any Worldwide Collateral (i) upon the termination of the Commitments and payment
and satisfaction in full by Borrower of all Obligations; (ii) constituting
property being sold or disposed of if a release is required or desirable in
connection therewith and if Borrower certifies to Foothill Group Agent that the
sale or disposition is permitted under Section 7.4 of this Agreement or the
other Loan Documents (and Foothill Group Agent may rely conclusively on any such
certificate, without further inquiry); (iii) constituting property in which no
Obligor owned any interest at the time the security interest was granted or at
any time thereafter; or (iv) constituting property leased to an Obligor under a
lease that has expired or is terminated in a transaction permitted under this
Agreement. Except as provided above, Foothill Group Agent will not execute and
deliver a release of any Lien on any Worldwide Collateral without the prior
written authorization of (y) if the release is of all or any material portion of
the Worldwide Collateral, of all of the Lenders, or (z) otherwise, of the
Required Lenders. Upon request by Foothill Group Agent or Borrower at any time,
the Lenders will confirm in writing Foothill Group Agent's authority to release
any such Liens on particular types or items of Worldwide Collateral pursuant to
this Section 17.11; provided, however, that (1) Foothill Group Agent shall not
be required to execute any document necessary to evidence such release on terms
that, in Foothill Group Agent's opinion, would expose Foothill Group Agent to
liability or create any obligation or entail any consequence other than the
release of such Lien without recourse, representation, or warranty, and (2)
except as required by the Intercreditor Agreement, such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of any Obligor in respect
of) all interests retained by any Obligor, including, the proceeds of any sale,
all of which shall continue to constitute part of the Worldwide Collateral.
(b) Foothill Group Agent shall have no obligation
whatsoever to any of the Lenders to assure that the Worldwide Collateral exists
or is owned by any Obligor or is cared for, protected, or insured or has been
encumbered, or that the Foothill Group Agent's Liens or the Foothill Group
Agent's Bridge Term Loan Liens have been properly or sufficiently or lawfully
created, perfected, protected, or enforced or are entitled to any particular
priority, or to exercise at all or in any particular manner or under any duty of
care, disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Foothill Group Agent pursuant to
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any of the Loan Documents, it being understood and agreed that in respect of the
Worldwide Collateral, or any act, omission or event related thereto, subject to
the terms and conditions contained herein, Foothill Group Agent may act in any
manner it may deem appropriate, in its sole discretion given Foothill Group
Agent's own interest in the Worldwide Collateral in its capacity as one of the
Lenders and that Foothill Group Agent shall have no other duty or liability
whatsoever to any Lender as to any of the foregoing, except as otherwise
provided herein.
17.12 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF
PAYMENTS. (a) Each of the Lenders agrees that it shall not, without the express
consent of Foothill Group Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of Foothill Group Agent, set off against the
Obligations, any amounts owing by such Lender to any Obligor or any accounts of
any Obligor now or hereafter maintained with such Lender. Each of the Lenders
further agrees that it shall not, unless specifically requested to do so by
Foothill Group Agent, take or cause to be taken any action, including, the
commencement of any legal or equitable proceedings, to foreclose any Lien on, or
otherwise enforce any security interest in, any of the Worldwide Collateral the
purpose of which is, or could be, to give such Lender any preference or priority
against the other Lenders with respect to the Worldwide Collateral.
(b) Subject to Section 17.8, if, at any time or times any
Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any
proceeds of Worldwide Collateral or any payments with respect to the Obligations
arising under, or relating to, this Agreement or the other Loan Documents,
except for any such proceeds or payments received by such Lender from Foothill
Group Agent pursuant to the terms of this Agreement, or (ii) payments from
Foothill Group Agent in excess of such Lender's ratable portion of all such
distributions by Foothill Group Agent, such Lender promptly shall (1) turn the
same over to Foothill Group Agent, in kind, and with such endorsements as may be
required to negotiate the same to Foothill Group Agent, or in same day funds, as
applicable, for the account of all of the Lenders and for application to the
Obligations in accordance with the applicable provisions of this Agreement, or
(2) purchase, without recourse or warranty, an undivided interest and
participation in the Obligations owed to the other Lenders so that such excess
payment received shall be applied ratably as among the Lenders in accordance
with their Pro Rata Shares; provided, however, that if all or part of such
excess payment received by the purchasing party is thereafter recovered from it,
those purchases of participations shall be rescinded in whole or in part, as
applicable, and the applicable portion of the purchase price paid therefor shall
be returned to such purchasing party, but without interest except to the extent
that such purchasing party is required to pay interest in connection with the
recovery of the excess payment.
17.13 AGENCY FOR PERFECTION. Foothill Group Agent and each
Lender hereby appoints each other Lender as agent for the purpose of perfecting
the Foothill Group Agent's Liens or the Foothill Group Agent's Bridge Term Loan
Liens in
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assets which, in accordance with Article 9 of the UCC can be perfected
only by possession. Should any Lender obtain possession of any such Worldwide
Collateral, such Lender shall notify Foothill Group Agent thereof, and, promptly
upon Foothill Group Agent's request therefor shall deliver such Worldwide
Collateral to Foothill Group Agent or in accordance with Foothill Group Agent's
instructions.
17.14 PAYMENTS BY FOOTHILL GROUP AGENT TO THE LENDERS. All
payments to be made by Foothill Group Agent to the Lenders shall be made by bank
wire transfer or internal transfer of immediately available funds to:
<TABLE>
<S> <C>
If to Foothill: The Chase Manhattan Bank
New York, NY
ABA 021 000 021
Account 323-266193
Credit: Foothill Capital Corporation
Reference: StorMedia
If to a Lender
other than Foothill: As specified in the
Assignment and Acceptance entered into
by such Lender with Foothill Group
Agent
</TABLE>
or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to Foothill Group Agent. Concurrently with each
such payment, Foothill Group Agent shall identify whether such payment (or any
portion thereof) represents principal, premium or interest on revolving advances
or otherwise.
17.15 CONCERNING THE WORLDWIDE COLLATERAL AND RELATED LOAN
DOCUMENTS. Each member of the Foothill Group authorizes and directs Foothill
Group Agent to enter into this Agreement and the other Loan Documents relating
to the Worldwide Collateral, for the benefit of the Foothill Group. Each member
of the Foothill Group agrees that any action taken by Foothill Group Agent or
all Lenders, as applicable, in accordance with the terms of this Agreement or
the other Loan Documents relating to the Worldwide Collateral and the exercise
by Foothill Group Agent or all Lenders, as applicable, of their respective
powers set forth therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.
17.16 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY;
DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By signing this
Agreement, each Lender:
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(a) is deemed to have requested that Foothill Group
Agent furnish such Lender, promptly after it becomes available, a copy of each
field audit or examination report (each a "Report" and collectively, "Reports")
prepared by Foothill Group Agent, and Foothill Group Agent shall so furnish each
Lender with such Reports;
(b) expressly agrees and acknowledges that neither
Foothill nor Foothill Group Agent (i) makes any representation or warranty as to
the accuracy of any Report, or (ii) shall be liable for any information
contained in any Report;
(c) expressly agrees and acknowledges that the Reports
are not comprehensive audits or examinations, that Foothill Group Agent or other
party performing any audit or examination will inspect only specific information
regarding the Obligors and will rely significantly upon the Obligors' books and
records, as well as on representations of the Obligors' personnel;
(d) agrees to keep all Reports and other material,
non-public information regarding the Obligors and their Subsidiaries and their
operations, assets, and existing and contemplated business plans in a
confidential manner; it being understood and agreed by the Obligors that in any
event such Lender may make disclosures (a) to counsel for and other advisors,
accountants, and auditors to such Lender, (b) reasonably required by any bona
fide potential or actual Assignee, transferee, or Participant in connection with
any contemplated or actual assignment or transfer by such Lender of an interest
herein or any participation interest in such Lender's rights hereunder, if such
recipient agrees to be bound by the confidentiality provisions hereof, (c) of
information that has become public by disclosures made by Persons other than
such Lender, its Affiliates, assignees, transferees, or participants, or (d) as
required or requested by any court, governmental or administrative agency,
pursuant to any subpoena or other legal process, or by any law, statute,
regulation, or court order; provided, however, that, unless prohibited by
applicable law, statute, regulation, or court order, such Lender shall notify
Borrower of any request by any court, governmental or administrative agency, or
pursuant to any subpoena or other legal process for disclosure of any such
non-public material information concurrent with, or where practicable, prior to
the disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold
Foothill Group Agent and any such other Lender preparing a Report harmless from
any action the indemnifying Lender may take or conclusion the indemnifying
Lender may reach or draw from any Report in connection with any loans or other
credit accommodations that the indemnifying Lender has made or may make to any
Obligor, or the indemnifying Lender's participation in, or the indemnifying
Lender's purchase of, a loan or loans of Borrower; and (ii) to pay and protect,
and indemnify, defend and hold Foothill Group Agent and any such other Lender
preparing a Report harmless from and against, the claims, actions,
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proceedings, damages, costs, expenses and other amounts (including, attorney
costs) incurred by Foothill Group Agent and any such other Lender preparing a
Report as the direct or indirect result of any third parties who might obtain
all or part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) Any Lender may from time to time request of
Foothill Group Agent in writing that Foothill Group Agent provide to such Lender
a copy of any report or document provided by any Obligor to Foothill Group Agent
that has not been contemporaneously provided by such Obligor to such Lender,
and, upon receipt of such request, Foothill Group Agent shall provide a copy of
same to such Lender promptly upon receipt thereof from any Obligor; (y) To the
extent that Foothill Group Agent is entitled, under any provision of the Loan
Documents, to request additional reports or information from the Obligors, any
Lender may, from time to time, reasonably request Foothill Group Agent to
exercise such right as specified in such Lender's notice to Foothill Group
Agent, whereupon Foothill Group Agent promptly shall request of the applicable
Obligor(s) the additional reports or information specified by such Lender, and,
upon receipt thereof from any Obligor, Foothill Group Agent promptly shall
provide a copy of same to such Lender; and (z) Any time that Foothill Group
Agent renders to Borrower a statement regarding the Loan Account, Foothill Group
Agent shall send a copy of such statement to each Lender.
17.17 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding
that certain of the Loan Documents now or hereafter may have been or will be
executed only by or in favor of Foothill Group Agent in its capacity as such,
and not by or in favor of the Lenders, any and all obligations on the part of
Foothill Group Agent (if any) to make any credit available hereunder shall
constitute the several (and not joint) obligations of the respective Lenders on
a ratable basis (in accordance with their Pro Rata Shares), according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in Section 17.7, no member of the Foothill Group
shall have any liability for the acts or any other member of the Foothill Group.
No Lender shall be responsible to Borrower or any other Person for any failure
by any other Lender to fulfill its obligations to make credit available
hereunder, nor to advance for it or on its behalf in connection with its
Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.
18. GENERAL PROVISIONS.
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18.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by Borrower and each member of the Foothill Group
whose signature is provided for on the signature pages hereof.
18.2 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
18.3 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Foothill Group or Borrower, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
18.4 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
18.5 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by Foothill Group Agent, the requisite Lenders, and
Borrower.
18.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement
may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
an original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement. The forgoing shall apply to each other Loan
Document mutatis mutandis.
18.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to the Foothill
Group of any property of either or both of such parties should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the United States
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if the Foothill Group is required to
repay or restore, in whole or
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in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that the Foothill Group is required or elects to repay or restore, and
as to all reasonable costs, expenses, and attorneys fees of the Foothill Group
related thereto, the liability of Borrower or such guarantor automatically shall
be revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
18.8 INTEGRATION. This Agreement, together with the other
Loan Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or qualified
by any other agreement, oral or written, before the date hereof.
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<PAGE> 113
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed.
STORMEDIA INCORPORATED, a
Delaware corporation
By /s/
--------------------------------------
Title:
---------------------------
AKASHIC MEMORIES CORPORATION, a
California corporation
By /s/
--------------------------------------
Title:
---------------------------
FOOTHILL CAPITAL CORPORATION, a
California corporation, as Foothill Group
Agent and a Lender
By /s/
--------------------------------------
Title:
---------------------------
S-1
<PAGE> 1
EXHIBIT 10.18
STOCK PLEDGE AGREEMENT
(BORROWER)
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of May 29,
1998, is entered into between STORMEDIA INCORPORATED, a Delaware corporation and
AKASHIC MEMORIES CORPORATION, a California corporation (collectively
"Pledgors"), on the one hand, and, on the other hand, FOOTHILL CAPITAL
CORPORATION, a California corporation, as agent for the Lenders from time to
time party to the Loan Agreement (defined below), (in such capacity "Secured
Party"), with reference to the following:
WHEREAS, each undersigned Pledgor beneficially owns the specified number
of shares identified as Pledged Shares in the Persons identified as Issuers on
Schedule A attached hereto (or any addendum thereto);
WHEREAS, Pledgors and Secured Party are parties to that certain Loan and
Security Agreement (as amended and in effect from time to time, the "Loan
Agreement"), of even date herewith, pursuant to which Secured Party has agreed
to make certain financial accommodations to Pledgors;
WHEREAS, to induce Secured Party to make the financial accommodations
provided to Pledgor pursuant to the Loan Agreement, Pledgor desires to pledge,
grant, transfer, and assign to Secured Party security interests in the
Collateral (as hereinafter defined) to secure the Secured Obligations (as
hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations, and warranties set forth herein and for other good and valuable
consideration, the parties hereto agree as follows:
1. Definitions and Construction.
(a) Definitions. All initially capitalized terms used herein
and not otherwise defined herein shall have the meaning ascribed thereto in the
Loan Agreement and the rules of construction set forth in Section 1 of the Loan
Agreement shall likewise govern this Agreement. As used in this Agreement:
"Agreement" shall mean this Stock Pledge Agreement.
"Bridge Term Loan Secured Obligations" means that subset
of the Secured Obligations corresponding to the Bridge Term Loan Obligations.
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<PAGE> 2
"Chief Executive Office" shall mean where Pledgor is
deemed located pursuant to Section 9-103(3)(d) of the Code.
"Collateral" shall mean the Pledged Shares, the Future
Rights, and the Proceeds, collectively.
"Future Rights" shall mean: (a) all shares of stock (other
than Pledged Shares) of the Issuers, and all securities convertible or
exchangeable into, and all warrants, options, or other rights to purchase,
shares of stock of the Issuers; (b) to the extent of Pledgor's interest therein,
all shares of, all securities convertible or exchangeable into, and all
warrants, options, or other rights to purchase shares of stock of any Person in
which any Pledgor, after the date of this Agreement, acquires a direct equity
interest, irrespective of whether such Person is or becomes a Subsidiary of
Pledgors; and (c) the certificates or instruments representing such additional
shares, convertible or exchangeable securities, warrants, and other rights and
all dividends, cash, options, warrants, rights, instruments, and other property
or proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
"Holder" and "Holders" shall have the meanings ascribed
thereto in Section 3 of this Agreement.
"Issuers" shall mean each of the Persons identified as an
Issuer on Schedule A attached hereto (or any addendum thereto), and any
successors thereto, whether by merger or otherwise.
"Loan Agreement" shall have the meaning ascribed thereto
in the recitals to this Agreement.
"Other Secured Obligations" means the Secured Obligations
other than the Bridge Term Loan Secured Obligations.
"Pledged Shares" shall mean all of the shares identified
as Pledged Shares on Schedule A attached hereto (or any addendum thereto).
"Pledgors" shall have the meaning ascribed thereto in the
preamble to this Agreement.
"Proceeds" shall mean all proceeds (including proceeds of
proceeds) of the Pledged Shares and Future Rights including all: (a) rights,
benefits, distributions, premiums, profits, dividends, interest, cash,
instruments, documents of title, accounts, investment property, contract rights,
inventory, equipment, general intangibles, deposit accounts, chattel paper, and
other property from time to time received, receivable, or
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<PAGE> 3
otherwise distributed in respect of or in exchange for, or as a replacement of
or a substitution for, any of the Pledged Shares, Future Rights, or proceeds
thereof (including any cash, stock, or other securities, investment property or
instruments issued after any recapitalization, readjustment, reclassification,
merger or consolidation with respect to the Issuers and any claims against
financial intermediaries under Section 8-313(2) of the Code or otherwise); (b)
"proceeds," as such term is used in Section 9-306 of the Code; (c) proceeds of
any insurance, indemnity, warranty, or guaranty (including guaranties of
delivery) payable from time to time with respect to any of the Pledged Shares,
Future Rights, or proceeds thereof; (d) payments (in any form whatsoever) made
or due and payable to Pledgors from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Pledged Shares, Future Rights, or proceeds thereof; and (e) other
amounts from time to time paid or payable under or in connection with any of the
Pledged Shares, Future Rights, or proceeds thereof.
"Secured Obligations" shall mean all liabilities,
obligations, or undertakings owing by Pledgor to Secured Party of any kind or
description arising out of or outstanding under, advanced or issued pursuant to,
or evidenced by the Loan Agreement, the other Loan Documents, or this Agreement,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest that accrues after the filing of a case under the Bankruptcy Code) and
any and all costs, fees (including attorneys fees), and expenses which Pledgors
are required to pay pursuant to any of the foregoing, by law, or otherwise.
"Secured Party" shall have the meaning ascribed thereto in
the preamble to this Agreement, together with its successors or assigns.
"Securities Act" shall have the meaning ascribed thereto
in Section 9(c) of this Agreement.
(b) Construction.
(i) Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and other similar terms in this Agreement refer
to this Agreement as a whole and not exclusively to any particular provision of
this Agreement. Article, section, subsection, exhibit, and schedule references
are to this Agreement unless otherwise specified. All of the exhibits or
schedules attached to this Agreement shall be deemed incorporated herein by
reference. Any reference to any of the following documents includes any and all
alterations, amendments, restatements, extensions,
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<PAGE> 4
modifications, renewals, or supplements thereto or thereof, as applicable: this
Agreement, the Loan Agreement, or any of the other Loan Documents.
(ii) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Secured Party or
Pledgors, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by both of the parties and their respective
counsel and shall be construed and interpreted according to the ordinary meaning
of the words used so as to fairly accomplish the purposes and intentions of the
parties hereto.
(iii) In the event of any direct conflict between the
express terms and provisions of this Agreement and of the Loan Agreement, the
terms and provisions of the Loan Agreement shall control.
2. Pledges.
(a) As security for the prompt payment and performance of the
Bridge Term Loan Secured Obligations in full by Pledgors when due, whether at
stated maturity, by acceleration or otherwise (including amounts that would
become due but for the operation of the provisions of the Bankruptcy Code),
Pledgors hereby pledge, grant, transfer, and assign to Secured Party a security
interest in all of Pledgors' right, title, and interest in and to the
Collateral.
(b) As security for the prompt payment and performance of the
Other Secured Obligations in full by Pledgors when due, whether at stated
maturity, by acceleration or otherwise (including amounts that would become due
but for the operation of the provisions of the Bankruptcy Code), Pledgors hereby
pledge, grant, transfer, and assign to Secured Party a security interest in all
of Pledgors' right, title, and interest in and to the Collateral.
3. Delivery and Registration of Collateral.
(a) All certificates or instruments representing or evidencing
the Collateral shall be promptly delivered by Pledgors to Secured Party or
Secured Party's designee pursuant hereto at a location designated by Secured
Party and shall be held by or on behalf of Secured Party pursuant hereto, and
shall be in suitable form for transfer by delivery, or shall be effectively
endorsed or accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to Secured Party.
(b) After the occurrence and during the continuance of an
Event of Default, Secured Party shall have the right, at any time in its
discretion and without notice to Pledgors, to transfer to or to register on the
books of the Issuers (or of any other Person maintaining records with respect to
the Collateral) in the name of Secured Party or any of its
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<PAGE> 5
nominees as registered owner of any or all of the Collateral. In addition,
Secured Party shall have the right at any time to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.
(c) If, at any time and from time to time, any Collateral
(including any certificate or instrument representing or evidencing any
Collateral) is in the possession of a Person other than Secured Party or
Pledgors (a "Holder"), then Pledgors shall immediately, at Secured Party's
option, either cause such Collateral to be delivered into Secured Party's
possession, or execute and deliver to such Holder a written
notification/instruction, and take all other steps necessary to perfect the
security interests of Secured Party in such Collateral, including obtaining from
such Holder a written acknowledgement that such Holder holds such Collateral for
Secured Party, all pursuant to Sections 9115 of the Code or other
applicable law governing the perfection of Secured Party's security interests in
the Collateral in the possession of such Holder. Each such
notification/instruction and acknowledgement shall be in form and substance
satisfactory to Secured Party.
(d) Any and all Collateral (including dividends, interest, and
other cash distributions) at any time received or held by Pledgors shall be so
received or held in trust for Secured Party, shall be segregated from other
funds and property of Pledgors and shall be forthwith delivered to Secured Party
in the same form as so received or held, with any necessary endorsements;
provided that cash dividends or distributions received by Pledgor, if and to the
extent they are not prohibited by the Loan Agreement, may be retained by
Pledgors in accordance with Section 4 and used in the ordinary course of
Pledgors' business.
(e) If at any time and from time to time any Collateral
consists of an uncertificated security or a security in book entry form, then
Pledgors shall immediately cause such Collateral to be registered or entered, as
the case may be, in the name of Secured Party as the registered owner of, or
otherwise cause Secured Party's security interests thereon to be perfected in
accordance with applicable law.
4. Voting Rights and Dividends.
(a) So long as no Event of Default shall have occurred and be
continuing, Pledgors shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of the Loan Documents and shall be
entitled to receive and retain any cash dividends or distributions paid in
respect of the Collateral.
(b) Upon the occurrence and during the continuance of an Event
of Default, all rights of Pledgor to exercise the voting and other consensual
rights or receive and retain cash dividends or distributions that it would
otherwise be entitled to exercise or receive and retain, as applicable pursuant
to Section 4(a), shall cease, and all such rights shall
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<PAGE> 6
thereupon become vested in Secured Party, who shall thereupon have the sole
right to exercise such voting or other consensual rights and to receive and
retain such cash dividends and distributions. Pledgors shall execute and deliver
(or cause to be executed and delivered) to Secured Party all such proxies and
other instruments as Secured Party may reasonably request for the purpose of
enabling Secured Party to exercise the voting and other rights which it is
entitled to exercise and to receive the dividends and distributions that it is
entitled to receive and retain pursuant to the preceding sentence.
5. Representations and Warranties. Pledgors represent, warrant, and
covenant as follows:
(a) Pledgors have taken all steps they deem necessary or
appropriate to be informed on a continuing basis of changes or potential changes
affecting the Collateral (including rights of conversion and exchange, rights to
subscribe, payment of dividends, reorganizations or recapitalization, tender
offers and voting rights), and Pledgors agree that Secured Party shall have no
responsibility or liability for informing Pledgors of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto;
(b) All information herein or hereafter supplied to Secured
Party by or on behalf of Pledgors in writing with respect to the Collateral is,
or in the case of information hereafter supplied will be, accurate and complete
in all material respects;
(c) Pledgors are and will be the sole legal and beneficial
owners of the Collateral (including the Pledged Shares and all other Collateral
acquired by Pledgors after the date hereof) free and clear of any adverse claim,
Lien, or other right, title, or interest of any party (other than the interests
of Secured Party hereunder and the interests of the Bank Group pursuant to the
Bank Group Financing Documents as contemplated by the Intercreditor Agreement);
(d) This Agreement, and the delivery to Secured Party of the
Pledged Shares representing Collateral (or the delivery to all Holders of the
Pledged Shares representing Collateral of the notification/instruction referred
to in Section 3 of this Agreement), creates a valid, perfected, and security
interests of the priority contemplated by the Intercreditor Agreement in one
hundred percent (100%) of the Pledged Shares in favor of Secured Party securing
payment of the Secured Obligations, and all actions necessary to achieve such
perfection have been duly taken;
(e) Schedule A to this Agreement is true and correct and
complete in all material respects; without limiting the generality of the
foregoing: (i) all the Pledged Shares are in certificated form, and, except to
the extent registered in the name of Secured Party or its nominee pursuant to
the provisions of this Agreement or in the name of the Bank
6
<PAGE> 7
Group Agent pursuant to the Bank Group Financing Documents as contemplated by
the Intercreditor Agreement, are registered in the name of Pledgors; and (ii)
the Pledged Shares as to each of the Issuers constitute at least the percentage
of all the fully diluted issued and outstanding shares of stock of such Issuer
as set forth in Schedule A to this Agreement;
(f) There are no presently existing Future Rights or Proceeds
owned by Pledgors, except as set forth in Schedule C hereto;
(g) The Pledged Shares have been duly authorized and validly
issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to this
Agreement nor the extensions of credit represented by the Secured Obligations
violates Regulation T, U or X of the Board of Governors of the Federal Reserve
System.
6. Further Assurances.
(a) Pledgors agree that from time to time, at the expense of
Pledgors, Pledgors will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or reasonably
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Pledgors will: (i) at the request of Secured Party, mark conspicuously each of
their records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to Secured Party, indicating that such Collateral is
subject to the security interests granted hereby; (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or reasonably desirable, or as
Secured Party may request, in order to perfect and preserve the security
interests granted or purported to be granted hereby; (iii) allow inspection of
the Collateral by Secured Party or Persons designated by Secured Party; and (iv)
appear in and defend any action or proceeding that may affect Pledgors' title to
or Secured Party's security interests in the Collateral.
(b) Pledgors hereby authorize Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Pledgors where
permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(c) Pledgors will furnish to Secured Party, upon the request
of Secured Party: (i) a certificate executed by an authorized officer of
Pledgors, and dated as of
7
<PAGE> 8
the date of delivery to Secured Party, itemizing in such detail as Secured Party
may request, the Collateral which, as of the date of such certificate, has been
delivered to Secured Party by Pledgors pursuant to the provisions of this
Agreement; and (ii) such statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Secured Party may request.
7. Covenants of Pledgors. Each Pledgor shall:
(a) Perform each and every covenant in the Loan Documents
applicable to Pledgors;
(b) At all times keep at least one complete set of its records
concerning substantially all of the Collateral at its Chief Executive Office as
set forth in Schedule B hereto, and not change the location of its Chief
Executive Office or such records without giving Secured Party at least thirty
(30) days prior written notice thereof;
(c) To the extent it may lawfully do so, use its best efforts
to prevent the Issuers from issuing Future Rights or Proceeds, except for cash
dividends and other distributions, if any, that are not prohibited by the terms
of the Loan Agreement to be paid by any Issuer to any Pledgor; and
(d) Upon receipt by any Pledgor of any material notice,
report, or other communication from any of the Issuers or any Holder relating to
all or any part of the Collateral, deliver such notice, report or other
communication to Secured Party as soon as possible, but in no event later than
five (5) days following the receipt thereof by any Pledgor.
8. Secured Party as Pledgors' Attorney-in-Fact.
(a) Pledgors hereby irrevocably appoint Secured Party as
Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgors and in the name of Pledgors, Secured Party or otherwise, from time to
time at Secured Party's discretion, to take any action and to execute any
instrument that Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (i) after the occurrence
and during the continuance of an Event of Default, to receive, endorse, and
collect all instruments made payable to Pledgors representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof to the extent permitted hereunder and to give full discharge for the
same and to execute and file governmental notifications and reporting forms;
(ii) to issue any notifications/instructions Secured Party deems necessary
pursuant to Section 3 of this Agreement; or (iii) to arrange for the transfer of
the Collateral on the books of any of the Issuers or any other Person to the
name of Secured Party or to the name of Secured Party's nominee.
8
<PAGE> 9
(b) In addition to the designation of Secured Party as
Pledgors' attorney-in-fact in subsection (a), Pledgors hereby irrevocably
appoint Secured Party as Pledgors' agent and attorney-in-fact to make, execute
and deliver any and all documents and writings which may be necessary or
appropriate for approval of, or be required by, any regulatory authority located
in any city, county, state or country where Pledgors or any of the Issuers
engage in business, in order to transfer or to more effectively transfer any of
the Pledged Shares or otherwise enforce Secured Party's rights hereunder.
9. Remedies upon Default. Subject to the Loan Agreement and the
Intercreditor Agreement, upon the occurrence and during the continuance of an
Event of Default:
(a) Secured Party may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Code (irrespective of whether the Code applies to the affected items of
Collateral), and Secured Party may also without notice (except as specified
below) sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any exchange, broker's board or at any of Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Secured Party
may deem commercially reasonable, irrespective of the impact of any such sales
on the market price of the Collateral. To the maximum extent permitted by
applicable law, Secured Party may be the purchaser of any or all of the
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use and apply all or any part of
the Secured Obligations as a credit on account of the purchase price of any
Collateral payable at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of Pledgor,
and Pledgor hereby waives (to the extent permitted by law) all rights of
redemption, stay, or appraisal that it now has or may at any time in the future
have under any rule of law or statute now existing or hereafter enacted.
Pledgors agree that, to the extent notice of sale shall be required by law, at
least ten (10) calendar days notice to Pledgors of the time and place of any
public sale or the time after which a private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the maximum
extent permitted by law, Pledgors hereby waive any claims against Secured Party
arising because the price at which any Collateral may have been sold at such a
private sale was less than the price that might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer
such Collateral to more than one offeree.
9
<PAGE> 10
(b) Pledgors hereby agree that any sale or other disposition
of the Collateral conducted in conformity with reasonable commercial practices
of banks, insurance companies, or other financial institutions in the City of
Los Angeles, California in disposing of property similar to the Collateral shall
be deemed to be commercially reasonable.
(c) Pledgors hereby acknowledge that the sale by Secured Party
of any Collateral pursuant to the terms hereof in compliance with the Securities
Act of 1933 as now in effect or as hereafter amended, or any similar statute
hereafter adopted with similar purpose or effect (the "Securities Act"), as well
as applicable "Blue Sky" or other state securities laws may require strict
limitations as to the manner in which Secured Party or any subsequent transferee
of the Collateral may dispose thereof. Pledgors acknowledge and agree that in
order to protect Secured Party's interest it may be necessary to sell the
Collateral at a price less than the maximum price attainable if a sale were
delayed or were made in another manner, such as a public offering under the
Securities Act. Pledgor has no objection to sale in such a manner and agrees
that Secured Party shall have no obligation to obtain the maximum possible price
for the Collateral. Without limiting the generality of the foregoing, Pledgors
agree that, upon the occurrence and during the continuation of an Event of
Default, Secured Party may, subject to applicable law, from time to time attempt
to sell all or any part of the Collateral by a private placement, restricting
the bidders and prospective purchasers to those who will represent and agree
that they are purchasing for investment only and not for distribution. In so
doing, Secured Party may solicit offers to buy the Collateral or any part
thereof for cash, from a limited number of investors deemed by Secured Party, in
its reasonable judgment, to be institutional investors or other responsible
parties who might be interested in purchasing the Collateral. If Secured Party
shall solicit such offers, then the acceptance by Secured Party of one of the
offers shall be deemed to be a commercially reasonable method of disposition of
the Collateral.
(d) If Secured Party shall determine to exercise its right to
sell all or any portion of the Collateral pursuant to this Section, Pledgors
agree that, upon request of Secured Party, each Pledgor will, at its own
expense:
(i) use its best efforts to execute and deliver, and
cause the Issuers and the directors and officers thereof to execute and deliver,
all such instruments and documents, and to do or cause to be done all such other
acts and things, as may be necessary or, in the opinion of Secured Party,
advisable to register such Collateral under the provisions of the Securities
Act, and to cause the registration statement relating thereto to become
effective and to remain effective for such period as prospectuses are required
by law to be furnished, and to make all amendments and supplements thereto and
to the related prospectuses which, in the opinion of Secured Party, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
10
<PAGE> 11
(ii) use its best efforts to qualify the Collateral
under the state securities laws or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by Secured
Party;
(iii) cause the Issuers to make available to their
respective security holders, as soon as practicable, an earnings statement which
will satisfy the provisions of Section 11(a) of the Securities Act;
(iv) execute and deliver, or cause the officers and
directors of the Issuers to execute and deliver, to any person, entity or
governmental authority as Secured Party may choose, any and all documents and
writings which, in Secured Party's reasonable judgment, may be necessary or
appropriate for approval, or be required by, any regulatory authority located in
any city, county, state or country where Pledgor or the Issuers engage in
business, in order to transfer or to more effectively transfer the Pledged
Shares or otherwise enforce Secured Party's rights hereunder; and
(v) do or cause to be done all such other acts and
things as may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
(e) PLEDGORS EXPRESSLY WAIVE TO THE MAXIMUM EXTENT PERMITTED
BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO THE
TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS PROVIDED IN
THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT IT NOW HAS
OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR STATUTE NOW
EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH IN SUBSECTION (a)
OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.
10. Application of Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash held by Secured Party as Collateral
and all cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
pursuant to the exercise by Secured Party of its remedies as a secured creditor
as provided in Section 9 shall be applied from time to time by Secured Party as
provided in the Loan Agreement.
11
<PAGE> 12
11. Duties of Secured Party. The powers conferred on Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose on it any duty to exercise such powers. Except as provided in Section
9-207 of the Code, Secured Party shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY
OTHER COURT IN WHICH SECURED PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
OF PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 12.
13. Amendments; Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Pledgors herefrom shall in any event
be effective unless the same shall be in writing and signed by Secured Party,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure on the part of Secured
Party to exercise, and no delay in exercising any right under this Agreement,
any other Loan Document, or otherwise with respect to any of the Secured
Obligations, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured Obligations preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided for in this Agreement or otherwise with respect to any of the Secured
Obligations are cumulative and not exclusive of any remedies provided by law.
14. Notices. Unless otherwise specifically provided herein, any
notice or other communication herein required or permitted to be given shall be
in writing and shall be delivered in the manner set forth in the Loan Agreement.
15. Continuing Security Interests. This Agreement shall create
continuing security interests in the Collateral and shall: (i) remain in full
force and effect until the
12
<PAGE> 13
indefeasible payment in full of the Secured Obligations, including the cash
collateralization, expiration, or cancellation of all Secured Obligations, if
any, consisting of letters of credit, and the full and final termination of any
commitment to extend any financial accommodations under the Loan Agreement; (ii)
be binding upon each Pledgor and its successors and assigns; and (iii) inure to
the benefit of Secured Party and its successors, transferees, and assigns. Upon
the indefeasible payment in full of the Secured Obligations, including the cash
collateralization, expiration, or cancellation of all Secured Obligations, if
any, consisting of letters of credit, and the full and final termination of any
commitment to extend any financial accommodations under the Loan Agreement, the
security interests granted herein shall automatically terminate and all rights
to the Collateral shall revert to Pledgors. Upon any such termination, Secured
Party will, at Pledgors' expense, execute and deliver to Pledgors such documents
as Pledgors shall reasonably request to evidence such termination. Such
documents shall be prepared by Pledgors and shall be in form and substance
reasonably satisfactory to Secured Party.
16. Security Interests Absolute. To the maximum extent permitted by
law, all rights of Secured Party, all security interests hereunder, and all
obligations of Pledgors hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of any of the
Secured Obligations or any other agreement or instrument relating thereto,
including any of the Loan Documents;
(b) any change in the time, manner, or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise constitute a
defense available to, or a discharge of, Pledgors.
To the maximum extent permitted by law, Pledgors hereby waive any
right to require Secured Party to: (A) proceed against or exhaust any security
held from Pledgors; or (B) pursue any other remedy in Secured Party's power
whatsoever.
17. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
13
<PAGE> 14
18. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.
20. Waiver of Marshaling. Each Pledgor and Secured Party acknowledges
and agrees that in exercising any rights under or with respect to the
Collateral: (i) Secured Party is under no obligation to marshal any Collateral;
(ii) may, in its absolute discretion, realize upon the Collateral in any order
and in any manner it so elects; and (iii) may, in its absolute discretion, apply
the proceeds of any or all of the Collateral to the Secured Obligations in any
order and in any manner it so elects. Pledgors and Secured Party waive any right
to require the marshaling of any of the Collateral.
21. WAIVER OF JURY TRIAL. PLEDGORS AND SECURED PARTY HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGORS AND SECURED PARTY REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
22. Waivers.
(a) To the maximum extent permitted by law, Pledgors hereby waive:
(i) notice of acceptance hereof; (ii) notice of any loans or other financial
accommodations made or extended under the Loan Agreement, or the creation or
existence of any Obligations; (iii) notice of the amount of the Obligations,
subject, however, to Pledgor's right to make inquiry of Secured Party to
ascertain the amount of the Obligations at any reasonable time; (iv) notice of
any adverse change in the financial condition of Pledgors or of any other fact
that might increase Pledgors' risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Pledgors under this Agreement) and demands
to which Pledgors might otherwise be entitled.
14
<PAGE> 15
(b) To the maximum extent permitted by law, Pledgors hereby waive:
(i) any rights to assert against Secured Party any defense (legal or equitable),
set-off, counterclaim, or claim which Pledgors may now or at any time hereafter
have against any other party liable to Secured Party on account of or with
respect to the Obligations; (ii) any defense, set-off, counterclaim, or claim,
of any kind or nature, arising directly or indirectly from the present or future
sufficiency, validity, or enforceability of the Obligations; (iii) any defense
arising by reason of any claim or defense based upon an election of remedies by
Secured Party including, to the extent applicable, the provisions of Sections
580d and 726 of the California Code of Civil Procedure, or any similar law of
California or any other jurisdiction; (iv) the benefit of any statute of
limitations affecting Pledgors' liability hereunder or the enforcement thereof.
(c) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, PLEDGORS HEREBY WAIVE, TO THE MAXIMUM
EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING DIRECTLY OR
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2808, 2809,
2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND 2850, TO THE
EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580A, 580B, 580C,
580D, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE
CALIFORNIA CIVIL CODE.
IN WITNESS WHEREOF, Pledgors and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
STORMEDIA INCORPORATED,
a Delaware corporation
By: /s/
------------------------------------
Title:
---------------------------------
AKASHIC MEMORIES CORPORATION,
a California corporation
By: /s/
------------------------------------
15
<PAGE> 16
Title:
---------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/
------------------------------------
Title:
---------------------------------
16
<PAGE> 17
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: _____________________
Pledged Shares
<TABLE>
<CAPTION>
Former Name, if Pledgor's
Number of Certificate any, in which Percentage Jurisdiction of
Issuer Shares Class Number(s) Certificate Issued Ownership Incorporation
- ------ ------ ----- --------- ------------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
AAA 100%
BBB 100%
CCC 100%
DDD 100%
EEE 100%
</TABLE>
<PAGE> 18
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: ____________________________, a ________ corporation
Address of Chief Executive Office:
<PAGE> 19
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds: [None.]
<PAGE> 1
EXHIBIT 10.19
TRADEMARK SECURITY AGREEMENT
(BORROWER)
THIS TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of
May 29, 1998 is made by STORMEDIA INCORPORATED, a Delaware corporation and
AKASHIC MEMORIES CORPORATION, a California corporation (collectively,
"Debtors"), on the one hand, and, on the other hand, FOOTHILL CAPITAL
CORPORATION, a California corporation, as agent for the Lenders from time to
time party to the Loan Agreement, (in such capacity "Foothill").
RECITALS
A. Debtors and Foothill have entered into that certain Loan and Security
Agreement, of even date herewith (as amended, restated, modified, renewed or
extended from time to time, the "Loan Agreement"), pursuant to which Foothill
has agreed to make certain financial accommodations to Debtors, and pursuant to
which Debtors have granted to Foothill security interests in (among other
things) all of the general intangibles of Debtors.
B. Pursuant to the Loan Agreement and as one of the
conditions precedent to the obligations of Foothill under the Loan Agreement,
Debtors have agreed to execute and deliver this Agreement to Foothill for filing
with the PTO and with any other relevant recording systems in any domestic
jurisdiction, and as further evidence of and to effectuate Foothill's existing
security interests in the trademarks and other general intangibles described
herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtors hereby agree in favor of
Foothill as follows:
1. Definitions; Interpretation.
(a) Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings:
"Debtors" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
<PAGE> 2
"Other Obligations" means the Obligations other than the Bridge
Term Loan Obligations.
"Proceeds" means whatever is receivable or received from or upon
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined at UCC Section 9306, all insurance proceeds and all
proceeds of proceeds. Proceeds shall include (i) any and all accounts, chattel
paper, instruments, general intangibles, cash and other proceeds, payable to or
for the account of Debtors, from time to time in respect of any of the Trademark
Collateral, (ii) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to or for the account of Debtors from time to time with respect
to any of the Trademark Collateral, (iii) any and all claims and payments (in
any form whatsoever) made or due and payable to Debtors from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Trademark Collateral by any Person acting
under color of governmental authority, and (iv) any and all other amounts from
time to time paid or payable under or in connection with any of the Trademark
Collateral or for or on account of any damage or injury to or conversion of any
Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and any
successor thereto.
"Trademark Collateral" has the meaning set forth in Section 2.
"Trademarks" has the meaning set forth in Section 2.
"United States" and "U.S." each mean the United States of
America.
(b) Terms Defined in UCC. Where applicable and except
as otherwise defined herein, terms used in this Agreement shall have the
meanings assigned to them in the UCC.
(c) Interpretation. In this Agreement, except to the
extent the context otherwise requires:
(i) Any reference to a Section or a Schedule is
a reference to a section hereof, or a schedule hereto, respectively, and
to a subsection or a clause is, unless otherwise stated, a reference to
a subsection or a clause of the Section or subsection in which the
reference appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a whole and
not merely to the specific Section, subsection, paragraph or clause in
which the respective word appears.
<PAGE> 3
(iii) The meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms
defined.
(iv) The words "including," "includes" and
"include" shall be deemed to be followed by the words "without
limitation."
(v) References to agreements and other
contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto.
(vi) References to statutes or regulations are to
be construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred
to.
(vii) Any captions and headings are for
convenience of reference only and shall not affect the construction of
this Agreement.
(viii) Terms defined in the Loan Agreement and not
otherwise defined herein shall have the respective meanings assigned to
them in the Loan Agreement and the rules of construction set forth in
Section 1 of the Loan Agreement shall likewise govern this Agreement.
(ix) In the event of any actual, irreconcilable
conflict between the terms and provisions of this Agreement and the Loan
Agreement, the terms and provisions of the Loan Agreement shall control
and govern; provided, however, that the inclusion herein of additional
obligations on the part of Debtors and supplemental rights and remedies
in favor of Foothill (whether under federal law or applicable California
law), in each case in respect of the Trademark Collateral, shall not be
deemed a conflict in the Loan Agreement.
2. Security Interests.
(a) Assignment and Grant of Security Interests.
(i) To secure the Bridge Term Loan Obligations,
Debtors hereby grant, assign, transfer and convey to Foothill continuing
security interests in all of Debtors' right, title and interest in and to the
following property, whether now existing or hereafter acquired or arising and
whether registered or unregistered (collectively, the "Trademark Collateral"):
(a) all state (including common law) and
federal trademarks, service marks and trade names, corporate names,
company names, business names, fictitious business names, trade styles,
trade dress, logos, other source
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<PAGE> 4
or business identifiers, designs and general intangibles of like nature,
now existing or hereafter adopted or acquired, together with and
including all licenses therefor held by Debtors (unless otherwise
prohibited by any license or related licensing agreement under
circumstances where the granting of the security interests would have
the effect under applicable law of terminating or permitting termination
of the license for breach (unless the licensor has consented to such
grant or waived such termination remedy)), and all registrations and
recordings thereof, and all applications filed or to be filed in
connection therewith, including registrations and applications in the
PTO, any State of the United States and all extensions or renewals
thereof, including without limitation any of the foregoing identified on
Schedule A hereto (as the same may be amended, modified or supplemented
from time to time), and the right (but not the obligation) to register
claims under any state or federal trademark law or regulation and to
apply for, renew and extend any of the same, to sue or bring opposition
or cancellation proceedings in the name of Debtors or in the name of
Foothill for past, present or future infringement or unconsented use
thereof, and all rights arising therefrom throughout the world
(collectively, the "Trademarks");
(b) all claims, causes of action and
rights to sue for past, present or future infringement or unconsented
use of any Trademarks and all rights arising therefrom and pertaining
thereto;
(c) all general intangibles related to or
arising out of any of the Trademarks and all the goodwill of Debtors'
businesses symbolized by the Trademarks or associated therewith and
associated product lines to the extent embodying the Trademarks; and
(d) all products and Proceeds of any and
all of the foregoing.
(ii) To secure the Other Obligations, Debtors
hereby grant, assign, transfer and convey to Foothill continuing security
interests in all of Debtors' right, title and interest in and to the following
property, whether now existing or hereafter acquired or arising and whether
registered or unregistered (collectively, the "Trademark Collateral"):
(a) all state (including common law) and
federal trademarks, service marks and trade names, corporate names,
company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, together with and including all licenses therefor held by
Debtors (unless otherwise prohibited by any license or related licensing
agreement under circumstances where the granting of the security
interests would have the effect under applicable law of terminating or
permitting termination of the license for breach
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<PAGE> 5
(unless the licensor has consented to such grant or waived such
termination remedy)), and all registrations and recordings thereof, and
all applications filed or to be filed in connection therewith, including
registrations and applications in the PTO, any State of the United
States and all extensions or renewals thereof, including without
limitation any of the foregoing identified on Schedule A hereto (as the
same may be amended, modified or supplemented from time to time), and
the right (but not the obligation) to register claims under any state or
federal trademark law or regulation and to apply for, renew and extend
any of the same, to sue or bring opposition or cancellation proceedings
in the name of Debtors or in the name of Foothill for past, present or
future infringement or unconsented use thereof, and all rights arising
therefrom throughout the world (collectively, the "Trademarks");
(b) all claims, causes of action and
rights to sue for past, present or future infringement or unconsented
use of any Trademarks and all rights arising therefrom and pertaining
thereto;
(c) all general intangibles related to or
arising out of any of the Trademarks and all the goodwill of Debtors'
businesses symbolized by the Trademarks or associated therewith; and
(d) all products and Proceeds of any and
all of the foregoing.
(b) Continuing Security Interests. Debtors agree that
this Agreement shall create continuing security interests in the Trademark
Collateral which shall remain in effect until terminated in accordance with
Section 17.
3. Further Assurances; Appointment of Foothill as
Attorney-in-Fact. Debtors at their expense shall execute and deliver, or cause
to be executed and delivered, to Foothill any and all documents and instruments,
in form and substance reasonably satisfactory to Foothill, and take any and all
action, which Foothill may reasonably request from time to time, to perfect and
continue perfected, maintain the priority of or provide notice of Foothill's
security interests in the Trademark Collateral and to accomplish the purposes of
this Agreement. Foothill shall have the right, in the name of Debtors, or in the
name of Foothill or otherwise, without notice to or assent by Debtors, and
Debtors hereby irrevocably constitute and appoint Foothill (and any of
Foothill's officers or employees or agents designated by Foothill) as Debtors'
true and lawful attorney-in-fact with full power and authority, (i) to sign the
names of Debtors on all or any of such documents or instruments and perform all
other acts that Foothill reasonably deems necessary or advisable in order to
perfect or continue perfected, maintain the priority or enforceability of or
provide notice of Foothill's security
-5-
<PAGE> 6
interests in, the Trademark Collateral, and (ii) to execute any and all other
documents and instruments, and to perform any and all acts and things for and on
behalf of Debtors, which Foothill reasonably may deem necessary or advisable to
maintain, preserve and protect the Trademark Collateral and to accomplish the
purposes of this Agreement, including (A) after the occurrence and during the
continuance of any Event of Default, to defend, settle, adjust or institute any
action, suit or proceeding with respect to the Trademark Collateral, (B) to
assert or retain any rights under any license agreement for any of the Trademark
Collateral, and (C) after the occurrence and during the continuance of any Event
of Default, to execute any and all applications, documents, papers and
instruments for Foothill to use the Trademark Collateral, to grant or issue any
exclusive or non-exclusive license with respect to any Trademark Collateral, and
to assign, convey or otherwise transfer title in or dispose of the Trademark
Collateral. The power of attorney set forth in this Section 3, being coupled
with an interest, is irrevocable so long as this Agreement shall not have
terminated in accordance with Section 17.
4. Representations and Warranties. Debtors represent and
warrant to Foothill, in each case to the best of its knowledge, information, and
belief, as follows:
(a) No Other Trademarks. Schedule A sets forth, as of
the Closing Date, a true and correct list of all of the existing Trademarks that
are registered, or for which any application for registration has been filed
with the PTO or any corresponding or similar trademark office of any other U.S.
jurisdiction, and that are owned or held (whether pursuant to a license or
otherwise) and used by Debtors.
(b) Trademarks Subsisting. Each of the Trademarks
listed in Schedule A is subsisting and has not been adjudged invalid or
unenforceable, in whole or in part, and, to the best of Debtors's knowledge,
each of the Trademarks is valid and enforceable.
(c) Ownership of Trademark Collateral; No Violation.
(i) Debtors have rights in and good and defensible title to the existing
Trademark Collateral, (ii) with respect to the Trademark Collateral shown on
Schedule A hereto as owned by it, Debtors are the sole and exclusive owners
thereof, free and clear of any Liens and rights of others (other than the
security interests created hereunder and the interests of the Bank Group
Financing Documents as contemplated by the Intercreditor Agreement), including
licenses, registered user agreements and covenants by Debtors not to sue third
persons, and (iii) with respect to any Trademarks for which either Debtor is
either a licensor or a licensee pursuant to a license or licensee agreement
regarding such Trademark, each such license or licensing agreement is in full
force and effect, Debtors are not in default of any of its obligations
thereunder and, other than the parties to such licenses or licensing agreements,
no other Person has any rights in or to any of the Trademark Collateral. To the
best of Debtors' knowledge, the past, present
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<PAGE> 7
and contemplated future use of the Trademark Collateral by Debtors has not, does
not and will not infringe upon or violate any right, privilege or license
agreement of or with any other Person.
(d) No Infringement. To the best of Debtors' knowledge,
no material infringement or unauthorized use presently is being made of any of
the Trademark Collateral by any Person.
(e) Powers. Debtors have the unqualified right, power
and authority to pledge and to grant to Foothill security interests in all of
the Trademark Collateral pursuant to this Agreement, and to execute, deliver and
perform their obligations in accordance with the terms of this Agreement,
without the consent or approval of any other Person except as already obtained.
5. Covenants. So long as any of the Obligations remain
unsatisfied, Debtors agree that they will comply with all of the covenants,
terms and provisions of this Agreement, the Loan Agreement and the other Loan
Documents, and Debtors will promptly give Foothill written notice of the
occurrence of any event that could have a material adverse effect on any of the
Trademarks or the Trademark Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Trademarks for
which either Debtor is a licensee.
6. Future Rights. Except as otherwise expressly agreed to in
writing by Foothill, for so long as any of the Obligations shall remain
outstanding, or, if earlier, until Foothill shall have released or terminated,
in whole but not in part, its interest in the Trademark Collateral, if and when
either Debtor shall obtain rights to any new Trademarks, or any reissue, renewal
or extension of any Trademarks, the provisions of Section 2 shall automatically
apply thereto and Debtors shall give to Foothill prompt notice thereof. Debtors
shall do all things reasonably deemed necessary or advisable by Foothill to
ensure the validity, perfection, priority and enforceability of the security
interests of Foothill in such future acquired Trademark Collateral. Debtors
hereby authorize Foothill to modify, amend or supplement the Schedules hereto
and to re-execute this Agreement from time to time on Debtors' behalf and as its
attorney-in-fact to include any future Trademarks which are or become Trademark
Collateral and to cause such re-executed Agreement or such modified, amended or
supplemented Schedules to be filed with the PTO.
7. Foothill's Duties. Notwithstanding any provision contained
in this Agreement, Foothill shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to Debtors or
any other Person for any failure to do so or delay in doing so. Except for the
accounting for moneys actually received by Foothill
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<PAGE> 8
hereunder or in connection herewith, Foothill shall have no duty or liability to
exercise or preserve any rights, privileges or powers pertaining to the
Trademark Collateral.
8. Remedies. Subject to the terms of the Loan Agreement and
Intercreditor Agreement, from and after the occurrence and during the
continuation of an Event of Default, Foothill shall have all rights and remedies
available to it under the Loan Agreement and applicable law (which rights and
remedies are cumulative) with respect to the security interests in any of the
Trademark Collateral or any other Collateral. Debtors agree that such rights and
remedies include the right of Foothill as a secured party to sell or otherwise
dispose of its Collateral after default, pursuant to UCC Section 9504. Debtors
agree that Foothill shall at all times have such royalty-free licenses, to the
extent permitted by law, for any Trademark Collateral that is reasonably
necessary to permit the exercise of any of Foothill's rights or remedies upon or
after the occurrence of (and during the continuance of) an Event of Default with
respect to (among other things) any tangible asset of Debtors in which Foothill
has security interests, including Foothill's rights to sell inventory, tooling
or packaging which is acquired by Debtors (or its successors, assignees or
trustees in bankruptcy). In addition to and without limiting any of the
foregoing, upon the occurrence and during the continuance of an Event of
Default, Foothill shall have the right but shall in no way be obligated to bring
suit, or to take such other action as Foothill deems necessary or advisable, in
the name of either Debtor or Foothill, to enforce or protect any of the
Trademark Collateral, in which event Debtors shall, at the request of Foothill,
do any and all lawful acts and execute any and all documents required by
Foothill in aid of such enforcement. To the extent that Foothill shall elect not
to bring suit to enforce such Trademark Collateral, Debtors, in the exercise of
their reasonable business judgment, agree to use all reasonable measures and its
diligent efforts, whether by action, suit, proceeding or otherwise, to prevent
the infringement, misappropriation or violation thereof by others and for that
purpose agrees diligently to maintain any action, suit or proceeding against any
Person necessary to prevent such infringement, misappropriation or violation.
9. Binding Effect. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Debtors and Foothill and their
respective successors and assigns.
10. Notices. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
11. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the federal laws of the United States
of America and the laws of the State of California.
12. Amendment. Neither this Agreement nor any provision hereof
may be modified, amended or waived except by the written agreement of the
parties as provided in
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<PAGE> 9
the Loan Agreement. Notwithstanding the foregoing, Foothill may re-execute this
Agreement or modify, amend or supplement the Schedules hereto as provided in
Section 6 hereof.
13. Severability. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
14. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
15. Loan Agreement. Debtors acknowledge that the rights and
remedies of Foothill with respect to the security interests in the Trademark
Collateral granted hereby are more fully set forth in the Loan Agreement and all
such rights and remedies are cumulative.
16. No Inconsistent Requirements. Debtors acknowledge that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
Debtors agree that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
To the extent of any conflict between the provisions of this Agreement and the
Loan Agreement, however, the provisions of the Loan Agreement shall govern.
17. Termination. Upon the payment in full of the Obligations,
including the cash collateralization, expiration, or cancellation of all
Obligations, if any, consisting of letters of credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Loan Agreement, this Agreement shall terminate, and Foothill shall execute and
deliver such documents and instruments and take such further action reasonably
requested by Debtors, at Debtors' expense, as shall be necessary to evidence
termination of the security interests granted by Debtors to Foothill hereunder,
including cancellation of this Agreement by written notice from Foothill to the
PTO.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
STORMEDIA INCORPORATED,
a Delaware corporation
By: /s/
------------------------------------
Title:
---------------------------------
AKASHIC MEMORIES CORPORATION,
a California corporation
By: /s/
------------------------------------
Title:
---------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/
------------------------------------
Title:
---------------------------------
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<PAGE> 11
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On May ___, 1998, before me, ____________________________, Notary
Public, personally appeared ____________________________, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/
---------------------------
Signature
[SEAL]
<PAGE> 12
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On May ___, 1998, before me, _____________________________, Notary
Public, personally appeared _____________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
___________________________
Signature
[SEAL]
<PAGE> 13
SCHEDULE A
to the Trademark Security Agreement
Trademarks of Debtors
<TABLE>
<CAPTION>
Registration/
Registration/ Application
Type Jurisdiction Mark Application Date No.
- ---- ------------ ---- ---------------- -------------
<S> <C> <C> <C> <C>
</TABLE>
A-1.
<PAGE> 1
EXHIBIT 10.20
STOCK PLEDGE AGREEMENT
(CERTAIN GUARANTORS)
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of May
29, 1998, is executed and delivered by each of the undersigned Subsidiaries of
STORMEDIA INCORPORATED, a Delaware corporation (each a "Pledgor" and
collectively "Pledgors"), on the one hand, and, on the other hand, FOOTHILL
CAPITAL CORPORATION, a California corporation, as agent for the Lenders from
time to time party to the Loan Agreement (defined below), (in such capacity
"Secured Party"), with reference to the following:
WHEREAS, each undersigned Pledgor beneficially owns the specified
number of shares identified as Pledged Shares in the Persons identified as
Issuers on Schedule A attached hereto (or any addendum thereto);
WHEREAS, Borrowers and Secured Party are parties to that certain
Loan and Security Agreement (as amended and in effect from time to time, the
"Loan Agreement"), of even date herewith, pursuant to which Secured Party has
agreed to make certain financial accommodations to Borrower;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Borrowers pursuant to the Loan Agreement, Pledgors
desire to pledge, grant, transfer, and assign to Secured Party security
interests in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. Definitions and Construction.
(a) Definitions. All initially capitalized terms used
herein and not otherwise defined herein shall have the meaning ascribed thereto
in the Loan Agreement and the rules of construction set forth in Section 1 of
the Loan Agreement shall likewise govern this Agreement. As used in this
Agreement:
"Agreement" shall mean this Stock Pledge Agreement.
"Borrowers" shall mean STORMEDIA INCORPORATED, a
Delaware corporation and AKASHIC MEMORIES CORPORATION, a California corporation.
1
<PAGE> 2
"Bridge Term Loan Secured Obligations" means those
of the Secured Obligations arising under the Guaranty with respect to the Bridge
Term Loan Obligations.
"Chief Executive Office" shall mean where each
Pledgor is deemed located pursuant to Section 9-103(3)(d) of the Code.
"Collateral" shall mean the Pledged Shares, the
Future Rights, and the Proceeds, collectively.
"Future Rights" shall mean: (a) all shares of stock
(other than Pledged Shares) of the Issuers, and all securities convertible or
exchangeable into, and all warrants, options, or other rights to purchase,
shares of stock of the Issuers; (b) to the extent of each Pledgor's interest
therein, all shares of, all securities convertible or exchangeable into, and all
warrants, options, or other rights to purchase shares of stock of any Person in
which each Pledgor, after the date of this Agreement, acquires a direct equity
interest, irrespective of whether such Person is or becomes a Subsidiary of any
Pledgor; and (c) the certificates or instruments representing such additional
shares, convertible or exchangeable securities, warrants, and other rights and
all dividends, cash, options, warrants, rights, instruments, and other property
or proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
"Holder" and "Holders" shall have the meanings
ascribed thereto in Section 3 of this Agreement.
"Issuers" shall mean each of the Persons identified
as an Issuer on Schedule A attached hereto (or any addendum thereto), and any
successors thereto, whether by merger or otherwise.
"Loan Agreement" shall have the meaning ascribed
thereto in the recitals to this Agreement.
"Other Secured Obligations" means all Secured
Obligations other than the Bridge Term Loan Secured Obligations.
"Pledged Shares" shall mean all of the shares
identified as Pledged Shares on Schedule A attached hereto (or any addendum
thereto).
"Pledgor" shall have the meaning ascribed thereto
in the preamble to this Agreement.
2
<PAGE> 3
"Proceeds" shall mean all proceeds (including
proceeds of proceeds) of the Pledged Shares and Future Rights including all: (a)
rights, benefits, distributions, premiums, profits, dividends, interest, cash,
instruments, documents of title, accounts, investment property, contract rights,
inventory, equipment, general intangibles, deposit accounts, chattel paper, and
other property from time to time received, receivable, or otherwise distributed
in respect of or in exchange for, or as a replacement of or a substitution for,
any of the Pledged Shares, Future Rights, or proceeds thereof (including any
cash, stock, or other securities, investment property or instruments issued
after any recapitalization, readjustment, reclassification, merger or
consolidation with respect to the Issuers and any claims against financial
intermediaries under Section 8-313(2) of the Code or otherwise); (b) "proceeds,"
as such term is used in Section 9-306 of the Code; (c) proceeds of any
insurance, indemnity, warranty, or guaranty (including guaranties of delivery)
payable from time to time with respect to any of the Pledged Shares, Future
Rights, or proceeds thereof; (d) payments (in any form whatsoever) made or due
and payable to any Pledgor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Pledged Shares, Future Rights, or proceeds thereof; and (e) other amounts from
time to time paid or payable under or in connection with any of the Pledged
Shares, Future Rights, or proceeds thereof.
"Secured Obligations" shall mean all liabilities,
obligations, or undertakings owing by Pledgors to Secured Party of any kind or
description arising out of or outstanding under, advanced or issued pursuant to,
or evidenced by the Guaranty, the other Loan Documents, or this Agreement,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest that accrues after the filing of a case under the Bankruptcy Code) and
any and all costs, fees (including attorneys fees), and expenses which any
Pledgor is required to pay pursuant to any of the foregoing, by law, or
otherwise.
"Secured Party" shall have the meaning ascribed
thereto in the preamble to this Agreement, together with its successors or
assigns.
"Securities Act" shall have the meaning ascribed
thereto in Section 9(c) of this Agreement.
(b) Construction.
(i) Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and other similar terms in this
3
<PAGE> 4
Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. Article, section, subsection, exhibit,
and schedule references are to this Agreement unless otherwise specified. All of
the exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference to any of the following
documents includes any and all alterations, amendments, restatements,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable: this Agreement, the Loan Agreement, or any of the other Loan
Documents.
(ii) Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Secured Party or
Pledgors, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by both of the parties and their respective
counsel and shall be construed and interpreted according to the ordinary meaning
of the words used so as to fairly accomplish the purposes and intentions of the
parties hereto.
(iii) In the event of any direct conflict between
the express terms and provisions of this Agreement and of the Loan Agreement,
the terms and provisions of the Loan Agreement shall control.
2. Pledges.
(a) As security for the prompt payment and performance
of the Bridge Term Loan Secured Obligations in full by Borrowers when due,
whether at stated maturity, by acceleration or otherwise (including amounts that
would become due but for the operation of the provisions of the Bankruptcy
Code), Pledgors hereby pledge, grant, transfer, and assign to Secured Party a
security interest in all of Pledgors' right, title, and interest in and to the
Collateral.
(b) As security for the prompt payment and performance
of the Other Secured Obligations in full by Borrowers when due, whether at
stated maturity, by acceleration or otherwise (including amounts that would
become due but for the operation of the provisions of the Bankruptcy Code),
Pledgors hereby pledge, grant, transfer, and assign to Secured Party a security
interest in all of Pledgors' right, title, and interest in and to the
Collateral.
3. Delivery and Registration of Collateral.
(a) All certificates or instruments representing or
evidencing the Collateral shall be promptly delivered by Pledgors to Secured
Party or Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery,
4
<PAGE> 5
or shall be effectively endorsed or accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
Secured Party.
(b) After the occurrence and during the continuance of
an Event of Default, Secured Party shall have the right, at any time in its
discretion and without notice to Pledgors, to transfer to or to register on the
books of the Issuers (or of any other Person maintaining records with respect to
the Collateral) in the name of Secured Party or any of its nominees as
registered owner of any or all of the Collateral. In addition, Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Collateral for certificates or instruments of smaller
or larger denominations.
(c) If, at any time and from time to time, any
Collateral (including any certificate or instrument representing or evidencing
any Collateral) is in the possession of a Person other than Secured Party or any
Pledgor (a "Holder"), then Pledgors shall immediately, at Secured Party's
option, either cause such Collateral to be delivered into Secured Party's
possession, or execute and deliver to such Holder a written
notification/instruction, and take all other steps necessary to perfect the
security interests of Secured Party in such Collateral, including obtaining from
such Holder a written acknowledgement that such Holder holds such Collateral for
Secured Party, all pursuant to Sections 9115 of the Code or other applicable law
governing the perfection of Secured Party's security interests in the Collateral
in the possession of such Holder. Each such notification/instruction and
acknowledgement shall be in form and substance satisfactory to Secured Party.
(d) Any and all Collateral (including dividends,
interest, and other cash distributions) at any time received or held by any
Pledgor shall be so received or held in trust for Secured Party, shall be
segregated from other funds and property of any Pledgor and shall be forthwith
delivered to Secured Party in the same form as so received or held, with any
necessary endorsements; provided that cash dividends or distributions received
by Pledgors, if and to the extent they are not prohibited by the Loan Agreement,
may be retained by Pledgors in accordance with Section 4 and used in the
ordinary course of Pledgors' business.
(e) If at any time and from time to time any Collateral
consists of an uncertificated security or a security in book entry form, then
Pledgors shall immediately cause such Collateral to be registered or entered, as
the case may be, in the name of Secured Party as the registered owner of, or
otherwise cause Secured Party's security interests thereon to be perfected in
accordance with applicable law.
4. Voting Rights and Dividends.
(a) So long as no Event of Default shall have occurred
and be continuing, Pledgors shall be entitled to exercise any and all voting and
other consensual rights
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pertaining to the Collateral or any part thereof for any purpose not
inconsistent with the terms of the Loan Documents and shall be entitled to
receive and retain any cash dividends or distributions paid in respect of the
Collateral.
(b) Upon the occurrence and during the continuance of
an Event of Default, all rights of each Pledgor to exercise the voting and other
consensual rights or receive and retain cash dividends or distributions that it
would otherwise be entitled to exercise or receive and retain, as applicable
pursuant to Section 4(a), shall cease, and all such rights shall thereupon
become vested in Secured Party, who shall thereupon have the sole right to
exercise such voting or other consensual rights and to receive and retain such
cash dividends and distributions. Each Pledgor shall execute and deliver (or
cause to be executed and delivered) to Secured Party all such proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights which it is entitled to
exercise and to receive the dividends and distributions that it is entitled to
receive and retain pursuant to the preceding sentence.
5. Representations and Warranties. Pledgors represent,
warrant, and covenant as follows:
(a) Each Pledgor has taken all steps it deems necessary
or appropriate to be informed on a continuing basis of changes or potential
changes affecting the Collateral (including rights of conversion and exchange,
rights to subscribe, payment of dividends, reorganizations or recapitalization,
tender offers and voting rights), and Pledgor agrees that Secured Party shall
have no responsibility or liability for informing Pledgors of any such changes
or potential changes or for taking any action or omitting to take any action
with respect thereto;
(b) All information herein or hereafter supplied to
Secured Party by or on behalf of Pledgors in writing with respect to the
Collateral is, or in the case of information hereafter supplied will be,
accurate and complete in all material respects;
(c) Each Pledgor is and will be the sole legal and
beneficial owner of the Collateral (including the Pledged Shares and all other
Collateral acquired by Pledgors after the date hereof) free and clear of any
adverse claim, Lien, or other right, title, or interest of any party (other than
the interests of Secured Party hereunder and the interests of the Bank Group
pursuant to the Bank Group Financing Documents as contemplated by the
Intercreditor Agreement);
(d) This Agreement, and the delivery to Secured Party
of the Pledged Shares representing Collateral (or the delivery to all Holders of
the Pledged Shares representing Collateral of the notification/instruction
referred to in Section 3 of this Agreement), creates a valid, perfected, and
security interests of the priority contemplated by
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the Intercreditor Agreement in one hundred percent (100%) of the Pledged Shares
in favor of Secured Party securing payment of the Secured Obligations, and all
actions necessary to achieve such perfection have been duly taken;
(e) Schedule A to this Agreement is true and correct
and complete in all material respects; without limiting the generality of the
foregoing: (i) all the Pledged Shares are in certificated form, and, except to
the extent registered in the name of Secured Party or its nominee pursuant to
the provisions of this Agreement or in the name of the Bank Group Agent pursuant
to the Bank Group Financing Documents as contemplated by the Intercreditor
Agreement, are registered in the name of Pledgors; and (ii) the Pledged Shares
as to each of the Issuers constitute at least the percentage of all the fully
diluted issued and outstanding shares of stock of such Issuer as set forth in
Schedule A to this Agreement;
(f) There are no presently existing Future Rights or
Proceeds owned by Pledgors, except as set forth in Schedule C hereto;
(g) The Pledged Shares have been duly authorized and
validly issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to
this Agreement nor the extensions of credit represented by the Secured
Obligations violates Regulation T, U or X of the Board of Governors of the
Federal Reserve System.
6. Further Assurances.
(a) Pledgors agree that from time to time, at the
expense of Pledgors, Pledgors will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
reasonably desirable, or that Secured Party may request, in order to perfect and
protect any security interests granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgors will: (i) at the request of Secured Party, mark
conspicuously each of their records pertaining to the Collateral with a legend,
in form and substance reasonably satisfactory to Secured Party, indicating that
such Collateral is subject to the security interests granted hereby; (ii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
reasonably desirable, or as Secured Party may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby; (iii)
allow inspection of the Collateral by Secured Party or Persons designated by
Secured Party; and (iv) appear in and defend any action or proceeding that may
affect Pledgors' title to or Secured Party's security interests in the
Collateral.
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(b) Pledgors hereby authorize Secured Party to file one
or more financing or continuation statements, and amendments thereto, relative
to all or any part of the Collateral without the signature of Pledgors where
permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(c) Pledgors will furnish to Secured Party, upon the
request of Secured Party: (i) a certificate executed by an authorized officer of
Pledgors, and dated as of the date of delivery to Secured Party, itemizing in
such detail as Secured Party may request, the Collateral which, as of the date
of such certificate, has been delivered to Secured Party by Pledgors pursuant to
the provisions of this Agreement; and (ii) such statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Secured Party may request.
7. Covenants of Pledgors. Each Pledgor shall:
(a) Perform each and every covenant in the Loan
Documents applicable to Pledgors;
(b) At all times keep at least one complete set of its
records concerning substantially all of the Collateral at its Chief Executive
Office as set forth in Schedule B hereto, and not change the location of its
Chief Executive Office or such records without giving Secured Party at least
thirty (30) days prior written notice thereof;
(c) To the extent it may lawfully do so, use its best
efforts to prevent the Issuers from issuing Future Rights or Proceeds, except
for cash dividends and other distributions, if any, that are not prohibited by
the terms of the Loan Agreement to be paid by any Issuer to Pledgors; and
(d) Upon receipt by any Pledgor of any material notice,
report, or other communication from any of the Issuers or any Holder relating to
all or any part of the Collateral, deliver such notice, report or other
communication to Secured Party as soon as possible, but in no event later than
five (5) days following the receipt thereof by any Pledgor.
8. Secured Party as Pledgors' Attorney-in-Fact.
(a) Pledgors hereby irrevocably appoint Secured Party
as Pledgors' attorney-in-fact, with full authority in the place and stead of
Pledgors and in the name of Pledgors, Secured Party or otherwise, from time to
time at Secured Party's discretion, to take any action and to execute any
instrument that Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (i) after the occurrence
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<PAGE> 9
and during the continuance of an Event of Default, to receive, endorse, and
collect all instruments made payable to Pledgors representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof to the extent permitted hereunder and to give full discharge for the
same and to execute and file governmental notifications and reporting forms;
(ii) to issue any notifications/instructions Secured Party deems necessary
pursuant to Section 3 of this Agreement; or (iii) to arrange for the transfer of
the Collateral on the books of any of the Issuers or any other Person to the
name of Secured Party or to the name of Secured Party's nominee.
(b) In addition to the designation of Secured Party as
Pledgors' attorney-in-fact in subsection (a), Pledgors hereby irrevocably
appoint Secured Party as Pledgors' agent and attorney-in-fact to make, execute
and deliver any and all documents and writings which may be necessary or
appropriate for approval of, or be required by, any regulatory authority located
in any city, county, state or country where Pledgors or any of the Issuers
engage in business, in order to transfer or to more effectively transfer any of
the Pledged Shares or otherwise enforce Secured Party's rights hereunder.
9. Remedies upon Default. Subject to the Loan Agreement and
the Intercreditor Agreement, upon the occurrence and during the continuance of
an Event of Default:
(a) Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (irrespective of whether the Code applies to the affected
items of Collateral), and Secured Party may also without notice (except as
specified below) sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange, broker's board or at any of Secured
Party's offices or elsewhere, for cash, on credit or for future delivery, at
such time or times and at such price or prices and upon such other terms as
Secured Party may deem commercially reasonable, irrespective of the impact of
any such sales on the market price of the Collateral. To the maximum extent
permitted by applicable law, Secured Party may be the purchaser of any or all of
the Collateral at any such sale and shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply all or
any part of the Secured Obligations as a credit on account of the purchase price
of any Collateral payable at such sale. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
any Pledgor, and each Pledgor hereby waives (to the extent permitted by law) all
rights of redemption, stay, or appraisal that it now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted. Each Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) calendar days notice to Pledgors of the time
and place of any public sale or the time after which a private sale is to be
made shall constitute reasonable notification. Secured Party shall not be
obligated to make any sale
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of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. To the maximum extent permitted
by law, each Pledgor hereby waives any claims against Secured Party arising
because the price at which any Collateral may have been sold at such a private
sale was less than the price that might have been obtained at a public sale,
even if Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree.
(b) Each Pledgor hereby agrees that any sale or other
disposition of the Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies, or other financial institutions in the
City of Los Angeles, California in disposing of property similar to the
Collateral shall be deemed to be commercially reasonable.
(c) Each Pledgor hereby acknowledges that the sale by
Secured Party of any Collateral pursuant to the terms hereof in compliance with
the Securities Act of 1933 as now in effect or as hereafter amended, or any
similar statute hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state securities
laws may require strict limitations as to the manner in which Secured Party or
any subsequent transferee of the Collateral may dispose thereof. Each Pledgor
acknowledges and agrees that in order to protect Secured Party's interest it may
be necessary to sell the Collateral at a price less than the maximum price
attainable if a sale were delayed or were made in another manner, such as a
public offering under the Securities Act. Each Pledgor has no objection to sale
in such a manner and agrees that Secured Party shall have no obligation to
obtain the maximum possible price for the Collateral. Without limiting the
generality of the foregoing, each Pledgor agrees that, upon the occurrence and
during the continuation of an Event of Default, Secured Party may, subject to
applicable law, from time to time attempt to sell all or any part of the
Collateral by a private placement, restricting the bidders and prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for distribution. In so doing, Secured Party may solicit
offers to buy the Collateral or any part thereof for cash, from a limited number
of investors deemed by Secured Party, in its reasonable judgment, to be
institutional investors or other responsible parties who might be interested in
purchasing the Collateral. If Secured Party shall solicit such offers, then the
acceptance by Secured Party of one of the offers shall be deemed to be a
commercially reasonable method of disposition of the Collateral.
(d) If Secured Party shall determine to exercise its
right to sell all or any portion of the Collateral pursuant to this Section,
each Pledgor agrees that, upon request of Secured Party, each Pledgor will, at
its own expense:
(i) use its best efforts to execute and deliver,
and cause the Issuers and the directors and officers thereof to execute and
deliver, all such instruments
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and documents, and to do or cause to be done all such other acts and things, as
may be necessary or, in the opinion of Secured Party, advisable to register such
Collateral under the provisions of the Securities Act, and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be furnished,
and to make all amendments and supplements thereto and to the related
prospectuses which, in the opinion of Secured Party, are necessary or advisable,
all in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(ii) use its best efforts to qualify the
Collateral under the state securities laws or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of the Collateral, as requested by
Secured Party;
(iii) cause the Issuers to make available to their
respective security holders, as soon as practicable, an earnings statement which
will satisfy the provisions of Section 11(a) of the Securities Act;
(iv) execute and deliver, or cause the officers
and directors of the Issuers to execute and deliver, to any person, entity or
governmental authority as Secured Party may choose, any and all documents and
writings which, in Secured Party's reasonable judgment, may be necessary or
appropriate for approval, or be required by, any regulatory authority located in
any city, county, state or country where Pledgors or the Issuers engage in
business, in order to transfer or to more effectively transfer the Pledged
Shares or otherwise enforce Secured Party's rights hereunder; and
(v) do or cause to be done all such other acts
and things as may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Each Pledgor acknowledges that there is no adequate remedy at law for failure by
it to comply with the provisions of this Section and that such failure would not
be adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
(e) EACH PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT
PERMITTED BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING
PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS
PROVIDED IN THIS SECTION; (i) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT
IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR
STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND
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(iii) EXCEPT AS SET FORTH IN SUBSECTION (a) OF THIS SECTION, ANY REQUIREMENT OF
NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.
10. Application of Proceeds. After the occurrence and during
the continuance of an Event of Default, any cash held by Secured Party as
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in Section 9 shall be applied from time to time by
Secured Party as provided in the Loan Agreement.
11. Duties of Secured Party. The powers conferred on Secured
Party hereunder are solely to protect its interests in the Collateral and shall
not impose on it any duty to exercise such powers. Except as provided in Section
9-207 of the Code, Secured Party shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT,
ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY
OTHER COURT IN WHICH SECURED PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 12.
13. Amendments; Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by any Pledgor herefrom shall in
any event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part of
Secured Party to exercise, and no delay in exercising any right under this
Agreement, any other Loan Document, or otherwise with respect to any of the
Secured Obligations, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured Obligations preclude any other or
further exercise
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thereof or the exercise of any other right. The remedies provided for in this
Agreement or otherwise with respect to any of the Secured Obligations are
cumulative and not exclusive of any remedies provided by law.
14. Notices. Unless otherwise specifically provided herein,
any notice or other communication herein required or permitted to be given shall
be in writing and shall be delivered in the manner set forth in the Loan
Agreement.
15. Continuing Security Interests. This Agreement shall create
continuing security interests in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement; (ii) be binding upon each Pledgor and
its successors and assigns; and (iii) inure to the benefit of Secured Party and
its successors, transferees, and assigns. Upon the indefeasible payment in full
of the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, the security interests
granted herein shall automatically terminate and all rights to the Collateral
shall revert to Pledgors. Upon any such termination, Secured Party will, at
Pledgors' expense, execute and deliver to Pledgors such documents as Pledgors
shall reasonably request to evidence such termination. Such documents shall be
prepared by Pledgors and shall be in form and substance reasonably satisfactory
to Secured Party.
16. Security Interests Absolute. To the maximum extent
permitted by law, all rights of Secured Party, all security interests hereunder,
and all obligations of Pledgors hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of any of
the Secured Obligations or any other agreement or instrument relating thereto,
including any of the Loan Documents;
(b) any change in the time, manner, or place of payment
of, or in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any
other collateral, or any release or amendment or waiver of or consent to
departure from any guaranty for all or any of the Secured Obligations; or
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(d) any other circumstances that might otherwise
constitute a defense available to, or a discharge of, Pledgors.
To the maximum extent permitted by law, Pledgors hereby waive any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgors; or (B) pursue any other remedy in Secured Party's power whatsoever.
17. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement or be given any substantive effect.
18. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
19. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.
20. Waiver of Marshaling. Each Pledgor and Secured Party
acknowledges and agrees that in exercising any rights under or with respect to
the Collateral: (i) Secured Party is under no obligation to marshal any
Collateral; (ii) may, in its absolute discretion, realize upon the Collateral in
any order and in any manner it so elects; and (iii) may, in its absolute
discretion, apply the proceeds of any or all of the Collateral to the Secured
Obligations in any order and in any manner it so elects. Each Pledgor and
Secured Party waive any right to require the marshaling of any of the
Collateral.
21. WAIVER OF JURY TRIAL. PLEDGORS AND SECURED PARTY HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGORS AND SECURED PARTY
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
22. Waivers.
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(a) To the maximum extent permitted by law, Pledgors
hereby waive: (i) notice of acceptance hereof; (ii) notice of any loans or other
financial accommodations made or extended under the Loan Agreement, or the
creation or existence of any Obligations; (iii) notice of the amount of the
Obligations, subject, however, to Pledgors' right to make inquiry of Secured
Party to ascertain the amount of the Obligations at any reasonable time; (iv)
notice of any adverse change in the financial condition of Borrower or of any
other fact that might increase Pledgors' risk hereunder; (v) notice of
presentment for payment, demand, protest, and notice thereof as to any
instrument among the Loan Documents; (vi) notice of any unmatured Event of
Default or Event of Default under the Loan Agreement; and (vii) all other
notices (except if such notice is specifically required to be given to Pledgors
under this Agreement) and demands to which Pledgors might otherwise be entitled.
(b) To the fullest extent permitted by applicable law,
Pledgors waive the right by statute or otherwise to require Secured Party to
institute suit against Borrower or to exhaust any rights and remedies which
Secured Party has or may have against Borrower. Pledgors further waive any
defense arising by reason of any disability or other defense (other than the
defense that the Obligations shall have been fully and finally indefeasibly
paid) of Borrowers or by reason of the cessation from any cause (other than that
the Obligations shall have been fully and finally indefeasibly paid) whatsoever
of the liability of Borrowers in respect thereof.
(c) To the maximum extent permitted by law, Pledgors
hereby waive: (i) any rights to assert against Secured Party any defense (legal
or equitable), set-off, counterclaim, or claim which Pledgors may now or at any
time hereafter have against Borrowers or any other party liable to Secured Party
on account of or with respect to the Obligations; (ii) any defense, set-off,
counterclaim, or claim, of any kind or nature, arising directly or indirectly
from the present or future sufficiency, validity, or enforceability of the
Obligations; (iii) any defense arising by reason of any claim or defense based
upon an election of remedies by Secured Party including, to the extent
applicable, the provisions of Sections 580d and 726 of the California Code of
Civil Procedure, or any similar law of California or any other jurisdiction;
(iv) the benefit of any statute of limitations affecting Pledgors' liability
hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law, Pledgors
hereby waive any right of subrogation Pledgors have or may have as against
Borrower with respect to the Obligations. In addition, Pledgors hereby waive any
right to proceed against Borrowers, now or hereafter, for contribution,
indemnity, reimbursement, or any other suretyship rights and claims
(irrespective of whether direct or indirect, liquidated or contingent), with
respect to the Obligations. Pledgors also hereby waive any right to proceed or
to seek recourse against or with respect to any property or asset of Borrower.
Pledgors hereby agree that, in light of the waivers contained in this Section,
Pledgors shall not be deemed to be a "creditor" (as that term
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is defined in the Bankruptcy Code or otherwise) of Borrower, whether for
purposes of the application of Sections 547 or 550 of the United States
Bankruptcy Code or otherwise.
(e) If any of the Secured Obligations at any time are
secured by a mortgage or deed of trust upon real property, Secured Party may
elect, in its sole discretion, upon a default with respect to the Secured
Obligations, to foreclose such mortgage or deed of trust judicially or
nonjudicially in any manner permitted by law, before or after enforcing this
Agreement, without diminishing or affecting the liability of Pledgors hereunder.
Pledgors understand that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by
Secured Party nonjudicially to foreclose such a mortgage or deed of trust
probably would have the effect of impairing or destroying rights of subrogation,
reimbursement, contribution, or indemnity of Pledgors against Borrower or
guarantors or sureties, and (b) absent the waiver given by Pledgors herein, such
an election might estop Secured Party from enforcing this Agreement against
Pledgors. Understanding the foregoing, and understanding that Pledgors are
hereby relinquishing a defense to the enforceability of this Agreement, Pledgors
hereby waive any right to assert against Secured Party any defense to the
enforcement of this Agreement, whether denominated "estoppel" or otherwise,
based on or arising from an election by Secured Party nonjudicially to foreclose
any such mortgage or deed of trust. Pledgors understand that the effect of the
foregoing waiver may be that Pledgors may have liability hereunder for amounts
with respect to which Pledgors may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Borrower or guarantors or
sureties. Pledgors also agree that the "fair market value" provisions of Section
580a of the California Code of Civil Procedure shall have no applicability with
respect to the determination of Pledgors' liability under this Agreement.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGORS HEREBY WAIVE, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS
2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND
2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS
580a, 580b, 580c, 580d, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF
TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGORS HEREBY WAIVE ALL RIGHTS
AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY SECURED PARTY, EVEN
THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT
TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED PLEDGORS' RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL
16
<PAGE> 17
BY THE OPERATION OF SECTION 580d OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
17
<PAGE> 18
IN WITNESS WHEREOF, Pledgors have caused this Agreement to be
duly executed and delivered by their officers thereunto duly authorized as of
the date first written above.
STORMEDIA FOREIGN SALES CORPORATION,
a United States Virgin Islands corporation
By: /s/
------------------------------------
Title:
---------------------------------
STORMEDIA INTERNATIONAL LTD.,
a Cayman Islands corporation
By: /s/
------------------------------------
Title:
---------------------------------
STRATES PTE. LTD,
a Singapore corporation
By: /s/
------------------------------------
Title:
---------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/
------------------------------------
Title:
---------------------------------
18
<PAGE> 19
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: _____________________
Pledged Shares
<TABLE>
<CAPTION>
Former Name, if Pledgor's
Issuer Number of Certificate any, in which Percentage Jurisdiction of
Shares Class Number(s) Certificate Issued Ownership Incorporation
------ ----- --------- ------------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
AAA 100%
BBB 100%
CCC 100%
DDD 100%
EEE 100%
</TABLE>
19
<PAGE> 20
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: ____________________________, a ________ corporation
Address of Chief Executive Office:
<PAGE> 21
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds: [None.]
<PAGE> 1
EXHIBIT 10.21
PATENT SECURITY AGREEMENT
(GUARANTORS)
THIS PATENT SECURITY AGREEMENT (this "Agreement"), dated as of
May 29, 1998 is executed and delivered by each of the undersigned Subsidiaries
of STORMEDIA INCORPORATED, a Delaware Corporation (each of the undersigned a
"Debtor" and collectively "Debtors"), and by FOOTHILL CAPITAL CORPORATION, a
California corporation, as agent for the "Lenders" from time to time party to
the Loan Agreement, (in such capacity, "Secured Party").
RECITALS
A. Borrowers and Secured Party are, contemporaneously
herewith, entering into that certain Loan and Security Agreement ("Loan
Agreement") of even date herewith;
B. In order to induce Secured Party to extend financial
accommodations to Borrowers pursuant to the Loan Agreement, and in consideration
thereof, and in consideration of any loans or other financial accommodations at
any time extended by Secured Party to Borrowers, whether pursuant to the Loan
Agreement or otherwise, each of the Guarantors has agreed, jointly and
severally, to guaranty the Guarantied Obligations; and
C. Each Debtor is a subsidiary of one or more of Borrowers
and each Guarantor derives substantial direct economic benefits from the
Borrowers by virtue of the extensions of credit by Secured Party as provided in
the Loan Agreement;
D. Pursuant to the Guarantees and as one of the conditions
precedent to the obligations of Secured Party under the Loan Agreement, Debtors
have agreed to execute and deliver this Agreement to Secured Party for filing
with the United States Patent and Trademark Office and with any other relevant
recording systems in any domestic or foreign jurisdiction, and as further
evidence of and to effectuate Secured Party's existing security interests in the
patents and other general intangibles described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtors hereby agree in favor of
Secured Party as follows:
1. Definitions; Interpretation.
(a) Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
-1-
<PAGE> 2
"Borrowers" shall mean StorMedia Corporation, a Delaware
corporation and Akashic Memories Corporation, a California Corporation.
"Bridge Term Secured Obligations" means those obligations of the
Guarantors under the Guaranty that relate to the Bridge Term Loan Obligations.
"Event of Default" means any Event of Default under the Loan
Agreement.
"Guarantees" shall have the meaning ascribed thereto in the Loan
Agreement.
"Guarantied Obligations" shall have the meaning ascribed thereto
in the Guarantees.
"Other Secured Obligations" means the Secured Obligations other
than the Bridge Term Loan Secured Obligations.
"Patent Collateral" has the meaning set forth in Section 2.
"Patents" has the meaning set forth in Section 2.
"Proceeds" means whatever is receivable or received from or upon
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Patent Collateral, including "proceeds"
as defined at UCC Section 9306, and all proceeds of proceeds. Proceeds shall
include (i) any and all accounts, chattel paper, instruments, general
intangibles, cash and other proceeds, payable to or for the account of Debtors,
from time to time in respect of any of the Patent Collateral, (ii) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to or for the
account of Debtors from time to time with respect to any of the Patent
Collateral, (iii) any and all claims and payments (in any form whatsoever) made
or due and payable to Debtors from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Patent Collateral by any Person acting under color of governmental
authority, and (iv) any and all other amounts from time to time paid or payable
under or in connection with any of the Patent Collateral or for or on account of
any damage or injury to or conversion of any Patent Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and any
successor thereto.
"Secured Obligations" shall mean all liabilities, obligations, or
undertakings owing by Guarantors to Secured Party of any kind or description
arising out of or outstanding under, advanced or issued pursuant to, or
evidenced by the Guaranty, the other Loan Documents, or this Agreement,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest that accrues after the filing of a case under
-2-
<PAGE> 3
the Bankruptcy Code) and any and all costs, fees (including attorneys fees), and
expenses which any Guarantor is required to pay pursuant to any of the
foregoing, by law, or otherwise.
"United States" and "U.S." each mean the United States of
America.
(b) Terms Defined in UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
ascribed to them in the UCC.
(c) Interpretation. In this Agreement, except to the extent
the context otherwise requires:
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto, respectively, and
to a subsection or a clause is, unless otherwise stated, a reference to
a subsection or a clause of the Section or subsection in which the
reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder"
and the like mean and refer to this Agreement as a whole and not merely
to the specific Section, subsection, paragraph or clause in which the
respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and
other modifications thereto.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred
to.
(vii) Any captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
(viii) Terms defined in the Loan Agreement and not
otherwise defined herein shall have the respective meanings assigned to
them in the Loan Agreement.
-3-
<PAGE> 4
(ix) In the event of any actual, irreconcilable conflict
between the terms and provisions of this Agreement and the Loan
Agreement, the terms and provisions of the Loan Agreement shall control
and govern; provided, however, that the inclusion herein of additional
obligations on the part of the Debtors and supplemental rights and
remedies in favor of Secured Party (whether under California law or
applicable federal law), in each case in respect of the Patent
Collateral, shall not be deemed a conflict with the Loan Agreement.
2. Security Interests.
(a) Assignment and Grant of Security Interests.
(i) As security for the payment and performance of the
Bridge Term Secured Obligations, Debtors hereby assign, transfer, and
convey to Secured Party, and hereby grant a continuing security interest
to Secured Party in, all of Debtors' right, title and interest in, to
and under the following property, whether now existing or hereafter
acquired or arising (collectively, the "Patent Collateral"):
(a) all letters patent of the U.S. or any other
country, all registrations and recordings thereof, and all applications
for letters patent of the U.S. or any other country, owned, held or used
by Debtors in whole or in part, including all existing U.S. patents and
patent applications of Debtors which are described in Schedule A hereto,
as the same may be amended or supplemented pursuant hereto from time to
time, and together with and including all patent licenses held by
Debtors (unless otherwise prohibited by any license or related licensing
agreement under circumstances where the granting of the security
interest would have the effect under applicable law of the termination
or permitting termination of the license for breach and where the
licensor, other than any affiliate of Debtors, has elected such
termination remedy), together with all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof
and the inventions disclosed therein, and all rights corresponding
thereto throughout the world, including the right to make, use, lease,
sell and otherwise transfer the inventions disclosed therein, and all
proceeds thereof, including all license royalties and proceeds of
infringement suits (collectively, the "Patents");
(b) all claims, causes of action and rights to
sue for past, present and future infringement or unconsented use of any
of the Patents and all rights arising therefrom and pertaining thereto;
(c) all general intangibles (as defined in the
UCC) and all intangible intellectual or other similar property of
Debtors of any kind or nature, whether now owned or hereafter acquired
or developed, associated with or arising out of any of the Patents and
not otherwise described above; and
-4-
<PAGE> 5
(d) all products and Proceeds of any and all of
the foregoing.
(ii) As security for the payment and performance of the
Other Secured Obligations, Debtors hereby assign, transfer, and convey to
Secured Party, and hereby grant a continuing security interest to Secured Party
in, all of Debtors's right, title and interest in, to and under the following
property, whether now existing or hereafter acquired or arising (collectively,
the "Patent Collateral"):
(a) all letters patent of the U.S. or any other
country, all registrations and recordings thereof, and all applications
for letters patent of the U.S. or any other country, owned, held or used
by Debtors in whole or in part, including all existing U.S. patents and
patent applications of Debtors which are described in Schedule A hereto,
as the same may be amended or supplemented pursuant hereto from time to
time, and together with and including all patent licenses held by
Debtors (unless otherwise prohibited by any license or related licensing
agreement under circumstances where the granting of the security
interest would have the effect under applicable law of the termination
or permitting termination of the license for breach and where the
licensor, other than any affiliate of Debtors, has elected such
termination remedy), together with all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof
and the inventions disclosed therein, and all rights corresponding
thereto throughout the world, including the right to make, use, lease,
sell and otherwise transfer the inventions disclosed therein, and all
proceeds thereof, including all license royalties and proceeds of
infringement suits (collectively, the "Patents");
(b) all claims, causes of action and rights to
sue for past, present and future infringement or unconsented use of any
of the Patents and all rights arising therefrom and pertaining thereto;
(c) all general intangibles (as defined in the
UCC) and all intangible intellectual or other similar property of
Debtors of any kind or nature, whether now owned or hereafter acquired
or developed, associated with or arising out of any of the Patents and
not otherwise described above; and
(d) all products and Proceeds of any and all of
the foregoing.
(b) Continuing Security Interests. Debtors agree that this
Agreement shall create continuing security interests in the Patent Collateral
which shall remain in effect until terminated in accordance with Section 16.
3. Further Assurances; Appointment of Secured Party as
Attorney-in-Fact. Debtors at their expense shall execute and deliver, or cause
to be executed and delivered, to Secured Party any and all documents and
instruments, in form and substance satisfactory to
-5-
<PAGE> 6
Secured Party, and take any and all action, which Secured Party may reasonably
request from time to time, to perfect and continue perfected, maintain the
priority of or provide notice of Secured Party's security interests in the
Patent Collateral and to accomplish the purposes of this Agreement. Secured
Party shall have the right to, in the name of Debtors, or in the name of Secured
Party or otherwise, without notice to or assent by Debtors, and Debtors hereby
irrevocably constitute and appoint Secured Party (and any of Secured Party's
officers or employees or agents designated by Secured Party) as Debtors' true
and lawful attorney-in-fact with full power and authority, (i) to sign the name
of Debtors on all or any of such documents or instruments and perform all other
acts that Secured Party deems necessary or advisable in order to perfect or
continue perfected, maintain the priority or enforceability of or provide notice
of Secured Party's security interests in, the Patent Collateral, and (ii) to
execute any and all other documents and instruments, and to perform any and all
acts and things for and on behalf of Debtors, which Secured Party may deem
necessary or advisable to maintain, preserve and protect the Patent Collateral
and to accomplish the purposes of this Agreement, including (A) after the
occurrence and during the continuance of any Event of Default, to defend,
settle, adjust or institute any action, suit or proceeding with respect to the
Patent Collateral, (B) to assert or retain any rights under any license
agreement for any of the Patent Collateral, including any rights of Debtors
arising under Section 365(n) of the Bankruptcy Code, and (C) after the
occurrence and during the continuance of any Event of Default, to execute any
and all applications, documents, papers and instruments for Secured Party to use
the Patent Collateral, to grant or issue any exclusive or non-exclusive license
with respect to any Patent Collateral (it being understood that so long as no
Event of Default has occurred and is continuing, Debtors may grant or issue
licenses in the ordinary course of business with respect to the Patent
Collateral), and to assign, convey or otherwise transfer title in or dispose of
the Patent Collateral. The power of attorney set forth in this Section 3, being
coupled with an interest, is irrevocable so long as this Agreement shall not
have terminated in accordance with Section 16.
Nothing in this Agreement shall obligate Debtors to commence any
suit, proceeding or other action for infringement of any of the Patents that are
not material to the business of Debtors.
4. Representations and Warranties. Debtors represent and
warrant to Secured Party as follows:
(a) No Other Patents. A true and correct list of all of
the existing Patents owned, held (whether pursuant to a license or otherwise) or
used by Debtors, in whole or in part, is set forth in Schedule A.
(b) Validity. Each of the Patents listed on Schedule A
is subsisting and has not been adjudged invalid or unenforceable, in whole or in
part, all maintenance fees required to be paid on account of any Patents have
been timely paid for maintaining such Patents in force, and, to the best of
Debtors' knowledge, each of the Patents is valid and enforceable.
-6-
<PAGE> 7
(c) Ownership of Patent Collateral; No Violation. (i)
Debtors have rights in and good title to the existing Patent Collateral, (ii)
with respect to the Patent Collateral shown on Schedule A hereto as owned by
them, Debtors are the sole and exclusive owners thereof, free and clear of any
Liens and rights of others (other than the security interests created hereunder
and the interests of the Bank Group pursuant to the Bank Group Financing
Documents as contemplated by the Intercreditor Agreement), including licenses,
shop rights and covenants by Debtors not to sue third persons and (iii) with
respect to any Patent for which either Debtor is either a licensor or a licensee
pursuant to a license or licensee agreement regarding such Patent, each such
license or licensing agreement is in full force and effect, Debtors are not in
default of any of their obligations thereunder and, other than the parties to
such licenses or licensing agreements, no other Person is known by Debtors to
have any rights in or to any of the Patent Collateral. To the best of Debtors'
knowledge, the past, present and contemplated future use of the Patent
Collateral by Debtors has not, does not and will not infringe upon or violate
any right, privilege or license agreement of or with any other Person.
(d) No Infringement. To the best of Debtors' knowledge,
no material infringement or unauthorized use presently is being made of any of
the Patent Collateral by any Person.
(e) Powers. Debtors have the unqualified right, power
and authority to pledge and to grant to Secured Party security interests in all
of the Patent Collateral pursuant to this Agreement, and to execute, deliver and
perform their obligations in accordance with the terms of this Agreement,
without the consent or approval of any other Person except as already obtained.
5. Covenants. So long as any of the Secured Obligations
remain unsatisfied, Debtors agree that they will comply with all of the
covenants, terms and provisions of this Agreement, the Loan Agreement and the
other Loan Documents, and Debtors will promptly give Secured Party written
notice of the occurrence of any event that could have a material adverse effect
on any of the Patents or the Patent Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Patents for which
Debtors are licensees.
6. Future Rights. Except as otherwise expressly agreed to in
writing by Secured Party, for so long as any of the Secured Obligations shall
remain outstanding, or, if earlier, until Secured Party shall have released or
terminated, in whole but not in part, its interest in the Patent Collateral, if
and when Debtors shall obtain rights to any new patentable inventions, or become
entitled to the benefit of any Patent, or any reissue, division, continuation,
renewal, extension or continuation-in-part of any Patent or Patent Collateral or
any improvement thereof (whether pursuant to any license or otherwise), the
provisions of Section 2 shall automatically apply thereto and Debtors shall give
to Secured Party prompt notice thereof. Debtors shall do all things deemed
necessary or advisable by Secured Party to ensure the validity, perfection,
priority and enforceability of the security interests of Secured Party in such
future acquired Patent Collateral.
-7-
<PAGE> 8
Debtors hereby authorize Secured Party to modify, amend or supplement the
Schedules hereto and to re-execute this Agreement from time to time on Debtors'
behalf and as its attorney-in-fact to include any future patents which are or
become Patent Collateral and to cause such re-executed Agreement or such
modified, amended or supplemented Schedules to be filed with the PTO.
7. Remedies. Subject to the terms of the Loan Agreement and
Intercreditor Agreement, Secured Party shall have all rights and remedies
available to it under the Loan Agreement and applicable law (which rights and
remedies are cumulative) with respect to the security interests in any of the
Patent Collateral or any other Collateral. Debtors agree that such rights and
remedies include the right of Secured Party as a secured party to sell or
otherwise dispose of its Collateral after default, pursuant to UCC Section 9504.
Debtors agree that Secured Party shall at all times have such royalty free
licenses, to the extent permitted by law, for any Patent Collateral that is
reasonably necessary to permit the exercise of any of Secured Party's rights or
remedies upon or after the occurrence of an Event of Default with respect to
(among other things) any tangible asset of Debtors in which Secured Party has a
security interest, including Secured Party's rights to sell inventory, tooling
or packaging which is acquired by Debtors (or their successors, assignees or
trustees in bankruptcy). In addition to and without limiting any of the
foregoing, upon the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right but shall in no way be obligated to
bring suit, or to take such other action as Secured Party deems necessary or
advisable, in the name of Debtors or Secured Party, to enforce or protect any of
the Patent Collateral, in which event Debtors shall, at the request of Secured
Party, do any and all lawful acts and execute any and all documents required by
Secured Party in aid of such enforcement. To the extent that Secured Party shall
elect not to bring suit to enforce such Patent Collateral, upon, during, or
after the occurrence of an Event of Default, Debtors agree to use all reasonable
measures and its diligent efforts, whether by action, suit, proceeding or
otherwise, to prevent the infringement, misappropriation or violations thereof
by others and for that purpose agrees diligently to maintain any action, suit or
proceeding against any Person necessary to prevent such infringement,
misappropriation or violation.
8. Binding Effect. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Debtors and Secured Party and
their respective successors and assigns.
9. Notices. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
10. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the security interests
hereunder in respect of any Patent Collateral are governed by federal law, in
which case such choice of California law shall not be deemed to deprive Secured
Party of such rights and remedies as may be available under federal law.
-8-
<PAGE> 9
11. Amendment. Neither this Agreement nor any provision hereof
may be modified, amended or waived except by the written agreement of the
parties, as provided in the Loan Agreement. Notwithstanding the foregoing,
Secured Party may re-execute this Agreement or modify, amend or supplement the
Schedules hereto as provided in Section 6 hereof.
12. Severability. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
13. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
14. Loan Agreement. Debtors acknowledge that the rights and
remedies of Secured Party with respect to the security interests in the Patent
Collateral granted hereby are more fully set forth in the Loan Agreement and all
such rights and remedies are cumulative.
15. No Inconsistent Requirements. Debtors acknowledge that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
Debtors agree that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
16. Termination. Upon the indefeasible payment in full of the
Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, this Agreement shall
terminate and Secured Party shall execute and deliver such documents and
instruments and take such further action reasonably requested by Debtors and at
Debtors' expense as shall be necessary to evidence termination of the security
interests granted by Debtors to Secured Party hereunder.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
STRATES SDN. BHD.,
a Malaysian corporation
By: /s/
------------------------------------
Title:
---------------------------------
STORMEDIA FOREIGN SALES CORPORATION,
a United States Virgin Islands corporation
By: /s/
------------------------------------
Title:
---------------------------------
STORMEDIA INTERNATIONAL LTD.,
a Cayman Islands corporation
By: /s/
------------------------------------
Title:
---------------------------------
STRATES PTE. LTD,
a Singapore corporation
By: /s/
------------------------------------
Title:
---------------------------------
-10-
<PAGE> 11
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On May __, 1998, before me, ______________________________, Notary
Public, personally appeared ______________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/
--------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On May __, 1998 before me, ______________________________, Notary
Public, personally appeared ______________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------
Signature
[SEAL]
<PAGE> 12
SCHEDULE A
to the Patent Security Agreement
United States Patents
and Patent Applications
<TABLE>
<CAPTION>
U.S. Patent No. or
Patent Application No. Title Issue Date
- ---------------------- ----- ----------
<S> <C> <C>
</TABLE>
A-1.
<PAGE> 1
EXHIBIT 10.22
TRADEMARK SECURITY AGREEMENT
(GUARANTORS)
THIS TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of
May 29, 1998 is executed and delivered by each of the undersigned Subsidiaries
of STORMEDIA INCORPORATED, a Delaware Corporation (each of the undersigned a
"Debtor" and collectively "Debtors"), and by FOOTHILL CAPITAL CORPORATION, a
California corporation, as agent for the Lenders as time to time party to the
Loan Agreement, (in such capacity "Foothill"), in light of the following:
RECITALS
A. Borrowers and Foothill are, contemporaneously herewith,
entering into that certain Loan and Security Agreement ("Loan Agreement") of
even date herewith;
B. In order to induce Foothill to extend financial
accommodations to Borrowers pursuant to the Loan Agreement, and in consideration
thereof, and in consideration of any loans or other financial accommodations at
any time extended by Foothill to Borrowers, whether pursuant to the Loan
Agreement or otherwise, each of the Guarantors has agreed, jointly and
severally, to guaranty the Guarantied Obligations; and
C. Each Debtor is a subsidiary of one or more of Borrowers
and each Guarantor derives substantial direct economic benefits from the
Borrowers by virtue of the extensions of credit by Foothill as provided in the
Loan Agreement;
D. Pursuant to the Guarantees and as one of the conditions
precedent to the obligations of Foothill under the Loan Agreement, Debtors have
agreed to execute and deliver this Agreement to Foothill for filing with the PTO
and with any other relevant recording systems in any domestic jurisdiction, and
as further evidence of and to effectuate Foothill's existing security interests
in the trademarks and other general intangibles described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtors hereby agree in favor of
Foothill as follows:
1. Definitions; Interpretation.
<PAGE> 2
(a) Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings:
"Bridge Term Loan Secured Obligations" means those obligations of
the Guarantors under the Guaranty that relate to the Bridge Term Loan
Obligations.
"Guarantied Obligations" shall have the meaning ascribed thereto
in the Guarantees.
"Debtors" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Other Secured Obligations" means the Secured Obligations other
than the Bridge Term Loan Secured Obligations.
"Proceeds" means whatever is receivable or received from or upon
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined at UCC Section 9306, all insurance proceeds and all
proceeds of proceeds. Proceeds shall include (i) any and all accounts, chattel
paper, instruments, general intangibles, cash and other proceeds, payable to or
for the account of Debtors, from time to time in respect of any of the Trademark
Collateral, (ii) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to or for the account of Debtors from time to time with respect
to any of the Trademark Collateral, (iii) any and all claims and payments (in
any form whatsoever) made or due and payable to Debtors from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Trademark Collateral by any Person acting
under color of governmental authority, and (iv) any and all other amounts from
time to time paid or payable under or in connection with any of the Trademark
Collateral or for or on account of any damage or injury to or conversion of any
Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and any
successor thereto.
"Secured Obligations" shall mean all liabilities, obligations, or
undertakings owing by Guarantors to Secured Party of any kind or description
arising out of or outstanding under, advanced or issued pursuant to, or
evidenced by the Guaranty, the other Loan Documents, or this Agreement,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest that accrues after the filing of a case under the Bankruptcy Code) and
any and all costs, fees
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<PAGE> 3
(including attorneys fees), and expenses which any Guarantor is required to pay
pursuant to any of the foregoing, by law, or otherwise.
"Trademark Collateral" has the meaning set forth in Section 2.
"Trademarks" has the meaning set forth in Section 2.
"United States" and "U.S." each mean the United States of
America.
(b) Terms Defined in UCC. Where applicable and except
as otherwise defined herein, terms used in this Agreement shall have the
meanings assigned to them in the UCC.
(c) Interpretation. In this Agreement, except to the
extent the context otherwise requires:
(i) Any reference to a Section or a Schedule is
a reference to a section hereof, or a schedule hereto, respectively, and
to a subsection or a clause is, unless otherwise stated, a reference to
a subsection or a clause of the Section or subsection in which the
reference appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a whole and
not merely to the specific Section, subsection, paragraph or clause in
which the respective word appears.
(iii) The meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms
defined.
(iv) The words "including," "includes" and
"include" shall be deemed to be followed by the words "without
limitation."
(v) References to agreements and other
contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto.
(vi) References to statutes or regulations are to
be construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred
to.
(vii) Any captions and headings are for
convenience of reference only and shall not affect the construction of
this Agreement.
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<PAGE> 4
(viii) Terms defined in the Loan Agreement and not
otherwise defined herein shall have the respective meanings assigned to
them in the Loan Agreement and the rules of construction set forth in
Section 1 of the Loan Agreement shall likewise govern this Agreement.
(ix) In the event of any actual, irreconcilable
conflict between the terms and provisions of this Agreement and the Loan
Agreement, the terms and provisions of the Loan Agreement shall control
and govern; provided, however, that the inclusion herein of additional
obligations on the part of Debtors and supplemental rights and remedies
in favor of Foothill (whether under federal law or applicable California
law), in each case in respect of the Trademark Collateral, shall not be
deemed a conflict in the Loan Agreement.
2. Security Interests.
(a) Assignment and Grant of Security Interests.
(i) To secure the Bridge Term Loan Secured
Obligations, Debtors hereby grant, assign, transfer and convey to
Foothill a continuing security interest in all of Debtors' right, title
and interest in and to the following property, whether now existing or
hereafter acquired or arising and whether registered or unregistered
(collectively, the "Trademark Collateral"):
(a) all state (including common law) and
federal trademarks, service marks and trade names, corporate names,
company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, together with and including all licenses therefor held by
Debtors (unless otherwise prohibited by any license or related licensing
agreement under circumstances where the granting of the security
interest would have the effect under applicable law of terminating or
permitting termination of the license for breach (unless the licensor
has consented to such grant or waived such termination remedy)), and all
registrations and recordings thereof, and all applications filed or to
be filed in connection therewith, including registrations and
applications in the PTO, any State of the United States and all
extensions or renewals thereof, including without limitation any of the
foregoing identified on Schedule A hereto (as the same may be amended,
modified or supplemented from time to time), and the right (but not the
obligation) to register claims under any state or federal trademark law
or regulation and to apply for, renew and extend any of the same, to sue
or bring opposition or cancellation proceedings in the name of Debtors
or in the name of Foothill for past, present or future infringement or
unconsented use thereof, and all rights arising therefrom throughout the
world (collectively, the "Trademarks");
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<PAGE> 5
(b) all claims, causes of action and
rights to sue for past, present or future infringement or unconsented
use of any Trademarks and all rights arising therefrom and pertaining
thereto;
(c) all general intangibles related to or
arising out of any of the Trademarks and all the goodwill of Debtors'
businesses symbolized by the Trademarks or associated therewith and
associated product lines to the extent embodying the Trademarks; and
(d) all products and Proceeds of any and
all of the foregoing.
(ii) To secure the Other Secured Obligations,
Debtors hereby grant, assign, transfer and convey to Foothill a continuing
security interest in all of Debtors' right, title and interest in and to the
following property, whether now existing or hereafter acquired or arising and
whether registered or unregistered (collectively, the "Trademark Collateral"):
(a) all state (including common law) and
federal trademarks, service marks and trade names, corporate names,
company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, together with and including all licenses therefor held by
Debtors (unless otherwise prohibited by any license or related licensing
agreement under circumstances where the granting of the security
interest would have the effect under applicable law of terminating or
permitting termination of the license for breach (unless the licensor
has consented to such grant or waived such termination remedy)), and all
registrations and recordings thereof, and all applications filed or to
be filed in connection therewith, including registrations and
applications in the PTO, any State of the United States and all
extensions or renewals thereof, including without limitation any of the
foregoing identified on Schedule A hereto (as the same may be amended,
modified or supplemented from time to time), and the right (but not the
obligation) to register claims under any state or federal trademark law
or regulation and to apply for, renew and extend any of the same, to sue
or bring opposition or cancellation proceedings in the name of Debtors
or in the name of Foothill for past, present or future infringement or
unconsented use thereof, and all rights arising therefrom throughout the
world (collectively, the "Trademarks");
(b) all claims, causes of action and
rights to sue for past, present or future infringement or unconsented
use of any Trademarks and all rights arising therefrom and pertaining
thereto;
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<PAGE> 6
(c) all general intangibles related to or
arising out of any of the Trademarks and all the goodwill of Debtors'
businesses symbolized by the Trademarks or associated therewith; and
(d) all products and Proceeds of any and
all of the foregoing.
(b) Continuing Security Interest. Debtors agree that
this Agreement shall create a continuing security interest in the Trademark
Collateral which shall remain in effect until terminated in accordance with
Section 17.
3. Further Assurances; Appointment of Foothill as
Attorney-in-Fact. Debtors at their expense shall execute and deliver, or cause
to be executed and delivered, to Foothill any and all documents and instruments,
in form and substance reasonably satisfactory to Foothill, and take any and all
action, which Foothill may reasonably request from time to time, to perfect and
continue perfected, maintain the priority of or provide notice of Foothill's
security interest in the Trademark Collateral and to accomplish the purposes of
this Agreement. Foothill shall have the right, in the name of Debtors, or in the
name of Foothill or otherwise, without notice to or assent by Debtors, and
Debtors hereby irrevocably constitutes and appoints Foothill (and any of
Foothill's officers or employees or agents designated by Foothill) as Debtors'
true and lawful attorney-in-fact with full power and authority, (i) to sign the
names of Debtors on all or any of such documents or instruments and perform all
other acts that Foothill reasonably deems necessary or advisable in order to
perfect or continue perfected, maintain the priority or enforceability of or
provide notice of Foothill's security interest in, the Trademark Collateral, and
(ii) to execute any and all other documents and instruments, and to perform any
and all acts and things for and on behalf of Debtors, which Foothill reasonably
may deem necessary or advisable to maintain, preserve and protect the Trademark
Collateral and to accomplish the purposes of this Agreement, including (A) after
the occurrence and during the continuance of any Event of Default, to defend,
settle, adjust or institute any action, suit or proceeding with respect to the
Trademark Collateral, (B) to assert or retain any rights under any license
agreement for any of the Trademark Collateral, and (C) after the occurrence and
during the continuance of any Event of Default, to execute any and all
applications, documents, papers and instruments for Foothill to use the
Trademark Collateral, to grant or issue any exclusive or non-exclusive license
with respect to any Trademark Collateral, and to assign, convey or otherwise
transfer title in or dispose of the Trademark Collateral. The power of attorney
set forth in this Section 3, being coupled with an interest, is irrevocable so
long as this Agreement shall not have terminated in accordance with Section 17.
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<PAGE> 7
4. Representations and Warranties. Debtors represent and
warrant to Foothill, in each case to the best of its knowledge, information, and
belief, as follows:
(a) No Other Trademarks. Schedule A sets forth, as of
the Closing Date, a true and correct list of all of the existing Trademarks that
are registered, or for which any application for registration has been filed
with the PTO or any corresponding or similar trademark office of any other U.S.
jurisdiction, and that are owned or held (whether pursuant to a license or
otherwise) and used by Debtors.
(b) Trademarks Subsisting. Each of the Trademarks
listed in Schedule A is subsisting and has not been adjudged invalid or
unenforceable, in whole or in part, and, to the best of Debtors's knowledge,
each of the Trademarks is valid and enforceable.
(c) Ownership of Trademark Collateral; No Violation.
(i) Debtors have rights in and good and defensible title to the existing
Trademark Collateral, (ii) with respect to the Trademark Collateral shown on
Schedule A hereto as owned by it, Debtors are the sole and exclusive owners
thereof, free and clear of any Liens and rights of others (other than the
security interest created hereunder and the interests of the Bank Group
Financing Documents as contemplated by the Intercreditor Agreement and other
than Permitted Liens), including licenses, registered user agreements and
covenants by Debtors not to sue third persons, and (iii) with respect to any
Trademarks for which either Debtor is either a licensor or a licensee pursuant
to a license or licensee agreement regarding such Trademark, each such license
or licensing agreement is in full force and effect, Debtors are not in default
of any of its obligations thereunder and, other than the parties to such
licenses or licensing agreements, no other Person has any rights in or to any of
the Trademark Collateral. To the best of Debtors' knowledge, the past, present
and contemplated future use of the Trademark Collateral by Debtors has not, does
not and will not infringe upon or violate any right, privilege or license
agreement of or with any other Person.
(d) No Infringement. To the best of Debtors' knowledge,
no material infringement or unauthorized use presently is being made of any of
the Trademark Collateral by any Person.
(e) Powers. Debtors have the unqualified right, power
and authority to pledge and to grant to Foothill a security interest in all of
the Trademark Collateral pursuant to this Agreement, and to execute, deliver and
perform its obligations in accordance with the terms of this Agreement, without
the consent or approval of any other Person except as already obtained.
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<PAGE> 8
5. Covenants. So long as any of the Secured Obligations
remain unsatisfied, Debtors agree that it will comply with all of the covenants,
terms and provisions of this Agreement, the Loan Agreement and the other Loan
Documents, and Debtors will promptly give Foothill written notice of the
occurrence of any event that could have a material adverse effect on any of the
Trademarks or the Trademark Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Trademarks for
which either Debtor is a licensee.
6. Future Rights. Except as otherwise agreed in writing by
Foothill, for so long as any of the Secured Obligations shall remain
outstanding, or, if earlier, until Foothill shall have released or terminated,
in whole but not in part, its interest in the Trademark Collateral, if and when
either Debtor shall obtain rights to any new Trademarks, or any reissue, renewal
or extension of any Trademarks, the provisions of Section 2 shall automatically
apply thereto and Debtors shall give to Foothill prompt notice thereof. Debtors
shall do all things reasonably deemed necessary or advisable by Foothill to
ensure the validity, perfection, priority and enforceability of the security
interests of Foothill in such future acquired Trademark Collateral. Debtors
hereby authorize Foothill to modify, amend or supplement the Schedules hereto
and to re-execute this Agreement from time to time on Debtors' behalf and as its
attorney-in-fact to include any future Trademarks which are or become Trademark
Collateral and to cause such re-executed Agreement or such modified, amended or
supplemented Schedules to be filed with the PTO.
7. Foothill's Duties. Notwithstanding any provision contained
in this Agreement, Foothill shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to Debtors or
any other Person for any failure to do so or delay in doing so. Except for the
accounting for moneys actually received by Foothill hereunder or in connection
herewith, Foothill shall have no duty or liability to exercise or preserve any
rights, privileges or powers pertaining to the Trademark Collateral.
8. Remedies. Subject to the terms of the Loan Agreement and
the Intercreditor Agreement, from and after the occurrence and during the
continuation of an Event of Default, Foothill shall have all rights and remedies
available to it under the Loan Agreement and applicable law (which rights and
remedies are cumulative) with respect to the security interests in any of the
Trademark Collateral or any other Collateral. Debtors agrees that such rights
and remedies include the right of Foothill as a secured party to sell or
otherwise dispose of its Collateral after default, pursuant to UCC Section 9504.
Debtors agrees that Foothill shall at all times have such royalty-free licenses,
to the extent permitted by law, for any Trademark Collateral that is reasonably
necessary to permit the exercise of any of Foothill's rights or remedies upon or
after the occurrence of (and during the continuance of) an Event of Default with
respect to (among other things) any tangible asset of Debtors in which Foothill
has a security interest, including Foothill's rights to sell inventory, tooling
or packaging which is
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<PAGE> 9
acquired by Debtors (or its successors, assignees or trustees in bankruptcy). In
addition to and without limiting any of the foregoing, upon the occurrence and
during the continuance of an Event of Default, Foothill shall have the right but
shall in no way be obligated to bring suit, or to take such other action as
Foothill deems necessary or advisable, in the name of either Debtor or Foothill,
to enforce or protect any of the Trademark Collateral, in which event Debtors
shall, at the request of Foothill, do any and all lawful acts and execute any
and all documents required by Foothill in aid of such enforcement. To the extent
that Foothill shall elect not to bring suit to enforce such Trademark
Collateral, Debtors, in the exercise of their reasonable business judgment,
agree to use all reasonable measures and its diligent efforts, whether by
action, suit, proceeding or otherwise, to prevent the infringement,
misappropriation or violation thereof by others and for that purpose agrees
diligently to maintain any action, suit or proceeding against any Person
necessary to prevent such infringement, misappropriation or violation.
9. Binding Effect. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Debtors and Foothill and their
respective successors and assigns.
10. Notices. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
11. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the federal laws of the United States
of America and the laws of the State of California.
12. Amendment. Neither this Agreement nor any provision hereof
may be modified, amended or waived except by the written agreement of the
parties as provided in the Loan Agreement. Notwithstanding the foregoing,
Foothill may re-execute this Agreement or modify, amend or supplement the
Schedules hereto as provided in Section 6 hereof.
13. Severability. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
14. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
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<PAGE> 10
15. Loan Agreement. Debtors acknowledge that the rights and
remedies of Foothill with respect to the security interest in the Trademark
Collateral granted hereby are more fully set forth in the Loan Agreement and all
such rights and remedies are cumulative.
16. No Inconsistent Requirements. Debtors acknowledge that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
Debtors agree that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
To the extent of any conflict between the provisions of this Agreement and the
Loan Agreement, however, the provisions of the Loan Agreement shall govern.
17. Termination. Upon the payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement, this Agreement shall terminate, and
Foothill shall execute and deliver such documents and instruments and take such
further action reasonably requested by Debtors, at Debtors' expense, as shall be
necessary to evidence termination of the security interest granted by Debtors to
Foothill hereunder, including cancellation of this Agreement by written notice
from Foothill to the PTO.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
STRATES SBN. BHD., a Malaysian corporation
By: /s/
------------------------------------
Title:
---------------------------------
STORMEDIA FOREIGN SALES CORPORATION,
a United States Virgin Islands corporation
By: /s/
------------------------------------
Title:
---------------------------------
STORMEDIA INTERNATIONAL LTD.,
a Cayman Islands corporation
By: /s/
------------------------------------
Title:
---------------------------------
STRATES PTE. LTD,
a Singapore corporation
By: /s/
------------------------------------
Title:
---------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/
------------------------------------
Title:
---------------------------------
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<PAGE> 12
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On May ___, 1998, before me, ____________________________, Notary
Public, personally appeared ____________________________, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/
----------------------
Signature
[SEAL]
<PAGE> 13
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On May ___, 1998, before me, _____________________________, Notary
Public, personally appeared _____________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
______________________
Signature
[SEAL]
<PAGE> 14
SCHEDULE A
to the Trademark Security Agreement
Trademarks of Debtors
<TABLE>
<CAPTION>
Registration/
Registration/ Application
Type Jurisdiction Mark Application Date No.
- ---- ------------ ---- ---------------- ---
<S> <C> <C> <C> <C>
</TABLE>
A-1.
<PAGE> 1
EXHIBIT 10.23
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This Assignment and Acceptance Agreement (this "Agreement") is
entered into as of May 29, 1998, between Foothill Capital Corporation, a
California corporation in its capacity as a Lender (the "Assignor") and
Madeleine, L.L.C., a New York limited liability company (the "Assignee"), and
acknowledged by Foothill Capital Corporation, a California corporation in its
capacity as Agent, with respect to that certain Loan and Security Agreement
described in Item 2 of Annex I annexed hereto (the "Loan Agreement").
Capitalized terms used herein and not otherwise defined herein have the meanings
ascribed to them in the Loan Agreement. The parties hereby agree as follows:
1. In accordance with the terms and conditions of Section 15 of
the Loan Agreement, the Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, that interest in
and to the Assignor's rights and obligations under the Loan Documents as of the
date hereof solely with respect to the Obligations owing to the Assignor as
specified in Item 4.b and Item 4.c of Annex I and the Commitments to make
Advances or the Bridge Term Loan as specified in Item 4.b and Item 4.c of Annex
I. After giving effect to such sale and assignment, the Assignee's total
Commitments and Commitment to make Advances or the Bridge Term Loan will be as
set forth in Item 4.b and Item 4.c of Annex I.
2. The Assignor: (a) represents and warrants to the Assignee
that: (i) the Assignor is the legal and beneficial owner of the interest being
assigned by the Assignor hereunder and that such interest is free and clear of
any lien or adverse claim; and (ii) the Assignor has provided to the Assignee or
representatives thereof with true and correct copies of the Loan Documents
required to be delivered by Borrower on or before the Closing Date and, as of
the Closing Date, such Loan Documents are the only material documents entered
into between the Assignor and Borrower with respect to the interest being
assigned hereunder; (b) makes no representation or warranty to the Assignee and
assumes no responsibility to the Assignee with respect to any statements,
warranties, or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency,
or value of the Loan Documents or any other instrument or document furnished
pursuant thereto; and (c) makes no representation or warranty to the Assignee
and assumes no responsibility to the Assignee with respect to the financial
condition of Borrower or the performance or observance by Borrower of any of
Borrower's obligations under the Loan Documents or any other instrument or
document furnished pursuant thereto.
3. The Assignee (a) confirms that it has received copies of the
Loan Agreement and the other Loan Documents, together with copies of the
financial statements referred to therein and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Agreement; (b) agrees that it will, independently
and without reliance, as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the Loan
Documents; (c) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers
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<PAGE> 2
under the Loan Documents as are delegated to Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; and (d) agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of the Loan Documents are required to be performed by it as a
Lender with respect to the interest being assigned hereunder.
4. Following the execution of this Agreement by the Assignor and
Assignee, it will be delivered to the Agent for recording by the Agent. The
effective date of this Assignment shall be the date of the execution hereof by
the Assignor, the Assignee, and the Agent (the "Settlement Date").
5. From and after the Settlement Date, (i) the Assignee shall be
a party to the Loan Agreement as a Lender, shall be a Lender for all purposes
under the Loan Agreement and the other Loan Documents, and, to the extent
provided in this Agreement, shall have the rights and obligations of a Lender
under the Loan Agreement and the other Loan Documents, and (ii) the Assignor
shall, to the extent provided in this Agreement, relinquish its rights and be
released from its obligations under the Loan Agreement and the other Loan
Documents.
6. From and after the Settlement Date, the Agent shall make all
payments under the Loan Agreement and the other Loan Documents in respect of the
interest assigned hereby (including, without limitation, all payments or
principal, interest and fees (if applicable) with respect thereto) to the
Assignee. Upon the Settlement Date, the Assignee shall pay to the Assignor the
Assigned Share (as set forth in Annex I) of the principal amount of any
outstanding Advances or the Bridge Term Loan (as the case may be) under the Loan
Agreement and the other Loan Documents.
7. Anything in the Loan Agreement or the other Loan Documents to
the contrary notwithstanding, Agent, the Assignor, and the Assignee, solely as
among themselves, hereby agree that for purposes of determining "ratability"
among the Lenders under the Loan Agreement and the other Loan Document: (a) when
used in the context of a Lender's obligation or commitment to make the Bridge
Term Loan or a Lender's right to receive payments in respect of the Bridge Term
Loan Obligations, the term "Pro Rata Share" shall mean (i) 100% with respect to
the Assignee, and (ii) -0-% with respect to the Assignor; (b) when used in the
context of a Lender's obligation or commitment to make Advances, including
Foothill Loans and Foothill Group Agent Advances, or a Lender's right to receive
payment in respect of Other Obligations, the term "Pro Rata Share" shall mean
(i) 100% with respect to the Assignor, and (ii) -0-% with respect to the
Assignee; (c) from and after the Closing Date, the then outstanding principal
amount of the Bridge Term Loan shall be deemed to be the amount of the total
Commitments in respect of the Bridge Term Loan; and (d) in all other cases, the
term "Pro Rata Share" shall have the meaning ascribed to that term in the Loan
Agreement.
8. Anything in the Loan Agreement or the other Loan Documents to
the contrary notwithstanding relative to the ratable apportionment among the
Lenders of payments of certain Obligations, the Assignor and Assignee, solely as
between themselves, hereby
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<PAGE> 3
make, on the Settlement Date, the following adjustments relative to such
payments under the Loan Agreement and the other Loan Documents for periods on
and prior to the Settlement Date:
a. The Assignee shall be entitled to receive a share of the Assignor's
portion of the origination fee set forth in Section 2.11(a) of the Loan
Agreement, on the later to occur of the Settlement Date and the date
such portion of such fee is received by the Assignor, equal to $225,000.
9. Anything in the Loan Agreement or the other Loan Documents to
the contrary notwithstanding (including relative to the ratable apportionment
among the Lenders of payments of certain Obligations), Agent, the Assignor, and
the Assignee, solely as among themselves, hereby agree to make the following
adjustments relative to such payments under the Loan Agreement and the other
Loan Documents for periods from and after the Settlement Date:
a. The Assignee shall be entitled to receive:
i. until the payment in full of the Bridge Term Loan, a share
of the Assignor's portion of each installment of each
facility fee set forth in Section 2.11(c) of the Loan
Agreement, on the later to occur of the relevant due date
of such installment and the date such installment actually
is received by the Assignor, equal to the Assignee's Pro
Rata Share of such fee.
ii. until the payment in full of the Bridge Term Loan, a share
of the Assignor's portion of each interest payment payable
solely under Section 2.6(a) or Section 2.6(c), as the case
may be, of the Loan Agreement, as and when received by the
Assignor, equal to the Assignee's Pro Rata share of such
interest payment.
b. Upon payment in full of the Bridge Term Loan (and any other Bridge
Term Loan Obligations, including accrued and unpaid interest thereon),
the rights of Assignee to receive payment relative to any Obligations
(other than in respect of Borrower's indemnification provisions under
Section 11.3 of the Loan Agreement and in respect of the revival and
reinstatement of the Obligations under Section 18.7 of the Loan
Agreement) shall cease.
c. Anything in the Loan Agreement or the other Loan Documents to the
contrary notwithstanding:
i. the Assignee shall not be entitled to any compensation
based upon the Early Termination Premium, any clearance
charges or float, or any similar charges provided under
the Loan Documents.
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<PAGE> 4
ii. the Assignee shall not share in any recovery by Agent or
the Assignor of audit or appraisal fees or out-of-pocket
expenses incurred by Agent or the Assignor and
reimbursable by Borrower (but this Section 9(c)(ii)
shall not limit the rights of the Assignee, as a Lender
and a member of the Lender Group, to recover out-of-pocket
expenses incurred by the Assignee and reimbursable by
Borrower).
iii. the Early Termination Premium shall not be paid to
Assignor until all other Obligations have been paid in
full.
10. Upon payment in full of the Bridge Term Loan (and any other
Bridge Term Loan Obligations, including accrued and unpaid interest thereon),
the duties, obligations, and status of the Assignee as a Lender (other than the
Assignee's indemnification and confidentiality obligations under the Loan
Agreement) shall cease.
11. So long as the Assignee and/or one or more of its Affiliates
holds 100% of the interest in the Bridge Term Loan, and notwithstanding anything
in the Loan Agreement or the other Loan Documents to the contrary, the Assignor
agrees that, without the prior written consent of the Assignee (which consent
shall not be unreasonably withheld, delayed, or conditioned), the Assignor shall
not (i) vote as a Lender in favor of making any change in the definitions of the
terms Borrowing Base, Eligible Accounts, Eligible Domestic Accounts, Eligible
Foreign Accounts, Dilution, or Dilution Reserve that would result in a material
increase in the Borrowing Base (or in any definition contained in the Loan
Agreement used in connection with the definition of the foregoing terms that
would result in a material increase in the Borrowing Base or any decrease in the
Cumulative Blockage), Maximum Revolving Amount, Cumulative Blockage, Individual
Blockage, Related Bridge Term Loan Reduction Amount, or Revolving Advance Cap,
(ii) amend, modify, or waive any provisions of Section 7.4(b) of the Loan
Agreement, approve the terms of any Purchaser Notes, or agree to waive any
mandatory prepayment pursuant to Section 7.4(b)(4)(i) of the Loan Agreement,
(iii) agree to any amendment, modification or waiver of the Intercreditor
Agreement, (iv) conduct any Stock Sale or, except as otherwise provided by
Section 7.4 of the Loan Agreement and the Intercreditor Agreement, consent to
any Stock Sale or (v) make any Advance that would cause the outstanding
Obligations to exceed the Total Obligations Cap.
12. So long as the Assignee and/or one or more of its Affiliates
holds 100% of the interest in the Bridge Term Loan, the Assignor (for itself and
all other Lenders that are successors to or assignees of the Assignor) hereby
agrees that, notwithstanding anything in the Loan Agreement or the other Loan
Documents to the contrary, Agent on behalf of the Required Lenders shall give
the Assignee written notice of any action by Agent on behalf of the Required
Lenders described in clause (a)(i) or clause (a)(iii) of Section 13 hereof: (a)
in the absence of an Exigent Circumstance (defined below), not less than 2
Business Days prior to the taking of such action; or (b) if Exigent
Circumstances exist, concurrently with or as promptly as reasonably practicable
after the taking of such action. In the event that any written notice is given
to the Assignee pursuant to clause (a) above (an "Acceleration/Liquidation
Notice"), the Assignor (for itself and all other Lenders that are
-4-
<PAGE> 5
successors to or assignees of the Assignor) hereby agrees solely for the benefit
of the Assignee that, notwithstanding anything in the Loan Agreement or the
other Loan Documents to the contrary, the Lender Group will forbear from
accelerating the maturity of the Obligations or from declaring Borrower's loan
account to be in liquidation, as the case may be, if Agent on behalf of the
Lender Group receives, on or before the second Business Day following the date
the Acceleration/Liquidation Notice is given, a written notice from the Assignee
(the "Committed Buy-out Notice") pursuant to which the Assignee irrevocably
commits to acquire all (but not less than all) of all remaining right, title,
and interest of the Assignor and all other Lenders that are successors to or
assignees of the Assignor in and to the Obligations, the Commitments, and the
Loan Documents pursuant to Section 13 hereof. In any written notice given to the
Assignee pursuant to clause (b) above, Agent on behalf of the Required Lenders
shall specify in reasonable detail the nature and circumstances of such Exigent
Circumstance. As used herein, "Exigent Circumstance" shall mean an event or
circumstance that materially and imminently threatens the ability of the Lender
Group to realize upon all or a material part of the Collateral, such as, without
limitation, fraudulent removal, concealment, or abscondment thereof, destruction
(other than to the extent covered by insurance) or material waste thereof, or
failure of Borrower after reasonable demand to maintain or reinstate adequate
casualty insurance coverage with respect thereto. In the event that the Assignee
elects to acquire all (but not less than all) of all remaining right, title, and
interest of the Assignor and all other Lenders that are successors to or
assignees of the Assignor in and to the Obligations, the Commitments, and the
Loan Documents pursuant to Sections 13 or 14 hereof, (i) Agent shall have the
right, but not the obligation, to resign under Section 17.9 of the Loan
Agreement, and (ii) and the Assignee shall have the right, but not the
obligation, to require the Agent to resign under Section 17.9 of the Loan
Agreement; in each case, effective immediately upon the receipt by the Assignor
and Agent of written notice by the Assignee of the exercise by the Assignee of
such right to acquire such remaining right, title, and interest in and to the
Obligations, the Commitments, and the Loan Documents (and, if applicable, such
right to require Agent to resign).
13. So long as the Assignee and/or one or more of its Affiliates
holds 100% of the interest in the Bridge Term Loan, the Assignee and the
Assignor (for itself and all other Lenders that are successors to or assignees
of the Assignor) hereby agree that:
(a) at any time on or after the earlier of the date that any one or more
of the following events (each, a "Triggering Event") has occurred and is
continuing: (i) Agent on behalf of the Required Lenders shall have
accelerated the maturity of the Obligations based on an Event of Default
under the Loan Documents; (ii) any of the Obligations owing to the
Assignee shall not be paid in full when due and owing; or (iii) Agent on
behalf of the Required Lenders shall have otherwise declared Borrower's
loan account to be in liquidation in accordance with the Loan Documents;
the Assignee shall have the option, upon 5 Business Days advance written
notice to the Assignor (and all other Lenders that are successors to or
assignees of the Assignor), to acquire from the Assignor (and all other
Lenders that are successors to or assignees of the Assignor) all (but
not less than all) of the remaining right, title, and interest of the
Assignor (and all other
-5-
<PAGE> 6
Lenders that are successors to or assignees of the Assignor) in and to
the Obligations, the Commitments, and the Loan Documents; and
(b) upon the receipt by the Agent on behalf of the Lender Group of the
Committed Buy-out Notice, the Assignee irrevocably shall be committed to
acquire, within 5 Business Days following such receipt, from the
Assignor (and all other Lenders that are successors to or assignees of
the Assignor) all (but not less than all) of the remaining right, title,
and interest of the Assignor (and all other Lenders that are successors
to or assignees of the Assignor) in and to the Obligations, the
Commitments, and the Loan Documents;
in either case, by paying to the Assignor (and all other Lenders that are
successors to or assignees of the Assignor) in cash a purchase price equal to:
(y) 100% of the outstanding balance with respect thereto (including, without
limitation, principal, interest accrued and unpaid thereon, any unpaid fees and
premiums to the extent earned or due and payable in accordance with the Loan
Agreement (including, annual facility fees, anniversary fees, and collateral
management fees), expenses to the extent earned or due and payable in accordance
with the Loan Agreement (including the reimbursement of extraordinary expenses,
financial examination expenses, and loan documentation review charges); plus (z)
in the case of clause (a) above and in the event that there is a Triggering
Event as the result of the failure of Borrower to pay the Bridge Term Loan in
full on or after the scheduled maturity date thereof, an amount equal to the
Early Termination Premium (if and only if the Early Termination Premium is paid
by Borrower and if all Obligations were repaid in full and the Loan Agreement
was terminated as of the date payment of the purchase price is due); whereupon
the Assignor (and all other Lenders that are successors to or assignees of the
Assignor) shall assign to the Assignee, without any representation, recourse, or
warranty whatsoever (except that the Assignor (and all other Lenders that are
successors to or assignees of the Assignor) shall warrant to the Assignee that
(1) the amount quoted by the Assignor (and all other Lenders that are successors
to or assignees of the Assignor) as the purchase price represents the amount
shown as due with respect to the claims transferred as reflected on the
respective books and records of the Assignor (and all other Lenders that are
successors to or assignees of the Assignor), (2) it owns, or has the right to
transfer to the Assignee, the rights being transferred, and (3) such transfer
will be free and clear of liens and adverse claims), its right, title, and
interest with respect to the Obligations, the Commitments, and the Loan
Documents, at no expense to the Assignee other than the reimbursement by the
Assignee of the reasonable out-of-pocket expenses of the Assignor (and all other
Lenders that are successors to or assignees of the Assignor) and the legal
counsel thereof in connection with documenting and effecting such assignment and
the related delivery to the Assignee of the original Loan Documents in the
possession of the Assignor (and all other Lenders that are successors to or
assignees of the Assignor), and, in connection with such assignment, the
Assignor (and all other Lenders that are successors to or assignees of the
Assignor) shall deliver to the Assignee any original Loan Documents and any
Collateral in their possession and execute such other documents, instruments,
and agreements reasonably necessary to effect such assignment, whereupon the
Assignor (and all other Lenders that are successors to or assignees of the
-6-
<PAGE> 7
Assignor) shall be relieved from any further duties, obligations, or liabilities
to the Assignee pursuant to this Agreement.
14. So long as the Assignee and/or one or more of its Affiliates
holds 100% of the interest in the Bridge Term Loan, the Assignor (for itself and
all other Lenders that are successors to or assignees of the Assignor) hereby
agrees that, if Borrower's Loan Account is in liquidation, and if all of the
Obligations of Borrower payable to the Assignor (and all other Lenders that are
successors to or assignees of the Assignor) have been paid in full in cash as
more particularly provided in Section 2.4(b) of the Loan Agreement, the
Assignor (together with all other Lenders that are successors to or assignees of
the Assignor) may, or the Assignee may require the Assignor (and all other
Lenders that are successors to or assignees of the Assignor) to, assign to the
Assignee, without any representation, recourse, or warranty whatsoever (except
that the Assignor (and all other Lenders that are successors to or assignees of
the Assignor) shall warrant to the Assignee that (y) it owns, or has the right
to transfer to the Assignee, the rights being transferred, and (z) such transfer
will be free and clear of liens and adverse claims), its right, title, and
interest with respect to the Obligations, the Commitments, and the Loan
Documents, at no expense to the Assignee other than the reimbursement by the
Assignee of the reasonable out-of-pocket expenses of the Assignor (and all other
Lenders that are successors to or assignees of the Assignor) and the legal
counsel thereof in connection with documenting and effecting such assignment and
the related delivery to the Assignee of the original Loan Documents in the
possession of the Assignor (and all other Lenders that are successors to or
assignees of the Assignor), and, in connection with such assignment, the
Assignor (and all other Lenders that are successors to or assignees of the
Assignor) shall deliver to the Assignee any original Loan Documents and any
Collateral in their possession and execute such other documents, instruments,
and agreements reasonably necessary to effect such assignment, whereupon the
Assignor (and all other Lenders that are successors to or assignees of the
Assignor) shall be relieved from any further duties, obligations, or liabilities
to the Assignee pursuant to this Agreement.
15. So long as the Assignee and/or one or more of its Affiliates
holds 100% of the interest in the Bridge Term Loan, the Assignor (for itself and
all other Lenders that are successors to or assignees of the Assignor) hereby
agrees that, notwithstanding anything in Section 15.1 of the Loan Agreement to
the contrary, the Assignor (or any such other Lender) may further participate or
otherwise transfer or assign any or all of its right, interest, and title in and
to the Obligations, the Commitments, or the Loan Documents to any third person
at any time (in any such case a "Sale"); provided, however, that (a) before
making any such Sale, the Assignor (or any such other Lender) shall offer the
Assignee a right of first refusal itself to purchase the portion of its interest
so offered for Sale, and (b) any such Sales shall be made subject to the
Assignee's rights to acquire such portion of the right, title, and interest of
the Assignor (or any such other Lender) in and to the Obligations, the
Commitments, and the Loan Documents pursuant to Sections 13 or 14 hereof. In the
event that the Assignor (or any such other Lender) offers any such right of
first refusal to the Assignee, the Assignee promptly shall accept or reject such
right of first refusal, and, if accepted, promptly shall close the purchase of
the portion of the right, title, and interest of the Assignor (or any such other
Lender) so offered to the Assignee, and in any event within 5 Business Days of
the written
-7-
<PAGE> 8
offer thereof by the Assignor (or any such other Lender) to the Assignee,
failing which the Assignor (or any such other Lender) shall be free to
consummate such Sale to any such third person without restriction other than as
set forth in clause (b) above. Anything in the foregoing to the contrary
notwithstanding, the Assignor (and all such other Lenders) may sell, pledge,
transfer, or assign additional participation interests in the Obligations, the
Commitments, and the Loan Documents without any of the foregoing restrictions
(except, in the case of (z) below, the restriction granting the Assignee the
foregoing right of first refusal) in connection with (y) transfers or
assignments of its interest to any Affiliate of the Assignor or in connection
with a transfer or assignment of all or a substantial part of its loan
portfolio, or (z) any assignment to a collection or similar agency.
16. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
17. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, including all other
Lenders that are successors to or assignees of the Assignor and including all
successor Agents.
18. In the event of any actual, irreconcilable conflict between
the Loan Agreement and this Agreement relative to the subject matter hereof, the
terms and provisions of this Agreement shall control and govern.
19. This Agreement can only be amended by a writing signed by
Agent, the Assignee, and the Assignor (and all other Lenders that are successors
to or assignees of the Assignor).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of the
first date above written, such execution being made on Annex I hereto.
FOOTHILL CAPITAL CORPORATION, as
Assignor
By: /s/
-------------------------------------
Title:
----------------------------------
MADELEINE, L.L.C., as Assignee
By: /s/
-------------------------------------
Title:
----------------------------------
-8-
<PAGE> 9
ACCEPTED AS OF
May 29, 1998
FOOTHILL CAPITAL CORPORATION,
AS AGENT
By: /s/
----------------------------------
Title:
-------------------------------
-9-
<PAGE> 10
ANNEX I
To That Certain Assignment and Acceptance Agreement
entered into as of May 29, 1998,
between Foothill Capital Corporation, in its capacity as a Lender
and Madeleine, L.L.C.
1. Borrower: StorMedia Incorporated, Akashic Memories Corporation and
certain subsidiaries as guarantors)
2. Name and Date of Loan Agreement:
Loan and Security Agreement, dated as of May 29, 1998, among
StorMedia Incorporated, Akashic Memories Corporation, the
financial institutions listed on the signature pages thereof, and
Foothill Capital Corporation, as Agent.
3. Date of Agreement: as of May 29, 1998
4. Amounts (as of date in Item #3 above):
<TABLE>
<S> <C> <C>
a. Total Commitments $28,000,000
i. Commitment to make Advances $20,000,000
ii. Commitment to make the Bridge Term Loan $8,000,000
b. Assigned Share of Total Commitments 28.5714%
i. Assigned Share of Commitment -0-%
to make Advances
ii. Assigned Share of Commitment 100.00%
to make the Bridge Term Loan
c. Amount of Assigned Share of Total Commitments $8,000,000
i. Amount of Assigned Share of $-0-
Commitment to make Advances
ii. Amount of Assigned Share of $8,000,000
Commitment to make the Bridge Term Loan
5. Settlement Date: May 29, 1998
</TABLE>
-10-
<PAGE> 11
6. Notice and Wire Instructions, etc.
Assignee:
Madeleine, L.L.C.
450 Park Avenue, 28th Floor
New York, New York 10022
Attn: Kevin Genda
(212) 891-2117
Bank:
Citibank, NA
ABA No.:021-000-089
Account Name: Cerberus Partners, L.P.
Account No.:37839889
Attn: Michael Hisler
Re: StorMedia Incorporated
7. Agreed and Accepted:
FOOTHILL CAPITAL
CORPORATION, in its capacity as
a Lender, as Assignor
By: /s/
-------------------------------
Title:
----------------------------
MADELEINE, L.L.C., as Assignee
By: /s/
---------------------------------
Title:
------------------------------
Accepted:
FOOTHILL CAPITAL CORPORATION, AS AGENT
By: /s/
----------------------------------
Title:
-------------------------------
-11-
<PAGE> 1
EXHIBIT 10.24
MORTGAGE
THIS MORTGAGE is made the 29th day of May, 1998, between FOOTHILL
CAPITAL CORPORATION, a California corporation (the "Agent"), on the one hand,
and, on the other hand, STORMEDIA INCORPORATED, a Delaware corporation (the
"Mortgagor").
WHEREAS:
(A) The Mortgagor is the registered holder of 2 ordinary shares in the
capital of Stormedia International Ltd. (the "Cayman Company"), a
company incorporated in the Cayman Islands.
(B) By a certain Loan and Security Agreement dated 29th May, 1998 (the "Loan
Agreement") between the Mortgagor, the Agent, and Akashic Memories
Corporation, a California corporation ("Akashic"), the Agent has agreed
to lend money to the Mortgagor and Akashic.
(C) The Mortgagor has agreed to secure its obligations under the Loan
Agreement by entering into this Mortgage.
NOW THIS DEED WITNESSETH as follows:
1. Interpretation
In this agreement:
"Mortgage" means this agreement;
"Shares" means the 2 ordinary shares of the Cayman Company registered in
the name of the Mortgagor together with any additional shares, rights,
moneys or property included therein pursuant to Clause 2.3 or 2.4 below.
Capitalised terms not otherwise defined in this Mortgage shall have the
meaning given to them in the Loan Agreement.
2. Mortgage
2.1. In consideration of the Agent agreeing to make loans to the Mortgagor
pursuant to the Loan Agreement, the Mortgagor, as legal owner, hereby
transfers the Shares to the Agent as a first priority continuing
security to be held subject to the terms hereof and the Loan Agreement.
<PAGE> 2
2.2. The Mortgagor represents and warrants to the Agent that the Shares are
within the Mortgagor's own disposition and control and free from any
restriction on transfer and any mortgage, lien, legal or equitable
charge, security or other encumbrance. The Mortgagor further represents
and Warrants that (i) the Shares represent 100% of the issued and
outstanding capital of the Cayman Company and (ii) that the Shares are
fully paid, duly issued and non-assessable. The Mortgagor undertakes not
to sell (nor agree or attempt to sell), transfer, assign, charge or
encumber the Shares or any part of them other than as provided herein or
as contemplated by Clause 3 below.
2.3. If at any time any additional shares of the Cayman Company are issued
to, deposited with or transferred to the Mortgagor, in addition to the
Shares at that time the subject of this Mortgage, such shares shall be
deemed to be part of the Shares and shall thereupon be transferred by
the Mortgagor to the Agent so that the Mortgage created under Clause 2.1
above and the other terms of this Mortgage (including the
representation, warranty and undertaking in Clause 2.2 above) shall
apply to such additional shares.
2.4. The Mortgage created under Clause 2.1 above and the other terms of this
Mortgage (including the representation, warranty and undertaking in
Clause 2.2 above) shall extend to, and the Shares shall include, all
dividends payable after the date hereof on any of the Shares and all
rights, moneys or property accruing or offered at any time by way of
redemption, conversion, repurchase, bonus issue, rights issue or
howsoever in respect of any of the Shares.
2.5. The Mortgage hereby created shall:
2.5.1. be a first priority continuing security:
2.5.2. not be discharged or affected by any failure of, or defect in any
agreement given by or on behalf of the Mortgagor in respect of
any Obligations nor by any legal limitation, or lack of any
powers of the Mortgagor or lack of authority of any person
appearing to be acting for the Mortgagor in any manner in respect
of the Obligations or by any other facts or circumstances
(whether known or not to the Mortgagor or to the Agent) as a
result of which any Obligations may be rendered illegal, void or
unenforceable by the Agent.
2.5.3. remain binding on the Mortgagor notwithstanding any amalgamation,
reconstruction, re-organization, merger, transfer by way of
continuation, sale or transfer by or involving the Mortgagor or
its assets or the Agent or its assets and for this purpose, this
Mortgage and all rights conferred on the Agent hereunder may be
assigned or transferred by the Agent accordingly; and
2.
<PAGE> 3
2.5.4. be additional and without prejudice to any other security which
the Agent may hold from time to time.
3. Further Assurance
If so requested by the Agent, by way of security as herein provided, the
Mortgagor shall forthwith sign, seal, deliver and complete all
transfers, renunciations, mandates, assignments, deeds and other
documents as the Agent may require to perfect its claim to the Shares to
vest the Shares in the Agent (or its nominees) and to exercise (or
enable its nominees to exercise) any rights and powers attaching to the
Shares or to give effect to the transfer under Clause 2.1, the
provisions of Clause 2.3 and 2.4 and any sale or disposal under Clause 5
below.
4. Calls and Dividends
4.1. Any dividends, interest or other moneys or property hereby mortgaged
which are received by the Mortgagor after the date hereof shall be held
in trust for the Agent and shall forthwith be paid, transferred or
delivered to the Agent.
5. Remedies on Default
5.1. Upon the occurrence of any Event of Default pursuant to Section 8 of the
Loan Agreement, the Agent may without further notice, sell or dispose of
all or any part of the Shares in such manner and for such consideration
(whether payable or deliverable immediately or by installments) as it
may, in its absolute discretion, think fit.
5.2. The Agent shall apply the proceeds of sale in accordance with the terms
of the Agreements. The Agent may give a good discharge for any moneys
received in exercise of such power of sale or disposal and for any
rights, moneys or property receivable in respect of the Shares.
5.3. The Mortgagor shall have no right or claim against the Agent in respect
of any loss on such sale or in respect of any matter or thing done by
the Agent in accordance with the provisions of this Mortgage however
caused and whether or not a better price could or might have been
obtained on any sale of the Shares or any of them.
6. Certification
A certificate by an officer of the Agent as to the amount of any
Obligations shall be conclusive.
7. Attornment
3.
<PAGE> 4
By way of security, the Mortgagor irrevocably appoints the Agent and any
person nominated in writing under the hand of any officer of the Agent
as the Mortgagor's attorney, in its name and on its behalf so execute,
seal and deliver any conveyance, mortgage, assignment, transfer
renunciation or other deed which may be required or deemed proper in the
absolute discretion of the Agent, for any of the purposes of this
Mortgage.
8. Notices
8.1. Each communication to be made hereunder shall be made in the manner and
upon the conditions set forth in the Loan Agreement.
8.2. Each communication or document to be made or delivered by one person to
another pursuant to this Mortgage shall be made or delivered to that
party at its address set forth in the Loan Agreement.
8.3. Each communication and document made or delivered by one part to another
pursuant to this Mortgage shall be in the English language or
accompanied by a translation thereof into English certified (by an
officer of the person making or delivering the same) as being a true and
accurate translation thereof.
9. Counterparts
This Mortgage may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which when
executed and delivered shall constitute an original, but all the
counterparts shall together constitute but one and the same instrument.
The facsimile signature hereof for and on behalf of any party hereto
shall be accepted as an original signature hereof for and on behalf of
such party.
10. Equity of Redemption
Upon payment and satisfaction of the Obligations, the Agent shall
forthwith, at the cost of the Mortgagor, deliver up and retransfer or
reassign to the Mortgagor the Shares, all certificates representing the
Shares, all forms of transfer and all other property for the time being
held by or on behalf of the Agent forming part of the security hereby
created and the Agent undertakes to execute and deliver or cause to be
executed and delivered all such deeds, acts and things as shall be
necessary to release the Shares and all other property forming part of
the security hereby created.
11. Law and Jurisdiction
4.
<PAGE> 5
This Mortgage shall be governed by and construed in accordance with
Cayman Islands law. The Agent and the Mortgagor hereby irrevocably
submit to the non-exclusive jurisdiction of the Cayman Islands Courts.
IN WITNESS WHEREOF this Mortgage has been executed by the Mortgagor and the
Agent the day and year first above written.
SIGNED for and on behalf of
STORMEDIA INCORPORATED,
a Delaware corporation
/s/
- --------------------------
/s/
- --------------------------
WITNESS
SIGNED for and on behalf of
FOOTHILL CAPITAL CORPORATION,
a California corporation
/s/
- --------------------------
/s/
- --------------------------
WITNESS
5.
<PAGE> 1
EXHIBIT 10.25
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Agreement") is entered into as of
May 29, 1998, between the Foothill Group Agent (as defined below) for and on
behalf of the Foothill Group (as defined below) and the Bank Group Agent (as
defined below) for and on behalf of the Bank Group (as defined below), with
reference to the following recitals of fact:
A. The Foothill Group provides financing to Debtor, pursuant to the
Foothill Group Financing Documents. The Foothill Group Claims are secured by a
security interest in the Collateral.
B. The Bank Group provides financing to Debtor, pursuant to the Bank
Group Financing Documents. The Bank Group Claims are secured by a security
interest in the Collateral.
C. The Foothill Group and the Bank Group wish to enter into this
Agreement to clarify their respective rights and priorities in the Collateral.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which hereby are acknowledged by each party hereto, the parties
hereto hereby agree that:
1. Definitions. Terms used herein that are defined in the UCC
have the meanings defined for those terms in the UCC unless otherwise expressly
defined herein. As used herein, the following terms shall have the meanings
respectively set forth after each:
"Above OLV Sale" means any Sale of Collateral by Debtor as to
which the Net Sale Consideration received is equal to or greater than
90% of the OLV of the assets subject to such Sale.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Debtor arising out of the sale, license, or lease of goods or the
rendition of services by Debtor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security
therefor.
"Agreed Asset Value" means: (a) with respect to any Accounts, the
Agreed Value of Accounts with respect thereto; (b) with respect to any
Inventory, the Agreed Value of Inventory with respect thereto; and (c)
with respect to any Fixed Assets, the Agreed Value of Fixed Assets with
respect thereto.
1
<PAGE> 2
"Agreed Value of Accounts" means, with respect to any Accounts,
the net book value of such Accounts, determined in accordance with GAAP.
"Agreed Value of Fixed Assets" means: (a) with respect to any
Fixed Assets other than Fixed Assets of Strates Malaysia, the net book
value of such Fixed Assets, determined in accordance with GAAP; and (b)
with respect to the Fixed Assets of Strates Malaysia, the net book value
of AKT's Fixed Assets immediately preceding the time that AKT became an
indirect Subsidiary of StorMedia, net of any such Fixed Assets sold
after such acquisition and prior to the date of the relevant Sale, less
accumulated depreciation thereon from and after such date until the date
of determination, according to GAAP, but determined as if AKT had never
been acquired by StorMedia.
"Agreed Value of Inventory" means, with respect to any Obligor,
the net book value of its Inventory, determined in accordance with GAAP,
as of the last day of the month of such Obligor most recently ended for
which a balance sheet is available, adjusted by adding thereto the
incremental amount, if any, of inventory reserves relating to Inventory
on hand on the date of the relevant Sale taken by such Obligor during
the three-month period ending on such month-end date.
"Akashic" means Akashic Memories Corporation, a California
corporation.
"Akashic Collateral" means any Collateral owned by any Akashic
Entity.
"Akashic Domestic Collateral" means any Akashic Collateral that
is Domestic Collateral.
"Akashic Entities" means Akashic and its Subsidiaries,
collectively and individually.
"Akashic Foreign Collateral" means any Akashic Collateral that is
Foreign Collateral.
"AKT" means Akashic Kubota Technologies Sdn. Bhd., a company
organized under the laws of Malaysia and a Subsidiary of Akashic doing
business in Malaysia, which changed its name in February, 1998, to
Strates Sdn. Bhd.
"Bank" means any individual member of the Bank Group.
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<PAGE> 3
"Bank Group" means the Bank Group Agent, CIBC [Asia] Ltd., Banque
Nationale de Paris, San Francisco Branch, as Co-Agent, Banque Nationale
de Paris, Singapore Branch, Fleet National Bank, Sanwa Bank California,
Union Bank of California, N.A., and any other Person holding any Bank
Group Claim, and each of them, collectively and individually.
"Bank Group Agent" means Canadian Imperial Bank of Commerce, New
York Agency, acting as agent for the Banks pursuant to the Bank Group
Financing Documents, and any successor agent thereunder. Unless the
Foothill Group Agent shall have been notified otherwise in accordance
with Section 21 hereof, the Foothill Group Agent may presume that
Canadian Imperial Bank of Commerce continues to be the Bank Group Agent.
"Bank Group Agreement" means that certain Amended and Restated
Credit Agreement, dated as of May 29, 1998, among StorMedia
International and Strates, as borrowers, StorMedia, as parent guarantor,
and the Bank Group, as the same may from time to time be amended,
restated, supplemented, modified, renewed, extended, replaced, or
refinanced.
"Bank Group Claims" means all present and future claims of the
Bank Group against Debtor for the payment of money arising under or
related to the Bank Group Financing Documents, including all claims for
principal and interest (including interest accruing after the
commencement of a bankruptcy proceeding by or against Debtor
irrespective of whether a claim for such interest is allowed in such
proceeding), or for reimbursement in connection with amounts paid under
letters of credit or for cash collateralization of amounts available to
be drawn under letters of credit, or for reimbursement of late charges,
fees, costs or expenses, or otherwise, whether fixed or contingent,
matured or unmatured, liquidated or unliquidated, and whether arising
under contract, in tort or otherwise; provided that the aggregate
principal amount of Bank Group Claims entitled to priority under this
Agreement shall not exceed $38,400,000 unless the Foothill Group Agent
agrees otherwise.
"Bank Group Enforcement Notice" means a written notice from the
Bank Group Agent to the Foothill Group Agent, given in accordance with
Section 21 hereof, stating that (a) a Bank Group Event of Default has
occurred and is continuing, and (b) the Bank Group desires and intends
(subject to any applicable waiting periods or other restrictions
provided for in this Agreement) to take Enforcement Action(s) against
the Foothill Group Priority Collateral or the Equal Priority Collateral.
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<PAGE> 4
"Bank Group Event of Default" means an "Event of Default" as
defined under the Bank Group Financing Documents.
"Bank Group Excess Claim" means any claim that would be a Bank
Group Claim but for the fact that (a) it does not arise under and is not
related to the Bank Group Financing Documents, or (b) it is in excess of
the dollar limitation applicable to Bank Group Claims, to the extent of
such excess.
"Bank Group Financing Documents" means the Bank Group Agreement
and all present and future notes, guaranties, reimbursement agreements,
security documents or other documents or agreements in any way related
to, evidencing, or documenting the Bank Group Claims, as the same may
from time to time be amended, restated, supplemented, modified, renewed,
extended, replaced, or refinanced.
"Bank Group Priority Collateral" means (a) all Fixed Assets of
any StorMedia Entity, irrespective of whether they constitute StorMedia
Domestic Collateral or StorMedia Foreign Collateral, (b) all Fixed
Assets of any Akashic Entity that constitute Akashic Foreign Collateral,
(c) all Stock of any Bank Group Priority Subsidiary, (d) all
Identifiable Proceeds of any Bank Group Priority Collateral, and (e) all
Purchaser Notes delivered to or pledged to the Bank Group Agent pursuant
to Section 17(a) of this Agreement.
"Bank Group Priority Subsidiaries" means the StorMedia
Subsidiaries other than the Foothill Group Priority Subsidiaries.
"Below OLV Sale" means any Sale of Collateral by Debtor as to
which the Net Sale Consideration received for such Sale is less than 90%
of the OLV of the assets subject to such Sale.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Carryforward Reduction Amount" means, with respect to any Below
OLV Sale, an amount equal to (a) the Minimum Prepayment Amount
applicable to such Sale, minus (b) the amount of the prepayment paid in
cash to the Bank Group with respect to such Sale.
"Claims" means the Foothill Group Claims and the Bank Group
Claims.
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<PAGE> 5
"Collateral" means all tangible and intangible property of
Debtor, whether real or personal, wherever located, including all of
Debtor's Accounts, General Intangibles, documents, chattel paper,
investment property, instruments, money, deposit accounts, securities,
Stock, Fixed Assets, machinery, equipment, furnishings, fixtures,
Inventory, and real property, and all products and proceeds of any of
the foregoing.
"Creditors" means the Foothill Group, represented by the Foothill
Group Agent, and the Bank Group, represented by the Bank Group Agent,
collectively and individually.
"Debtor" means StorMedia and each and every one of its present
and future direct and indirect Subsidiaries, collectively and
individually, including each and every such Subsidiary that now is, or
at any time hereafter becomes, a party to any one or more of the
Financing Documents (including StorMedia International, Strates, SFSC,
Akashic, and Strates Malaysia).
"Domestic Collateral" means (a) in the case of tangible
Collateral, any such Collateral located within the United States of
America or its possessions, dependencies, or territories, and (b) in the
case of intangible Collateral, any such Collateral of an entity
composing Debtor that is organized under the laws of, or maintains its
principal place of business in, the United States of America, its
possessions, dependencies, or territories, or any of the States
composing the United States of America. The Stock of StorMedia
International, Strates, and Strates Malaysia shall be deemed Foreign
Collateral and not Domestic Collateral, and the Stock of SFSC and
Akashic shall be deemed Domestic Collateral and not Foreign Collateral.
"Enforcement Action" means, with respect to any Creditor and with
respect to any item of Collateral (a) repossessing, selling, leasing, or
otherwise disposing of all or any part of such Collateral, or exercising
notification or collection rights with respect to all or any portion
thereof, or attempting to do so, (b) commencing the enforcement with
respect to such Collateral of any of the default remedies under any of
such Creditor's Financing Documents, the UCC, or other applicable laws,
including the commencement of any lawsuit or proceeding against Debtor
to collect or enforce such Creditor's Claim, (c) appropriating, setting
off (except for the daily cash sweep under the Foothill Group Financing
Documents), or applying any part or all of such Collateral in the
possession of, or coming into the possession of, such Creditor or its
agent or bailee, to such Creditor's Claim, or (d) filing by such
Creditor of, or the joining in the filing by such Creditor of, an
involuntary bankruptcy or insolvency proceeding against Debtor,
provided, however, that, with respect to any filing by any Person other
than a Creditor of a proceeding, motion, or suit described in
clause (d),
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<PAGE> 6
the filing by any Creditor of any claim in or the taking of any other
action (not inconsistent with the express provisions of this Agreement)
permitted or required by applicable law with respect to any such
proceeding, motion, or suit shall not be deemed to be an Enforcement
Action.
"Enforcement Period" means, with respect to the Claims of any
Creditor, any period of time commencing upon the earliest to occur of
(a) the actual taking by such Creditor of any Enforcement Action (other
than an insignificant or immaterial Enforcement Action) under
circumstances where such Creditor is entitled to do so under the terms
of its Financing Documents, (b) the acceleration by such Creditor of the
maturity of its Claims, (c) the maturation of such Creditor's Claims in
accordance with their terms if such Claims are not paid or satisfied on
such date of maturation, (d) the commencement of an Insolvency
Proceeding with respect to Debtor, (e) the permanent termination (as
opposed to temporary suspension) by such Creditor of its obligations to
Debtor under its Financing Documents based on the existence of an Event
of Default, (f) the giving of a Bank Group Enforcement Notice, (g) the
giving of a Foothill Group Enforcement Notice, or (h) the giving of a
Foothill Group Equal Priority Collateral Enforcement Notice, and
continuing until the earlier to occur of (y) the final payment or
satisfaction in full of such Creditor's Claims, or (z) the waiver in
writing by such Creditor of such Creditor Event of Default.
"Equal Priority Collateral" means all General Intangibles of
Debtor other than Identifiable Proceeds described in clause (d) of the
definition of Bank Group Priority Collateral. For purposes of clarity,
Equal Priority Collateral does not include Stock, Accounts, Inventory,
or Fixed Assets.
"Event of Default" means a Bank Group Event of Default or a
Foothill Group Event of Default, as the context requires.
"Excess Prepayment Amount" means an amount equal to 50% of the
Net Sale Consideration in excess of the Minimum Prepayment Amount.
"Financing Documents" means the Foothill Group Financing
Documents and the Bank Group Financing Documents.
"Fixed Assets" means, with respect to any Obligor, all real
property, plant, and equipment (including fixtures) of such Obligor.
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<PAGE> 7
"Foothill Group" means Foothill Capital Corporation in its
individual capacity and as the Foothill Group Agent, Madeleine, L.L.C.,
and any other person holding any Foothill Group Claim, and each of them,
collectively and individually.
"Foothill Group Agent" means Foothill Capital Corporation, a
California corporation, acting as agent for the members of the Foothill
Group pursuant to the Foothill Group Financing Documents, and any
successor agent thereunder. Unless Bank Group Agent shall have been
notified otherwise in accordance with Section 21 hereof, Bank Group
Agent may presume that Foothill Capital Corporation continues to be the
Foothill Group Agent.
"Foothill Group Agreement" means that certain Loan and Security
Agreement, dated as of May 29, 1998, between StorMedia and Akashic, on
the one hand, and, on the other hand, the Foothill Group, as the same
may from time to time be amended, modified, renewed, extended or
restated.
"Foothill Group Claims" means all present and future claims of
the Foothill Group against Debtor for the payment of money arising under
or related to the Foothill Group Financing Documents, including all
claims for principal and interest (including interest accruing after the
commencement of a bankruptcy proceeding by or against Debtor
irrespective of whether a claim for such interest is allowed in such
proceeding), or for reimbursement in connection with amounts paid under
letters of credit (or guaranties in respect thereof) or for cash
collateralization of amounts available to be drawn under letters of
credit (or guaranties in respect thereof), or for reimbursement of late
charges, fees, costs or expenses, or otherwise, whether fixed or
contingent, matured or unmatured, liquidated or unliquidated, and
whether arising under contract, in tort or otherwise; provided that the
aggregate principal amount of Foothill Group Claims entitled to priority
under this Agreement shall not exceed, as of any date of determination,
(a) $30,000,000, minus (b) the aggregate amount of principal repayments
made with respect to the Bridge Term Loan, unless the Bank Group Agent
agrees otherwise.
"Foothill Group Enforcement Notice" means a written notice from
the Foothill Group Agent to the Bank Group Agent, given in accordance
with Section 21 hereof, stating that (a) a Foothill Group Event of
Default has occurred and is continuing, and (b) the Foothill Group
desires and intends (subject to any applicable waiting periods or other
restrictions provided for in this Agreement) to take Enforcement
Action(s) against the Bank Group Priority Collateral.
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<PAGE> 8
"Foothill Group Equal Priority Collateral Enforcement Notice"
means a written notice from the Foothill Group Agent to the Bank Group
Agent, given in accordance with Section 21 hereof, stating that (a) a
Foothill Group Event of Default has occurred and is continuing, and (b)
the Foothill Group desires and intends (subject to any applicable
provisions of this Agreement) to take Enforcement Action(s) against the
Equal Priority Collateral.
"Foothill Group Event of Default" means an "Event of Default" as
defined under the Foothill Group Financing Documents.
"Foothill Group Excess Claim" means any claim that would be a
Foothill Group Claim but for the fact that (a) it does not arise under
and is not related to the Foothill Group Financing Documents, or (b) it
is in excess of the dollar limitation applicable to Foothill Group
Claims, to the extent of such excess.
"Foothill Group Financing Documents" means the Foothill Group
Agreement and all present and future notes, guaranties, reimbursement
agreements, security documents or other documents or agreements in any
way related to, evidencing, or documenting the Foothill Group Claims, as
the same may from time to time be amended, restated, supplemented,
modified, renewed, extended, replaced, or refinanced.
"Foothill Group Priority Collateral" means all Collateral other
than the Bank Group Priority Collateral and the Equal Priority
Collateral.
"Foothill Group Priority Subsidiaries" means SFSC and Akashic.
"Foothill OLV" means "OLV" as defined in the Foothill Group
Agreement.
"Foreign Collateral" means any Collateral that is not Domestic
Collateral. The Stock of StorMedia International, Strates, and Strates
Malaysia shall be deemed Foreign Collateral and not Domestic Collateral,
and the Stock of SFSC and Akashic shall be deemed Domestic Collateral
and not Foreign Collateral.
"GAAP" means generally accepted accounting principles as in
effect from time to time, consistently applied.
"General Intangibles" means, with respect to any Person, all
general intangibles (exclusive of deposit accounts and investment
property) of such Person.
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<PAGE> 9
"Identifiable Proceeds" means, with respect to any Collateral,
any "proceeds" (as defined in the UCC) or other sums received in respect
of such Collateral that are identifiable and traceable under the
identification and tracing rules and principles that exist under
California state law (including the UCC), without regard to where such
Collateral or proceeds are located, provided that Identifiable Proceeds
included within clause (d) of the definition of "Bank Group Priority
Collateral" shall not include (a) Inventory of any Obligor, (b) any
Accounts of any Obligor arising from the sale, transfer, lease, license,
or other disposition of Inventory by any Obligor, or (c) Fixed Assets
that are Akashic Domestic Collateral.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the United States Bankruptcy
Code or under any other bankruptcy or insolvency law, assignments for
the benefit of creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
"Inventory" means all present and future inventory in which
Debtor has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Debtor's present and
future raw materials, work in process, finished goods, and packing and
shipping materials, wherever located.
"Malaysian Exception" means that, anything in Section 17(b) or
Section 17(c) to the contrary notwithstanding, the Foothill Group Agent
may not make or commit to make any Stock Sale of any Stock of any
Foothill Group Priority Subsidiary unless either (a) the Bank Group
Agent has consented in its sole and absolute discretion to such Stock
Sale, or (b) the Stock of Strates Malaysia has been transferred to
StorMedia or a Bank Group Priority Subsidiary such that Strates Malaysia
is no longer a Subsidiary of any Foothill Group Priority Subsidiary
subject to the Lien of the Bank Group Agent.
"Minimum Availability Condition" has the meaning ascribed to such
term in the Foothill Group Loan Agreement as in effect on the effective
date hereof, without regard to any subsequent amendments or
modifications of such term except such as have been consented to in
writing by the Bank Group Agent in its sole and absolute discretion.
"Minimum Prepayment Amount" means, as to any Sale of Collateral,
an amount equal to 90% of the OLV of the assets subject to such Sale.
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<PAGE> 10
"Net Sale Consideration" means (a) the total purchase
consideration received by Debtor in any Sale of Collateral, less (b) the
amount of any reasonable out-of-pocket expenses (including taxes)
incurred by Debtor in connection with such Sale.
"Obligor" means any Person comprising Debtor.
"OLV" means, as to any item of Collateral, an amount equal to the
orderly liquidation value for such item of Collateral as set forth in
the appraisals of the Collateral performed by Koll DoveTech dated
January 31, 1998 or Henry Butcher dated January 24, 1998.
"perfection" has the meaning such term has when used in Division
9 of the UCC.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they
are legal entities, and governments and agencies and political
subdivisions thereof.
"Prepayment Carryforward" means, as of any date of determination,
an amount, equal to (a) the aggregate of the Excess Prepayment Amount
(or portions thereof) paid to the Bank Group with respect to each Above
OLV Sale consummated prior to such date, if any, minus (b) the aggregate
Carryforward Reduction Amount with respect to each Below OLV Sale
consummated prior to such date, if any.
"Purchaser Note" shall have the meaning set forth in Section
17(a).
"Relevant Minimum Price" means, with respect to any Stock Sale:
(a) If such Stock Sale is of the Stock of a Bank Group Priority
Subsidiary, the Agreed Asset Value of that portion of the Relevant
Released Collateral consisting of: (i) Accounts; and (ii) Inventory; and
(b) if such Stock Sale is of the Stock of a Foothill Group Priority
Subsidiary, the Agreed Asset Value of that portion of the Relevant
Released Collateral consisting of: (i) Accounts; (ii) Inventory; and
(iii) Fixed Assets that are not Akashic Domestic Collateral.
"Relevant Released Collateral" means with respect to any Stock
Sale effected in compliance with Section 17(c) of this Agreement, and
except as otherwise provided in Section 17(d) of this Agreement, (a) the
Stock being sold, (b) after giving effect to the Malaysian Exception,
the Stock of any Subsidiaries of the Obligor whose Stock is
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being sold to the extent owned by the Obligor whose Stock is being sold
or any Subsidiary of such Obligor, and (c) the assets of the Obligor
whose Stock is being sold and the assets of each Subsidiary of such
Obligor.
"Sale" means the sale, lease, or other disposition by Debtor of
any item of the Collateral (other than the Stock of any direct or
indirect Subsidiary of StorMedia, whether or not made or entered into in
the ordinary course of business).
"SFSC" means StorMedia Foreign Sales Corporation, a corporation
organized under the laws of the U.S. Virgin Islands.
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of
or in a corporation or equivalent entity, whether voting or nonvoting,
including common stock, preferred stock, or any other "equity security"
(as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities Exchange Commission under the
Securities Exchange Act of 1934).
"Stock Sale" means any sale or transfer of the Stock of any
StorMedia Subsidiary, whether by the Obligor owning same with any
necessary Creditor consents, or by a Creditor in realization of its
security interest therein in accordance with the provisions of this
Agreement.
"Stock Sale Consideration" means, with respect to any Stock Sale,
the net consideration received by the seller after deducting any
reasonable out-of-pocket expenses (including taxes) incurred in
connection with such Sale.
"StorMedia" means StorMedia Incorporated, a California
corporation.
"StorMedia Collateral" means any Collateral owned by any
StorMedia Entity.
"StorMedia Domestic Collateral" means any StorMedia Collateral
that is Domestic Collateral.
"StorMedia Entities" means StorMedia and its Subsidiaries,
collectively and individually, except for and excluding the Akashic
Entities.
"StorMedia Foreign Collateral" means any StorMedia Collateral
that is Foreign Collateral.
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<PAGE> 12
"StorMedia International" means StorMedia International Ltd., a
company organized under the laws of the Cayman Islands.
"StorMedia Subsidiaries" means the Subsidiaries of StorMedia,
including StorMedia International, Strates, SFSC, Akashic, and Strates
Malaysia.
"Strates" means Strates Pte. Ltd., a company organized under the
laws of Singapore.
"Strates Malaysia" means Strates Sdn. Bhd., a company organized
under the laws of Malaysia, formerly known as Akashic Kubota
Technologies Sdn. Bhd.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly
or indirectly owns or controls the shares of Stock (or comparable
ownership unit) having ordinary voting power to elect a majority of the
board of directors (or appoint other comparable managers) of such
corporation, partnership, limited liability company, or other entity.
"Tasman Facility" means Akashic Domestic Collateral consisting of
the Fixed Assets located on the effective date of this Agreement at 305
and/or 2101 Tasman, Milpitas, California.
"UCC" means the California Uniform Commercial Code, as in effect
from time to time.
2. Security Interest Priorities. Notwithstanding (a) the
date, manner or order of perfection of the security interests and liens granted
in favor of Creditors, (b) the provisions of the UCC or any other applicable law
or decisions that would provide for different priorities, (c) the provisions of
any contract or Financing Document in effect between either Creditor, on the one
hand, and Debtor, on the other, and (d) whether either Creditor or any agent or
bailee thereof holds possession of any part or all of the Collateral, the
following, as among Creditors, shall be the relative priority of the valid,
perfected, and enforceable security interests and liens of Creditors in the
Collateral:
(i) The Bank Group shall have a first priority security
interest in the Bank Group Priority Collateral to the extent of the Bank
Group Claims, and the Foothill Group shall have a second priority
security interest therein to the extent of the Foothill Group Claims.
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(ii) The Foothill Group shall have a first priority security
interest in the Foothill Group Priority Collateral to the extent of the
Foothill Group Claims, and the Bank Group shall have a second priority
security interest therein to the extent of the Bank Group Claims.
(iii) Each of the Foothill Group and the Bank Group shall have a
security interest in the Equal Priority Collateral, to the extent of
such Creditor's Claims, that is separate and distinct from, but of equal
priority to, the other Creditor's security interest therein.
For the purposes of the foregoing allocation of priorities, any claim of a right
of setoff shall be treated in all respects as a security interest, and no
claimed right of setoff shall be asserted to defeat or diminish the rights or
priorities provided for herein. The priorities set forth herein are solely for
the purpose of establishing the relative rights of the Creditors and, except as
provided in Sections 17(a) or 17(c) hereof, there are no other persons or
entities who are intended to be benefitted in any way by this Agreement.
3. Distribution of Proceeds of Collateral. During any
Enforcement Period, all net cash proceeds from realizations upon Collateral
shall be distributed in accordance with the following procedure:
(a) All net cash proceeds from realizations upon Foothill
Group Priority Collateral shall be applied first to the Foothill Group Claims.
After the Foothill Group Claims are paid in full, in cash, any remaining net
cash proceeds from realizations upon Foothill Group Priority Collateral shall be
paid to the Bank Group Claims until they are paid in full, in cash. After the
Bank Group Claims are paid in full, in cash, any remaining net cash proceeds
from realizations upon Foothill Group Priority Collateral shall be paid to the
Foothill Group Excess Claims until they are paid in full, in cash. After the
Foothill Group Excess Claims are paid in full, in cash, any remaining net cash
proceeds from realizations upon Foothill Group Priority Collateral shall be paid
to the Bank Group Excess Claims until they are paid in full, in cash.
(b) All net cash proceeds from realizations upon the Bank
Group Priority Collateral shall be applied first to the Bank Group Claims. After
the Bank Group Claims are paid in full, in cash, any remaining net cash proceeds
from realizations upon the Bank Group Priority Collateral shall be applied to
the Foothill Group Claims until they are paid in full, in cash. After the
Foothill Group Claims are paid in full, in cash, any remaining net cash proceeds
from realizations upon the Bank Group Priority Collateral shall be applied to
the Bank Group Excess Claims until they are paid in full, in cash. After the
Bank Group Excess
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Claims are paid in full, in cash, any remaining net cash proceeds from
realizations upon the Bank Group Priority Collateral shall be applied to the
Foothill Group Excess Claims until they are paid in full, in cash.
(c) 50% of all net cash proceeds from realizations upon Equal
Priority Collateral shall be applied to the Foothill Group Claims and the other
50% of all net cash proceeds from realizations upon Equal Priority Collateral
shall be applied to the Bank Group Claims. After either Creditor's Claims are
paid in full, in cash, any remaining net cash proceeds from realizations upon
Equal Priority Collateral shall be applied to the other Creditor's Claims until
they are paid in full, in cash. After both Creditors' Claims are paid in full,
in cash, any remaining cash proceeds from realizations upon Equal Priority
Collateral shall be applied 50/50 to any Foothill Group Excess Claims and/or
Bank Group Excess Claims until they are paid in full.
(d) After all of the Claims, any Foothill Group Excess Claims,
and any Bank Group Excess Claims, have been paid or otherwise satisfied in full,
in cash, the balance of net cash proceeds from realizations upon Collateral, if
any, shall be paid to Debtor or as otherwise required by applicable law.
(e) Should any Identifiable Proceeds of Collateral be received
by any Creditor (the "Receiving Creditor") which, to the actual knowledge of
such Receiving Creditor, should, in accordance with the terms of this Section 3,
be paid to another Creditor (the "Entitled Creditor"), the Receiving Creditor
shall hold such Identifiable Proceeds for the benefit of the Entitled Creditor
and shall promptly deliver the same (in kind, if practicable, or otherwise its
equivalent) to the Foothill Group Agent or the Bank Group Agent, as the case may
be, for application to (in the case of cash or its equivalent), or to be held as
collateral for (in the case of other property), the Foothill Group Claims or the
Bank Group Claims, as applicable, together with any necessary non-recourse
assignment or endorsement. If the Receiving Creditor fails to provide any such
assignment or endorsement, the Entitled Creditor may supply the same. No
Creditor shall have liability for, nor shall be required to disgorge, any
accidental application of Identifiable Proceeds to the reduction of its Claims
if it received same without actual knowledge that another Creditor was entitled
thereto and applied same to reduction of its own Claims in the good faith belief
that it was entitled so to do, to the extent that it extended further credit or
financial accommodations as a consequence of or in reliance upon such receipt
and application.
4. Enforcement Actions. The Creditors agree that:
(a) The Foothill Group may, at its option, during any
Enforcement Period relating to the Foothill Group Claims, take any Enforcement
Action it deems appropriate with
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respect to the Foothill Group Priority Collateral or the Equal Priority
Collateral, without any requirement that it obtain the prior consent of the Bank
Group; provided that, prior to or concurrent with the taking of any such
Enforcement Action, the Foothill Group Agent will endeavor in good faith to give
to the Bank Group Agent a Foothill Group Equal Priority Collateral Enforcement
Notice (but the failure to give such a notice shall not give rise to any
liability on the part of the Foothill Group Agent or the Foothill Group unless
such failure was intentional or in bad faith).
(b) The Bank Group may, at its option, during any Enforcement
Period relating to the Bank Group Claims, take any Enforcement Action it deems
appropriate with respect to the Bank Group Priority Collateral, without any
requirement that it obtain the prior consent of the Foothill Group; provided,
however, that (i) the Bank Group hereby agrees that the Foothill Group Agent (or
its duly authorized agents or representatives), at its option, shall have the
right and license to use, in peace and without disturbance by the Bank Group
(provided that ongoing efforts of the Bank Group to find buyers for, or to
arrange to consummate sales or other dispositions of, such Fixed Assets (or of
the Stock of any Obligor that owns such Fixed Assets, or of the Stock of any
other Obligor of which the owner of such Fixed Assets is a Subsidiary),
including showing same to potential buyers, and including instituting procedural
steps necessary or incidental to foreclosure such as the giving or publication
of notices, the commencement of legal proceedings, or the scheduling of sales or
auctions, shall not be considered disturbance of the Foothill Group Agent's
right of peaceful and undisturbed use so long as such efforts do not, in fact,
substantially disrupt or interfere with such use), all or part of the Fixed
Assets included in the Bank Group Priority Collateral for a period of time not
to exceed 30 days after the first to occur of (x) the Foothill Group Agent's
receipt of notice from the Bank Group Agent that the Bank Group Agent intends to
dispose of certain specified Fixed Assets 30 days hence, (y) the Bank Group
Agent's receipt of notice from the Foothill Group Agent of the Foothill Group's
request for license to use certain specified Fixed Assets and that such license
period commence, or (z) the date on which the Foothill Group Agent first
receives possession of the Foothill Group Priority Collateral, conditioned on
the payment by the Foothill Group to the Bank Group Agent for the benefit of the
Bank Group of reasonable rent for any Fixed Assets constituting Bank Group
Priority Collateral identified in the notice described in subparagraph (x) or
(y), as applicable, above with respect to the period of their actual use; such
right and license being provided to the Foothill Group Agent to enable it (or
its agents) to complete the manufacture, assembly, and sale of Inventory of
Debtor extant at the time of the receipt of such notice, and (ii) from and after
the commencement of and during the continuation of such period, the right of the
Bank Group to take any such Enforcement Action with respect to that portion of
the Bank Group Priority Collateral that is the subject of such right and license
shall be subject to the right and license of use thereof by the Foothill Group
Agent, as delineated above; provided, however, if the Foothill Group is enjoined
or stayed from taking any of the preceding Enforcement
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<PAGE> 16
Actions by a court of competent jurisdiction or the commencement of an
insolvency proceeding, then the 30-day period referred to above shall be
extended by the number of days in which the Foothill Group is so enjoined or
stayed (the "Extension Period"); provided, further, that such Extension Period
shall not exceed 30 days (A) if the Bank Group is not enjoined or stayed from
exercising its Enforcement Actions with respect to Fixed Assets included in the
Bank Group Priority Collateral during such Extension Period, or (B) if the Bank
Group is so enjoined or stayed during the Extension Period, after the date of
such injunction or stay as to the exercise of the Bank Group's Enforcement
Actions is vacated.
(c) Except as permitted by and in accordance with Section 7
hereof, until the Bank Group Claims have been paid or satisfied in full, the
Foothill Group Agent shall not take any Enforcement Action against the Bank
Group Priority Collateral without first obtaining the prior written consent of
the Bank Group in its sole and absolute discretion.
(d) Except as permitted by and in accordance with Section 7
hereof, until the Foothill Group Claims have been paid or satisfied in full, the
Bank Group shall not take any Enforcement Action against the Foothill Group
Priority Collateral or the Equal Priority Collateral without first obtaining the
prior written consent of the Foothill Group in its sole and absolute discretion.
(e) To the extent that any Bank now or hereafter maintains
deposit accounts for, or provides lock box services to, Debtor, such Bank, for
the benefit of the Foothill Group, so long as any Foothill Group Claims remain
outstanding or the Foothill Group has any commitment to extend credit to Debtor,
irrevocably waives any right to set off funds in such deposit accounts or lock
boxes against obligations due such Bank or the Bank Group, except only that such
Bank may recoup from funds in such deposit accounts or lock boxes its customary
service charges and fees relating to the provision of deposit account or lock
box services (subject to the terms of any applicable lockbox account agreement).
5. Waiver of Right to Require Marshaling. Each Creditor
expressly hereby waives any right that it otherwise might have to require the
other Creditor to marshal assets or to resort to Collateral in any particular
order or manner, whether provided for by common law or statute, including the
provisions of California Civil Code Sections 2899 and 3433, provided that this
paragraph shall not override any specific provision of this Agreement. No
Creditor shall be required to enforce any guaranty or any security interest
given by any Person as a condition precedent or concurrent to the taking of any
Enforcement Action.
6. Exercise of Remedies. Subject only to any express
provision of this Agreement that requires a Creditor to take or refrain from
taking an action, (a) each Creditor may exercise its good faith discretion with
respect to exercising or refraining from exercising
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<PAGE> 17
any of its rights and remedies or taking any Enforcement Action, (b) the Bank
Group agrees that the Foothill Group shall not incur any liability to the Bank
Group for taking or refraining from taking any action with respect to the
Foothill Group Priority Collateral or the Equal Priority Collateral, and (c) the
Foothill Group agrees that the Bank Group shall not incur any liability to the
Foothill Group for taking or refraining from taking any action with respect to
the Bank Group Priority Collateral or, subject to the provisions hereof, the
Equal Priority Collateral.
7. Enforcement of Junior or Equal Priority Security Interests
in Collateral.
(a) If (i)(x) 120 consecutive days have elapsed since the
giving by the Bank Group Agent to the Foothill Group Agent of a Bank Group
Enforcement Notice, (y) one or more Bank Group Events of Default shall have
existed at each point in time during such elapsed period, and (z) at the
conclusion of such elapsed period, one or more Bank Group Events of Default
remain in existence and have not been waived, or (ii) there is commenced, either
by or against Debtor, a bankruptcy or insolvency proceeding, then, subject to
applicable law, and subject to compliance with the terms and provisions of the
Bank Group Financing Documents, the Bank Group may proceed to take Enforcement
Action against the Foothill Group Priority Collateral or the Equal Priority
Collateral (in the case of clause (ii) above, solely with respect to Collateral
of the applicable Person which is the subject of such proceeding), provided that
such Enforcement Action is subject to all prior rights (including Section 3
hereof) of the Foothill Group in the Foothill Group Priority Collateral and all
rights (including Section 3 hereof) of the Foothill Group in the Equal Priority
Collateral, as the case may be.
(b) If (i)(x) 120 consecutive days have elapsed since the
giving by the Foothill Group Agent to the Bank Group Agent of a Foothill Group
Enforcement Notice, (y) one or more Foothill Group Events of Default shall have
existed at each point in time during such elapsed period, and (z) at the
conclusion of such elapsed period, one or more Foothill Group Events of Default
remain in existence and have not been waived, or (ii) there is commenced, either
by or against Debtor, a bankruptcy or insolvency proceeding, then, subject to
applicable law, and subject to compliance with the terms and provisions of the
Foothill Group Financing Documents, the Foothill Group may proceed to take
Enforcement Action against the Bank Group Priority Collateral (in the case of
clause (ii) above, solely with respect to Collateral of the applicable Person
which is the subject of such proceeding), provided that such Enforcement Action
is subject to all prior rights (including Section 3 hereof) of the Bank Group in
the Bank Group Priority Collateral and the limited rights (including Section 3
hereof) of the Bank Group with respect to the Equal Priority Collateral, as the
case may be.
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<PAGE> 18
8. Cross-Defaults and Unwind Provisions. If a Bank Group
Event of Default exists that is premised solely on the existence of a Foothill
Group Event of Default or on the giving by the Foothill Group Agent of a
Foothill Group Enforcement Notice, and if such Foothill Group Event of Default
is waived, or such Foothill Group Enforcement Notice is withdrawn or rescinded
by the Foothill Group Agent or the Foothill Group, then that Bank Group Event of
Default likewise automatically shall be waived. The immediately foregoing
sentence notwithstanding, if, at the time of such cure, waiver, or rescission,
other Bank Group Events of Default also exist that are not premised solely on
the existence of a Foothill Group Event of Default or on the giving by the
Foothill Group Agent of a Foothill Group Enforcement Notice, such other Bank
Group Events of Default shall not automatically be waived pursuant to the
provisions of the immediately foregoing sentence. If a Foothill Group Event of
Default exists that is premised solely on the existence of a Bank Group Event of
Default or on the giving by the Bank Group Agent of a Bank Group Enforcement
Notice, and if such Bank Group Event of Default is waived, or such Bank Group
Enforcement Notice is withdrawn or rescinded by the Bank Group Agent or the Bank
Group, then that Foothill Group Event of Default likewise automatically shall be
waived. The immediately foregoing sentence notwithstanding, if, at the time of
such cure, waiver, or rescission, other Foothill Group Events of Default also
exist that are not premised solely on the existence of a Bank Group Event of
Default or on the giving by the Bank Group Agent of a Bank Group Enforcement
Notice, such other Foothill Group Events of Default shall not automatically be
waived pursuant to the provisions of the immediately foregoing sentence. If a
Creditor is taking Enforcement Action against Collateral in accordance with the
terms and provisions of this Agreement, premised on the existence of one or more
Events of Default, and if all such Events of Default are waived, then such
Creditor promptly shall suspend further Enforcement Action; provided however,
that such Creditor will not be required to do so if it might incur liability or
it might breach commitments it already has entered into in connection with such
Enforcement Action (such as, by way of illustration, but not by way of
limitation, enforceable agreements to dispose of Collateral).
9. UCC Notices. In the event that any Creditor shall be
required by the UCC or any other applicable law to give any notice to the other
Creditor, such notice shall be given in accordance with Section 21 hereof and 5
Business Days notice shall be conclusively deemed to be commercially reasonable.
Any notice given pursuant to this section is agreed to comply with the timing
and addressing requirements of Sections 9504 and 9505 of the UCC. To the extent
that any Creditor is entitled by Sections 9504 or 9505 of the UCC to request
notice from any other Creditor, this Section 9 constitutes such a request.
10. Independent Credit Investigations. No Creditor nor any of
its respective directors, officers, agents, employees, attorneys, shareholders,
or professionals shall be responsible to any other Creditor or to any other
person or entity for Debtor's solvency,
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<PAGE> 19
creditworthiness, financial condition, or ability to repay any of the Claims or
for the accuracy of any recitals, statements, representations, or warranties of
Debtor, oral or written, or for the validity, sufficiency, enforceability, or
perfection of the Claims or the Financing Documents, or any security interests
or liens granted by Debtor to any Creditor in connection therewith. Each
Creditor has entered into its respective Financing Documents with Debtor based
upon its own independent investigation, and makes no warranty or representation
to the other Creditor, nor does it rely upon any representation of the other
Creditor with respect to matters identified or referred to in this paragraph.
Neither Creditor shall have any responsibility to the other Creditor for
monitoring or assuring compliance by Debtor with any of Debtor's covenants or
representations made to either Creditor. Without limiting the generality of the
foregoing, either Creditor may perform in accordance with the terms of its
Financing Documents (subject to this Agreement) without regard to whether
Debtor's performance in accordance with the terms thereof might or would
constitute or result in a breach of covenants or representations under the other
Creditor's Financing Documents, and under no circumstances shall any Creditor be
liable to the other for inducing a breach or violation of the other's Financing
Documents by virtue of performing in accordance with the terms of its own
Financing Documents (subject to this Agreement).
11. Non-Avoidability and Perfection of Liens; No Challenge.
The subordinations and relative priorities set forth in this Agreement are
expressly conditioned upon the validity, enforceability, non-avoidability, and
perfection of the security interest to which another security interest is
subordinated or made of equal priority, as the case may be. If the security
interest to which another security interest is subordinated is not valid,
enforceable, or perfected, or is voidable for any reason, then the subordination
provided for herein shall not be effective to the extent of such invalidity,
unenforceability, non-perfection, or avoidability. The Foothill Group agrees for
the benefit of the Bank Group not to challenge or seek to avoid any lien or
security interest of the Bank Group, or the validity, enforceability, priority,
or perfection thereof. The Bank Group agrees for the benefit of the Foothill
Group not to challenge or seek to avoid any lien or security interest of the
Foothill Group, or the validity, enforceability, priority or perfection thereof.
No Creditor will file or join in any motion to substantively consolidate
Insolvency Proceedings of any Obligors without the consent of the other
Creditors.
12. Perfection of Possessory, Etc. Security Interests. For the
limited purpose of perfecting the security interests of the Creditors in those
types or items of Collateral in which a security interest may be perfected by
possession, dominion, or control, including, without limitation, certificated
securities, instruments, money, or deposit accounts, each Creditor hereby
appoints the other as its bailee for the limited purpose of possessing on its
behalf, or exercising dominion or control on its behalf over, any such
Collateral that may come into the possession, dominion, or control of such other
Creditor from time to time, and
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<PAGE> 20
each Creditor agrees to act as the other's bailee for such limited purpose of
perfecting the other's security interest by possession, dominion, or control
through a bailee, provided that neither Creditor shall incur any liability to
the other Creditor by virtue of acting as the other's bailee hereunder, and
either Creditor may relinquish possession, dominion, or control of Collateral in
its possession, dominion, or control without the consent of the other Creditor,
and without incurring liability to the other Creditor, unless there is an
express written agreement to the contrary in effect between the Creditors. To
the extent that any Creditor relinquishes possession, dominion, or control of
Collateral at a time when the other Creditor would be entitled to possession,
dominion, or control over such Collateral, the relinquishing Creditor will
endeavor in good faith to turn over possession, dominion, or control thereof to
the other Creditor (rather than to Debtor), but shall have no liability for any
failure to do so that is not the result of bad faith or willful misconduct.
13. Amendments, Modifications and Increases; Consent to
Foothill Group Financing Documents. Each Creditor may enter into amendments,
modifications, renewals, or extensions of its Financing Documents with Debtor,
or may increase or decrease the credit facilities made available by it to
Debtor, without in any way affecting the rights and obligations of the Creditors
under this Agreement. The Bank Group hereby consents to the execution, delivery,
and performance by the Foothill Group and Debtor of the Foothill Group Financing
Documents. The Foothill Group hereby consents to the execution, delivery, and
performance by the Bank Group and Debtor of the Bank Group Financing Documents.
Should either or both Creditors cease extending further credit to Debtor, this
Agreement nevertheless shall continue in effect as to the outstanding Claims of
each Creditor until this Agreement is terminated as set forth in Section 14
hereof.
14. Termination; Conditional Revival and Reinstatement. This
Agreement is a continuing agreement, and, unless both Creditors have
specifically consented in writing to its earlier termination, this Agreement
shall remain in full force and effect in all respects until the earlier of (a)
such time as the Foothill Group Claims are paid or otherwise satisfied in full,
the Foothill Group has no further commitment to extend credit facilities to
Debtor, and the Foothill Group Agent has released or terminated its security
interest in the Collateral, or (b) such time as the Bank Group Claims are paid
or otherwise satisfied in full, the Bank Group has no commitment to extend
credit facilities to Debtor, and the Bank Group has released or terminated its
security interest in the Collateral. The foregoing notwithstanding, if this
Agreement has terminated, and if a Creditor (for purposes of this Section 14,
the "Disgorging Creditor") thereafter is required to return or disgorge any
payment or transfer received by it such that such Creditor has a revived and
reinstated Claim against Debtor, then, if such Disgorging Creditor gives notice
of such circumstance to the other Creditors, and to the extent that such other
Creditors continue to hold Claims or continue to have commitments to extend
credit facilities to Debtor, this Agreement shall be revived and reinstated
prospectively from
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<PAGE> 21
the time of receipt of such notice, provided that such other Creditors shall
not, as the consequence of such revival and reinstatement: (a) have any
liability as the result of any acts or omissions taken or omitted to be taken
during any period that this Agreement was terminated; or (b) be required to
return, disgorge, or account for any payments or transfers received by them
(whether or not from Collateral) during any period that this Agreement was
terminated.
15. Accountings. Each Creditor agrees, upon the occurrence of
any Enforcement Action, to provide the other Creditor, upon reasonable request,
periodic accountings of the amount of such Creditor's Claims, giving effect to
any applications of realizations upon Collateral.
16. Effect of Bankruptcy. This Agreement shall be and remain
enforceable notwithstanding any bankruptcy or other insolvency proceeding by or
against Debtor.
17. Control of Dispositions of Collateral and Effect thereof
on Junior or Equal Priority Security Interests.
(a) Notwithstanding any provision, term, or condition to the
contrary contained in the Bank Group Financing Documents or the Foothill Group
Financing Documents, so long as no Event of Default has occurred and is
continuing or would result from giving effect to such Sale, and subject to the
Minimum Availability Condition (except to the extent, if any, that such
condition is waived by the Foothill Group in its sole and absolute discretion
and except that the Minimum Availability Condition shall not be applicable to
Sales by Debtor pursuant to Section 17(a)(ii) of this Agreement), the Creditors
each agree for their mutual benefit that Debtor shall be entitled to make Sales
of the Fixed Assets composing the Collateral subject to the following terms and
conditions and so long as the Net Sale Consideration from such Sales of Fixed
Assets is distributed as follows:
(i) The consideration for each such Sale shall be all
cash; provided, however, in the event that the Net Sales Consideration
received in any such Sale is in excess of $15,000,000, the consideration
for such Sale may consist of (y) cash, and (z) promissory notes (each
such note a "Purchaser Note") in an aggregate principal amount not to
exceed the lesser of:
(A) 50% of the aggregate proceeds received in
such Sale; or
(B) the aggregate Net Sale Consideration
received in connection with such Sale minus
the aggregate OLV of the assets subject to
such Sale;
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provided, further, that (x) subject to subsection 17(a)(v), each such
Purchaser Note shall be pledged to the Bank Group Agent for the benefit
of the Bank Group and the Foothill Group Agent for the benefit of the
Foothill Group, (y) if more than one person is purchasing assets in any
Sale in which one or more Purchaser Notes are issued, each such Person
shall be jointly and severally liable on each such Purchaser Note, and
(z) the creditworthiness of the issuer(s) of any such Purchaser Notes
and the terms of any such Purchaser Notes shall be reasonably
satisfactory to the Creditor(s), as applicable, entitled to receive the
pledge of such Purchaser Note(s).
(ii) With respect to any Sale of Fixed Assets that
compose Akashic Foreign Collateral, StorMedia Foreign Collateral, or
StorMedia Domestic Collateral, Debtor shall apply the proceeds of any
such Sale to the prepayment of the Bank Group Claims in the following
amounts:
(A) in the case of any Above OLV Sale, the
prepayment shall be in an amount equal to
the lesser of (1) the Net Sale Consideration
for such Sale, and (2) the sum of (a) the
Minimum Prepayment Amount, plus (b) the
Excess Prepayment Amount[, plus (c) if the
Prepayment Carryforward is then a negative
number, an amount equal to the absolute
value of the Prepayment Carryforward]; and
(B) in the case of any Below OLV Sale, the
prepayment shall be in an amount equal to
the greater of (1) the Minimum Prepayment
Amount minus the aggregate amount of the
Prepayment Carryforward (if a positive
number) at the time of the Sale, and (2) the
Net Sale Consideration for such Sale. Unless
the Bank Group Agent and each of the members
of the Bank Group have otherwise consented
thereto, Debtor may not commit to enter
into, or consummate, a Below OLV Sale if,
after giving effect to such Below OLV Sale
and any prepayment made to the Bank Group
Agent for the benefit of the Bank Group in
connection therewith, the Prepayment
Carryforward would be a negative number.
(C) If the consideration for any such Sale is
permitted to consist of Purchaser Notes
pursuant to clause (i) of this
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subsection 17(a), then up to 50% of the
amount payable to the Bank Group pursuant to
clause (ii) of this subsection 17(a) may
consist of Purchaser Notes; provided,
however, that:
(1) the issuer(s) of Purchaser Notes
shall issue two such Purchaser Notes
each equal to one-half of the amount
to be evidenced by Purchaser Notes;
(2) Debtor shall irrevocably instruct the
issuer(s) of Purchaser Notes in such
Sale to make payments on one such
note directly to the Bank Group Agent
for the benefit of the Bank Group;
(3) so long as there is no Bank Group
Event of Default, payments under the
other Purchaser Note issued in such
Sale may be made directly to Debtor;
(4) anything contained in Section 3
hereof to the contrary
notwithstanding, after the occurrence
of a Bank Group Event of Default,
upon notice from the Bank Group
Agent, the issuer(s) of such other
Purchaser Note(s) shall be
irrevocably instructed to make
payments on all such other Purchaser
Note(s) directly to the Bank Group
Agent for the benefit of the Bank
Group;
(5) any such payments made to the Bank
Group Agent shall be applied to the
prepayment of the Bank Group Claims
in accordance with the provisions of
the Bank Group Agreement; and
(6) the principal amount of any Purchaser
Note shall not be included in the
calculation of the Prepayment
Carryforward or the Carryforward
Reduction Amount.
(iii) With respect to any Sale of Fixed Assets that
compose Akashic Domestic Collateral (other than the Tasman Facility),
Debtor shall
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<PAGE> 24
retain or apply the proceeds of any such Sale to the prepayment of the
Bank Group Claims and the Foothill Group Claims in the following
amounts:
(A) Debtor may retain the first $7,000,000 in
net cash proceeds from any such Sale and use
the same for any lawful general corporate
purpose; and
(B) to the extent that the net cash proceeds of
all such Sales of Akashic Domestic
Collateral are in excess of $7,000,000,
Debtor shall make a mandatory prepayment of
the Bank Group Claims in accordance with the
provisions of the Bank Group Agreement in an
amount equal to 50% of such excess. The
remaining 50% shall be paid to the Foothill
Group Agent for application to the Foothill
Group Claims.
(iv) With respect to any Sale of Fixed Assets that
compose the Tasman Facility portion of the Akashic Domestic Collateral,
Debtor shall apply the proceeds of any such Sale to the prepayment of
the Bank Group Claims and the Foothill Group Claims in accordance with
the provisions of the Bank Group Agreement and the Foothill Group
Agreement in the following order:
(A) Debtor shall make a mandatory prepayment of
the Foothill Group Claims in the amount, if
any, required to be prepaid under the
Foothill Group Agreement as a result of such
Sale (which may be the entire such amount);
(B) Debtor shall make a mandatory prepayment of
the Bank Group Claims in accordance with the
provisions of the Bank Group Agreement in an
amount equal to 50% of the Net Sale
Consideration of any such Sale, if any,
remaining after making any prepayment
required by subsection 17(a)(iv)(A); and
(C) Debtor may retain the remainder of any such
proceeds from any such Sale, if any, and use
the same for any lawful general corporate
purpose.
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<PAGE> 25
(v) To the extent that the consideration for any
Permitted Sale is paid in the form of Purchaser Notes in accordance with
subsection 17(a)(i), such Purchaser Notes shall be issued as follows;
(A) with respect to Purchaser Notes that are
proceeds of Foothill Group Priority
Collateral:
(1) to the extent such proceeds would
have been payable to the Bank Group
if received in cash, a Purchaser Note
for such amount shall be payable
directly to the Bank Group Agent for
the benefit of the Bank Group and
such Purchaser Note shall be pledged
to the Bank Group Agent; and
(2) to the extent such proceeds would
have been payable to the Foothill
Group or to Debtor, a Purchaser Note
for such amount shall be payable to
the Debtor and pledged to the
Foothill Group Agent, with any
payments or collections thereon to be
applied in accordance with the terms
of the Foothill Group Financing
Documents; and
(B) with respect to Purchaser Notes that are
proceeds of Bank Group Priority Collateral:
(1) to the extent such proceeds would
have been payable to the Bank Group
if received in cash, a Purchaser Note
for such amount shall be payable
directly to the Bank Group Agent for
the benefit of the Bank Group and
such Purchaser Note shall be pledged
to the Bank Group Agent; and
(2) to the extent such proceeds would
have been payable to the Debtor, a
Purchaser Note for such amount shall
be payable to Debtor and pledged to
the Bank Group Agent, with any
payments or collections thereon to be
applied in accordance with the terms
of the Bank Group Financing
Documents, provided that, until the
Bank Group Agent notifies the obligor
under such Purchaser
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<PAGE> 26
Note that a Bank Group Event of
Default has occurred, any payments
with respect thereto shall be treated
the same as "Collections" under the
Foothill Group Loan Agreement and
shall be directed into and through
the "Lockboxes" provided for therein.
(vi) The principal amount of any Purchaser Note shall
not be included in the calculation of the Prepayment Carryforward or the
Carryforward Reduction Amount.
(vii) To the extent of any disposition of Collateral
governed by and made in compliance with subsection 17(a), each Creditor
agrees to release its security interest in the Collateral being sold
concurrent with the sale thereof.
(viii) Anything to the contrary in Section 17(a)(iii) or
(iv) notwithstanding, Debtor must obtain the prior consent of the
Foothill Group to effect a Sale of Domestic Collateral consisting of
Fixed Assets of Akashic, except that such consent shall not be required
for Sales: (A) not to exceed $2,000,000 of Foothill OLV in the aggregate
of Fixed Assets with individual with Foothill OLV of less than or equal
to $250,000; or (B) with Net Sale Consideration of at least 70% of the
Foothill OLV of the Fixed Assets being sold.
(b) Subject to Section 17(c) hereof, and subject to the
Malaysian Exception, all other dispositions of any Collateral not the subject of
the provisions of Section 17(a) shall be subject to the following provisions:
(i) Each Creditor hereby agrees that, as of any date of
determination and with respect to any Collateral: (A) if the Creditor
with the senior security interest in such Collateral (other than the
Equal Priority Collateral) shall have agreed with Debtor that Debtor may
sell such Collateral, then the security interest of the other Creditor
in such Collateral shall be released by such other Creditor concurrently
with such sale or other disposition and, except as otherwise agreed by
the Creditors, the net cash proceeds therefrom shall be applied to the
Claims of the Creditors in the manner provided in Section 3 hereof; and
(B) if any Creditor then permitted hereunder to sell or dispose of the
Equal Priority Collateral shall have agreed with Debtor that Debtor may
sell such Collateral, then the security interest of the other Creditor
in such Collateral shall be released by such other Creditor concurrently
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<PAGE> 27
with such sale or other disposition and, except as otherwise agreed by
the Creditors, the net cash proceeds therefrom shall be applied to the
Claims of the Creditors in the manner provided in Section 3 hereof;
(ii) Each Creditor hereby further agrees that: (A) any
UCC collection, sale, or other disposition of Foothill Group Priority
Collateral by the Foothill Group Agent shall be free and clear of any
security interest, lien, claim or offset of the Bank Group in such
Foothill Group Priority Collateral, provided that the Bank Group shall
retain a junior security interest and lien on the proceeds of such
collection, sale, or other disposition (except to the extent such
proceeds are applied to the Foothill Group Claims or, with the consent
of the Creditors, are used by Debtor for general corporate purposes as
set forth in subsection (i) of this Section 17(b)); (B) any UCC
collection, sale, or other disposition of the Bank Group Priority
Collateral by the Bank Group shall be free and clear of the junior
security interest of the Foothill Group in such Bank Group Priority
Collateral, provided that the Foothill Group shall retain a junior
security interest and lien on the proceeds of such collection, sale, or
other disposition (except to the extent such proceeds are applied to the
Bank Group Claims or, with the consent of the Creditors, are used by
Debtor for general corporate purposes as set forth in subsection (i) of
this Section 17(b)); and (C) any UCC collection, sale, or other
disposition of Equal Priority Collateral by either Creditor then
permitted hereunder to sell or dispose of the Equal Priority Collateral
shall be free and clear of the equal priority security interest of the
other Creditor in such Equal Priority Collateral, provided that such
other Creditor shall retain an equal priority security interest and lien
on the proceeds of such collection, sale, or other disposition; and
(iii) To the extent reasonably requested by either
Creditor, the other Creditor will cooperate in providing any necessary
or appropriate releases to permit a collection, sale, or other
disposition of Collateral, as provided in subsections (i) or (ii) of
this Section 17(b), by the Creditor holding the senior security interest
therein free and clear of the other Creditor's junior security interest
or by the Creditor conducting the collection, sale, or other disposition
of the Equal Priority Collateral (as permitted by the provisions hereof)
free and clear of the other Creditor's equal priority security interest
therein (except as to the proceeds thereof as set forth herein).
(c) Special Rules for Stock Sales. Subject to the Malaysian
Exception, the Foothill Group Agent may make, or permit to be made by an
Obligor, a Stock Sale of the Stock of any Foothill Group Priority Subsidiary,
either with the consent of the Obligor that
27
<PAGE> 28
owns such Stock, or without such consent pursuant to the lawful exercise of its
rights as a secured creditor, in either case without the consent of the Bank
Group, so long and only so long as, unless the Creditors agree otherwise, the
related Stock Sale Consideration is at least equal to the Relevant Minimum
Price, and so long and only so long as, unless the Creditors agree otherwise,
such Stock Sale Consideration is applied as set forth below. In connection with
any such Stock Sale referred to in the preceding sentence, the Bank Group Agent
shall release its security interests and liens on any Relevant Released
Collateral related to such Stock Sale, shall release any guaranties from the
Person whose Stock is the subject of such Stock Sale, or any Subsidiary of such
Person, and the Stock Sale Consideration shall be paid, first, to the Foothill
Group Agent for the benefit of the Foothill Group, to the extent of the Agreed
Asset Value of the Accounts and Inventory, if any, that are included within the
Relevant Released Collateral, second, to the Bank Group Agent for the benefit of
the Bank Group, to the extent of the Agreed Asset Value of the Fixed Assets
other than Akashic Domestic Collateral, if any, that are included within the
Relevant Released Collateral, third, to the Foothill Group Agent for the benefit
of the Foothill Group to the extent of the lesser of any such remaining proceeds
and the Agreed Asset Value of the Fixed Assets consisting of Akashic Domestic
Collateral, if any, included within the Relevant Released Collateral, and,
fourth, if there are any remaining proceeds, divided equally (50/50) among the
Foothill Group Agent for the benefit of the Foothill Group and the Bank Group
Agent for the benefit of the Bank Group. The Bank Group Agent may make, or
permit to be made by an Obligor, a Stock Sale of the Stock of any Bank Group
Priority Subsidiary, either with the consent of the Obligor that owns such
Stock, or without such consent pursuant to the lawful exercise of its rights as
a secured creditor, in either case without the consent of the Foothill Group, so
long and only so long as, unless the Creditors agree otherwise, the related
Stock Sale Consideration is at least equal to the Relevant Minimum Price, and so
long and only so long as, unless the Creditors agree otherwise, such Stock Sale
Consideration is applied as set forth below. In connection with any such Stock
Sale referred to in the preceding sentence, the Foothill Group Agent shall
release its security interests and liens on any Relevant Released Collateral
related to such Stock Sale, shall release any guaranties from the Person whose
Stock is the subject of such Stock Sale, or any Subsidiary of such Person, and
the Stock Sale Consideration shall be paid, first, to the Foothill Group Agent
for the benefit of the Foothill Group, to the extent of the Agreed Asset Value
of the Accounts and Inventory, if any, that are included within the Relevant
Released Collateral, second, to the Bank Group Agent for the benefit of the Bank
Group, to the extent of the lesser of any such remaining proceeds and the Agreed
Asset Value of the Fixed Assets, if any, that are included within the Relevant
Released Collateral and, third, if there are any remaining proceeds, divided
equally (50/50) among the Foothill Group Agent for the benefit of the Foothill
Group and the Bank Group Agent for the benefit of the Bank Group.
28
<PAGE> 29
18. Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, the singular
includes the plural, the part includes the whole, "including" is not limiting,
and "or" has the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Section references are to this Agreement unless otherwise specified.
19. Modifications in Writing. No amendment, modification,
supplement, termination, consent, or waiver of or to any provision of this
Agreement nor any consent to any departure therefrom shall in any event be
effective unless the same shall be in writing and signed by or on behalf of the
Creditors. Any waiver of any provision of this Agreement, or any consent to any
departure from the terms of any provisions of this Agreement, shall be effective
only in the specific instance and for the specific purpose for which given.
20. Waivers; Failure or Delay. No failure or delay on the part
of either Creditor in the exercise of any power, right, remedy, or privilege
under this Agreement shall impair such power, right, remedy, or privilege or
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such power, right, or privilege preclude any other or further exercise of
any other power, right, or privilege. The waiver of any such right, power,
remedy, or privilege with respect to particular facts and circumstances shall
not be deemed to be a waiver with respect to other facts and circumstances.
21. Notices. All notices hereunder shall be effective upon
receipt, shall be in writing, and shall be sent by U.S. mail, Federal Express
overnight courier (or the equivalent), hand delivery by a reputable and reliable
professional courier service, mailgram, telefacsimile, telegram, or telex as
follows:
If to
the Foothill
Group: C/O FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
Attn: Business Finance Division Manager
Telecopier: 310.478.9788
29
<PAGE> 30
With a
copy to: BROBECK, PHLEGER & HARRISON LLP
550 S. Hope Street, Suite 2100
Los Angeles, CA 90071
Attn: Jeffrey S. Turner, Esq.
Telecopier: 213.239.1324
If to the
Bank Group: c/o CANADIAN BANK OF COMMERCE,
NEW YORK AGENCY, as the Bank Group Agent
425 Lexington Avenue, 8th Floor
New York, New York 10017
Attn: Marc Bilbao
Telecopier: 212.856.4135
With a
copy to: SIDLEY & AUSTIN
555 West Fifth Street, 40th Floor
Los Angeles, CA 90013-1010
Attn: Jennifer C. Hagle, Esq.
Telecopier: 213.896.6600
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. The failure to send a copy of notice to the individuals who are shown
above as being required to receive copies shall not invalidate or otherwise
affect the validity of a notice that is otherwise effectively given. All notices
or demands sent in accordance with this section shall be deemed received on the
earlier of the date of actual receipt or 5 days after the deposit thereof in the
mail.
22. Notice of Unwaived Events of Default and Acceleration. The
Foothill Group Agent and the Bank Group Agent shall each endeavor, in good
faith, to provide each other with notice (in accordance with the notice
provisions hereof) of the acceleration of the Foothill Group Claim or the Bank
Group Claim, as the case may be, or of the existence of unwaived Events of
Defaults under their respective Financing Documents; provided, however, that
neither the Foothill Group Agent nor the Bank Group Agent shall suffer any
liability whatsoever for any failure (other than a willful failure) to send such
notification.
30
<PAGE> 31
23. Headings. Section headings used in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any purpose or affect the construction of this Agreement.
24. No Benefit to Third Parties. The terms and provisions of
this Agreement shall be for the sole benefit of the Foothill Group and the Bank
Group and their respective successors and assigns, and no other person or entity
(including Debtor) shall have any right, benefit, priority, or interest under,
or because of this Agreement, except that Debtor is a third party beneficiary of
Section 17(a) and Section 17(c) only.
25. Counterparts; Telecopy Execution. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, admissible into evidence, and all of which together shall be deemed to
be a single instrument. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile shall also deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
26. Severability of Provisions. Any provision of this
Agreement which is illegal, invalid, prohibited, or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity, prohibition, or unenforceability without
invalidating or impairing the remaining provisions hereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
27. Complete Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended as a complete
statement of the terms and conditions of their agreement. This Agreement shall
not be modified except in a writing signed by the party to be charged, and may
not be modified by conduct or oral agreements.
28. Representations and Warranties of the Bank Group Agent.
The Bank Group Agent hereby represents and warrants to the Foothill Group that:
(a) each Bank has authorized and directed the Bank Group Agent to enter into
this Agreement on behalf of the Bank Group; and (b) each Bank has agreed that
any action taken by the Bank Group Agent, in accordance with the terms of this
Agreement, and the exercise by the Bank Group Agent of its powers set forth in
this Agreement, together with such other powers that are reasonably incidental
thereto, shall be binding upon the Bank Group.
29. Representations and Warranties of the Foothill Group
Agent. The Foothill Group Agent hereby represents and warrants to the Bank Group
that: (a) each lender
31
<PAGE> 32
that is signatory to the Foothill Group Financing Documents has authorized and
directed the Foothill Group Agent to enter into this Agreement on behalf of the
Bank Group; and (b) each lender that is signatory to the Foothill Group
Financing Documents has agreed that any action taken by the Foothill Group
Agent, in accordance with the terms of this Agreement, and the exercise by the
Foothill Group Agent of its powers set forth in this Agreement, together with
such other powers that are reasonably incidental thereto, shall be binding upon
the Foothill Group.
30. Successors and Assigns. This Agreement is binding upon and
inures to the benefit of the successors and assigns of each Creditor. Each
Creditor agrees to maintain a copy of this Agreement together with its copies of
the Financing Documents relating to its Claims. Each Creditor expressly reserves
its right to transfer or assign its Claims, in whole or in part, together with
its rights hereunder, provided that, prior to transferring or assigning any
interest in its Claims to any Person, each Creditor shall disclose to such
Person the existence and contents of this Agreement, shall provide to such
Person a complete and legible copy hereof, shall advise such Person that such
Creditor's security interest in the Collateral is subject to the terms hereof,
and shall require such Person to agree in writing to be bound hereby. Should any
Creditor transfer its Claims, or should such Claims be refinanced, it is
intended that this Agreement will bind successors and assigns of the parties.
Should it become necessary or desirable, however, to re-sign a new agreement
containing substantive terms equivalent to those of this Agreement in all
material respects (although the form of such new agreement or the parties
thereto may be different), to reflect such a realignment of parties, each of the
Creditors and their respective successors and assigns agrees to execute such a
new agreement if requested to do so.
31. Attorneys Fees and Disbursements. In the event of any
dispute concerning the meaning or interpretation of this Agreement that results
in litigation, or in the event of any litigation by a party to enforce the
provisions hereof, the prevailing party shall be entitled to recover from the
non-prevailing party its reasonable attorneys fees and disbursements, and any
actual court costs incurred.
32. Release of Collateral. Creditors agree that either
Creditor may release or refrain from enforcing its security interest in any
Collateral, or permit the use or consumption of such Collateral by Debtor free
of such Creditor's security interest, without incurring any liability to the
other Creditor. The foregoing shall not, however, be deemed to affect the other
Creditor's rights hereunder.
33. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF CALIFORNIA AND THE VALIDITY OF THIS AGREEMENT, AND THE
CONSTRUCTION, INTERPRETATION, AND
32
<PAGE> 33
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO RELATING TO CLAIMS OR
CAUSES OF ACTION ARISING IN CONNECTION HEREWITH SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
34. WAIVER OF TRIAL BY JURY. THE CREDITORS, AND EACH OF THEM,
TO THE FULLEST EXTENT THEY MAY LEGALLY DO SO, HEREBY KNOWINGLY, EXPRESSLY, AND
VOLUNTARILY WAIVE AND RELINQUISH ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO
THIS AGREEMENT, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL TO,
THE DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE. TO THE FULLEST EXTENT THEY MAY LEGALLY DO SO, THE CREDITORS HEREBY
AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING SHALL
BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO TO WAIVER OF ITS OR
THEIR RIGHT TO TRIAL BY JURY.
35. Seagate Disgorgement. If Seagate Technology, Inc. turns
over to any Creditor any payment pursuant to the turnover provisions of the
subordination agreement executed by it in favor of the Creditors, the receiving
Creditor will notify the other Creditor and such amount will be divided in
accordance with the priorities herein to the extent the source thereof can be
identified, and otherwise as if the source thereof was Equal Priority
Collateral.
[remainder of page intentionally left blank]
33
<PAGE> 34
IN WITNESS WHEREOF, the Creditors have entered into this Agreement as of
the date first set forth above, intending to be legally bound hereby.
FOOTHILL CAPITAL CORPORATION, as
the Foothill Group Agent for
the benefit and on behalf
of the Foothill Group
By: /s/
--------------------------------
Name:
Title:
CANADIAN BANK OF COMMERCE,
NEW YORK AGENCY, as the Bank Group
Agent for the benefit and on
behalf of the Bank Group
By: /s/
--------------------------------
Name:
Title:
S-1
<PAGE> 35
Consent, Acknowledgement, and Agreement to be Bound
Each Debtor has received a copy of, and has read, the foregoing Intercreditor
Agreement. Each Debtor agrees to be bound by such agreement, and not to take any
action that would breach or violate the terms thereof. Each Debtor consents to
the execution, delivery, and performance of such agreement by the Foothill Group
Agent and the Bank Group Agent, and agrees that each Debtor's obligations to the
Foothill Group and the Bank Group are not altered or diminished by such
agreement. Each Debtor acknowledges that no Debtor has any rights under the
foregoing agreement and is not a third party beneficiary of such agreement,
except with respect to Sections 17(a) and 17(c) thereof. Each Debtor, by its
signature below, represents and warrants that it has the power and authority to
bind not only itself but also each and every one of its present and future
direct and indirect Subsidiaries, and intends to do so by its signature hereon.
Dated as of the date first set forth above:
StorMedia Incorporated, a Delaware corporation, on behalf of itself, and on
behalf of each and every one of its direct and indirect Subsidiaries
By: /s/
--------------------------------
Name:
Title:
StorMedia International, Ltd., a company organized under the laws of the Cayman
Islands, on behalf of itself, and on behalf of each and every one of its direct
and indirect Subsidiaries
By: /s/
--------------------------------
Name:
Title:
S-2
<PAGE> 36
Strates Pte. Ltd., a company organized under the laws of Singapore, on behalf of
itself, and on behalf of each and every one of its direct and indirect
Subsidiaries
By: /s/
--------------------------------
Name:
Title:
StorMedia Foreign Sales Corporation, a U.S. Virgin Islands corporation, on
behalf of itself, and on behalf of each and every one of its direct and indirect
Subsidiaries
By: /s/
--------------------------------
Name:
Title:
Akashic Memories Corporation, on behalf of itself, and on behalf of each and
every on e of its direct and indirect Subsidiaries
By: /s/
-------------------------------
Name:
Title:
Strates Sdn. Bhd., a company organized under the laws of Malaysia, and on behalf
of each and every one of its direct and indirect Subsidiaries
By: /s/
-------------------------------
Name:
Title:
S-3
<PAGE> 1
EXHIBIT 10.26
TERMINATION OF SUPPLY AGREEMENT
AND
LOAN AND SECURITY AGREEMENT
This Termination of Supply Agreement and Loan and Security Agreement
(the "Agreement") is entered into as of May 15, 1998 (the "Effective Date") by
and between StorMedia Incorporated, a Delaware corporation (the "StorMedia"),
and Seagate Technology, Inc., a Delaware corporation ("Seagate").
WHEREAS, Seagate and StorMedia entered into a Supply Agreement, dated
as of June 29, 1995 (the "Initial Supply Agreement"), which was superseded by a
subsequent Supply Agreement, dated as of January 1, 1997 (jointly with the
Initial Supply Agreement, the "Supply Agreement"), pursuant to which Seagate
agreed to purchase 2.5 and 3.5 inch aluminum and glass/ceramic substrate thin
film disks and such other disk products as the parties agreed to in writing
after the date of the Supply Agreement (the "Products");
WHEREAS, both parties desire to terminate the Supply Agreement and
release all claims related thereto except for claims regarding payment by
Seagate to StorMedia for Products shipped by StorMedia and accepted by Seagate
in respect of orders placed by Seagate with StorMedia prior to the Closing Date,
and claims by Seagate against StorMedia for breach of any warranty under which
Products were shipped;
WHEREAS, each of Foothill Capital Corporation ("Foothill") and
Canadian Imperial Bank of Commerce, New York Agent (the "Agent"), on behalf of
itself and a syndicate of banks (together, the "Lenders" and together with
Foothill, the "Institutional Lenders") have proposed to enter into financing
and/or restructuring of certain financing transactions with StorMedia on
substantially the terms attached hereto as Exhibit A-1 and Exhibit A-2,
respectively; and
WHEREAS, Seagate is willing, pursuant to the terms and conditions of
this Agreement, to loan StorMedia (i) Five Million Dollars ($5,000,000) (the
"Convertible Loan Amount") which loan (the "Convertible Loan") shall be
convertible into securities of StorMedia on the terms and subject to the
conditions set forth herein; and (ii) Three Million Dollars ($3,000,000) (the
"Secured Loan Amount") which loan (the "Secured Loan") shall be secured by a
security interest in the accounts receivable owed by Seagate to StorMedia. The
Convertible Loan and the Secured Loan may hereafter collectively be referred to
as the "Loans."
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following respective meanings:
<PAGE> 2
"Collateral" shall mean all bona fide rights of StorMedia,
now existing or hereafter acquired, to payment from Seagate for goods sold or
for services rendered or for payments under any agreement, including, without
limitation, the Supply Agreement, which are not evidenced by an instrument or
Chattel Paper, whether or not earned by performance.
"Common Stock" shall mean StorMedia's Class A common stock,
$0.013 par value.
"Convertible Obligations" shall mean all money, debts,
obligations and liabilities which now are or at any time hereafter may be or
become due, owing or incurred by StorMedia to Seagate, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with the
Convertible Loan, and any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, interest (including,
without limitation, interest accruing after the Repayment Commencement Date of
the Convertible Note and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to StorMedia, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), reimbursement
obligations, fees, indemnities, costs, expenses, or otherwise. Notwithstanding
anything in the foregoing to the contrary, the Secured Obligations shall not be
considered to be Convertible Obligations.
"Lien" means any mortgage, deed of trust, or pledge,
security interest, hypothecation, assignment, assigned deposit, arrangement,
encumbrance, encroachment, lien (statutory or otherwise), claim, option,
reservation, right off way, easement, or defect of any kind, or preference, or
priority, or other security agreement or preferential arrangement of any kind of
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing statement under the UCC, or under
the comparable law of any other jurisdiction).
"Proceeds" shall mean whatever is received by reason of
collection of Collateral, both cash and non-cash, including the proceeds of
insurance payable by reason of loss of or damage to Collateral.
"Secured Obligations" shall mean all money, debts,
obligations and liabilities which now are been or at any time hereafter may be
or become due, owing or incurred by StorMedia to Seagate, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with the
Secured Loan, and any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, interest (including,
without limitation, interest accruing after the Repayment Commencement Date of
the Secured Note and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to StorMedia, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), reimbursement
obligations, fees, indemnities, costs, expenses, or otherwise. Notwithstanding
anything in the foregoing to the contrary, the Convertible Obligations shall not
be considered to be Secured Obligations.
2
<PAGE> 3
"UCC" shall mean the Uniform Commercial Code of the State
of California as in effect on the date hereof and as amended from time to time
hereafter.
1.2 Index of Other Defined Terms. In addition to the terms
defined above, the following terms shall have the respective meanings given
thereto in the sections indicated below:
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Act 4.5
Agreement Preamble
Balance Sheet Date 4.17
Bylaws 4.12
CERCLA 4.23
Closing Date Article VII
Closing Article VII
Code 4.21
Collateral 4.1
Conversion Date 3.2(b)(i)
Conversion Shares 4.2(c)
Convertible Installment Date 3.2(a)(ii)
Convertible Interest Rate 3.2(a)(ii)
Convertible Loan Amount Recitals
Convertible Loan Recitals
Convertible Note 3.1(a)
Corporate Event 3.2(a)(iii)
Disclosure Schedules 4
Effective Date Preamble
Event of Default 3.4(a)
Financial Statements 4.17
Foothill Preamble
Hazardous Materials 4.22
Installment Date 3
Institutional Lenders Preamble
Loans Recitals
Notes 3.1(b)
Outstanding Convertible Balance 3.2(a)(ii)
Outstanding Secured Balance 3.3(a)(ii)
Pool Securities 5.5
Products Recitals
Repayment Commencement Date 3.2(a)(ii)
Restated Certificate 4.12
Seagate Preamble
SEC 4.15
Secured Installment Date 3.3(a)(ii)
Secured Interest Rate 3.3(a)(ii)
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
Secured Loan Amount Recitals
Secured Loan Recitals
Secured Note 3.1(b)
StorMedia Preamble
Supply Agreement Recitals
Termination and Mutual Release Article II
</TABLE>
ARTICLE II
TERMINATION OF SUPPLY AGREEMENT AND MUTUAL RELEASE
On the terms and subject to the conditions set forth herein, at the
Closing, StorMedia and Seagate shall terminate the Supply Agreement and execute
a mutual release with respect to claims arising thereunder by executing and
delivering a Termination and Mutual Release in substantially the form attached
to this Agreement as Exhibit B (the "Termination and Mutual Release").
ARTICLE III
AGREEMENT FOR LOAN AND ISSUANCE OF NOTES
3.1. Agreement for Loan and Issuance of Notes. On the terms
and subject to the conditions set forth herein, at the Closing:
(a) Seagate shall loan to StorMedia the Convertible
Loan Amount. The Convertible Loan will be evidenced by a Promissory Note in
substantially the form attached hereto as Exhibit C-1 (the "Convertible Note").
(b) Seagate shall loan StorMedia the Secured Loan
Amount. The Secured Loan will be evidenced by a Promissory Note in substantially
the form attached hereto as Exhibit C-2 (the "Secured Note", and together with
the Convertible Note, the "Notes").
3.2. Convertible Loan.
(a) Loan Term, Interest, Repayment
(i) The term of the Convertible Loan will begin on
the Closing Date and end on the date on which the
Outstanding Convertible Balance, all accrued interest
thereon and any other amounts owing under the
Convertible Note have been paid in full.
(ii) Interest on the unpaid principal balance of
the Convertible Loan (such unpaid principal balance is
referred to as the "Outstanding Convertible Balance")
will accrue from the Closing Date at the rate of six
percent (6%) per annum, compounded quarterly,
calculated on the basis of a 360 day year and actual
days elapsed (the "Convertible Interest Rate");
provided, however, that no such accrued interest shall
be due and payable prior to the Repayment Commencement
Date. To the extent permitted by
4
<PAGE> 5
the Subordination Agreement and to the extent not
previously converted pursuant to Section 3.2(b),
StorMedia will repay the Outstanding Convertible
Balance plus all interest accrued thereon as follows:
(i) an amount equal to one third of the total of the
Outstanding Convertible Balance plus all interest
accrued thereon shall be due and payable on the date
thirty-six (36) months after the Closing Date (the
"Repayment Commencement Date"), and (ii) the remaining
Outstanding Convertible Balance plus all interest
accrued thereon in twenty four (24) equal monthly
installments of $176,635 (such amount to be adjusted
pro rata in connection with any partial conversion of
the Convertible Note) with the first installment due
and payable on the one (1) month anniversary of the
Repayment Commencement Date and the remaining
installments due and payable on each subsequent one
(1) month anniversary of the Repayment Commencement
Date (each a "Convertible Installment Date") until the
entire Outstanding Balance has been repaid. Without
limiting in any way the remedies provided in Section
3.4, in the event that an installment has not been
received by Seagate within five (5) business days of
the relevant Convertible Installment Date, the full
amount of such installment shall bear interest at the
Convertible Interest Rate from the missed Convertible
Installment Date until the date such payment is paid
in full. The Outstanding Convertible Balance and all
accrued interest and any and all other sums payable to
Seagate hereunder may be prepaid prior to the
Repayment Commencement Date upon 20 days written
notice to Seagate. Delivery of such notice shall in no
way affect Seagate's right to convert the Outstanding
Convertible Balance pursuant to Section 3.2(b)
(iii) Optional Acceleration Upon Acquisition. Upon
the occurrence of the acquisition of StorMedia by
means of a merger, consolidation, share purchase or
exchange, or other form of corporate reorganization or
transaction in which the holders of StorMedia's
outstanding voting securities immediately prior to
such transaction own, immediately after such
transaction, securities representing less than fifty
percent (50%) of the voting power of the corporation
or other entity surviving such transaction or a sale
of all or substantially all of the assets of StorMedia
(a "Corporate Event") and at any time thereafter,
Seagate may, at its option and in its sole discretion,
(but subject to the Subordination Agreement), by
written notice to StorMedia, Foothill and the Agent,
accelerate repayment of the Convertible Note in which
case the Outstanding Convertible Balance, and all
interest accrued thereon, shall be due and payable
immediately.
(b) Conversion. The Outstanding Convertible Balance plus accrued
interest is convertible on the following basis:
5
<PAGE> 6
(i) Optional Conversion. On and at any time after
the earlier to occur of: (a) one (1) year anniversary
of the Closing Date, or (b) a Corporate Event, Seagate
may, at its option and in its sole discretion, convert
some or all of the Outstanding Convertible Balance
plus any accrued interest to date (or any portion
thereof) into Common Stock at a valuation of the
greater of $5.00 per share or the average of the
closing bid price for the five (5) trading days
immediately preceeding the date of this Agreement,
subject to adjustment for stock splits, reverse stock
splits, recapitalization and similar events, by
delivering written notice of its intent to so convert
to StorMedia on or prior to such date. To convert the
Convertible Note, Seagate must deliver to StorMedia
written notice of its intent to convert (the date of
such notice the "Conversion Date") containing the
dollar amount of the Outstanding Convertible Balance
it wishes to convert and a copy of the Convertible
Note. As soon as practicable, but in no event later
than the seventh (7th) business day after the
Conversion Date, StorMedia shall deliver to Seagate a
certificate for the number of full shares of Common
Stock issuable upon the conversion and cash in lieu of
any fractional share. In case of any partial
conversion of the Convertible Note, StorMedia shall
cancel the Convertible Note upon surrender thereof and
shall execute and deliver a new Convertible Note of
like tenor and date for the balance of the Outstanding
Convertible Balance.
(ii) Reservation of Securities. StorMedia shall
reserve, for the life of the Loan, such securities as
Seagate is entitled to receive upon conversion of the
Convertible Loan. Prior to the issuance of any equity
securities (or any instrument exercisable for or
converted into equity securities) and whenever
otherwise required, StorMedia will amend its
Certificate of Incorporation, if necessary, to ensure
that there is a sufficient quantity of such equity
securities (and Common Stock into which such equity
securities may be convertible) into which the
Convertible Loan can be converted.
3.3. Secured Loan.
(a) Loan Term, Interest, Repayment.
(i) The term of the Secured Loan will begin on the
Closing Date and end on the date on which the
Outstanding Secured Balance, all accrued interest
thereon and any other amounts owing under the Secured
Note have been paid in full.
(ii) Interest on the unpaid principal balance of
the Secured Loan (such unpaid principal balance is
referred to as the "Outstanding Secured Balance") will
accrue from the Closing Date at the rate of twelve
percent (12%) per annum, compounded quarterly,
calculated on the basis
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of a 360 day year and actual days elapsed (the
"Secured Interest Rate"); provided, however, that no
such accrued interest shall be due and payable prior
to the Repayment Commencement Date. To the extent
permitted by the Subordination Agreement, StorMedia
will repay the Outstanding Secured Balance plus all
interest accrued thereon as follows: (i) an amount
equal to one third of the total of the Outstanding
Secured Balance plus all interest accrued thereon
shall be due and payable on the Repayment Commencement
Date, and (ii) the remaining Outstanding Secured
Balance plus all interest accrued thereon in twenty
four (24) equal monthly installments of $134,231 with
the first installment due and payable on the one (1)
month anniversary of the Repayment Commencement Date
and the remaining installments due and payable on each
subsequent one (1) month anniversary of the Repayment
Commencement Date (each a "Secured Installment Date")
until the entire Outstanding Secured Balance has been
repaid. Without limiting in any way the remedies
provided in Section 3.4, in the event that an
installment has not been received by Seagate within
five (5) business days after the relevant Secured
Installment Date, the full amount of such delinquent
installment shall bear interest at the Secured
Interest Rate from the missed Secured Installment Date
until the date such payment is paid in full. The
Outstanding Secured Balance and all accrued interest
and any and all other sums payable to Seagate
hereunder may be prepaid prior to the Repayment
Commencement Date.
(iii) Optional Acceleration Upon Acquisition. Upon
the occurrence of a Corporate Event and at any time
thereafter, Seagate may, at its option and in its sole
discretion (but subject to the Subordination
Agreement), by written notice to StorMedia, Foothill
and the Agent, accelerate repayment of the Secured
Note in which case the Outstanding Secured Balance,
and all interest accrued thereon, shall be due and
payable immediately.
(b) Collateral.
(i) Security Interest. This Agreement constitutes
a "security agreement" within the meaning of the UCC.
In order to secure payment and performance of the
Secured Obligations, StorMedia hereby grants, assigns,
transfers, pledges, and sets over to Seagate a
security interest in and Lien on all of StorMedia's
right, title, estate, claim and interest in and to the
Collateral.
(ii) Financing Statements. At the request of
Seagate, StorMedia will promptly join with Seagate in
executing such financing statements, continuation
statements, assignments, certificates and other
documents with respect to the Collateral, pursuant to
the applicable
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Uniform Commercial Code and otherwise, as Seagate may
request in order to enable Seagate to perfect and from
time to time to renew the security interest granted,
all in form satisfactory to Seagate, and StorMedia
will pay the costs of filing the same in all public
offices where Seagate deems such financing be
necessary or desirable.
(iii) Impairment of Collateral. No impairment of,
injury to, or loss or destruction of any of the
Collateral shall relieve StorMedia of any of the
Secured Obligations, except as may be specifically
provided otherwise herein.
(iv) Return of Collateral. Upon payment in full of
the Secured Loan and any other amounts due hereunder
in connection therewith, Seagate shall release its
security interest in, and return to StorMedia all
Collateral hereunder.
(v) Further Assurances. StorMedia agrees that at
any time and from time to time, at its expense,
StorMedia will promptly execute and deliver all
further instruments and documents, and take all
further action that Seagate may request, in order to
perfect and protect the security interests granted or
purported to be granted hereby and to enable Seagate
to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
(vi) Seagate Appointed Attorney-in-Fact. StorMedia
hereby irrevocably appoints Seagate as StorMedia's
attorney-in-fact, with full authority in the place and
stead of StorMedia and in its name or otherwise, from
time to time in Seagate's discretion and without
notice to StorMedia, (but subject to the terms of the
Subordination Agreement) to take any action and to
execute any instrument which Seagate may deem
reasonably necessary or advisable to accomplish the
purposes of this Agreement, after failure of StorMedia
to do so upon reasonable request of Seagate, including
without limitation, to receive, endorse and collect
all instruments made payable to StorMedia representing
any interest payment, principal payment or other
payment in respect of the Collateral or any part
thereof and to give full discharge for the same, when
and to the extent permitted by this Agreement and the
Subordination Agreement.
(vii) Seagate May Perform. Unless and until the
Secured Loan is paid in full, upon the occurrence and
during the continuance of an Event of Default, and to
the extent permitted by the Subordination Agreement,
Seagate may, subject to the Subordination Agreement,
exercise the power of attorney granted to it in
Section 3.3(b)(vi) to (but shall not be obligated and
shall have no liability to any person for failure to)
itself perform, or
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cause performance of, this Agreement, and the
reasonable expenses of Seagate incurred in connection
therewith shall be payable by StorMedia.
(viii) StorMedia's Continuing Rights.
Notwithstanding the security interest in the
Collateral granted to and created in favor of Seagate
under this Agreement, StorMedia shall have the right
until one or more defaults shall have occurred, to
collect the Collateral in the ordinary course of
StorMedia's business.
(ix) Possession of Collateral. In addition to the
payment of the indebtedness secured hereby, StorMedia
agrees to pay to Seagate all reasonable expenses
incurred by Seagate, after the occurrence of an Event
of Default hereunder, in connection with the
collection of the Collateral including reasonable
attorneys' fees and costs.
(x) Application of Proceeds. The Proceeds of any
retaking, collection or sale of the Collateral after
an Event of Default shall be applied as follows:
First, to the payment of all costs and expenses of any
sale or collection incurred by Seagate, including,
without limitation, reasonable attorneys' fees; second
to the payment in full of the Secured Obligations; and
third, any surplus then remaining to StorMedia, its
successors or assigns, or to whomever may be lawfully
entitled to receive the same, or as a court of
competent jurisdiction may direct.
(xi) Subordination. Seagate agrees to execute a
Subordination Agreement in substantially the form
attached to this Agreement as Exhibit D (the
"Subordination Agreement"). The Secured Obligations,
the Convertible Obligations (pending conversion) and
Seagate's security interest in the Collateral shall be
subordinate in all respects to StorMedia's
obligations, and the security interests in any and all
property securing such obligations, under the
"Foothill Loan Documents" and the "Bank Loan
Documents", as defined in and pursuant to the terms of
the Subordination Agreement.
3.4. Default and Remedies.
(a) Default. The occurrence of any of the following
shall constitute an event of default (hereinafter referred to as an "Event of
Default") hereunder:
(i) the failure to pay the Notes when due in
accordance with their terms;
(ii) any representation or warranty of StorMedia
in this Agreement is false as of the date such
representation or warranty was given;
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(iii) StorMedia fails to perform or observe in any
material respect any agreement or covenant under this
Agreement;
(iv) StorMedia ceases operations, is dissolved,
terminates its existence, files for voluntary
bankruptcy, or becomes insolvent or unable to meet its
debts as they mature;
(v) There shall be commenced against StorMedia an
involuntary case or other proceeding seeking
liquidation, reorganization or other relief with
respct to it or its debts under any bankruptcy,
insolvency or other similar law or seeking the
appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any
substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and
unstayed for a period of 60 days;
(vi) Any writ, attachment, citation, judgment,
lien or distress warrant shall be issued against or
levied on the Collateral which materially and
substantially diminishes the value of the Collateral.
(vii) Except to the extent, if any, permitted by
the terms hereof, the security agreement provision of
this Agreement shall, for any reason, other than
Seagate's failure to file a continuation statement as
to any UCC-1 financing statement filed, cease to (i)
create a valid and perfected security interest in the
Collateral, or (ii) be valid and binding on StorMedia
or StorMedia shall so state in any writing whether
filed in a court or otherwise.
(viii) StorMedia is deemed to be in default under
any of the agreements executed in connection with the
transactions described on Exhibits A-1 and A-2
attached to this Agreement and, as a result thereof,
the obligations of StorMedia under such agreements
shall have been accelerated.
(b) Remedies. Upon the occurrence of an Event of
Default, Seagate may, at any time, at its election, without further notice, and
to the extent permitted by law:
(i) Declare the Secured Obligations and/or the
Convertible Obligations immediately due and payable
and require the immediate payment of such amounts; and
(ii) With respect to the Secured Obligations,
subject to the terms of the Subordination Agreement,
exercise all rights and remedies available to a
secured creditor after default, including but not
limited to the rights and remedies of secured
creditors under the California Uniform Commercial
Code.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STORMEDIA
StorMedia hereby represents and warrants to Seagate that, except as
set forth in the schedules ("Disclosure Schedules") delivered contemporaneously
with this Agreement (which Disclosure Schedules shall be deemed to constitute
part of these representations and warranties) or as disclosed in StorMedia's
Annual Report on Form 10-K on the year ended December 31, 1997, Quarterly Report
on Form 10-Q on the quarter ended March 27, 1998 and definitive proxy materials
for the annual meeting of stockholders to be held May 21, 1998, as filed with
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, the statements in the following paragraphs of this Section 4
are all true and correct:
4.1. Organization, Good Standing and Qualification.
StorMedia is a corporation duly organized, validly existing and in good standing
under, and by virtue of, the laws of the State of Delaware and has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as now conducted and as presently proposed to be conducted.
StorMedia is qualified to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business, prospects or operations.
4.2. Capitalization. As of April 20, 1998, the authorized
capital stock of StorMedia consisted of the following:
(a) Common Stock. A total of 50,000,000 authorized shares
of Common Stock ($0.013 par value), of which
16,019,322 shares are issued and outstanding, and a
total of 5,000,000 authorized shares of Class B Common
Stock, ($0.013 par value), of which 4,362,001 shares
are issued and outstanding.
(b) Preferred Stock. A total of 1,000,000 authorized
shares of Preferred Stock ($0.01 par value), none of
which shares are issued and outstanding, but 500,000
of which will be designated Series A Preferred Stock,
certain of which StorMedia intends to issue
simultaneously with the Closing hereunder.
(c) Options, Warrants, Reserved Shares. Prior to Closing,
StorMedia will have reserved shares of its Common
Stock for possible issuance upon the conversion of the
Convertible Note to be issued hereunder (the
"Conversion Shares"), 4,362,001 shares of Class A
Common Stock issuable on conversion of the outstanding
Class B Common Stock, shares of Series A Preferred
Stock (the "Preferred"), and shares of its Class A
Common Stock issuable upon conversion thereof and upon
exercise of certain Warrants (the "Financing
Warrants") being issued in connection with the
Preferred (the "Financing Warrant Shares") and shares
of its
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Common Stock for possible issuance upon the exercise
of warrants (the "Warrants") to be issued in
connection with the transactions described on Exhibits
A-1 and A-2 attached to this Agreement (the "Warrant
Shares"). Except for (i) the conversion features of
the Convertible Note to be issued hereunder and the
Preferred (ii) the Financing Warrants and the
Warrants, (iii) the Class B Common Stock which is
convertible into an equal number of shares of Class A
Common Stock and (iv) the shares of Common Stock
reserved for issuance under StorMedia's various
employee stock option plans and employee stock
purchase plans and outstanding options issued
thereunder as set forth as of April 20, 1998 on
Exhibit C attached hereto , there are no options,
warrants, conversion privileges or other rights, or
agreements with respect to the issuance thereof,
presently outstanding to purchase any of the capital
stock of StorMedia. Apart from the exceptions noted in
this Section 4.2, no shares (including the Conversion
Shares, the Preferred, the Financing Warrant Shares
and the Warrant Shares) of StorMedia's outstanding
capital stock, or stock issuable upon exercise or
exchange of any outstanding options or other stock
issuable by StorMedia, are subject to any rights of
first refusal or other rights to purchase such stock
(whether in favor of StorMedia or any other person),
pursuant to any agreement or commitment of StorMedia.
4.3. Subsidiaries. StorMedia does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity, except as set
forth on Section 4.3 of the Disclosure Schedules
4.4. Due Authorization; Consents. The Board of Directors of
StorMedia has approved (a) the authorization, execution and delivery of, and the
performance of all obligations of StorMedia under this Agreement, (b) the
authorization, execution and delivery of the Notes and (c) the authorization,
issuance, reservation for issuance and delivery of all of the equity securities
issuable upon conversion of the Outstanding Convertible Balance. All corporate
action on the part of StorMedia, its officers, directors and shareholders
necessary for (a) the authorization, execution and delivery of, and the
performance of all obligations of StorMedia under this Agreement, (b) the
authorization, execution and delivery of the Notes and (c) the authorization,
issuance, reservation for issuance and delivery of all of the equity securities
issuable upon conversion of the Outstanding Convertible Balance has been taken
or will be taken prior to Closing. This Agreement and the Notes each constitute
a valid and binding obligation of StorMedia enforceable in accordance with its
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles.
4.5. Valid Issuance of Stock. The Conversion Shares have
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Certificate, will be duly and validly issued,
fully paid and non assessable. The outstanding shares of the capital stock of
StorMedia are duly and validly issued, fully paid and non assessable, and such
shares of such capital stock, and all outstanding options and other securities
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of StorMedia have been issued in full compliance with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Act"), and the registration and qualification requirements of all applicable
state securities laws, or in compliance with applicable exemptions therefrom,
and all other provisions of applicable federal and state securities laws,
including, without limitation, anti-fraud provisions.
4.6. Liabilities. Except as disclosed on Section 4.6 of the
Disclosure Schedules, StorMedia has no material (as defined in Section 4.9)
indebtedness for borrowed money that StorMedia has directly or indirectly
created, incurred, assumed, or guaranteed, or with respect to which StorMedia
has otherwise become directly or indirectly liable.
4.7. Title to Properties and Assets. Except with respect to
Liens created by the transactions described on Exhibits A-1 and A-2 attached to
this Agreement, StorMedia has good and marketable title to its properties and
assets (including, without limitation, all of the Collateral) held in each case
subject to no Lien of any kind except for Liens for taxes that are not yet due
and payable or, in the case of leased real property, easements and other rights
or restrictions of record that do not materially impair the use or value of such
property to StorMedia. With respect to the property and assets it leases,
StorMedia is in compliance with such leases and, to the best of StorMedia's
knowledge, StorMedia holds valid leasehold interests in such assets free of any
liens, encumbrances, security interests or claims of any party other than the
lessors of such property and assets.
4.8. Status of Proprietary Assets.
(a) Ownership. Except with respect to Liens created by
the transactions described on Exhibits A-1 and A-2 attached to this Agreement,
StorMedia has full title and ownership of, or has license to, all Proprietary
Assets necessary to enable it to carry on its business as now conducted and as
presently proposed to be conducted without any conflict with or infringement of
the rights of others. To the best of StorMedia's knowledge, no third party has
any ownership right, title, interest, claim in or Lien on any of StorMedia's
Proprietary Assets and StorMedia has taken, and in the future StorMedia will use
its best efforts to take, all steps reasonably necessary to preserve its legal
rights in, and the secrecy of, all its Proprietary Assets, except those for
which disclosure is required for legitimate business or legal reasons.
(b) Licenses; Other Agreements. Except with respect to
Liens created by the transactions described on Exhibits A-1 and A-2 attached to
this Agreement, StorMedia has not granted, and, to the best of StorMedia's
knowledge, there are not outstanding, any options, licenses or agreements of any
kind relating to any Proprietary Asset of StorMedia, nor is StorMedia bound by
or a party to any option, license or agreement of any kind with respect to any
of its Proprietary Assets. StorMedia is not obligated to pay any royalties or
other payments to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any Proprietary Asset or any other
property or rights.
(c) No Infringement. To the best of StorMedia's
knowledge, StorMedia has not violated or infringed, and is not currently
violating or infringing, and
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StorMedia has not received any communications alleging that StorMedia (or any of
its employees or consultants) has violated or infringed or, by conducting its
business as proposed, would violate or infringe, any Proprietary Asset of any
other person or entity.
(d) No Breach by Employee. StorMedia is not aware that
any employee or consultant of StorMedia is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for StorMedia or to promote the interests of
StorMedia or that would conflict with StorMedia's business as proposed to be
conducted. The carrying on of StorMedia's business by the employees and
contractors of StorMedia and the conduct of StorMedia's business as presently
proposed, will not, to the best of StorMedia's knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees or contractors or StorMedia is now obligated. StorMedia does not
believe it is or will be necessary to utilize any inventions of any employees of
or consultants to StorMedia (or persons StorMedia currently intends to hire)
made prior to their employment by StorMedia. To the best of StorMedia's
knowledge, at no time during the conception of or reduction of any of
StorMedia's Proprietary Assets to practice was any developer, inventor or other
contributor to such patents operating under any grants from any governmental
entity or agency or private source, performing research sponsored by any
governmental entity or agency or private source or subject to any employment
agreement or invention assignment or nondisclosure agreement or other obligation
with any third party that could adversely affect StorMedia's rights in such
Proprietary Assets.
4.9. Material Contracts and Obligations. All agreements,
contracts, leases, licenses, instruments, commitments (oral or written),
indebtedness, liabilities and other obligations to which StorMedia is a party or
by which it is bound that are (a) material to the conduct and operations of its
business and properties; (b) involve any of the officers, consultants,
directors, employees or shareholders of StorMedia; or (c) obligate StorMedia to
share, license or develop any product or technology are listed in Section 4.9 of
the Disclosure Schedules attached hereto and have been made available for
inspection by Seagate and its counsel. For purposes of this Section 4.9 and
Section 4.6, "material" shall mean any agreement, contract, indebtedness,
liability or other obligation having an aggregate value, cost or amount in
excess of $5,000,000.
4.10. Litigation. There is no action, suit, proceeding,
claim, arbitration or investigation ("Action") pending (or, to the best of
StorMedia's knowledge, currently threatened) against StorMedia, its activities,
properties or assets or, to the best of StorMedia's knowledge, against any
officer, director or employee of StorMedia in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of
StorMedia. To the best of StorMedia's knowledge, there is no factual or legal
basis for any such Action that might result, individually or in the aggregate,
in any material adverse change in the business, properties, assets, financial
condition, affairs or prospects of StorMedia. By way of example but not by way
of limitation, there are no Actions pending or, to the best of StorMedia's
knowledge, threatened (or any basis therefor known to StorMedia) relating to the
prior employment of any of
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StorMedia's employees or consultants, their use in connection with StorMedia's
business of any information, technology or techniques allegedly proprietary to
any of their former employers, clients or other parties, or their obligations
under any agreements with prior employers, clients or other parties. StorMedia
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and
there is no Action by StorMedia currently pending or which StorMedia intends to
initiate.
4.11. Consents. All consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings ("Consents") with any U.S., federal or state governmental authority, or
any third party, on the part of StorMedia required in connection with the
execution, delivery and performance of this Agreement and the Notes and the
consummation of the transactions contemplated hereby and thereby shall have been
obtained prior to and be effective as of the Closing Date, except Consents from
third parties that may be required under agreements to which StorMedia is a
party but which are not listed on Section 4.9 of the Disclosure Schedules.
4.12. Compliance with Other Instruments. Except as would
not, either individually or in the aggregate, have a material adverse effect on
the business or operations of StorMedia, StorMedia is not in, nor will the
conduct of its business as proposed to be conducted result in, any violation,
breach or default of any term of StorMedia's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") or StorMedia's bylaws (the "Bylaws")
or in any material respect of any term or provision of any mortgage, indenture,
contract, agreement or instrument to which StorMedia is a party or by which it
may be bound, or of any provision of any foreign or domestic state or federal
judgment, decree, order, statute, rule or regulation applicable to or binding
upon StorMedia. The execution, delivery and performance of and compliance with
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such violation or default, or be in conflict with or
constitute, with or without the passage of time or the giving of notice or both,
either a default under the Restated Certificate or Bylaws, or any agreement or
contract of StorMedia, or, to the best of StorMedia's knowledge, a violation of
any statutes, laws, regulations or orders, or an event which results in the
creation of any lien, charge or encumbrance upon any asset of StorMedia except
as would not, either individually or in the aggregate, have a material adverse
effect on the business or operations of StorMedia.
4.13. Disclosure. No representation or warranty by
StorMedia in this Agreement or in any statement or certificate signed by any
officer of StorMedia furnished or to be furnished to the Purchaser pursuant to
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading.
4.14. Other Security Interests. StorMedia has not
heretofore assigned or granted a security interest in any of the Collateral, has
not otherwise suffered or permitted to exist any Lien on the Collateral, and
will not hereafter assign or grant a security interest in or suffer or
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permit any Lien on all or any portion of the Collateral other than in favor of
Seagate, in all cases except as disclosed on Section 4.14 of the Disclosure
Schedules attached hereto.
4.15. Registration Rights. Except as provided in this
Agreement, in connection with the transactions described in Exhibits A-1 and A-2
attached to this Agreement and in connection with the concurrent investment by
Prudential Private Equity Investors III, L.P., StorMedia has not granted or
agreed to grant any person or entity any rights (including piggyback
registration rights) to have any securities of StorMedia registered with the
United States Securities and Exchange Commission ("SEC") or any other
governmental authority.
4.16. Insurance. StorMedia has obtained, or will obtain
(within 15 days of the Closing Date) and will maintain, fire and casualty
insurance policies with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed.
4.17. Financial Statements. Section 4.17 of the Disclosure
Schedules sets forth an audited balance sheet of StorMedia dated December 31,
1997, an audited income statement and statement of changes in cash flows of
StorMedia for its fiscal year ended December 31, 1997; and an unaudited balance
sheet of StorMedia dated March 31, 1998 (the "Balance Sheet Date") and an
unaudited income statement of StorMedia for the period ended March 31, 1998 (all
such financial statements being collectively referred to herein as the
"Financial Statements"). Such Financial Statements (a) are in accordance with
the books and records of StorMedia, (b) are true, correct and complete and
present fairly the financial condition of StorMedia at the date or dates therein
indicated and the results of operations for the period or periods therein
specified, and (c) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as to the unaudited
financial statements, for the omission of notes thereto and normal year-end
audit adjustments. Specifically, but not by way of limitation, the respective
balance sheets of the Financial Statements disclose all of StorMedia's material
debts, liabilities and obligations of any nature, whether due or to become due,
as of their respective dates (including, without limitation, absolute
liabilities, accrued liabilities, and contingent liabilities) to the extent such
debts, liabilities and obligations are required to be disclosed in accordance
with generally accepted accounting principles. StorMedia has good and marketable
title to all assets set forth on the balance sheets of the Financial Statements,
except for such assets as have been spent, sold or transferred in the ordinary
course of business since their respective dates or such assets classified on the
balance sheet of March 31, 1998 as "held for sale" which are subsequently sold
("Assets Held for Sale")and except as contemplated by the transactions described
on Exhibits A-1 and A-2 attached hereto.
4.18. Certain Actions. Since the Balance Sheet Date,
StorMedia has not, except as contemplated by the transactions described on
Exhibits A-1 and A-2 attached hereto: (a) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (b) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $500,000 or in excess
of $1,000,000 in the aggregate; (c) made any loans or advances to any person,
other than ordinary advances for travel expenses; (d) sold, exchanged or
otherwise disposed of any material assets or rights other than
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the sale of inventory in the ordinary course of its business or sale of Assets
Held for Sale; or (e) entered into any transactions with any of its officers,
directors or employees or any entity controlled by any of such individuals.
4.19. Activities Since Balance Sheet Date. Since the
Balance Sheet Date, there has not been:
(a) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely
affecting the assets, properties, financial
condition, operating results, prospects or business
of StorMedia (as presently conducted and as presently
proposed to be conducted);
(b) any waiver by StorMedia of a valuable right or of a
material debt owed to it;
(c) except as contemplated by Section 4.6, any
satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by
StorMedia, except such a satisfaction, discharge or
payment made in the ordinary course of business that
is not material to the assets, properties, financial
condition, operating results or business of
StorMedia;
(d) except with respect to sales of certain assets used
in connection with the operations of Akashic Memories
Corporation, any material change or amendment to a
material contract or arrangement by which StorMedia
or any of its assets or properties is bound or
subject, except for changes or amendments which are
expressly provided for or disclosed in this
Agreement;
(e) any material change in any compensation arrangement
or agreement with any present or prospective
employee, contractor or director not approved by
StorMedia's Board of Directors; or
(f) to StorMedia's knowledge, any other event or
condition of any character which would materially and
adversely affect the assets, properties, financial
condition, operating results or business of
StorMedia.
4.20. Tax Matters. The provisions for taxes in the
Financial Statements are sufficient for the payment of all accrued and unpaid
federal, state, county and local taxes of StorMedia, whether or not assessed or
disputed as of the date of each such balance sheet. There have been no
examinations or audits of any tax returns or reports by any applicable federal,
state or local governmental agency. StorMedia has duly filed all federal, state,
county and local tax returns required to have been filed by it and paid all
taxes shown to be due on such returns. There are in effect no waivers of
applicable statutes of limitations with respect to taxes for any year.
4.21. Environmental Matters.
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(a) Except with respect to properties and facilities owned
or leased by Akashic Memories Corp and its subsidiaries, during the period that
StorMedia has owned or leased its properties and facilities, (a) there have been
no material disposals, releases or threatened releases of Hazardous Materials
(as defined below) on, from or under such properties or facilities except for
such disposals, releases or threatened releases as have not violated any
applicable law, (b) neither StorMedia nor, to StorMedia's knowledge, any third
party, has used, generated, manufactured or stored on, under or about such
properties or facilities or transported to or from such properties or facilities
any Hazardous Materials except for such use, generation, manufacture or storage
as has not violated any applicable law. StorMedia has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such properties or facilities, which may have occurred
prior to StorMedia having taken possession of any of such properties or
facilities.
(b) With respect to properties and facilities owned or
leased by Akashic Memories Corp and its subsidiaries, to the best knowledge of
StorMedia (a) there have been no material disposals, releases or threatened
releases of Hazardous Materials (as defined below) on, from or under such
properties or facilities except for such disposals, releases or threatened
releases as have not violated any applicable law, (b) neither StorMedia nor, to
StorMedia's knowledge, any third party, has used, generated, manufactured or
stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials except for such use,
generation, manufacture or storage as has not violated any applicable law.
StorMedia has no knowledge of any presence, disposals, releases or threatened
releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to StorMedia having taken possession
of any of such properties or facilities.
(c) For purposes of this Agreement, the terms "disposal",
"release", and "threatened release" shall have the definitions assigned thereto
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of
this Section, "Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is regulated under, or defined as a "hazardous
substance", "pollutant", "contaminant", "toxic chemical", "hazardous material",
"toxic substance", or "hazardous chemical" under (1) CERCLA; (2) the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (3)
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; (4)
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (5) the
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (6)
regulations promulgated under any of the above statutes; or (7) any applicable
state or local statute, ordinance, rule, or regulation that has a scope or
purpose similar to those statutes identified above.
4.22. Interested Party Transactions. To the best knowledge
of StorMedia, no officer or director of StorMedia or any "affiliate" or
"associate" (as those terms are defined in Rule 405 promulgated under the 1933
Act) of any such person has had, either directly or indirectly, a material
interest in: (a) any person or entity which purchases from or sells, licenses or
furnishes to StorMedia any goods, property, technology, intellectual or other
property rights or
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services; or (b) any contract or agreement to which StorMedia is a party or by
which it may be bound or affected.
4.23. Solvency. The sum of StorMedia's assets valued on a
fair market basis exceeds the sum of StorMedia's liabilities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEAGATE
5.1. Investigation; Economic Risk. Seagate acknowledges
that it has had an opportunity to discuss the business, affairs and current
prospects of StorMedia with its officers. Seagate further acknowledges having
had access to information about StorMedia that it has requested. Seagate
acknowledges that it is able to fend for itself in the transactions contemplated
by this Agreement and has the ability to bear the economic risks of its
investment pursuant to this Agreement.
5.2. Purchase for Own Account. The Notes and the securities
issuable upon conversion of the Convertible Note will be acquired for Seagate's
own account, not as a nominee or agent, and not with a view to or in connection
with the sale or distribution of any part thereof.
5.3. Exempt from Registration; Restricted Securities.
Seagate understands that the issuance of the Notes will not be registered under
the Act on the ground that the issuance provided for in this Agreement is exempt
from registration under of the Act, and that the reliance of StorMedia on such
exemption is predicated in part on Seagate's representations set forth in this
Agreement. Seagate understands that the Notes and the securities issuable upon
exercise or conversion of the Convertible Note are restricted securities within
the meaning of Rule 144 under the Act, and must be held indefinitely unless they
are subsequently registered or an exemption from such registration is available.
5.4. Organization, Good Standing and Qualification. Seagate
is a corporation duly organized, validly existing and in good standing under,
and by virtue of, the laws of the State of Delaware and has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as now conducted and as presently proposed to be conducted. Seagate
is qualified to do business as a foreign corporation in each jurisdiction where
failure to be so qualified would have a material adverse effect on its financial
condition, business, prospects or operations.
5.5. Due Authorization. All corporate action on the part of
Seagate, its officers, directors and shareholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of Seagate under this Agreement has been taken or will be taken prior to
Closing. This Agreement constitutes a valid and binding obligation of Seagate
enforceable in accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws affecting creditors' rights generally and to general equitable
principles.
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<PAGE> 20
5.6. Compliance with Other Instruments. The execution,
delivery and performance of and compliance with this Agreement and the
consummation of the transactions contemplated hereby will not result in any
violation or default, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, either a default under
Seagate's certificate of incorporation, as amended, or bylaws, as amended or any
agreement or contract of Seagate, or, to the best of Seagate's knowledge, a
violation of any statutes, laws, regulations or orders.
5.7. Transfer Notes and Conversion Shares.
(a) The Notes and the Conversion Shares may be transferred
pursuant to (i) public offerings registered under the Securities Act of 1933, as
amended (the "Securities Act"), (ii) Rule 144 promulgated pursuant to the
Securities Act (or any similar rule then in force) or (iii) subject to
conditions set forth in Section 5.7(b), any other legally available means of
transfer.
(b) In connection with any transfer of the Notes or any of
the Conversion Shares, (other than a transfer described in Section 5.7(a)(i) or
(ii)), the holder of such securities shall deliver written notice to StorMedia
describing in reasonable detail the proposed transfer, together with an opinion
of counsel (which, to StorMedia's reasonable satisfaction, is knowledgeable in
securities law matters) to the effect that such transfer may be effected without
registration of such securities under the Securities Act. The holder of the
securities being transferred shall not consummate the transfer until (i) the
prospective transferee has confirmed to StorMedia in writing its agreement to be
bound by the provisions of this Section 5.7 or (ii) such holder shall have
delivered to StorMedia an opinion of such counsel that no subsequent transfer of
such Notes or Conversion Shares shall require registration under the Securities
Act. Promptly upon receipt of any opinion described in clause (ii) of the
preceding sentence, StorMedia shall prepare and deliver in connection with the
consummation of the proposed transfer, new certificates for Notes or the
Conversion Shares being transferred that do not bear the legend set forth in
Section 5.7(c).
(c) Except as provided in Section 5.7(b), each certificate
for the Notes and the Conversion Shares shall be imprinted with a legend
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON MAY ___, 1998 AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE
TERMINATION OF SUPPLY AGREEMENT AND LOAN AND SECURITY
AGREEMENT DATED AS OF MAY ___, 1998 AMONG THE ISSUER (THE
"COMPANY") AND SEAGATE TECHNOLOGY, INC., AND THE COMPANY
RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
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<PAGE> 21
RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL
BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREON UPON
WRITTEN REQUEST TO THE COMPANY.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION
AGREEMENT IN FAVOR OF FOOTHILL CAPITAL CORPORATION, AS
AGENT FOR CERTAIN LENDERS, AND CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY, AS AGENT FOR CERTAIN LENDERS,
AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, WHICH
SUBORDINATION AGREEMENT CONTAINS CERTAIN SUBORDINATION
PROVISIONS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THIS
INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL,
PREMIUM, IF ANY, OR INTEREST HEREOF, OR ANY PROCEEDS OF
COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED HEREBY,
SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE WITH THE
TERMS OF SUCH SUBORDINATION AGREEMENT.
5.8. No Offset. Seagate agrees that it will not have any
right of offset or recoupment and will not apply any amounts due and owing it by
StorMedia under the Notes against any amounts due and owing StorMedia by it.
ARTICLE VI
COVENANTS OF STORMEDIA
6.1. Affirmative Covenants. From and after the date hereof,
StorMedia agrees and covenants to Seagate that it will:
(a) No Further Liens. Except with respect to Liens
created by the transactions contemplated by Exhibits A-1 and A-2 attached to
this Agreement, maintain good title to, or the right to use, the Collateral, as
the case may be, free and clear of any Liens or restrictions on the transfer
thereof except for Liens created pursuant to this Agreement or approved by
Seagate in writing and the Liens disclosed on Section 4.14 of the Disclosure
Schedules attached hereto. In any case, the Liens granted to Seagate hereby
shall have priority over any other Liens or restrictions as to the Collateral,
except as disclosed on Section 4.14 of the Disclosure Schedules attached hereto.
The Borrower will defend such title against the claims and demands of all
persons and will not grant, create or permit to attach or exist any mortgage,
pledge, lien, levy, charge or other encumbrance on, of or against any of the
Collateral, except as disclosed on Section 4.14 of the Disclosure Schedules
attached hereto.
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(b) Place of Business. Maintain and keep its
principal place of business and its chief executive office at 390 Reed Street,
Santa Clara, California 95050 and at no other location without prior written
notice to Seagate. StorMedia shall maintain and keep its records concerning the
Collateral at such address and at no other location without prior written notice
to Seagate.
(c) Inspection Rights. Give Seagate and any person
Seagate may designate the right to review all books and records, reports,
accounts and other financial documents of StorMedia pertaining to the Collateral
and to copy the same and to make excerpts therefrom, all at such reasonable
times and as often as Seagate (or Seagate's designee) may reasonably request,
upon prior written notice to StorMedia, so long as such review and copying does
not unreasonably interfere with the business of StorMedia and Seagate agrees to
keep confidential, and not disclose, except as may be required by law or court
order, all information obtained during such review of a confidential or
proprietary nature (and not otherwise known to Seagate through other sources or
publicly known).
(d) Information Rights. Deliver to each holder of
the Notes or any securities issued (directly or indirectly) upon exercise or
conversion of the Convertible Loan copies of StorMedia's 10-K's, 10-Q's, 8-K's
and Annual Reports to Shareholders promptly after such documents are filed with
the SEC.
(e) Notices. As soon as possible after the
occurrence or commencement of any of the following, deliver to Seagate written
notice that such event has occurred or commenced:
(i) The occurrence of any Event of Default or
any event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default.
(ii) The commencement or filing of (A) any
action, suit or proceeding involving StorMedia before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, involving amounts in excess of $500,000 not fully covered by insurance
or which could materially and adversely affect the business, operations or
financial conditions of StorMedia or (B) any claim or dispute involving amounts
in excess of $500,000 between StorMedia and any Person.
(iii) The occurrence of any condition or event
which has resulted or is reasonably expected to result in (A) a material adverse
change in the business, operations or financial condition of StorMedia; (B) a
breach of or non-compliance with any term, condition or covenant contained in
this Agreement, the Registration Rights Agreement or the Termination and Mutual
Release; (C) any labor controversy resulting in or threatening to result in a
strike or disturbance which could materially and adversely affect the business,
operations or financial condition of StorMedia; (D) any payment in excess of
$100,000 under any insurance policy of StorMedia other than the ongoing payments
of legal fees and expenses incurred in
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connection with the existing securities class action litigation; or (E) any
written offer to purchase all, or substantially all, of StorMedia's assets other
than Assets Held for Sale.
Each notice pursuant to this Section 6.1(e) shall be
accompanied by a statement of StorMedia setting forth details of the occurrence
referred to therein and stating what action Borrower proposes to take with
respect thereto.
(f) Payment of Taxes. File all tax returns (federal,
state and local), if any, required to be filed (or make provision, in accordance
with applicable law), to pay and discharge all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of StorMedia, except to the extent such taxes, assessments
or governmental charges or levies are being contested in good faith.
(g) Obligation of StorMedia to Indemnify Seagate.
Subject in all respects to the terms of the Subordination Agreement, together
with its successors and assigns, indemnify, defend, protect, reimburse and hold
harmless Seagate, its directors, officers, employees, successors, assigns,
agents, contractors, subcontractors, experts, licensees, invitees, from and
against any and all liabilities, losses, claims, demands, damages,
administrative orders, consent agreements, costs, penalties, fines, actions,
causes of action, injuries, judgments, attorneys' fees, consultants' fees,
experts' fees, and expenses of any kind whatsoever, incurred or suffered by
Seagate by reason of, resulting from or arising out of a breach of any
representation, warranty or covenant of StorMedia contained in this Agreement.
6.2. Negative Covenants. From and after the date hereof,
StorMedia agrees and covenants to Seagate that, without the prior written
consent of Seagate, it will not:
(a) Indebtedness. Create, incur, assume or permit to
exist any indebtedness (including any indebtedness under any existing line of
credit) for borrowed funds or guarantee or assume the payment or performance of
any debts, liabilities or obligations other than (a) indebtedness represented by
the Notes and other Secured Obligations and Convertible Obligations under this
Agreement, and the transactions contemplated by Exhibit A-1 and A-2; (b)
accounts payable arising in the ordinary course of StorMedia's business; (c)
purchase money indebtedness; (d) equipment leases; and (e) indebtedness which by
its terms is subordinated to the Loans.
(b) Dividends, Redemptions and other Payments. Declare
or pay, or set apart any funds for the payment of, any dividends (other than
dividends payable solely in Common Stock, Preferred Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, solely additional shares of Common Stock of StorMedia) on any
shares of capital stock (including, but not limited to, preferred stock) of
StorMedia, or apply any of its funds, properties, or assets to or set apart any
funds, properties or assets for, the purchase, redemption or other retirement
of, or make any other distribution
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(whether by reduction of capital or otherwise) in respect of, any shares of
capital stock, including, but not limited to, preferred stock, of StorMedia.
(c) Sale of Collateral. Sell the Collateral, except
that this Section 6.2(c) shall not apply in any way to a sale of the Collateral
consented to in writing by the Institutional Lenders.
ARTICLE VII
CLOSING
The closing of the transactions contemplated by this agreement will
take place at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery St.,
Telesis Tower, San Francisco, California at 1:00 p.m, California time, on May
27, 1998, or at such other time and place as Seagate and StorMedia mutually
agree upon, orally or in writing (which time and place are referred to in this
Agreement as the "Closing", and such date as the "Closing Date"). At the
Closing, (a) StorMedia will deliver to Seagate the Notes against delivery by
Seagate of the Secured Loan Amount and the Convertible Loan Amount, paid by wire
transfer of funds to StorMedia, and (b) StorMedia and Seagate will execute and
deliver the Termination and Mutual Release.
ARTICLE VIII
CONDITIONS TO SEAGATE'S OBLIGATIONS AT THE CLOSING
The obligation of Seagate to make the Loans at the Closing is subject
to the fulfillment, to the satisfaction of Seagate on or prior to the Closing,
of the following conditions:
8.1. Representations and Warranties Correct. The
representations and warranties made by StorMedia in Section 4 hereof shall be
true and correct when made.
8.2. Performance of Obligations. StorMedia shall have
performed and complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the transactions described herein.
8.3. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to Seagate, and Seagate shall have received
all such counterpart originals or certified or other copies of such documents as
it may reasonably request.
8.4. Compliance Certificate. At the Closing, StorMedia
shall deliver to Seagate a certificate, dated the date of Closing, signed by
StorMedia's President certifying that the conditions specified in Sections 8.1,
8.2 and 8.14 have been fulfilled.
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8.5. Securities Laws. The issuance of the Notes pursuant
to this Agreement shall be exempt from the registration requirements of the Act
and the registration and/or qualification requirements of all applicable state
securities laws.
8.6. Registration Rights Agreement. StorMedia will have
executed and delivered the Registration Rights Agreement substantially in the
form attached to this Agreement as Exhibit E.
8.7. Termination and Mutual Release. StorMedia will have
executed and delivered the Termination and Mutual Release substantially in the
form attached to this Agreement as Exhibit B.
8.8. Delivery of Notes. StorMedia will have executed and
delivered the Notes substantially in the form attached to this Agreement as
Exhibits C1 and C2.
8.9. Financing Statement. StorMedia will have executed and
delivered such UCC-1 financing statements as Seagate shall require, in form and
substance satisfactory to Seagate.
8.10. No Defaults. There shall not have occurred an Event
of Default, or an event or condition which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default.
8.11. Opinion of StorMedia's Counsel. Seagate shall have
received from counsel to StorMedia an opinion addressed to Seagate, dated the
date of Closing, in substantially the form attached hereto as Exhibit F.
8.12. Other Transactions. The transactions described in
Exhibits A-1 and A-2 attached hereto shall have been consummated, or shall be
consummated simultaneously herewith, on substantially the same terms as
described therein.
8.13. Certificate of Transfer Agent: StorMedia shall
deliver to Seagate a certificate from its transfer agent certifying as of a date
proximate to the Closing as to the number of shares of Class A Common Stock
outstanding.
8.14. No material adverse change. There shall not have
occurred any material adverse change in the business, assets or financial
condition of StorMedia.
ARTICLE IX
CONDITIONS TO STORMEDIA'S OBLIGATIONS AT THE CLOSING
The obligations of StorMedia under this Agreement are subject to the
fulfillment at or before the Closing of the following conditions:
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9.1. Representations and Warranties Correct. The
representations and warranties made by Seagate in Section 7 hereof shall be true
and correct when made.
9.2. Performance of Obligations. Seagate shall have
performed and complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the transactions described herein.
9.3. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to StorMedia, and StorMedia shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
9.4. Compliance Certificate. At the Closing, Seagate shall
deliver to StorMedia a certificate, dated the date of Closing, signed by
Seagate's President certifying that the conditions specified in Paragraphs 8.1,
and 8.2 have been fulfilled.
9.5. Issuance of Loans. Seagate shall have funded the Loans
in accordance with the provisions of Section 3.
9.6. Securities Exemptions. The issuance of the Notes to
Seagate pursuant to this Agreement shall be exempt from the registration
requirements of the Act, and the registration and/or qualification requirements
of all applicable state securities laws.
9.7. Registration Rights Agreement. Seagate will have
executed and delivered the Registration Rights Agreement substantially in the
form attached to this Agreement as Exhibit E.
9.8. Termination and Mutual Release. Seagate will have
executed and delivered the Termination and Mutual Release substantially in the
form attached to this Agreement as Exhibit B.
9.9. Other Transactions. The transactions described in
Exhibits A-1 and A-2 attached hereto shall have been consummated, or shall be
consummated simultaneously herewith, on substantially the same terms as
described therein.
ARTICLE X
MISCELLANEOUS
10.1. Governing Law. This Agreement shall be governed in
all respects by and construed in accordance with the laws of the State of
California without regard to provisions regarding choice of laws.
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10.2. Survival. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by any party
hereto and the closing of the transactions contemplated hereby.
10.3. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto whose rights or obligations hereunder are affected by such
amendments. Neither party shall assign this Agreement or any rights hereunder
without the prior written consent of the other party, except that either may
assign the Agreement to a wholly-owned subsidiary without the other's consent if
the original party remains liable for such assignee's performance hereunder.
10.4. Entire Agreement. This Agreement, the Notes and the
Exhibits and Schedules hereto and thereto (all of which are hereby expressly
incorporated herein by this reference) constitute the entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
10.5. Notices. Except as may be otherwise provided herein,
all notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been duly
given (a) when hand delivered to the other party; (b) when received when sent by
facsimile at the address and number set forth below; (c) three business days
after deposit in the U.S. mail with first class or certified mail receipt
requested postage prepaid and addressed to the other party as set forth below;
or (d) the next business day after deposit with a national overnight delivery
service, postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
<TABLE>
<S> <C>
To Seagate: To StorMedia:
Seagate Technology, Inc. StorMedia Incorporated
920 Disc Drive 390 Reed Street
Scotts Valley, California 95066-4544 Santa Clara, California 95050
Facsimile: (408) 438-6675 Facsimile: (408) 727-4928
Attn: Thomas F. Mulvaney
</TABLE>
Each person making a communication hereunder by facsimile
shall promptly confirm by telephone to the person to whom such communication was
addressed each communication made by it by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 11.5 by giving the
other party written notice of the new address in the manner set forth above.
10.6. Amendments. Any term of this Agreement may be amended
only with the written consent of StorMedia and Seagate.
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10.7. Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to StorMedia or to Seagate, upon
any breach or default of any party hereto under this Agreement, shall impair any
such right, power or remedy of StorMedia, or Seagate nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
any similar breach of default thereafter occurring; nor shall any waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of StorMedia or Seagate
of any breach of default under this Agreement or any waiver on the part of
StorMedia or Seagate of any provisions or conditions of this Agreement, must be
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, or by law or otherwise
afforded to StorMedia or Seagate shall be cumulative and not alternative.
10.8. Legal Fees. In the event of any action at law, suit
in equity or arbitration proceeding in relation to this Agreement or any shares
or other securities of StorMedia issued or to be issued, the prevailing party
shall be paid by the other party a reasonable sum for attorney's fees and
expenses for such prevailing party.
10.9. Finder's Fees. Each party (a) represents and
warrants to the other party hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and (b) hereby
agrees to indemnify and to hold harmless the other party hereto from and against
any liability for any commission or compensation in the nature of a finder's fee
of any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which the indemnifying party
or any of its employees or representatives are responsible.
10.10. Titles and Subtitles. The titles of the paragraphs
and subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
10.11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
10.12. Severability. Should any provision of this Agreement
be determined to be illegal or unenforceable, such determination shall not
affect the remaining provisions of this Agreement.
10.13. Arbitration.
(a) All disputes which may arise hereunder shall be
resolved by binding arbitration, and without resort to the courts (except to
compel arbitration or to enter judgment in accordance therewith). The
arbitrators shall be appointed as follows: each party shall appoint one
arbitrator; the two arbitrators thus appointed shall choose the third arbitrator
who shall act as the presiding arbitrator of the tribunal. The parties agree
that all arbitrators shall be governed by the Rules of the American Arbitration
Association; that such arbitration proceedings shall be
28
<PAGE> 29
conducted in Santa Clara, California, and that the result of such arbitration
shall be binding upon the parties, and may be entered as a judgment in any court
or tribunal with jurisdiction over any party with the same force and effect as a
judgment rendered by such a court or tribunal.
(b) The arbitration proceedings and all pleadings and
written evidence shall be in the English language. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or a true copy thereof.
(c) The prevailing party in such proceeding shall be
entitled to collect reasonable attorneys fees from the other party.
10.14. Survival. Sections 6.1(c) and (d) and Section 10 of
this Agreement shall continue in full force and effect following termination of
the Secured Obligations and the Convertible Obligations, subject to termination,
if at all, in accordance with their respective terms.
10.15. Confidentiality And Non-Disclosure
(a) Disclosure of Terms. The terms and conditions of
this Agreement, the Notes, the Registration Rights Agreement and the Termination
and Mutual Release (collectively, the "Financing Terms"), including their
existence, shall be considered confidential information and shall not be
disclosed by any party hereto to any third party except in accordance with the
provisions set forth below.
(b) Press Releases, Etc. Within sixty (60) days of
the Closing, either party may issue a press release disclosing that Seagate has
invested in StorMedia; provided that the release does not disclose any of the
Financing Terms other than the aggregate amount advanced, the fact that one of
the Notes is convertible and the fact that the Supply Agreement has been
terminated, and is approved in advance in writing by the other party. Except as
required by law (but in all events subject to the provisions of Section 10.15(d)
of this Agreement), no other announcement regarding these transactions in a
press release, conference, advertisement, announcement, professional or trade
publication, mass marketing materials or otherwise to the general public may be
made by either party without the other party's prior written consent.
(c) Permitted Disclosures. Notwithstanding the
foregoing, (i) either party may disclose any of the Financing Terms to its
current or bona fide prospective investors, employees, investment bankers,
lenders, accountants and attorneys, in each case only where such persons or
entities are under appropriate nondisclosure obligations; and (ii) either party
may disclose (other than in a press release or other public announcement
described in subsection (b)) solely the fact that Seagate is an investor in
StorMedia to any third parties without the requirement for the consent of any
other party or nondisclosure obligations.
(d) Legally Compelled Disclosure. In the event that
either party is requested or becomes legally compelled (including without
limitation, pursuant to securities laws
29
<PAGE> 30
and regulations) to disclose the existence of this Agreement or any of the
Financing Terms in contravention of the provisions of this Section 10.15, such
party (the "Disclosing Party") shall provide the other party (the
"Non-Disclosing Party") with prompt written notice of that fact so that the
appropriate party may seek (with the cooperation and reasonable efforts of the
other party) a protective order, confidential treatment or other appropriate
remedy. In such event, the Disclosing Party shall furnish only that portion of
the information which is legally required and shall exercise reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded such
information to the extent reasonably requested by any Non-Disclosing Party.
Notwithstanding the foregoing, Seagate acknowledges that StorMedia will be
obligated to file this Agreement and the related Exhibits with the Securities
and Exchange Commission ("SEC") on a Form 8-K shortly following the Closing.
While StorMedia will seek confidential treatment of certain of the terms and
will consult with Seagate as to such confidential treatment request, StorMedia
cannot guarantee that the SEC will grant its request or will not require
disclosure of such terms. No liability shall accrue to StorMedia hereunder if
disclosure is made as described above.
10.16. Termination.
(a) This Agreement may be terminated at any time prior to
the Closing: (i) by mutual written agreement of StorMedia and Seagate; or (ii)
by Seagate if the Closing has not occurred on or before May 27, 1998.
(b) Any termination of this Agreement shall not affect any
liability of either party hereto to the other party as a result of a breach of
this Agreement.
[The remainder of this page intentionally left blank]
30
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Loan and
Security Agreement to be effective as of the date
first above written.
SEAGATE TECHNOLOGY, INC. STORMEDIA INCORPORATED
By: /s/ By: /s/
--------------------------------- ---------------------------------
Name: Name:
Title: Title:
SIGNATURE PAGE TO
TERMINATION OF SUPPLY AGREEMENT
AND
LOAN AND SECURITY AGREEMENT
31
<PAGE> 1
EXHIBIT 10.27
TERMINATION AND MUTUAL RELEASE
This Termination and Mutual Release is dated May 29, 1998, and is
entered into by and between Seagate Technology, Inc., a Delaware corporation
("Seagate") and StorMedia Incorporated, a Delaware corporation ("StorMedia")
pursuant to the terms of the Termination of Supply Agreement and Loan and
Security Agreement dated May 15, 1998. Defined terms used herein shall have the
meanings given them in the Agreement.
WHEREAS, Seagate and StorMedia entered into a Supply Agreement, dated as
of June 29, 1995 (the "Initial Supply Agreement"), which was superseded by a
subsequent Supply Agreement, dated as of January 1, 1997 (the "Amended Supply
Agreement" and jointly with the Initial Supply Agreement, the "Supply
Agreement"), pursuant to which Seagate agreed to purchase 2.5 and 3.5 inch
aluminum and glass/ceramic substrate thin film disks and such other disk
products as the parties agreed to in writing after the date of the Supply
Agreement (the "Products");
WHEREAS, on multiple occasions during the term of the Amended Supply
Agreement, StorMedia has not performed product qualification in a timely manner
to ensure that the Products met Seagate specifications; and
WHEREAS, StorMedia's inability to perform product qualification in a
timely manner has resulted in a level of Product purchases under the Supply
Agreement that has been substantially below the purchase commitment of Seagate
set forth therein;
NOW. THEREFORE, the parties hereby agree as follows:
1. Termination. The parties hereto hereby irrevocably and
unconditionally terminate the Supply Agreement.
2. Mutual Release.
2.1 Definition of "Supply Relationship". The term "Supply
Relationship" means all prior business dealings between StorMedia and any of its
affiliates, on the one hand, and Seagate and any of its affiliates, on the other
hand, involving the Supply Agreement, including without limitation (i) the
negotiation, execution and delivery of the Supply Agreement and all documents
and communications ancillary thereto, (ii) all conduct, actions and failures to
act of Seagate and any of its affiliates or StorMedia and any of its affiliates
in connection with the Supply Agreement (including, without limitation, the
termination of any product program by Seagate), (iii) any alleged oral
understanding, implied agreement, course of conduct, commitment or other
obligation under or relating to the Supply Agreement, (iv) any performance or
nonperformance by Seagate or StorMedia, or their respective affiliates under the
Supply Agreement, and (v) any matters referred to in the recitals to the Supply
Agreement.
2.2 Release of Seagate by StorMedia. Effective upon the Closing,
StorMedia, on behalf of itself and on behalf of all its current and former
directors, affiliates, subsidiaries,
<PAGE> 2
shareholders, successors, assigns, and all persons or entities asserting claims
or who may in the future assert claims derivatively or otherwise through it or
on its behalf, hereby acknowledges and agrees as follows:
(a) Seagate, its affiliates, assets, shareholders,
successors, subsidiaries, agents, attorneys, and current and former
directors, officers and employees, are each hereby released from and
free and clear of all known or unknown liabilities, liens, security
interests, charges, co-ownerships, debts, claims, demands, rights,
actions, causes of action, costs, fines, obligations, guaranties,
losses, damages (including punitive damages) arising (whether prior to,
on or after the date hereof) from the Supply Relationship, whether
asserted or assertible by or on behalf of or running to the benefit of
StorMedia or any of its affiliates, and all entities asserting claims or
who may in the future assert claims derivatively or otherwise through
StorMedia or on its behalf arising from the Supply Relationship
(collectively, the "StorMedia Claims and Demands"), all of which are
hereby irrevocably and unconditionally remised, released and forever
discharged.
(b) This release by StorMedia shall constitute a complete
defense to any StorMedia Claim and Demand. Nothing in this release shall
be construed as, or shall be admissible in any legal action or
proceeding as, an admission by Seagate that any StorMedia Claim and
Demand exists that is within the scope of the matters hereby released.
2.3 Release of StorMedia by Seagate. Effective upon the Closing,
Seagate, on behalf of itself and on behalf of all its current and former
directors, affiliates, subsidiaries, shareholders, successors, assigns, and all
persons or entities asserting claims or who may in the future assert claims
derivatively or otherwise through it or on its behalf, hereby acknowledges and
agrees as follows:
(a) StorMedia, its affiliates, assets, shareholders,
successors, subsidiaries, agents, attorneys, and current and former
directors, officers and employees, are each hereby released from and
free and clear of all known or unknown liabilities, liens, security
interests, charges, co-ownerships, debts, claims, demands, rights,
actions, causes of action, costs, fines, obligations, guaranties,
losses, damages (including punitive damages) arising (whether prior to,
on or after the date hereof) from the Supply Relationship, whether
asserted or assertible by or on behalf of or running to the benefit of
Seagate or any of its affiliates, and all entities asserting claims or
who may in the future assert claims derivatively or otherwise through
Seagate or on its behalf arising from the Supply Relationship
(collectively, the "Seagate Claims and Demands"), all of which are
hereby irrevocably and unconditionally remised, released and forever
discharged.
(b) This release by Seagate shall constitute a complete
defense to any Seagate Claim and Demand. Nothing in this release shall
be construed as, or shall be admissible in any legal action or
proceeding as, an admission by StorMedia that any Seagate Claim and
Demand exists that is within the scope of the matters hereby released.
2
<PAGE> 3
2.4 Release of Unknown Claims. Each party hereto hereby waives
any and all rights and benefits which it now has or in the future may have
conferred upon it by virtue of the provisions of Section 1542 of the Civil Code
of the State of California, or any similar or comparable provision of law of any
jurisdiction which may now exist or hereafter be enacted and which may be
applicable to the subject matter of this Termination and Mutual Release. Said
Section 1542 provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR
2.5 No Release of Certain Obligations. Notwithstanding anything
to the contrary contained herein, this Termination and Mutual Release shall not
operate to (a) release any party from its obligations under the Loan Agreement
and the related transactions, (b) release the obligation of Seagate to pay
StorMedia for Products shipped by StorMedia and accepted by Seagate in respect
of orders placed by Seagate with StorMedia prior to the Closing Date, and (c)
release any claims by Seagate against StorMedia for breach of any warranty
covering Products ordered by Seagate, shipped by StorMedia and accepted by
Seagate.
2.7 Future Purchases. Nothing in this Termination and Mutual
Release shall prevent Seagate from in the future agreeing to purchase products
manufactured by StorMedia, provided, however, that Seagate shall be under no
obligation to do so; provided, further, that any such purchases will be made
pursuant to the terms and conditions of purchase orders issued by Seagate and
accepted by StorMedia and will in no way be governed by the Supply Agreement. In
no event shall this Termination and Mutual Release be deemed to govern or relate
to any obligations or claims of either party which arise in connection with or
as a result of such future purchases.
3. Reliance. Each party hereto acknowledges and agrees that this
Termination and Mutual Release constitutes a material part of the consideration
under the Loan Agreement, and that by consummating the transactions contemplated
by the Loan Agreement, the other party is relying upon this Termination and
Mutual Release.
4. Authority. Each party hereto represents and warrants to the other
party that the undersigned is duly authorized and empowered to execute this
Termination and Mutual Release and that it is duly authorized and empowered to
perform and observe its agreements and obligations herein.
5. Governing Law. This Termination and Mutual Release shall be governed
by and interpreted in accordance with the laws of the State of California,
without regard to the principles thereof regarding conflict of laws.
3
<PAGE> 4
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4
<PAGE> 5
IN WITNESS WHEREOF, this Termination and Mutual Release has been
executed and delivered by the undersigned as of the day and year first written
above.
STORMEDIA INCORPORATED SEAGATE TECHNOLOGY, INC.
By: /s/ By: /s/
--------------------------------- ---------------------------------
Its: Its:
-------------------------------- --------------------------------
5
<PAGE> 1
EXHIBIT 10.28
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON MAY 29,
1998 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
CONDITIONS SET FORTH IN THE TERMINATION OF SUPPLY AGREEMENT AND LOAN AND
SECURITY AGREEMENT DATED AS OF MAY 15, 1998 AMONG THE ISSUER (THE "COMPANY") AND
SEAGATE TECHNOLOGY, INC., AND THE COMPANY RESERVES THE RIGHT TO REFUSE ANY
TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER HEREON UPON WRITTEN REQUEST TO THE COMPANY.
THIS INSTRUMENT IS SUBJECT TO THE TERM OF A SUBORDINATION AGREEMENT IN FAVOR OF
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR CERTAIN LENDERS, AND CANADIAN
IMPERIAL BANK OF COMMERCE, NEW YORK AGENT, AS AGENT FOR CERTAIN LENDERS, WHICH
SUBORDINATION AGREEMENT CONTAINS CERTAIN SUBORDINATION PROVISIONS AND IS
INCORPORATED HEREIN BY REFERENCE. NOTWITHSTANDING ANY CONTRARY STATEMENT
CONTAINED IN THIS INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL, PREMIUM,
IF ANY, OR INTEREST HEREOF, OR ANY PROCEEDS OF COLLATERAL SECURING THE
INDEBTEDNESS EVIDENCED HEREBY, SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE
WITH THE TERMS OF SUCH SUBORDINATION AGREEMENT.
CONVERTIBLE PROMISSORY NOTE
$5,000,000 Santa Clara, California
May 29, 1997
FOR VALUE RECEIVED, StorMedia Incorporated ("Debtor"), promises to pay to the
order of Seagate Technology, Inc. ("Seagate"), the principal sum of Five Million
Dollars ($5,000,000) and to pay interest on the outstanding principal of this
Convertible Promissory Note (this "Note"), in accordance with Section 2 of this
Note. This Note is delivered in connection with that certain Termination of
Supply Agreement and Loan and Security Agreement of even date (the "Loan
Agreement") between Debtor and Seagate. Initially capitalized terms not defined
herein shall have the meanings assigned to them in the Loan Agreement.
1. Maturity. To the extent permitted by the Subordination Agreement and
to the extent not previously converted in accordance with the Loan Agreement and
Section 5 hereof, Debtor will repay the unpaid principal outstanding balance
plus all interest accrued thereon as follows: (i) an amount equal to one third
of the total of the outstanding principal balance plus all interest accrued
thereon shall be due and payable on the date thirty-six (36) months after the
Effective Date (the "Repayment Commencement Date"), and (ii) the remaining
outstanding
<PAGE> 2
principal balance plus all interest accrued thereon in twenty four (24) equal
monthly installments of $176,635 (such amount to be adjusted pro rata in
connection with any partial conversion of this Note) with the first installment
due and payable on the one (1) month anniversary of the Repayment Commencement
Date and the remaining installments due and payable on each subsequent one (1)
month anniversary of the Repayment Commencement Date until the entire
outstanding principal balance has been repaid. Subject to the terms of the
Subordination Agreement, all payments received shall be applied first against
costs of collection (if any), then against accrued and unpaid interest, then
against principal. Without limiting in any way the remedies provided in Section
3.4 of the Loan Agreement, in the event that an installment has not been
received by Seagate within five (5) business days of the relevant Convertible
Installment Date, the full amount of such installment shall bear interest at the
Convertible Interest Rate from the missed Convertible Installment Date until the
date such payment is paid in full.
2. Interest. Interest on the unpaid principal balance of this Note will
accrue from the Effective Date at the rate of six percent (6%) per annum,
compounded quarterly, calculated on the basis of a 360 day year and actual days
elapsed; provided, however, that no such accrued interest shall be due and
payable prior to the Repayment Commencement Date.
3. Prepayment; Acceleration. The unpaid principal balance and all
accrued interest and any and all other sums payable to Seagate hereunder may be
prepaid prior to the Maturity Date. All prepayments so permitted shall be
applied in the order provided in Section 1. The unpaid principal balance of this
Note is subject to acceleration upon the occurrence of a Corporate Event, as set
forth in the Loan Agreement. Following any such acceleration, Seagate will have
full recourse, subject to the terms of the Subordination Agreement, against any
tangible or intangible assets of Debtor, and may pursue any legal or equitable
remedies that are available to it.
4. Default. Upon the occurrence of an Event of Default, Seagate may
declare Debtor to be in default hereunder and the unpaid principal balance of
this Note, together with all accrued interest thereon, will become immediately
due and payable. Following any such default, Seagate will have full recourse,
subject to the terms of the Subordination Agreement, against any tangible or
intangible assets of Debtor, and may pursue any legal or equitable remedies that
are available to it.
5 No Offset. Steagate will not have any right of offset or recoupment
and will not apply any amounts due and owing it by StorMedia under this Note
against any amounts due and owing StorMedia by it.
6. Optional Conversion. On and at any time after the earlier to occur
of: (a) one (1) year anniversary of the Closing Date, or (b) a Corporate Event,
Seagate may, at its option and in its sole discretion, convert some or all of
the outstanding principal balance on this Note plus any accrued interest to date
(or any portion thereof) into Common Stock at a valuation of the greater of
$5.00 per share or the average of the closing bid price for the five (5) trading
days immediately preceding the date of the Loan Agreement, subject to adjustment
for stock splits, reverse stock splits, recapitalization and similar events, by
delivering written notice of its intent
2
<PAGE> 3
to so convert to Debtor on or prior to such date. To convert this Note, Seagate
must deliver to Debtor written notice of its intent to convert containing the
dollar amount of the outstanding principal balance it wishes to convert and a
copy of this Note. As soon as practicable, but in no event later than the
seventh (7th) business day after the date such notice is given by Seagate,
Debtor shall deliver to Seagate a certificate for the number of full shares of
Common Stock issuable upon the conversion and cash in lieu of any fractional
share. In case of any partial conversion of this Note, Debtor shall cancel this
Note upon surrender hereof and shall execute and deliver a new promissory note
of like tenor and date for the balance of the outstanding principal balance.
7. Miscellaneous.
(a) Debtor hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge arising from
any extension of time, discharge of a prior party, release of any or all of any
security given from time to time for this Note, or other cause of release or
discharge other than actual payment in full hereof.
(b) Seagate shall not be deemed, by any act or omission, to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and signed by Seagate and then only to the extent specifically set forth in such
writing. A waiver with reference to one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy as to a subsequent
event. No delay or omission of Seagate to exercise any right, whether before or
after a default hereunder, shall impair any such right or shall be construed to
be a waiver of any right or default, and the acceptance at any time by Seagate
of any past-due amount shall not be deemed to be a waiver of the right to
require prompt payment when due of any other amounts then or thereafter due and
payable.
(c) Time is of the essence hereof. Upon any default hereunder,
Seagate may exercise all rights and remedies provided for herein and by law or
equity, including, but not limited to, the right to immediate payment in full of
this Note.
(d) The remedies of Seagate as provided herein, or any one or
more of them, or in law or in equity, shall be cumulative and concurrent, and
may be pursued singularly, successively or together at Seagate's sole
discretion, and may be exercised as often as occasion therefor shall occur.
(e) It is expressly agreed that if this Note is referred to an
attorney or if suit is brought to collect or interpret this Note or any part
hereof or to enforce or protect any rights conferred upon Seagate by this Note
or any other document evidencing or securing this Note, then Debtor promises and
agrees to pay all costs, including attorneys' fees, incurred by Seagate.
(f) If any provisions of this Note would require Debtor to pay
interest hereon at a rate exceeding the highest rate allowed by applicable law,
Debtor shall instead pay interest under this Note at the highest rate permitted
by applicable law.
3
<PAGE> 4
(g) This Note shall be governed by and construed in accordance
with laws of the State of California applicable to contracts wholly made and
performed in the State of California.
4
<PAGE> 5
IN WITNESS WHEREOF, Debtor has executed this Convertible Promissory Note
as of the date first above written.
STORMEDIA INCORPORATED
By: /s/
----------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE> 1
EXHIBIT 10.29
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON MAY 29,
1998 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
CONDITIONS SET FORTH IN THE TERMINATION OF SUPPLY AGREEMENT AND LOAN AND
SECURITY AGREEMENT DATED AS OF MAY 15, 1998 AMONG THE ISSUER (THE "COMPANY") AND
SEAGATE TECHNOLOGY, INC., AND THE COMPANY RESERVES THE RIGHT TO REFUSE ANY
TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER HEREON UPON WRITTEN REQUEST TO THE COMPANY.
THIS INSTRUMENT IS SUBJECT TO THE TERM OF A SUBORDINATION AGREEMENT IN FAVOR OF
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR CERTAIN LENDERS, AND CANADIAN
IMPERIAL BANK OF COMMERCE, NEW YORK AGENT, AS AGENT FOR CERTAIN LENDERS, WHICH
SUBORDINATION AGREEMENT CONTAINS CERTAIN SUBORDINATION PROVISIONS AND IS
INCORPORATED HEREIN BY REFERENCE. NOTWITHSTANDING ANY CONTRARY STATEMENT
CONTAINED IN THIS INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL, PREMIUM,
IF ANY, OR INTEREST HEREOF, OR ANY PROCEEDS OF COLLATERAL SECURING THE
INDEBTEDNESS EVIDENCED HEREBY, SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE
WITH THE TERMS OF SUCH SUBORDINATION AGREEMENT.
SECURED PROMISSORY NOTE
$3,000,000 Santa Clara, California
May 29, 1998
FOR VALUE RECEIVED, StorMedia Incorporated ("Debtor"), promises to pay to the
order of Seagate Technology, Inc. ("Seagate"), the principal sum of Three
Million Dollars ($3,000,000) and to pay interest on the outstanding principal of
this Secured Promissory Note (this "Note"), in accordance with Section 2 of this
Note. This Note is delivered in connection with that certain Termination of
Supply Agreement and Loan and Security Agreement of even date (the "Loan
Agreement") between Debtor and Seagate, and is secured by the collateral
identified in the Loan Agreement. Initially capitalized terms not defined herein
shall have the meanings assigned to them in the Loan Agreement.
1. Maturity. To the extent permitted by the Subordination Agreement,
Debtor will repay the unpaid principal outstanding balance plus all interest
accrued thereon as follows: (i) an amount equal to one third of the total of the
outstanding principal balance plus all interest accrued thereon shall be due and
payable on the date thirty-six (36) months after the Effective Date (the
"Repayment Commencement Date"), and (ii) the remaining outstanding principal
<PAGE> 2
balance plus all interest accrued thereon in twenty four (24) equal monthly
installments of $134,231 with the first installment due and payable on the one
(1) month anniversary of the Repayment Commencement Date and the remaining
installments due and payable on each subsequent one (1) month anniversary of the
Repayment Commencement Date until the entire outstanding principal balance has
been repaid. Subject to the terms of the Subordination Agreement, all payments
received shall be applied first against costs of collection (if any), then
against accrued and unpaid interest, then against principal. Without limiting in
any way the remedies provided in Section 3.4 of the Loan Agreement, in the event
that an installment has not been received by Seagate within five (5) business
days of the relevant Secured Installment Date, the full amount of such
installment shall bear interest at the Secured Interest Rate from the missed
Secured Installment Date until the date such payment is paid in full.
2. Interest. Interest on the unpaid principal balance of this Note will
accrue from the Effective Date at the rate of twelve percent (12%) per annum,
compounded quarterly, calculated on the basis of a 360 day year and actual days
elapsed; provided, however, that no such accrued interest shall be due and
payable prior to the Repayment Commencement Date.
3. Prepayment; Acceleration. The unpaid principal balance and all
accrued interest and any and all other sums payable to Seagate hereunder may be
prepaid prior to the Maturity Date. All prepayments so permitted shall be
applied in the order provided in Section 1. The unpaid principal balance of this
Note is subject to acceleration upon the occurrence of a Corporate Event, as set
forth in the Loan Agreement. Following any such acceleration, in addition to
Seagate's rights with respect to the Collateral described in the Loan Agreement,
Seagate will have full recourse, subject to the terms of the Subordination
Agreement, against any tangible or intangible assets of Debtor, and may pursue
any legal or equitable remedies that are available to it.
4. Default. Upon the occurrence of an Event of Default (as defined in
the Loan Agreement), Seagate may declare Debtor to be in default hereunder and
the unpaid principal balance of this Note, together with all accrued interest
thereon, will become immediately due and payable. Following any such default, in
addition to Seagate's rights with respect to the Collateral described in the
Loan Agreement, Seagate will have full recourse, subject to the terms of the
Subordination Agreement, against any tangible or intangible assets of Debtor,
and may pursue any legal or equitable remedies that are available to it.
5. No Offset. Seagate will not have any right of offset or recoupment
and will not apply any amounts due and owing it by StorMedia under this Note
against any amounts due and owing StorMedia by it.
6. Miscellaneous.
(a) Debtor hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge arising from
any extension of time, discharge of a prior party, release of any or all of any
security given from time to time for this Note, or other cause of release or
discharge other than actual payment in full hereof.
2
<PAGE> 3
(b) Seagate shall not be deemed, by any act or omission, to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and signed by Seagate and then only to the extent specifically set forth in such
writing. A waiver with reference to one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy as to a subsequent
event. No delay or omission of Seagate to exercise any right, whether before or
after a default hereunder, shall impair any such right or shall be construed to
be a waiver of any right or default, and the acceptance at any time by Seagate
of any past-due amount shall not be deemed to be a waiver of the right to
require prompt payment when due of any other amounts then or thereafter due and
payable.
(c) Time is of the essence hereof. Upon any default hereunder,
Seagate may exercise all rights and remedies provided for herein and by law or
equity, including, but not limited to, the right to immediate payment in full of
this Note.
(d) The remedies of Seagate as provided herein, or any one or
more of them, or in law or in equity, shall be cumulative and concurrent, and
may be pursued singularly, successively or together at Seagate's sole
discretion, and may be exercised as often as occasion therefor shall occur.
(e) It is expressly agreed that if this Note is referred to an
attorney or if suit is brought to collect or interpret this Note or any part
hereof or to enforce or protect any rights conferred upon Seagate by this Note
or any other document evidencing or securing this Note, then Debtor promises and
agrees to pay all costs, including attorneys' fees, incurred by Seagate.
(f) If any provisions of this Note would require Debtor to pay
interest hereon at a rate exceeding the highest rate allowed by applicable law,
Debtor shall instead pay interest under this Note at the highest rate permitted
by applicable law.
(g) This Note shall be governed by and construed in accordance
with and the laws of the State of California applicable to contracts wholly made
and performed in the State of California.
[The remainder of this page intentionally left blank]
3
<PAGE> 4
IN WITNESS WHEREOF, Debtor has executed this Secured Promissory Note as
of the date first above written.
STORMEDIA INCORPORATED
By: /s/
----------------------------
Name:
--------------------------
Title:
-------------------------
4
<PAGE> 1
EXHIBIT 10.30
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") dated as of May 29,
1998 by and among StorMedia Incorporated, a Delaware corporation (the
"COMPANY"), and Prudential Private Equity Investors, III, L.P., a Delaware
limited partnership ("PPEI") and Capital Ventures International, a Cayman
Islands corporation ("CVI") (collectively with PPEI, the "PURCHASERS").
The Purchasers desire to purchase from the Company, and the Company
desires to issue to the Purchasers shares of Series A Preferred Stock of the
Company (the "SERIES A PREFERRED STOCK") and Warrants to purchase Class A Common
Stock of the Company (as hereinafter defined).
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS; INTERPRETATION.
(a) For purposes of this Agreement, the following terms have the
indicated meanings:
"AFFILIATE" means (i) any shareholder who owns more than 10% of
the outstanding voting securities of the Company, any officer or director of the
Company or any Subsidiary, (ii) any individual related by blood, marriage or
adoption to any such shareholder, officer or director of the Company or any
Subsidiary or (iii) any Person in which any of the foregoing owns a interest.
"BANK WARRANTS" means those warrants to purchase Class A Common
Stock of the Company to be issued to certain banks simultaneously with the
closing hereunder.
"CERTIFICATE OF DESIGNATIONS" means the Company's Certificate of
Designations filed May 29, 1998 and attached as EXHIBIT A hereto.
"CLASS A COMMON STOCK" means the Class A Common Stock $0.013 par
value per share of the Company
"CLASS B COMMON STOCK" means the Class B Common Stock $0.013 par
value per share of the Company.
"CLOSING" has the meaning set forth in Section 3.1.
"COMMON STOCK" means, collectively, the Class A Common Stock and
the Class B Common Stock.
"CONVERSION STOCK" means shares of the Class A Common Stock
issued or issuable on conversion of the Series A Preferred Stock.
<PAGE> 2
"CONVERTIBLE NOTE" means that certain Convertible Promissory Note
to be issued to Seagate Technology, Inc. by the Company.
"ESPP" means the Company's 1998 Employee Stock Purchase Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"GOVERNMENTAL AGENCY" means any federal, state, local, foreign or
other governmental agency, instrumentality, commission, authority, board or
body.
"INCLUDES" and "INCLUDING" mean includes and including, without
limitation.
"LIQUIDATION VALUE" for each share of Series A Preferred Stock as
of any date of determination shall mean the preferential payment amount
contemplated by Section 2 of the Certificate of Designations.
"MARKET PRICE" means the average closing bid price of the
Company's Class A Common Stock as reported by the Nasdaq national market on the
five (5) trading days ending one trading day prior to the date of execution of
this Agreement.
"MATERIAL ADVERSE CHANGE" means any material adverse change in
the business, condition (financial or otherwise), results of operations,
prospects or customer, distributor or supplier relations of the Company.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on
(i) the business, condition (financial or otherwise), results of operations,
prospects or customer, distributor or supplier relations of the Company or (ii)
the transactions contemplated hereby or by the Related Documents.
"OPTION PLANS" means the Company's 1994 Non-Qualified Stock
Option Plan, as amended in March 1995, the Company's 1994 Incentive Stock Option
Plan, as amended in March 1995, the Company's 1998 Nonstatutory Stock Option
Plan and the Company's 1995 Director Stock Option Plan.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past practice (including with respect to quantity,
quality and frequency).
"PERSON" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other entity.
"PREFERRED SHARES" means Series A Preferred Stock or Conversion
Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, as amended, by and among the Company, Purchasers, Seagate Technology,
Inc., Canadian Imperial Bank of Commerce [Asia] Ltd., Banque Nationale de Paris,
Singapore Branch, Union Bank of California N.A., Sanwa Bank California, Fleet
National Bank and Almon Family Trust, in the form of EXHIBIT B hereto.
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<PAGE> 3
"RESTATED CERTIFICATE OF INCORPORATION" means the corrected
Amended and Restated Certificate of Incorporation, as modified by the
Certificate of Designations and the Certificate of Elimination.
"RELATED DOCUMENTS" means all documents and instruments executed
or to be executed by the Company in connection herewith, including the Preferred
Shares, the Warrants and the Registration Rights Agreement.
"RIGHTS AGREEMENT" means that Preferred Shares Rights Agreement
dated July 31, 1996 by and among the Company and BankBoston as the Rights Agent,
as defined therein.
"SEAGATE AGREEMENT" means the Termination of Supply Agreement and
Loan and Security Agreement between the Company and Seagate Technology, Inc.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" means any corporation, partnership, association or
other business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by the
Company or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by the Company. For
purposes hereof, the Company shall be deemed to have a majority ownership
interest in a partnership, association or other business entity gains or losses,
or is or controls the managing director or general partner of such partnership,
association or other business entity.
"WARRANTS" means the Stock Purchase Warrants in the form of
EXHIBIT C hereto.
"WARRANT STOCK" means shares of the Class A Common Stock issued
or issuable on exercise of the Warrants.
(b) The words "HEREIN", "HEREOF" and "HEREUNDER" refer to this
Agreement as a whole and any particular article, section or other subdivision of
this Agreement.
ARTICLE II
ISSUANCE AND SALE OF SECURITIES
2.1 SECURITIES AND PRICE. On the terms and subject to the conditions of
this Agreement, at the Closing, the Company shall issue to PPEI and CVI,
respectively, (a) that number of shares of Series A Preferred Stock obtained by
dividing $5,000,011.50 and $3,000,000.75, respectively, by ten (10) times the
Market Price (the "PREFERRED SHARES") at a price per share equal to ten (10)
times the Market Price (i.e. $30.75) and (b) Warrants to purchase that number of
shares of Class A Common Stock obtained by dividing $5,000,011.50 (in the case
of PPEI) and $3,000,000.75 (in the case of CVI) by the Market Price. The
exercise price per share of the Warrants shall be the Market Price ($3.075).
Notwithstanding the foregoing, in no event shall fractional shares be issued,
and, in each case, the aggregate purchase price shall be increased so as to
result in a whole number of Preferred Shares being purchased and issued and
being subject to each Warrants.
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<PAGE> 4
ARTICLE III
CLOSING; CLOSING DELIVERIES
3.1 CLOSING. The closing of the transactions contemplated hereby (the
"CLOSING") shall take place at 10:00 a.m. on May 29, 1998 (the "CLOSING DATE"),
at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California, or at such other time and date as shall be agreed upon by the
parties hereto.
3.2 PAYMENT FOR AND DELIVERY OF SECURITIES. At the Closing, the Company
shall issue and deliver to the Purchasers, stock certificates for the Preferred
Shares and Warrants, each duly registered in the name of the respective
Purchasers, against immediate payment by the Purchasers, by wire transfer of
immediately-available funds, to the account designated by the Company (a) in the
case of PPEI, $5,000,011.75 (adjusted as described in the last sentence of
Section 2.1 above) for the purchase of the Preferred Shares, and (b) in the case
of CVI, $3,000,000.75 (adjusted as described in the last sentence of Section 2.1
above) for the purchase price of the Preferred Shares; in each case with the
value of the Warrants for income tax purposes as set forth in each Warrant.
3.3 SIMULTANEOUS CLOSING. Simultaneously with the Closing, each of
Foothill Capital Corporation ("FOOTHILL") and Canadian Imperial Bank of
Commerce, New York Agent (the "AGENT"), on behalf of itself and a syndicate of
banks (together, the "LENDERS" and together with Foothill, the "INSTITUTIONAL
LENDERS") are entering into financing and/or restructuring of certain financing
transactions with the Company (the "FINANCING TRANSACTIONS"). The Financing
Transactions are closing simultaneously with the transaction between Seagate
Technology, Inc. and the Company set forth in the Seagate Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
StorMedia hereby represents and warrants to the Purchasers that, except
as set forth in the schedules ("DISCLOSURE SCHEDULES") delivered
contemporaneously with this Agreement (which Disclosure Schedules shall be
deemed to constitute part of these representations and warranties) or as
disclosed in the Company's Annual Report on Form 10-K for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995, Quarterly Report on
Form 10-Q for the quarter ended March 27, 1998 and definitive proxy materials
for the annual meeting of stockholders held May 21, 1998, as filed with the SEC
under the Exchange Act (collectively, the "SEC REPORTS") the statements in the
following paragraphs of this Article IV are all true and correct:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION The Company is a
corporation duly organized, validly existing and in good standing under, and by
virtue of, the laws of the State of Delaware and has all requisite corporate
power and authority to own its properties and assets and to carry on its
business as now conducted and as presently proposed to be conducted. The Company
is qualified to do business as a foreign corporation in each jurisdiction where
failure to be so qualified would have a material adverse effect on its financial
condition, business, prospects or operations.
4.2 CAPITALIZATION. As of prior to the opening of business on May 29,
1998, the authorized capital stock of the Company consisted of (i) 50,000,000
shares of Class A Common Stock, par value $0.013 per share, of which 16,317,932
shares were issued and outstanding; (ii) 5,000,000 shares of Class B Common
Stock par value $0.013 per share, of which 4,362,001 shares were issued and
outstanding; and (iii) 1,000,000 shares of Preferred Stock, $.01 par value, none
of which was issued and outstanding. As of May 29, 1998, the Company had
reserved
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<PAGE> 5
4,362,001 shares of Class A Common Stock for issuance upon conversion of the
Class B Common Stock, 6,700,000 shares of Class A Common Stock for issuance
pursuant to the Option Plans and 1,500,000 shares of Class A Common Stock for
issuance pursuant to the ESPP. The outstanding shares of Class B Common Stock
are being converted into 4,362,001 shares of Class A Common Stock simultaneously
with the Closing. The Company has reserved 2,601,630 shares of Class A Common
Stock for issuance upon conversion of Preferred Shares, 2,601,630 shares of
Class A Common Stock for issuance upon exercise of the Warrants,1,000,000 shares
of Class A Common Stock for issuance upon conversion of the Convertible Note and
2,000,000 shares of Class A Common Stock for issuance upon exercise of the Bank
Warrants. As of May 29, 1998, there were (i) outstanding options to purchase
1,979,413 shares of Class A Common Stock under the Company's 1994 Incentive
Stock Option Plan and 364,665 shares of Class A Common Stock remained available
for future grant; (ii) outstanding options to purchase 435,274 shares of Class A
Common Stock under the Company's 1994 Non-Qualified Stock Option Plan and no
shares remained available for future grant; (iii) outstanding options to
purchase 33,000 shares of Class A Common Stock under the Company's 1995 Director
Stock Option Plan and 42,000 shares remained available for future grant; and
(iv) outstanding options to purchase 1,175,950 shares of Class A Common Stock
under the Company's 1998 Nonstatutory Stock Option Plan and 824,050 shares
remain available for future grant. All of such outstanding capital stock is
validly issued, fully paid and nonassessable and has been issued in compliance
with all applicable securities laws. Except as set forth above and in the
Restated Certificate of Incorporation or as described on Section 4.2 of the
Schedule of Exceptions, there are no other options, convertible securities,
warrants, calls, pledges, transfer restrictions (except restrictions imposed by
federal and state securities laws), liens, rights of first offer, rights of
first refusal, antidilution provisions or commitments of any character relating
to any issued or unissued shares of capital stock of the Company other than as
specifically contemplated in the Related Documents. Except as contemplated by
this Agreement and the Related Documents, there are no preemptive or other
preferential rights applicable to the issuance and sale of securities of the
Company, including the issuance and sale of the Preferred Shares and Warrants.
4.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity, except as set forth on
Section 4.3 of the Disclosure Schedules
4.4 AUTHORIZATION AND ENFORCEABILITY. The Company has full power and
authority and has taken all required corporate and other action necessary to
permit it to execute and deliver this Agreement and the Related Documents and to
carry out the terms hereof and thereof and to issue and deliver the Preferred
Shares, the Conversion Stock, the Warrants and the Warrant Stock, and none of
such actions will violate any provision of the Restated Certificate of
Incorporation or the Bylaws, as amended, or of any applicable law, regulation,
order, judgment or decree, or result in the breach of or constitute a default
(or an event which, with notice or lapse of time or both would constitute a
default) under any material agreement, instrument or understanding to which the
Company is a party or by which it is bound. This Agreement and each of the
Related Documents constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
4.5 ISSUANCE OF SHARES. The Preferred Shares have been duly authorized
and, when issued and delivered in accordance with this Agreement, will be
validly issued and outstanding, fully paid and nonassessable. The Warrants have
been duly authorized and, when issued and delivered in accordance with this
Agreement, will be validly issued and outstanding. The Conversion Stock and
Warrant Stock have been duly reserved for issuance upon conversion of the
Preferred Shares and exercise of the Warrants and, when so issued, will be duly
authorized, validly issued and outstanding, fully paid and nonassessable shares
Class A Common Stock. Neither the issuance and delivery of the Preferred Shares
and Warrants nor the issuance and delivery of any Conversion Stock or Warrant
Stock is subject to any preemptive right of any stockholder of the Company or to
any right of first refusal or other similar right in favor of any Person.
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<PAGE> 6
4.6 LIABILITIES. Except as disclosed on Section 4.6 of the Disclosure
Schedules in the SEC Reports or as contemplated by the Financing Transactions
and the Seagate Agreement, the Company has no material (as defined in Section
4.9) indebtedness for borrowed money that the Company has directly or indirectly
created, incurred, assumed, or guaranteed, or with respect to which the Company
has otherwise become directly or indirectly liable.
4.7 TITLE TO PROPERTIES AND ASSETS. Except with respect to liens created
by the Financing Transactions and the Seagate Agreement, the Company has good
and marketable title to its properties and assets held in each case subject to
no lien of any kind except for liens for taxes that are not yet due and payable
or, in the case of leased real property, easements and other rights or
restrictions of record that do not materially impair the use or value of such
property to the Company. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to the best of the Company's
knowledge, the Company holds valid leasehold interests in such assets free of
any liens, encumbrances, security interests or claims of any party other than
the lessors of such property and assets.
4.8 STATUS OF PROPRIETARY ASSETS.
(a) Ownership. Except with respect to liens created by the
Financing Transactions and the Seagate Agreement, the Company has full title and
ownership of, or has license to, all proprietary assets necessary to enable it
to carry on its business as now conducted and as presently proposed to be
conducted ("PROPRIETARY ASSETS") without any conflict with or infringement of
the rights of others. To the best of the Company's knowledge, except with
respect to liens created by the Financing Transactions, no third party has any
ownership right, title, interest, claim in or Lien on any of the Company's
Proprietary Assets and the Company has taken, and in the future the Company will
use its best efforts to take, all steps reasonably necessary to preserve its
legal rights in, and the secrecy of, all its Proprietary Assets, except those
for which disclosure is required for legitimate business or legal reasons.
(b) Licenses: Other Agreements. Except with respect to liens
created by the Financing Transactions and the Seagate Agreement, the Company has
not granted, and, to the best of the Company's knowledge, there are not
outstanding, any options, licenses or agreements of any kind relating to any
Proprietary Asset of the Company, nor is the Company bound by or a party to any
option, license or agreement of any kind with respect to any of its Proprietary
Assets. The Company is not obligated to pay any royalties or other payments to
third parties with respect to the marketing, sale, distribution, manufacture,
license or use of any Proprietary Asset or any other property or rights.
(c) No Infringement. To the best of the Company's knowledge, the
Company has not violated or infringed, and is not currently violating or
infringing, and the Company has not received any communications alleging that
the Company (or any of its employees or consultants) has violated or infringed
or, by conducting its business as proposed, would violate or infringe, any
Proprietary Asset of any other person or entity.
(d) No Breach by Employee. The Company is not aware that any
employee or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. The carrying on of the Company's business by the employees and
contractors of the Company and the conduct of the Company's business as
presently proposed, will not, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or
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<PAGE> 7
instrument under which any of such employees or contractors or the Company is
now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any employees of or consultants to the Company (or
persons the Company currently intends to hire) made prior to their employment by
the Company. To the best of the Company's knowledge, at no time during the
conception of or reduction of any of the Company's Proprietary Assets to
practice was any developer, inventor or other contributor to such patents
operating under any grants from any governmental entity or agency or private
source, performing research sponsored by any governmental entity or agency or
private source or subject to any employment agreement or invention assignment or
nondisclosure agreement or other obligation with any third party that could
adversely affect the Company's rights in such Proprietary Assets.
4.9 MATERIAL CONTRACTS AND OBLIGATIONS. All agreements, contracts,
leases, licenses, instruments, commitments (oral or written), indebtedness,
liabilities and other obligations to which the Company is a party or by which it
is bound that are (a) material to the conduct operations of its business and
properties; (b) involve any of the officers, consultants, directors, employees
or shareholders of the Company; or (c) obligate the Company, to share, license
or develop any product or technology are listed in Section 4.9 of the Disclosure
Schedules attached hereto and have been made available for inspection by the
Purchasers and its counsel. For purposes of this Section 4.9 and Section 4.6,
"material" shall mean any agreement, contract, indebtedness, liability or other
obligation having an aggregate value, cost or amount in excess of $5,000,000.
4.10 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation ("ACTION") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company, its activities,
properties or assets or, to the best of the Company's knowledge, against any
officer, director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of the
Company that might result, individually or in the aggregate, in any material
adverse change in the business, properties, assets, financial condition, affairs
or prospects of the Company. To the best of the Company's knowledge, there is no
factual or legal basis for any such Action that might result, individually or in
the aggregate, in any material adverse change in the business, properties,
assets, financial condition, affairs or prospects of the Company. By way of
example but not by way of limitation, there are no Actions pending or, to the
best of the Company's knowledge, threatened (or any basis therefor known to the
Company) relating to the prior employment of any of the Company's employees or
consultants, their use in connection with the Company's business of any
information, technology or techniques allegedly proprietary to any of their
former employers, clients or other parties, or their obligations under any
agreements with prior employers, clients or other parties. The Company is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality and there is no
Action by the Company currently pending or which the Company intends to
initiate.
4.11 CONSENTS. All consents, approvals, orders, authorizations or
registrations, qualifications, designations, declarations or filings
("CONSENTS") with any U.S., federal or state governmental authority, or any
third party, on the part of the Company required in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby and thereby shall have been obtained prior
to and be effective as of the Closing Date, except Consents from third parties
that may be required under agreements to which the Company is a party but which
are not listed on Section 4.9 of the Disclosure Schedules.
4.12 COMPLIANCE WITH OTHER INSTRUMENTS. Except as would not, either
individually or in the aggregate, have a material adverse effect on the business
or operations of the Company, the Company is not in, nor will the conduct of its
business as proposed to be conducted result in, any violation, breach or default
of any term of the Restated Certificate of Incorporation or the Company's Bylaws
or in any material respect of any term
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<PAGE> 8
or provision of any mortgage, indenture, contract, agreement or instrument to
which the Company is a party or by which it may be bound, or of any provision of
any foreign or domestic state or federal judgment, decree, order, statute, rule
or regulation applicable to or binding upon the Company. The execution, delivery
and performance of and compliance with this Agreement and the consummation of
the transactions contemplated hereby, including the issuance of the Conversion
Stock and the issuance of the Warrant Stock, will not result in any such
violation or default, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, either a default under the
Restated Certificate of Incorporation or Bylaws, or any agreement or contract of
the Company, including agreements the Company will enter into simultaneously
with the closing of this transaction, or, to the best of the Company's
knowledge, a violation of any statutes, laws, regulations or orders, or an event
which results in the creation of any lien, charge or encumbrance upon any asset
of the Company except as would not, either individually or in the aggregate,
have a material adverse effect on the business or operations of the Company.
4.13 DISCLOSURE. No representation or warranty by the Company in this
Agreement or in any statement or certificate signed by any officer of the
Company furnished or to be furnished to the Purchasers pursuant to this
Agreement or any Related Document contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they are made, not misleading.
4.14 OTHER SECURITY INTERESTS. Except in connection with the Financing
Transactions and the Seagate Agreement and the transactions thereunder, the
Company has not heretofore assigned or granted a security interest in any of its
assets, has not otherwise suffered or permitted to exist any lien on any of its
assets, and will not hereafter assign or grant a security interest in or suffer
or permit any lien on all or any portion of its assets, in all cases except as
disclosed on Section 4.14 of the Disclosure Schedules attached hereto.
4.15 REGISTRATION RIGHTS. Except as provided in the Registration Rights
Agreement, the Company has not granted or agreed to grant any person or entity
any rights (including piggyback registration rights) to have any securities of
the Company registered with the SEC or any other governmental authority.
4.16 INSURANCE. The Company has obtained, or will obtain (within 15 days
of the Closing Date) and will maintain, fire and casualty insurance policies
with extended coverage, sufficient in amount (subject to reasonable deductibles)
to allow it to replace any of its properties that might be damaged or destroyed.
4.17 FINANCIAL STATEMENTS. The SEC Reports contain an audited balance
sheet of the Company dated December 31, 1997, an audited income statement and
statement of changes in cash flows of the Company for its fiscal year ended
December 31, 1997; and an unaudited balance sheet of the Company dated March 27,
1998 (the "BALANCE SHEET DATE") and an unaudited income statement of the Company
for the fiscal quarter ended March 27, 1998 (all such financial statements being
collectively referred to herein as the "FINANCIAL STATEMENTS"). Such Financial
Statements (a) are in accordance with the books and records of the Company, (b)
are true, correct and complete and present fairly the financial condition of the
Company at the date or dates therein indicated and the results of operations for
the period or periods therein specified, and (c) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, except as to the unaudited financial statements, for the omission of
notes thereto and normal year-end audit adjustments. Specifically, but not by
way of limitation, the respective balance sheets of the Financial Statements
disclose all of the Company's material debts, liabilities and obligations of any
nature, whether due or to become due, as of their respective dates (including,
without limitation, absolute liabilities, accrued liabilities, and contingent
liabilities) to the extent such debts, liabilities and obligations are required
to be disclosed in accordance with generally accepted accounting principles. The
Company has good and marketable title to all assets set forth on the balance
sheets of the Financial Statements,
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except for such assets as have been spent, sold or transferred in the ordinary
course of business since their respective dates or such assets classified on the
balance sheet of March 27, 1998 as "held for sale" which are subsequently sold
("ASSETS HELD FOR SALE")and except as contemplated by the Financing Transactions
and the Seagate Agreement.
4.18 CERTAIN ACTIONS. Since the Balance Sheet Date, the Company has not,
except as contemplated by the Financing Transactions, the Seagate Agreement or
in the ordinary course of business: (a) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (b) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $500,000 or in excess
of $1,000,000 in the aggregate; (c) made any loans or advances to any person,
other than ordinary advances for travel expenses; (d) sold, exchanged or
otherwise disposed of any material assets or rights other than the sale of
inventory in the ordinary course of its business or sale of Assets Held for
Sale; or (e) entered into any transactions with any of its officers, directors
or employees or any entity controlled by any of such individuals.
4.19 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Balance Sheet Date,
there has not been:
(a) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the
assets, properties, financial condition, operating
results, prospects or business of the Company (as
presently conducted and as presently proposed to be
conducted);
(b) any waiver by the Company of a valuable right or of a
material debt owed to it;
(c) except as contemplated by Section 4.6, any satisfaction
or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the ordinary
course of business that is not material to the assets,
properties, financial condition, operating results or
business of the Company;
(d) except with respect to sales of certain assets used in
connection with the operations of Akashic Memories
Corporation, any material change or amendment to a
material contract or arrangement by which the Company or
any of its assets or properties is bound or subject,
except for changes or amendments which are expressly
provided for or disclosed in this Agreement, the Seagate
Agreement or the Financing Transactions.
(e) any material change in any compensation arrangement or
agreement with any present or prospective employee,
contractor or director not approved by the Company's
Board of Directors; or
(f) to the Company's knowledge, any other event or condition
of any character which would materially and adversely
affect the assets, properties, financial condition,
operating results or business of the Company.
4.20 TAX MATTERS. The provisions for taxes in the Financial Statements
are sufficient for the payment of all accrued and unpaid federal, state, county
and local taxes of the Company, whether or not assessed or disputed as of the
date of each such balance sheet. There have been no examinations or audits of
any tax returns or reports by any applicable federal, state or local
governmental agency. The Company has duly filed all federal, state, county
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<PAGE> 10
and local tax returns required to have been filed by it and paid all taxes shown
to be due on such returns. There are in effect no waivers of applicable statutes
of limitations with respect to taxes for any year.
4.21 ENVIRONMENTAL MATTERS.
(a) Except with respect to properties and facilities owned or
leased by Akashic Memories Corporation and its subsidiaries, during the period
that the Company has owned or leased its properties and facilities, (a) there
have been no material disposals, releases or threatened releases of Hazardous
Materials (as defined below) on, from or under such properties or facilities
except for such disposals, releases or threatened releases as have not violated
any applicable law, (b) neither the Company nor, to the Company's knowledge, any
third party, has used, generated, manufactured or stored on, under or about such
properties or facilities or transported to or from such properties or facilities
any Hazardous Materials except for such use, generation, manufacture or storage
as has not violated any applicable law. The Company has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such properties or facilities, which may have occurred
prior to the Company having taken possession of any of such properties or
facilities.
(b) With respect to properties and facilities owned or leased by
Akashic, Memories Corp and its subsidiaries, to the best knowledge of the
Company (a) there have been no material disposals, releases or threatened
releases of Hazardous Materials (as defined below) on, from or under such
properties or facilities except for such disposals, releases or threatened
releases as have not violated any applicable law, (b) neither the Company nor,
to the Company's knowledge, any third party, has used, generated, manufactured
or stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials except for such use,
generation, manufacture or storage as has not violated any applicable law. The
Company has no knowledge of any presence, disposals, releases or threatened
releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to the Company having taken possession
of any of such properties or facilities.
(c) For purposes of this Agreement, the terms "disposal",
"release", and "threatened release" shall have the definitions assigned thereto
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of
this Section, "Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is regulated under, or defined as, a hazardous
substance", "pollutant", "contaminant", "toxic chemical", "hazardous material",
"toxic substance", or "hazardous chemical" under (1) CERCLA; (2) the Emergency
Planning and Community Right-to- Know Act, 42 U.S.C. Section 1101 et seq.; (3)
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; (4)
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (5) the
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (6)
regulations promulgated under any of the above statutes; or (7) any applicable
state or local statute, ordinance, rule, or regulation that has a scope or
purpose similar to those statutes identified above.
4.22 INTERESTED PARTY TRANSACTIONS. To the best knowledge of the
Company, no officer or director of the Company or any "affiliate" or "associate"
(as those terms are defined in Rule 405 promulgated under the Securities Act) of
any such person has had, either directly or indirectly, a material interest in:
(a) any person or entity which purchases from or sells, licenses or furnishes to
the Company any goods, property, technology, intellectual or other property
rights or services; or (b) any contract or agreement to which the Company is a
party or by which it may be bound or affected.
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<PAGE> 11
4.23 PRIVATE SALE. The Company has not violated any applicable federal
or state securities laws in connection with the offer, sale and issuance of any
of its capital stock. Subject to the accuracy of Purchasers' representations
contained herein, nether the offer, sale and issuance of the Preferred Shares or
the Warrants hereunder nor the issuance and delivery of any Conversion Stock
upon conversion of the Preferred Shares or Warrant Stock on exercise of the
Warrants requires registration under the Securities Act or any state securities
laws.
4.24 NATURE OF INVESTMENT. The purchase of the Preferred Shares and
Warrants by PPEI does not constitute attributable interest in a telephone common
carrier or cable television systems as described in 47 C.F.R. Section 63.54 or
of a cognizable interest in a broadcast licensee or cable television system as
described in C.F.R. Section 76.501.
4.25 DISCLOSURE. Neither this Agreement nor any Related Documents, nor
any information provided by the Company in connection herewith or therewith, nor
the transactions contemplated hereby or thereby contains any untrue statement of
any material fact or omits to state any material fact necessary in order to make
the statements contained herein or therein complete and not misleading.
4.26 SEC FILINGS; COMPANY FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents
required to be filed with the SEC since January 1, 1998, and has made available
to Purchasers such forms, reports and documents in the form filed with the SEC.
As of their respective dates, the SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such SEC
Reports, and (II) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Company's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in SEC Reports (the "COMPANY
FINANCIALS") (x) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (y) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC with
respect to Form 10-Q filed under the Exchange Act) and (z) fairly presented the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of the Company's
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal year-end adjustments.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
Each Purchaser, severally but not jointly, represents and warrants to
the Company as follows:
5.1 AUTHORIZATION AND ENFORCEABILITY. Such Purchaser has taken all
action necessary to permit it to execute and deliver this Agreement and the
other documents and instruments to be executed by it pursuant hereto and to
carry out the terms hereof and thereof. This Agreement and each such other
document and
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<PAGE> 12
instrument, when duly executed and delivered by such Purchaser, will constitute
a valid and binding obligation of such Purchaser, enforceable against such
Purchaser in accordance with its terms.
5.2 GOVERNMENT APPROVALS. Such Purchaser is not required to obtain any
order, consent, approval or authorization of, or to make any declaration or
filing with, any Governmental Agency in connection with the execution and
delivery of this Agreement and the other documents and instruments to be
executed by it pursuant hereto or the consummation of the transactions
contemplated hereby and thereby.
ARTICLE VI
COMPLIANCE WITH SECURITIES LAWS
6.1 INVESTMENT INTENT OF PURCHASER. Each Purchaser, severally but not
jointly, represents and warrants to the Company that it is acquiring Preferred
Shares and the Warrants for its own account, with no present intention of
selling or otherwise distributing the same to the public except pursuant to a
transaction registered under the Securities Act or exempt from the registration
requirements thereunder.
6.2 STATUS OF PREFERRED SHARES AND WARRANTS. Each Purchaser has been
informed by the Company that the Preferred Shares and Warrants have not been and
will not be registered under the Securities Act or under any state securities
laws and are being offered and sold in reliance upon state exemptions for
transactions not involving any public offering. Except as set forth in the
Registration Rights Agreement and Section 8.3 hereof, the Conversion Stock and
Warrant Stock have not and will not be registered under the Securities Act or
under any state securities laws.
6.3 SOPHISTICATION AND FINANCIAL CONDITION OF EACH PURCHASER. Each
Purchaser, severally but not jointly, represents and warrants to the Company
that it is an "Accredited Investor" as defined in Regulation D under the
Securities Act and that it considers itself to be an experienced and
sophisticated investor and to have such knowledge and experience in financial
and business matters as are necessary to evaluate the merits and risks of an
investment in Preferred Shares and the Warrants.
6.4 OPPORTUNITY FOR REVIEW OF COMPANY INFORMATION. Each Purchaser
acknowledges that it has had the opportunity to ask questions of and receive
answers from officers of the Company regarding the Preferred Shares and the
Warrants, the Company and its business, prospects and financial condition.
6.5 TRANSFER OF PREFERRED SHARES AND WARRANT STOCK.
(a) Preferred Shares and Warrant Stock may be transferred
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 promulgated pursuant to the Securities Act (or any similar rule then in
force) or (iii) subject to conditions set forth in Section 6.5(b), any other
legally-available means of transfer.
(b) In connection with any transfer of any Preferred Shares,
Conversion Stock, Warrants or Warrant Stock (other than a transfer described in
Section 6.5(a)(i) or (ii)), the holder of such shares shall deliver written
notice to the Company describing in reasonable detail the proposed transfer,
together with an opinion of counsel (which, to the Company's reasonable
satisfaction, is knowledgeable in securities law matters) to the effect that
such transfer may be effected without registration of such shares under the
Securities Act. The holder of the shares being transferred shall not consummate
the transfer until (i) the prospective transferee has confirmed to the Company
in writing its agreement to be bound by the provisions of this Section 6.5 and
Section 8.5 or (ii) such
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<PAGE> 13
holder shall have delivered to the Company an opinion of such counsel that no
subsequent transfer of such Preferred Shares, Conversion Stock, Warrants or
Warrant Stock shall require registration under the Securities Act. Promptly upon
receipt of any opinion described in clause (ii) of the preceding sentence, the
Company shall prepare and deliver in connection with the consummation of the
proposed transfer, new certificates for the Preferred Shares being transferred
that do not bear the legend set forth in Section 6.5(c).
(c) Except as provided in Section 6.5(b), each certificate for
Preferred Shares, Conversion Stock, Warrants and Warrant Stock shall be
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON MAY __,1998 AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT DATED AS OF MAY 29, 1998
AMONG THE ISSUER (THE "COMPANY") AND CERTAIN INVESTORS,
AND THE COMPANY RESERVES THE RIGHT TO REFUSE ANY TRANSFER
OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH
CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE TO THE HOLDER
HEREOF UPON WRITTEN REQUEST TO THE COMPANY.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS. The obligations of
the Purchasers to consummate the transactions contemplated hereby are subject to
satisfaction (or written waiver) at or prior to the Closing of the following
conditions:
(a) The representations and warranties of the Company set forth
in Article IV hereof shall be true and correct as of the Closing Date and all
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by the Company on or prior to the Closing Date shall have been
performed or complied with;
(b) The Company shall have adopted and filed with the Secretary
of State of the State of Delaware, on or before the Closing, the Certificate of
Elimination of the Company;
(c) The Company shall have adopted and filed with the Secretary
of State of the State of Delaware, on or before the Closing, the Certificate of
Designations;
(d) The Company shall have delivered to Purchasers a certificate
of the Company, executed by a duly authorized officer of the Company, dated the
Closing Date, and certifying, among other things, to the fulfillment of the
conditions specified in Section 7.1(a) of this Agreement;
(e) The Company and the Purchasers shall have executed the
Registration Rights Agreement;
(f) Purchasers shall have received an opinion of counsel to the
Company in form and substance reasonably satisfactory to counsel for the
Purchasers;
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<PAGE> 14
(g) No action, suit, investigation or proceeding shall be pending
or threatened before any court or Governmental Agency to restrain, prohibit,
collect damages as a result of or otherwise challenge this Agreement or any of
the Related Documents or any transaction contemplated hereby or thereby and all
applicable waiting periods under the Hart-Scott-Rodino Act relating to the
transactions contemplated hereby will have expired or terminated early;
(h) PPEI shall be satisfied, in its sole discretion, that the
structure of the transactions contemplated by this Agreement comply in all
respects with the Prudential Equity Guidelines;
(i) The Financing Transactions shall have been consummated; and
(j) The transaction with Seagate Technology, Inc. under the
Seagate Agreement shall have been consummated.
(k) There shall have been no material adverse change in the
Company's condition from the date hereof on the Closing Date.
7.2 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS. The obligations of
the Company hereunder are subject to satisfaction (or written waiver) at or
prior to the Closing of the following conditions:
(a) The Company and the Purchasers shall have executed the
Registration Rights Agreement;
(b) All acts or covenants required hereunder to be performed by
the Purchasers at or prior to the Closing shall have been fully performed by
them; and
(c) No action, suit, investigation or proceeding shall be pending
or threatened before any court or Governmental Agency to restrain, prohibit,
collect damages as a result of or otherwise challenge this Agreement or any of
the Related Documents or any transaction contemplated hereby or thereby and all
applicable waiting periods under the Hart-Scott-Rodino Act relating to the
transactions contemplated hereby will have expired or terminated early.
ARTICLE VIII
COVENANTS OF THE COMPANY
8.1 RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Class A Common
Stock, solely for the purpose of issuance upon the conversion of the Preferred
Shares and exercise of the Warrants, such number of shares of Class A Common
Stock as are issuable upon the conversion of all outstanding Preferred Shares
and exercise of the Warrants. All shares of Common Stock which are so issuable
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all actions as
may be necessary to assure that all such shares of Class A Common Stock may be
so issued without violation of any applicable law or governmental regulation or
any requirements of any domestic securities exchange upon which shares of Class
A Common Stock may be listed (except for official notice of issuance which shall
be immediately transmitted by the Company upon issuance).
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<PAGE> 15
8.2 CURRENT PUBLIC INFORMATION. The Company shall file timely all
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations thereunder and shall take such further action as
any holder of Preferred Shares, Conversion Stock, Warrants or Warrant Stock may
reasonably request, all to the extent required to enable such holder to sell
such shares pursuant to (i) Rule 144 under the Securities Act or any successor
provision or (ii) a registration statement on Form S-2 or S-3 or any similar
registration form hereafter adopted by the SEC. Upon reasonable request, the
Company shall deliver to any holder of Preferred Shares, Conversion Stock,
Warrants or Warrant Stock a written statement as to whether it has complied with
such requirements.
8.3 RIGHTS AGREEMENT. The Company will use its reasonable best efforts
to amend the Rights Agreement to put the holders of Preferred Shares in parity
with rights of holders of Common Stock under the Rights Agreement.
8.4 NO FIVE PERCENT HOLDERS. Unless CVI delivers a waiver in accordance
with the last sentence of this Section 8.4, in no event shall CVI be entitled to
receive shares of Class A Common Stock upon a conversion of the Series A
Preferred Stock or the exercise of the Warrants to the extent that the sum of
(x) the number of shares of Class A Common Stock beneficially owned by CVI and
its affiliates (exclusive of shares issuable upon conversion of the unconverted
or unexercised portion of the Series A Preferred Stock or the exercise of the
Warrants or the unexercised or unconverted portion of any other securities of
the Company, subject to a limitation on conversion or exercise analogous to the
limitations contained here) and (y) the number of shares of Class A Common Stock
issuable upon the conversion of the Series A Preferred Stock or the exercise of
the Warrants with respect to which the determination of this Section is being
made, would result in beneficial ownership by CVI and its affiliates of more
than 4.99% of the outstanding shares of Class A Common Stock. For purposes of
this subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13 D-G thereunder, except as
otherwise provided in clause (x) above. Except as provided in the immediately
succeeding sentence, the restriction contained in this Section shall not be
altered, amended, deleted or changed in any manner whatsoever unless CVI shall
approve such alteration, amendment, deletion or change. Notwithstanding the
foregoing, CVI may, by providing written notice to the Company, adjust the
restriction set forth in this Section so that the limitation on beneficial
ownership of 4.99% of the outstanding shares of Class A Common Stock referred to
above shall be increased to 9.99%, which adjustment shall not take effect until
the 61st day after the date of such notice.
8.5 NO AMENDMENTS TO CERTAIN PROVISIONS. Prior to the 365th day after
the Maturity Date (as defined in the Amended and Restated Credit Agreement) or
at any time that all or any portion of the Term Loan (as defined in the Amended
and Restated Credit Agreement) is outstanding, no amendment or other
modification or waiver can be made with respect to the second paragraph of
Section 1D, the second paragraph of Section 2, Section 4C (ii) or the second
paragraph of Section 7 of the Certificate of Designations, or to any other
provision of the Certificate of Designations that refers to any of those
Sections, without the prior written consent of the Majority Banks (as defined in
the Amended and Restated Credit Agreement). This provision is made for the
benefit of, and shall be enforceable by, the Banks, the Agent and the Co-Agent
(as defined in the Amended and Restated Credit Agreement), and shall be binding
on all subsequent holders of the Preferred Shares.
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<PAGE> 16
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
9.1 SURVIVAL. Notwithstanding any examination made by or on behalf of
any party hereto, pledge of any party or the acceptance by any party of any
certificate or opinion, each representation and warranty contained herein, and
in writing delivered pursuant hereto, shall survive the Closing and shall be
fully effective and enforceable.
9.2 INDEMNIFICATION. The Company shall indemnify Purchasers, their
officers, directors, employees, agents and representatives against any damages,
claims, losses, liabilities and expenses (including reasonable counsel fees and
expenses) which may be suffered or incurred by it as a result of a breach of any
representation, warranty or covenant made by the Company in this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including each subsequent holder of Preferred Shares, Conversion Stock, Warrants
or Warrant Stock. Except as otherwise specifically provided herein, this
Agreement shall not be assignable by any party without the prior written consent
of the other parties hereto, which consent shall not be unreasonably withheld by
the Company.
10.2 ENTIRE AGREEMENT. This Agreement and the other writings referred to
herein or delivered Pursuant hereto constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
arrangements or understandings.
10.3 NOTICES. All notices, requests, consents and other communications
provided for shall be in writing and shall be (i) delivered in person, (ii)
transmitted by telecopy or (iii) sent by first-class registered or certified
mail, postage prepaid, to the recipient at the address or telecopy number set
forth below, or such other address or telecopy number as may hereafter be
designated in writing by such recipient. Notices shall be deemed given upon
personal delivery, seven days following deposit in the mail as set forth above
or upon acknowledgment by the receiving telecopier.
(a) If to the Company:
StorMedia Incorporated
390 Reed Street
Santa Clara, California 95050
Telecopy: (408) 727-4928
Attention: President
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<PAGE> 17
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopy: (650) 493-6811
Attention: Judith M. O'Brien, Esq.
(b) If to PPEI:
Prudential Private Equity Investors III, L.P.
717 Fifth Avenue
Suite 1100
New York, New York 10022
Telecopy: (212) 826-6798
Attention: Mark Rossi
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 446-4900
Attention: Frederick Tanne, Esq.
(c) If to CVI:
Heights Capital Management, Inc.
425 California Street, Suite 1100
San Francisco, CA 94104
Telecopy: (415) 403-6525
Attention: Michael L. Spolan
with a copy to:
Wolf Block Schorr & Solis-Cohen LLP
12th Floor, Packard Building
111 S. 15th Street
Philadelphia, PA 19102
Telecopy: (215) 977-2740
Attention: Richard A. Silfen
10.4 AMENDMENT AND WAIVER. No amendment of any provision of this
Agreement shall be effective, unless the same shall be in writing and signed by
the Company and the holders of two-thirds of the Preferred Shares and the
Conversion Stock issued hereunder. Any failure of the Company to comply with any
provision hereof or in the Warrants, and any provision applicable to the Warrant
Stock, Conversion Stock or Preferred Shares hereof may be waived in writing by
the holders of two-thirds of the then outstanding Preferred Shares and the
Conversion Stock issued hereunder. No such waiver shall operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. No failure by any
party to take any action against any breach of this Agreement or
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<PAGE> 18
default by any other party shall constitute a waiver of such party's right to
enforce any provision hereof or to take any such action.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
10.6 HEADINGS. The headings of the various sections of this Agreement
have been inserted for reference only and shall not be deemed to be a part of
this Agreement.
10.7 REMEDIES CUMULATIVE. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of California without
giving affect to principles of conflicts of law or choice of law whether of the
State of California or of any other jurisdiction which would result in the
application of any laws other than those of the State of California.
10.9 NO THIRD PARTY BENEFICIARIES. Except as specifically set forth or
referred to herein, nothing herein is intended or shall be construed to confer
upon any person or entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this Agreement.
10.10 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
10.11 LEGAL FEES. The Company will pay or reimburse PPEI for the
reasonable fees and expenses of Kirkland & Ellis, special counsel to the
Purchasers, not to exceed $10,000, incurred in connection with the transactions
contemplated hereby (the "KIRKLAND FEES").
* * * *
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Securities Purchase
Agreement as of the date first written above.
STORMEDIA INCORPORATED
By: /s/
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
PRUDENTIAL PRIVATE EQUITY INVESTORS III,
L.P., by Prudential Equity Investors, Inc.,
General Partner
by Cornerstone Equity Investors, L.L.C.,
its Investment Advisor
By: /s/
-------------------------------------------
Name:
-----------------------------------------
Title: Managing Director
----------------------------------------
CAPITAL VENTURES INTERNATIONAL
by Heights Capital Management, Inc.,
its authorized agent
By: /s/
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
[Signature Page To Securities Purchase Agreement]
<PAGE> 20
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
<PAGE> 21
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
<PAGE> 22
EXHIBIT C
WARRANT
<PAGE> 23
STORMEDIA INCORPORATED
SECURITIES PURCHASE AGREEMENT
DATED AS OF MAY 29, 1998
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Article I - DEFINITIONS..........................................................................1
1.1 Definitions; Interpretation.......................................................1
Article II - ISSUANCE AND SALE OF SECURITIES.....................................................3
2.1 Securities and Price..............................................................3
Article III - CLOSING; CLOSING DELIVERIES........................................................4
3.1 Closing...........................................................................4
3.2 Payment for and Delivery of Securities............................................4
3.3 Simultaneous Closing..............................................................4
Article IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................4
4.1 Organization, Good Standing and Qualification.....................................4
4.2 Capitalization....................................................................4
4.3 Subsidiaries......................................................................5
4.4 Authorization and Enforceability..................................................5
4.5 Issuance of Shares................................................................5
4.6 Liabilities.......................................................................6
4.7 Title to Properties and Assets....................................................6
4.8 Status of Proprietary Assets......................................................6
4.9 Material Contracts and Obligations................................................7
4.10 Litigation........................................................................7
4.11 Consents..........................................................................7
4.12 Compliance with Other Instruments.................................................7
4.13 Disclosure.......................................................................8
4.14 Other Security Interests..........................................................8
4.15 Registration Rights..............................................................8
4.16 Insurance.........................................................................8
4.17 Financial Statements..............................................................8
4.18 Certain Actions...................................................................9
4.19 Activities Since Balance Sheet Date...............................................9
4.20 Matters...........................................................................9
4.21 Environmental Matters...........................................................10
4.22 Interested Party Transactions....................................................10
4.23 Private Sale.....................................................................11
4.24 Nature of Investment.............................................................11
4.25 Disclosure.......................................................................11
4.26 SEC Filings; Company Financial Statements........................................11
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article V - REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER....................................11
5.1 Authorization and Enforceability.................................................11
5.2 Government Approvals.............................................................12
Article VI - COMPLIANCE WITH SECURITIES LAWS....................................................12
6.1 Investment Intent of Purchaser...................................................12
6.2 Status of Preferred Shares and Warrants..........................................12
6.3 Sophistication and Financial Condition of Each Purchaser.........................12
6.4 Opportunity for Review of Company Information....................................12
6.5 Transfer of Preferred Shares and Warrant Stock...................................12
Article VII - CONDITIONS PRECEDENT..............................................................13
7.1 Conditions Precedent to Purchasers' Obligations..................................13
7.2 Conditions Precedent to Company's Obligations....................................14
Article VIII - COVENANTS OF THE COMPANY.........................................................14
8.1 Reservation of Common Stock......................................................14
8.2 Current Public Information.......................................................15
8.3 Rights Agreement.................................................................15
8.4 No Five Percent Holders..........................................................15
Article IX - SURVIVAL AND INDEMNIFICATION.......................................................15
9.1 Survival.........................................................................15
9.2 Indemnification..................................................................15
Article X - GENERAL PROVISIONS..................................................................16
10.1 Successors and Assigns...........................................................16
10.2 Entire Agreement.................................................................16
10.3 Notices..........................................................................16
10.4 Amendment and Waiver.............................................................17
10.5 Counterparts.....................................................................17
10.6 Headings.........................................................................17
10.7 Remedies Cumulative..............................................................17
10.8 Governing Law....................................................................17
10.9 No Third Party Beneficiaries.....................................................18
10.10 Severability.....................................................................18
10.11 Legal Fees.......................................................................18
</TABLE>
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<PAGE> 26
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EXHIBITS
Exhibit A Certificate of Designations
Exhibit B Registration Rights Agreement
Exhibit C Warrant
</TABLE>
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<PAGE> 1
Exhibit 10.31
The security represented by this certificate was originally
issued on May 29, 1998 and has not been registered under the
Securities Act of 1933, as amended. The transfer of such security
is subject to the conditions specified in the Securities Purchase
Agreement, dated as of May 29, 1998 (as amended and modified from
time to time), between the issuer hereof (the "Company") and the
initial holder hereof, and the Company reserves the right to
refuse the transfer of such security until such conditions have
been fulfilled with respect to such transfer. Upon written
request, a copy of such conditions shall be furnished by the
Company to the holder hereof without charge.
STORMEDIA INCORPORATED
STOCK PURCHASE WARRANT
Date of Issuance: May 29, 1998 Certificate No. W-2
This Warrant is being issued simultaneously with the issuance of
97,561 shares of the Company's Series A Preferred Stock (the "Series A
Preferred"), represented by stock certificate no. PA-2 (the "Subject Shares"),
to Capital Ventures International ("CVI") pursuant to the Securities Purchase
Agreement dated as of May 29, 1998 (the "Purchase Agreement"), between StorMedia
Incorporated, a Delaware corporation (the "Company"), and certain investors.
For value received, the Company hereby grants to Capital Ventures
International or its registered assigns (the "Registered Holder") the right to
purchase from the Company 975,610 shares of the Company's Warrant Stock at a
price per share equal to $3.075 (such price as adjusted and readjusted from time
to time in accordance with Section 2 hereof, the "Exercise Price").
This Warrant is one of several warrants (collectively, the
"Warrants") issued pursuant to the Purchase Agreement, and certain capitalized
terms used herein are defined in Section 5 hereof. The amount and kind of
securities obtainable pursuant to the rights granted hereunder and the purchase
price for such securities are subject to adjustment pursuant to the provisions
contained in this Warrant.
For income tax purposes, the value of this Warrant as of the date
hereof is $9,756.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. The Registered Holder may exercise, in whole or in
part (but not as to a fractional share of Class A Common Stock), the purchase
rights represented by this Warrant at any time and from time to time after the
issuance date hereof until the fifth anniversary of the issuance date, subject
to early termination in accordance with Section 2.0 hereof.
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<PAGE> 2
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in
paragraph 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in EXHIBIT II
hereto evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 7 hereof; and
(d) either (1) a check payable to the Company in an amount
equal to the product of the Exercise Price multiplied by the number of shares of
Warrant Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of the
Company having a Market Price equal to the Aggregate Exercise Price of the
Warrant Stock being purchased upon such exercise (provided that for purposes of
this subparagraph, the Market Price of any note or other debt security or any
preferred stock shall be deemed to be equal to the aggregate outstanding
principal amount or liquidation value thereof plus all accrued and unpaid
interest thereon or accrued or declared and unpaid dividends thereon) or (3) a
written notice to the Company that the Purchaser is exercising the Warrant (or a
portion thereof) by authorizing the Company to withhold from issuance a number
of shares of Warrant Stock issuable upon such exercise of the Warrant which when
multiplied by the Market Price of the Common Stock is equal to the Aggregate
Exercise Price (and such withheld shares shall no longer be issuable under this
Warrant).
(ii) Certificates for shares of Warrant Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five (5) business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such Warrant Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such exercise and the
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<PAGE> 3
related issuance of shares of Warrant Stock. Each share of Warrant Stock
issuable upon exercise of this Warrant shall, upon payment of the Exercise Price
therefor, be fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Warrant Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall reasonably assist and cooperate with any
Registered Holder or Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant (including, without limitation, making any filings required to be
made by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with (1) a registered
public offering or the sale of the Company, (2) a change of ownership of the
Company (as defined in the Certificate of Designations) or (3) Organic Change of
the Company (as defined in Section 20 hereof), the exercise of any portion of
this Warrant may, at the election of the holder hereof, be conditioned upon the
consummation of the public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Warrant Stock solely for the
purpose of issuance upon the exercise of the Warrants, such number of shares of
Warrant Stock issuable upon the exercise of all outstanding Warrants. All shares
of Warrant Stock which are so issuable shall, when issued and paid for in
accordance with the terms hereof, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges imposed as a result of
actions taken by the Company. The Company shall take all such actions as may be
necessary to assure that all such shares of Warrant Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company shall
not take any action which would cause the number of authorized but unissued
shares of Warrant Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon exercise of the Warrant.
(ix) If the shares of Warrant Stock issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the exercising
holder's option and upon surrender of this Warrant by such holder as provided
above together with any notice, statement or payment required to effect such
conversion or exchange of Warrant Stock, deliver to such holder (or as otherwise
specified by such holder) a certificate or certificates representing the stock
or securities into which the shares of Warrant Stock issuable by reason of such
conversion are convertible or exchangeable, registered in such name or names and
in such denomination or denominations as such holder has specified.
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<PAGE> 4
(x) No Five Percent Holders. Unless a holder of this Warrant
delivers a waiver in accordance with the last sentence of this subparagraph (x),
in no event shall a holder of this Warrant be entitled to receive shares of
Common Stock upon an exercise to the extent that the sum of (a) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
(exclusive of shares issuable upon conversion of the unconverted portion of this
Warrant or the unexercised or unconverted portion of any other securities of the
Company (including, without limitation, the Series A Preferred issued by the
Company pursuant to the Purchase Agreement) subject to a limitation on
conversion or exercise analogous to the limitations contained herein) and (b)
the number of shares of Common Stock issuable upon the exercise of this Warrant
with respect to which the determination of this subparagraph is being made,
would result in beneficial ownership by the holder and its affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (a) above. Except as
provided in the immediately succeeding sentence, the restriction contained in
this subparagraph (x) shall not be altered, amended, deleted or changed in any
manner whatsoever unless the holder of this Warrant shall approve such
alteration, amendment, deletion or change. Notwithstanding the foregoing, a
holder of this Warrant may, by providing written notice to the Company, adjust
the restriction set forth in this subparagraph (x) so that the limitation on
beneficial ownership of 4.99% of the outstanding shares of Common Stock referred
to above shall be increased to 9.99%, which adjustment shall not take effect
until the 61st day after the date of such notice.
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in EXHIBIT I hereto,
except that, subject to compliance with Section 7 hereof, if the shares of
Warrant Stock are not to be issued in the name of the Person in whose name this
Warrant is registered, the Exercise Agreement shall also state the name of the
Person to whom the certificates for the shares of Warrant Stock are to be
issued, and if the number of shares of Warrant Stock to be issued does not
include all the shares of Warrant Stock purchasable hereunder, it shall also
state the name of the Person to whom a new Warrant for the unexercised portion
of the rights hereunder is to be delivered. Such Exercise Agreement shall be
dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Warrant Stock would, but
for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five (5) business days
after the date of the Exercise Time, deliver to the Purchaser a check payable to
the Purchaser in lieu of such fractional share in an amount equal to the
difference between the Market Price of such fractional share as of the date of
the Exercise Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Warrant Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.
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<PAGE> 5
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock.
(i) If and whenever after the Date of Issuance of this Warrant
the Company issues or sells, or in accordance with paragraph 2B is deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Exercise Price in effect immediately prior to such time, then
immediately upon such issue or sale the Exercise Price shall be reduced to the
Exercise Price determined by dividing:
(A) the sum of (x) the product derived by multiplying the Exercise
Price in effect immediately prior to such issue or sale times the
number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (y) the consideration, if any,
received by the Company upon such issue or sale, by
(B) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
Upon each such adjustment of the Exercise Price hereunder, the number of shares
of Warrant Stock acquirable upon exercise of this Warrant shall be adjusted to
the number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Warrant Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment.
(ii) Notwithstanding the foregoing, there shall be no adjustment
to the Exercise Price or the number of shares of Warrant Stock obtainable upon
exercise of this Warrant with respect to (a) the granting of stock options or
stock purchase rights to employees, directors, consultants and vendors
(including equipment lessors, commercial financing sources and lending
institutions) of the Company and its Subsidiaries pursuant to plans or
transactions approved by 80% of the members of the Board of Directors or the
issuance of shares on the exercise thereof, (b) the issuance of the Series A
Preferred or the issuance of shares of Common Stock issuable upon conversion of
the Series A Preferred or on exercise of the Warrants issued to certain banks in
connection with the restructuring of debt owed to such banks simultaneously with
the issuance hereof (the "Bank Warrants"), (c) the issuance of the Bank
Warrants, (d) the issuance the Convertible Promissory Note (the "Seagate Note")
to Seagate Technology, Inc. or the issuance of the shares of Common Stock upon
conversion of the Seagate Note, or (e) the issuance of Class A Common Stock upon
conversion of the outstanding shares of Class B Common Stock.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under paragraph 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than
the Exercise Price in effect immediately prior to the time of the granting or
sale of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options, or upon conversion or exchange of
the total maximum amount of such
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<PAGE> 6
Convertible Securities issuable upon the exercise of such Options, shall be
deemed to be outstanding and to have been issued and sold by the Company at such
time for such price per share. For purposes of this paragraph, the "price per
share for which Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" is determined by dividing
(A) the total amount, if any, received or receivable by the Company as
consideration for the granting or sale of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Exercise Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Company at such time for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon conversion or exchange thereof" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price had been or are to be made pursuant to other provisions of this
paragraph 2B, no further adjustment of the Exercise Price shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Exercise Price in effect at the time
of such change shall be adjusted immediately to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Warrant Stock
issuable hereunder shall be correspondingly adjusted. For purposes of this
paragraph 2B, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange
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<PAGE> 7
thereof shall be deemed to have been issued as of the date of such change;
provided that no such change shall at any time cause the Exercise Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect and the number of shares of
Warrant Stock acquirable hereunder shall be adjusted immediately to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued. For purposes of this paragraph 2B, the expiration or termination of
any Option or Convertible Security which was outstanding as of the date of
issuance of this Warrant shall not cause the Exercise Price hereunder to be
adjusted unless, and only to the extent that, a change in the terms of such
Option or Convertible Security caused it to be deemed to have been issued after
the date of issuance of this Warrant.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity the amount of consideration therefor shall
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities shall be determined jointly by the Company and the
Registered Holders of Warrants representing two-thirds of the shares of Warrant
Stock obtainable upon exercise of such Warrants. If such parties are unable to
reach agreement within a reasonable period of time, such fair value shall be
determined by an appraiser jointly selected by the Company and the Registered
Holders of Warrants representing two-thirds of the shares of Warrant Stock
obtainable upon exercise of such Warrants. The determination of such appraiser
shall be final and binding on the Company and the Registered Holders of the
Warrants, and the fees and expenses of such appraiser shall be paid by the
Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options shall be deemed to
have been issued without consideration.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
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<PAGE> 8
(viii) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Warrant
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Warrant Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction, which
in each case is effected in such a way that the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Twenty (20) days prior to the consummation of any
Organic Change, the Company shall deliver written notice to the Registered
Holders of the Warrants describing the proposed terms of the Organic Changes,
advising them of the expected closing date thereof and notifying them that the
Warrant shall terminate upon such closing. If the Warrant is not exercised
simultaneously with or prior to the closing of the Organic Change, it shall
terminate and cease to be exercisable upon such closing.
2E. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 10 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
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<PAGE> 9
Section 3. Liquidating Dividends. If at any time on or after the date
this Warrant becomes exercisable the Company declares or pays a dividend upon
the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the Registered
Holder of this Warrant at the time of payment thereof the Liquidating Dividend
which would have been paid to such Registered Holder on the Warrant Stock had
this Warrant been fully exercised immediately prior to the date on which a
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined; provided that if the Liquidating Dividends consist of
voting securities, the Company shall make available to the Registered Holder of
this Warrant, at such holder's request, Liquidating Dividends consisting of
non-voting securities (except as otherwise required by law) which are otherwise
identical to the Liquidating Dividends consisting of voting securities and which
non-voting securities are convertible into such voting securities on the same
terms as Class B Common Stock is convertible into Class A Common Stock..
Section 4. Purchase Rights. If at any time on or after the date this
Warrant becomes exercisable the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the Registered Holder of this Warrant shall be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Warrant Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights; provided that if the Purchase
Rights involve voting securities, the Company shall make available to the
Registered Holder of this Warrant, at such holder's request, Purchase Rights
involving non-voting securities (except as otherwise required by law) which are
otherwise identical to the Purchase Rights involving voting securities and which
non-voting securities are convertible or exchangeable into such voting
securities on the same term as the Company's Class B Common Stock is convertible
into the Company's Class A Common Stock.
Section 5. Definitions. The following terms have meanings set forth
below:
"Certificate of Designations" means the Certificate of Designations
filed with the Delaware Secretary of State in connection with the Purchase
Agreement.
"Common Stock" means, collectively, the Company's Class A Common Stock,
the Company's Class B Common Stock and any capital stock of any class of the
Company hereafter authorized which is not limited to a fixed sum or percentage
of par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common
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<PAGE> 10
Stock issuable upon conversion or exercise of outstanding Options, Convertible
Securities and preferred stock of the Company.
"Convertible Securities" means any stock or securities (directly or
indirectly) convertible into or exchangeable for Common Stock.
"Market Price"of any security means the average of the closing bid
prices of such security's sales on all securities exchanges on which such
security may at the time be listed on the five (5) trading days ending one
trading day prior to the date of exercise of this Warrant. If at any time such
security is not listed on any securities exchange or quoted in the NASDAQ System
or the over-the-counter market, the "Market Price" shall be the fair value
thereof determined jointly by the Corporation and the Registered Holders of
Warrants representing two-thirds of the Warrant Stock purchasable on exercise of
all of the Warrants then outstanding. If such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an independent appraiser experienced in valuing securities jointly
selected by the Corporation and the Registered Holders of Warrants representing
two-thirds of the Warrant Stock purchasable on exercise of all of the Warrants
then outstanding. The determination of such appraiser shall be final and binding
upon the parties, and the Corporation shall pay the fees and expenses of such
appraiser.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Warrant Stock" means shares of the Company's Class A Common Stock par
value $0.013 per share ("Class A Common Stock"); provided that if there is a
change such that the securities issuable upon exercise of the Warrants or
conversion of the Subject Shares are issued by an entity other than the Company
or there is a change in the type or class of securities so issuable, then the
term "Warrant Stock" shall mean one share of the security issuable upon exercise
of the Warrants or conversion of the Subject Shares if such security is issuable
in shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
Other capitalized terms used in this Warrant but not defined herein
shall have the meanings set forth in the Purchase Agreement.
Section 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Warrant Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon and in compliance with the
requirements set forth in Section 6.5 of the
10
<PAGE> 11
Purchase Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the Registered Holder, upon surrender of
this Warrant with a properly executed Assignment (in the form of EXHIBIT II
hereto) at the principal office of the Company, provided that transfers to
parties which are not affiliates of the Registered Holder shall require the
prior written consent of the Company which shall not be unreasonably withheld.
Section 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender; provided that, as long as any Subject
Shares remain outstanding, this Warrant shall only be exchangeable in connection
with the exchange of the certificate representing such Subject Shares. The date
the Company initially issues this Warrant shall be deemed to be the "Date of
Issuance" hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued. All Warrants representing portions of the rights hereunder are
referred to herein as the "Warrants."
Section 9. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 10. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (I) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by any such holder).
Section 11. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing two-thirds of the shares of Warrant
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing at least two-thirds of the
shares of Warrant Stock obtainable upon exercise of the Warrants.
11
<PAGE> 12
Section 12. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
12
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by its duly authorized officers under its corporate seal and
to be dated the Date of Issuance hereof.
STORMEDIA INCORPORATED
By_____________________________
Its_____________________________
[CORPORATE SEAL]
Attest:
- ----------------------------
Secretary
13
<PAGE> 14
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby exercises its right to
purchase ______ shares of the Warrant Stock covered by such Warrant and makes
payment in full therefor in accordance with the terms of Section 1B(d) of the
Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W- _____) with respect to the number of shares of the
Warrant Stock covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Names of Assignee Address No. of Shares
<S> <C> <C>
</TABLE>
Dated: Signature _______________________
-----------------------
Witness _______________________
<PAGE> 1
EXHIBIT 10.32
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement")
dated as of May 29, 1998, among STORMEDIA INCORPORATED, a Delaware corporation
(the "Company"), PRUDENTIAL PRIVATE EQUITY INVESTORS III, L.P., a Delaware
limited partnership ("PPEI"), William J. Almon and Susan Almon, Trustees of the
Almon Family Trust ("Almon"), Capital Ventures International, a Cayman Islands
corporation ("CVI"), Seagate Technology Inc., a Delaware corporation ("Seagate")
and the bank syndicate consisting of Canadian Imperial Bank of Commerce [Asia]
Ltd., Banque Nationale de Paris, Singapore Branch, Union Bank of California
N.A., Sanwa Bank California and Fleet National Bank (the "Syndicate" and,
together with PPEI, Almon, Seagate and CVI, the "Shareholders").
RECITALS:
(a) PPEI, the Company and the Almon Family Partnership, a California
limited partnership (the "Almon Partnership") entered into a Registration Rights
Agreement, dated as of May 20, 1994 (the "Rights Agreement"), pursuant to which
the Company granted to PPEI and the Almon Partnership certain registration
rights with respect to certain of the Company's securities held by them. On
dissolution of the Almon Partnership, the registration rights were assigned to
Almon and have now terminated with respect to the other members of the Almon
partnership.
(b) The Company, PPEI and CVI have entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") of even date herewith, pursuant
to which the Company has sold to PPEI and CVI certain of its securities.
(c) The Company and Seagate have entered into a Termination of Supply
Agreement and Loan Agreement (the "Seagate Agreement") dated May 15, 1998
pursuant to which the Company issued to Seagate a Convertible Promissory Note
(the "Convertible Note").
(d) The Company and the Syndicate have entered into an Amended and
Restated Credit Agreement (the "Amended and Restated Credit Agreement") and a
Warrant Purchase Agreement (the "Warrant Purchase Agreement") of even date
herewith, pursuant to which the Company has issued to the Syndicate warrants for
certain of its securities in consideration for agreements and covenants made by
the Syndicate in the Amended and Restated Credit Agreement and the Warrant
Purchase Agreement.
(e) In connection with the Securities Purchase Agreement, the Seagate
Agreement, the Amended and Restated Credit Agreement and the Warrant Purchase
Agreement, the Company desires to amend the Rights Agreement to grant the
Shareholders certain registration rights with respect to the Registrable
Securities held by them as set forth on Schedule I.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby amend and restate the Rights Agreement in
its entirety to provide as herein set forth, to add Seagate, CVI and the
Syndicate as parties and hereby agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Subject to paragraphs 1(b) and
1(c) below, the Holders (as defined in Section 8) shall have the following
rights to request registration under the Securities Act of 1933, as amended (the
"Securities Act") of all or part of their Registrable Securities on Form S-1 or
any similar long-form registration ("Long-Form Registrations"), and on Form S-2
or S-3 or any similar short-form registration ("Short-Form Registrations") if
available (all registrations requested pursuant to this paragraph 1(a) are
referred to herein as "Demand Registrations"):
(i) PPEI and Almon may, collectively, request up to three
(3) Demand Registrations, provided any request for a Demand Registration must be
made by the holders of at least 50.1% of the Registrable Securities held by PPEI
and Almon.
(ii) Seagate may request one (1) Demand Registration.
(iii) CVI may request two (2) Demand Registration.
(iv) The Syndicate may request one (1) Demand
Registration, provided any request for a Demand Registration must be made by the
Holders of at least 50.1% of the then outstanding Registrable Securities
originally held by the Syndicate.
The party making the foregoing demand pursuant to subparagraphs (i) through (iv)
shall be referred to as the "Initiating Holder."
Each request for a Demand Registration pursuant to this paragraph 1(a) shall
specify the approximate number of Registrable Securities requested to be
registered and the anticipated method of distribution. Within ten days after
receipt of any such request, the Company will give written notice of such
requested registration to all other Holders and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 20 days after the receipt
of the Company's notice.
(b) Long-Form Registrations. Subject to paragraph 1(a), the
Holders will be entitled at any time after June 30, 1998 to request Long-Form
Registrations in which the Company will pay all Registration Expenses
("Company-paid Long-Form Registrations"). A registration will not count as one
of the permitted Long-Form Registrations (i) until the applicable Registration
Statement has become effective or (ii) as to any particular Holder, if after the
applicable registration statement has become effective, such registration or the
related offer, sale or distribution of Registrable Securities thereunder is
interfered with by any stop order, injunction for other order or requirement of
the Commission or other governmental agency or court for any reason not
attributable to such Holder and such interference is not thereafter eliminated,
or if the conditions to closing
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<PAGE> 3
specified in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of a failure
on the part of such Holder; and no Company-paid Long-Form Registration will
count as one of the permitted Long-Form Registrations unless the Initiating
Holder registers and sells at least 85% of the Registrable Securities requested
by such Initiating Holder to be included in such registration; provided that in
any event the Company will pay all Registration Expenses in connection with any
registration initiated as a Company-paid Long-Form Registration whether or not
it has become effective.
(c) Short-Form Registrations. Subject to paragraph 1(a), the
Holders will be entitled to request Short-Form Registrations in which the
Company will pay all Registration Expenses. Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. The Company will use its best efforts to make Short- Form
Registrations on Form S-3 available for the sale of Registrable Securities,
provided the Shareholders acknowledge that the Company is not currently so
eligible. The Holders agree that they will not request a Long-Form Registration
when the Company is eligible to use a Short-Form Registration, provided that the
Company agrees to include in the prospectus included in any Short- Form
Registration Statement, such material describing the Company and, intended to
facilitate the sale of securities being so registered as is reasonably requested
for inclusion therein by any of the Holders selling securities pursuant to such
registration statement, whether or not the form used for such registration
statement requires the inclusion of such information.
(d) Priority on Demand Registrations. The Company will not
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the Initiating Holder, which
consent will not be unreasonably withheld. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold therein without adversely affecting the marketability of the
offering, the Company will include in such registration prior to the inclusion
of any other securities, Registrable Securities held by the Initiating Holder
and thereafter shall include in such registration, only such other securities as
in the opinion of such underwriters can be sold without adversely affecting the
marketability of the offering, in the following order of priority: prior to the
inclusion of any securities which are not Registrable Securities, the number of
Registrable Securities held by other Holders which are requested to be included
which in the opinion of such underwriters can be sold without adversely
affecting the marketability of the offering, pro rata among the respective
holders thereof on the basis of the number of Registrable Securities owned by
each Holder participating in such offering.
(e) Restrictions on Long-Form Registrations and Demand
Registrations. The Company will not be obligated to file a registration
statement to effect any Demand Long-Form Registration during the period starting
with the date sixty (60) days prior to the Company's good faith estimate of the
date of filing of, and ending on a date one hundred and eighty (180) days after
the effective date of, a Company-initiated registration; provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective. The
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<PAGE> 4
Company will not be obligated to effect any Demand Long-Form Registration within
180 days after the effective date of a previous Long-Form Registration pursuant
to paragraph 1(b). Not more than once in any twelve (12) month period, the
Company may postpone for up to 180 days the filing of a registration statement
for a Demand Registration if the Company's Board of Directors agrees (with the
concurrence of the Company's investment banker or managing underwriter, if any)
that such Demand Registration would have a material adverse effect on any
proposal or plan by the Company or any of its subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction or would otherwise
materially adversely affect the Company or its business or its ability to raise
capital; provided that in such event, the Initiating Holders will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such withdrawn registration.
(f) Selection of Underwriters. If any registration pursuant to
this Section 1 involves an underwritten offering (whether on a "firm", "best
efforts" or "reasonable efforts" basis or otherwise), the Initiating Holder will
have the right to select the investment banker(s) and manager(s) to administer
the offering, subject to the Company's approval which will not be unreasonably
withheld.
(g) Other Registration Rights. Except as provided in this
Agreement, the Company will not grant to any Persons the right to request the
Company to register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, without the
prior written consent of the holders of at least 50.1% of the then outstanding
Registrable Securities and initially issued to (i) PPEI and Almon, (ii) Seagate,
(iii) CVI and (iv) the Syndicate; provided that the Company may grant rights to
other Persons to (i) participate in Piggyback Registrations so long as such
rights are subordinate in all respects in a manner reasonably acceptable to the
Holders of at least 50.1% of the then outstanding Registrable Securities, to the
rights of the holders of Registrable Securities with respect to such Piggyback
Registrations and (ii) request registrations so long as the holders of
Registrable Securities are entitled to participate in any such registrations
with such Persons pro rata on the basis of the number of shares owned by each
such holder.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register
any of its securities under the Securities Act (including for this purpose a
registration effected by the Company for shareholders of the Company other than
the Holders, but other than registrations pursuant to a Demand Registration and
other than registrations relating solely to employee benefit plans,
registrations relating solely to SEC Rule 145 transactions (or transactions
under any successor rule) or registrations on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering Registrable Securities) and the registration
form to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company will give prompt written notice to all
Holders of its intention to effect
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<PAGE> 5
such a registration and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 20 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the Holders
will be paid by the Company in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriter(s) advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such
registration, pro rata among the Holders of Registrable Securities on the basis
of the number of Registrable Securities owned by each Holder of Registrable
Securities participating in such offering and (iii) third, other securities
requested to be included in such registration; provided that in any event the
Holders shall be entitled to register at least 10% of the securities to be
included in any such registration.
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities other than any of the Holders pursuant to paragraph 1
hereof, and the managing underwriter(s) advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
in such registration (i) first, the Registrable Securities requested to be
included in such registration, pro rata among the Holders of Registrable
Securities on the basis of the number of Registrable Securities owned by each
Holder of Registrable Securities participating in such offering and (ii) second,
other securities requested to be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is
an underwritten offering, the selection of investment banker(s) and manager(s)
for the offering must be approved by the Holders of a majority of the
Registrable Securities included in such Piggyback Registration. Such approval
will not be unreasonably withheld.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has been declared effective, the Company will not file or cause to be effected
any other registration of any of its equity securities or securities convertible
or exchangeable into or exercisable for its equity securities under the
Securities Act (except on Form S-8 or any successor form), whether on its own
behalf or at the request of any holder or holders of such securities, until a
period of at least six months has elapsed from the effective date of such
previous registration.
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<PAGE> 6
3. Holdback Agreements.
(a) Each Holder agrees not to effect any public sale or
distribution (including sales pursuant to Rule 144) of Common Stock, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the one hundred and eighty (180)-day period
beginning on the effective date of any underwritten public offering (except as
part of such underwritten registration), unless the underwriter(s) managing the
registered public offering otherwise agree, provided that with respect to CVI,
such period shall be the seven days prior to and the thirty (30)-day period
beginning on the effective date of said underwritten public offering.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, whether on the Company's own
behalf or at the request of any Holder or Holders of such securities, during the
seven days prior to and during the one hundred and eighty (180)-day period
beginning on the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
unless the underwriter(s) managing the registered public offering otherwise
agree and (ii) to cause each director and executive officer of the Company and
each holder of at least 5% (on a fully-diluted basis) of its Common Stock, or
any securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever one or more Holders have requested
that any Registrable Securities be registered pursuant to this Agreement, the
Company will use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file (in the case of a Demand Registration not
more than sixty (60) days after request therefor) with the Securities and
Exchange Commission a registration statement with respect to such Registrable
Securities on such appropriate registration form of the Commission as shall
permit the disposition of the Registrable Securities in accordance with the
intended method or methods of disposition specified in the request for
registration, and use the Company's best efforts to cause such registration
statement to become effective as soon as reasonably practicable (provided that
as far in advance as practicable (but not less than three business days) before
filing a registration statement or prospectus and as far in advance as
practicable before filing any amendments or supplements thereto, the Company
will furnish to the counsel selected by the holders of a majority of the
Registrable Securities covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the review of
such counsel);
(b) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection
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<PAGE> 7
therewith as may be necessary to (i) keep such registration statement effective
for the shorter of (A) the completion of the distribution of the securities
registered pursuant to such registration statement and (B) a period of not less
than one hundred and twenty (120) days or, if such registration is for an
offering on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act (a "Shelf Registration"), for a period equal to the lesser of two
years after its effective date or the date as of which the securities so
registered cease to be Registrable Securities; and (ii) comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement. In addition, if the registration is for an
underwritten offering, the Company shall amend the registration statement or
supplement the prospectus whenever required by the terms of the applicable
underwriting agreement. Subject to Rule 415 under the Securities Act, if the
registration statement is a Shelf Registration, the Company shall use reasonable
efforts to amend the registration statement or supplement the prospectus so that
it will remain current and in compliance with the requirements of the Securities
Act for a period equal to the lesser of two years after its effective date or
the date as of which the securities so registered cease to be Registrable
Securities. Notwithstanding the foregoing, with respect to Shelf Registrations,
if the Board of Directors of the Company determines in good faith (A) that an
amendment or supplement to the Registration Statement or prospectus contained
therein is necessary, in light of subsequent events, in order to correct a
material misstatement made therein or to include information the absence of
which would render the Registration Statement or such prospectus materially
misleading and (B) that the filing of such amendment or supplement would result
in the disclosure of information which the Company has a bona fide business
purpose for preserving as confidential, the Company may impose a Blackout Period
during which no sale may be made under such Registration Statement; provided
that the Company shall be entitled to impose no more than two (2) Blackout
Periods during any period of twelve (12) consecutive months for an aggregate of
not more than thirty (30) days. To impose such a Blackout Period, the Company
shall send written notice to each Shareholder who has registered shares for sale
under such Shelf Registration and such Shareholder shall not sell under such
Shelf Registration until the end of such Blackout Period;
(c) furnish without charge to each seller of Registrable
Securities such number of copies of such registration statement, each amendment
and supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus), in each case in conformity with the
requirements of the Securities Act and the rules thereunder, and such other
documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (including, without limitation, obtaining the withdrawal of any order
suspending the effectiveness of the registration statement, or the lifting of
any suspension of the qualification (or exemption from qualification) of the
offer and transfer of any of the Registrable Securities in any jurisdiction at
the earliest possible moment) provided that the Company will not be required to
(i) qualify generally to
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<PAGE> 8
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
and furnish to each selling Holder a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein not
misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the National Association of
Securities Dealers automated quotation system;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, the Company's premises and all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors, employees and independent accountants
to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) use the Company's best efforts to obtain a so-called "comfort
letter" from the Company's independent public accountants, and opinion letters
from the Company's counsel addressed to the selling Holders, in customary form
and covering such matters of the type customarily covered by such letters. The
Company shall furnish to each selling Holder a signed counterpart of any such
comfort letter or opinion letter of counsel. Delivery of any such opinion letter
or comfort letter shall be subject to the recipient furnishing such written
representations or acknowledgments as are customarily provided by selling
shareholders who receive such comfort letters or opinions;
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<PAGE> 9
(k) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders generally, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months beginning
with the first day of the Company's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(l) permit any Holder of Registrable Securities which Holder, in
its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included; and
(m) in the event of the threatened or actual issuance of any stop
order suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration statement for
sale in any jurisdiction, the Company will promptly notify the holders of
Registrable Securities and will use its reasonable best efforts to prevent the
entry of such stop order or if entered, promptly to obtain the withdrawal of
such order.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and of all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne as provided in this Agreement, except
that the Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the
National Association of Securities Dealers automated quotation system. The
Company shall not be required to pay an underwriting discount with respect to
any shares being sold by any party other than the Company in connection with an
underwritten public offering of any of the Company's securities pursuant to this
Agreement.
(b) In connection with each Company-paid Demand Registration, the
Company will reimburse the holders of Registrable Securities covered by such
registration for the reasonable fees and disbursements of one counsel chosen by
the holders of a majority of the Registrable Securities initially requesting
such registration.
6. Indemnification.
-9-
<PAGE> 10
(a) The Company agrees to indemnify and hold harmless, to the
full extent permitted by law, each Holder, its employees, officers and
directors, each Person who controls such Holder (within the meaning of the
Securities Act) and such Person's employees, officers and directors against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and disbursements and expenses of investigation) incurred by
such party pursuant to any actual or threatened action, suit, proceeding or
investigation, or to which any of the foregoing Persons may otherwise become
subject under the Securities Act, the Exchange Act or other federal or state
law, to the extent the same arise out of or result from untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
applicable state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any applicable state securities law, except
insofar as the same are caused by or contained in any information furnished in
writing to the Company by such holder expressly for use therein or by such
holder's failure to deliver a copy of the registration statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
holder with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company will indemnify such underwriters, their
employees, officers and directors and each Person who controls such Persons
(within the meaning of the Securities Act) to the same extent as provided above
with respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a
Holder is participating, each such Holder will furnish to the Company and any
underwriter in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify and hold harmless
the Company and any underwriter, and their respective employees, directors and
officers, each Person who controls the Company and any underwriter (within the
meaning of the Securities Act) and such Person's employees, directors and
officers against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and disbursements and expenses of
investigation) incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange Act
or other federal or state law, to the extent the same arise out of or result
from any untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation or alleged violation by such Holder of the
Securities Act, the Exchange Act, any applicable state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
applicable state securities law, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder expressly for use in such registration statement or
prospectus; provided that the obligation to indemnify will be individual to each
holder and will be limited to the net amount of proceeds received by such holder
from the sale of Registrable Securities pursuant to such registration statement.
-10-
<PAGE> 11
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of the commencement of any
action, suit, proceeding, investigation or threat thereof for which such
indemnified party may seek indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest (actual or potential) between
such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume (jointly with any other indemnifying
party similarly noticed) the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest (determined as described below)
may exist between such indemnified party and any other of such indemnified
parties with respect to such claim (in which event the reasonable fees and
disbursements and expenses of counsel for such indemnified party shall be paid
by the indemnifying party). The failure to deliver written notice to the
indemnifying party within a reasonable time following the commencement of any
such action, suit or proceeding, if prejudicial to the indemnifying party's
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 6. All fees and expenses
incurred by the indemnified party (including any fees and expenses incurred in
investigating or preparing to defend such action, suit or proceeding) shall be
paid to the indemnified party, as incurred, within thirty (30) days of written
notice thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder, provided if such a determination is thereafter made, the indemnified
party shall reimburse the indemnifying party for all such amounts so paid). Any
such indemnified party shall have the right to employ separate counsel in any
such action, suit or proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be the expenses of such indemnified
party unless (i) the indemnifying party has agreed to pay such fees and
expenses, (ii) the indemnifying party shall have failed to promptly assume the
defense of such action, suit or proceeding or (iii) the named parties to any
such action, suit or proceeding (including any impleaded party) include both
such indemnified party and the indemnifying party, and such indemnified party
shall have been advised by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or in addition to
those available to the indemnifying party and that the assertion of such
defenses would create a conflict of interest such that counsel employed by the
indemnifying party could not faithfully represent the indemnifying party (in
which case, if such indemnified party notifies the indemnifying party in writing
that the indemnified party elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action, suit or proceeding on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
such indemnified parties, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with
-11-
<PAGE> 12
respect to such action, suit or proceeding, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels). No indemnifying party shall be liable to an indemnified party for
any settlement of any action, suit or proceeding, or claim, without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld.
(d) If the indemnification required by this Section 6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any loss, claim, damage, liability or expense referred to in this Section 6:
(i) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses, in such proportion as is appropriate as reflect the relative fault of
the indemnifying party and the indemnified parties in connection with the
actions that resulted in such losses, claims, damages, liabilities or expenses,
as well as all other relevant equitable considerations, if any. The relative
fault of such indemnifying party and the indemnified party shall be determined
by reference to, among other things, whether any violation of any applicable
law, rule or regulation has been committed by, or relates to information
supplied by, such indemnifying party or indemnifying parties and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such violation. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in the preceding
portions of this Section 6, all legal or other fees and expenses reasonably
incurred by such party in connection with such investigation or proceeding.
(ii) The parties hereto agree that it would not be just
and equitable if contribution pursuant to this paragraph 6(d) were determined by
pro rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in paragraph 6(d)(i). No Person
guilty of fraudulent misrepresentation (within the meaning of the Securities
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
(iii) If indemnification is available under this Section
6, the indemnifying party shall indemnify each indemnified party to the full
extent provided in this Section 6 without regard to the relevant fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in paragraph 6(d).
(e) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities.
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons
-12-
<PAGE> 13
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
8. Definitions.
"Common Stock" (i) means the Class A Common Stock and Class B
Common Stock of the Company, $0.013 par value per share and (ii) shares of
capital stock of the Company issued by the Company in respect of or in exchange
for shares of such Class A Common Stock or Class B Common Stock in connection
with any stock dividend or distribution, stock split-up, recapitalization,
recombination or exchange by the Company generally of shares of such Common
Stock.
"Holders" means the Shareholders and all Persons, if any, to whom
Registrable Securities are sold, assigned or otherwise transferred in accordance
with Section 9(e) hereof (other than a transfer for security), in each case at
such times as, and only for so long as, such Shareholders and Persons shall own
Registrable Securities as defined herein.
"Preferred Stock" means the Series A Preferred Stock of the
Company, $0.01 par value per share.
"Registrable Securities" means (i) any Class A Common Stock
currently held by each Shareholder, (ii) any Class A Common Stock issued or
issuable upon conversion of any Preferred Stock or upon conversion of the
currently outstanding Class B Common Stock held by PPEI, (iii) any Class A
Common Stock issued or issuable upon exercise of any Warrants issued pursuant to
the Warrant Purchase Agreement or the Securities Purchase Agreement, (iv) any
Class A Common Stock issued or issuable upon conversion of the Convertible Note,
and (v) any Class A Common Stock issued or issuable with respect to the
securities referred to in clauses (i) through (iv) above (including securities
issuable upon the conversion or exercise of any warrant, right or other security
that is issued) by way of a stock dividend, stock distribution or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization (including any exchange by the Company
generally of such shares of stock). As of the date hereof, the Registrable
Securities held by the Shareholders are as set forth on Schedule I. As to any
particular Registrable Securities, such securities will cease to be Registrable
Securities when they have been distributed to the public pursuant to an offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force) or have been sold to the public pursuant to any
exemption from registration under the Securities Act . In addition, the Company
shall have no obligation under Sections 1 and 2 to any particular Person (and
the securities held by such Person shall cease to be Registrable Securities) at
such time as all Registrable Securities held by such Person can be sold by such
Person in open market sales within a given three month period without compliance
with the registration requirements of the Securities Act pursuant to Rule 144 or
other applicable exemption and the Company delivers to such Person a written
opinion of legal counsel for the Company to such effect, and the Company offers
to remove any and all legends restricting transfer from the certificates
evidencing such Registrable Securities. For purposes of this Agreement, a Person
will be deemed to
-13-
<PAGE> 14
be a holder of Registrable Securities whenever such Person has the right to
acquire directly or indirectly such Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected. In addition,
references to Registrable Securities owned or held by a Holder shall include
Registrable Securities owned by such Person but held of record in the name of a
nominee, trustee, custodian or other agent, and Registrable Securities shall be
deemed outstanding at such times as such securities are owned by a Holder.
"Warrants" means warrants to purchase Class A Common Stock of the
Company issued in connection with the Warrant Purchase Agreement or the
Securities Purchase Agreement.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not granted any
registration rights to any other Person. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement. PPEI and Almon agree that their rights under the Rights Agreement
have been superseded and amended in their entirety hereby.
(b) Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration.
(c) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement. By seeking or obtaining any such relief, the aggrieved party shall
not be precluded from seeking or obtaining any other relief to which such party
may be entitled.
In any action or proceeding brought in enforce any
provision of this Agreement or in which any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees (including any fees incurred in any appeal) in addition to such
party's costs and expenses or other available remedy.
(d) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least a majority of the
Registrable Securities originally issued to each of (i) PPEI and Almon, (ii)
Seagate, (III) CVI and (iv) the Syndicate.
-14-
<PAGE> 15
(e) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto who
acquire other than through a sale to the public at least 100,000 shares of
Registrable Securities (or securities convertible into Registrable Securities),
provided that the Company is given written notice by such Holder at the time of
or within a reasonable time after such transfer, stating the name and address of
said transferee or assignee and identifying the securities with respect to which
the rights and obligations set forth are being assigned. In addition, whether or
not any express assignment has been made, the provisions of this Agreement which
are for the benefit of purchasers or holders of Registrable Securities are also
for the benefit of, and enforceable by, any subsequent holder of Registrable
Securities.
Except as specifically provided herein with respect to
certain matters, neither this Agreement nor any of the Company's rights,
interests or obligations hereunder shall be assigned or delegated by the Company
(other than by operation of law) without the prior written consent of Holders
owning on the date as of which such delegation or assignment is to become
effective not less than 50.1% of the Registrable Securities originally issued to
(i) PPEI and Almon, (ii) Seagate, (iii) CVI and (iv) Syndicate.
(f) Notices. Except as otherwise expressly provided herein, any
and all notices, designations, consents, offers, acceptances or other
communications provided for herein shall be given in writing and shall be mailed
by first class registered or certified mail, postage prepaid, sent by a
nationally recognized overnight courier service for next business day delivery
or transmitted via telecopier as follows:
If to the Company: StorMedia Incorporated
390 Reed Street
Santa Clara, California 95050
Facsimile: (408) 727-4928
(Attention: President)
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-10500
Facsimile: (650) 493-6811
(Attention: Judith M. O'Brien, Esq.)
and with a copy to PPEI.
If to PPEI: Prudential Private Equity Investors III, L.P.
717 Fifth Avenue
Suite 1100
New York, New York 10022
Facsimile: (212) 826-6798
(Attention: Mark Rossi)
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<PAGE> 16
With a copy to: Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Facsimile: (212) 446-4900
(Attention: Frederick Tanne, Esq.)
If to Almon: Balmon Group
4966 El Camino Real
Los Altos, California 94024
Facsimile: (415) 941-0824
(Attention: William J. Almon)
If to Seagate: Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, CA 95066-4544
Facsimile: (408) 438-6675
(Attention: Thomas F. Mulvaney, Esq.)
With a copy to: Gibson Dunn & Crutcher LLP
One Montgomery Street, Telesis Tower
San Francisco, CA 94104-4505
Facsimile: (415) 986-5309
(Attention: William Hudson, Esq.)
If to CVI: Heights Capital Management, Inc.
425 California Street, Suite 1100
San Francisco, CA 94104
Facsimile: (415) 403-6525
(Attention: Michael L. Spolan)
With a copy to: Wolf Block Schorr & Solis-Cohen LLP
12th Floor, Packard Building
111 S. 15th Street
Philadelphia, PA 19102
Facsimile: (215) 977-2740
(Attention: Richard A. Silfen)
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<PAGE> 17
If to the Syndicate, to each of Canadian Imperial Bank
16 Collyer Quay No. 04-02
Singapore, 0104
Telephone: 65-439-3768
Telecopier: 65-535-5182
(Attention: Mr. Chin Foo Chun)
Telephone: 65-439-3754
Telecopier: 65-535-5182
(Attention: Mr. Harry Wong)
Banque Nationale de Paris,
Singapore Branch
Tung Centre
20 Collyer Quay
Singapore 049319
Telephone: 65-539-9327
Telecopier: 65-226-2516
(Attention: Mr. Andre Luu)
Union Bank of California N.A.
350 California Street, Suite 750
San Francisco, CA 94104
Telephone: (415) 705-7119
Telecopier: (415) 705-7390
(Attention: Ms. Christiana Creekpaum)
Sanwa Bank California
601 S. Figueroa Street, 9th Floor
Los Angeles, CA 90017
Telephone: (213) 896-7649
Telecopier: (213) 896-7387
(Attention: Ms. E. Leigh Irwin)
Fleet National Bank
40 Westminister Street
Mail Stop RI OP TO5A
Providence, RI 02901
Telephone: (401) 459-4910
Telecopier: (401) 459-4962
(Attention: Mr. Michael F. O'Neill)
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<PAGE> 18
With a copy in each case to: Sidley & Austin
555 W. Fifth St., 40th Floor
Los Angeles, CA 90013
Facsimile: 213-896-6600
(Attention: Jennifer Hagle, Esq.)
Notice shall be deemed given, for all purposes, when deposited in the United
States mail as registered or certified mail, in which event the third day
following the date of postmark on the receipt of such registered or certified
mail shall conclusively be deemed the date of giving of such notice, on the
first Business Day following collection by the courier service or when
acknowledged by the receiving telecopier.
(g) Interpretation of Agreement; Severability. The provisions of
this Agreement shall be applied and interpreted in a manner consistent with each
other so as to carry out the purposes and intent of the parties hereto, but if
for any reason any provision hereof is determined to be unenforceable or
invalid, such provision or such part thereof as may be unenforceable or invalid
shall be deemed severed from the Agreement and the remaining provisions carried
out with the same force and effect as if the severed provision or part thereof
had not been a part of this Agreement.
(h) Governing Law. This agreement shall be governed by and
construed in accordance with the internal substantive laws of the State of
California without giving effect to principles of conflicts of law or choice of
law of the State of California or of any other jurisdiction which would result
in the application of the laws of any jurisdiction other than those of the State
of California.
(i) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.
(j) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all previous agreements.
* * * * *
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first written above.
STORMEDIA INCORPORATED
By: /s/
-------------------------------
Name: William J. Almon
Title: Chief Executive Officer
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By: Prudential Equity Investors, Inc.,
General Partner
By: Cornerstone Equity Investors, L.L.C.,
its Investment Advisor
By: /s/
-------------------------------
Name:
Title: Managing Director
ALMON FAMILY TRUST
By: /s/
-------------------------------
Name: William J. Almon
Title: Trustee
SEAGATE TECHNOLOGY, INC.
By: /s/
-------------------------------
Name:
Title:
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
<PAGE> 20
CAPITAL VENTURES INTERNATIONAL
by Heights Capital Management, Inc.,
its authorized agent
By: /s/
-------------------------------
Name:
Title:
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
<PAGE> 21
CIBC [ASIA] LTD.
By: /s/
-------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS,
SINGAPORE BRANCH
By: /s/
-------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA N.A.
By: /s/
-------------------------------
Name:
Title:
FLEET NATIONAL BANK
By: /s/
-------------------------------
Name:
Title:
SANWA BANK CALIFORNIA
By: /s/
-------------------------------
Name:
Title:
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
<PAGE> 22
SCHEDULE I
REGISTRABLE SECURITIES
<TABLE>
<CAPTION>
SHARES OF
SHARES OF SHARES OF COMMON
COMMON COMMON ISSUABLE ON
SHARES OF ISSUABLE UPON SHARES OF ISSUABLE ON CONVERSION
SERIES A CONVERSION OF CLASS A EXERCISE OF OF SEAGATE
SHAREHOLDER PREFERRED* PREFERRED COMMON WARRANTS NOTE
----------- ---------- --------- ------ -------- ----
<S> <C> <C> <C> <C> <C>
Prudential Private 162,602
Equity Investors III, L.P. 5,737,500 1,626,020
Almon Family Trust 973,872
Seagate Technology,
Inc. 1,000,000
Capital Ventures
International 97,561 975,610
Canadian Imperial Bank
of Commerce [Asia]
Ltd. 533,260
Banque Nationale de
Paris, Singapore Branch 400,000
Union Bank of
California N.A. 266,740
Sanwa Bank California 400,000
Fleet National Bank 400,000
</TABLE>
- ---------
* Convertible into 10 shares of Class A Common Stock
<PAGE> 1
EXHIBIT 99.1
PR NEWSWIRE NEWSFAX
StorMedia Announces Completion of Debt Restructure and Financing
SANTA CLARA, Calif., June 1/PRNewswire/--StorMedia Incorporated (Nasdaq:
STMD) today announced that it has completed the restructuring of its bank debt
with a consortium of banks led by Canadian Imperial Bank of Commerce ("CIBC") as
well as a series of financing transactions. As a result of the restructuring,
StorMedia is no longer in default under its CIBC bank debt. As part of the
restructuring, StorMedia repaid $10 million of principal owing to the banks and
issued warrants to purchase shares of Class A Common Stock. The balance of the
CIBC bank debt continues to be outstanding and is fully secured.
Simultaneously with the restructuring of the CIBC bank debt, StorMedia
completed three financing transactions. The Company borrowed $8 million pursuant
to a two-year term loan and entered into a $20 million revolving line of credit
based on eligible receivables with a group of lenders led by Foothill Capital
Corporation. In addition, StorMedia borrowed $5 million pursuant to a
convertible note and $3 million pursuant to a secured note from Seagate
Technology, Inc., a customer of the Company. In conjunction with this action,
StorMedia and Seagate terminated their Volume Purchase Agreement to provide both
companies with greater flexibility. The Company also announced that it has been
qualified as a media supplier with respect to two of Seagate's recently
announced desktop programs.
In addition to the foregoing financing transactions, StorMedia raised $8
million through the sale of Preferred Stock and warrants to purchase shares of
Class A Common Stock to Prudential Private Equity Investors, the Company's
largest stockholder, and Heights Capital Management Inc. As mentioned above,
StorMedia used a portion of the proceeds to pay down its CIBC bank debt and will
use the balance for working capital purposes.
The Company expects that net sales for the current quarter ended June 26,
1998 will be down sequentially resulting in a significant loss but one which is
below the loss incurred in the quarter ended March 27, 1998. In response to the
reduced net sales level, the Company has temporarily closed its Tasman facility
in San Jose and anticipates a reduction i force of approximately 300 employees.
(more)
<PAGE> 2
The statements in this press release may contain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ from predicted results. Such risks include among others: dependence
on a limited number of customers; rapid changes in customer and product mix;
reduction in orders from existing customers; limited number of potential
customers; variability in gross margins and operating results; risk of excess
industry capacity; intensely competitive industry; rapid technological change;
and dependence on suppliers. Further risks are described in the Company's Form
10-K filed with the Securities and Exchange Commission on March 31, 1998 and
other risks detailed from time to time in the Company's reports filed with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
About StorMedia
StorMedia is a leading independent supplier of thin film disks for hard
disk drives used in portable and desktop computers, network servers and
workstations. The Company designs, develops, manufacturers and sells disks in
2-1/2 and 3-1/2 inch sizes. Within each size, the Company provides a range of
coercivities (magnetics), fly heights and disk thicknesses to meet distinct
customer specifications.
SOURCE StorMedia Inc.
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/CONTACT: Henry Lo, Treasurer of StorMedia, 408-327-8281/
(STMD SEG)
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