1
EXHIBIT 10.26
TERMINATION OF SUPPLY AGREEMENT
AND
LOAN AND SECURITY AGREEMENT
This Termination of Supply Agreement and Loan and Security Agreement
(the "Agreement") is entered into as of May 15, 1998 (the "Effective Date") by
and between StorMedia Incorporated, a Delaware corporation (the "StorMedia"),
and Seagate Technology, Inc., a Delaware corporation ("Seagate").
WHEREAS, Seagate and StorMedia entered into a Supply Agreement, dated
as of June 29, 1995 (the "Initial Supply Agreement"), which was superseded by a
subsequent Supply Agreement, dated as of January 1, 1997 (jointly with the
Initial Supply Agreement, the "Supply Agreement"), pursuant to which Seagate
agreed to purchase 2.5 and 3.5 inch aluminum and glass/ceramic substrate thin
film disks and such other disk products as the parties agreed to in writing
after the date of the Supply Agreement (the "Products");
WHEREAS, both parties desire to terminate the Supply Agreement and
release all claims related thereto except for claims regarding payment by
Seagate to StorMedia for Products shipped by StorMedia and accepted by Seagate
in respect of orders placed by Seagate with StorMedia prior to the Closing Date,
and claims by Seagate against StorMedia for breach of any warranty under which
Products were shipped;
WHEREAS, each of Foothill Capital Corporation ("Foothill") and
Canadian Imperial Bank of Commerce, New York Agent (the "Agent"), on behalf of
itself and a syndicate of banks (together, the "Lenders" and together with
Foothill, the "Institutional Lenders") have proposed to enter into financing
and/or restructuring of certain financing transactions with StorMedia on
substantially the terms attached hereto as Exhibit A-1 and Exhibit A-2,
respectively; and
WHEREAS, Seagate is willing, pursuant to the terms and conditions of
this Agreement, to loan StorMedia (i) Five Million Dollars ($5,000,000) (the
"Convertible Loan Amount") which loan (the "Convertible Loan") shall be
convertible into securities of StorMedia on the terms and subject to the
conditions set forth herein; and (ii) Three Million Dollars ($3,000,000) (the
"Secured Loan Amount") which loan (the "Secured Loan") shall be secured by a
security interest in the accounts receivable owed by Seagate to StorMedia. The
Convertible Loan and the Secured Loan may hereafter collectively be referred to
as the "Loans."
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following respective meanings:
2
"Collateral" shall mean all bona fide rights of StorMedia,
now existing or hereafter acquired, to payment from Seagate for goods sold or
for services rendered or for payments under any agreement, including, without
limitation, the Supply Agreement, which are not evidenced by an instrument or
Chattel Paper, whether or not earned by performance.
"Common Stock" shall mean StorMedia's Class A common stock,
$0.013 par value.
"Convertible Obligations" shall mean all money, debts,
obligations and liabilities which now are or at any time hereafter may be or
become due, owing or incurred by StorMedia to Seagate, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with the
Convertible Loan, and any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, interest (including,
without limitation, interest accruing after the Repayment Commencement Date of
the Convertible Note and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to StorMedia, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), reimbursement
obligations, fees, indemnities, costs, expenses, or otherwise. Notwithstanding
anything in the foregoing to the contrary, the Secured Obligations shall not be
considered to be Convertible Obligations.
"Lien" means any mortgage, deed of trust, or pledge,
security interest, hypothecation, assignment, assigned deposit, arrangement,
encumbrance, encroachment, lien (statutory or otherwise), claim, option,
reservation, right off way, easement, or defect of any kind, or preference, or
priority, or other security agreement or preferential arrangement of any kind of
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing statement under the UCC, or under
the comparable law of any other jurisdiction).
"Proceeds" shall mean whatever is received by reason of
collection of Collateral, both cash and non-cash, including the proceeds of
insurance payable by reason of loss of or damage to Collateral.
"Secured Obligations" shall mean all money, debts,
obligations and liabilities which now are been or at any time hereafter may be
or become due, owing or incurred by StorMedia to Seagate, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with the
Secured Loan, and any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, interest (including,
without limitation, interest accruing after the Repayment Commencement Date of
the Secured Note and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to StorMedia, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), reimbursement
obligations, fees, indemnities, costs, expenses, or otherwise. Notwithstanding
anything in the foregoing to the contrary, the Convertible Obligations shall not
be considered to be Secured Obligations.
2
3
"UCC" shall mean the Uniform Commercial Code of the State
of California as in effect on the date hereof and as amended from time to time
hereafter.
1.2 Index of Other Defined Terms. In addition to the terms
defined above, the following terms shall have the respective meanings given
thereto in the sections indicated below:
Defined Term Section
------------ -------
Act 4.5
Agreement Preamble
Balance Sheet Date 4.17
Bylaws 4.12
CERCLA 4.23
Closing Date Article VII
Closing Article VII
Code 4.21
Collateral 4.1
Conversion Date 3.2(b)(i)
Conversion Shares 4.2(c)
Convertible Installment Date 3.2(a)(ii)
Convertible Interest Rate 3.2(a)(ii)
Convertible Loan Amount Recitals
Convertible Loan Recitals
Convertible Note 3.1(a)
Corporate Event 3.2(a)(iii)
Disclosure Schedules 4
Effective Date Preamble
Event of Default 3.4(a)
Financial Statements 4.17
Foothill Preamble
Hazardous Materials 4.22
Installment Date 3
Institutional Lenders Preamble
Loans Recitals
Notes 3.1(b)
Outstanding Convertible Balance 3.2(a)(ii)
Outstanding Secured Balance 3.3(a)(ii)
Pool Securities 5.5
Products Recitals
Repayment Commencement Date 3.2(a)(ii)
Restated Certificate 4.12
Seagate Preamble
SEC 4.15
Secured Installment Date 3.3(a)(ii)
Secured Interest Rate 3.3(a)(ii)
3
4
Secured Loan Amount Recitals
Secured Loan Recitals
Secured Note 3.1(b)
StorMedia Preamble
Supply Agreement Recitals
Termination and Mutual Release Article II
ARTICLE II
TERMINATION OF SUPPLY AGREEMENT AND MUTUAL RELEASE
On the terms and subject to the conditions set forth herein, at the
Closing, StorMedia and Seagate shall terminate the Supply Agreement and execute
a mutual release with respect to claims arising thereunder by executing and
delivering a Termination and Mutual Release in substantially the form attached
to this Agreement as Exhibit B (the "Termination and Mutual Release").
ARTICLE III
AGREEMENT FOR LOAN AND ISSUANCE OF NOTES
3.1. Agreement for Loan and Issuance of Notes. On the terms
and subject to the conditions set forth herein, at the Closing:
(a) Seagate shall loan to StorMedia the Convertible
Loan Amount. The Convertible Loan will be evidenced by a Promissory Note in
substantially the form attached hereto as Exhibit C-1 (the "Convertible Note").
(b) Seagate shall loan StorMedia the Secured Loan
Amount. The Secured Loan will be evidenced by a Promissory Note in substantially
the form attached hereto as Exhibit C-2 (the "Secured Note", and together with
the Convertible Note, the "Notes").
3.2. Convertible Loan.
(a) Loan Term, Interest, Repayment
(i) The term of the Convertible Loan will begin on
the Closing Date and end on the date on which the
Outstanding Convertible Balance, all accrued interest
thereon and any other amounts owing under the
Convertible Note have been paid in full.
(ii) Interest on the unpaid principal balance of
the Convertible Loan (such unpaid principal balance is
referred to as the "Outstanding Convertible Balance")
will accrue from the Closing Date at the rate of six
percent (6%) per annum, compounded quarterly,
calculated on the basis of a 360 day year and actual
days elapsed (the "Convertible Interest Rate");
provided, however, that no such accrued interest shall
be due and payable prior to the Repayment Commencement
Date. To the extent permitted by
4
5
the Subordination Agreement and to the extent not
previously converted pursuant to Section 3.2(b),
StorMedia will repay the Outstanding Convertible
Balance plus all interest accrued thereon as follows:
(i) an amount equal to one third of the total of the
Outstanding Convertible Balance plus all interest
accrued thereon shall be due and payable on the date
thirty-six (36) months after the Closing Date (the
"Repayment Commencement Date"), and (ii) the remaining
Outstanding Convertible Balance plus all interest
accrued thereon in twenty four (24) equal monthly
installments of $176,635 (such amount to be adjusted
pro rata in connection with any partial conversion of
the Convertible Note) with the first installment due
and payable on the one (1) month anniversary of the
Repayment Commencement Date and the remaining
installments due and payable on each subsequent one
(1) month anniversary of the Repayment Commencement
Date (each a "Convertible Installment Date") until the
entire Outstanding Balance has been repaid. Without
limiting in any way the remedies provided in Section
3.4, in the event that an installment has not been
received by Seagate within five (5) business days of
the relevant Convertible Installment Date, the full
amount of such installment shall bear interest at the
Convertible Interest Rate from the missed Convertible
Installment Date until the date such payment is paid
in full. The Outstanding Convertible Balance and all
accrued interest and any and all other sums payable to
Seagate hereunder may be prepaid prior to the
Repayment Commencement Date upon 20 days written
notice to Seagate. Delivery of such notice shall in no
way affect Seagate's right to convert the Outstanding
Convertible Balance pursuant to Section 3.2(b)
(iii) Optional Acceleration Upon Acquisition. Upon
the occurrence of the acquisition of StorMedia by
means of a merger, consolidation, share purchase or
exchange, or other form of corporate reorganization or
transaction in which the holders of StorMedia's
outstanding voting securities immediately prior to
such transaction own, immediately after such
transaction, securities representing less than fifty
percent (50%) of the voting power of the corporation
or other entity surviving such transaction or a sale
of all or substantially all of the assets of StorMedia
(a "Corporate Event") and at any time thereafter,
Seagate may, at its option and in its sole discretion,
(but subject to the Subordination Agreement), by
written notice to StorMedia, Foothill and the Agent,
accelerate repayment of the Convertible Note in which
case the Outstanding Convertible Balance, and all
interest accrued thereon, shall be due and payable
immediately.
(b) Conversion. The Outstanding Convertible Balance plus accrued
interest is convertible on the following basis:
5
6
(i) Optional Conversion. On and at any time after
the earlier to occur of: (a) one (1) year anniversary
of the Closing Date, or (b) a Corporate Event, Seagate
may, at its option and in its sole discretion, convert
some or all of the Outstanding Convertible Balance
plus any accrued interest to date (or any portion
thereof) into Common Stock at a valuation of the
greater of $5.00 per share or the average of the
closing bid price for the five (5) trading days
immediately preceeding the date of this Agreement,
subject to adjustment for stock splits, reverse stock
splits, recapitalization and similar events, by
delivering written notice of its intent to so convert
to StorMedia on or prior to such date. To convert the
Convertible Note, Seagate must deliver to StorMedia
written notice of its intent to convert (the date of
such notice the "Conversion Date") containing the
dollar amount of the Outstanding Convertible Balance
it wishes to convert and a copy of the Convertible
Note. As soon as practicable, but in no event later
than the seventh (7th) business day after the
Conversion Date, StorMedia shall deliver to Seagate a
certificate for the number of full shares of Common
Stock issuable upon the conversion and cash in lieu of
any fractional share. In case of any partial
conversion of the Convertible Note, StorMedia shall
cancel the Convertible Note upon surrender thereof and
shall execute and deliver a new Convertible Note of
like tenor and date for the balance of the Outstanding
Convertible Balance.
(ii) Reservation of Securities. StorMedia shall
reserve, for the life of the Loan, such securities as
Seagate is entitled to receive upon conversion of the
Convertible Loan. Prior to the issuance of any equity
securities (or any instrument exercisable for or
converted into equity securities) and whenever
otherwise required, StorMedia will amend its
Certificate of Incorporation, if necessary, to ensure
that there is a sufficient quantity of such equity
securities (and Common Stock into which such equity
securities may be convertible) into which the
Convertible Loan can be converted.
3.3. Secured Loan.
(a) Loan Term, Interest, Repayment.
(i) The term of the Secured Loan will begin on the
Closing Date and end on the date on which the
Outstanding Secured Balance, all accrued interest
thereon and any other amounts owing under the Secured
Note have been paid in full.
(ii) Interest on the unpaid principal balance of
the Secured Loan (such unpaid principal balance is
referred to as the "Outstanding Secured Balance") will
accrue from the Closing Date at the rate of twelve
percent (12%) per annum, compounded quarterly,
calculated on the basis
6
7
of a 360 day year and actual days elapsed (the
"Secured Interest Rate"); provided, however, that no
such accrued interest shall be due and payable prior
to the Repayment Commencement Date. To the extent
permitted by the Subordination Agreement, StorMedia
will repay the Outstanding Secured Balance plus all
interest accrued thereon as follows: (i) an amount
equal to one third of the total of the Outstanding
Secured Balance plus all interest accrued thereon
shall be due and payable on the Repayment Commencement
Date, and (ii) the remaining Outstanding Secured
Balance plus all interest accrued thereon in twenty
four (24) equal monthly installments of $134,231 with
the first installment due and payable on the one (1)
month anniversary of the Repayment Commencement Date
and the remaining installments due and payable on each
subsequent one (1) month anniversary of the Repayment
Commencement Date (each a "Secured Installment Date")
until the entire Outstanding Secured Balance has been
repaid. Without limiting in any way the remedies
provided in Section 3.4, in the event that an
installment has not been received by Seagate within
five (5) business days after the relevant Secured
Installment Date, the full amount of such delinquent
installment shall bear interest at the Secured
Interest Rate from the missed Secured Installment Date
until the date such payment is paid in full. The
Outstanding Secured Balance and all accrued interest
and any and all other sums payable to Seagate
hereunder may be prepaid prior to the Repayment
Commencement Date.
(iii) Optional Acceleration Upon Acquisition. Upon
the occurrence of a Corporate Event and at any time
thereafter, Seagate may, at its option and in its sole
discretion (but subject to the Subordination
Agreement), by written notice to StorMedia, Foothill
and the Agent, accelerate repayment of the Secured
Note in which case the Outstanding Secured Balance,
and all interest accrued thereon, shall be due and
payable immediately.
(b) Collateral.
(i) Security Interest. This Agreement constitutes
a "security agreement" within the meaning of the UCC.
In order to secure payment and performance of the
Secured Obligations, StorMedia hereby grants, assigns,
transfers, pledges, and sets over to Seagate a
security interest in and Lien on all of StorMedia's
right, title, estate, claim and interest in and to the
Collateral.
(ii) Financing Statements. At the request of
Seagate, StorMedia will promptly join with Seagate in
executing such financing statements, continuation
statements, assignments, certificates and other
documents with respect to the Collateral, pursuant to
the applicable
7
8
Uniform Commercial Code and otherwise, as Seagate may
request in order to enable Seagate to perfect and from
time to time to renew the security interest granted,
all in form satisfactory to Seagate, and StorMedia
will pay the costs of filing the same in all public
offices where Seagate deems such financing be
necessary or desirable.
(iii) Impairment of Collateral. No impairment of,
injury to, or loss or destruction of any of the
Collateral shall relieve StorMedia of any of the
Secured Obligations, except as may be specifically
provided otherwise herein.
(iv) Return of Collateral. Upon payment in full of
the Secured Loan and any other amounts due hereunder
in connection therewith, Seagate shall release its
security interest in, and return to StorMedia all
Collateral hereunder.
(v) Further Assurances. StorMedia agrees that at
any time and from time to time, at its expense,
StorMedia will promptly execute and deliver all
further instruments and documents, and take all
further action that Seagate may request, in order to
perfect and protect the security interests granted or
purported to be granted hereby and to enable Seagate
to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
(vi) Seagate Appointed Attorney-in-Fact. StorMedia
hereby irrevocably appoints Seagate as StorMedia's
attorney-in-fact, with full authority in the place and
stead of StorMedia and in its name or otherwise, from
time to time in Seagate's discretion and without
notice to StorMedia, (but subject to the terms of the
Subordination Agreement) to take any action and to
execute any instrument which Seagate may deem
reasonably necessary or advisable to accomplish the
purposes of this Agreement, after failure of StorMedia
to do so upon reasonable request of Seagate, including
without limitation, to receive, endorse and collect
all instruments made payable to StorMedia representing
any interest payment, principal payment or other
payment in respect of the Collateral or any part
thereof and to give full discharge for the same, when
and to the extent permitted by this Agreement and the
Subordination Agreement.
(vii) Seagate May Perform. Unless and until the
Secured Loan is paid in full, upon the occurrence and
during the continuance of an Event of Default, and to
the extent permitted by the Subordination Agreement,
Seagate may, subject to the Subordination Agreement,
exercise the power of attorney granted to it in
Section 3.3(b)(vi) to (but shall not be obligated and
shall have no liability to any person for failure to)
itself perform, or
8
9
cause performance of, this Agreement, and the
reasonable expenses of Seagate incurred in connection
therewith shall be payable by StorMedia.
(viii) StorMedia's Continuing Rights.
Notwithstanding the security interest in the
Collateral granted to and created in favor of Seagate
under this Agreement, StorMedia shall have the right
until one or more defaults shall have occurred, to
collect the Collateral in the ordinary course of
StorMedia's business.
(ix) Possession of Collateral. In addition to the
payment of the indebtedness secured hereby, StorMedia
agrees to pay to Seagate all reasonable expenses
incurred by Seagate, after the occurrence of an Event
of Default hereunder, in connection with the
collection of the Collateral including reasonable
attorneys' fees and costs.
(x) Application of Proceeds. The Proceeds of any
retaking, collection or sale of the Collateral after
an Event of Default shall be applied as follows:
First, to the payment of all costs and expenses of any
sale or collection incurred by Seagate, including,
without limitation, reasonable attorneys' fees; second
to the payment in full of the Secured Obligations; and
third, any surplus then remaining to StorMedia, its
successors or assigns, or to whomever may be lawfully
entitled to receive the same, or as a court of
competent jurisdiction may direct.
(xi) Subordination. Seagate agrees to execute a
Subordination Agreement in substantially the form
attached to this Agreement as Exhibit D (the
"Subordination Agreement"). The Secured Obligations,
the Convertible Obligations (pending conversion) and
Seagate's security interest in the Collateral shall be
subordinate in all respects to StorMedia's
obligations, and the security interests in any and all
property securing such obligations, under the
"Foothill Loan Documents" and the "Bank Loan
Documents", as defined in and pursuant to the terms of
the Subordination Agreement.
3.4. Default and Remedies.
(a) Default. The occurrence of any of the following
shall constitute an event of default (hereinafter referred to as an "Event of
Default") hereunder:
(i) the failure to pay the Notes when due in
accordance with their terms;
(ii) any representation or warranty of StorMedia
in this Agreement is false as of the date such
representation or warranty was given;
9
10
(iii) StorMedia fails to perform or observe in any
material respect any agreement or covenant under this
Agreement;
(iv) StorMedia ceases operations, is dissolved,
terminates its existence, files for voluntary
bankruptcy, or becomes insolvent or unable to meet its
debts as they mature;
(v) There shall be commenced against StorMedia an
involuntary case or other proceeding seeking
liquidation, reorganization or other relief with
respct to it or its debts under any bankruptcy,
insolvency or other similar law or seeking the
appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any
substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and
unstayed for a period of 60 days;
(vi) Any writ, attachment, citation, judgment,
lien or distress warrant shall be issued against or
levied on the Collateral which materially and
substantially diminishes the value of the Collateral.
(vii) Except to the extent, if any, permitted by
the terms hereof, the security agreement provision of
this Agreement shall, for any reason, other than
Seagate's failure to file a continuation statement as
to any UCC-1 financing statement filed, cease to (i)
create a valid and perfected security interest in the
Collateral, or (ii) be valid and binding on StorMedia
or StorMedia shall so state in any writing whether
filed in a court or otherwise.
(viii) StorMedia is deemed to be in default under
any of the agreements executed in connection with the
transactions described on Exhibits A-1 and A-2
attached to this Agreement and, as a result thereof,
the obligations of StorMedia under such agreements
shall have been accelerated.
(b) Remedies. Upon the occurrence of an Event of
Default, Seagate may, at any time, at its election, without further notice, and
to the extent permitted by law:
(i) Declare the Secured Obligations and/or the
Convertible Obligations immediately due and payable
and require the immediate payment of such amounts; and
(ii) With respect to the Secured Obligations,
subject to the terms of the Subordination Agreement,
exercise all rights and remedies available to a
secured creditor after default, including but not
limited to the rights and remedies of secured
creditors under the California Uniform Commercial
Code.
10
11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STORMEDIA
StorMedia hereby represents and warrants to Seagate that, except as
set forth in the schedules ("Disclosure Schedules") delivered contemporaneously
with this Agreement (which Disclosure Schedules shall be deemed to constitute
part of these representations and warranties) or as disclosed in StorMedia's
Annual Report on Form 10-K on the year ended December 31, 1997, Quarterly Report
on Form 10-Q on the quarter ended March 27, 1998 and definitive proxy materials
for the annual meeting of stockholders to be held May 21, 1998, as filed with
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, the statements in the following paragraphs of this Section 4
are all true and correct:
4.1. Organization, Good Standing and Qualification.
StorMedia is a corporation duly organized, validly existing and in good standing
under, and by virtue of, the laws of the State of Delaware and has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as now conducted and as presently proposed to be conducted.
StorMedia is qualified to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business, prospects or operations.
4.2. Capitalization. As of April 20, 1998, the authorized
capital stock of StorMedia consisted of the following:
(a) Common Stock. A total of 50,000,000 authorized shares
of Common Stock ($0.013 par value), of which
16,019,322 shares are issued and outstanding, and a
total of 5,000,000 authorized shares of Class B Common
Stock, ($0.013 par value), of which 4,362,001 shares
are issued and outstanding.
(b) Preferred Stock. A total of 1,000,000 authorized
shares of Preferred Stock ($0.01 par value), none of
which shares are issued and outstanding, but 500,000
of which will be designated Series A Preferred Stock,
certain of which StorMedia intends to issue
simultaneously with the Closing hereunder.
(c) Options, Warrants, Reserved Shares. Prior to Closing,
StorMedia will have reserved shares of its Common
Stock for possible issuance upon the conversion of the
Convertible Note to be issued hereunder (the
"Conversion Shares"), 4,362,001 shares of Class A
Common Stock issuable on conversion of the outstanding
Class B Common Stock, shares of Series A Preferred
Stock (the "Preferred"), and shares of its Class A
Common Stock issuable upon conversion thereof and upon
exercise of certain Warrants (the "Financing
Warrants") being issued in connection with the
Preferred (the "Financing Warrant Shares") and shares
of its
11
12
Common Stock for possible issuance upon the exercise
of warrants (the "Warrants") to be issued in
connection with the transactions described on Exhibits
A-1 and A-2 attached to this Agreement (the "Warrant
Shares"). Except for (i) the conversion features of
the Convertible Note to be issued hereunder and the
Preferred (ii) the Financing Warrants and the
Warrants, (iii) the Class B Common Stock which is
convertible into an equal number of shares of Class A
Common Stock and (iv) the shares of Common Stock
reserved for issuance under StorMedia's various
employee stock option plans and employee stock
purchase plans and outstanding options issued
thereunder as set forth as of April 20, 1998 on
Exhibit C attached hereto , there are no options,
warrants, conversion privileges or other rights, or
agreements with respect to the issuance thereof,
presently outstanding to purchase any of the capital
stock of StorMedia. Apart from the exceptions noted in
this Section 4.2, no shares (including the Conversion
Shares, the Preferred, the Financing Warrant Shares
and the Warrant Shares) of StorMedia's outstanding
capital stock, or stock issuable upon exercise or
exchange of any outstanding options or other stock
issuable by StorMedia, are subject to any rights of
first refusal or other rights to purchase such stock
(whether in favor of StorMedia or any other person),
pursuant to any agreement or commitment of StorMedia.
4.3. Subsidiaries. StorMedia does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity, except as set
forth on Section 4.3 of the Disclosure Schedules
4.4. Due Authorization; Consents. The Board of Directors of
StorMedia has approved (a) the authorization, execution and delivery of, and the
performance of all obligations of StorMedia under this Agreement, (b) the
authorization, execution and delivery of the Notes and (c) the authorization,
issuance, reservation for issuance and delivery of all of the equity securities
issuable upon conversion of the Outstanding Convertible Balance. All corporate
action on the part of StorMedia, its officers, directors and shareholders
necessary for (a) the authorization, execution and delivery of, and the
performance of all obligations of StorMedia under this Agreement, (b) the
authorization, execution and delivery of the Notes and (c) the authorization,
issuance, reservation for issuance and delivery of all of the equity securities
issuable upon conversion of the Outstanding Convertible Balance has been taken
or will be taken prior to Closing. This Agreement and the Notes each constitute
a valid and binding obligation of StorMedia enforceable in accordance with its
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles.
4.5. Valid Issuance of Stock. The Conversion Shares have
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Certificate, will be duly and validly issued,
fully paid and non assessable. The outstanding shares of the capital stock of
StorMedia are duly and validly issued, fully paid and non assessable, and such
shares of such capital stock, and all outstanding options and other securities
12
13
of StorMedia have been issued in full compliance with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Act"), and the registration and qualification requirements of all applicable
state securities laws, or in compliance with applicable exemptions therefrom,
and all other provisions of applicable federal and state securities laws,
including, without limitation, anti-fraud provisions.
4.6. Liabilities. Except as disclosed on Section 4.6 of the
Disclosure Schedules, StorMedia has no material (as defined in Section 4.9)
indebtedness for borrowed money that StorMedia has directly or indirectly
created, incurred, assumed, or guaranteed, or with respect to which StorMedia
has otherwise become directly or indirectly liable.
4.7. Title to Properties and Assets. Except with respect to
Liens created by the transactions described on Exhibits A-1 and A-2 attached to
this Agreement, StorMedia has good and marketable title to its properties and
assets (including, without limitation, all of the Collateral) held in each case
subject to no Lien of any kind except for Liens for taxes that are not yet due
and payable or, in the case of leased real property, easements and other rights
or restrictions of record that do not materially impair the use or value of such
property to StorMedia. With respect to the property and assets it leases,
StorMedia is in compliance with such leases and, to the best of StorMedia's
knowledge, StorMedia holds valid leasehold interests in such assets free of any
liens, encumbrances, security interests or claims of any party other than the
lessors of such property and assets.
4.8. Status of Proprietary Assets.
(a) Ownership. Except with respect to Liens created by
the transactions described on Exhibits A-1 and A-2 attached to this Agreement,
StorMedia has full title and ownership of, or has license to, all Proprietary
Assets necessary to enable it to carry on its business as now conducted and as
presently proposed to be conducted without any conflict with or infringement of
the rights of others. To the best of StorMedia's knowledge, no third party has
any ownership right, title, interest, claim in or Lien on any of StorMedia's
Proprietary Assets and StorMedia has taken, and in the future StorMedia will use
its best efforts to take, all steps reasonably necessary to preserve its legal
rights in, and the secrecy of, all its Proprietary Assets, except those for
which disclosure is required for legitimate business or legal reasons.
(b) Licenses; Other Agreements. Except with respect to
Liens created by the transactions described on Exhibits A-1 and A-2 attached to
this Agreement, StorMedia has not granted, and, to the best of StorMedia's
knowledge, there are not outstanding, any options, licenses or agreements of any
kind relating to any Proprietary Asset of StorMedia, nor is StorMedia bound by
or a party to any option, license or agreement of any kind with respect to any
of its Proprietary Assets. StorMedia is not obligated to pay any royalties or
other payments to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any Proprietary Asset or any other
property or rights.
(c) No Infringement. To the best of StorMedia's
knowledge, StorMedia has not violated or infringed, and is not currently
violating or infringing, and
13
14
StorMedia has not received any communications alleging that StorMedia (or any of
its employees or consultants) has violated or infringed or, by conducting its
business as proposed, would violate or infringe, any Proprietary Asset of any
other person or entity.
(d) No Breach by Employee. StorMedia is not aware that
any employee or consultant of StorMedia is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for StorMedia or to promote the interests of
StorMedia or that would conflict with StorMedia's business as proposed to be
conducted. The carrying on of StorMedia's business by the employees and
contractors of StorMedia and the conduct of StorMedia's business as presently
proposed, will not, to the best of StorMedia's knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees or contractors or StorMedia is now obligated. StorMedia does not
believe it is or will be necessary to utilize any inventions of any employees of
or consultants to StorMedia (or persons StorMedia currently intends to hire)
made prior to their employment by StorMedia. To the best of StorMedia's
knowledge, at no time during the conception of or reduction of any of
StorMedia's Proprietary Assets to practice was any developer, inventor or other
contributor to such patents operating under any grants from any governmental
entity or agency or private source, performing research sponsored by any
governmental entity or agency or private source or subject to any employment
agreement or invention assignment or nondisclosure agreement or other obligation
with any third party that could adversely affect StorMedia's rights in such
Proprietary Assets.
4.9. Material Contracts and Obligations. All agreements,
contracts, leases, licenses, instruments, commitments (oral or written),
indebtedness, liabilities and other obligations to which StorMedia is a party or
by which it is bound that are (a) material to the conduct and operations of its
business and properties; (b) involve any of the officers, consultants,
directors, employees or shareholders of StorMedia; or (c) obligate StorMedia to
share, license or develop any product or technology are listed in Section 4.9 of
the Disclosure Schedules attached hereto and have been made available for
inspection by Seagate and its counsel. For purposes of this Section 4.9 and
Section 4.6, "material" shall mean any agreement, contract, indebtedness,
liability or other obligation having an aggregate value, cost or amount in
excess of $5,000,000.
4.10. Litigation. There is no action, suit, proceeding,
claim, arbitration or investigation ("Action") pending (or, to the best of
StorMedia's knowledge, currently threatened) against StorMedia, its activities,
properties or assets or, to the best of StorMedia's knowledge, against any
officer, director or employee of StorMedia in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of
StorMedia. To the best of StorMedia's knowledge, there is no factual or legal
basis for any such Action that might result, individually or in the aggregate,
in any material adverse change in the business, properties, assets, financial
condition, affairs or prospects of StorMedia. By way of example but not by way
of limitation, there are no Actions pending or, to the best of StorMedia's
knowledge, threatened (or any basis therefor known to StorMedia) relating to the
prior employment of any of
14
15
StorMedia's employees or consultants, their use in connection with StorMedia's
business of any information, technology or techniques allegedly proprietary to
any of their former employers, clients or other parties, or their obligations
under any agreements with prior employers, clients or other parties. StorMedia
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and
there is no Action by StorMedia currently pending or which StorMedia intends to
initiate.
4.11. Consents. All consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings ("Consents") with any U.S., federal or state governmental authority, or
any third party, on the part of StorMedia required in connection with the
execution, delivery and performance of this Agreement and the Notes and the
consummation of the transactions contemplated hereby and thereby shall have been
obtained prior to and be effective as of the Closing Date, except Consents from
third parties that may be required under agreements to which StorMedia is a
party but which are not listed on Section 4.9 of the Disclosure Schedules.
4.12. Compliance with Other Instruments. Except as would
not, either individually or in the aggregate, have a material adverse effect on
the business or operations of StorMedia, StorMedia is not in, nor will the
conduct of its business as proposed to be conducted result in, any violation,
breach or default of any term of StorMedia's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") or StorMedia's bylaws (the "Bylaws")
or in any material respect of any term or provision of any mortgage, indenture,
contract, agreement or instrument to which StorMedia is a party or by which it
may be bound, or of any provision of any foreign or domestic state or federal
judgment, decree, order, statute, rule or regulation applicable to or binding
upon StorMedia. The execution, delivery and performance of and compliance with
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such violation or default, or be in conflict with or
constitute, with or without the passage of time or the giving of notice or both,
either a default under the Restated Certificate or Bylaws, or any agreement or
contract of StorMedia, or, to the best of StorMedia's knowledge, a violation of
any statutes, laws, regulations or orders, or an event which results in the
creation of any lien, charge or encumbrance upon any asset of StorMedia except
as would not, either individually or in the aggregate, have a material adverse
effect on the business or operations of StorMedia.
4.13. Disclosure. No representation or warranty by
StorMedia in this Agreement or in any statement or certificate signed by any
officer of StorMedia furnished or to be furnished to the Purchaser pursuant to
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading.
4.14. Other Security Interests. StorMedia has not
heretofore assigned or granted a security interest in any of the Collateral, has
not otherwise suffered or permitted to exist any Lien on the Collateral, and
will not hereafter assign or grant a security interest in or suffer or
15
16
permit any Lien on all or any portion of the Collateral other than in favor of
Seagate, in all cases except as disclosed on Section 4.14 of the Disclosure
Schedules attached hereto.
4.15. Registration Rights. Except as provided in this
Agreement, in connection with the transactions described in Exhibits A-1 and A-2
attached to this Agreement and in connection with the concurrent investment by
Prudential Private Equity Investors III, L.P., StorMedia has not granted or
agreed to grant any person or entity any rights (including piggyback
registration rights) to have any securities of StorMedia registered with the
United States Securities and Exchange Commission ("SEC") or any other
governmental authority.
4.16. Insurance. StorMedia has obtained, or will obtain
(within 15 days of the Closing Date) and will maintain, fire and casualty
insurance policies with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed.
4.17. Financial Statements. Section 4.17 of the Disclosure
Schedules sets forth an audited balance sheet of StorMedia dated December 31,
1997, an audited income statement and statement of changes in cash flows of
StorMedia for its fiscal year ended December 31, 1997; and an unaudited balance
sheet of StorMedia dated March 31, 1998 (the "Balance Sheet Date") and an
unaudited income statement of StorMedia for the period ended March 31, 1998 (all
such financial statements being collectively referred to herein as the
"Financial Statements"). Such Financial Statements (a) are in accordance with
the books and records of StorMedia, (b) are true, correct and complete and
present fairly the financial condition of StorMedia at the date or dates therein
indicated and the results of operations for the period or periods therein
specified, and (c) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as to the unaudited
financial statements, for the omission of notes thereto and normal year-end
audit adjustments. Specifically, but not by way of limitation, the respective
balance sheets of the Financial Statements disclose all of StorMedia's material
debts, liabilities and obligations of any nature, whether due or to become due,
as of their respective dates (including, without limitation, absolute
liabilities, accrued liabilities, and contingent liabilities) to the extent such
debts, liabilities and obligations are required to be disclosed in accordance
with generally accepted accounting principles. StorMedia has good and marketable
title to all assets set forth on the balance sheets of the Financial Statements,
except for such assets as have been spent, sold or transferred in the ordinary
course of business since their respective dates or such assets classified on the
balance sheet of March 31, 1998 as "held for sale" which are subsequently sold
("Assets Held for Sale")and except as contemplated by the transactions described
on Exhibits A-1 and A-2 attached hereto.
4.18. Certain Actions. Since the Balance Sheet Date,
StorMedia has not, except as contemplated by the transactions described on
Exhibits A-1 and A-2 attached hereto: (a) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (b) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $500,000 or in excess
of $1,000,000 in the aggregate; (c) made any loans or advances to any person,
other than ordinary advances for travel expenses; (d) sold, exchanged or
otherwise disposed of any material assets or rights other than
16
17
the sale of inventory in the ordinary course of its business or sale of Assets
Held for Sale; or (e) entered into any transactions with any of its officers,
directors or employees or any entity controlled by any of such individuals.
4.19. Activities Since Balance Sheet Date. Since the
Balance Sheet Date, there has not been:
(a) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely
affecting the assets, properties, financial
condition, operating results, prospects or business
of StorMedia (as presently conducted and as presently
proposed to be conducted);
(b) any waiver by StorMedia of a valuable right or of a
material debt owed to it;
(c) except as contemplated by Section 4.6, any
satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by
StorMedia, except such a satisfaction, discharge or
payment made in the ordinary course of business that
is not material to the assets, properties, financial
condition, operating results or business of
StorMedia;
(d) except with respect to sales of certain assets used
in connection with the operations of Akashic Memories
Corporation, any material change or amendment to a
material contract or arrangement by which StorMedia
or any of its assets or properties is bound or
subject, except for changes or amendments which are
expressly provided for or disclosed in this
Agreement;
(e) any material change in any compensation arrangement
or agreement with any present or prospective
employee, contractor or director not approved by
StorMedia's Board of Directors; or
(f) to StorMedia's knowledge, any other event or
condition of any character which would materially and
adversely affect the assets, properties, financial
condition, operating results or business of
StorMedia.
4.20. Tax Matters. The provisions for taxes in the
Financial Statements are sufficient for the payment of all accrued and unpaid
federal, state, county and local taxes of StorMedia, whether or not assessed or
disputed as of the date of each such balance sheet. There have been no
examinations or audits of any tax returns or reports by any applicable federal,
state or local governmental agency. StorMedia has duly filed all federal, state,
county and local tax returns required to have been filed by it and paid all
taxes shown to be due on such returns. There are in effect no waivers of
applicable statutes of limitations with respect to taxes for any year.
4.21. Environmental Matters.
17
18
(a) Except with respect to properties and facilities owned
or leased by Akashic Memories Corp and its subsidiaries, during the period that
StorMedia has owned or leased its properties and facilities, (a) there have been
no material disposals, releases or threatened releases of Hazardous Materials
(as defined below) on, from or under such properties or facilities except for
such disposals, releases or threatened releases as have not violated any
applicable law, (b) neither StorMedia nor, to StorMedia's knowledge, any third
party, has used, generated, manufactured or stored on, under or about such
properties or facilities or transported to or from such properties or facilities
any Hazardous Materials except for such use, generation, manufacture or storage
as has not violated any applicable law. StorMedia has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such properties or facilities, which may have occurred
prior to StorMedia having taken possession of any of such properties or
facilities.
(b) With respect to properties and facilities owned or
leased by Akashic Memories Corp and its subsidiaries, to the best knowledge of
StorMedia (a) there have been no material disposals, releases or threatened
releases of Hazardous Materials (as defined below) on, from or under such
properties or facilities except for such disposals, releases or threatened
releases as have not violated any applicable law, (b) neither StorMedia nor, to
StorMedia's knowledge, any third party, has used, generated, manufactured or
stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials except for such use,
generation, manufacture or storage as has not violated any applicable law.
StorMedia has no knowledge of any presence, disposals, releases or threatened
releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to StorMedia having taken possession
of any of such properties or facilities.
(c) For purposes of this Agreement, the terms "disposal",
"release", and "threatened release" shall have the definitions assigned thereto
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of
this Section, "Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is regulated under, or defined as a "hazardous
substance", "pollutant", "contaminant", "toxic chemical", "hazardous material",
"toxic substance", or "hazardous chemical" under (1) CERCLA; (2) the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (3)
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; (4)
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (5) the
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (6)
regulations promulgated under any of the above statutes; or (7) any applicable
state or local statute, ordinance, rule, or regulation that has a scope or
purpose similar to those statutes identified above.
4.22. Interested Party Transactions. To the best knowledge
of StorMedia, no officer or director of StorMedia or any "affiliate" or
"associate" (as those terms are defined in Rule 405 promulgated under the 0000
Xxx) of any such person has had, either directly or indirectly, a material
interest in: (a) any person or entity which purchases from or sells, licenses or
furnishes to StorMedia any goods, property, technology, intellectual or other
property rights or
18
19
services; or (b) any contract or agreement to which StorMedia is a party or by
which it may be bound or affected.
4.23. Solvency. The sum of StorMedia's assets valued on a
fair market basis exceeds the sum of StorMedia's liabilities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEAGATE
5.1. Investigation; Economic Risk. Seagate acknowledges
that it has had an opportunity to discuss the business, affairs and current
prospects of StorMedia with its officers. Seagate further acknowledges having
had access to information about StorMedia that it has requested. Seagate
acknowledges that it is able to fend for itself in the transactions contemplated
by this Agreement and has the ability to bear the economic risks of its
investment pursuant to this Agreement.
5.2. Purchase for Own Account. The Notes and the securities
issuable upon conversion of the Convertible Note will be acquired for Seagate's
own account, not as a nominee or agent, and not with a view to or in connection
with the sale or distribution of any part thereof.
5.3. Exempt from Registration; Restricted Securities.
Seagate understands that the issuance of the Notes will not be registered under
the Act on the ground that the issuance provided for in this Agreement is exempt
from registration under of the Act, and that the reliance of StorMedia on such
exemption is predicated in part on Seagate's representations set forth in this
Agreement. Seagate understands that the Notes and the securities issuable upon
exercise or conversion of the Convertible Note are restricted securities within
the meaning of Rule 144 under the Act, and must be held indefinitely unless they
are subsequently registered or an exemption from such registration is available.
5.4. Organization, Good Standing and Qualification. Seagate
is a corporation duly organized, validly existing and in good standing under,
and by virtue of, the laws of the State of Delaware and has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as now conducted and as presently proposed to be conducted. Seagate
is qualified to do business as a foreign corporation in each jurisdiction where
failure to be so qualified would have a material adverse effect on its financial
condition, business, prospects or operations.
5.5. Due Authorization. All corporate action on the part of
Seagate, its officers, directors and shareholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of Seagate under this Agreement has been taken or will be taken prior to
Closing. This Agreement constitutes a valid and binding obligation of Seagate
enforceable in accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws affecting creditors' rights generally and to general equitable
principles.
19
20
5.6. Compliance with Other Instruments. The execution,
delivery and performance of and compliance with this Agreement and the
consummation of the transactions contemplated hereby will not result in any
violation or default, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, either a default under
Seagate's certificate of incorporation, as amended, or bylaws, as amended or any
agreement or contract of Seagate, or, to the best of Seagate's knowledge, a
violation of any statutes, laws, regulations or orders.
5.7. Transfer Notes and Conversion Shares.
(a) The Notes and the Conversion Shares may be transferred
pursuant to (i) public offerings registered under the Securities Act of 1933, as
amended (the "Securities Act"), (ii) Rule 144 promulgated pursuant to the
Securities Act (or any similar rule then in force) or (iii) subject to
conditions set forth in Section 5.7(b), any other legally available means of
transfer.
(b) In connection with any transfer of the Notes or any of
the Conversion Shares, (other than a transfer described in Section 5.7(a)(i) or
(ii)), the holder of such securities shall deliver written notice to StorMedia
describing in reasonable detail the proposed transfer, together with an opinion
of counsel (which, to StorMedia's reasonable satisfaction, is knowledgeable in
securities law matters) to the effect that such transfer may be effected without
registration of such securities under the Securities Act. The holder of the
securities being transferred shall not consummate the transfer until (i) the
prospective transferee has confirmed to StorMedia in writing its agreement to be
bound by the provisions of this Section 5.7 or (ii) such holder shall have
delivered to StorMedia an opinion of such counsel that no subsequent transfer of
such Notes or Conversion Shares shall require registration under the Securities
Act. Promptly upon receipt of any opinion described in clause (ii) of the
preceding sentence, StorMedia shall prepare and deliver in connection with the
consummation of the proposed transfer, new certificates for Notes or the
Conversion Shares being transferred that do not bear the legend set forth in
Section 5.7(c).
(c) Except as provided in Section 5.7(b), each certificate
for the Notes and the Conversion Shares shall be imprinted with a legend
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON MAY ___, 1998 AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE
TERMINATION OF SUPPLY AGREEMENT AND LOAN AND SECURITY
AGREEMENT DATED AS OF MAY ___, 1998 AMONG THE ISSUER (THE
"COMPANY") AND SEAGATE TECHNOLOGY, INC., AND THE COMPANY
RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
20
21
RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL
BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREON UPON
WRITTEN REQUEST TO THE COMPANY.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION
AGREEMENT IN FAVOR OF FOOTHILL CAPITAL CORPORATION, AS
AGENT FOR CERTAIN LENDERS, AND CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY, AS AGENT FOR CERTAIN LENDERS,
AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, WHICH
SUBORDINATION AGREEMENT CONTAINS CERTAIN SUBORDINATION
PROVISIONS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THIS
INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL,
PREMIUM, IF ANY, OR INTEREST HEREOF, OR ANY PROCEEDS OF
COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED HEREBY,
SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE WITH THE
TERMS OF SUCH SUBORDINATION AGREEMENT.
5.8. No Offset. Seagate agrees that it will not have any
right of offset or recoupment and will not apply any amounts due and owing it by
StorMedia under the Notes against any amounts due and owing StorMedia by it.
ARTICLE VI
COVENANTS OF STORMEDIA
6.1. Affirmative Covenants. From and after the date hereof,
StorMedia agrees and covenants to Seagate that it will:
(a) No Further Liens. Except with respect to Liens
created by the transactions contemplated by Exhibits A-1 and A-2 attached to
this Agreement, maintain good title to, or the right to use, the Collateral, as
the case may be, free and clear of any Liens or restrictions on the transfer
thereof except for Liens created pursuant to this Agreement or approved by
Seagate in writing and the Liens disclosed on Section 4.14 of the Disclosure
Schedules attached hereto. In any case, the Liens granted to Seagate hereby
shall have priority over any other Liens or restrictions as to the Collateral,
except as disclosed on Section 4.14 of the Disclosure Schedules attached hereto.
The Borrower will defend such title against the claims and demands of all
persons and will not grant, create or permit to attach or exist any mortgage,
pledge, lien, levy, charge or other encumbrance on, of or against any of the
Collateral, except as disclosed on Section 4.14 of the Disclosure Schedules
attached hereto.
21
22
(b) Place of Business. Maintain and keep its
principal place of business and its chief executive office at 000 Xxxx Xxxxxx,
Xxxxx Xxxxx, Xxxxxxxxxx 00000 and at no other location without prior written
notice to Seagate. StorMedia shall maintain and keep its records concerning the
Collateral at such address and at no other location without prior written notice
to Seagate.
(c) Inspection Rights. Give Seagate and any person
Seagate may designate the right to review all books and records, reports,
accounts and other financial documents of StorMedia pertaining to the Collateral
and to copy the same and to make excerpts therefrom, all at such reasonable
times and as often as Seagate (or Seagate's designee) may reasonably request,
upon prior written notice to StorMedia, so long as such review and copying does
not unreasonably interfere with the business of StorMedia and Seagate agrees to
keep confidential, and not disclose, except as may be required by law or court
order, all information obtained during such review of a confidential or
proprietary nature (and not otherwise known to Seagate through other sources or
publicly known).
(d) Information Rights. Deliver to each holder of
the Notes or any securities issued (directly or indirectly) upon exercise or
conversion of the Convertible Loan copies of StorMedia's 10-K's, 10-Q's, 8-K's
and Annual Reports to Shareholders promptly after such documents are filed with
the SEC.
(e) Notices. As soon as possible after the
occurrence or commencement of any of the following, deliver to Seagate written
notice that such event has occurred or commenced:
(i) The occurrence of any Event of Default or
any event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default.
(ii) The commencement or filing of (A) any
action, suit or proceeding involving StorMedia before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, involving amounts in excess of $500,000 not fully covered by insurance
or which could materially and adversely affect the business, operations or
financial conditions of StorMedia or (B) any claim or dispute involving amounts
in excess of $500,000 between StorMedia and any Person.
(iii) The occurrence of any condition or event
which has resulted or is reasonably expected to result in (A) a material adverse
change in the business, operations or financial condition of StorMedia; (B) a
breach of or non-compliance with any term, condition or covenant contained in
this Agreement, the Registration Rights Agreement or the Termination and Mutual
Release; (C) any labor controversy resulting in or threatening to result in a
strike or disturbance which could materially and adversely affect the business,
operations or financial condition of StorMedia; (D) any payment in excess of
$100,000 under any insurance policy of StorMedia other than the ongoing payments
of legal fees and expenses incurred in
22
23
connection with the existing securities class action litigation; or (E) any
written offer to purchase all, or substantially all, of StorMedia's assets other
than Assets Held for Sale.
Each notice pursuant to this Section 6.1(e) shall be
accompanied by a statement of StorMedia setting forth details of the occurrence
referred to therein and stating what action Borrower proposes to take with
respect thereto.
(f) Payment of Taxes. File all tax returns (federal,
state and local), if any, required to be filed (or make provision, in accordance
with applicable law), to pay and discharge all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of StorMedia, except to the extent such taxes, assessments
or governmental charges or levies are being contested in good faith.
(g) Obligation of StorMedia to Indemnify Seagate.
Subject in all respects to the terms of the Subordination Agreement, together
with its successors and assigns, indemnify, defend, protect, reimburse and hold
harmless Seagate, its directors, officers, employees, successors, assigns,
agents, contractors, subcontractors, experts, licensees, invitees, from and
against any and all liabilities, losses, claims, demands, damages,
administrative orders, consent agreements, costs, penalties, fines, actions,
causes of action, injuries, judgments, attorneys' fees, consultants' fees,
experts' fees, and expenses of any kind whatsoever, incurred or suffered by
Seagate by reason of, resulting from or arising out of a breach of any
representation, warranty or covenant of StorMedia contained in this Agreement.
6.2. Negative Covenants. From and after the date hereof,
StorMedia agrees and covenants to Seagate that, without the prior written
consent of Seagate, it will not:
(a) Indebtedness. Create, incur, assume or permit to
exist any indebtedness (including any indebtedness under any existing line of
credit) for borrowed funds or guarantee or assume the payment or performance of
any debts, liabilities or obligations other than (a) indebtedness represented by
the Notes and other Secured Obligations and Convertible Obligations under this
Agreement, and the transactions contemplated by Exhibit A-1 and A-2; (b)
accounts payable arising in the ordinary course of StorMedia's business; (c)
purchase money indebtedness; (d) equipment leases; and (e) indebtedness which by
its terms is subordinated to the Loans.
(b) Dividends, Redemptions and other Payments. Declare
or pay, or set apart any funds for the payment of, any dividends (other than
dividends payable solely in Common Stock, Preferred Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, solely additional shares of Common Stock of StorMedia) on any
shares of capital stock (including, but not limited to, preferred stock) of
StorMedia, or apply any of its funds, properties, or assets to or set apart any
funds, properties or assets for, the purchase, redemption or other retirement
of, or make any other distribution
23
24
(whether by reduction of capital or otherwise) in respect of, any shares of
capital stock, including, but not limited to, preferred stock, of StorMedia.
(c) Sale of Collateral. Sell the Collateral, except
that this Section 6.2(c) shall not apply in any way to a sale of the Collateral
consented to in writing by the Institutional Lenders.
ARTICLE VII
CLOSING
The closing of the transactions contemplated by this agreement will
take place at the offices of Xxxxxx, Xxxx & Xxxxxxxx LLP, One Xxxxxxxxxx St.,
Telesis Tower, San Francisco, California at 1:00 p.m, California time, on May
27, 1998, or at such other time and place as Seagate and StorMedia mutually
agree upon, orally or in writing (which time and place are referred to in this
Agreement as the "Closing", and such date as the "Closing Date"). At the
Closing, (a) StorMedia will deliver to Seagate the Notes against delivery by
Seagate of the Secured Loan Amount and the Convertible Loan Amount, paid by wire
transfer of funds to StorMedia, and (b) StorMedia and Seagate will execute and
deliver the Termination and Mutual Release.
ARTICLE VIII
CONDITIONS TO SEAGATE'S OBLIGATIONS AT THE CLOSING
The obligation of Seagate to make the Loans at the Closing is subject
to the fulfillment, to the satisfaction of Seagate on or prior to the Closing,
of the following conditions:
8.1. Representations and Warranties Correct. The
representations and warranties made by StorMedia in Section 4 hereof shall be
true and correct when made.
8.2. Performance of Obligations. StorMedia shall have
performed and complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the transactions described herein.
8.3. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to Seagate, and Seagate shall have received
all such counterpart originals or certified or other copies of such documents as
it may reasonably request.
8.4. Compliance Certificate. At the Closing, StorMedia
shall deliver to Seagate a certificate, dated the date of Closing, signed by
StorMedia's President certifying that the conditions specified in Sections 8.1,
8.2 and 8.14 have been fulfilled.
24
25
8.5. Securities Laws. The issuance of the Notes pursuant
to this Agreement shall be exempt from the registration requirements of the Act
and the registration and/or qualification requirements of all applicable state
securities laws.
8.6. Registration Rights Agreement. StorMedia will have
executed and delivered the Registration Rights Agreement substantially in the
form attached to this Agreement as Exhibit E.
8.7. Termination and Mutual Release. StorMedia will have
executed and delivered the Termination and Mutual Release substantially in the
form attached to this Agreement as Exhibit B.
8.8. Delivery of Notes. StorMedia will have executed and
delivered the Notes substantially in the form attached to this Agreement as
Exhibits C1 and C2.
8.9. Financing Statement. StorMedia will have executed and
delivered such UCC-1 financing statements as Seagate shall require, in form and
substance satisfactory to Seagate.
8.10. No Defaults. There shall not have occurred an Event
of Default, or an event or condition which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default.
8.11. Opinion of StorMedia's Counsel. Seagate shall have
received from counsel to StorMedia an opinion addressed to Seagate, dated the
date of Closing, in substantially the form attached hereto as Exhibit F.
8.12. Other Transactions. The transactions described in
Exhibits A-1 and A-2 attached hereto shall have been consummated, or shall be
consummated simultaneously herewith, on substantially the same terms as
described therein.
8.13. Certificate of Transfer Agent: StorMedia shall
deliver to Seagate a certificate from its transfer agent certifying as of a date
proximate to the Closing as to the number of shares of Class A Common Stock
outstanding.
8.14. No material adverse change. There shall not have
occurred any material adverse change in the business, assets or financial
condition of StorMedia.
ARTICLE IX
CONDITIONS TO STORMEDIA'S OBLIGATIONS AT THE CLOSING
The obligations of StorMedia under this Agreement are subject to the
fulfillment at or before the Closing of the following conditions:
25
26
9.1. Representations and Warranties Correct. The
representations and warranties made by Seagate in Section 7 hereof shall be true
and correct when made.
9.2. Performance of Obligations. Seagate shall have
performed and complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the transactions described herein.
9.3. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to StorMedia, and StorMedia shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
9.4. Compliance Certificate. At the Closing, Seagate shall
deliver to StorMedia a certificate, dated the date of Closing, signed by
Seagate's President certifying that the conditions specified in Paragraphs 8.1,
and 8.2 have been fulfilled.
9.5. Issuance of Loans. Seagate shall have funded the Loans
in accordance with the provisions of Section 3.
9.6. Securities Exemptions. The issuance of the Notes to
Seagate pursuant to this Agreement shall be exempt from the registration
requirements of the Act, and the registration and/or qualification requirements
of all applicable state securities laws.
9.7. Registration Rights Agreement. Seagate will have
executed and delivered the Registration Rights Agreement substantially in the
form attached to this Agreement as Exhibit E.
9.8. Termination and Mutual Release. Seagate will have
executed and delivered the Termination and Mutual Release substantially in the
form attached to this Agreement as Exhibit B.
9.9. Other Transactions. The transactions described in
Exhibits A-1 and A-2 attached hereto shall have been consummated, or shall be
consummated simultaneously herewith, on substantially the same terms as
described therein.
ARTICLE X
MISCELLANEOUS
10.1. Governing Law. This Agreement shall be governed in
all respects by and construed in accordance with the laws of the State of
California without regard to provisions regarding choice of laws.
26
27
10.2. Survival. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by any party
hereto and the closing of the transactions contemplated hereby.
10.3. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto whose rights or obligations hereunder are affected by such
amendments. Neither party shall assign this Agreement or any rights hereunder
without the prior written consent of the other party, except that either may
assign the Agreement to a wholly-owned subsidiary without the other's consent if
the original party remains liable for such assignee's performance hereunder.
10.4. Entire Agreement. This Agreement, the Notes and the
Exhibits and Schedules hereto and thereto (all of which are hereby expressly
incorporated herein by this reference) constitute the entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
10.5. Notices. Except as may be otherwise provided herein,
all notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been duly
given (a) when hand delivered to the other party; (b) when received when sent by
facsimile at the address and number set forth below; (c) three business days
after deposit in the U.S. mail with first class or certified mail receipt
requested postage prepaid and addressed to the other party as set forth below;
or (d) the next business day after deposit with a national overnight delivery
service, postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
To Seagate: To StorMedia:
Seagate Technology, Inc. StorMedia Incorporated
000 Xxxx Xxxxx 000 Xxxx Xxxxxx
Xxxxxx Xxxxxx, Xxxxxxxxxx 00000-0000 Xxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxx
Each person making a communication hereunder by facsimile
shall promptly confirm by telephone to the person to whom such communication was
addressed each communication made by it by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 11.5 by giving the
other party written notice of the new address in the manner set forth above.
10.6. Amendments. Any term of this Agreement may be amended
only with the written consent of StorMedia and Seagate.
27
28
10.7. Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to StorMedia or to Seagate, upon
any breach or default of any party hereto under this Agreement, shall impair any
such right, power or remedy of StorMedia, or Seagate nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
any similar breach of default thereafter occurring; nor shall any waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of StorMedia or Seagate
of any breach of default under this Agreement or any waiver on the part of
StorMedia or Seagate of any provisions or conditions of this Agreement, must be
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, or by law or otherwise
afforded to StorMedia or Seagate shall be cumulative and not alternative.
10.8. Legal Fees. In the event of any action at law, suit
in equity or arbitration proceeding in relation to this Agreement or any shares
or other securities of StorMedia issued or to be issued, the prevailing party
shall be paid by the other party a reasonable sum for attorney's fees and
expenses for such prevailing party.
10.9. Finder's Fees. Each party (a) represents and
warrants to the other party hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and (b) hereby
agrees to indemnify and to hold harmless the other party hereto from and against
any liability for any commission or compensation in the nature of a finder's fee
of any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which the indemnifying party
or any of its employees or representatives are responsible.
10.10. Titles and Subtitles. The titles of the paragraphs
and subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
10.11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
10.12. Severability. Should any provision of this Agreement
be determined to be illegal or unenforceable, such determination shall not
affect the remaining provisions of this Agreement.
10.13. Arbitration.
(a) All disputes which may arise hereunder shall be
resolved by binding arbitration, and without resort to the courts (except to
compel arbitration or to enter judgment in accordance therewith). The
arbitrators shall be appointed as follows: each party shall appoint one
arbitrator; the two arbitrators thus appointed shall choose the third arbitrator
who shall act as the presiding arbitrator of the tribunal. The parties agree
that all arbitrators shall be governed by the Rules of the American Arbitration
Association; that such arbitration proceedings shall be
28
29
conducted in Santa Clara, California, and that the result of such arbitration
shall be binding upon the parties, and may be entered as a judgment in any court
or tribunal with jurisdiction over any party with the same force and effect as a
judgment rendered by such a court or tribunal.
(b) The arbitration proceedings and all pleadings and
written evidence shall be in the English language. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or a true copy thereof.
(c) The prevailing party in such proceeding shall be
entitled to collect reasonable attorneys fees from the other party.
10.14. Survival. Sections 6.1(c) and (d) and Section 10 of
this Agreement shall continue in full force and effect following termination of
the Secured Obligations and the Convertible Obligations, subject to termination,
if at all, in accordance with their respective terms.
10.15. Confidentiality And Non-Disclosure
(a) Disclosure of Terms. The terms and conditions of
this Agreement, the Notes, the Registration Rights Agreement and the Termination
and Mutual Release (collectively, the "Financing Terms"), including their
existence, shall be considered confidential information and shall not be
disclosed by any party hereto to any third party except in accordance with the
provisions set forth below.
(b) Press Releases, Etc. Within sixty (60) days of
the Closing, either party may issue a press release disclosing that Seagate has
invested in StorMedia; provided that the release does not disclose any of the
Financing Terms other than the aggregate amount advanced, the fact that one of
the Notes is convertible and the fact that the Supply Agreement has been
terminated, and is approved in advance in writing by the other party. Except as
required by law (but in all events subject to the provisions of Section 10.15(d)
of this Agreement), no other announcement regarding these transactions in a
press release, conference, advertisement, announcement, professional or trade
publication, mass marketing materials or otherwise to the general public may be
made by either party without the other party's prior written consent.
(c) Permitted Disclosures. Notwithstanding the
foregoing, (i) either party may disclose any of the Financing Terms to its
current or bona fide prospective investors, employees, investment bankers,
lenders, accountants and attorneys, in each case only where such persons or
entities are under appropriate nondisclosure obligations; and (ii) either party
may disclose (other than in a press release or other public announcement
described in subsection (b)) solely the fact that Seagate is an investor in
StorMedia to any third parties without the requirement for the consent of any
other party or nondisclosure obligations.
(d) Legally Compelled Disclosure. In the event that
either party is requested or becomes legally compelled (including without
limitation, pursuant to securities laws
29
30
and regulations) to disclose the existence of this Agreement or any of the
Financing Terms in contravention of the provisions of this Section 10.15, such
party (the "Disclosing Party") shall provide the other party (the
"Non-Disclosing Party") with prompt written notice of that fact so that the
appropriate party may seek (with the cooperation and reasonable efforts of the
other party) a protective order, confidential treatment or other appropriate
remedy. In such event, the Disclosing Party shall furnish only that portion of
the information which is legally required and shall exercise reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded such
information to the extent reasonably requested by any Non-Disclosing Party.
Notwithstanding the foregoing, Seagate acknowledges that StorMedia will be
obligated to file this Agreement and the related Exhibits with the Securities
and Exchange Commission ("SEC") on a Form 8-K shortly following the Closing.
While StorMedia will seek confidential treatment of certain of the terms and
will consult with Seagate as to such confidential treatment request, StorMedia
cannot guarantee that the SEC will grant its request or will not require
disclosure of such terms. No liability shall accrue to StorMedia hereunder if
disclosure is made as described above.
10.16. Termination.
(a) This Agreement may be terminated at any time prior to
the Closing: (i) by mutual written agreement of StorMedia and Seagate; or (ii)
by Seagate if the Closing has not occurred on or before May 27, 1998.
(b) Any termination of this Agreement shall not affect any
liability of either party hereto to the other party as a result of a breach of
this Agreement.
[The remainder of this page intentionally left blank]
30
31
IN WITNESS WHEREOF, the parties have executed this Loan and
Security Agreement to be effective as of the date
first above written.
SEAGATE TECHNOLOGY, INC. STORMEDIA INCORPORATED
By: /s/ By: /s/
--------------------------------- ---------------------------------
Name: Name:
Title: Title:
SIGNATURE PAGE TO
TERMINATION OF SUPPLY AGREEMENT
AND
LOAN AND SECURITY AGREEMENT
31
