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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __________)*
STORMEDIA INCORPORATED
----------------------------------------
(Name of Issuer)
CLASS A COMMON STOCK
----------------------------------------
(Title of Class of Securities)
862221
--------------------------
(CUSIP Number)
--------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
May 29, 1998
--------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box [ ]
NOTE: Schedules filed in paper format shall include a singed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties tow whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter the
disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
CUSIP NO. 862221
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Prudential Private Equity Investors III, L.P.
- -----------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)
(b)
- -----------------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- -----------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or (e) [_]
- -----------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION)
Delaware
- -----------------------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 8,989,539 shares of Class A Common Stock/1/
BENEFICIALLY -------------------------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING -------------------------------------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
8,989,539 shares of Class A Common Stock. See footnote 1.
-------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
- -----------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,989,539 shares of Class A Common Stock. See footnote 1.
- -----------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_]
- -----------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
37.6%
- -----------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
===============================================================================================
</TABLE>
- -----------------
/1/ The 8,989,539 shares of Class A Common Stock assume the conversion of
162,602 shares of Series A Preferred Stock, convertible on a 10-for-1 basis
into Class A Common Stock and a Warrant to purchase 1,626,020 shares of Class
A Common Stock.
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Prudential Equity Investors, Inc.
- -----------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)
(b)
- -----------------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- -----------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or (e) [_]
- -----------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION)
New York
- -----------------------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 8,989,539 shares of Class A Common Stock. See footnote 1.
BENEFICIALLY -------------------------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING -------------------------------------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
8,989,539 shares of Class A Common Stock. See footnote 1.
-------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
- -----------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,989,539 shares of Class A Common Stock. See footnote 1.
- -----------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_]
- -----------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
37.6%
- -----------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
===============================================================================================
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cornerstone Equity Investors, L.L.C.
- -----------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)
(b)
- -----------------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- -----------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or (e) [_]
- -----------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION)
Delaware
- -----------------------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 8,989,539 shares of Class A Common Stock. See footnote 1.
BENEFICIALLY -------------------------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING -------------------------------------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
8,989,539 shares of Class A Common Stock. See footnote 1.
-------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
- -----------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,989,539 shares of Class A Common Stock. See footnote 1.
- -----------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_]
- -----------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
37.6%
- -----------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
OO
===============================================================================================
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Prudential Insurance Company of America
- -----------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)
(b)
- -----------------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- -----------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or (e) [_]
- -----------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION)
New Jersey
- -----------------------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 8,989,539 shares of Class A Common Stock. See footnote 1.
BENEFICIALLY -------------------------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING -------------------------------------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
8,989,539 shares of Class A Common Stock. See footnote 1.
-------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
- -----------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,989,539 shares of Class A Common Stock. See footnote 1.
- -----------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_]
- -----------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
37.6%
- -----------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
===============================================================================================
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
ITEM 1. SECURITY AND ISSUER
-------------------
This statement (this "Statement") relates to the Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), of StorMedia Incorporated.
(the "Issuer"). The principal executive office of the Issuer is 390 Reed
Street, Santa Clara, California, 95050.
ITEM 2. IDENTITY AND BACKGROUND.
-----------------------
(a) This Statement constitutes the Transaction Statement on Schedule 13D
of (i) Prudential Private Equity Investors III, L.P., a Delaware limited
partnership ("PPEI"), (ii) Prudential Equity Investors, Inc., a New York
corporation and the sole general partner of PPEI ("PEI"), (iii) Cornerstone
Equity Investors, L.L.C., a Delaware limited liability company and investment
advisor to PEI ("Cornerstone") and (iv) the Prudential Insurance Company of
America, a New Jersey corporation ("PIC") (collectively, the "Reporting
Persons") with respect to the acquisition by PPEI of certain securities of the
Issuer. PEI is an indirect, wholly-owned subsidiary of PIC.
Information with respect to each of the Reporting Persons is given solely
by such Reporting Person, and no Reporting Person has responsibility for the
accuracy or completeness of the information supplied by another Reporting
Person. By its signature on this Statement, each Reporting Person agrees that
this statement is filed on behalf of such Reporting Person.
Certain information required by Item 2 concerning directors and executive
officers of PEI, Cornerstone and PIC is set forth on Schedule A hereto, which
Schedule A is incorporated herein by reference.
The Reporting Persons may be deemed to constitute a "group" for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act").
The Reporting Persons disclaim that they have agreed to act as a group other
than as described in this Statement.
(b) The address of the principal business office of each Reporting Person
is as follows:
Reporting Person Address
---------------- -------
PPEI, PEI and 717 Fifth Avenue
Cornerstone New York, New York 10022
PIC Prudential Plaza
751 Broad Street
Newark, New Jersey 07102
(c) PPEI is a limited partnership engaged in the business of venture
capital investment. PEI is the sole general partner of PPEI. PEI is a
management company and an indirect, wholly-owned
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
subsidiary of PIC. Cornerstone is a limited liability company that manages the
investments of PPEI with respect to PPEI's ownership of stock of the Issuer. In
such capacity it has the power to control the voting and disposition of the
shares of Class A Common Stock owned by PPEI. PIC is an insurance company.
(d) During the past five years, none of the Reporting Persons, and to the
knowledge of each Reporting Person, none of the executive officers or directors
of such Reporting Persons, has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
(e) During the past five years, none of the Reporting Persons, and to the
knowledge of each Reporting Person, none of the executive officers or directors
of such Reporting Person, has been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of which such
person was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
(f) PPEI is a Delaware limited partnership. PEI is a New York corporation.
Cornerstone is a Delaware limited liability company. PIC is a New Jersey
corporation. To the knowledge of PEI, Cornerstone and PIC, each executive
officer, member and director of such Reporting Persons is a citizen of the
United States, except that Mr. Thomson, a director of PIC, is a citizen of
Canada.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
-------------------------------------------------
Equity capital of PPEI was provided to PPEI by its general partner and its
limited partners for the purpose of acquiring the Series A Preferred Stock and
the Stock Purchase Warrant (the "Warrant") of the Issuer reported herein and the
5,737,499 shares of Class A Common Stock therefore acquired by PPEI on May 29,
1998.
ITEM 4. PURPOSE OF TRANSACTION
----------------------
PPEI acquired and is holding the Issuer's Class A Common Stock, Series A
Preferred Stock and Warrant for investment purposes and without the intention of
effecting a change in control of the Company. On May 29, 1998, PPEI converted
4,362,001 shares of Class B Common Stock into an equal number of shares of Class
A Common Stock and together with the shares of Class A Common held by PPEI prior
to the conversion, currently holds 5,737,499 shares of Class A Common Stock of
the Issuer. In addition, PPEI acquired Series A Preferred Stock and a Stock
Purchase Warrant pursuant to a Securities Purchase Agreement, as defined below.
Notwithstanding the foregoing, depending on market conditions, PPEI may choose
to acquire additional securities of the Issuer or dispose of some of its
securities. None of the Reporting Persons, or to the best knowledge of any of
the Reporting Persons, any person identified on Schedule A has any plans or
proposals that would result in or relate to any of the transactions described in
paragraphs (a) through
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
(j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
------------------------------------
(a) PPEI owns 5,737,499 shares of Class A Common Stock, 162,602 shares of
Series A Preferred Stock which is convertible at any time on a 10-for-1 basis
into Class A Common Stock of the Issuer, and a Warrant to purchase 1,626,020
shares of Class A Common Stock of the Issuer, subject to adjustment. Upon full
conversion of the Preferred Stock and the Warrant at the initial conversion
price, PPEI will own 37.6% of the issued and outstanding shares of Class A
Common Stock as of May 29, 1998.
PEI disclaims beneficial ownership of any equity securities of the Issuer
other than indirect beneficial ownership through PPEI, of which it is the sole
general partner.
Cornerstone disclaims beneficial ownership of any equity securities of the
Issuer but may be deemed to be an indirect beneficial owner of the shares owned
by PPEI pursuant to an agreement it entered into with PEI to manage the
investments of PPEI.
PIC disclaims beneficial ownership of any equity securities of the Issuer
other than indirect beneficial ownership through PEI, which is a wholly-owned
subsidiary of PIC.
(b) Cornerstone, through its agreement with PEI to act as an investment
advisor and manage the investments of PPEI, has the sole direct power to vote
and dispose of all shares of Common Stock acquirable upon conversion of the
Preferred Stock and the Warrant.
PEI and PIC do not have sole or shared power to vote, direct the vote,
dispose or direct the disposition of any of the Common Stock.
(c) Except as specified above in (a), none of the Reporting Persons has
effected any transactions in the Common Stock during the past 60 days.
(d) [Not applicable.]
(e) [Not applicable.]
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
---------------------------------------------------------------------
TO SECURITIES OF THE ISSUER.
---------------------------
PPEI entered into a Securities Purchase Agreement (the "Purchase
Agreement") with the Issuer dated as of May 29, 1998, whereby PPEI purchased
162,602 shares of the Issuer's Series A Preferred Stock and a Warrant to
purchase 1,626,020 shares of the Issuer's Class A Common Stock.
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
The Preferred Stock is convertible into Class A Common Stock on a 10-for-1 basis
at a price of $30.75 per share. The Warrant may be exercised to purchase
1,626,020 shares of Class A Common Stock at a price of $3.075 per share. The
holders of Preferred Stock (the "Series A Holders") are entitled to notice of
all stockholder meetings. The Series A Holders shall be entitled to vote on all
matters submitted to the stockholders for a vote, together with the holders of
the Class A Common Stock, voting together as a single class, with each share of
Class A Common Stock entitled to one vote per share and each share of Preferred
Stock entitled to one vote for each share of Class A Common Stock issuable upon
conversion of the Preferred Stock. The foregoing description of the Purchase
Agreement is qualified by reference to such Purchase Agreement, a copy of which
is filed as Exhibit II hereto and is incorporated herein by reference.
The Issuer filed a Certificate of Designations of Series A 9% Convertible
Preferred Stock ("Certificate of Designations") with the Secretary of State of
Delaware on May 29, 1998. The Certificate of Designations sets forth the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of the Series A Preferred Stock as well as the
qualifications and limitations of restrictions thereof. The foregoing
description of the Certificate of Designations is qualified by reference to such
Certificate of Designations, a copy of which is filed as Exhibit III hereto and
is incorporated herein by reference.
PPEI also entered into an Amended and Restated Registration Rights
Agreement (the "Registration Rights Agreement") with the Issuer dated as of May
29, 1998. The Registration Rights Agreement gives the Reporting Person the
right to require the Issuer to register the Class A Common Stock acquirable upon
conversion of the Preferred Stock pursuant to the Securities Act of 1933, as
amended (the "Securities Act") at any time after June 30, 1998, so long as such
request is approved by persons holding at least 50.1% of the Registrable
Securities, as defined in the Registration Rights Agreement. The Reporting
Person also has the right to require the Issuer to register such shares under
certain circumstances when the Issuer otherwise files a registration statement
pursuant to the Securities Act. The foregoing description of the Registration
Rights Agreement is qualified by reference to such Registration Rights
Agreement, a copy of which is filed as Exhibit IV hereto and is incorporated
herein by reference.
The Warrant, dated May 29, 1998, was issued to PPEI by the Issuer to
purchase 1,626,020 shares of Class A Common Stock at an exercise price of $3.075
per share. The Warrant is exercisable, in whole or in part, from the date of
Issuance until the fifth anniversary of the issuance date, subject to early
termination in accordance with Section 2.0 thereof. The foregoing description
of the Warrant is qualified by reference to such Warrant, a copy of which is
filed as Exhibit V hereto and is incorporated herein by reference.
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
---------------------------------
Exhibit I - Joint Filing Agreement, dated June 17, 1998 among
Prudential Private Equity Investors III, L.P., Prudential
Equity Investors, Inc., Cornerstone Equity Investors,
L.L.C. and The Prudential Insurance Company of America.
Exhibit II - Securities Purchase Agreement dated May 29, 1998.
Exhibit III - Certificate of Designations of Series A 9% Convertible
Preferred Stock.
Exhibit IV - Amended and Restated Registration Rights Agreement dated
May 29, 1998.
Exhibit V - Stock Purchase Warrant dated May 29, 1998.
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
Signature
---------
After reasonable inquiry and to the best of the undersigned's knowledge and
belief, the undersigned certifies that the information set forth in this
Statement is true, complete and correct.
Dated: June 17, 1998
PRUDENTIAL PRIVATE EQUITY INVESTORS III, L.P.
By: Prudential Equity Investors, Inc.
Its: General Partner
By: /s/Kevin C. Uebelien
---------------------
Name: Kevin C. Uebelien
Title: President
PRUDENTIAL EQUITY INVESTORS, INC.
By: /s/Kevin C. Uebelien
---------------------
Name: Kevin C. Uebelien
Title: President
CORNERSTONE EQUITY INVESTORS, L.L.C.
By: /s/Mark Rossi
---------------
Name: Mark Rossi
Title: Senior Managing Director
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/Kevin C. Uebelien
---------------------
Name: Kevin C. Uebelien
Title: Vice President
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. Exhibit Name Page No.
- ----------- ------------ --------
<S> <C> <C>
I Joint Filing Agreement, dated as of June 17, 1998, by
and among Prudential Private Equity Investors III, L.P.,
Prudential Equity Investors, Inc. and The Prudential
Insurance Company of America.
II Securities Purchase Agreement, dated as of May 29,
1998, by and among StorMedia Incorporated and Prudential
Private Equity Investors III, L.P. and Capital Ventures
International.
III Certificate of Designations of Series A 9% Convertible
Preferred Stock.
IV Registration Rights Agreement, dated as of May 29, 1998,
by and among StorMedia Incorporated and Prudential
Private Equity Investors III, L.P.
V Stock Purchase Warrant, dated May 29, 1998, issued by
StorMedia Incorporated to Prudential Private Equity
Investors III, L.P.
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
SCHEDULE A
Additional information required by Item 2 of Schedule 13D.
Set forth below is the name and business address of each executive officer
or director of PEI and PIC and the members of Cornerstone.
DIRECTORS AND EXECUTIVE OFFICERS OF PRUDENTIAL EQUITY INVESTORS, INC.
Directors*
---------
Mary Flaherty
John Strangfeld
Kevin Uebelein
Executive Officers*
------------------
Peter Eckert
Kevin Uebelein
*The business address of each officer and director listed above is c/o
Prudential Equity Investors, Inc., 717 Fifth Avenue, New York 10022. The
principal occupation of each officer named above is as an officer of PEI.
MEMBERS/SENIOR MANAGING DIRECTORS OF CORNERSTONE EQUITY INVESTORS, L.L.C.
Members*
-------
Robert Knox
Dana O'Brien
Mark Rossi
*The business address of each managing director listed above is c/o
Cornerstone Equity Investors, L.L.C., 717 Fifth Avenue, New York, NY 10022.
The principal occupation of each member named above is as a managing director of
Cornerstone.
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
DIRECTORS AND EXECUTIVE OFFICERS OF THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
DIRECTORS
- ---------
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
Franklin E. Agnew Business Consultant 600 Grant Street
Suite 660
Pittsburgh, PA 15219
Frederic K. Becker President Wilentz Goldman & Spitzer
90 Woodbridge Center Drive
Suite 900
Woodbridge, NJ 07095
Gilbert Casellas Partner Telecom Group
Bell Atlantic Corporation
1717 Pennsylvania Avenue, NW
Suite 625
Washington, D.C. 20006
James G. Cullen President and CEO Telecom Group
Bell Atlantic Corporation
1310 North Court House Road
11th Floor
Alexandria, VA 22201
Carolyne K. Davis Health Care Advisor, The Prudential Insurance
Scholar Company of America
in Residence, Cornell Prudential Plaza
University c/o Carolyn K. Davis
751 Broad Street
Newark, NJ 07102-3777
Roger A. Enrico Chairman and CEO PepsiCo
700 Anderson Hill Road
Purchase, NY 10577
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
Allan D. Gilmour Former Vice Chairman, The Prudential Insurance
Ford Motor Company Company of America
Prudential Plaza
c/o Allan D. Gilmour
751 Broad Street
Newark, NJ 07102-3777
William H. Gray III President and CEO The College Fund/UNCF
8260 Willow Oaks Corp. Drive
P.O. Box 10444
Fairfax, VA 22031-4511
Jon F. Hanson Chairman Hampshire Management
Company
235 Moore Street, Suite 200
Hackensack, NJ 07601
Glen H. Hiner Chairman and CEO Owens Corning
One Owens Corning Parkway
Toledo, OH 43659
Constance J. Horner Guest Scholar The Prudential Insurance Company of America
Prudential Plaza
c/o Constance J. Horner
751 Broad Street
Newark, NJ 07102-3777
Gaynor N. Kelley Former Chairman and CEO The Prudential Insurance
Company of America
Prudential Plaza
c/o Gaynor N. Kelley
751 Broad Street
Newark, NJ 07102-3777
Burton G. Malkiel Professor Princeton University
Dept. Of Economics
110 Fisher Hall
Prospect Avenue
Princeton, NJ 08544-1021
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
Arthur F. Ryan Chairman, CEO and The Prudential Insurance
President Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Ida F.S. Schmertz Principal The Prudential Insurance
Company of America
Prudential Plaza
c/o Ida F.S. Schmertz
751 Broad Street
Newark, NJ 07102-3777
Charles R. Sitter Former President Exxon Corporation
5959 Las Colinas Blvd.
Irving, TX 75039
Donald L. Staheli Former Chairman and CEO Continental Grain Company
39 Locust Street
Suite 204
New Canaan, CT 06840
Richard M. Thomson Former Chairman and CEO The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
Toronto, Ontario
Canada M5K 1A2
James A. Unruh Former Chairman and CEO The Prudential Insurance Company of America
Prudential Plaza
c/o James A. Unruh
751 Broad Street
Newark, NJ 07102-3777
P. Roy Vagelos Former Chairman and CEO Merck & Co., Inc.
One Crossroads Drive
Building A, 3rd Floor
Bedminster, NJ 07921
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
Stanley C. Van Ness Partner Herbert, Van Ness, Cayci &
Goodell
22 Chambers Street
Princeton, NJ 08542
Paul A. Volcker Former Chairman and CEO Wolfensohn & Co., Inc.
610 Fifth Avenue
Suite 420
New York, NY 10020
Joseph H. Williams Director The Williams Companies, Inc.
One Williams Center
Tulsa, OK 74172
EXECUTIVE OFFICERS
- ----------------------
Arthur F. Ryan Chairman of the Board, The Prudential Insurance
Chief Company of America
Executive Officer Prudential Plaza
and President 751 Broad Street
Newark, NJ 07102-3777
E. Michael Caulfield Chief Executive Officer, The Prudential Insurance
Money Management Company of America
Group Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Michele S. Darling Executive Vice President, The Prudential Insurance
Human Resources Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Robert C. Golden Executive Vice President, The Prudential Insurance
Corporate Operations and Company of America
Systems Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
Mark B. Grier Executive Vice President, The Prudential Insurance
Financial Management Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Rodger A. Lawson Executive Vice President, The Prudential Insurance
Marketing and Planning Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
John V. Scicutella Chief Executive Officer, The Prudential Insurance
Individual Insurance Group Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
John Strangfeld Executive Vice President, The Prudential Insurance
Corporate Operations and Company of America
Systems Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
</TABLE>
SEC 1745 (2/92)
<PAGE>
CUSIP NO. 862221
Exhibit I
AGREEMENT RE JOINT FILING OF
SCHEDULE 13D
____________
The undersigned agree as follows:
(i) Each of them is individually eligible to use the Schedule 13D to which
this Exhibit is attached, and such Schedule 13D is filed on behalf of each of
them; and
(ii) Each of them is responsible for the timely filing of such Schedule 13D
and any amendments thereto, and for the completeness and accuracy of the
information concerning such person contained therein; but none of them is
responsible for the completeness or accuracy of the information concerning the
other persons making the filing, unless such person knows or has reason to
believe that such information is inaccurate.
Date: June 17, 1998
PRUDENTIAL PRIVATE EQUITY INVESTORS III, L.P.
By: Prudential Equity Investors, Inc.
Its: General Partner
By: /s/Kevin C. Uebelien
---------------------
Name: Kevin C. Uebelien
Title: President
CORNERSTONE EQUITY INVESTORS, L.L.C.
By: /s/Mark Rossi
--------------
Name: Mark Rossi
Title: Senior Managing Director
PRUDENTIAL EQUITY INVESTORS, INC.
By: /s/Kevin C. Uebelien
---------------------
Name: Kevin C. Uebelien
Title: President
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/Kevin C. Uebelien
---------------------
Name: Kevin C. Uebelien
Title: Vice President
<PAGE>
Exhibit II
STORMEDIA INCORPORATED
SECURITIES PURCHASE AGREEMENT
DATED AS OF MAY 29, 1998
<PAGE>
TABLE OF CONTENTS
Page
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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
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<PAGE>
TABLE OF CONTENTS
(continued)
Page
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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
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<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
EXHIBITS
Exhibit A Certificate of Designations
Exhibit B Registration Rights Agreement
Exhibit C Warrant
-iii-
<PAGE>
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>
"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>
"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>
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
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<PAGE>
Preferred Stock, $.01 par value, none of which was issued and outstanding. As of
May 29, 1998, the Company had reserved 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
-5-
<PAGE>
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.
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.
-6-
<PAGE>
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 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,
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<PAGE>
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 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
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principles. The Company 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 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,
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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.
(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.
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'
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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. (S) 63.54 or of a
cognizable interest in a broadcast licensee or cable television system as
described in C.F.R. (S) 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
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.
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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 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
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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;
(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
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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).
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
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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.
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
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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
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:
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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 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.
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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>
IN WITNESS WHEREOF, the parties have executed this Securities Purchase
Agreement as of the date first written above.
STORMEDIA INCORPORATED
By:
-----------------------------------------
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:
-----------------------------------------
Name:
---------------------------------------
Title: Managing Director
-------------------------------------
CAPITAL VENTURES INTERNATIONAL
by Heights Capital Management, Inc.,
its authorized agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
[Signature Page To Securities Purchase Agreement]
<PAGE>
EXHIBIT III
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>
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 Liquidation Value of all
Shares held by such holder (plus, subject to the second paragraph of
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<PAGE>
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 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
-3-
<PAGE>
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 outstand ing 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.
4B. Company Redemption.
------------------
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<PAGE>
(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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<PAGE>
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 converted by $30.75 and dividing the result by the
Conversion Price then in effect immediately upon
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<PAGE>
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.
(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
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<PAGE>
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.
(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
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<PAGE>
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:
(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
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<PAGE>
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 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
-10-
<PAGE>
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.
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
-11-
<PAGE>
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 sub scription
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 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
-12-
<PAGE>
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 such new certificate from the date to which dividends have been
fully paid on such Series A Preferred represented by the surrendered
certificate.
-13-
<PAGE>
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.
"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
-14-
<PAGE>
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 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.
-15-
<PAGE>
"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 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
-16-
<PAGE>
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>
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.
-------------------------------------------
Name: William J. Almon
Title: President and CEO
[CORPORATE SEAL]
ATTEST:
- ---------------------------------
Name: Judith M. O'Brien
Title: Secretary
-18-
<PAGE>
EXHIBIT IV
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>
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
-2-
<PAGE>
closing 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
-3-
<PAGE>
effective. The 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
-4-
<PAGE>
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.
-5-
<PAGE>
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);
-6-
<PAGE>
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection 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
-7-
<PAGE>
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 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
-8-
<PAGE>
acknowledgments as are customarily provided by selling shareholders who receive
such comfort letters or opinions;
(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
-9-
<PAGE>
fees and disbursements of one counsel chosen by the holders of a majority of the
Registrable Securities initially requesting such registration.
6. Indemnification.
---------------
(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
-10-
<PAGE>
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.
(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,
-11-
<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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.
(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
-15-
<PAGE>
(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)
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
-16-
<PAGE>
111 S. 15th Street
Philadelphia, PA 19102
Facsimile: (215) 977-2740
(Attention: Richard A. Silfen)
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
-17-
<PAGE>
Mail Stop RI OP TO5A
Providence, RI 02901
Telephone: (401) 459-4910
Telecopier: (401) 459-4962
(Attention: Mr. Michael F. O'Neill)
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.
* * * * *
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first written above.
STORMEDIA INCORPORATED
By:
------------------------------------
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:
-------------------------------------
Name:
Title: Managing Director
ALMON FAMILY TRUST
By:
-------------------------------------
Name: William J. Almon
Title: Trustee
SEAGATE TECHNOLOGY, INC.
By:
-------------------------------------
Name:
Title:
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
<PAGE>
CAPITAL VENTURES INTERNATIONAL
by Heights Capital Management, Inc.,
its authorized agent
By:
-----------------------------------
Name:
Title:
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
<PAGE>
CIBC [ASIA] LTD.
By:
-----------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS,
SINGAPORE BRANCH
By:
----------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA N.A.
By:
----------------------------------
Name:
Title:
FLEET NATIONAL BANK
By:
-----------------------------------
Name:
Title:
SANWA BANK CALIFORNIA
By:
-----------------------------------
Name:
Title:
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
<PAGE>
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
Equity Investors III, L.P. 162,602 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>
Exhibit V
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-1
This Warrant is being issued simultaneously with the issuance of
162,602 shares of the Company's Series A Preferred Stock (the "Series A
Preferred"), represented by stock certificate no. PA-1 (the "Subject Shares"),
to Prudential Private Equity Investors III, L.P. ("PPEI") 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 Prudential Private
Equity Investors III, L.P. or its registered assigns (the "Registered Holder")
the right to purchase from the Company 1,626,020 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 $16,260.
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.
1
<PAGE>
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 related issuance of
shares of Warrant Stock. Each share of Warrant Stock issuable upon exercise
2
<PAGE>
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.
3
<PAGE>
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.
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.
4
<PAGE>
(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 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
5
<PAGE>
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 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
6
<PAGE>
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.
(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
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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.
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(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.
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
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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 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,
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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 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,
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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
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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.
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.
* * * *
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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
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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:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
