1
EXHIBIT 10.3
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT (this "Agreement") is dated as of
May 5, 1995 and entered into by and between Phase Metrics, Inc. ("Debtor"), and
KOMAG, INCORPORATED, a Delaware corporation ("Komag").
WHEREAS, Debtor and Komag have entered into, and will enter into,
from time to time, an agreement (each such agreement, a "Purchase Agreement"
and, together with any other documents executed in connection therewith,
referred to collectively as the "Purchase Documents"), pursuant to which Komag
has agreed or will agree to provide Debtor with certain financing with respect
to such Purchase Documents to enable Debtor to purchase raw materials and other
goods for manufacture, fabrication and assembly to be sold to Komag under such
Purchase Documents.
WHEREAS, in order to induce Komag to enter into each of the
Purchase Documents and to provide the Debtor with the benefits thereunder,
Debtor has agreed to enter into this Agreement and to grant to Komag the
security interest in the Applicable Collateral (described below) with respect to
such Purchase Documents.
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Grant of Security. With respect to each of the Purchase
Documents entered into by Komag and Debtor from time to time, as security for
all of Debtor's obligations to Komag under this Agreement and each of such
Purchase Documents, Debtor hereby transfers and grants to Komag a security
interest (the "Applicable Security Interest") in all of the following property,
wherever located, whether now owned or hereafter acquired or arising (the
"Applicable Collateral"): (a) all inventory acquired, created, developed or
assembled with funds advanced by Komag to Debtor pursuant to such Purchase
Documents, including all such inventory held for sale or lease, all raw
materials, work in process and finished goods and materials in each case
relating to goods purchased by Komag under such Purchase Documents and all
additions and accessions to any of the foregoing (collectively, the "Applicable
Pledged Inventory"); (b) all documents of title, bills of lading, warehouse
receipts and other documents in respect of the Applicable Pledged Inventory; (c)
any and all funds received as advance deposits and any other funds received for
a particular purchase order prior to the delivery of the purchased inventory
covered in such purchase order from time to time by the Debtor from Komag
pursuant to the terms of such Purchase Documents (the "Applicable Deposits") and
the deposit account into which the Applicable Deposits are deposited ("Komag
Deposit Account"); and (d) all proceeds of any of the Applicable Collateral. The
Debtor shall release the Applicable Deposits from the Komag Deposit Account in a
manner that complies with its Purchase Documents and the Debtor shall only
deposit the Applicable Deposits and no other amounts into the Komag Deposit
Account.
2
2. Representations and Warranties. Debtor represents and warrants
that Debtor has the right to grant each Applicable Security Interest and, except
as already obtained or given, no authorization from, consent of or notice to any
other person or entity (including stockholders, partners or creditors), and no
authorization, consent, approval or other action by or notice to or filing with
any governmental authority, is required either for the grant of such Applicable
Security Interest hereunder or the execution, delivery or performance of this
Agreement by Debtor.
3. Covenants. Debtor agrees (a) to take all action and execute
such documents and financing statements that may be necessary, or that Komag may
reasonably request, in order to perfect and protect each Applicable Security
Interest and its priority, and to enable Komag to exercise and enforce its
rights and remedies hereunder, and not to bring or prosecute any infringement or
other action that hinders or prevents such exercise and enforcement; (b) upon
request, to confirm Debtor's compliance with the terms hereof; (c) other than to
Komag, not to surrender or lose possession of any of the Applicable Collateral
without prior written consent of Komag (except in connection with performing
Debtor's obligations under the applicable Purchase Documents), or sell, rent or
transfer (by operation of law or otherwise) any of the Applicable Collateral or
any right or interest therein; (d) to give Komag prior written notice before
removing any of the Applicable Collateral from the locations described below or
changing its chief executive office outside of California or name (except in
connection with performing Debtor's obligations under the applicable Purchase
Documents); and (e) to note in Debtor's books and records the serial number of
each chassis and, as appropriate, Komag's Applicable Security Interest therein.
4. Events of Default. Each of the following shall constitute an
"Event of Default" hereunder: (a) any material breach or default by Debtor in
the performance or observance of any provision of this Agreement, or any
Purchase Documents not cured within 10 days after the occurrence of such breach
or default; (b) the entry or filing of any judgment, writ, warrant of
attachment, execution or similar process against any of the Applicable
Collateral; or (c) Debtor shall commence a voluntary case or other proceeding
(or an involuntary case or proceeding shall be commenced against Debtor (which
involuntary case or proceeding shall remain undismissed and unstayed for a
period of 60 days)) seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy or other similar law or
seeking the appointment of a trustee, receiver, custodian or other similar
official of it or any substantial part of its property, or Debtor shall make a
general assignment for the benefit of creditors, or Debtor shall fail generally
to pay its debts as they become due.
5. Remedies. If any Event of Default shall have occurred, all
Applicable Deposits in the possession of Debtor shall be immediately returned to
Komag, and Komag may exercise all the rights and remedies of a secured party
under the California Uniform Commercial Code and all other available rights and
remedies (all of which are cumulative). Debtor waives, to the fullest extent
permitted by law, (a) any right of redemption with respect to the Applicable
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Applicable Collateral; (b) any right to require Komag (i) to
2
3
proceed against any person, (ii) to exhaust any other collateral or security,
(iii) to pursue any remedy in Komag's power, or (iv) to make or give any
presentments, demands for performance, notices of nonperformance, protests,
notices of protests or notices of dishonor in connection with any of the
Applicable Collateral; and (c) all claims, damages, and demands against Komag
arising out of the repossession, retention, sale or application of the proceeds
of any sale of the Applicable Collateral.
6. Costs and Expenses. Debtor agrees to pay or reimburse to Komag
on demand all reasonable costs and expenses of Komag (including attorneys' fees)
in connection with the enforcement of any Applicable Security Interest, the
preservation, protection and realization upon any of the Applicable Collateral
and any and all losses, costs and expenses sustained by Komag as a result of any
failure by Debtor to perform and observe its obligations to Komag hereunder or
under any Purchase Documents. Komag shall have no duty to exercise any of the
rights, privileges or powers afforded to it.
7. Successors; Governing Law. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by Komag and Debtor and their
respective successors, transferees and assigns and shall be governed by the laws
of the State of California.
8. Amendments, Etc. This Agreement and each of the Purchase
Documents contain the entire agreement of the parties with respect to the
subject matter hereof and any amendment, waiver or consent hereof or thereof
shall be in writing and signed by each of Komag and Debtor. No waiver or consent
shall be effective except with respect to the specific instance and to the
extent expressly provided.
9. Certain Waivers. Debtor waives any right to require Komag to
proceed against any guarantor or any other person or entity, to exhaust any
portion of any Applicable Collateral or any other security, to pursue any remedy
in Komag's power or to make or give any presentments, protests, demands for
performance or notices of nonperformance, protests or dishonor.
10. Notices. All notices and communications hereunder shall be in
writing and shall be mailed or delivered to the respective addresses set forth
below. All such notices and communications shall be effective upon the earlier
date or receipt or 3 business days after deposit in the mail, first class,
postage prepaid.
11. Severability. If any term or obligation hereunder shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining terms and obligations, or of such terms or
obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
12. Counterparts. This Agreement may be executed in one or more
counterparts.
3
4
13. Power of Attorney. Upon the reasonable request of Komag,
Debtor shall execute and cause to be filed any continuation statements or other
financing statements necessary to continue the perfection and priority of the
Applicable Security Interest in the Applicable Collateral. If Debtor fails to so
execute and cause to be filed such financing statements, then to such extent
Komag is hereby granted a power of attorney to execute and file such financing
statements and continuation statements, which is coupled with an interest and
irrevocable until such time as there are no obligations outstanding under this
Agreement.
14. Negative Pledge. Debtor hereby agrees not to execute any
security agreement or grant any lien or security interest after the date hereof
in the Applicable Collateral during the term of this Agreement; provided,
however, that the grant of a security interest or lien in favor of Canadian
Imperial Bank of Commerce as agent (the "Agent") for the lenders under the
Credit Agreement dated as of March 15, 1995, as amended or modified from time to
time or any lenders refinancing such Credit Agreement, shall not be deemed to
violate this negative covenant even if it takes a security interest in all or
any portion of the Applicable Collateral so long as any refinancing lender
executes an intercreditor agreement on substantially the terms as the
intercreditor agreement executed by Canadian Imperial Bank of Commerce as agent
for the lenders (the "Intercreditor Agreement").
15. Termination. This Agreement shall create a continuing
security interest that shall only terminate as to any Applicable Security
Interest upon delivery of the purchased products as defined in the Purchase
Documents to which such Applicable Security Interest relates and the payment of
amounts owing by Debtor under Section 6 hereof and of the Intercreditor
Agreement. Upon such termination, Komag will, at the expense of Debtor, execute
and deliver to Debtor such documents as Debtor shall reasonably request to
evidence the termination of this Agreement as to such Applicable Security
Agreement and the termination and release of such Applicable Security Interest.
DEBTOR WARRANTS THAT ITS CHIEF OFFICE IS LOCATED AT (AND NOTICES SHOULD BE
DIRECTED TO) THE FOLLOWING ADDRESS:
0000 Xxxxxxxx Xxxxxx Xxxx.
Xxx Xxxxx, Xxxxxxxxxx 00000
DEBTOR: KOMAG:
PHASE METRICS, INC. KOMAG, INCORPORATED
By: /s/ X. X. XXXXXXXX By:
---------------------------- -----------------------------------
Title: Vice President Title:
------------------------- ----------------------------------
Address for Notices: Address for Notices:
0000 Xxxxxxxx Xxxxxx Xxxx. 000 Xxxxx Xxxxxxxx Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000 Xxxxxxxx, XX 00000
Attn: Chief Financial Officer Attn: Chief Financial Officer
4
