1
EXHIBIT 10.61
READ-RITE CORPORATION
WAIVER, FOREBEARANCE AND FIFTH AMENDMENT
TO CREDIT AGREEMENT
This WAIVER, FOREBEARANCE AND FIFTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment") is dated as of January 28, 2000 and entered into among Read-Rite
Corporation, a Delaware corporation (the "Borrower"), the financial institutions
named on the signature pages hereof (each a "Bank" and collectively the
"Banks"), Canadian Imperial Bank of Commerce, New York Agency, as agent for the
Banks (the "Agent") and issuer of Letters of Credit (the "Designated Issuer")
and is made with reference to that certain Credit Agreement dated as of October
2, 1997 (as amended by the First Amendment to Credit Agreement dated February 5,
1998, the Second Amendment to Credit Agreement dated as of August 10, 1998, the
Waiver and Third Amendment to Credit Agreement dated as of September 27, 1999
and the Waiver and Fourth Amendment to Credit Agreement dated as of December 29,
1999, the "Credit Agreement" and the Credit Agreement (the "Waiver and Fourth
Amendment"), as amended by this Amendment, the "Amended Agreement") among the
Borrower, the Banks, the Designated Issuer and the Agent. Capitalized terms used
herein without definition shall have the same meanings herein as set forth in
the Amended Agreement.
RECITALS
WHEREAS, the Borrower has requested that the Banks waive certain
provisions and amend certain other provisions set forth in Credit Agreement.
WHEREAS, the Borrower has requested that the Banks forebear from
exercising their remedies under the Credit Agreement as a result of the
Borrower's breach of the covenants set forth in Sections 6.02(a) to (e)
inclusive of the Credit Agreement.
NOW, THEREFORE, in consideration of the promises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
I. SECTION AMENDMENTS TO THE CREDIT AGREEMENT
A. The definition of the term "Revolving Facility" in Section
1.01 of the Credit Agreement shall be amended by deleting the figure
"$50,000,000" and substituting therefore "$35,000,000".
A. There shall be added to Section 1.01 of the Credit
Agreement, in appropriate alphabetical sequence, the following definitions:
2
"Exchange Note Purchase Offer": The offer by the Borrower
pursuant to that certain S-4 Registration Statement filed with the
Securities and Exchange Commission on January 27, 2000 to sell up to
$75,000,000 of Exchange Notes to the holders of its Subordinated Notes.
"Exchange Notes": Those notes, substantially on the terms set
forth on Exhibit W hereto, that the Borrower proposes to issue pursuant
to the Exchange Offer and the Exchange Note Purchase Offer.
"Exchange Offer": The offer by the Borrower to the holders of its
Subordinated Notes to exchange such instruments for the Exchange Notes
substantially on the terms set forth on the Exhibit W hereto.
"Waiver, Forebearance and Fifth Amendment Termination Date": May
25, 2000, provided that such date will be extended to August 25, 2000 if
in connection with the Exchange Note Purchase Offer, the Majority Banks,
acting in their sole and absolute discretion, and the Borrower have
reached an agreement as to (i) the lifting of the blocking notice, if
any, in respect of the Subordinated Notes, (ii) the payment by the
Borrower of the stub interest to the holders who elect not to exchange
Subordinated Notes, (iii) the percentage paydown from the proceeds of
the Exchange Notes Purchase Offer to be received by the Banks under the
Credit Agreement and (iv) other terms and conditions in respect of
interest rates, fees and covenants under the Credit Agreement.
A. The final sentence of Section 2.04 of the Credit Agreement
is hereby amended and restated to read in its entirety as follows:
"Notwithstanding the foregoing, from December 29, 1999 until the
Waiver, Forebearance and Fifth Amendment Termination Date the Borrower
may not continue any Eurodollar Rate Loan as a Eurodollar Rate Loan or
convert any Base Rate Loan into a Eurodollar Rate Loan."
A. Section 6.01(a) of the Credit Agreement is amended by
adding the following at the end thereof:
(viii) (a) within 5 days after the end of each week, a report in
substantially the form of Exhibit X commencing with the week ended
January 30, 2000, (b) within 5 days after the end of each week, a
comparison of actual versus forecasted cash flows in substantially the
form of Exhibit Y, (c) within 15 days after the end of each fiscal
month, financial statements comparing the Borrower's financial
performance during such month with the Borrower's projections and (d) at
the time of delivery of its quarterly financial statements pursuant to
Section 6.01(a)(ii), a comparison of the Borrower's cash flow statements
for such fiscal quarter with the Borrower's projections for such
quarter.
3
A. Section 6.02(k) of the Credit Agreement is hereby amended
to read in its entirety as follows:
(k) Asset Sales. Convey, sell, lease, transfer or otherwise
dispose of (collectively a "Transfer"), or permit any Subsidiary (other
than Read-Rite SMI) to Transfer, in one transaction or a series of
transactions, all or any part of its or its Subsidiary's business,
property or fixed assets, whether now owned or hereafter acquired, other
than transfers of worn-out or obsolete property, unless all proceeds
therefrom have been delivered to the Agent and held as collateral
security until a mutually acceptable sharing arrangement between the
Borrower and the Majority Banks has been arranged; provided, that upon
the occurrence of an Event of Default any distribution of such proceeds
may be made at the discretion of Majority Banks.
A. Section 7.02(g)(v) of the Credit Agreement is hereby
amended and restated to read in its entirety as follows:
"(v) Permitted Subordinated Debt or indebtedness evidenced by the
Exchange Notes;"
A. Subsections (t), (u) and (v) of Section 6.02 of the Credit
Agreement are hereby amended to read in their entirety as follows:
(t) Additional Information. The Borrower shall deliver to the
Agent on or prior to March 1, 2000 projections (incorporating planned
asset sales and the estimated costs incurred and savings realized
therefrom and all other restructuring initiatives) of the Borrower's
balance sheets, income statements and cash flow statements on a month by
month basis through the Maturity Date. In addition, the Borrower shall
provide a 13-week cash flow statements that supports its revised
projections. PricewaterhouseCoopers ("PWC") shall have reasonable access
to the Borrower's management to discuss financial information and
operational information of the Borrower. In addition, the Borrower shall
provide any information deemed necessary by the Agent and PWC. From time
to time, PWC shall provide the Agent and the Borrower with budgets in
connection with its review and analysis of such financial and
operational information.
(u) Payment of Fee. If the Borrower shall have not repaid all
obligations under this Agreement in full and terminated all Commitments
hereunder on or before Waiver, Forebearance and Fifth Amendment
Termination Date, on such date the Borrower shall pay a fee equal to 50
basis points to each Bank, based on such Bank's aggregate Revolving
Commitment and Term Commitments on such date that has consented to the
Waiver, Forebearance and Fifth Amendment dated as of January 28, 2000
not later than noon, Pacific time, on January 31, 2000.
4
(v) Amendment of Designated Account Agreements. On or before
February 25, 2000, each of the Designated Account Agreements shall be
amended to provide that the Borrower may not transfer funds from any
Designated Account to any account that is not a Designated Account other
than transfers consistent with a monthly budget to be provided to the
Agent not less than 15 days prior to the beginning of each fiscal month.
A. There shall be added to the Credit Agreement a new Section
6.02(w) reading in its entirety as follows:
(w) Exchange Notes. Pay, prepay, redeem, purchase, defease or
otherwise satisfy (nor permit any of its Subsidiaries to pay, prepay,
redeem, purchase, defease or otherwise satisfy) in any manner prior to
the scheduled payment thereof any indebtedness evidenced by the Exchange
Notes except upon conversion of the Exchange Notes in accordance with
their terms and except as otherwise permitted under this Section
6.02(w); amend, modify or otherwise change the terms of any document,
instrument or agreement evidencing the Exchange Notes such that such
amendment, modification or change would (i) cause the outstanding
aggregate principal amount of all such Exchange Notes so amended,
modified or changed to be increased as a consequence of such amendment,
modification or change, (ii) cause the subordination provisions
applicable to such Exchange Notes to be less favorable to the Agent and
the Banks than those set forth in the Original Indenture, (iii) increase
the interest rate applicable thereto or (iv) accelerate the scheduled
payment thereof; provided that, notwithstanding the prior provisions of
this Section 6.02(w), the Borrower may at any time convert all or any
portion of the Exchange Notes into common stock of the Borrower and may
pay interest on the Exchange Notes in the common stock of the Borrower.
The Debt of the Borrower under this Agreement shall at all times
constitute "Designated Senior Indebtedness" under the indenture for the
Exchange Notes. Only Senior Debt shall constitute "Designated Senior
Indebtedness" under the indenture for the Exchange Notes.
Notwithstanding any provision of this Section 6.02 to the
contrary, but subject in all cases to the subordination provisions
described in the S-4 Registration Statement filed by the Borrower with
the Securities and Exchange Commission on January 27, 2000, none of the
following shall be prohibited by this Section 6.02:
(i) the delivery of securities upon conversion of the
Exchange Notes in accordance with the terms thereof (including the
payment by the Borrower of cash in lieu of fractional shares in
connection with such a conversion); and
(ii) any mandatory payments of interest on the Exchange
Notes.
5
Nothing in this Section shall be construed to permit any action that
would not be permitted under the subordination provisions of any
indenture or other document governing the terms of the Exchange Notes.
A. There shall be added to the Credit Agreement new Exhibits
W, X and Y in the form of Exhibits W, X and Y attached hereto.
I. SECTION WAIVERS AND CONSENTS
A. By their execution hereof, the Banks hereby waive (i)
compliance by the Borrower with the covenant relating to the funding of
Read-Rite SMI set forth in Section 6.02(j)(viii) of the Credit Agreement to
permit the funding of up to an additional $15,000,000 during the period from
September 30, 1999 through the Waiver, Forebearance and Fifth Amendment
Termination Date; and (ii) Section 6.02(g)(v) and 6.02(o) to permit the Borrower
to make the offer and consummate the transactions contemplated by the Exchange
Offer and the Exchange Note Purchase Offer. Unless extended by the Majority
Banks, the waiver described in clause (i) of the preceding sentence shall
terminate on the Waiver, Forebearance and Fifth Amendment Termination Date, and
on the Waiver, Forebearance and Fifth Amendment Termination Date an Event of
Default will exist if the Borrower is not (and has not been) in compliance with
Sections 6.02(j)(viii), 6.02(g)(v) and 6.02(o) of the Credit Agreement for all
periods from and after September 30, 1999. The waivers granted herein shall be
limited precisely as provided for herein and shall not be deemed to be a waiver
or modification of any other term or provision of the Credit Agreement or to be
a consent to any other transaction or further action on the part of the Borrower
or any of its Subsidiaries which would require the consent of the Banks under
the Credit Agreement.
A. Upon the effectiveness of this Amendment, the waivers
granted pursuant to the Waiver and Fourth Amendment shall terminate.
I. SECTION FOREBEARANCE
A. From the date hereof through the Waiver, Forebearance and
Fifth Amendment Termination Date, the Agent and the Banks agree to forebear from
exercising their respective rights and remedies under the Credit Agreement and
the other Loan Documents, with respect to any failure of the Borrower, from the
period of September 30, 1999 through the Waiver, Forebearance and Fifth
Amendment Termination Date, to comply with the financial covenants set forth in
Section 6.02(a) through (e) inclusive of the Credit Agreement. This agreement to
forbear shall not apply to any other Potential Events of Default or Events of
Default, and shall not toll the time period during which any event would
otherwise become an Event of Default, nor shall it extinguish any Event of
Default that has occurred and is continuing. Notwithstanding the foregoing, the
parties hereto expressly agree that the Agent and the Banks shall be entitled to
send a blocking notice with respect to the Subordinated Notes, and to take all
6
other measures that may be necessary or appropriate to prevent the payment of
any interest or principal with respect to the Subordinated Notes.
I. SECTION CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the first date (the "Fifth
Amendment Date") on or before February 4, 2000 upon which the following
conditions have been satisfied:
A. The Agent shall have received for each Bank counterparts
hereof duly executed on behalf of the Borrower, the Agent, and the Majority
Banks (or, in lieu of execution by the Majority Banks, notice of the approval of
this Amendment by the Majority Banks satisfactory to the Agent); and
A. An acknowledgment and amendment in the form of Exhibit A
hereto duly executed by each party to the Guaranty.
A. The Borrower shall have reduced the aggregate outstanding
principal amount of Revolving Loans to an amount not in excess of $35,000,000.
A. The Agent shall have received a copy of a board resolution
of the Borrower, in form and substance satisfactory, to the Agent authorizing
the execution, delivery and performance of this Amendment certified by the
Secretary of the Borrower as being in full force and effect on the date hereof.
A. The Amendment Fee referred to in Section 5.C of the Waiver
and Fourth Amendment shall have been paid and all other fees and expenses
payable by the Borrower pursuant to the Loan Documents shall have been paid or
provided for.
A. All the representations and warranties in Section 4 shall
be true and correct as of the date of this Amendment.
A. No Potential Event of Default or Event of Default shall
have occurred and be continuing on the date of this Amendment or will result
from the consummation of this Amendment (after giving effect to this Amendment).
A. The Agent shall have received, in form and substance
satisfactory to it, a certificate dated on or before the date of this Amendment
certifying that the conditions in clauses (F) and (G) have been met.
7
I. SECTION BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Banks to enter into this Amendment
and to amend the Credit Agreement in the manner provided herein, the Borrower
represents and warrants to the Agent and each Bank that the following statements
are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. The Borrower has all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated by, and perform its obligations under,
this Amendment and the Amended Agreement.
A. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Borrower.
B. NO CONFLICT. The execution and delivery by the Borrower of
this Amendment does not and will not contravene (i) any law or any governmental
rule or regulation applicable to the Borrower or any of its Subsidiaries, (ii)
the Certificate of Incorporation or Bylaws of the Borrower, (iii) any order,
judgment or decree of any court or other agency of government binding on the
Borrower or any of its Subsidiaries or (iv) any material agreement or instrument
binding on the Borrower or any of its Subsidiaries.
A. GOVERNMENTAL CONSENTS. The execution and delivery by the
Borrower of this Amendment and the performance by the Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
A. BINDING OBLIGATION. This Amendment has been duly executed
and delivered by the Borrower and is the binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors' rights.
A. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM
CREDIT AGREEMENT. The representations and warranties contained in Article V of
the Amended Agreement are and will be true, correct and complete in all material
respects on and as of the date of this Amendment to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
A. ABSENCE OF DEFAULT. No event has occurred and is
continuing as of the date of this Amendment or will result from the consummation
of the transactions
8
contemplated by this Amendment that would constitute an Event of Default or a
Potential Event of Default (as determined after giving effect to the amendments
made by this Amendment).
A. FINANCIAL CONDITION. The unaudited consolidated balance
sheet of the Borrower for the Borrower's fiscal quarter ended September 30, 1999
and the related consolidated statements of operations and cash flow of the
Borrower for the fiscal quarter then ended, which have been previously
circulated to the Banks, fairly present in all material respects the
consolidated financial condition of the Borrower as at such date and the
consolidated results of the operations of the Borrower for the period ended on
such date, all in accordance with GAAP, consistently applied, subject to
year-end adjustments and the absence of footnotes.
I. SECTION MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE
OTHER LOAN AGREEMENTS.
1. On and after the Fifth Amendment Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Agreements to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
1. Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Agreements shall remain in full force and
effect and are hereby ratified and confirmed.
1. The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the Agent
or any Bank under, the Credit Agreement or any of the other Loan Agreements nor
to create any course of dealing or otherwise obligate the Agent or the Banks to
forebear or execute similar amendments or any waiver in similar circumstances in
the future.
A. COSTS AND EXPENSES. The Borrower covenants to pay to or
reimburse the Agent, upon demand, for all costs and expenses (including
allocated costs of in-house counsel) incurred in connection with the
development, preparation, negotiation, execution and delivery of this Amendment,
the Collateral Documents and the documents and transactions contemplated hereby.
A. AMENDMENT FEE. The Borrower hereby agrees to pay to the
Agent on or before the Waiver, Forebearance and Fifth Amendment Termination
Date, for the ratable benefit of the Banks that have consented to the Amendment
not later than
9
noon, Pacific time, on January 31, 2000, an amendment fee (the "Amendment Fee")
of 0.50% of the aggregate Revolving Commitments and Term Commitments of such
Banks on such date. The Amendment Fee shall be paid to the Agent in immediately
available funds and shall be non-refundable. The Amendment Fee is in addition to
any fees, costs, expenses or other amounts otherwise payable pursuant to this
Amendment or the Amended Agreement.
A. HEADINGS. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
A. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
A. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of a Bank or the Borrower shall bind such Bank or the
Borrower, respectively, with the same force and effect as the delivery of a hard
copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BORROWER:
READ-RITE CORPORATION
By:
Title:
11
AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, as Agent
By:
Title: Managing Director, CIBC World
Markets Corp., AS AGENT
12
BANKS:
CIBC INC.
By:
Title: Managing Director, CIBC World
Markets Corp., AS AGENT
ABN AMRO BANK N.V.
By:
Title:
By:
Title:
FLEET NATIONAL BANK
By:
Title:
KEYBANK, N.A.
By:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Title:
13
MELLON BANK
By:
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:
Title:
THE SUMITOMO BANK LIMITED,
SAN XXXXXXXXX XXXXXX
By:
Title:
THE INDUSTRIAL BANK OF JAPAN LIMITED,
SAN FRANCISCO AGENCY
By:
Title:
BANQUE NATIONALE DE PARIS
By:
Title:
By:
Title:
14
FOOTHILL PARTNERS III, L.P.
By:
Title:
CERBERUS PARTNERS, L.P.
By:
Title:
XXXXX FARGO BANK, N.A.
By:
Title:
THE DESIGNATED ISSUER:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
By:
Title: Managing Director, CIBC World
Markets Corp., AS AGENT
15
EXHIBIT A
TO WAIVER, FOREBEARANCE AND FIFTH AMENDMENT
TO CREDIT AGREEMENT
January 28, 2000
The parties listed on the acknowledgment page hereof:
Re: Credit Agreement dated as of October 2, 1997
Ladies and Gentlemen:
Please refer to (i) the Credit Agreement dated as of October 2, 1997
(the "Credit Agreement") by and among Read-Rite Corporation (the "Borrower"),
the financial institutions party thereto (the "Banks") and Canadian Imperial
Bank of Commerce, New York Agency, as agent (in such capacity, the "Agent") and
(ii) the Continuing Guaranty dated as of August 10, 1998 (the "Guaranty", which
was executed by you on such date. Pursuant to a waiver, forebearance and
amendment of even date herewith, certain terms of the Credit Agreement were
amended and modified. We hereby request that you (i) consent to the terms of the
amendment, (ii) acknowledge and reaffirm all of your obligations and
undertakings under the Guaranty and (iii) acknowledge and agree that the
Guaranty, as amended by the following paragraph hereof, is and shall remain in
full force and effect in accordance with the terms thereof.
16
We and you acknowledge and agree that the Guaranty is ratified and
confirmed in all respects.
Very truly yours,
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, as Agent
By:_________________________________________
Title: Managing Director,
CIBC World Markets Corp., AS AGENT
ACKNOWLEDGED AND AGREED AS
OF THE DATE FIRST ABOVE WRITTEN:
GUARANTORS
SUNWARD TECHNOLOGIES, INC.
By:___________________________________
Title:________________________________
SUNWARD TECHNOLOGIES, CALIFORNIA
By:___________________________________
Title:________________________________
