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EXHIBIT 10.56
READ-RITE CORPORATION
SECOND AMENDMENT
TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of August 10, 1998 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 "Credit
Agreement" and the Credit Agreement, 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 consent to the
amendment of certain financial covenants and other provisions set forth in
Credit Agreement.
NOW, THEREFORE, in consideration of the promises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO DEFINITIONS.
1.1.1 The definitions of "Commitment Fee Percentage," "Loan Agreements,"
"Material Adverse Effect," "Pricing Period" and "Revolving Facility" in Section
1.01 of the Credit Agreement shall be amended to read in their entirety as
follows:
"Commitment Fee Percentage"
(i) With respect to the initial through fourth Pricing Periods,
as determined under the Credit Agreement as in effect prior to the Second
Amendment Date;
(ii) With respect to the fifth Pricing Period, means 0.75%
(iii) With respect to any subsequent Pricing Period, means the
rate determined in accordance with the pricing grid set forth below:
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EBITDA FOR APPLICABLE FISCAL QUARTER COMMITMENT FEE PERCENTAGE
------------------------------------ -------------------------
Less than $25,000,000 0.75%
Greater than or equal to $25,000,000 0.50%
For the purpose of determining the Commitment Fee Percentage in
accordance with this pricing grid, EBITDA shall be determined based on the
financial statements and reports for the last fiscal quarter ending at least
forty days prior to the commencement of the relevant Pricing Period as delivered
pursuant to Sections 6.01(a)(i) or 6.01(a)(ii); provided that if the Borrower
shall fail to deliver to Agent the relevant financial statements and reports for
any fiscal quarter prior to the commencement of a Pricing Period, the Commitment
Fee Percentage for such Pricing Period shall be deemed to be at the highest
rate.
"Loan Agreements": (i) This Agreement, the Notes, the Disclosure Letter,
the Second Disclosure Letter, the Letters of Credit, the Letter of Credit
applications delivered in connection with each request for the issuance of a
Letter of Credit, the Fee Letter, the Collateral Documents, (ii) any amendment
to this Agreement or any of the foregoing, and (iii) any waiver to this
Agreement or any of the foregoing.
"Material Adverse Effect": A material adverse effect (i) on the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole, or (ii) on
the ability of the Borrower to perform, or any of the Banks to enforce, the
obligations of the Borrower under any of the Loan Agreements, or (iii) on the
legality, validity, binding effect or enforceability of the Collateral Documents
or the perfection or priority of the Agent's Lien over the Collateral.
"Pricing Period": The initial through third Pricing Periods applicable
to the Loans and Letters of Credit are as determined under the Credit Agreement
as in effect prior to the Second Amendment Date, the fourth Pricing Period
commenced on June 1, 1998 and shall continue through the day (whether or not a
Business Day) preceding the Second Amendment Date, the fifth pricing period
shall commence on the Second Amendment Date and expire on December 31, 1998.
Thereafter, the Pricing Periods shall be based on the following periods:
(i) January 1 through the last day of February of each calendar
year;
(ii) March 1 through May 31 of each calendar year;
(iii) June 1 through August 31 of each calendar year;
(iv) September 1 through December 31 of each calendar year.
"Revolving Commitment": For any Bank, (i) the amount set forth as such
opposite the name of such Bank on the signature page to this Agreement as
reduced, from time to time, pursuant to Section 2.01(e) or pursuant to the
Second Amendment to Credit Agreement among the Borrower, the Banks, the
Designated Issuer and the Agent dated as of August 10, 1998 or
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(ii), where the context so requires, the obligation of a Bank to make
Revolving Loans up to such amount.
"Revolving Facility": The amount of $100,000,000 as such amount may be
reduced pursuant to Section 2.01(e).
1.1.2 There shall be added to Section 1.01 of the Credit Agreement, in their
appropriate alphabetical order, the following additional definitions:
"Base Rate Margin":
(i) With respect to the initial Pricing Period through the
fourth Pricing Period, means 0.00%;
(ii) With respect to the fifth Pricing Period, means 1.00%;
(iii) With respect to any subsequent Pricing Period, means a
rate equal to the higher of (i) the Eurodollar Rate Margin less 1.00% and (ii)
0.00%
For the purpose of determining the Base Rate Margin in accordance with
this pricing grid, EBITDA shall be determined based on the financial statements
and reports for the last fiscal quarter ending at least forty days prior to the
commencement of the relevant Pricing Period as delivered pursuant to Sections
6.01(a)(i) or 6.01(a)(ii); provided that if the Borrower shall fail to deliver
to Agent the relevant financial statements and reports for any fiscal quarter
prior to the commencement of a Pricing Period, the Base Rate Margin for such
Pricing Period shall be deemed to be at the highest rate.
"Borrowing Base": At any time the sum (without duplication) of (A) the
excess, if any, of (x) the sum of (i) 100% of the Eligible Cash of the Borrower
at such time plus (ii) 100% of the fair market value of the Eligible Cash
Equivalents of the Borrower at such time over (y) $25,000,000 plus (B) 70%
Eligible Receivables of the Borrower and Read-Rite International at such time
minus (C) the aggregate principal amount of the outstanding Revolving Loans and
Letter of Credit Usage.
"Borrowing Base Certificate": A certificate of a Responsible Officer in
substantially the form of Exhibit H with such changes thereto as the Agent or
the Majority Banks may reasonably request from time to time.
"Building No. 6": That certain real property located on Los Coches
Street in Milpitas, California, including the buildings located thereon.
"Capital Expenditures": For any period, the sum, without duplication, of
(i) all expenditures of the Borrower determined on a consolidated basis, which
would be classified as capital expenditures in accordance with GAAP consistently
applied and (ii) all expenditures in connection with Capital Leases.
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"Cash Equivalents" Investments maturing within one year from the date of
investment (in the case of Investments referenced in clauses (a) through (e)) in
(a) certificates of deposit, Eurodollar time deposits and other interest bearing
deposits or accounts with United States commercial banks having a combined
capital and surplus of at least $500,000,000 and rated C or better by Xxxxx
Xxxxxxxx and Associates or with any Bank, (b) certificates of deposit, other
interest bearing accounts or deposits and demand deposits with other United
States commercial banks, which deposits and accounts are in amounts fully
insured by the Federal Deposit Insurance Corporation, (c) obligations issued or
unconditionally guaranteed by the United States government or issued by an
agency thereof and backed by the full faith and credit of the United States, (d)
direct obligations issued by any state of the United States or any political
subdivision thereof which have the highest rating obtainable from S&P on the
date of investment, (e) commercial paper rated A-1 or better by S&P and P-1 or
better by Xxxxx'x, (f) auction rate preferred stock issued by issuers whose
senior debt is rated AA or better by S&P and Aa2 or better by Xxxxx'x, provided
that the remaining time to the next auction is less than one year, or (g) shares
in money market mutual funds with U.S. dollar denominated investments in fixed
income obligations, including repurchase agreements, fixed time deposits and
other obligations, with a credit quality comparable to any of the Investments
described in clauses (a) through (f) above and a dollar weighted average
maturity of not more than one year.
"Collateral": The property described in the Collateral Documents, and
all other property now existing or hereafter arising or acquired which may at
any time be or become subject to a Lien in favor of the Agent or the Banks
pursuant to the Collateral Documents or otherwise, securing the payment or
performance of the Obligations.
"Collateral Documents": The Pledge Agreement, the Guaranty, the Security
Agreement, the Intellectual Property Security Agreement, the Fee Mortgages, the
Leasehold Mortgages, the Designated Account Agreements and any other agreement
pursuant to which the Borrower, or any of its Subsidiaries or Affiliates, or any
other Person, provides a Lien on its assets in favor of the Agent or the Banks
and all financing statements, fixture filings, patent, trademark, and copyright
filings and acknowledgements and other filings, documents and agreements
(including, without limitation brokerage account control agreements) made or
delivered pursuant thereto (all as such agreements, documents and filings may be
amended, restated, supplemented, or otherwise modified from time to time).
"Depository Banks": The banks designated by the Borrower from time to
time to hold the Eligible Cash deposits and acceptable to the Agent (initially
being Xxxxx Fargo Bank, N.A.).
"Designated Accounts": The bank accounts of the Borrower maintained with
Depository Banks in California, Hawaii, Idaho, Illinois or Oregon in the United
States of America, designated by the Borrower to hold Eligible Cash and subject
to a Designated Account Agreement.
"Designated Account Agreement": The Control Agreement entered between
the Depository Banks and the Agent relating to the administration and control of
Designated Accounts in form and substance acceptable to the Agent.
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"Domestic Subsidiary": Sunward Technologies, Inc. and Sunward
Technologies, California and any other Subsidiary (other than Rite Flex)
incorporated in any state of the United States or the District of Columbia with
either (i) assets with an aggregate value in excess of $1,000,000, or (ii)
annual revenues in excess of $1,000,000.
"EBITDA": For any period, the sum of the following determined for the
Borrower on a consolidated basis in accordance with GAAP consistently applied:
(i) Consolidated Net Income; plus
(ii) provisions for income taxes; plus
(iii) Consolidated Interest Expense; plus
(iv) depreciation and amortization expenses; plus
(v) non-cash and non-recurring expenses plus any non-recurring
cash expenses associated with the $93,728,000 charge taken in the fiscal quarter
ending June 28, 1998 less non-cash and non-recurring gains.
"Eligible Cash": At any time the positive cash balances in the
Designated Accounts, provided, that, such cash balances shall only be treated as
Eligible Cash if, at such time,
(i) in the case of cash balances held in a Designated Account
of the Borrower such Designated Account shall be subject to a first priority
perfected security interest in favor of the Agent (for the ratable benefit of
the Banks and Designated Issuer).
(ii) the relevant Designated Account is not subject to any
right of set-off, counterclaim or other defense or any lien or encumbrance in
favor of any Person other than as contemplated in (i) above or as set forth in
the applicable Designated Account Agreement;
(iii) the cash balances are in Dollars;
(iv) the cash balances and relevant Designated Account are
solely owned by the Borrower; and
(v) the cash balances are not subject to any order of
attachment or other restriction on transfer (other than as set forth in the Loan
Documents).
"Eligible Cash Equivalents": At any time the Cash Equivalents of the
Borrower which are:
(i) (A) in the physical possession of the Agent and subject to a
first priority perfected security interest in favor of the Agent (for the
ratable benefit of the Banks and Designated Issuer); or
(B) held in brokerage or investment accounts with securities
intermediaries acceptable to the Agent and the Majority Banks and subject to a
first priority
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perfected security interest in favor of the Agent (for the ratable benefit of
the Banks and Designated Issuer) and subject to control agreements relating to
the administration and control of the securities and security entitlements in
such accounts in form and substance satisfactory to the Agent; and
(ii) the Cash Equivalents are owned solely by the Borrower and
are not subject to any order of attachment or other restriction on transfer
(other than as set forth in the Loan Documents.)
"Eligible Receivables": At any time (without duplication) the aggregate
amount of the Receivables of the Borrower and Read-Rite International, payable
in cash in Dollars or Philippine Pesos and Thai Baht, net of applicable
allowances, reserves, discounts, returns, credits or offsets (including
allowances or reserves for doubtful accounts), excluding the following:
(i) Receivables for which the right to receive payment has not
been fully earned by performance or is contingent upon the fulfillment of any
condition whatsoever or which otherwise do not arise from a bona fide completed
transaction;
(ii) Receivables against which there are asserted any defenses,
counterclaims, discounts (other than normal trade discounts granted in the
ordinary course of business) or offsets of any nature, whether well-founded or
otherwise;
(iii) Receivables that do not comply with all applicable legal
requirements, including all laws, rules, regulations and orders of any
governmental authority or other regulatory body;
(iv) Receivables which represent a prepayment or progress payment
or arising out of the placement of goods on consignment, guaranteed sale or
other arrangement by reason of which the payment by the obligor on the
Receivable may be conditional or contingent;
(v) Receivables which are not owned by the Borrower or Read-Rite
International (as appropriate) free and clear of all Liens and rights of others
(other than the Liens in favor of the Agent on behalf of the Banks and
Designated Issuer or the Borrower);
(vi) Receivables of the Borrower in which the Agent on behalf of
the Banks and Designated Issuer shall not have a valid and perfected
first-priority Lien;
(vii) Receivables of Read-Rite International in which the
Borrower shall not have a valid and perfected first priority Lien pursuant to
the RRI Security Agreement and which rights of the Borrower under the RRI
Security Agreement shall not be subject to a valid and perfected first priority
Lien in favor of Agent on behalf of the Banks and Designated Issuer;
(viii) Receivables owing by any officer, director, employee,
agent, partner, Subsidiary or Affiliate of the Borrower or Read-Rite
International;
(ix) Receivables owing (A) by the United States or any
department, agency or instrumentality thereof or (B) by a foreign government or
any State of the United States or any department, agency, instrumentality or
political subdivision thereof, unless, in the case of
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Receivables described in sub-clause (A), the Agent has agreed to the contrary in
writing and the Borrower or Read-Rite International (as appropriate) has
complied with the Federal Assignment of Claims Act with respect to such
Receivables;
(x) Receivables not paid in full within 75 days from the date of
invoice;
(xi) Receivables owing by any Receivable debtor or obligor who
has failed to make full payment within 75 days from the date of invoice on more
than 10% of the aggregate amount of Receivables owing to the Borrower by such
Receivable debtor or obligor;
(xii) Receivables owing by any Receivable debtor or obligor who
is the subject of a proceeding of the types described in Sections 7.01(g) and
(h) with respect to the Borrower and its Subsidiaries.
(xiii) Receivables which are evidenced by a promissory note or
other instrument;
(xiv) Receivables with respect to which the terms or conditions
prohibit or restrict assignment or collection rights to the extent such
restrictions are enforceable against assignees of such Receivables; and
(xv) Receivables of any Receivable debtor or obligor located in a
jurisdiction (other than any jurisdiction in which were located Receivable
debtors or obligors generating at least $50,000 in Receivables in the aggregate
from such jurisdiction during the four fiscal quarter period ending June 28,
1998) whose laws materially impair the collectability or enforceability of such
Receivables or in which Borrower or Read-Rite International (as appropriate) has
failed to file, register or otherwise take action required to enable enforcement
proceedings in respect of such Receivables to be taken in such jurisdiction;
Any Receivable which is at any time an Eligible Receivable, but which
subsequently fails to meet any of the foregoing eligibility requirements, shall
forthwith cease to be an Eligible Receivable until such time as such Receivable
shall meet all of the foregoing requirements.
"Eurodollar Rate Margin":
(i) With respect to the initial through fourth Pricing Periods,
as determined under the Credit Agreement as in effect prior to the Second
Amendment Date;
(ii) With respect to the fifth Pricing Period, means 2.00%;
(iii) With respect to any subsequent Pricing Period, means the
rate determined in accordance with the pricing grid set forth below:
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EBITDA FOR APPLICABLE FISCAL QUARTER EURODOLLAR RATE MARGIN
------------------------------------ ----------------------
Less than $25,000,000 2.00%
Greater than or equal to $25,000,000 but less than $50,000,000 1.50%
Greater than or equal to $50,000,000 1.00%
For the purpose of determining the Eurodollar Rate Margin in accordance
with this pricing grid, EBITDA shall be determined based on the financial
statements and reports for the last fiscal quarter ending at least forty days
prior to the commencement of the relevant Pricing Period as delivered pursuant
to Sections 6.01(a)(i) or 6.01(a)(ii); provided that if the Borrower shall fail
to deliver to Agent the relevant financial statements and reports for any fiscal
quarter prior to the commencement of a Pricing Period, the Eurodollar Rate
Margin for such Pricing Period shall be deemed to be at the highest rate.
"Fee Mortgage": A Deed of Trust in form and substance acceptable to the
Agent on real estate owned by the Borrower or its Domestic Subsidiaries.
"Fremont Property": That certain real property located on Skyway Court
in Fremont, California leased as of the Second Amendment Date by the Borrower.
"Guaranty": That certain Guaranty substantially in the form attached
hereto as Exhibit I dated as of the Second Amendment Date entered into by the
Domestic Subsidiaries guaranteeing the payment and performance of the
Obligations (as such agreement may be amended, supplemented, restated or
otherwise modified from time to time).
"Intellectual Property Security Agreement": That certain Intellectual
Property Security Agreement substantially in the form attached hereto as Exhibit
L dated as of the Second Amendment Date entered into by the Borrower, the
Domestic Subsidiaries and the Agent securing the payment and performance of the
Obligations (as such agreement may be amended, supplemented, restated or
otherwise modified from time to time).
"Landlord Consent": A consent in form and substance acceptable to the
Agent from the landlord (and/or lien holder) of any real property leased by the
Borrower or its Domestic Subsidiaries.
"Leasehold Mortgage": A leasehold Deed of Trust in form and substance
acceptable to the Agent on any leasehold interest of the Borrower or its
Domestic Subsidiaries in any real estate.
"Lessor Consent": A consent in form and substance acceptable to the
Agent from the lessor of any personal property leased by the Borrower or its
Domestic Subsidiaries.
"Obligations": The indebtedness, liabilities and other obligations of
the Borrower to the Agent or the Banks now or hereafter existing or arising out
of or in connection with the Loan
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Documents including, without limitation, all Loans, all interest accrued
(including interest that but for the filing of a bankruptcy petition would
accrue on such obligations) all fees and expenses due under the Loan Documents,
reimbursement obligations of amounts drawn under Letters of Credit, indemnities
and all other amounts payable by Borrower under or in connection with any Loan
Document, whether now or hereafter existing or arising, whether due or to become
due, absolute or contingent, liquidated or unliquidated, determined and
undetermined.
"Pledge Agreement": That certain Stock Pledge and Charge Agreement
substantially in the form attached hereto as Exhibit J dated as of the Second
Amendment Date entered into between Borrower, certain of the Domestic
Subsidiaries and the Agent (as the same may be amended, supplemented, restated
or otherwise modified from time to time).
"Permitted Liens": Those Liens permitted pursuant to Section 6.02(f).
"Receivables": All rights to payment arising out of the sale or lease of
goods or the performance of services in the ordinary and usual course of
business, however evidenced.
"RRI Security Agreement": That certain security agreement entered by
Read-Rite International in favor of the Borrower in form and substance
acceptable to the Agent.
"Second Amendment Date": Shall have the meaning ascribed to it in that
certain Second Amendment to Credit Agreement among the Borrower, the Banks, the
Designated Issuer and the Agent dated as of August 10, 1998.
"Second Disclosure Letter": That certain letter dated as of the Second
Amendment Date containing the disclosure of certain information to the Agent and
the Banks.
"Security Agreement": That certain Security Agreement substantially in
the form attached hereto as Exhibit K dated as of the Second Amendment Date
entered into between the Borrower, the Domestic Subsidiaries and the Agent
securing the payment and performance of the Obligations (as such agreement may
be amended, supplemented, restated or otherwise modified from time to time).
1.1.3 The definitions of "Applicable Margin" and "EBIT" shall be deleted from
Section 1.01 of the Credit Agreement.
1.2 AMENDMENTS TO PRICING.
1.2.1 Section 2.03(b) of the Credit Agreement shall be amended by adding after
the phrase "rate per annum equal to the Base Rate" the phrase: "plus the Base
Rate Margin."
1.2.2 Section 2.03(c) of the Credit Agreement shall be amended by deleting the
phrase "Applicable Margin" and replacing it with "Eurodollar Rate Margin."
1.2.3 Section 2.06(f) of the Credit Agreement shall be amended by deleting the
reference to "Applicable Margin" and replacing it by "Eurodollar Rate Margin."
1.3 ADDITIONAL AMENDMENTS TO CREDIT AGREEMENT.
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1.3.1 Section 2.01 of the Credit Agreement is amended by adding at the end of
the first sentence thereof the following:
and provided, further, that immediately after giving effect to such
Revolving Loans the aggregate Revolving Loans and Letter of Credit Usage
then outstanding shall not exceed the Borrowing Base then in effect.
1.3.2 Section 2.01(c) of the Credit Agreement is amended by adding at the end of
the first sentence thereof the following:
and provided, further, that the Borrower shall have delivered a
completed Borrowing Base Certificate, together with the related
collateral reports, required by Section 6.01(a)(v). Borrower at its
option may also deliver a completed Borrowing Base Certificate, together
with the related collateral reports described in Section 6.01(a)(v), as
of a more recent date than required by Section 6.01(a)(v), in which
event the more recent completed Borrowing Base Certificate shall be
applicable to the requested Borrowing.
1.3.3 Section 2.02(a) of the Credit Agreement shall be amended by adding as the
first sentence thereof the following:
If at any time the aggregate principal amount of the outstanding
Revolving Loans and Letter of Credit Usage shall exceed the Borrowing
Base as set forth in the Borrowing Base Certificate then in effect, the
Borrower, upon becoming aware of such excess, shall immediately prepay
the outstanding principal amount of the Revolving Loans in an amount
equal to such excess (together with interest accrued thereon and any
amounts payable pursuant to Section 3.07(b)).
1.3.4 Section 3.07(a) of the Credit Agreement is amended by deleting in the
eleventh line thereof the phrase "related to or in connection contemplated by
this Agreement" and replacing such phrase with "related to or in connection with
the Loan Documents or the Collateral".
1.3.5 Section 4.02(a)(i) of the Credit Agreement shall be amended by adding
after the phrase "contained in Section 5.01" in the first line thereof the
phrase: "and the other Loan Documents".
1.3.6 Section 4.02 of the Credit Agreement is amended by adding at the end
thereof the following:
(c) the Borrower shall have delivered, or caused its Subsidiaries
to deliver, the Collateral Documents and other documents, certificates,
notices agreements and taken such actions, or caused its Subsidiaries to
take such actions, as described in Section 6.01(k).
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1.3.7 Section 4.03 of the Credit Agreement is amended by adding at the end
thereof the following:
(d) the Borrower shall have delivered, or caused its Subsidiaries
to deliver, the Collateral Documents and other documents, certificates,
notices agreements and taken such actions, or caused its Subsidiaries to
take such actions, as described in Section 6.01(k).
1.3.8 Section 5.01 of the Credit Agreement shall be amended by adding at the end
thereof the following:
(o) Borrowing Base Certificates. The Statements contained in the
most recent Borrowing Base Certificate delivered pursuant to Section
2.01(c) prior to any request for any given Borrowing are true, correct
and complete both on and as of the date set forth in the Borrowing Base
Certificate and on and as of the date of such Borrowing as though made
on and as of such date except (in the case of the date of Borrowing) for
changes in the information set forth in such Borrowing Base Certificate
in the ordinary course of business between the date set forth in the
Borrowing Base Certificate and the date of Borrowing; and the Eligible
Cash and Eligible Cash Equivalents balances as of the date two days
prior to such date of Borrowing are not more than 10% less than the
balances for Eligible Cash and Eligible Cash Equivalents set forth in
such Borrowing Base Certificate.
(p) Real Property. Neither the Borrower nor any of its Domestic
Subsidiaries owns any real property (other than leasehold interests
therein) except for (i) as of the Second Amendment Date, the Borrower
leases the Fremont Property under a synthetic lease, subject to a
contract for sale which is scheduled to close in October 1998, and the
Borrower owns Building No. 6 and (ii) such other real property as may be
acquired by the Borrower or a Domestic Subsidiary after the Second
Amendment Date and as to which the Borrower has given written notice to
the Agent of the acquisition of such real property at least thirty days
prior to the acquisition.
1.3.9 Section 6.01(a) of the Credit Agreement is amended by adding at the end
thereof the following:
(v) as soon as available, but in any event within fifteen days
after the end of each fiscal month (or within 20 days after the end of
the fiscal month ending in July 1998), (A) a completed Borrowing Base
Certificate, (B) full and complete reports with respect to Receivables,
including information as to concentration, aging, identity of
Receivables debtors and obligors, letters of credit securing
Receivables, disputed Receivables and such other matters as Agent may
request and (C) a statement from the Depository Banks of the balances
standing to the credit of each Designated Account as of the end of such
month in form and substance satisfactory to the Agent.
1.3.10 Section 6.01(e) of the Credit Agreement shall be amended by adding at the
end thereof the following:
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Casualty insurance policies shall name the Agent, for the ratable
benefit of the Banks, as additional insured and loss payee. All casualty
insurance policies shall provide that they shall not be terminated or
cancelled nor shall any such policy be materially altered without at
least 30 days' prior written notice to the Borrower and Agent (or at
least 10 days' prior written notice to the Borrower and Agent for
termination or cancellation for failure to pay premiums). Should such
notice of termination be received or should the Borrower otherwise fail
to maintain the insurance policies required by this paragraph, the Agent
shall be authorized to renew, obtain or otherwise cause such insurance
coverage as required by this paragraph to be maintained (in whole or in
part), in any such case at the expense of the Borrower.
1.3.11 Section 6.01 of the Credit Agreement shall be amended by adding at the
end thereof the following:
(h) Additional Domestic Subsidiaries. Cause each Domestic
Subsidiary arising after the date hereof to (A) become party to each of
the Security Agreement and Guaranty and, to the extent it has
subsidiaries, the Pledge Agreement, (B) file all financing statements
and (C) execute, deliver, file, notarize and register such further
agreements, instruments, certificates, documents and assurances and
perform such acts as Agent shall deem necessary or appropriate to
perfect or protect any security interest or guaranty created thereby.
(i) Year 2000. Review (and cause each of its Subsidiaries to
review) the areas within their respective businesses and operation
(including, without limitation, computer systems and equipment
containing embedded software) which could be adversely affected by, and
develop and implement (and cause each of its Subsidiaries to develop and
implement) a comprehensive and detailed program to address on a timely
basis (and in any event by October 1, 1999), including where necessary
reprogramming and replacing affected systems and equipment, the "Year
2000 problem" (that is, the risk that computer applications used by the
Borrower or its Subsidiaries may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and
any date on or after December 31, 1999). Borrower and its Subsidiaries
will also make inquiry and monitor each supplier, vendor and customer of
Borrower and its Subsidiaries that is of material importance to the
financial well-being of Borrower and its Subsidiaries, taken as a whole,
with a view to successfully resolving on a timely basis the Year 2000
problem. Borrower and its Subsidiaries will not suffer a Material
Adverse Effect in resolving the Year 2000 problem.
(j) Read-Rite International. Insure that the total aggregate
value, at any time, of the outstanding, enforceable and assignable
inter-company obligations of Read-Rite International in favor of the
Borrower shall not be less than $125,000,000. Borrower shall further
insure that Read-Rite International shall enter into and maintain the
RRI Security Agreement and shall at all times thereafter maintain a
valid and perfected first priority security interest pursuant to the RRI
Security Agreement.
(k) Security. (i) Within 10 Business Days after the Second
Amendment Date, (i) deliver, in form and substance satisfactory to the
Agent, (A) completed schedules and
12.
13
exhibits to the Security Agreement, Pledge Agreement and Intellectual
Property Security Agreement and completed Second Disclosure Letter, (B)
original share certificates for the shares of the Domestic Subsidiaries
pledged pursuant to the Pledge Agreement together with instruments of
transfer duly executed in blank, (C) duly signed UCC financing
statements and fixture filings for states where any Collateral is
located, (D) notices of pledge of stock to the Domestic Subsidiaries in
which stock was pledged pursuant to the Pledge Agreement, (E) board
resolutions authorizing the execution, delivery and performance of the
Collateral Documents from each of the Domestic Subsidiaries together
with a Secretary's or Assistant Secretary's Certificate from such
Subsidiaries;
(ii) Within 30 days (45 days in the case of Pledged
Collateral under the Pledge Agreement) after the Second Amendment Date,
(i) execute, acknowledge, deliver, file, notarize, or register, and
cause the Domestic Subsidiaries to execute, acknowledge, deliver, file,
notarize and register, at their own expense any Collateral Documents
(including the Intellectual Property Security Agreement and, subject to
the last sentence of clause (iv) and to clause (v) below, a Fee Mortgage
on Building No. 6) in form and substance satisfactory to Agent (and any
Pledged Collateral under the Pledge Agreement) not previously executed,
acknowledged, delivered, filed, notarized, or registered; and (ii) take,
or cause the Domestic Subsidiaries to take, any action required by the
Agent pursuant to the Collateral Documents for the perfection of the
security interests in the Collateral or notification of the Agent's and
the Banks' security interests therein; and (iii) deliver to the Agent,
in form and substance satisfactory to the Agent, (A) evidence that all
filings, registrations and recordings have been made in the appropriate
governmental offices, and all other action has been taken, which shall
be necessary to create in favor of Agent and the Banks, a perfected
first priority Lien on the Collateral including filing of completed
UCC-1 financing statements, (B) the results of searches conducted in the
UCC filing records in each governmental office in each jurisdiction in
which personal property and fixture Collateral is located which searches
disclose the security interests granted in favor of the Agent and which
shall have revealed no other Liens on the Collateral except Permitted
Liens; and (iv) legal opinions relating to the Second Amendment, the
Collateral Documents and the foregoing (including, without limitation,
opinions of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Xxxxxx White Xxxxxxx,
Mongkolnavin Law Office and X. X. Xxxxxx & Company) from such Persons
and in form and substance satisfactory to the Agent; and
(iii) Borrower shall use its reasonable commercial efforts
to obtain at its expense, within 45 days after the Second Amendment
Date, (A) Landlord Consents and Lessor Consents as to all real and
personal property leased by the Borrower and its Domestic Subsidiaries
where the value of the property under the individual lease has a value
in excess of $50,000 and (B) Leasehold Mortgages in favor of the Agent
on behalf of the Banks over all real property leased by Borrower or its
Domestic Subsidiaries as tenants, which Leasehold Mortgages shall be
appropriately recorded and covered by title insurance reasonably
satisfactory to the Agent.
(iv) By the earlier of December 15, 1998 or fifteen days
after the termination of any sale agreement for the Fremont Property (if
such property has not been sold by such earlier date), the Borrower
shall at its expense, if requested by the Agent,
13.
14
(x) use its reasonable commercial efforts to obtain any necessary
consents to enable the Borrower to execute and deliver to the Agent, and
to record, a Leasehold Mortgage on the Fremont Property naming the Agent
as beneficiary for the ratable benefit of the Banks and Designated
Issuer ,and to obtain a title insurance policy with respect to such Fee
Mortgage in favor of the Agent in the approximate amount of the
Borrower's equity in the Fremont Property showing no exceptions to title
other than the existing first mortgage on such property (with a
principal balance not to exceed $9,000,000) and such other exceptions as
may be reasonably acceptable to the Agent, and (y) promptly upon
obtaining any such consents undertake such actions. Prior to the
acquisition by the Borrower or any Domestic Subsidiary of any real
property after the Second Amendment Date, the Borrower shall give the
Agent at least thirty days' prior written notice of such acquisition. If
requested by the Agent, the Borrower shall at its expense execute and
deliver to the Agent, and record, a Fee Mortgage on such property naming
the Agent as beneficiary for the ratable benefit of the Banks and
Designated Issuer and shall obtain a title insurance policy with respect
to such Fee Mortgage in favor of the Agent in the approximate amount of
the Borrower's equity in such property showing no exceptions to title
other than any prior liens existing on such property prior to such
acquisition and such other exceptions as may be reasonably acceptable to
the Agent.
(v) The Borrower shall cooperate fully with the Agent with
respect to determining the environmental condition of any real property
which may become the potential subject of a Fee Mortgage or a Leasehold
Mortgage
(l) Further Assurances. Execute, acknowledge, deliver, file,
notarize and register at its own expense all such further agreements,
instruments, certificates, documents and assurances and perform such
acts as the Agent shall deem necessary or appropriate to effectuate the
purposes of the Loan Documents and promptly provide the Agent with
evidence of the foregoing in form and substance satisfactory to the
Agent.
1.3.12 Section 6.02(a) to (e) inclusive of the Credit Agreement are amended to
read in their entirety as follows:
(a) Quick Ratio. Permit the ratio of Consolidated Quick Assets to
Consolidated Current Liabilities on the last day of each fiscal quarter
to be less than 0.85 to 1.00.
(b) Consolidated Tangible Net Worth. Permit Consolidated Tangible
Net Worth at any time to be less than $160,000,000 plus (i) 80% of
Consolidated Net Income (but not loss) for each fiscal quarter of the
Borrower commencing with the fiscal quarter ending in September 1998
plus (ii) 100% of the net increase in Consolidated Tangible Net Worth
occurring after June 30, 1998 resulting from the issuance of equity
securities of the Borrower (other than pursuant to any employee stock
purchase plan or employee stock option plan) plus (iii) Permitted
Subordinated Debt.
(c) Senior Debt Ratio. Permit the ratio of Senior Debt to Total
Capitalization to exceed 0.20 to 1.00, unless and until the Borrower's
EBITDA for any fiscal quarter
14.
15
ending after March 1999 shall exceed $60,000,000, after which event the
Borrower shall not permit the ratio of Senior Debt to Total
Capitalization to exceed 0.30 to 1.00.
(d) Interest-Expense Coverage. As at the last day of each fiscal
quarter of the Borrower, permit the ratio of (i) EBITDA for the four
fiscal quarter period ending on such date to (ii) Consolidated Interest
Expense for the four fiscal quarter period ending on such date, to be
less than (A) 1.50 to 1.00 for the fiscal quarter ending in March 1999
or (B) 2.50 to 1.00 for the fiscal quarter ending in June 1999 or (C)
3.00 to 1.00 for the fiscal quarter ending in September 1999 or (D) 3.50
to 1.00 for any fiscal quarter ending after September 1999.
(e) Minimum EBITDA. As at the end of the relevant fiscal quarter
of the Borrower, (i) permit EBITDA of the Borrower for the fiscal
quarter period ending (A) in September 1998 to be a negative figure in
excess of $7,500,000 or (B) in December 1998 to be less than $5,000,000,
or (ii) permit EBITDA of the Borrower to be less than (A) $50,000,000 in
the case of the four fiscal quarter period ending in March 1999, or (B)
$75,000,000 in the case of the four fiscal quarter period ending in June
1999, or (C) $100,000,000 in the case of the four fiscal quarter period
ending in September 1999 or (D) $125,000,000 in the case of the four
fiscal quarter period ending in December 1999 or (E) $150,000,000 in the
case of any four fiscal quarter period ending after December 1999.
1.3.13 Section 6.02(g)(A)(iii) and (iv) of the Credit Agreement are amended to
read in their entirety as follows:
(iii) Debt not otherwise permitted under this Section 6.02(g) so
long as the Debt falling within this clause does not at any time exceed
in the aggregate $40,000,000 (or $25,000,000 in the case of Debt secured
by a Lien); provided that if the EBITDA of the Borrower for two
consecutive fiscal quarters ending after December 1998 shall exceed
$50,000,000 in each such quarter, then thereafter the Borrower shall be
permitted to incur Debt not otherwise permitted under this Section
6.02(g) so long as the Debt falling within this clause shall not exceed
in the aggregate 30% (or 15% in the case of Debt secured by a Lien) of
the Borrower's then Consolidated Tangible Net Worth.
(iv) [intentionally omitted]
1.3.14 Section 6.02(g)(A) of the Credit Agreement is amended by adding at the
end thereof the following:
(ix) Debt with a maturity of at least seven years which is not
secured by any Lien so long as the Debt falling within this clause does
not at any time exceed $250,000,000 and, provided, that any proceeds of
such Debt in excess of $100,000,000 (in the aggregate) are used first to
repay the Term Loans and then to repay any outstanding principal of the
Revolving Loans and, provided, further, that the then existing Revolving
Commitment shall be being reduced by an amount equal to the amount by
which the proceeds of such Debt in excess of $100,000,000 exceed the
Term Loans then
15.
16
outstanding and provided, further, that no prepayments of any such Debt
shall be permitted until 90 days after the Maturity Date.
1.3.15 Section 6.02(j)(viii) is amended to read in its entirety as follows:
(viii) Investments in Read-Rite SMI made prior to October 2,
1997; and additional Investments in Read-Rite SMI, and loans and
guaranties of debt of Read-Rite SMI, not in excess of $40,000,000 in the
aggregate.
1.3.16 Section 6.02(j)(xi) of the Credit Agreement is amended by deleting the
reference to "$20,000,000" and replacing it by "$10,000,000."
1.3.17 Section 6.02(j)(xvi) of the Credit Agreement is amended by deleting the
reference to "10%" and replacing it by "5%."
1.3.18 Section 6.02(l) of the Credit Agreement is amended to read in its
entirety as follows:
(l) Acquisitions: Acquire or permit any Subsidiary (other than
Read-Rite SMI) to acquire (an "Acquisition") any assets or any business
as a going concern, whether through purchase of assets, merger or
otherwise, if the consideration for such Acquisition (except for equity
securities of Borrower or such Subsidiary) exceeds $10,000,000;
provided, that, if EBITDA for the Borrower in any two consecutive fiscal
quarters ending after December 1998 exceeds $50,000,000 in each such
quarter, then, notwithstanding the foregoing part of this clause,
Acquisitions will be permitted provided that the aggregate value of
consideration (in whatever form) for any such Acquisition when
aggregated with the consideration (in whatever form) for all
Acquisitions made in the twelve month period preceding the Acquisition
in question does not exceed 25% of the Consolidated Tangible Net Worth
of the Borrower (determined as at the date of the Acquisition in
question).
1.3.19 Section 6.02(p) of the Credit Agreement is amended to read in its
entirety as follows:
(p) Maximum Capital Expenditures: Permit Capital Expenditures (i)
as at the end of any fiscal year, to exceed (A) $210,000,000 in the case
of the fiscal year ending in September 1998, or (B) $150,000,000 in the
case of any fiscal year thereafter; and (ii) as of the end of the two
consecutive fiscal years ending in September 1999, to exceed
$350,000,000.
1.3.20 Section 6.02 of the Credit Agreement is amended by adding at the end
thereof the following:
(q) Read-Rite International. Permit Read-Rite International (i)
to incur any Debt, guarantees, trade payables (other than payables to
Borrower or its Subsidiaries) or other indebtedness with an aggregate
value at any time exceeding $10,000,000, or (ii) to sell, assign,
transfer, charge, encumber or otherwise dispose of any interest in or to
any accounts receivable arising from the sale of products or provision
of services by Read-Rite International to any Person except the
Borrower.
16.
17
(r) Designated Accounts. Withdraw or permit Read-Rite
International to withdraw any amounts standing to the credit of the
Designated Accounts if the effect of such withdrawal is to reduce the
Borrowing Base in effect immediately after such withdrawal to an amount
less than the aggregate Revolving Loans and Letter of Credit Usage then
outstanding, unless such withdrawals are immediately applied in their
entirety to repay Revolving Loans.
(s) Hong Kong Offices. The Borrower shall not, and shall procure
that its Domestic Subsidiaries do not, establish or maintain an office
in Hong Kong or reincorporate in Hong Kong unless there shall
contemporaneously therewith be made any filings or registrations
necessary in Hong Kong to perfect any security interests granted by such
entities in connection with the Loan Documents.
1.3.21 Section 7.01(c) of the Credit Agreement shall be amended to read in its
entirety as follows:
(c) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 2.02(a), 3.01, 6.01(a)(v),
6.01(l), or 6.02(a), (b), (c), (d), (e), (f), (h), (i), (k), (l), (m),
(o) or (r) on its part to be performed or observed.
1.3.22 Section 7.01(d) of the Credit Agreement shall be amended by deleting the
phrase "(f)".
1.3.23 Section 7.01(g) of the Credit Agreement is amended by deleting the word
"unhanded" in subsection (ii)(B) thereof and replacing it with "unbonded
1.3.24 Section 7.01 shall be amended by adding thereto as paragraph (l) thereof
the following:
(l) There shall have occurred a "Default" as defined in any of
the Collateral Documents.
1.3.25 Section 7.01 of the Credit Agreement shall be amended by adding at the
end of the last paragraph of that section the following:
Upon the occurrence of an Event of Default the Agent shall at the
request, or may with the consent of the Majority Banks, (i) exercise any
or all of the Agent's rights and remedies under the Collateral Documents
and (ii) proceed to enforce all other rights and remedies available to
the Agent or the Banks under the Loan Documents and applicable law.
1.3.26 Section 9.01 of the Credit Agreement shall be amended by renumbering
subparagraph "(i)" as "(j)" and adding after subparagraph (h) the following:
(i) release the Guaranty or any substantial portion of the Collateral
except as contemplated herein or in the Collateral Documents.
1.3.27 Section 9.05 of the Credit Agreement is amended by adding at the end
thereof the following:
17.
18
, or arising out of or in connection with the preservation of and
realization upon any of the Collateral.
1.3.28 The first sentence of Section 9.09 of the Credit Agreement is amended to
read as :
THE BORROWER, THE AGENT, THE ISSUING BANK AND EACH BANK HEREBY AGREE TO
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN
AGREEMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER
OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS
BEING ESTABLISHED.
1.3.29 The Credit Agreement is amended by adding thereto as Exhibit H, I, J, K
and L the Borrowing Base Certificate, the Guaranty, Pledge Agreement, Security
Agreement and Intellectual Property Security Agreement attached hereto
respectively as Exhibits A, B, C, D and E.
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the first date (the "Second
Amendment Date") on or before August 14, 1998 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
B. The Agent shall have received, for each Bank and the Agent,
counterparts to the Pledge Agreement executed on behalf of the Borrower and
Sunward Technology, Inc. and the Agent; and
C. The Agent shall have received, for each Bank and the Agent,
counterparts to the Security Agreement executed on behalf of the Borrower, each
of the Borrower's domestic subsidiaries and the Agent.
D. The Agent shall have received, for each Bank and the Agent,
counterparts to the Guaranty executed on behalf of each of the Borrower's
domestic subsidiaries and the Agent.
E. 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 and the Collateral
Documents certified by the Secretary of the Borrower as being in full force and
effect on the date hereof.
18.
19
F. The Amendment Fee referred to in Section 4.C 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.
G. All the representations and warranties in Section 3 shall be
true and correct as of the date of this Amendment.
H. 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) except
for those which would not have been a Potential Event of Default or Event of
Default if this Amendment had been in effect since June 1, 1998.
I. 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 (G) and (H) have been met.
When and if this Amendment becomes effective, the amendments set forth in
Section 1 shall be deemed effective as of August 7, 1998, except that the
amendments in Sections 1.3.12 through 1.3.19 of this Amendment and any of the
defined terms used in such sections (as they relate to the amendments in such
sections) shall be deemed effective as of June 28, 1998.
SECTION 3. 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 the Collateral
Documents and to carry out the transactions contemplated by, and perform its
obligations under, this Amendment, the Amended Agreement and the Collateral
Documents.
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the Collateral Documents and the performance of the Amended
Agreement and the Collateral Documents have been duly authorized by all
necessary corporate action on the part of the Borrower.
C. NO CONFLICT. The execution and delivery by the Borrower of
this Amendment and the Collateral Documents 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.
D. GOVERNMENTAL CONSENTS. The execution and delivery by the
Borrower of this Amendment and the Collateral Documents and the performance by
the Borrower of the
19.
20
Amended Agreement and the Collateral Documents 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.
E. BINDING OBLIGATION. This Amendment and the Collateral
Documents have been duly executed and delivered by the Borrower and are the
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except in each case as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors' rights.
F. 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.
G. 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 contemplated by this Amendment or the Collateral Documents 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).
H. FINANCIAL CONDITION. The unaudited consolidated balance sheet
of the Borrower for the Borrower's fiscal quarter ended June 28, 1998 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.
SECTION 4. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
AGREEMENTS.
(i) On and after the Second 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.
(ii) 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.
20.
21
(iii) 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.
B. COSTS AND EXPENSES. The Company 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.
C. AMENDMENT FEE. The Company hereby agrees to pay to the Agent
on or before the Second Amendment Date, for the ratable benefit of those Banks
who consent to this Amendment (as evidenced by their return of a signed
signature page to Agent or Agent's counsel) by 5:00 p.m. (San Francisco time)
August 7, 1998, an amendment fee (the "Amendment Fee") of 0.25% of the aggregate
Revolving Commitments and Term Commitments of such consenting Banks (after any
reduction made by this Second Amendment). 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, the Collateral Documents or the Amended
Agreement.
D. RRI SECURITY AGREEMENT. The Company covenants to procure that
Read-Rite International enter into the RRI Security Agreement, and grant to the
Company a first priority perfected security interest in the collateral covered
thereby, within 10 days after the Second Amendment Effective Date. Failure to
comply with this covenant shall be an Event of Default under the Amended
Agreement.
E. 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.
F. 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.
G. 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
21.
22
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]
22.
23
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:
--------------------------------------
24
AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK
AGENCY, as Agent
By:
-----------------------------------------
Title:
--------------------------------------
25
BANKS:
CIBC, INC.
By:
-----------------------------------------
Title:
--------------------------------------
ABN AMRO BANK N.V.
By:
-----------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
FLEET NATIONAL BANK
By:
-----------------------------------------
Title:
--------------------------------------
KEYBANK, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
THE LONG TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
26
MELLON BANK
By:
-----------------------------------------
Title:
--------------------------------------
THE MITSUBISHI TRUST AND BANKING
CORPORATION, LOS ANGELES AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
THE SUMITOMO BANK LIMITED, SAN XXXXXXXXX
XXXXXX
By:
-----------------------------------------
Title:
--------------------------------------
THE INDUSTRIAL BANK OF JAPAN LIMITED, SAN
FRANCISCO AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
27
BANKBOSTON, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
BANQUE NATIONALE DE PARIS
By:
-----------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
ROYAL BANK OF CANADA
By:
-----------------------------------------
Title:
--------------------------------------
XXXXX FARGO BANK, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
THE DESIGNATED ISSUER:
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK
AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
28
EXHIBIT A
TO SECOND AMENDMENT TO CREDIT AGREEMENT
FORM OF BORROWING BASE CERTIFICATE
29
EXHIBIT B
TO SECOND AMENDMENT TO CREDIT AGREEMENT
FORM OF GUARANTY
30
EXHIBIT C
TO SECOND AMENDMENT TO CREDIT AGREEMENT
FORM OF PLEDGE AGREEMENT
31
EXHIBIT D
TO SECOND AMENDMENT TO CREDIT AGREEMENT
FORM OF SECURITY AGREEMENT
32
EXHIBIT E
TO SECOND AMENDMENT TO CREDIT AGREEMENT
FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT
33
FORM OF BORROWING BASE CERTIFICATE
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, AS AGENT
Re: Read-Rite Corporation
Gentlemen:
This Borrowing Base Certificate is made and delivered pursuant
to the Credit Agreement dated as of October 2, 1997 (as amended, modified,
renewed or extended from time to time, the "Credit Agreement") among Read-Rite
Corporation (the "Borrower"), certain financial institutions named therein as
Banks, Canadian Imperial Bank of Commerce, New York Agency as issuer of letters
of credit (in such capacity the "Designated Issuer") and Canadian Imperial Bank
of Commerce, New York Agency, as Agent for the Banks and Designated Issuer (in
such capacity the "Agent"), and reference is made thereto for full particulars
of the matters described herein. All capitalized terms used in this Borrowing
Base Certificate and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement.
I am the chief financial officer of the Borrower and hereby
certify that the information set forth on Schedule 1 hereto is true, accurate
and complete as of _____________, 19__.
IN WITNESS WHEREOF, the undersigned officer has signed this
Borrowing Base Certificate this ____ day of ______________, 19__.
-----------------------------------
Chief Financial Officer
SCHEDULE 1
to the Borrowing Base Certificate
Date of Calculation ____________, 199_
A. Eligible Cash
1. Cash balances of Borrower's Designated Accounts
34
(a) $
-------------------------------- ------------
(b) $
-------------------------------- ------------
2. Aggregate positive cash balances in Borrower's Designated Accounts $
------------
B. Eligible Cash Equivalents
1. Brokerage Accounts
(a) $
-------------------------------- ------------
(b) $
-------------------------------- ------------
2. Aggregate Eligible Cash Equivalents in Brokerage Accounts $
------------
C. Less Reserves
1. Sum of A.2 and B.2 $
============
2. Less reserve $ 25,000,000
------------
3. Excess (but not less than $0) $
------------
D. Eligible Receivables of Borrower
1. Aggregate amount of the Borrower's Receivables, less allowances, $
reserves, discounts, returns, credits or offsets ------------
2. Less ineligible receivables (without duplication):
(a) Receivables not paid in full within 75 days from the date of $
invoice ------------
(b) Receivables owing by any Receivable debtor or obligor $
with 10% or more of the aggregate Receivables owing to ------------
the Borrower by such Receivable debtor or obligor not
paid in full within 75 days from the date of invoice
(c) Receivables ineligible for other reasons specified under $
definition of "Eligible Receivables" ------------
3. Total ineligible Receivables (sum of(a) through (c) of 2) $
------------
4. Total Eligible Receivables (1 minus 3) $
------------
2.
35
5. Eligible Receivables included in Borrowing Base (70% of 4) $
------------
E. Eligible Receivables of Read-Rite International
1. Aggregate amount of the Read-Rite International Receivables, less $
allowances, reserves, discounts, returns, credits or offsets ------------
2. Less ineligible receivables (without duplication):
(a) Receivables not paid in full within 75 days from the date of $
invoice ------------
(b) Receivables owing by any Receivable debtor or obligor $
with 10% or more of the aggregate Receivables owing to ------------
the Read-Rite International by such Receivable debtor or
obligor not paid in full within 75 days from the date of
invoice
(c) Receivables ineligible for other reasons specified under $
definition of "Eligible Receivables" ------------
3. Total ineligible Receivables (sum of(a) through (c) of 2) $
------------
4. Total Eligible Receivables (1 minus 3) $
------------
5. Eligible Receivables included in Borrowing Base (70% of 4) $
------------
F. Borrowing Base and Availability
1. Total Borrowing Base $
------------
(a) Sum of C.3, D.5 and E.5 $
------------
(b) Less outstanding aggregate amount of Revolving Loans and $
Letter of Credit Usage ------------
(c) Total Borrowing Base (a minus b) $
------------
2. Total Revolving Commitments $
------------
3. Lesser of Item 1 and Item 2 $
------------
4. Outstanding aggregate amount of Revolving Loans and Letter of Credit $
Usage ------------
3.
36
5. Aggregate principal amount of Revolving Loans available for borrowing $
(amount by which 3 exceeds 4) ----------
6. Aggregate principal amount of Revolving Loans to be repaid (amount by $
which 4 exceeds 3) ----------
4.
37
CONTINUING GUARANTY
THIS CONTINUING GUARANTY (this "Guaranty"), dated as of
_______, 1998, is made by each of the corporations listed on the signature page
hereto (each a "Guarantor" and collectively, the "Guarantors"), in favor of the
Banks and Designated Issuer and any other Issuing Bank party to the Credit
Agreement referred to below and Canadian Imperial Bank of Commerce, New York
Agency, as agent for such Banks and Designated Issuer and any other Issuing Bank
(in such capacity, the "Agent").
Read-Rite Corporation, a Delaware corporation (the
"Borrower"), certain financial institutions as lenders (the "Banks"), Canadian
Imperial Bank of Commerce, New York Agency, as issuer of certain letters of
credit for the account of the Borrower (in such capacity, the "Designated
Issuer") and the Agent are parties to a Credit Agreement dated as of October 2,
1997 (as amended, modified, renewed or extended from time to time, the "Credit
Agreement"). It is a condition precedent to the borrowings and issuances of
letters of credit under the Credit Agreement that the Guarantors guarantee the
indebtedness and other obligations of the Borrower to the Agent, the Issuing
Bank and the Banks under or in connection with the Credit Agreement as set forth
herein. The Guarantors, as wholly owned subsidiaries of the Borrower, will
derive substantial direct and indirect benefits from the making of the loans to
the Borrower and the issuances of letters of credit pursuant to the Credit
Agreement (which benefits are hereby acknowledged by the Guarantors).
Accordingly, to induce the Banks to make such loans, and to
induce the Issuing Bank to issue its letters of credit, and in consideration
thereof, the Guarantors hereby joint and severally agree as follows:
SECTION 1. Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms
used in this Guaranty (including the recitals above) and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.
(b) Certain Defined Terms. As used in this Guaranty the
following terms shall have the following meanings:
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as in effect from time to time.
"Default" has the meaning set forth in Section 11.
"Guaranteed Obligations" has the meaning set forth in Section
2.
"Insolvency Proceeding" with respect to any Person, means (i)
any case, action or proceeding under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (ii) action by any Person to have an
order for relief entered with respect to it, or seeking to adjudicate it
bankrupt or insolvent, or
38
seeking a reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition, or other relief with respect to it or its debts or
seeking the appointment of a receiver, trustee, custodian or similar official
for it or a substantial part of its assets, or (iii) the making of a general
assignment for the benefit of the creditors of such Person.
"Material Adverse Effect" means, with respect to any
Guarantor, a material adverse effect on (i) the business operations, prospects,
properties, assets or condition (financial or otherwise) of such Guarantor and
its Subsidiaries, taken as a whole, or (ii) the ability of such Guarantor to
perform, or any of the Agent, the Banks or the Designated Issuer to enforce the
obligations of such Guarantor under this Guaranty or the other Loan Agreements.
"Solvent" means, as to any Person at any time, that (i) the
fair value of the property of such Person is greater than the amount of such
Person's liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for purposes
of Section 101(31) of the Bankruptcy Code, (ii) the present fair saleable value
of the property of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured, (iii) such Person is able to realize upon its property and
pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business, (iv)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
(c) Interpretation. The rules of interpretation set forth in
Section 1.02 of the Credit Agreement shall be applicable to this Guaranty and
are incorporated herein by this reference.
SECTION 2. Guaranty. The Guarantors hereby jointly and
severally, unconditionally and irrevocably guarantee to the Agent, the Issuing
Bank and the Banks, and their respective successors, endorsees, transferees and
assigns, the full and prompt payment when due (whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise) and
performance of the indebtedness, liabilities and other obligations of the
Borrower to the Agent, the Issuing Bank and the Banks under or in connection
with the Credit Agreement, the Notes, the Letters of Credit and the other Loan
Agreements, including without limitation all unpaid principal of the Loans, all
unreimbursed drawings under the Letters of Credit, all interest accrued thereon,
all fees due under the Credit Agreement and other Loan Agreements and all other
amounts payable by the Borrower to the Agent, the Issuing Bank and the Banks
thereunder or in connection therewith. The terms "indebtedness," "liabilities"
and "obligations" are used herein in their most comprehensive sense and include
any and all advances, debts, obligations and liabilities (including interest
which but for the filing of a petition in any Insolvency Proceedings against the
Borrower would have accrued on such obligations, whether or not a claim is
allowed against the Borrower for such interest in any such Insolvency
Proceedings), now existing or hereafter arising, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness, liabilities and obligations may be or hereafter become
unenforceable or shall be an allowed or disallowed claim under the
2
39
Bankruptcy Code or other applicable law. The foregoing indebtedness, liabilities
and other obligations of the Borrower, and all other indebtedness, liabilities
and obligations to be paid or performed by the Guarantors in connection with
this Guaranty or the Collateral Documents (including any and all amounts due
under Section 14), shall hereinafter be collectively referred to as the
"Guaranteed Obligations."
SECTION 3. Liability of Guarantors. The liability of the Guarantors
under this Guaranty shall be irrevocable, absolute, independent and
unconditional, and shall not be affected by any circumstance which might
constitute a discharge of a surety or guarantor other than the indefeasible
payment and performance in full of all Guaranteed Obligations. In furtherance of
the foregoing and without limiting the generality thereof, each of the
Guarantors agrees as follows:
(i) each Guarantor's liability hereunder shall be the immediate,
direct, and primary obligation of such Guarantor and shall not be contingent
upon the Agent's, the Issuing Bank's or any Bank's exercise or enforcement of
any remedy it may have against the Borrower, any other Guarantor, or any other
Person, or against any Collateral;
(ii) this Guaranty is a guaranty of payment and performance when
due and not merely of collectibility;
(iii) the Agent, the Issuing Bank and the Banks may enforce this
Guaranty upon the occurrence of a Default notwithstanding the existence of any
dispute among the Agent, the Issuing Bank and the Banks and the Borrower with
respect to the existence of such Default;
(iv) a Guarantor's payment of a portion, but not all, of the
Guaranteed Obligations shall in no way limit, affect, modify or abridge such
Guarantor's or any other Guarantor's liability for any portion of the Guaranteed
Obligations remaining unsatisfied; and
(v) a Guarantor's liability with respect to the Guaranteed
Obligations shall remain in full force and effect without regard to, and shall
not be impaired or affected by, nor shall any Guarantor be exonerated or
discharged by, any of the following events:
(A) any Insolvency Proceeding with respect to the
Borrower, any other Guarantor, or any other Person;
(B) any limitation, discharge, or cessation of the
liability of the Borrower, any other Guarantor, or any other Person for any
Guaranteed Obligations due to any statute, regulation or rule of law, or any
invalidity or unenforceability in whole or in part of any of the Guaranteed
Obligations or the Loan Agreements;
(C) any merger, acquisition, consolidation or change in
structure of the Borrower, any other Guarantor or any other Person, or any sale,
lease, transfer or other disposition of any or all of the assets or shares of
the Borrower, any other Guarantor, or any other Person;
3
40
(D) any assignment or other transfer, in whole or in
part, of the Agent's, the Issuing Bank's or any Bank's interests in and rights
under this Guaranty or the other Loan Agreements, including the Agent's, the
Issuing Bank's or any Bank's right to receive payment of the Guaranteed
Obligations, or any assignment or other transfer, in whole or in part, of the
Agent's, the Issuing Bank's or any Bank's interests in and to any of the
Collateral;
(E) any claim, defense, counterclaim or setoff, other
than that of prior performance, that the Borrower, any other Guarantor, any
other Person may have or assert, including any defense of incapacity or lack of
corporate or other authority to execute any of the Loan Agreements;
(F) the Agent's, the Issuing Bank's or any Bank's
amendment, modification, renewal, extension, cancellation or surrender of any
Loan Agreement, any Guaranteed Obligations, any Collateral, or the Agent's, the
Issuing Bank's or any Bank's exchange, release, or waiver of any Collateral;
(G) the Agent's, the Issuing Bank's or any Bank's
exercise or nonexercise of any power, right or remedy with respect to any of the
Collateral, including the Agent's, the Issuing Bank's or any Bank's compromise,
release, settlement or waiver with or of the Borrower, any other Guarantor, or
any other Person;
(H) the Agent's, the Issuing Bank's or any Bank's vote,
claim, distribution, election, acceptance, action or inaction in any Insolvency
Proceeding related to the Guaranteed Obligations;
(I) any impairment or invalidity of any of the
Collateral or any other collateral securing any of the Guaranteed Obligations or
any failure to perfect any of the Liens of the Agent, the Issuing Bank and the
Banks thereon or therein; and
(J) any other guaranty, whether by any other Guarantor
or any other Person, of all or any part of the Guaranteed Obligations or any
other indebtedness, obligations or liabilities of the Borrower to the Agent or
the Banks or the Issuing Bank.
SECTION 4. Consents of Guarantor. Each of the Guarantors hereby
unconditionally consents and agrees that, without notice to or further assent
from such Guarantor:
(i) the principal amount of the Guaranteed Obligations may be
increased or decreased and additional indebtedness or obligations of the
Borrower under the Loan Agreements may be incurred, by one or more amendments,
restatements, modifications, renewals or extensions of any Loan Agreement or
otherwise;
(ii) the time, manner, place or terms of any payment under any
Loan Agreement may be extended or changed, including by an increase or decrease
in the interest rate on any Guaranteed Obligation or any fee or other amount
payable under such Loan Agreement, by an amendment, restatement, modification or
renewal of any Loan Agreement or otherwise;
4
41
(iii) the time for the Borrower's (or any other Person's)
performance of or compliance with any term, covenant or agreement on its part to
be performed or observed under any Loan Agreement may be extended, or such
performance or compliance waived, or failure in or departure from such
performance or compliance consented to, all in such manner and upon such terms
as the Agent, the Issuing Bank and the Banks may deem proper;
(iv) the Agent, the Issuing Bank or the Banks may discharge or
release, in whole or in part, any other Guarantor or other Person liable for the
payment and performance of all or any part of the Guaranteed Obligations, and
may permit or consent to any such action or any result of such action, and shall
not be obligated to demand or enforce payment upon any of the Collateral or any
other collateral, nor shall the Agent, the Issuing Bank or the Banks be liable
to the Guarantors for any failure to collect or enforce payment or performance
of the Guaranteed Obligations from any Person or to realize on the Collateral or
other collateral therefor;
(v) in addition to the Collateral, the Agent, the Issuing Bank
and the Banks may take and hold other security (legal or equitable) of any kind,
at any time, as collateral for the Guaranteed Obligations, and may, from time to
time, in whole or in part, exchange, sell, surrender, release, subordinate,
modify, waive, rescind, compromise or extend such security and may permit or
consent to any such action or the result of any such action, and may apply such
security and direct the order or manner of sale thereof;
(vi) the Agent, the Issuing Bank and the Banks may request and
accept other guaranties of the Guaranteed Obligations and any other
indebtedness, obligations or liabilities of the Borrower to the Agent or the
Banks or the Issuing Bank and may, from time to time, in whole or in part,
surrender, release, subordinate, modify, waive, rescind, compromise or extend
any such guaranty and may permit or consent to any such action or the result of
any such action; and
(vii) the Agent, the Issuing Bank and the Banks may exercise, or
waive or otherwise refrain from exercising, any other right, remedy, power or
privilege (including the right to accelerate the maturity of any Loan and any
power of sale) granted by any Loan Agreement or other security document or
agreement, or otherwise available to the Agent, the Issuing Bank and the Banks,
with respect to the Guaranteed Obligations or any of the Collateral, even if the
exercise of such right, remedy, power or privilege affects or eliminates any
right of subrogation or any other right of any Guarantor against the Borrower;
all as the Agent, the Issuing Bank and the Banks may deem advisable, and all
without impairing, abridging, releasing or affecting this Guaranty.
SECTION 5. Guarantor's Waivers.
(a) Certain Waivers. Each of the Guarantors waives and agrees not to
assert:
(i) any right to require the Agent, the Issuing Bank or any Bank
to marshal assets in favor of the Borrower, any Guarantor, or any other Person,
to proceed against the Borrower, any other Guarantor or any other Person, to
proceed against or exhaust any of the Collateral or other collateral for the
Guaranteed Obligations, to give notice of the terms, time and
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42
place of any public or private sale of personal property security constituting
the Collateral or other collateral for the Guaranteed Obligations or comply with
any other provisions of Section 9504 of the California UCC (or any equivalent
provision of any other applicable law) or to pursue any other right, remedy,
power or privilege of the Agent, the Issuing Bank or any Bank whatsoever;
(ii) the defense of the statute of limitations in any action
hereunder or for the collection or performance of the Guaranteed Obligations;
(iii) any defense arising by reason of any lack of corporate or
other authority or any other defense of the Borrower, any other Guarantor or any
other Person;
(iv) any defense based upon the Agent's, the Issuing Bank's or
any Bank's errors or omissions in the administration of the Guaranteed
Obligations;
(v) any rights to set-offs and counterclaims;
(vi) any defense based upon an election of remedies by the
Agent, Issuing Bank or the Banks even though that election of remedies
(including, if available, an election to proceed by nonjudicial foreclosure)
destroys or impairs the subrogation rights of such Guarantor or any other
Guarantor or Person or the right of such Guarantor or any other Guarantor or
Person to proceed against the Borrower, any other Guarantor or any other obligor
of the Guaranteed Obligations for reimbursement by operation of Section 580d of
the California Civil Code or otherwise; and
(vii) without limiting the generality of the foregoing, to the
fullest extent permitted by law, any defenses or benefits that may be derived
from or afforded by applicable law limiting the liability of or exonerating
guarantors or sureties, or which may conflict with the terms of this Guaranty,
including, without limitation, rights of subrogation, indemnification,
contribution and other rights and defenses that are or may become available to
such Guarantor, directly or indirectly, under California Civil Code
Sections 1432, 2787 to 2855, inclusive, and 3433 and California Code of
Civil Procedure Sections 580a, 580b, 580d and 726. Accordingly, each
Guarantor waives all rights and defenses that such Guarantor may have because
the Borrower's or another Guarantor's debt is secured by real property. This
means, among other things: (A) the Agent, the Issuing Bank and the Banks may
collect from a Guarantor without first foreclosing on any real or personal
property Collateral pledged by the Borrower or any Guarantor; and (B) if the
Agent forecloses on any real property Collateral pledged by the Borrower or any
Guarantor: (1) the amount of the debt may be reduced only by the price for which
that Collateral is sold at the foreclosure sale, even if the Collateral is worth
more than the sale price, and (2) the Agent, the Issuing Bank and the Banks may
collect from a Guarantor even if the Agent, by foreclosing on the real property
Collateral, has destroyed any right any Guarantor may have to collect from the
Borrower or any other Guarantor. This is an unconditional and irrevocable waiver
of any rights and defenses any Guarantor may have because the Borrower's or any
Guarantor's debt is secured by real property. These rights and defenses include,
but are not limited to, any rights of defenses based upon Section 580a, 580b,
580d or 726 of the California Code of Civil Procedure.
6
43
(b) Additional Waivers. Each of the Guarantors waives any and all notice
of the acceptance of this Guaranty, and any and all notice of the creation,
renewal, modification, extension or accrual of the Guaranteed Obligations, or
the reliance by the Agent, the Issuing Bank and the Banks upon this Guaranty, or
the exercise of any right, power or privilege hereunder. The Guaranteed
Obligations shall conclusively be deemed to have been created, contracted,
incurred and permitted to exist in reliance upon this Guaranty. Each of the
Guarantors waives promptness, diligence, presentment, protest, demand for
payment, notice of default, dishonor or nonpayment and all other notices to or
upon the Borrower, any Guarantor or any other Person with respect to the
Guaranteed Obligations.
(c) Independent Obligations. The obligations of each Guarantor hereunder
are independent of and separate from the obligations of the Borrower, each other
Guarantor and any other Person and upon the occurrence and during the
continuance of any Default, a separate action or actions may be brought against
any and all of the Guarantors, whether or not the Borrower, any other Guarantor
or any other guarantor of the Guaranteed Obligations is joined therein or a
separate action or actions are brought against the Borrower, any other Guarantor
or any such other guarantor of the Guaranteed Obligations.
(d) Financial Condition of Borrower. No Guarantor shall have any right
to require the Agent, the Issuing Bank or the Banks to obtain or disclose any
information with respect to: (i) the financial condition or character of the
Borrower or any other Guarantor or the ability of the Borrower or any other
Guarantor to pay and perform the Guaranteed Obligations; (ii) the Guaranteed
Obligations; (iii) the Collateral; (iv) the existence or nonexistence of any
other guarantees of all or any part of the Guaranteed Obligations; (v) any
action or inaction on the part of the Agent, the Issuing Bank or the Banks or
any other Person; or (vi) any other matter, fact or occurrence whatsoever.
SECTION 6. Subrogation. Unless and until the Guaranteed Obligations are
indefensibly paid in full, no Guarantor shall have, and none of the Guarantors
shall directly or indirectly exercise, (i) any rights that it may acquire by way
of subrogation under this Guaranty, by any payment hereunder or otherwise, (ii)
any rights of contribution, indemnification, reimbursement or similar suretyship
claims arising out of this Guaranty, or (iii) any other right which it might
otherwise have or acquire (in any way whatsoever) which could entitle it at any
time to share or participate in any right, remedy or security of the Banks, the
Issuing Bank or the Agent as against the Borrower, the other Guarantors or other
guarantors of the Guaranteed Obligations, whether in connection with this
Guaranty, any of the other Loan Agreements or otherwise. If any amount shall be
paid to a Guarantor on account of the foregoing rights at any time when all the
Guaranteed Obligations shall not have been indefensibly paid in full, such
amount shall be held in trust for the benefit of the Agent, the Issuing Bank and
the Banks and shall forthwith be paid to the Agent to be credited and applied to
the Guaranteed Obligations, whether matured or unmatured, in accordance with the
terms of the Loan Agreements.
SECTION 7. Continuing Guaranty; Reinstatement.
(a) Continuing Guaranty. This Guaranty is a continuing guaranty and
shall continue in effect and be binding upon the Guarantors until termination of
the Commitments and the irrevocable payment and performance in full of the
Guaranteed Obligations, including
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44
Guaranteed Obligations which may exist continuously or which may arise from time
to time under successive transactions, and each Guarantor expressly acknowledges
that this Guaranty shall remain in full force and effect notwithstanding that
there may be periods in which no Guaranteed Obligations exist.
(b) Reinstatement. This Guaranty shall continue to be effective or shall
be reinstated and revived, as the case may be, if, for any reason, any payment
of the Guaranteed Obligations by or on behalf of the Borrower or any Guarantor
(or receipt of any proceeds of Collateral) shall be rescinded, invalidated,
declared to be fraudulent or preferential, set aside, voided or otherwise
required to be repaid to the Borrower or any Guarantor, their estates, trustees,
receivers or any other Person (including under the Bankruptcy Code or other
state or federal or foreign law), or must otherwise be restored by the Agent,
the Issuing Bank or any Bank, whether as a result of Insolvency Proceedings or
otherwise. To the extent any payment is so rescinded, set aside, voided or
otherwise repaid or restored, the Guaranteed Obligations shall be revived in
full force and effect without reduction or discharge for such payment. All
losses, damages, costs and expenses that the Agent, the Issuing Bank or the
Banks may suffer or incur as a result of any voided or otherwise set aside
payments shall be specifically covered by the indemnity in favor of the Banks,
the Issuing Bank and the Agent contained in Section 14.
SECTION 8. Payments. Each of the Guarantors hereby jointly and severally
agrees, in furtherance of the foregoing provisions of this Guaranty and not in
limitation of any other right which the Agent, the Issuing Bank or any Bank or
any other Person may have against such Guarantor by virtue hereof, upon the
failure of the Borrower to pay any of the Guaranteed Obligations when and as the
same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code), such Guarantor shall forthwith pay, or cause to be paid,
in cash, to the Agent an amount equal to the amount of the Guaranteed
Obligations then due as aforesaid (including interest which, but for the filing
of a petition in any Insolvency Proceeding with respect to the Borrower, would
have accrued on such Guaranteed Obligations, whether or not a claim is allowed
against the Borrower for such interest in any such Insolvency Proceeding). Each
of the Guarantors jointly and severally agrees to make each payment hereunder,
unconditionally in full without set-off, counterclaim or other defense, or
deduction for any Taxes, on the day when due in lawful money of the United
States of America and in same day or immediately available funds, to the Agent
at such office of the Agent as may be designated from time to time for the
receipt of payments by the Agent pursuant to the Credit Agreement. All such
payments shall be promptly applied from time to time by the Agent (i) first, to
the payment of any fees, costs, expenses and other amounts due the Agent
hereunder, and (ii) second, to the payment of the other Guaranteed Obligations
in such order of application as the Agent and the Majority Banks in their sole
discretion may choose.
SECTION 9. Representations and Warranties. Each of the Guarantors
jointly and severally represents and warrants to the Agent, the Issuing Bank and
each Bank that:
(a) Organization and Powers. Each of the Guarantors and its Subsidiaries
is a corporation or partnership duly organized or formed, as the case may be,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, is qualified to
8
45
do business and is in good standing in each jurisdiction in which the failure so
to qualify or be in good standing would have a Material Adverse Effect and has
all requisite power and authority to own its assets and carry on its business
and, with respect to such Guarantor, to execute, deliver and perform its
obligations under this Guaranty and the Loan Agreements to which it is a party.
(b) Authorization; No Conflict. The execution, delivery and performance
by each Guarantor of this Guaranty and any other Loan Agreements to which it is
a party have been duly authorized by all necessary corporate action of such
Guarantor, and do not and will not: (i) contravene the terms of the certificate
or articles, as the case may be, of incorporation and the bylaws of such
Guarantor or result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other agreement, lease or instrument to which
the Guarantor is a party or by which it or its properties may be bound or
affected which breach or default could reasonably be expected to have a Material
Adverse Effect; or (ii) violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree or the like binding on or affecting
such Guarantor.
(c) Binding Obligation. This Guaranty and the other Loan Agreements to
which a Guarantor is a party constitute the legal, valid and binding obligations
of such Guarantor, enforceable against such Guarantor in accordance with their
respective terms.
(d) Governmental Consents. No authorization, consent, approval, license,
exemption of, or filing or registration with, any governmental authority or
regulatory body, or approval or consent of any other Person, is required for the
due execution, delivery or performance by each Guarantor of this Guaranty or the
other Loan Agreements to which it is a party.
(e) Solvency. Immediately prior to and after and giving effect to the
incurrence of such Guarantor's obligations under this Guaranty each Guarantor
will be Solvent.
(f) Consideration. Each Guarantor has received at least "reasonably
equivalent value" (as such phrase is used in Section 548 of the Bankruptcy Code,
in Section 3439.04 of the California Uniform Fraudulent Transfer Act and in
comparable provisions of other applicable law) and more than sufficient
consideration to support its obligations hereunder in respect of the Guaranteed
Obligations and under any of the Collateral Documents to which it is a party.
(g) Independent Investigation. Each Guarantor hereby acknowledges that
it has undertaken its own independent investigation of the financial condition
of the Borrower, the other Guarantors and all other matters pertaining to this
Guaranty and further acknowledges that it is not relying in any manner upon any
representation or statement of the Agent, the Issuing Bank or any Bank with
respect thereto. Each Guarantor represents and warrants that it has received and
reviewed copies of the Loan Agreements and that it is in a position to obtain,
and it hereby assumes full responsibility for obtaining, any additional
information concerning the financial condition of the Borrower, any other
Guarantor and any other matters pertinent hereto that such Guarantor may desire.
No Guarantor is relying upon or expecting the Agent, the Issuing Bank or any
Bank to furnish to it any information now or hereafter in the Agent's, the
Issuing Bank's or any such Bank's possession concerning the financial condition
of the Borrower, any other Guarantor or any other matter.
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SECTION 10. Additional Affirmative Covenants. So long as any Guaranteed
Obligations shall remain unsatisfied or any Bank shall have any Commitment, each
of the Guarantors agrees that:
(a) Preservation of Existence, Etc. Each Guarantor shall maintain and
preserve its legal existence, its rights to transact business and all other
rights, franchises and privileges necessary or desirable in the normal course of
its business and operations and the ownership of its properties, provided that
Sunward Technologies, California may, in accordance with the provisions of the
Credit Agreement, be liquidated, dissolved, sold or transferred provided,
further, that the proceeds of such transfer are paid in full to the other
Guarantors and that any merger may only be with Sunward Technologies, Inc.
(b) Further Assurances and Additional Acts. Each Guarantor shall
execute, acknowledge, deliver, file, notarize and register at its own expense
all such further agreements, instruments, certificates, documents and assurances
and perform such acts as the Agent or the Majority Banks shall deem necessary or
appropriate to effectuate the purposes of this Guaranty and the other Loan
Agreements to which it is a party, and promptly provide the Agent with evidence
of the foregoing satisfactory in form and substance to the Agent and the
Majority Banks.
(c) Credit Agreement Covenants. Each Guarantor shall observe, perform
and comply with all covenants applicable to such Guarantor set forth in the
Credit Agreement, which by their terms the Borrower is required to cause such
Guarantor to observe, perform and comply with, as if such covenants were set
forth in full herein.
SECTION 11. Defaults. Any of the following shall constitute a "Default":
(a) Representations and Warranties. Any representation or warranty by
any Guarantor under or in connection with the Loan Agreements to which it is a
party shall prove to have been incorrect in any material respect when made or
deemed made.
(b) Failure by Guarantors to Perform Certain Covenants. Any Guarantor
shall fail to perform or observe any term, covenant or agreement contained in
this Guaranty and in the case of subsection (c) of Section 10 such failure shall
continue beyond any applicable grace periods under the Credit Agreement.
(c) Dissolution, Etc. Any Guarantor or any of its Subsidiaries shall (i)
liquidate, wind up or dissolve (or suffer any liquidation, winding-up or
dissolution), except to the extent expressly permitted by the Credit Agreement,
(ii) suspend its operations other than in the ordinary course of business, or
(iii) take any corporate action to authorize any of the actions or events set
forth above in this subsection (c).
(d) Collateral. (A) This Guaranty or any of the other Collateral
Documents or any certificates, documents, agreements or other instruments
executed in connection herewith or therewith shall for any reason be revoked or
invalidated, or otherwise cease to be in full force and effect, or (B) any
Guarantor or any other Person shall contest in any manner the validity or
enforceability thereof or deny that it has any further liability or obligation
hereunder or thereunder, or (C) there shall be a material adverse effect on the
ability of any Guarantor to
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perform its obligations under this Guaranty or the other Collateral Documents,
or there shall be a material adverse change on the value of the Collateral or
the priority of the Agent's, the Issuing Bank's or any Bank's lien therein, or
(D) there shall be any levy upon, seizure or attachment of the Collateral or any
part thereof.
Upon the occurrence and during the continuance of an Event of
Default under the Credit Agreement, the Agent, the Issuing Bank and the Banks
shall have the rights and remedies set forth herein and in Article VII of the
Credit Agreement and may exercise any or all of their rights and remedies under
the Collateral Documents and proceed to enforce all other rights and remedies
available to them under the Loan Agreements and applicable law.
SECTION 12. Notices. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including by
facsimile) and shall be mailed, sent or delivered (i) if to the Agent, the
Issuing Bank or any Bank, at or to its address or facsimile number provided in
Section 9.02 of the Credit Agreement, and (ii) if to a Guarantor, at or to its
address or facsimile number set forth below its name on the signature page
hereof, or at or to such other address or facsimile number as such party shall
have designated in a written notice to the other party. All such notices and
communications shall be effective at the time and in the manner provided for in
Section 9.02 of the Credit Agreement.
SECTION 13. No Waiver; Cumulative Remedies. No failure on the part of
the Agent, the Issuing Bank or any Bank to exercise, and no delay in exercising,
any right, remedy, power or privilege hereunder or under any other Loan
Agreements shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, remedy, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies under this Guaranty and the other Loan
Agreements are cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to the Agent, the Issuing Bank or any
Bank.
SECTION 14. Costs and Expenses; Indemnification.
(a) Costs and Expenses. Each Guarantor jointly and severally agrees to
pay on demand:
(i) the reasonable out-of-pocket costs and expenses of the Agent
and any of its Affiliates, and the reasonable fees and disbursements of counsel
to the Agent (including allocated costs of internal counsel), in connection with
the negotiation, preparation, execution, delivery and administration of this
Guaranty or any other Loan Agreements, and any amendments, modifications or
waivers of the terms thereof; and
(ii) all costs and expenses of the Agent, its Affiliates, the
Issuing Bank and each of the Banks, and fees and disbursements of counsel
(including allocated costs of internal counsel), in connection with the
enforcement or attempted enforcement, or preservation of any rights or interests
under this Guaranty and any other Loan Agreements, and any out-of-court workout
or other refinancing or restructuring or any Insolvency Proceeding, including
any losses, costs and expenses sustained by the Agent, the Issuing Bank and any
of the Banks as a
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result of any failure by any Guarantor to perform or observe its obligations
contained in this Guaranty and the other Loan Agreements to which such Guarantor
is a party.
(b) Indemnification. In addition, whether or not the transactions
contemplated by the Loan Agreements shall be consummated, the Guarantor hereby
agrees to indemnify the Agent, the Issuing Bank, each Bank and any officers,
directors, employees or agents thereof (each an "Indemnified Person"), against
and hold each of them harmless from any and all liabilities, obligations,
losses, claims, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever, including the reasonable fees
and disbursements of counsel to an Indemnified Person (including allocated costs
of internal counsel), which may be imposed on, incurred by, or asserted against
any Indemnified Person, (i) in any way relating to or arising out of this
Guaranty or any other Loan Agreement, the Guaranteed Obligations, the Collateral
Documents or the transactions contemplated hereby or thereby, or (ii) with
respect to any investigation, litigation or other proceeding relating to any of
the foregoing, irrespective of whether the Indemnified Person shall be
designated a party thereto (the "Indemnified Liabilities"); provided that the
Guarantor shall not be liable to any Indemnified Person for any portion of such
Indemnified Liabilities to the extent they are found by a final decision of a
court of competent jurisdiction to have resulted from such Indemnified Person's
gross negligence or willful misconduct. If and to the extent that the foregoing
indemnification is for any reason held unenforceable, each Guarantor jointly and
severally agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
(c) Defense. The Guarantors shall have the option to, and at the request
of any Indemnified Person shall, direct and control the defense of the
Indemnified Person in such proceedings, employing legal counsel selected by such
Guarantor and acceptable to the Indemnified Person, and pay the fees and
expenses of any legal counsel.
(d) Interest. Any amounts payable to the Agent, the Issuing Bank or any
Bank under this Section 14 if not paid upon demand shall bear interest from the
date of such demand until paid in full, at the rate of interest then applicable
to Base Rate Loans under the Credit Agreement.
(e) Right of Set-Off. Upon (i) the occurrence and during the continuance
of any Default, each Bank and the Issuing Bank is hereby authorized at any time
and from time to time, without notice to any Guarantor (any such notice being
expressly waived by the Guarantors), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank to or for the credit or the
account of any of the Guarantors against any and all of the obligations of the
Guarantors now or hereafter existing under this Guaranty, irrespective of
whether or not such Bank shall have made any demand upon the Borrower or any
Guarantor under the Loan Agreements and although such obligations may be
contingent and unmatured. Each Bank shall promptly notify the Guarantors
(through the Agent) after any such set-off and application made by it; provided,
however, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of the Banks under this Section 14 are
in addition to other rights and remedies (including other rights of set-off)
which the Banks may have.
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SECTION 15. Survival. All covenants, agreements, representations and
warranties made in this Guaranty shall survive the execution and delivery of
this Guaranty, and shall continue in full force and effect so long as any Bank
has any Commitment or any Guaranteed Obligations remain unsatisfied.
Notwithstanding the foregoing, the obligations of the Guarantors under Section
14 shall survive the satisfaction of the Guaranteed Obligations and the
termination of the Commitments.
SECTION 16. Benefits of Guaranty. This Guaranty is entered into for the
sole protection and benefit of the Agent, the Issuing Bank and each Bank and
their respective successors and assigns, and no other Person (other than any
Indemnified Person specified herein) shall be a direct or indirect beneficiary
of, or shall have any direct or indirect cause of action or claim in connection
with, this Guaranty. The Agent and the Banks, by their acceptance of this
Guaranty, shall not have any obligations under this Guaranty to any Person other
than the Guarantors, and such obligations shall be limited to those expressly
stated herein.
SECTION 17. Binding Effect; Assignment.
(a) Binding Effect. This Guaranty shall be binding upon the Guarantors
and their respective successors and assigns, and inure to the benefit of and be
enforceable by the Agent, the Issuing Bank and each Bank and their respective
successors, endorsees, transferees and assigns.
(b) Assignment. The Guarantors shall not have the right to assign or
transfer their respective rights and obligations hereunder without the prior
written consent of the Banks. Each Bank may, without notice to or consent by the
Guarantors, sell, assign, transfer or grant participations in all or any portion
of such Bank's rights and obligations hereunder in connection with any sale,
assignment, transfer or grant of a participation by such Bank under Section 9.06
of the Credit Agreement of or in its rights and obligations thereunder and under
the other Loan Agreements. Each Guarantor agrees that in connection with any
such sale, assignment, transfer or grant by any Bank and to the extent permitted
under the Credit Agreement with respect to any such sale, assignment, transfer
or grant, such Bank may deliver to the prospective participant or assignee
financial statements and other relevant information relating to the Guarantors
and their Subsidiaries. In the event of any grant of a participation, the
participant (i) shall be deemed to have a right of setoff under Section 14 in
respect of its participation to the same extent as if it were such "Bank;" and
(ii) shall also be entitled to the benefits of Section 14.
SECTION 18. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ITS CHOICE OF LAW DOCTRINE.
(a) Waiver of Jury Trial. THE AGENT, THE GUARANTORS, THE ISSUING BANK
AND EACH BANK HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY, ANY OF
THE LOAN AGREEMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER
OF THE LOAN AGREEMENTS. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction,
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including contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. The Agent, each Bank, the issuing Bank and the
Guarantors each acknowledge that this waiver is a material inducement to enter
into a business relationship, that each has already relied on the waiver in
entering into this Guaranty, and that each will continue to rely on the waiver
in their related future dealings. The Agent, each Bank, the Issuing Bank and the
Guarantors further warrant and represent that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. THE WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS GUARANTY, THE LOAN AGREEMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING THERETO. In the event of litigation, this Guaranty may be filed as a
written consent to a trial by the court.
(b) Consent to Jurisdiction; Venue. All judicial proceedings brought
against any Guarantor with respect to this Guaranty and the Loan Agreements may
be brought in any state or federal court of competent jurisdiction in the City
of Los Angeles or San Francisco in the State of California, or, to the extent
that actions may be required upon this Guaranty in the courts of any foreign
jurisdiction in connection with enforcement proceedings commenced by the Agent
in such foreign jurisdiction relating to any Collateral, to the courts of any
foreign jurisdiction, and by execution and delivery of this Agreement, the
Guarantors accept for themselves and in connection with their properties,
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts, and irrevocably agree to be bound by any judgment rendered thereby in
connection with this Guaranty. The Guarantors irrevocably waive any right they
may have to assert the doctrine of forum non conveniens or to object to venue to
the extent any proceeding is brought in accordance with this paragraph. Nothing
herein shall affect the right of the Agent, the Issuing Bank or any Bank to
bring proceedings against the Guarantors in courts of any jurisdiction.
SECTION 19. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Guaranty and the other Loan Agreements
constitute the entire agreement of the parties with respect to the matters set
forth herein and supersede any prior agreements, commitments, drafts,
communications, discussions and understandings, oral or written, with respect
thereto. There are no conditions to the full effectiveness of this Guaranty.
(b) Amendments and Waivers. Except to the extent otherwise provided in
the Credit Agreement, this Guaranty may not be amended except by a writing
signed by the Guarantors, the Agent, the Issuing Bank and the Majority Banks, or
the Guarantor and the Agent (with the written consent of the Issuing Bank and
the Majority Banks). No waiver of any rights of the Agent, the Issuing Bank and
the Banks under any provision of this Guaranty or consent to any departure by
the Guarantors therefrom shall be effective unless in writing and signed by the
Agent, the Issuing Bank and the Majority Banks, or the Agent (with the written
consent of the Issuing Bank and the Majority Banks). Any such amendment, waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
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SECTION 20. Limitation on Liability. No claim shall be made by any
Guarantor or their Affiliates against the Agent, the Issuing Bank or any of the
Banks or any of their respective employees, officers, directors or agents for
any special, indirect, exemplary, consequential or punitive damages in respect
of any breach or wrongful conduct (whether or not the claim therefor is based on
contract, tort or duty imposed by law), in connection with, arising out of or in
any way related to the transactions contemplated by this Guaranty or the other
Loan Agreements or any act or omission or event occurring in connection
therewith; and each Guarantor hereby waives, releases and agrees not to xxx upon
any such claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
SECTION 21. Knowing and Explicit Waivers. EACH GUARANTOR ACKNOWLEDGES
THAT IT HAS EITHER OBTAINED THE ADVICE OF LEGAL COUNSEL OR HAS HAD THE
OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF
THIS GUARANTY. EACH GUARANTOR ACKNOWLEDGES AND AGREES THAT EACH OF THE WAIVERS
AND CONSENTS SET FORTH HEREIN, INCLUDING THOSE CONTAINED IN SECTIONS 3 THROUGH
6, ARE MADE WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND CONSEQUENCES.
ADDITIONALLY, EACH GUARANTOR ACKNOWLEDGES AND AGREES THAT BY EXECUTING THIS
GUARANTY, IT IS WAIVING CERTAIN RIGHTS, BENEFITS, PROTECTIONS AND DEFENSES TO
WHICH IT MAY OTHERWISE BE ENTITLED UNDER APPLICABLE LAW, INCLUDING UNDER THE
PROVISIONS OF THE CALIFORNIA CIVIL CODE AND CALIFORNIA CODE OF CIVIL PROCEDURE
REFERRED TO IN SECTION 5, AND THAT ALL SUCH WAIVERS HEREIN ARE EXPLICIT, KNOWING
WAIVERS. THE GUARANTORS FURTHER ACKNOWLEDGE AND AGREE THAT THE AGENT, THE
ISSUING BANK AND THE BANKS ARE RELYING ON SUCH WAIVERS IN CREATING THE
GUARANTEED OBLIGATIONS, AND THAT SUCH WAIVERS ARE A MATERIAL PART OF THE
CONSIDERATION WHICH THE AGENT, THE ISSUING BANK AND THE BANKS ARE RECEIVING FOR
CREATING THE GUARANTEED OBLIGATIONS.
SECTION 22. Severability. Whenever possible, each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this Guaranty
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Guaranty, as the case may be, or the validity or
effectiveness of such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the Guarantors have executed this Guaranty,
as of the date first above written.
GUARANTORS
SUNWARD TECHNOLOGIES, INC.
By
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Title
-------------------------------
Address
--------------------------
---------------------------------
---------------------------------
Attn:
----------------------------
Fax No.:
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SUNWARD TECHNOLOGIES, CALIFORNIA
By
-------------------------------
Title
-------------------------------
Address
--------------------------
---------------------------------
---------------------------------
Attn:
----------------------------
Fax No.:
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STOCK PLEDGE AND CHARGE AGREEMENT
THIS STOCK PLEDGE AND CHARGE AGREEMENT (this "Agreement"), dated
as of ___________, 1998, is made among Read-Rite Corporation, a Delaware company
(the "Borrower"), Sunward Technologies, Inc., a Delaware company (the
"Subsidiary") (the Borrower and the Subsidiary each a "Pledgor" and collectively
the "Pledgors"), the Banks (as defined below), the Designated Issuer (as defined
below) and Canadian Imperial Bank of Commerce, New York Agency, as agent for the
Banks (in such capacity, the "Agent") (the Banks, Designated Issuer, Issuing
Bank and Agent each a "Pledgee" and collectively the "Pledgees").
The Borrower, certain financial institutions as lenders (the
"Banks") Canadian Imperial Bank of Commerce, New York Agency, as issuer of
letters of credit for the account of the Borrower (in such capacity, the
"Designated Issuer") and the Agent are parties to a Credit Agreement dated as of
October 2, 1997 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement").
The Subsidiary is a subsidiary of the Borrower and is party to
that certain Continuing Guaranty dated as of even date herewith between certain
subsidiaries of the Borrower, in favor of the Agent, the Banks, the Designated
Issuer and any other Issuing Bank (as amended, modified, renewed or extended
from time to time, the "Guaranty").
It is a condition to the obligations of the Banks, the
Designated Issuer and the Agent under the Credit Agreement that the Pledgors
enter into this Agreement and pledge to the Agent, the Banks and Issuing Bank
their shareholdings in the companies identified in Schedule 1 (each a "Company"
and collectively the "Companies").
Accordingly, the parties hereto agree as follows:
SECTION 1. Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms
used in this Agreement (including the recitals) and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement.
(b) Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Additional Collateral" means, (i) with respect to Companies
listed in Section A or C of Schedule 1, any and all (A) additional shares of
capital stock or other equity securities of such Companies, whether certificated
or uncertificated, (B) warrants, options or other rights entitling a Pledgor to
acquire any interest in capital stock or other equity securities of such
Companies, (C) securities, property, interest, dividends and other payments and
distributions issued as an addition to, in redemption of, in renewal or exchange
for, in substitution or upon conversion of, or otherwise on account of, the
Pledged Shares or such additional shares of capital stock or other equity
securities, and (D) cash and non-cash proceeds of the Pledged Shares and
1.
54
any of the foregoing, in each case from time to time received or receivable by,
or otherwise paid or distributed to or acquired by, any of the Pledgors; and
(ii) with respect to any Company listed in Section B of Schedule 1, (A) 65% of
all additional capital stock or other equity securities of such Companies,
whether certificated or uncertificated, (B) 65% of all warrants, options or
other rights entitling a Pledgor to acquire any interest in capital stock or
other equity securities of such Companies, (C) securities, property, interest,
dividends and other payments and distributions issued as an addition to, in
redemption of, in renewal or exchange for, in substitution or upon conversion
of, or otherwise on account of, the Pledged Shares or such additional capital
stock or other equity securities provided that the Pledged Shares and such
Additional Collateral shall not thereafter exceed 65% of the total share capital
of the relevant company, and (D) cash and non-cash proceeds of the Pledged
Shares and any of the foregoing, in each case from time to time received or
receivable by, or otherwise paid or distributed to or acquired by, any of the
Pledgors.
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as in effect from time to time.
"Default" means any of the following:
(i) Representations and Warranties. Any representation
or warranty by any Pledgor under or in connection with this Agreement or the
other Loan Agreements to which it is a party shall prove to have been incorrect
in any material respect when made or deemed made.
(ii) Failure by Pledgors to Perform Certain Covenants.
Any Pledgor shall fail to perform or observe any term, covenant or agreement
contained in subsections (b), (c) or (d) of Section 3 or subsections (d), (e),
(f), (g), (h), or (i) of Section 5 of this Agreement.
(iii) Failure by Pledgors to Perform Other Covenants.
Any Pledgor shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement and such failure shall remain unremedied
or uncured for thirty days after the Chief Executive Officer, Chief Financial
Officer, Controller, Assistant Controller or Treasurer of any Grantor knows of
such failure (whether by notice from the Agent, the Banks, the Designated Issuer
or otherwise).
(i) (A) Any Pledgor shall commence any case, proceeding
or other action (1) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (2) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or any Pledgor shall make a
general assignment for the benefit of its creditors; or (B) there shall be
commenced against any Pledgor any case, proceeding or other action of a nature
referred to in clause (A) above which (1) results in the entry of an order for
relief or any such adjudication or appointment or (2) remains undismissed,
undischarged or unbonded for a period of sixty (60) consecutive days; or (C)
there shall be commenced against any Pledgor any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process
2.
55
against all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within sixty (60) consecutive days from the
entry thereof; or (D) any Pledgor shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (A), (B) and (C) above; or (E) any Pledgor shall generally not,
or shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due; or (F) any Pledgor shall cease to be Solvent.
(iv) Dissolution, Etc. Any Pledgor or any of its Subsidiaries
(including any of the Companies) shall (A) liquidate, wind up or dissolve (or
suffer any liquidation, winding-up or dissolution), except to the extent
expressly permitted by the Credit Agreement, (B) suspend its operations other
than in the ordinary course of business, or (C) take any corporate action to
authorize any of the actions or events set forth above in this subsection (v).
(v) Collateral. (A) This Agreement or any of the other
Collateral Documents, or any certificates, documents, agreements or other
instruments executed in connection herewith or therewith shall for any reason be
revoked or invalidated, or otherwise cease to be in full force and effect, or
(B) any Pledgor or any other Person shall contest in any manner the validity or
enforceability thereof or deny that it has any further liability or obligation
hereunder or thereunder, or (C) there shall be a material adverse effect on the
ability of any Pledgor to perform its obligations under this Agreement or the
other Collateral Documents, or there shall be a material adverse change in the
value of the Collateral or the priority of the Agent's, the Issuing Bank's or
any Bank's lien therein, or (D) there shall be any levy upon, seizure or
attachment of the Pledged Collateral or Additional Collateral or any part
thereof.
(vi) Default under Credit Agreement. Any "Event of Default" as
defined in the Credit Agreement shall occur.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Insolvency Proceeding" with respect to any Pledgor means any case,
action or proceeding described in paragraph (iv) of the definition of Default.
"Material Adverse Effect" with respect to any Person means, a material
adverse effect (i) on the business operations, prospects, properties, assets or
condition (financial or otherwise) of such Person and its Subsidiaries taken as
a whole, or (ii) on the ability of such Person to perform, or any of the Banks,
the Issuing Bank or the Agent to enforce, the obligations of such Person under
this Agreement or any of the other Loan Agreements.
"Pledged Collateral" has the meaning set forth in Section 3(a).
"Pledged Shares" means (i) all of the issued and outstanding shares of
capital stock, whether certificated or uncertificated, of the Companies listed
in Section A of Schedule 1 and (ii) 65% of the issued and outstanding shares of
capital stock, whether certificated or uncertificated, of the Companies listed
in Section B of Schedule 1 and (iii) 50% plus one share of the issued and
outstanding shares of capital stock, whether certificated or uncertificated, of
the Company listed in Section C of Schedule 1.
3.
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"Secured Obligations" means the indebtedness, liabilities and other
obligations of the Pledgors to the Agent, the Issuing Bank and the Banks under
or in connection with the Credit Agreement, the Guaranty, and any of the other
Collateral Documents and Loan Agreements. The terms "indebtedness,"
"liabilities," and "obligations" are used in their most comprehensive sense and
include any and all advances, debts, obligations and liabilities, (including
interest which, but for the filing of a petition in any Insolvency Proceeding
against a Pledgor would have accrued on such obligation, whether or not a claim
is allowed against such Pledgor for such interest in any such Insolvency
Proceeding) whether now existing or hereafter arising, whether voluntary or
involuntary and whether due or to become due, absolute or contingent, liquidated
or unliquidated, determined or undetermined and whether recovery upon such
indebtedness, liabilities and obligations may be or hereafter becomes
unenforceable or shall be an allowed or disallowed claim under the Bankruptcy
Code or other applicable law.
"Securities Act" means the Securities Act of 1933, as amended.
"Solvent" means, as to any Person at any time, that (i) the fair value
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code, (ii) the present fair saleable value of the
property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured, (iii) such Person is able to realize upon its property and pay its
debts and other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Pledged Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) Terms Defined in UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings assigned to
them in the UCC.
(d) Interpretation. The rules of interpretation set forth in Section
1.02 of the Credit Agreement shall be applicable to this Agreement and are
incorporated herein by this reference.
SECTION 2. Agency. Each of the Banks and the Issuing Bank hereby
appoints the Agent to act on their behalf and exercise all rights, powers and
privileges which they may have by virtue of this Agreement. The Agent is hereby
granted the power to exercise all rights
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assigned to it by this Agreement and all rights or powers reasonably incidental
thereto. The exercise of the agency under this Agreement shall be governed by
the provisions of the Credit Agreement and the Agent shall be entitled hereunder
to the same rights, benefits, immunities, exculpations and indemnities provided
to the Agent under the Credit Agreement.
SECTION 3. Security Interest.
(a) Grant of Security Interest. As continuing security for the payment
and performance of the Secured Obligations, each of the Pledgors hereby charges
by way of first fixed charge, pledges, assigns, transfers, hypothecates, sets
over and grants to the Agent, for itself and on behalf of and for the ratable
benefit of the Pledgees, a charge and security interest in, all of such
Pledgor's respective right, title and interest in, to and under (i) the Pledged
Shares and the Additional Collateral and any certificates and instruments now or
hereafter representing the Pledged Shares and the Additional Collateral, (ii)
all rights, interests and claims with respect to the Pledged Shares and
Additional Collateral, including under any and all related agreements,
instruments and other documents, and (iii) all books, records and other
documentation of such Pledgor related to the Pledged Shares and Additional
Collateral, in each case whether presently existing or owned or hereafter
arising or acquired and wherever located (collectively, the "Pledged
Collateral").
(b) Delivery of Pledged Shares. The Pledgors each hereby agree to
deliver to the Agent (for the account of the Pledgees), at the address and to
the Person to be designated by the Agent, the certificates representing the
Pledged Shares, which shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer, sold contract
note or other instruments of assignment in blank, all in form and substance
satisfactory to the Agent.
(c) Delivery of Additional Collateral. If any of the Pledgors shall
become entitled to receive or shall receive any Additional Collateral, such
Pledgor shall accept any such Additional Collateral as the agent for the Agent,
shall hold it in trust for the Agent, shall segregate it from other property or
funds of such Pledgor, and shall deliver all Additional Collateral and all
certificates, instruments and other writings representing such Additional
Collateral forthwith to the Agent (for the account of the Pledgees), at the
address and to the Person to be designated by the Agent, which shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer, sold contract note or other instruments of assignment
in blank, all in form and substance satisfactory to the Agent, as the Agent
shall request, to be held by the Agent (for the account of the Pledgees) subject
to the terms hereof, as part of the Pledged Collateral. Upon accepting any such
Additional Collateral hereunder, the Agent shall promptly send a notification to
the relevant Pledgor describing the Additional Collateral accepted and held as
part of the Pledged Collateral hereunder, which notification shall be deemed to
be a Schedule to this Agreement and may be attached hereto.
(d) Transfer of Security Interest Other Than by Delivery. If for any
reason Pledged Collateral cannot be delivered to or for the account of the Agent
as provided in subsections (b) and (c), the Pledgors shall promptly take such
other steps as shall be requested from time to time by the Agent to effect a
transfer of a perfected first priority security interest in and pledge and
charge of the Pledged Collateral to the Agent, the Issuing Bank and the Banks
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pursuant to the UCC. To the extent practicable, the Borrower shall thereafter
deliver the Pledged Collateral to or for the account of the Agent as provided in
subsections (b) and (c).
(e) Continuing Security Interest. The Pledgors agree that this Agreement
shall create a continuing security interest in, pledge and charge of the Pledged
Collateral which shall remain in effect notwithstanding any intermediate payment
or settlement of accounts or other matters whatsoever until terminated in
accordance with Section 24.
(f) Reinstatement of Security. Any discharge or other termination and
any composition or arrangement which the Pledgors may effect with the Agent, the
Issuing Bank and the Banks shall be deemed to be made subject to the express
condition that it will be void and the security interests deemed reinstated if
any payment or security which the Agent, the Issuing Bank or the Banks may have
received or may receive from any person in respect of the Secured Obligations is
avoided, invalidated or set aside or if any order is made in respect thereof
under any enactment relating to insolvency.
(g) Read-Rite SMI. It is the intent of the parties hereto that the
security interest created by this Agreement in respect of the shareholdings in
Read-Rite SMI be treated as, and this Agreement shall be deemed to create in
respect of Read-Rite SMI, a pledge (Shichiken) for the purposes of Japanese law.
To the extent that the remedies or powers granted pursuant to this Agreement
against a Japanese issuer of Pledged Collateral are inconsistent with the
remedies or powers of a pledgee under a pledge (Shichiken) under Japanese law
and such inconsistency would invalidate the pledge (Shichiken) under Japanese
law, such remedies or powers shall be limited to those which will not invalidate
such pledge (Shichiken) under Japanese law. Nothing in this subsection is
intended, and this subsection shall not be treated as limiting or otherwise
affecting, any of the Pledgees' respective rights, interests, powers or remedies
with respect to any Companies other than Read-Rite SMI.
SECTION 4. Representations and Warranties. Each of the Pledgors jointly
and severally represents and warrants to the Issuing Bank, each Bank and the
Agent that:
(a) Valid Issuance of Pledged Collateral. All the Pledged Shares have
been, and upon issuance any Additional Collateral will be, duly and validly
issued, and are and will be fully paid and non-assessable.
(b) Ownership of Pledged Collateral. With respect to the Pledged Shares
the Pledgors are, and with respect to any Additional Collateral the Pledgors
will be, the legal record and beneficial owners thereof, and have and will have
good and marketable title thereto, subject to no Lien except for the pledge,
charge and security interest created by this Agreement.
(c) Approvals. No authorizations, approvals or consents and no notice to
or filing with any governmental authority or other regulatory body are required
for (i) the pledge and charging of the Pledged Collateral, (ii) the exercise by
the Agent of voting and other rights relating to the Pledged Collateral, (iii)
the perfection of the security interest created hereby (other than filing of UCC
financing statements and registration with the Hong Kong Companies Registry
where necessary) or (iv) the enforcement of any rights or remedies hereunder.
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(d) Options, Warrants, Etc. No securities convertible into or
exchangeable for any shares of capital stock of any of the Companies, or any
options, warrants or other commitments entitling any Person to purchase or
otherwise acquire any shares of capital stock of any of the Companies, are
issued and outstanding.
(e) Transfer Restrictions. Except as set forth in the Second Disclosure
Letter, there are no restrictions on, or approvals required for, the
transferability of the Pledged Collateral to the Agent or with respect to the
foreclosure, transfer or disposition thereof by the Agent.
(f) Shareholders Agreements. Except as set forth in the Second
Disclosure Letter, there are no shareholders agreements, voting trusts, proxy
agreements or other agreements or understandings which affect or relate to the
voting or giving of written consents with respect to any of the Pledged
Collateral. The Pledgors have delivered to the Agent complete and accurate
copies of all Articles of Association, Memoranda of Incorporation and other
constitutional documents of each of the Companies.
(g) No Violation of Securities Laws. None of the Pledged Shares has been
transferred in violation of the securities registration, securities disclosure
or similar laws of any jurisdiction to which such transfer may be subject.
(h) Location of Chief Executive Office. Details of the chief executive
office and principal place of business of each Pledgor, locations of all books
and records concerning the Pledged Collateral and the federal taxpayer
identification numbers of each Pledgor, are set forth in the Second Disclosure
Letter.
(i) Other Financing Statements. Other than (i) financing statements
disclosed to the Agent and (ii) financing statements in favor of the Agent on
behalf of the Issuing Bank and the Banks, no effective financing statement
naming any Pledgor as debtor, assignor, grantor, mortgagor, pledgor or the like
and covering all or any part of the Pledged Collateral is on file in any filing
or recording office in any jurisdiction.
(j) Enforceability; Priority of Security Interest. This Agreement (i),
subject to any registration required with the Hong Kong Companies Registry,
creates an enforceable perfected and first priority security interest in and
pledge of the Pledged Collateral upon delivery thereof pursuant to Section 3(b),
and (ii) will create an enforceable perfected and first priority security
interest in and pledge of the Additional Collateral upon delivery thereof
pursuant to Section 3(c) (or upon the taking of such other action with respect
thereto as may be requested by the Agent pursuant to Section 3(d)), in each case
securing the payment and performance of the Secured Obligations.
The Pledgors jointly and severally agree that the foregoing
representations and warranties shall be deemed to have been made by them on the
date of each delivery of Pledged Collateral hereunder and on the date on which
representations and warranties are deemed repeated under the Credit Agreement.
SECTION 5. Covenants. So long as any of the Secured Obligations remain
unsatisfied or any Bank shall have any Commitment, the Pledgors jointly and
severally agree that:
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(a) Defense of Pledged Collateral. The Pledgors will, at their own
expense, appear in and defend any action, suit or proceeding which purports to
affect their title to, or right or interest in, the Pledged Collateral or the
charge and security interest of the Agent, the Issuing Bank and the Banks
therein and the pledge to the Agent and the Issuing Bank and the Banks thereof.
(b) Preservation of Collateral. The Pledgors will do and perform all
reasonable acts that may be necessary and appropriate to maintain, preserve and
protect the Pledged Collateral.
(c) Compliance with Laws, Etc. The Pledgors will comply with all laws,
regulations and ordinances relating in a material way to the possession,
maintenance and control of the Pledged Collateral.
(d) Location of Books and Chief Executive Office. The Pledgors will: (i)
keep all books and records pertaining to the Pledged Collateral at the locations
set forth in the Second Disclosure Letter; and (ii) give at least 30 days' prior
written notice to the Agent of (A) any changes in any such location where books
and records pertaining to the Pledged Collateral are kept, or (B) any change in
the location of any of the Pledgors' chief executive offices or principal places
of business.
(e) Change in Name, Identity or Structure. The Pledgors will give at
least 30 days' prior written notice to the Agent of (i) any change in any of
their names or federal taxpayer identification numbers, (ii) any changes in,
additions to or other modifications of their trade names and trade styles, and
(iii) any changes to the identity or structure of any Pledgor which in any
manner might make any financing statement filed hereunder incorrect or
misleading.
(f) Disposition of Pledged Collateral. None of the Pledgors will
surrender or lose possession of (other than to the Agent or, with the prior
consent of the Agent, to a depositary or financial intermediary), exchange,
sell, convey, assign or otherwise dispose of or transfer the Pledged Collateral
or any right, title or interest therein.
(g) Liens. None of the Pledgors will create, incur or permit to exist
any Liens upon or with respect to the Pledged Collateral, other than the
security interest of and pledge and charge to the Agent created by this
Agreement or permitted by the Credit Agreement.
(h) Shareholders Agreements. None of the Pledgors will enter into any
shareholders agreement, voting trust, proxy agreement or other agreement or
understanding which affects or relates to the voting or giving of written
consents with respect to any of the Pledged Collateral.
(i) Issuance of Additional Shares. None of the Pledgors will consent to
or approve, or allow any of the Companies to consent to or approve, the issuance
to any Person of any additional shares of any class of capital stock of any
Company, or of any securities convertible into or exchangeable for any such
shares, or any warrants, options or other rights to purchase or otherwise
acquire any such shares, except as permitted under the Credit Agreement.
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(j) Notices. The Pledgors will deliver promptly to the Agent all reports
and notices received by the Pledgors from the Companies in respect of any of the
Pledged Collateral.
(k) Notification and Registration of Pledge and Charge of Shares. (i)
The Pledgor will cause to be delivered to each of the Companies forthwith a
notification of the pledge and charge of the Pledged Collateral in form and
substance satisfactory to the Agent. (ii) The Pledgors will procure that within
45 days from the date of this Agreement, the managing director of each of the
Companies will acknowledge the pledge and charge of shares in a writing in form
and substance satisfactory to the Agent and will record a notation on the
register of shareholders or similar records maintained by such Company of such
pledge and charge in favor of the Agent, the Issuing Bank and the Banks. (iii)
The Pledgor will cause to be registered in the Hong Kong Companies Registry a
copy of this Agreement in accordance with the requirements of Hong Kong law when
necessary.
(l) Further Assurances. The Pledgors will promptly, upon the written
request from time to time of the Agent, execute, acknowledge and deliver, and
file and record, all such financing statements and other documents and
instruments, and take all such action, as shall be reasonably necessary to carry
out the purposes of this Agreement.
(m) Additional Companies. The Pledgors will promptly notify the Agent of
any additional subsidiaries formed or otherwise acquired by any of the Pledgors
and, to the extent required by the Agent, promptly cause the stock of such
entity held by the Pledgors to be pledged hereunder. Nothing in this paragraph
shall require a Pledgor to pledge more than 65% of the aggregate issued capital
stock of any foreign incorporated subsidiary.
SECTION 6. Administration of the Pledged Collateral.
(a) Distributions and Voting Prior to a Default. Unless a Default shall
have occurred: (i) the Pledgors shall be entitled to receive and retain for
their own account any cash dividend on or other cash distribution, if any, in
respect of the Pledged Collateral; and (ii) the Pledgors shall have the right to
vote the Pledged Collateral and to retain the power to control the direction,
management and policies of the Companies to the same extent as the Pledgors
would if the Pledged Collateral were not pledged pursuant to this Agreement;
provided, that the Pledgors shall not be entitled to receive (A) cash paid,
payable or otherwise distributed in redemption of, or in exchange for or in
substitution of, any Pledged Collateral, or (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution of any Company or
in connection with a reduction of capital, capital surplus or paid-in-surplus or
any other type of recapitalization involving any Company; and provided further,
that no vote shall be cast or consent, waiver or ratification given or action
taken which would have the effect of impairing the position or interest of the
Agent or the Banks in respect of the Pledged Collateral or which would alter the
voting rights with respect to the stock of any Company or be inconsistent with
or violate any provision of this Agreement, the Credit Agreement or any other
Loan Agreement. If applicable, the Pledgors shall be deemed the beneficial owner
of all Pledged Collateral for purposes of Sections 13 and 16 of the Exchange Act
and agree to file all reports required to be filed by beneficial owners of
securities thereunder. The Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgors all such proxies and other instruments
as the Pledgors may reasonably request for the
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purpose of enabling the Pledgors to exercise the voting and other rights which
they are entitled to exercise pursuant to this subsection (a) and to receive the
distributions which they are authorized to receive and retain pursuant to this
subsection (a).
(b) General Authority upon a Default. Upon and after the occurrence of
any Default:
(i) the Agent shall be entitled to receive all distributions and
payments of any nature with respect to the Pledged Collateral, to be held by the
Agent as part of the Pledged Collateral;
(ii) the Agent shall have the right following prior written
notice to the Pledgors to vote or consent to take any action with respect to the
Pledged Shares and exercise all rights of conversion, exchange, subscription or
any other rights, privileges or options pertaining to the Pledged Collateral as
if the Agent were the absolute owner thereof;
(iii) the Agent shall have the right, for and in the name, place
and stead of the Pledgors, to execute endorsements, assignments, sold contract
notes or other instruments of conveyance or transfer with respect to all or any
of the Pledged Collateral, to endorse any checks, drafts, money orders and other
instruments relating thereto, to xxx for, collect, receive and give acquittance
for all moneys due or to become due in connection with the Pledged Collateral
and otherwise to file any claims, take any action or institute, defend, settle
or adjust any actions, suits or proceedings with respect to the Pledged
Collateral, execute any and all such other documents and instruments, and do any
and all such acts and things, as the Agent may deem necessary or desirable to
protect, collect, realize upon and preserve the Pledged Collateral, to enforce
the Agent's, the Issuing Bank's or the Banks' rights with respect to the Pledged
Collateral and to accomplish the purposes of this Agreement; and
(iv) the Pledgors shall procure the full satisfaction of any
transfer restrictions listed in the Second Disclosure Letter applicable to any
of the transfers of any of the Pledged Collateral referred to in this Section,
including, but not limited to, the obtaining of any relevant approval of the
directors of any Company to which the Pledged Shares relate.
(c) Distributions to Be Held for Agent. Distributions and other payments
which are received by the Pledgors but which they are not entitled to retain as
a result of the operation of subsection (a) or (b) shall be held in trust for
the benefit of the Agent, be segregated from the other property or funds of the
Pledgor, and be forthwith paid over or delivered to the Agent in the same form
as so received.
(d) Certain Other Administrative Matters. At any time and from time to
time, the Agent may cause any of the Pledged Collateral to be transferred into
its name or into the name of its nominee or nominees (subject to the revocable
rights specified in subsection (a)). The Agent shall at all times have the right
to exchange uncertificated Pledged Collateral for certificated Pledged
Collateral, and to exchange certificated Pledged Collateral for certificates of
larger or smaller denominations, for any purpose consistent with this Agreement.
(e) Appointment of Agent as Attorney-in-Fact. For the purpose of
enabling the Agent to exercise its rights under this Section 6 or otherwise in
connection with this Agreement,
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each of the Pledgors hereby (i) constitutes and appoints the Agent (and any of
the Agent's officers, employees or agents designated by the Agent) its true and
lawful attorney-in-fact, with full power and authority to execute any notice,
assignment, endorsement or other instrument or document, and to do any and all
acts and things for and on behalf of the such Pledgor, which the Agent may deem
necessary or desirable to protect, collect, realize upon and preserve the
Pledged Collateral, to enforce the Agent's or the Banks' rights with respect to
the Pledged Collateral and to accomplish the purposes hereof, and (ii) effective
upon and during the continuation of a Default, revokes all previous proxies with
regard to the Pledged Collateral and appoints the Agent as its proxyholder with
respect to the Pledged Collateral to attend and vote at any and all meetings of
the shareholders of the Companies held on or after the date of this proxy and
prior to the termination hereof, with full power of substitution to do so and
agrees, if so requested, to execute or cause to be executed appropriate proxies
therefor. Each such appointment is coupled with an interest and irrevocable so
long as the Banks have any Commitments or the Secured Obligations have not been
paid and performed in full. Each of the Pledgors hereby ratifies, to the extent
permitted by law, all that the Agent shall lawfully and in good faith do or
cause to be done by virtue of and in compliance with this Section 6.
SECTION 7. Agent Performance of Pledgor Obligations. The Agent may
perform or pay any obligation which the Pledgors have agreed to perform or pay
under or in connection with this Agreement, and the Pledgors shall reimburse the
Agent on demand for any amounts paid by the Agent pursuant to this Section 7.
SECTION 8. Agent's Duties. Notwithstanding any provision contained in
this Agreement, the Agent shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to the Pledgors
or the Banks or any other Person for any failure to do so or delay in doing so.
Beyond the exercise of reasonable care to assure the safe custody of the Pledged
Collateral while held hereunder and the accounting for moneys actually received
by the Agent hereunder, the Agent shall have no duty or liability to exercise or
preserve any rights, privileges or powers pertaining to the Pledged Collateral.
SECTION 9. Remedies.
(a) Remedies. Upon the occurrence of any Default, the Agent shall have,
in addition to all other rights and remedies granted to it in this Agreement,
the Credit Agreement or any other Loan Agreement, all rights and remedies of a
secured party under the UCC and other applicable laws (including, without
limitation, the laws of the jurisdictions of incorporation of the Companies).
Without limiting the generality of the foregoing, the Pledgors agree that any
item of the Pledged Collateral may be sold for cash or on credit or for future
delivery without assumption of any credit risk, in any number of lots at the
same or different times, at any exchange, brokers' board or elsewhere, by public
or private sale, and at such times and on such terms, as the Agent shall
determine (including, without limitation, by public or to the extent permitted
by local laws, private auction pursuant to the provision of the laws of the
jurisdictions of incorporation of the Companies); provided, however, that the
Pledgors shall be credited with the net proceeds of sale only when such proceeds
are finally collected by the Agent. Each of the Pledgors hereby agrees that the
sending of notice by ordinary mail, postage prepaid, to the address of such
Pledgor in accordance with Section 11, of the place and time of any public sale
or of the time after which any private sale or other intended disposition is to
be made, shall be
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deemed reasonable notice thereof if such notice is sent ten days prior to the
date of such sale or other disposition or the date on or after which such sale
or other disposition may occur, provided that the Agent may provide the Pledgors
shorter notice or no notice, to the extent permitted by the UCC or other
applicable law. The Pledgors recognize that the Agent may be unable to make a
public sale of any or all of the Pledged Collateral, by reason of prohibitions
contained in applicable securities laws or otherwise, and expressly agree that a
private sale to a restricted group of purchasers for investment and not with a
view to any distribution thereof shall be considered a commercially reasonable
sale. The Agent and each of the Banks shall have the right upon any such public
sale, and, to the extent permitted by law, upon any such private sale, to
purchase the whole or any part of the Pledged Collateral so sold, free of any
right or equity of redemption, which right or equity of redemption the Pledgors
hereby release to the extent permitted by law.
(b) Application of Proceeds. The cash proceeds actually received from
the sale or other disposition or collection of Pledged Collateral, and any other
amounts of the Pledged Collateral (including any cash contained in the Pledged
Collateral) the application of which is not otherwise provided for herein, shall
be applied as provided in Section 8 of the Guaranty or Section 2.02 of the
Credit Agreement. Any surplus thereof which exists after payment and performance
in full of the Secured Obligations shall be promptly paid over to the Pledgors
or otherwise disposed of in accordance with the UCC or other applicable law. The
Pledgors shall remain liable to the Agent, the Issuing Bank and the Banks for
any deficiency which exists after any sale or other disposition or collection of
Pledged Collateral.
SECTION 10. Certain Waivers. Each of the Pledgors waives, to the fullest
extent permitted by law, (i) any right of redemption with respect to the Pledged
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Pledged Collateral or other collateral or security for the
Secured Obligations; (ii) any right to require the Agent, the Issuing Bank or
the Banks (A) to proceed against any Person, (B) to exhaust any other collateral
or security for any of the Secured Obligations, (C) to pursue any remedy in the
Agent's, the Issuing Bank's or any of the Banks' power, or (D) 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 Pledged
Collateral; and (iii) all claims, damages, and demands against the Agent, the
Issuing Bank or the Banks arising out of the repossession, retention, sale or
application of the proceeds of any sale of the Pledged Collateral.
SECTION 11. Notices. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including by
facsimile) and shall be mailed, sent or delivered (i) if to the Agent, the
Issuing Bank or any Bank, at or to its address or facsimile number provided in
Section 9.02 of the Credit Agreement, and (ii) if to a Pledgor, at or to its
address or facsimile number set forth below its name on the signature page
hereof, or at or to such other address or facsimile number as such party shall
have designated in a written notice to the other party. All such notices and
communications shall be effective at the time and in the manner provided for in
Section 9.02 of the Credit Agreement.
SECTION 12. No Waiver; Cumulative Remedies. No failure on the part of
the Agent, the Issuing Bank or any Bank to exercise, and no delay in exercising,
any right, remedy, power or privilege hereunder or under any other Loan
Agreements shall operate as a waiver
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thereof, nor shall any single or partial exercise of any such right, remedy,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement and the other Loan Agreements are cumulative and not
exclusive of any rights, remedies, powers and privileges that may otherwise be
available to the Agent, the Issuing Bank or any Bank.
SECTION 13. Costs and Expenses; Indemnification; Other Charges.
(a) Costs and Expenses. The Pledgors jointly and severally agree to pay
on demand:
(i) the reasonable out-of-pocket costs and expenses of the Agent
and any of its Affiliates, and the reasonable fees and disbursements of counsel
to the Agent (including allocated costs of internal counsel), in connection with
the negotiation, preparation, execution, delivery and administration of this
Agreement, and any amendments, modifications or waivers of the terms thereof,
and the custody of the Pledged Collateral;
(ii) all reasonable title, appraisal (including the allocated
cost of internal appraisal services), survey, audit, consulting, search,
recording, filing and similar costs, fees and expenses incurred or sustained by
the Agent or any of its Affiliates in connection with this Agreement or the
Pledged Collateral; and
(iii) all costs and expenses of the Agent, its Affiliates, the
Issuing Bank and the Banks, and the fees and disbursements of counsel (including
the allocated costs of internal counsel), in connection with the enforcement or
attempted enforcement of, and preservation of any rights or interest under, this
Agreement, any out-of-court workout or other refinancing or restructuring or in
any bankruptcy case, and the protection, sale or collection of, or other
realization upon, any of the Pledged Collateral, including any and all losses,
costs and expenses sustained by the Agent, the Issuing Bank and any Bank as a
result of any failure by any of the Pledgors to perform or observe its
obligations contained herein.
(b) Indemnification. In addition, whether or not the transactions
contemplated by the Loan Agreements shall be consummated, the Pledgors hereby
agree to indemnify the Agent, the Issuing Bank, each Bank and any officers,
directors, employees or agents thereof (each an "Indemnified Person"), against
and hold each of them harmless from any and all liabilities, obligations,
losses, claims, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever, including the reasonable fees
and disbursements of counsel to an Indemnified Person (including allocated costs
of internal counsel), which may be imposed on, incurred by, or asserted against
any Indemnified Person, (i) in any way relating to or arising out of this
Agreement or any other Loan Agreement, the Secured Obligations, the Collateral
Documents or the transactions contemplated hereby or thereby, or (ii) with
respect to any investigation, litigation or other proceeding relating to any of
the foregoing, irrespective of whether the Indemnified Person shall be
designated a party thereto (the "Indemnified Liabilities"); provided that the
Pledgors shall not be liable to any Indemnified Person for any portion of such
Indemnified Liabilities to the extent they are found by a final decision of a
court of competent jurisdiction to have resulted from such Indemnified Person's
gross negligence or willful misconduct. If and to the extent that the foregoing
indemnification is for any reason held
13.
66
unenforceable, each Pledgor jointly and severally agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
(c) Defense. The Pledgors shall have the option to, and at the request
of any Indemnified Person shall, direct and control the defense of the
Indemnified Person in such proceedings, employing legal counsel selected by such
Pledgor and acceptable to the Indemnified Person, and pay the fees and expenses
of any legal counsel.
(d) Other Charges. The Borrower agrees to indemnify the Agent, the
Issuing Bank and each of the Banks against and hold each of them harmless from
any and all present and future stamp, transfer, documentary and other such
taxes, levies, fees, assessments and other charges made by any jurisdiction by
reason of the execution, delivery, performance and enforcement of this
Agreement.
(e) Interest. Any amounts payable to the Agent, the Issuing Bank or any
Bank under this Section 13 or otherwise under this Agreement if not paid upon
demand shall bear interest from the date of such demand until paid in full, at
the rate of interest then applicable to Base Rate Loans under the Credit
Agreement.
SECTION 14. Survival. All covenants, agreements, representations and
warranties made in this Agreement shall survive the execution and delivery of
this Agreement, and shall continue in full force and effect so long as any Bank
has any Commitment or any Secured Obligations remain unsatisfied.
Notwithstanding the foregoing, the obligations of the Pledgors under Section 13
shall survive the satisfaction of the Secured Obligations and the termination of
the Commitments.
SECTION 15. Benefits of Agreement. This Agreement is entered into for
the sole protection and benefit of the Agent, the Issuing Bank and each Bank and
their respective successors and assigns, and no other Person (other than the
Indemnified Persons) shall be a direct or indirect beneficiary of, or shall have
any direct or indirect cause of action or claim in connection with, this
Agreement. The Agent, the Issuing Bank and the Banks, by their acceptance of
this Agreement shall not have any obligations under this Agreement to any Person
other than the Pledgors, and such obligations shall be limited to those
expressly stated herein.
SECTION 16. Binding Effect. This Agreement shall be binding upon the
Pledgors and their respective successors and assigns, and inure to the benefit
of and be enforceable by the Agent, the Issuing Bank and each Bank and their
respective successors, endorsees, transferees and assigns.
SECTION 17. Assignment. None of the Pledgors shall have the right to
assign or transfer their respective rights and obligations hereunder without the
prior written consent of the Banks. Each Bank may, without notice to or consent
by the Pledgors, sell, assign, transfer or grant participations in all or any
portion of such Bank's rights and obligations hereunder in connection with any
sale, assignment, transfer or grant of a participation by such Bank under
Section 9.06 of the Credit Agreement of or in its rights and obligations
thereunder and under the other Loan Agreements. Each Pledgor agrees that in
connection with any such sale, assignment,
14.
67
transfer or grant by any Bank, and to the extent permitted by the Credit
Agreement with respect to any such sale, assignment, transfer or grant, such
Bank may deliver to the prospective participant or assignee financial statements
and other relevant information relating to the Pledgors and their Subsidiaries.
In the event of any grant of a participation, the participant shall be entitled
to the benefits of Section 13.
SECTION 18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN
RESPECT OF ANY PLEDGED COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION
OTHER THAN CALIFORNIA.
(a) Waiver of Jury Trial. THE AGENT, THE PLEDGORS, THE ISSUING BANK AND
EACH BANK HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE
LOAN AGREEMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THE LOAN AGREEMENTS. The scope of this waiver is intended to be all encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including contract claims, tort claims,
breach of duty claims, and all other common law and statutory claims. The Agent,
each Bank, the issuing Bank and the Pledgors each acknowledge that this waiver
is a material inducement to enter into a business relationship, that each has
already relied on the waiver in entering into this Agreement, and that each will
continue to rely on the waiver in their related future dealings. The Agent, each
Bank, the Issuing Bank and the Pledgors further warrant and represent that each
has reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THE WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN AGREEMENTS OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING THERETO. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
(b) Consent to Jurisdiction; Venue. All judicial proceedings brought
against any Pledgors with respect to this Agreement and the Loan Agreements may
be brought in any state or federal court of competent jurisdiction in the City
of Los Angeles or San Francisco in the State of California, or to the extent
that actions may be required upon this Agreement in the courts of any foreign
jurisdiction in connection with the enforcement proceedings in such foreign
jurisdiction relating to any Pledged Collateral commenced by the Agent, to the
courts of any foreign jurisdiction and by execution and delivery of this
Agreement, the Pledgors accept for themselves and in connection with their
properties, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts, and irrevocably agree to be bound by any judgment rendered
thereby in connection with this Agreement. The Pledgors irrevocably waive any
right they may have to assert the doctrine of forum non conveniens or to object
to venue to the extent any proceeding is brought in accordance with this
paragraph. Nothing herein shall
15.
68
affect the right of the Agent, Issuing Bank or any Bank to bring proceedings
against the Pledgors in courts of any jurisdiction.
SECTION 19. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Agreement and the other Loan Agreements
constitute the entire agreement of the parties with respect to the matters set
forth herein and supersede any prior agreements, commitments, drafts,
communications, discussions and understandings, oral or written, with respect
thereto. There are no conditions to the full effectiveness of this Agreement.
(b) Amendments and Waivers. Except to the extent otherwise provided in
the Credit Agreement, this Agreement may not be amended except by a writing
signed by the Pledgors, the Agent, the Issuing Bank and the Majority Banks, or
the Pledgors and the Agent (with the written consent of the Issuing Bank and the
Majority Banks). No waiver of any rights of the Agent, the Issuing Bank and the
Banks under any provision of this Agreement or consent to any departure by the
Pledgors therefrom shall be effective unless in writing and signed by the Agent,
the Issuing Bank and the Majority Banks, or the Agent (with the written consent
of the Issuing Bank and the Majority Banks). Any such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 20. Limitation on Liability. No claim shall be made by any
Pledgors or their Affiliates against the Agent, the Issuing Bank or any of the
Banks or any of their respective employees, officers, directors or agents for
any special, indirect, exemplary, consequential or punitive damages in respect
of any breach or wrongful conduct (whether or not the claim therefor is based on
contract, tort or duty imposed by law), in connection with, arising out of or in
any way related to the transactions contemplated by this Agreement or the other
Loan Agreements or any act or omission or event occurring in connection
therewith; and each Pledgors hereby waives, releases and agrees not to xxx upon
any such claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
SECTION 21. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 22. Counterparts and Signatures. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
This Agreement shall be binding upon the Pledgors upon their execution and
delivery of this Agreement to the Agent, without the need of any signature by
the Agent, the Designated Issuer or any of the Banks. The failure of any of the
Agent, the Designated Issuer or any of the Banks to execute this Agreement shall
not affect the validity or enforceability hereof.
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69
SECTION 23. No Inconsistent Requirements. The Pledgors acknowledge that
this Agreement and the other Loan Agreements may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
agree that all such covenants, terms and provisions are cumulative and all shall
be performed and satisfied in accordance with their respective terms.
SECTION 24. Termination. Upon termination of the Commitments of the
Banks, surrender of all Letters of Credit and payment and performance in full of
all Secured Obligations (other than inchoate indemnity obligations), this
Agreement shall terminate and the Agent shall promptly redeliver to the Pledgors
any of the Pledged Collateral in the Agent's possession and shall execute and
deliver to the Pledgors such documents and instruments reasonably requested by
the Pledgors as shall be necessary to evidence termination of all security
interests given by the Pledgors to the Agent hereunder; provided, however, that
the obligations of the Pledgors under Section 13 shall survive such termination.
[Remainder of page intentionally left blank]
17.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Stock Pledge and Charge Agreement, as of the date first above written.
THE PLEDGORS
READ-RITE CORPORATION
By:
------------------------------------------
Title:
----------------------------------------
Address:
---------------------------------------
----------------------------------------------
----------------------------------------------
Attn:
------------------------------------------
Fax No.:
--------------------------------------
SEALED with the Common Seal of ) SUNWARD TECHNOLOGIES INC.
SUNWARD TECHNOLOGIES INC. )
in the presence of __________________ )
and SIGNED by ) By:
-------------------------------------------
Title:
--------------- --------------- ----------------------------------------
Title: Title: Address:
Witness:________________________ --------------------------------------
Address:________________________ ----------------------------------------------
Attn:
Occupation:_____________________ -----------------------------------------
Fax No.:
--------------------------------------
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY, as Agent
By:
------------------------------------------
Title:
----------------------------------------
[Counterpart Signature Page to Stock Pledge and Charge Agreement]
71
BANKS:
CIBC INC.
By:
-----------------------------------------
Title:
--------------------------------------
ABN AMRO BANK N.V.
By:
-----------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
FLEET NATIONAL BANK
By:
-----------------------------------------
Title:
--------------------------------------
KEYBANK, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
THE LONG TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
MELLON BANK
By:
-----------------------------------------
Title:
--------------------------------------
[Counterpart Signature Page to Stock Pledge and Charge Agreement]
72
THE MITSUBISHI TRUST AND BANKING
CORPORATION, LOS ANGELES AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
THE SUMITOMO BANK LIMITED,
SAN XXXXXXXXX XXXXXX
By:
-----------------------------------------
Title:
--------------------------------------
THE INDUSTRIAL BANK OF JAPAN LIMITED,
SAN FRANCISCO AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
BANKBOSTON, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
BANQUE NATIONALE DE PARIS
By:
-----------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
[Counterpart Signature Page to Stock Pledge and Charge Agreement]
00
XXXXX XXXX XX XXXXXX
By:
-----------------------------------------
Title:
--------------------------------------
XXXXX FARGO BANK, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
THE DESIGNATED ISSUER:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
[Counterpart Signature Page to Stock Pledge and Charge Agreement]
74
SCHEDULE 1
to the Stock Pledge and Charge Agreement
PLEDGED SHARES
Section A - Fully Pledged Interests
Pledgor's Percentage of
Pledged Percentage Pledgor's
Pledgor Company Shares Certificate No. Holding Holding Pledged
------- ------- ------ --------------- ------- ---------------
Read-Rite Sunward 1,000 2 100% 100%
Corporation Technologies
Inc. (Delaware)
Read-Rite Sunward 10 1 100% 100%
Corporation Technologies
California
(California)
Section B - Limited Pledged Interests
Pledgor's Percentage of
Pledged Percentage Pledgor's
Pledgor Company Shares Certificate No. Holding Holding Pledged
------- ------- ------ --------------- ------- ---------------
Read-Rite Read-Rite 65 005 100% 65%
Corporation International
(Cayman Islands)
Read-Rite Read-Rite 1,300,000 40 100% 65%
Corporation Thailand, Ltd.
(Thailand)
Sunward Sunward 4,693,000 15 100% 65%
Technologies Inc. Technologies
International
Limited, (Hong
Kong)
1.
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Section C - Restricted Pledged Interests
Pledgor's Percentage of
Pledged No. of Percentage Pledgor's Holding
Pledgor Company Shares Certificate No. Shares Holding Pledged
------- ------- ------ --------------- ------ ------- -------
Read-Rite Read-Rite SMI 28,327 1A 0002 1 50% plus 2 shares 100% less 1
Corporation (Japan) 1B 0001 10 share
1B 0002 10
1B 0003 10
1C 0001 100
1C 0002 100
1C 0003 100
1C 0004 100
1D 0001 1,000
1D 0002 1,000
1D 0003 1,000
1D 0004 1,000
1D 0005 1,000
1E 0001 10,000
1E 0002 10,000
2B 0001 10
2B 0002 10
2B 0003 10
2C 0001 100
2C 0002 100
2D 0001 1,000
3A 0001 1
3A 0002 1
3A 0003 1
3A 0004 1
3A 0005 1
3A 0006 1
3B 0001 10
3B 0002 10
3B 0003 10
3B 0004 10
3B 0005 10
3B 0006 10
3C 0001 100
3C 0002 100
3C 0003 100
3C 0004 100
3C 0005 100
3C 0006 100
3D 0001 1,000
2.
76
3.
77
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of
__________, 1998 is made between the corporations listed on Schedule 1 hereto
(each a "Grantor" and together the "Grantors") and Canadian Imperial Bank of
Commerce, New York Agency, as agent for the Banks referred to below (in such
capacity, the "Agent").
Read-Rite Corporation (the "Borrower"), certain financial
institutions as lenders (the "Banks"), Canadian Imperial Bank of Commerce, New
York Agency, as issuer of letters of credit for the account of the Borrower (in
such capacity, the "Designated Issuer") and the Agent are parties to a Credit
Agreement dated as of October 2, 1997 (as amended, modified, renewed or extended
from time to time, the "Credit Agreement").
The Grantors other than the Borrower are subsidiaries of the
Borrower and receive substantial direct and indirect benefits from the
extensions of credit and issuance of Letters of Credit for the Borrower under
the Credit Agreement. Such Grantors (other than the Borrower) are party to that
certain Continuing Guaranty dated as of even date herewith in favor of the
Agent, the Banks, the Designated Issuer and any other Issuing Bank (as amended,
modified, renewed or extended from time to time the "Guaranty").
It is a condition precedent to the borrowings and the issuance
of Letters of Credit under the Credit Agreement that the Grantors enter into
this Agreement and grant to the Agent, for itself and for the ratable benefit of
the Issuing Bank and the Banks, the security interests hereinafter provided to
secure the obligations of the Grantors described below.
Accordingly, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms used in
this Agreement (including the recitals above) and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement.
(b) Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Account Control Agreement" means any account control agreement or other
agreement with any securities intermediary granting control with respect to any
Investment Property for purposes of UCC Section 9115.
"Accounts" means any and all accounts of the Grantors, whether now
existing or hereafter acquired or arising, and in any event includes all
accounts receivable, contract rights,
78
rights to payment and other obligations of any kind owed to any of the Grantors
arising out of or in connection with the sale or lease of merchandise, goods or
commodities or the rendering of services or arising from any other transaction,
however evidenced, and whether or not earned by performance, all guaranties,
indemnities and security with respect to the foregoing, and all letters of
credit relating thereto, in each case whether now existing or hereafter acquired
or arising.
"Assigned Agreements" means, to the extent assignable, the
Joint Venture Agreement dated as of June 14, 1991 between the Borrower and
Sumitomo Metal Industries, Inc., (as supplemented, amended, modified, renewed or
extended from time to time) including (i) all rights of the Borrower to receive
moneys and other payments and distributions due or to become due thereunder or
with respect thereto, (ii) all rights of the Borrower to receive proceeds of any
insurance, indemnity, warranty, letter of credit or guaranty with respect
thereto, (iii) all claims of the Borrower for damages arising out of any breach
or default thereunder or in respect thereof; and (iv) the right of the Borrower
to terminate, amend, supplement, renew or modify any such agreement, contract,
instrument or other document, to perform thereunder and to compel performance
and otherwise exercise all rights and remedies thereunder or in respect thereof.
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as in effect from time to time.
"Books" means all books, records and other written, electronic
or other documentation in whatever form maintained now or hereafter by or for
the Grantors in connection with the ownership of their respective assets or the
conduct of their respective businesses or evidencing or containing information
relating to the Collateral, including: (i) ledgers; (ii) records indicating,
summarizing, or evidencing the Grantors' assets (including Inventory and Rights
to Payment), business operations or financial condition; (iii) computer programs
and software; (iv) computer discs, tapes, files, manuals, spreadsheets; (v)
computer printouts and output of whatever kind; (vi) any other computer prepared
or electronically stored, collected or reported information and equipment of any
kind; and (vii) any and all other rights now or hereafter arising out of any
contract or agreement between any Grantor and any service bureau, computer or
data processing company or other Person charged with preparing or maintaining
any of the Grantors' books or records or with credit reporting, including with
regard to the Grantors' Accounts.
"Chattel Paper" means all writings of whatever sort which
evidence a monetary obligation and a security interest in or lease of specific
goods, whether now existing or hereafter arising.
"Collateral" has the meaning set forth in Section 2.
"Default" means any of the following:
(i) Representations and Warranties. Any representation or
warranty by any Grantor under or in connection with the Loan Agreements to which
it is a party shall prove to have been incorrect in any material respect when
made or deemed made.
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79
(ii) Failure by Grantors to Perform Certain Covenants. Any
Grantor shall fail to perform or observe any term, covenant or agreement
contained in subsections (a) or (b) of Xxxxxxx 0 xx xxxxxxxxxxx (x), (x), (x),
(x), (x), (x), or (r) of Section 5 of this Agreement.
(iii) Failure by Grantors to Perform Other Covenants. Any
Grantor shall fail to perform or observe any other term, covenant or agreement
contained in this Agreement and such failure shall remain unremedied or uncured
for thirty days after the Chief Executive Officer or Chief Financial Officer,
Controller, Assistant Controller or Treasurer of any Grantor knows of such
failure (whether by notice from the Agent, the Banks, the Designated Issuer or
otherwise).
(iv) (A) Any Grantor shall commence any case, proceeding or
other action (1) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (2) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or any Grantor shall make a general assignment
for the benefit of its creditors; or (B) there shall be commenced against any
Grantor any case, proceeding or other action of a nature referred to in clause
(A) above which (1) results in the entry of an order for relief or any such
adjudication or appointment or (2) remains undismissed, undischarged or unbonded
for a period of sixty (60) consecutive days; or (C) there shall be commenced
against any Grantor any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) consecutive days from the entry thereof;
or (D) any Grantor shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(A), (B) and (C) above; or (E) any Grantor shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or (F) any Grantor shall cease to be Solvent.
(v) Dissolution, Etc. Any Grantor or any of its Subsidiaries
shall (i) liquidate, wind up or dissolve (or suffer any liquidation, winding-up
or dissolution), except to the extent expressly permitted by the Credit
Agreement, (ii) suspend its operations other than in the ordinary course of
business, or (iii) take any corporate action to authorize any of the actions or
events set forth above in this subsection (v).
(vi) Collateral. (A) This Agreement or any of the other
Collateral Documents, or any certificates, documents, agreements or other
instruments executed in connection herewith or therewith shall for any reason be
revoked or invalidated, or otherwise cease to be in full force and effect, or
(B) any Grantor or any other Person shall contest in any manner the validity or
enforceability thereof or deny that it has any further liability or obligation
hereunder or thereunder, or (C) there shall be a material adverse effect on the
ability of any Grantor to perform its obligations under this Agreement or the
other Collateral Documents, or there shall be a material adverse change in the
aggregate value of the Collateral or the priority of the Agent's, Issuing Bank's
or any Bank's lien therein, or (D) there shall be any levy upon, seizure or
attachment of the Collateral or any part thereof.
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80
(vii) Default under Credit Agreement. Any "Event of Default"
as defined in the Credit Agreement shall occur.
"Deposit Account" means any demand, time, savings, passbook or
like account now or hereafter maintained by or for the benefit of any Grantor
with a bank, savings and loan association, credit union or like organization
(including the Agent and each Bank) and all funds and amounts therein, whether
or not restricted or designated for a particular purpose.
"Documents" means any and all documents of title, bills of
lading, dock warrants, dock receipts, warehouse receipts and other documents of
any Grantor, whether or not negotiable, and includes all other documents which
purport to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made available
to any Grantor for the purpose of ultimate sale or exchange of goods or for the
purpose of loading, unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with goods in a manner preliminary to their sale
or exchange, in each case whether now existing or hereafter acquired or arising.
"Equipment" means all now existing or hereafter acquired
equipment of the Grantors in all of its forms, wherever located, and in any
event includes any and all machinery, furniture, equipment, furnishings and
fixtures in which any Grantor now or hereafter acquires any right, and all other
goods and tangible personal property (other than Inventory), including tools,
parts and supplies, automobiles, trucks, tractors and other vehicles, computer
and other electronic data processing equipment and other office equipment,
computer programs and related data processing software, and all additions,
substitutions, replacements, parts, accessories, and accessions to and for the
foregoing, now owned or hereafter acquired, and including any of the foregoing
which are or are to become fixtures on real property.
"Financing Statements" has the meaning set forth in Section 3.
"General Intangibles" means all general intangibles of the
Grantor, now existing or hereafter acquired or arising, and in any event
includes: (i) all tax and other refunds, rebates or credits of every kind and
nature to which any Grantor is now or hereafter may become entitled; (ii) all
good will, choses in action and causes of action, whether legal or equitable,
whether in contract or tort and however arising; (iii) all Intellectual Property
Collateral; (iv) all interests in limited and general partnerships and limited
liability companies; (v) all rights of stoppage in transit, replevin and
reclamation; (vi) all licenses, permits, consents, indulgences and rights of
whatever kind issued in favor of or otherwise recognized as belonging to any
Grantor by any governmental authority or regulatory body; and (vii) all
indemnity agreements, guaranties, insurance policies and other contractual,
equitable and legal rights of whatever kind or nature; in each case whether now
existing or hereafter acquired or arising.
"Instruments" means any and all negotiable instruments and
every other writing which evidences a right to the payment of money, wherever
located and whether now existing or hereafter acquired.
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81
"Intellectual Property Collateral" means the following
properties and assets owned or held by any Grantor or in which any Grantor
otherwise has any interest, now existing or hereafter acquired or arising:
(i) all patents and patent applications, domestic or foreign,
all licenses relating to any of the foregoing and all income and royalties with
respect to any licenses (including, without limitation, such patents, patent
applications and patent licenses as described in the Second Disclosure Letter),
all rights to xxx for past, present or future infringement thereof, all rights
arising therefrom and pertaining thereto and all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof;
(ii) all copyrights and applications for copyright, domestic
or foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship (including, without limitation, the
copyrights and copyright applications described in the Second Disclosure
Letter), all rights, claims and demands in any way relating to any such
copyrights or works, including royalties and rights to xxx for past, present or
future infringement, and all rights of renewal and extension of copyright;
(iii) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, all licenses relating to any of
the foregoing and all income and royalties with respect to any licenses
(including, without limitation, such marks, names, applications and licenses as
described in the Second Disclosure Letter), whether registered or unregistered
and wherever registered, all rights to xxx for past, present or future
infringement or unconsented use thereof, all rights arising therefrom and
pertaining thereto and all reissues, extensions and renewals thereof;
(iv) all trade secrets, trade dress, trade styles, logos,
other source of business identifiers, mask-works, mask-work registrations,
mask-work applications, software, confidential information, customer lists,
license rights, advertising materials, operating manuals, methods, processes,
know-how, algorithms, formulae, databases, quality control procedures, product,
service and technical specifications, operating, production and quality control
manuals, sales literature, drawings, specifications, blue prints, descriptions,
inventions, name plates and catalogs; and
(v) the entire goodwill of or associated with the businesses
now or hereafter conducted by any Grantor connected with and symbolized by any
of the aforementioned properties and assets.
"Inventory" means any and all of the Grantors' inventory in
all of its forms, wherever located, whether now owned or hereafter acquired, and
in any event includes all goods (including goods in transit) which are held for
sale, lease or other disposition, including those held for display or
demonstration or out on lease or consignment or to be furnished under a contract
of service, or which are raw materials, work in process, finished goods or
materials used or consumed in any Grantor's business, and the resulting product
or mass, and all repossessed,
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returned, rejected, reclaimed and replevined goods, together with all parts,
components, supplies and other materials used or usable in connection with the
manufacture, production, packing, shipping, advertising, selling or furnishing
of such goods; and all other items hereafter acquired by any Grantor by way of
substitution, replacement, return, repossession or otherwise, and all additions
and accessions thereto, and any Document representing or relating to any of the
foregoing at any time.
"Investment Property" means any and all investment property of
the Grantors, including all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts, and all financial assets held in any securities account or otherwise,
wherever located, and whether now existing or hereafter acquired or arising.
"Insolvency Proceeding" with respect to any Grantor, means any
case, action or proceeding described in paragraph (iv) of the definition of
Default.
"Letter of Credit Proceeds" means any and all proceeds of
written letters of credit.
"Material Adverse Effect" with respect to any Person means, a
material adverse effect (i) on the business operations, prospects, properties,
assets or condition (financial or otherwise) of such Person and its Subsidiaries
taken as a whole, or (ii) on the ability of such Person to perform, or any of
the Banks, the Issuing Bank or the Agent to enforce, the obligations of such
Person under this Agreement or any of the other Loan Agreements.
"Proceeds" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Collateral or other assets of any
Grantor, including, without limitation, "proceeds" as defined at UCC Section
9306, any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to or for the account of any Grantor from time to time with respect to
any of the Collateral, any and all payments (in any form whatsoever) made or due
and payable to any Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority or regulatory body (or any Person
acting under color of governmental authority), any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral
or for or on account of any damage or injury to or conversion of any Collateral
by any Person, any and all other tangible or intangible property received upon
the sale or disposition of Collateral, and all proceeds of proceeds.
"Rights to Payment" means all Accounts and any and all rights
and claims to the payment or receipt of money or other forms of consideration of
any kind in, to and under all Chattel Paper, Documents, General Intangibles,
Instruments, Investment Property, Assigned Agreements and Proceeds.
"Secured Obligations" means the indebtedness, liabilities and
other obligations of the Grantors to the Agent, the Issuing Bank and the Banks
under or in connection with the Credit Agreement, the Notes, the Letters of
Credit, the Guaranty and the other Loan Agreements including all unpaid
principal of the Loans, all unreimbursed drawings under Letters of Credit,
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all interest accrued thereon, all fees due under the Credit Agreement,
Collateral Documents and other Loan Agreements and all other amounts payable by
the Grantors to the Agent, the Issuing Bank and the Banks thereunder or in
connection therewith. The terms "indebtedness" "liability" and "obligations" are
used in their most comprehensive sense and include any and all advances, debts,
obligations and liabilities now existing or hereafter arising (including
interest which but for the filing of a petition in any Insolvency Proceeding
against a Grantor would have accrued on such obligations, whether or not a claim
is allowed against such Grantor for such interest in any such Insolvency
Proceeding), whether voluntary or involuntary and whether due or to become due,
absolute or contingent, liquidated or unliquidated, determined or undetermined
and whether recovery upon such indebtedness, liabilities and obligations may be
or hereafter becomes unenforceable or shall be an allowed or disallowed claim
under the Bankruptcy Code or other applicable law.
"Solvent" means, as to any Person at any time, that (i) the
fair value of the property of such Person is greater than the amount of such
Person's liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for purposes
of Section 101(31) of the Bankruptcy Code, (ii) the present fair saleable value
of the property of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured, (iii) such Person is able to realize upon its property and
pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business, (iv)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) Terms Defined in UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.
(d) Interpretation. The rules of interpretation set forth in
Section 1.02 of the Credit Agreement shall be applicable to this Agreement and
are incorporated herein by this reference.
SECTION 2 Security Interest.
(a) Grant of Security Interest. As security for the payment
and performance of the Secured Obligations, each of the Grantors hereby pledges,
hypothecates and grants to the
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Agent, for itself and on behalf of and for the ratable benefit of the Issuing
Bank and the Banks, a security interest in all of such Grantor's respective
right, title and interest in, to and under the following property, wherever
located and whether now existing or owned or hereafter acquired or arising
(collectively, the "Collateral"): (i) all Accounts; (ii) all Assigned
Agreements; (iii) all Chattel Paper; (iv) all Deposit Accounts; (v) all
Documents; (vi) all Equipment; (vii) all General Intangibles; (viii) all
Instruments; (ix) all Inventory; (x) all Investment Property; (xi) all Books;
(xii) all Letter of Credit Proceeds ; and (xiii) all products and Proceeds of
any and all of the foregoing.
(b) Grantors Remains Liable. Anything herein to the contrary
notwithstanding, (i) the Grantors shall remain liable under any contracts,
agreements and other documents included in the Collateral (including all the
Assigned Agreements), to the extent set forth therein, to perform all of their
duties and obligations thereunder to the same extent as if this Agreement had
not been executed, (ii) the exercise by the Agent of any of the rights hereunder
shall not release any Grantor from any of its duties or obligations under such
contracts, agreements and other documents included in the Collateral, and (iii)
the Agent shall not have any obligation or liability under any contracts,
agreements and other documents included in the Collateral by reason of this
Agreement, nor shall the Agent be obligated to perform any of the obligations or
duties of the Grantors thereunder or to take any action to collect or enforce
any such contract, agreement or other document included in the Collateral
hereunder.
(c) Exceptions. Notwithstanding the foregoing provisions of
this Section 2, the grant of a security interest as provided herein shall not
extend to, and the term "Collateral" shall not include, any General Intangibles
of a Grantor (whether owned or held as licensee or lessee, or otherwise), to the
extent that (i) such General Intangibles are not assignable or capable of being
encumbered as a matter of law or under the terms of the license or lease
applicable thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law against an assignee), without the consent of
the licensor or lessor thereof and (ii) such consent has not been obtained;
provided, however, that the foregoing grant of security interest shall extend
to, and the term "Collateral" shall include, (A) any General Intangible which is
an Account or a Proceed of, or otherwise related to the enforcement or
collection of, any Account, or goods which are the subject of any Account, (B)
any and all Proceeds of any General Intangibles which are otherwise excluded to
the extent that the assignment or encumbrance of such Proceeds is not so
restricted, and (C) upon obtaining the consent of any such licensor or lessor
with respect to any such otherwise excluded General Intangibles, such General
Intangibles as well as any and all Proceeds thereof that might have theretofore
have been excluded from such grant of a security interest and the term
"Collateral."
(d) Continuing Security Interest. The Grantors agree that this
Agreement shall create a continuing security interest in the Collateral which
shall remain in effect until terminated in accordance with Section 24.
(e) Pledged Stock. Nothing in this Section 2 shall be deemed
to create or require the creation of a security interest in the capital stock of
any foreign incorporated subsidiaries of the Grantors (taken together with any
security interest created by the Pledge Agreement) greater than 65% of the then
outstanding capital stock of each of such subsidiaries.
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SECTION 3 Perfection Procedures.
(a) Financing Statements. The Grantors shall execute and
deliver to the Agent concurrently with the execution of this Agreement, and at
any time and from time to time thereafter, all financing statements,
continuation financing statements, termination statements, security agreements,
chattel mortgages, assignments, filings with the Patent and Trademark Office and
Copyright Office (and their foreign equivalents if the Agent requests), fixture
filings, warehouse receipts, documents of title, affidavits, reports, notices,
schedules of account, letters of authority and all other documents and
instruments, in form satisfactory to the Agent (the "Financing Statements"), and
take all other action, as the Agent may request, to perfect and continue
perfected, maintain the priority of or provide notice of the Agent's security
interest in the Collateral and to accomplish the purposes of this Agreement.
(b) Notice of Security Interest. In accordance with Section
9302(1)(g) of the California UCC, written notice of the security interest of the
Agent, for itself and on behalf of and for the ratable benefit of the Issuing
Bank and the Banks, in each Deposit Account maintained with a Bank is hereby
given to such Bank. The Grantors agree to make joint notifications with the
Agent to any bank or financial institution holding any Deposit Account, whether
within or outside California, and otherwise take such steps as the Agent may
require to perfect or continue the perfection of the security interest created
hereby in any Deposit Account.
(c) Certain Agents. Any third person at any time and from time
to time holding all or any portion of the Collateral shall be deemed to, and
shall, hold the Collateral as the agent of, and as pledge holder for, the Agent.
At any time and from time to time, the Agent may give notice to any third person
holding all or any portion of the Collateral that such third person is holding
the Collateral as the agent of, and as pledge holder for, the Agent.
SECTION 4 Representations and Warranties. Each of the Grantors
jointly and severally represents and warrants to the Issuing Bank, each Bank and
the Agent that:
(a) Location of Chief Executive Office and Collateral. The
Grantors' chief executive offices and principal places of business are located
at the addresses set forth in the Second Disclosure Letter, all other locations
where any of the Grantors conduct business or Collateral is kept and the federal
taxpayer identification numbers of each Grantor are set forth in the Second
Disclosure Letter.
(b) Locations of Books. All locations where Books pertaining
to the Rights to Payment are kept, including all equipment necessary for
accessing such Books and the names and addresses of all service bureaus,
computer or data processing companies and other Persons keeping any Books or
collecting Rights to Payment for the Grantors, are set forth in the Second
Disclosure Letter.
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(c) Trade Names and Trade Styles. All trade names and trade
styles under which any Grantor presently conducts its business operations are
set forth in the Second Disclosure Letter, and, except as set forth in the
Second Disclosure Letter, no Grantor has, at any time in the last six years: (i)
been known as or used any other corporate, trade or fictitious name; (ii)
changed its name; (iii) been the surviving or resulting corporation in a merger
or consolidation; or (iv) acquired through asset purchase or otherwise any
business of any Person.
(d) Ownership of Collateral. Each Grantor is, and, except as
permitted by Section 5(i), will continue to be, the sole and complete owner of
the Collateral relative to it (or, in the case of after-acquired Collateral, at
the time such Grantor acquires rights in such Collateral, will be the sole and
complete owner thereof), free from any Lien other than Permitted Liens.
(e) Enforceability; Priority of Security Interest. (i) This
Agreement creates a security interest which is enforceable against the
Collateral in which the Grantors now have rights and will create a security
interest which is enforceable against the Collateral in which the Grantors
hereafter acquire rights at the time the any such Grantor acquires any such
rights; and (ii) the Agent has a perfected and first priority security interest
in the Collateral in which the Grantors now have rights, and will have a
perfected and first priority security interest in the Collateral in which the
Grantors hereafter acquire rights at the time any such Grantor acquires any such
rights, in each case securing the payment and performance of the Secured
Obligations.
(f) Other Financing Statements. Other than (i) Financing
Statements disclosed to the Agent; and (ii) Financing Statements in favor of the
Agent on behalf of the Issuing Bank and the Banks, no effective Financing
Statement naming any Grantor as debtor, assignor, grantor, mortgagor, pledgor or
the like and covering all or any part of the Collateral is on file in any filing
or recording office in any jurisdiction.
(g) Rights to Payment.
(i) The Rights to Payment represent valid, binding and
enforceable obligations of the account debtors or other Persons obligated
thereon, created in accordance with all applicable laws and represent
undisputed, bona fide transactions completed in accordance with the terms and
provisions contained in any documents related thereto, and are and will be
genuine, free from Liens, and not subject to any adverse claims, counterclaims,
setoffs, defaults, disputes, defenses, discounts, retainages, holdbacks or
conditions precedent of any kind of character, except to the extent reflected by
the Borrower's reserves for uncollectible Rights to Payment or to the extent, if
any, that such account debtors or other Persons may be entitled to normal and
ordinary course trade discounts, returns, adjustments and allowances, or as
otherwise disclosed to the Agent and the Banks in writing;
(ii) to the best of the Grantors' knowledge and belief, all
account debtors and other obligors on the Rights to Payment are Solvent and
generally paying their debts as they come due, and the Grantors have no
knowledge of any fact or circumstance which would impair the validity or
collectibility of any of the Rights to Payment;
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(iii) no Grantor has assigned any of its rights under the
Rights to Payment except as provided in this Agreement or as set forth in the
other Loan Documents; and
(iv) all statements made, all unpaid balances and all other
information in the Books and other documentation relating to the Rights to
Payment are true and correct and in all respects what they purport to be.
(h) Inventory. No Inventory is stored with any bailee,
warehouseman or similar Person or on any premises leased to a Grantor, nor has
any Inventory been consigned to any Grantor or consigned by any Grantor to any
Person or is held by any Grantor for any Person under any "xxxx and hold" or
other arrangement, except as set forth in the Second Disclosure Letter.
(i) Intellectual Property.
(i) The Second Disclosure Letter sets forth all material
patents, copyrights, trademarks, service marks or trade names owned or licensed
or used by the Grantors and all application or registrations pending in respect
of the same and all such rights are subsisting and have not been adjudged
invalid or unenforceable in whole or in part;
(ii) all maintenance fees required to be paid on account of
any patents have been timely paid for maintaining such patents in force, and, to
the best of the Grantors' knowledge, each of the patents listed in the Second
Disclosure Letter is valid and enforceable and the Borrower has notified the
Agent in writing of all prior art (including public uses and sales) of which it
is aware;
(iii) to the best of the Grantors' knowledge after due
inquiry, no material infringement or unauthorized use presently is being made of
any Intellectual Property Collateral by any Person;
(iv) except as set forth in the Borrower's filings with the
S.E.C. made on or after January 1, 1997, and available electronically to the
public from the S.E.C. on or prior to June 30, 1998, the Grantors own or are
licensed or otherwise have the right to use (or could obtain such ownership or
licenses or rights on terms not materially adverse to the Grantors) all
Intellectual Property Collateral, without conflict with the rights of any other
Person, except where any failure to have any such ownership, license or other
rights, or any such conflict could not reasonably be expected to have a Material
Adverse Effect.
(j) Equipment.
(i) None of the Equipment or other Collateral is affixed to
real property, except Collateral with respect to which the Grantors have
supplied the Agent with all information and documentation necessary to make all
fixture filings required to perfect and protect the priority of the Agent's
security interest in all such Collateral which may be fixtures as against all
Persons having an interest in the premises to which such property may be
affixed; and
(ii) none of the Equipment is leased from or to any Person,
except as set forth in the Second Disclosure Letter.
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(k) Deposit Accounts. The names and addresses of all financial
institutions at which the Grantors maintain their Deposit Accounts, and the
account numbers and account names of such Deposit Accounts, are set forth in the
Second Disclosure Letter.
(l) Investment Property; Instruments. All securities accounts
of the Grantors and other Investment Property of the Grantors are set forth in
the Second Disclosure Letter, and all Instruments held by the Grantors are also
set forth in the Second Disclosure Letter. No Account Control Agreements exist
with respect to any Investment Property other than any Account Control
Agreements in favor of the Agent.
SECTION 5 Covenants. So long as any of the Secured Obligations
remain unsatisfied or any Bank shall have any Commitment, each of the Grantors
agrees that:
(a) Defense of Collateral. The Grantors will appear in and
defend any action, suit or proceeding which may affect to a material extent
their respective title to, or right or interest in, or the Agent's right or
interest in, the Collateral.
(b) Preservation of Collateral. The Grantors will maintain or
cause to be maintained in good repair, working order and condition all
Collateral to the extent required by the Credit Agreement.
(c) Compliance with Insurance Policies. The Grantors will
comply with all policies of insurance, relating in a material way to the
possession, operation, maintenance and control of the Collateral.
(d) Location of Books and Chief Executive Office. The Grantors
will: (i) keep all Books pertaining to the Rights to Payment at the locations
set forth in the Second Disclosure Letter; and (ii) give at least 30 days' prior
written notice to the Agent of (A) any changes in any such location where Books
pertaining to the Rights to Payment are kept, including any change of name or
address of any service bureau, computer or data processing company or other
Person preparing or maintaining any Books or collecting Rights to Payment for
the Grantors or (B) any change in the location of any of the Grantors' chief
executive offices or principal places of business.
(e) Location of Collateral. The Grantors will keep the
Collateral in a jurisdiction in which the Agent and the Banks shall have a
perfected security interest in the Collateral and not remove the Collateral
outside such jurisdictions (other than disposals of Collateral permitted by
subsection (i) below) except (x) for transfers made upon at least 30 days' prior
written notice to the Agent to another jurisdiction within the United states or
(y) for the transfer outside the United States in the ordinary course of
business to wholly-owned Subsidiaries of equipment having an aggregate book
value not exceeding $15,000,000 over the term of the Credit Agreement.
(f) Change in Name, Identity or Structure. The Grantors will
give at least 30 days' prior written notice to the Agent of (i) any change in
any Grantor's name or its federal taxpayer identification number, (ii) any
changes in, additions to or other modifications of any Grantor's trade names and
trade styles set forth in the Second Disclosure Letter, and (iii) any
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changes in its identity or structure in any manner which might make any
Financing Statement filed hereunder incorrect or misleading.
(g) Maintenance of Records. The Grantors will keep separate,
accurate and complete Books with respect to the Collateral.
(h) Invoicing of Sales. The Grantors will invoice all of their
respective sales upon forms customary in the industry and maintain proof of
delivery and customer acceptance of goods.
(i) Disposition of Collateral. None of the Grantors will
surrender or lose possession of (other than to the Agent), sell, lease, rent, or
otherwise dispose of or transfer any of the Collateral or any right or interest
therein, except to the extent permitted by the Credit Agreement; provided that
no such disposition or transfer of Investment Property or Instruments shall be
permitted while any Default exists.
(j) Expenses. The Borrower will pay all expenses of
protecting, storing, warehousing, insuring, handling and shipping the
Collateral.
(k) Leased Premises. At the Agent's request, the Borrower will
use its reasonable commercial efforts to obtain from each Person from whom the
Borrower leases any premises at which any Collateral is at any time present such
subordination, waiver, consent and estoppel agreements as the Agent may require,
in form and substance satisfactory to the Agent.
(l) Instruments, Investment Property, Etc. Upon the request of
the Agent, the Grantors will (i) immediately deliver to the Agent, or an agent
designated by it, appropriately endorsed or accompanied by appropriate
instruments of transfer or assignment, all Instruments, Documents, Chattel Paper
and certificated securities with respect to any Investment Property, all letters
of credit, and all other Rights to Payment at any time evidenced by promissory
notes, trade acceptances or other instruments, (ii) cause any securities
intermediaries to show on their books that the Agent is the entitlement holder
with respect to any Investment Property, and/or obtain Account Control
Agreements in favor of the Agent from such securities intermediaries, in form
and substance satisfactory to the Agent, with respect to any Investment
Property, as requested by Agent, (iii) xxxx all Documents and Chattel Paper with
such legends as the Agent shall reasonably specify, and (iv) obtain consents
from any letter of credit issuers with respect to the assignment to the Agent of
any Letter of Credit Proceeds.
(m) Deposit Accounts and Securities Accounts. The Grantors
will give the Agent prompt notice of the establishment of any new Deposit
Account and any new securities account with respect to any Investment Property.
At no time after 30 days after the Second Amendment Date shall the aggregate
amount held in Deposit Accounts or securities accounts which are not Designated
Accounts or accounts satisfying the requirements of clause (i)(B) of the
definition of "Eligible Cash Equivalents" exceed $5,000,000.
(n) Inventory. The Grantors will not store any Inventory with
a bailee, warehouseman or similar Person or on premises leased to the Grantors,
nor dispose of any Inventory on a xxxx-and-hold, guaranteed sale, sale and
return, sale on approval, consignment or
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similar basis, nor acquire any Inventory from any Person on any such basis,
without in each case giving the Agent prior written notice thereof.
(o) Intellectual Property Collateral. The Grantors will:
(i) not enter into any agreement (including any license or
royalty agreement) pertaining to any Intellectual Property Collateral, except
for non-exclusive licenses in the ordinary course of business, without in each
case the prior written consent of the Agent;
(ii) except to the extent that such action or inaction would
be permitted under sub-paragraph (iv) below, not allow or suffer any
Intellectual Property Collateral to become abandoned, nor any registration
thereof to be terminated, forfeited, expired or dedicated to the public;
(iii) at the same time as the Borrower is required to deliver
financial statements to the Agent under the Credit Agreement, give the Agent
notice of any registrations or applications any Grantor may make or obtain to
any new patents, copyrights or other new Intellectual Property Collateral; and
(iv) diligently prosecute all applications for patents,
copyrights and trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate of
correction and like matters as shall be appropriate in accordance with prudent
business practice, and promptly and timely pay any and all maintenance, license,
registration and other fees, taxes and expenses incurred in connection with any
Intellectual Property Collateral.
(p) Notices, Reports and Information. The Grantors will
promptly (i) notify the Agent of any other modifications of or additions to the
information contained in the Second Disclosure Letter; (ii) notify the Agent of
any material claim made or asserted against the Collateral by any Person and of
any change in the composition of the Collateral or other event which could
materially adversely affect the value of the Collateral or the Agent's Lien
thereon; (iii) furnish to the Agent such statements and schedules further
identifying and describing the Collateral and such other reports and other
information in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail; and (iv) upon request of the Agent make such
demands and requests for information and reports as the Grantors are entitled to
make in respect of the Collateral.
(q) Read-Rite International Accounts Receivable. The Borrower
will procure that there is put in place within 30 days of the date of the
Agreement and thereafter maintained a first priority perfected security interest
in favor of the Borrower in all accounts receivable of Read-Rite International
in order to secure all obligations of Read-Rite International to the Borrower.
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(r) Assigned Agreements. The Borrower will (i) furnish to the
Agent promptly upon receipt thereof copies of (A) all amendments or
modifications to the Assigned Agreements entered into by the Borrower and (B)
all material notices, requests and other documents received by the Borrower in
respect of the Assigned Agreements; (ii) perform and observe in all material
respects all terms and provisions of the Assigned Agreements to be performed or
observed by it, maintain the Assigned Agreements in full force and effect,
enforce the Assigned Agreements in accordance with their terms, and take all
such action to such end as may from time to time be reasonably requested by the
Agent; and (iii) not without the prior consent of the Agent (A) cancel or
terminate any of the Assigned Agreements or consent to or accept any
cancellation or termination thereof, (B) amend or otherwise modify in any
material respect the Assigned Agreements or give any material consent, waiver or
approval thereunder, (C) waive any material default under or breach of the
Assigned Agreements, or (D) take any other action in connection with the
Assigned Agreements that would impair the value of the interest or rights of the
Borrower thereunder or that would impair the security interest or rights of the
Agent, the Issuing Bank and the Banks.
SECTION 6 Rights to Payment.
(a) Collection of Rights to Payment. Until the Agent exercises
its rights hereunder to collect Rights to Payment, the Grantors shall endeavor
in the first instance diligently to collect all amounts due or to become due on
or with respect to the Rights to Payment. Upon and after the occurrence of any
Default, all remittances received by any Grantor shall be held in trust for the
Agent and, in accordance with the Agent's instructions, remitted to the Agent or
deposited to an account with the Agent in the form received (with any necessary
endorsements or instruments of assignment or transfer).
(b) Investment Property and Instruments. At the request of the
Agent, upon and after the occurrence of any Default, the Agent shall be entitled
to receive all distributions and payments of any nature with respect to any
Investment Property or Instruments, and all such distributions or payments
received by any Grantor shall be held in trust for the Agent and, in accordance
with the Agent's instructions, remitted to the Agent or deposited to an account
with the Agent in the form received (with any necessary endorsements or
instruments of assignment or transfer). Following the occurrence of a Default
any such distributions and payments with respect to any Investment Property held
in any securities account shall be held and retained in such securities account,
in each case as part of the Collateral hereunder. Additionally, the Agent shall
have the right, upon the occurrence of a Default, to vote and to give consents,
ratifications and waivers with respect to any Investment Property and
Instruments, and to exercise all rights of conversion, exchange, subscription or
any other rights, privileges or options pertaining thereto, as if the Agent were
the absolute owner thereof; provided that the Agent shall have no duty to
exercise any of the foregoing rights afforded to it and shall not be responsible
to the Grantors or any other Person for any failure to do so or delay in doing
so.
SECTION 7 Authorization; Agent Appointed Attorney-in-Fact. The
Agent shall have the right to, in the name of each Grantor, or in the name of
the Agent or otherwise, without notice to or assent by any Grantor, and each
Grantor hereby constitutes and appoints the Agent (and any of the Agent's
officers or employees or agents designated by the Agent) as such
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Grantor's true and lawful attorney-in-fact, with full power and authority
(subject to the proviso below) to:
(i) sign any of the Financing Statements which must be
executed or filed to perfect or continue perfected, maintain the priority of or
provide notice of the Agent's security interest in the Collateral;
(ii) take possession of and endorse any notes, acceptances,
checks, drafts, money orders or other forms of payment or security and collect
any Proceeds of any Collateral;
(iii) sign and endorse any invoice or xxxx of lading relating
to any of the Collateral, warehouse or storage receipts, drafts against
customers or other obligors, assignments, notices of assignment, verifications
and notices to customers or other obligors;
(iv) notify the U.S. Postal Service and other postal
authorities to change the address for delivery of mail addressed to any Grantor
to such address as the Agent may designate;
(v) receive, open and dispose of all mail addressed to any
Grantor;
(vi) send requests for verification of Rights to Payment to
the customers or other obligors of any Grantor, and establish with any Person
lockbox or similar arrangements for the payment of the Rights to Payment; and
(vii) contact, or direct any Grantor to contact, (A) all
account debtors and other obligors on the Rights to Payment and (B) any Person
maintaining lockbox or similar arrangements for the payment of Rights of
Payment, and instruct such account debtors and other Persons to make all
payments directly to the Agent;
(viii) assert, adjust, xxx for, compromise or release any
claims under any policies of insurance;
(ix) exercise dominion and control over, and refuse to permit
further withdrawals from, Deposit Accounts maintained with the Agent, any Bank
or any other bank, financial institution or other Person;
(x) ask, demand, collect, receive and give acquittances and
receipts for any and all Rights to Payment, enforce payment or any other rights
in respect of the Rights to Payment and other Collateral, grant consents, agree
to any amendments, modifications or waivers of the agreements and documents
governing the Rights to Payment and other Collateral, and otherwise file any
claims, take any action or institute, defend, settle or adjust any actions,
suits or proceedings with respect to the Collateral, as the Agent may deem
necessary or desirable to maintain, preserve and protect the Collateral, to
collect the Collateral or to enforce the rights of the Agent with respect to the
Collateral;
(xi) execute any and all applications, documents, papers and
instruments necessary for the Agent to use the Intellectual Property Collateral
and grant or issue any
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exclusive or non-exclusive license or sublicense with respect to any
Intellectual Property Collateral;
(xii) execute any and all endorsements, assignments or other
documents and instruments necessary to sell, lease, assign, convey or otherwise
transfer title in or dispose of the Collateral;
(xiii) execute and deliver to any securities intermediary or
other Person any entitlement order, Account Control Agreement or other notice,
document or instrument which the Agent may deem necessary of advisable to
maintain, protect, realize upon and preserve the Investment Property and the
Agent's security interest therein; and
(xiv) execute any and all such other documents and
instruments, and do any and all acts and things for and on behalf of the
Grantors, which the Agent may deem necessary or advisable to maintain, protect,
realize upon and preserve the Collateral and the Agent's security interest
therein and, following a Default, to otherwise accomplish the purposes of this
Agreement.
The Agent agrees that, except upon and after the occurrence of a Default, it
shall not exercise the power of attorney, or any rights granted to the Agent,
pursuant to clauses (ii) through (xiii). The foregoing power of attorney is
coupled with an interest and irrevocable so long as the Banks have any
Commitments or the Secured Obligations have not been paid and performed in full.
Each Grantor hereby ratifies, to the extent permitted by law, all that the Agent
shall lawfully and in good faith do or cause to be done by virtue of and in
compliance with this Section 7.
SECTION 8 Agent Performance of Grantor Obligations. The Agent
may perform or pay any obligation which any Grantor has agreed to perform or pay
under or in connection with this Agreement, and the Grantors shall reimburse the
Agent on demand for any amounts paid by the Agent pursuant to this Section 8.
SECTION 9 Agent's Duties. Notwithstanding any provision
contained in this Agreement, the Agent shall have no duty to exercise any of the
rights, privileges or powers afforded to it and shall not be responsible to any
Grantor or the Banks or any other Person for any failure to do so or delay in
doing so. Beyond the exercise of reasonable care to assure the safe custody of
Collateral in the Agent's possession and the accounting for moneys actually
received by the Agent hereunder, the Agent shall have no duty or liability to
exercise or preserve any rights, privileges or powers pertaining to the
Collateral.
SECTION 10 Remedies.
(a) Remedies. Upon the occurrence of any Default, the Agent
shall have, in addition to all other rights and remedies granted to it in this
Agreement, the Credit Agreement or any other Loan Agreements, all rights and
remedies of a secured party under the UCC and other applicable laws. Without
limiting the generality of the foregoing, each of the Grantors agree that:
(i) The Agent may peaceably and without notice enter any
premises of any Grantor, take possession of any Collateral, remove or dispose of
all or part of the Collateral on
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any premises of any Grantor or elsewhere, or, in the case of Equipment, render
it nonfunctional, and otherwise collect, receive, appropriate and realize upon
all or any part of the Collateral, and demand, give receipt for, settle, renew,
extend, exchange, compromise, adjust, or xxx for all or any part of the
Collateral, as the Agent may determine.
(ii) The Agent may require the Grantors to assemble all or any
part of the Collateral and make it available to the Agent, at any place and time
designated by the Agent.
(iii) The Agent may use or transfer any of the Grantors'
respective rights and interests in any Intellectual Property Collateral, by
license, by sublicense (to the extent permitted by an applicable license) or
otherwise, on such conditions and in such manner as the Agent may determine.
(iv) The Agent may secure the appointment of a receiver of the
Collateral or any part thereof (to the extent and in the manner provided by
applicable law).
(v) The Agent may withdraw (or cause to be withdrawn) any and
all funds from any Deposit Accounts or securities accounts.
(vi) The Agent may sell, resell, lease, use, assign, transfer
or otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing (utilizing in
connection therewith any of the Grantors' assets, without charge or liability to
the Agent therefor) at public or private sale, by one or more contracts, in one
or more parcels, at the same or different times, for cash or credit or for
future delivery without assumption of any credit risk, all as the Agent deems
advisable; provided, however, that the Grantors shall be credited with the net
proceeds of sale only when such proceeds are finally collected by the Agent. The
Agent and each of the Banks shall have the right upon any such public sale, and,
to the extent permitted by law, upon any such private sale, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption, which right or equity of redemption the Grantors hereby release, to
the extent permitted by law. The Grantors hereby agree that the sending of
notice by ordinary mail, postage prepaid, to the address and in the manner
provided for in Section 12 of the place and time of any public sale or of the
time after which any private sale or other intended disposition is to be made,
shall be deemed reasonable notice thereof if such notice is sent five days prior
to the date of such sale or other disposition or the date on or after which such
sale or other disposition may occur, provided that the Agent may provide a
Grantor shorter notice or no notice, to the extent permitted by the UCC or other
applicable law. The Grantors recognize that the Agent may be unable to make a
public sale of any or all of the Investment Property, by reason of prohibitions
contained in applicable securities laws or otherwise, and expressly agree that a
private sale to a restricted group of purchasers for investment and not with a
view to any distribution thereof shall be considered a commercially reasonable
sale.
(b) License. For the purpose of enabling the Agent to exercise
its rights and remedies under this Section 10 or otherwise in connection with
this Agreement, each of the Grantors hereby grants to the Agent an irrevocable,
non-exclusive and assignable license (exercisable without payment or royalty or
other compensation to any Grantor) to use, license or sublicense any
Intellectual Property Collateral.
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(c) Application of Proceeds. The cash proceeds actually
received from the sale or other disposition or collection of Collateral, and any
other amounts received in respect of the Collateral the application of which is
not otherwise provided for herein, shall be applied as provided in Section 8 of
the Guaranty or Section 2.02 of the Credit Agreement. Any surplus thereof which
exists after payment and performance in full of the Secured Obligations shall be
promptly paid over to the Grantors or otherwise disposed of in accordance with
the UCC or other applicable law. The Grantors shall remain liable to the Agent,
the Issuing Bank and the Banks for any deficiency which exists after any sale or
other disposition or collection of Collateral.
SECTION 11 Certain Waivers. The Grantors waive, to the fullest
extent permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Collateral or other collateral or security for the Secured
Obligations; (ii) any right to require the Agent, the Issuing Bank or the Banks
(A) to proceed against any Person, (B) to exhaust any other collateral or
security for any of the Secured Obligations, (C) to pursue any remedy in the
Agent's, the Issuing Bank's or any of the Banks' power, or (D) 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
Collateral; and (iii) all claims, damages, and demands against the Agent, the
Issuing Bank or the Banks arising out of the repossession, retention, sale or
application of the proceeds of any sale of the Collateral.
SECTION 12 Notices. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including by facsimile) and shall be mailed, sent or delivered (i) if to the
Agent, the Issuing Bank or any Bank, at or to its address or facsimile number
provided in Section 9.02 of the Credit Agreement, and (ii) if to a Grantor, at
or to its address or facsimile number set forth below its name on the signature
page hereof, or at or to such other address or facsimile number as such party
shall have designated in a written notice to the other party. All such notices
and communications shall be effective at the time and in the manner provided for
in Section 9.02 of the Credit Agreement.
SECTION 13 No Waiver; Cumulative Remedies. No failure on the
part of the Agent, the Issuing Bank or any Bank to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement and the other Loan Agreements are cumulative and not
exclusive of any rights, remedies, powers and privileges that may otherwise be
available to the Agent, the Issuing Bank or any Bank.
SECTION 14 Costs and Expenses; Indemnification; Other Charges.
(a) Costs and Expenses. The Grantors jointly and severally
agrees to pay on demand:
(i) the reasonable out-of-pocket costs and expenses of the
Agent and any of its Affiliates, and the reasonable fees and disbursements of
counsel to the Agent (including allocated costs of internal counsel), in
connection with the negotiation, preparation, execution,
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delivery and administration of this Agreement, and any amendments, modifications
or waivers of the terms thereof, and the custody of the Collateral;
(ii) all title, appraisal (including the allocated costs of
internal appraisal services), survey, audit, consulting, search, recording,
filing and similar fees, costs and expenses incurred or sustained by the Agent
or any of its Affiliates in connection with this Agreement or the Collateral;
provided that, so long as no Default has occurred and is continuing, Grantors
shall not be responsible for the cost of an appraisal of any particular asset
more than once in any twelve consecutive month period: and
(iii) all costs and expenses of the Agent, its Affiliates, the
Issuing Bank and the Banks, and the fees and disbursements of counsel (including
the allocated costs of internal counsel), in connection with the enforcement or
attempted enforcement of, and preservation of any rights or interests under,
this Agreement, any out-of-court workout or other refinancing or restructuring
or in any bankruptcy case, and the protection, sale or collection of, or other
realization upon, any of the Collateral, including all expenses of taking,
collecting, holding, sorting, handling, preparing for sale, selling, or the
like, and other such expenses of sales and collections of Collateral, and any
and all losses, costs and expenses sustained by the Agent, the Issuing Bank and
any Bank as a result of any failure by any of the Grantors to perform or observe
its obligations contained herein.
(b) Indemnification. In addition, whether or not the
transactions contemplated by the Loan Agreements shall be consummated, each
Grantor hereby agrees to indemnify the Agent, the Issuing Bank, each Bank and
any officers, directors, employees or agents thereof (each an "Indemnified
Person"), against and hold each of them harmless from any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including the
reasonable fees and disbursements of counsel to an Indemnified Person (including
allocated costs of internal counsel), which may be imposed on, incurred by, or
asserted against any Indemnified Person, (i) in any way relating to or arising
out of this Agreement or any other Loan Agreement, the Secured Obligations, the
Collateral Documents or the transactions contemplated hereby or thereby, or (ii)
with respect to any investigation, litigation or other proceeding relating to
any of the foregoing, irrespective of whether the Indemnified Person shall be
designated a party thereto (the "Indemnified Liabilities"); provided that no
Grantor shall be liable to any Indemnified Person for any portion of such
Indemnified Liabilities to the extent they are found by a final decision of a
court of competent jurisdiction to have resulted from such Indemnified Person's
gross negligence or willful misconduct. If and to the extent that the foregoing
indemnification is for any reason held unenforceable, each Grantor jointly and
severally agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
(c) Defense. The Grantors shall have the option to, and at the
request of any Indemnified Person shall, direct and control the defense of the
Indemnified Person in such proceedings, employing legal counsel selected by such
Grantor and acceptable to the Indemnified Person, and pay the fees and expenses
of any legal counsel.
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(d) Interest. Any amounts payable to the Agent, the Issuing
Bank or any Bank under this Section 14 if not paid upon demand shall bear
interest from the date of such demand until paid in full, at the rate of
interest then applicable to Base Rate Loans under the Credit Agreement.
(e) Right of Set-Off. Upon (i) the occurrence and during the
continuance of any Default, each Bank and the Issuing Bank is hereby authorized
at any time and from time to time, without notice to any Grantor (any such
notice being expressly waived by the Grantors), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Bank to or for the credit
or the account of any of the Grantors against any and all of the obligations of
the Grantors now or hereafter existing under this Agreement, irrespective of
whether or not such Bank shall have made any demand upon the Borrower or any
other Grantor under the Loan Agreements and although such obligations may be
contingent and unmatured. Each Bank shall promptly notify the Grantors (through
the Agent) after any such set-off and application made by it; provided, however,
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of the Issuing Bank and Banks under this
Section 14 are in addition to other rights and remedies (including other rights
of set-off) which the Issuing Bank and Banks may have.
(f) Other Charges. Each of the Grantors agrees to indemnify
the Agent, the Issuing Bank and each of the Banks against and hold each of them
harmless from any and all present and future stamp, transfer, documentary and
other such taxes, levies, fees, assessments and other charges made by any
jurisdiction by reason of the execution, delivery, performance and enforcement
of this Agreement.
SECTION 15 Survival. All covenants, agreements,
representations and warranties made in this Agreement shall survive the
execution and delivery of this Agreement, and shall continue in full force and
effect so long as any Bank has any Commitment or any Secured Obligations remain
unsatisfied. Notwithstanding the foregoing, the obligations of the Grantors
under Section 14 shall survive the satisfaction of the Secured Obligations and
the termination of the Commitments.
SECTION 16 Benefits of Agreements This Agreement is entered
into for the sole protection and benefit of the Agent, the Issuing Bank and each
Bank and their respective successors and assigns, and no other Person (other
than any Indemnified Person specified herein) shall be a direct or indirect
beneficiary of, or shall have any direct or indirect cause of action or claim in
connection with, this Agreement. The Agent and the Banks, by their acceptance of
this Agreement, shall not have any obligations under this Agreement to any
Person other than the Grantors, and such obligations shall be limited to those
expressly stated herein.
SECTION 17 Binding Effect; Assignment.
(a) Binding Effect. This Agreement shall be binding upon the
Grantors and their respective successors and assigns, and inure to the benefit
of and be enforceable by the Agent, the Issuing Bank and each Bank and their
respective successors, endorsees, transferees and assigns.
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(b) Assignment. The Grantors shall not have the right to
assign or transfer their respective rights and obligations hereunder without the
prior written consent of the Banks. Each Bank may, without notice to or consent
by the Grantors, sell, assign, transfer or grant participations in all or any
portion of such Bank's rights and obligations hereunder in connection with any
sale, assignment, transfer or grant of a participation by such Bank under
Section 9.06 of the Credit Agreement of or in its rights and obligations
thereunder and under the other Loan Agreements. Each Grantor agrees that in
connection with any such sale, assignment, transfer or grant by any Bank, such
Bank may deliver to the prospective participant or assignee financial statements
and other relevant information relating to the Grantors and their Subsidiaries.
In the event of any grant of a participation, the participant (i) shall be
deemed to have a right of setoff under Section 14 in respect of its
participation to the same extent as if it were such "Bank;" and (ii) shall also
be entitled to the benefits of Section 14.
SECTION 18 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA WITHOUT
GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE.
(a) Waiver of Jury Trial. THE AGENT, THE GRANTORS, THE ISSUING
BANK AND EACH BANK HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY
OF THE LOAN AGREEMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THE LOAN AGREEMENTS. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including contract claims,
tort claims, breach of duty claims, and all other common law and statutory
claims. The Agent, each Bank, the issuing Bank and the Grantors each acknowledge
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on the waiver in entering into this Agreement, and
that each will continue to rely on the waiver in their related future dealings.
The Agent, each Bank, the Issuing Bank and the Grantors further warrant and
represent that each has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THE WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE LOAN AGREEMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING THERETO. In
the event of litigation, this Agreement may be filed as a written consent to a
trial by the court.
(b) Consent to Jurisdiction; Venue. All judicial proceedings
brought against any Grantor with respect to this Agreement and the Loan
Agreements may be brought in any state or federal court of competent
jurisdiction in the City of Los Angeles or San Francisco in the State of
California, or, to the extent that actions may be required upon this Agreement
in the courts of any foreign jurisdiction in connection with enforcement
proceedings commenced by the Agent in such foreign jurisdiction relating to any
Collateral, to the courts of any foreign jurisdiction, and by execution and
delivery of this Agreement, the Grantors accept for themselves and in connection
with their properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts, and irrevocably agree to be bound by any
judgment rendered
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thereby in connection with this Agreement. The Grantors irrevocably waive any
right they may have to assert the doctrine of forum non conveniens or to object
to venue to the extent any proceeding is brought in accordance with this
paragraph. Nothing herein shall affect the right of the Agent, the Issuing Bank
or any Bank to bring proceedings against the Grantors in courts of any
jurisdiction.
SECTION 19 Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Agreement and the other Loan
Agreements constitute the entire agreement of the parties with respect to the
matters set forth herein and supersede any prior agreements, commitments,
drafts, communications, discussions and understandings, oral or written, with
respect thereto. There are no conditions to the full effectiveness of this
Agreement.
(b) Amendments and Waivers. Except to the extent otherwise
provided in the Credit Agreement, this Agreement may not be amended except by a
writing signed by the Grantors, the Agent, the Issuing Bank and the Majority
Banks, or the Grantors and the Agent (with the written consent of the Issuing
Bank and the Majority Banks). No waiver of any rights of the Agent, the Issuing
Bank and the Banks under any provision of this Agreement or consent to any
departure by the Grantors therefrom shall be effective unless in writing and
signed by the Agent, the Issuing Bank and the Majority Banks, or the Agent (with
the written consent of the Issuing Bank and the Majority Banks). Any such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 20 Limitation on Liability. No claim shall be made by
any Grantor or their Affiliates against the Agent, the Issuing Bank or any of
the Banks or any of their respective employees, officers, directors or agents
for any special, indirect, exemplary, consequential or punitive damages in
respect of any breach or wrongful conduct (whether or not the claim therefor is
based on contract, tort or duty imposed by law), in connection with, arising out
of or in any way related to the transactions contemplated by this Agreement or
the other Loan Agreements or any act or omission or event occurring in
connection therewith; and each Grantor hereby waives, releases and agrees not to
xxx upon any such claim for any such damages, whether or not accrued and whether
or not known or suspected to exist in its favor.
SECTION 21 Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, as the case may be, or the validity or
effectiveness of such provision in any other jurisdiction.
SECTION 22 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
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SECTION 23 No Inconsistent Requirements. The Grantors
acknowledge that this Agreement and the other Loan Agreements may contain
covenants and other terms and provisions variously stated regarding the same or
similar matters, and agree that all such covenants, terms and provisions are
cumulative and all shall be performed and satisfied in accordance with their
respective terms.
SECTION 24 Termination. Upon the termination of the
Commitments of the Banks, the surrender of the Letters of Credit and payment and
performance in full of all Secured Obligations (except inchoate indemnity
obligations), this Agreement shall terminate and the Agent shall promptly
execute and deliver to the Grantors such documents and instruments reasonably
requested by the Grantors as shall be necessary to evidence termination of all
security interests given by the Grantors to the Agent hereunder; provided,
however, that the obligations of the Grantors under Section 14 shall survive
such termination.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
[Remainder of page intentionally left blank]
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102
THE GRANTORS
READ-RITE CORPORATION
By:
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Title:
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Address:
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Attn.:
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Fax No.:
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SUNWARD TECHNOLOGIES, INC.
By:
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Title:
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Address:
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Attn.:
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Fax No.:
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SUNWARD TECHNOLOGIES, CALIFORNIA
By:
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Title:
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Address:
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Attn.:
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Fax No.:
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103
THE AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE, NEW
YORK AGENCY, as Agent
By:
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Title:
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104
SCHEDULE 1
to the Security Agreement
GRANTORS
Read-Rite Corporation
Sunward Technologies, Inc.
Sunward Technologies, California
S1-1.
105
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this
"Agreement"), dated as of __________, 1998, is made between the corporations
listed on Schedule 1 hereto (each a "Grantor" and collectively the "Grantors")
and Canadian Imperial Bank of Commerce, New York Agency as agent for the Banks
referred to below (in such capacity the "Agent").
Read-Rite Corporation (the "Borrower"), certain financial
institutions as lenders (the "Banks"), Canadian Imperial Bank of Commerce, New
York Agency, as issuer of letters of credit for the account of the Borrower (in
such capacity, the "Designated Issuer") and the Agent are parties to a Credit
Agreement dated as of October 2, 1997 (as amended, modified, renewed or extended
from time to time, the "Credit Agreement").
The Grantors, other than the Borrower, are subsidiaries of the
Borrower and receive substantial direct and indirect benefits from the
extensions of credit and issuance of Letters of Credit for the Borrower under
the Credit Agreement. Such Grantors are party to that certain Continuing
Guaranty entered in favor of the Agent, the Banks, the Designated Issuer and any
other Issuing Bank and dated as of even date herewith (as amended, modified,
renewed or extended from time to time the "Guaranty"). All the Grantors are
party to that certain Security Agreement dated of even date herewith between the
Grantors and the Agent (as such agreement as amended, modified, renewed or
extended from time to time the "Security Agreement").
It is a condition precedent to the borrowings and the issuance
of Letters of Credit under the Credit Agreement that the Grantors enter into
this Agreement and grant to the Agent, for itself and for the ratable benefit of
the Issuing Bank and the Banks, the security interests in certain of their
intellectual property rights hereinafter provided to secure the obligations of
the Grantors described below. The Grantors have agreed to execute and deliver
this Agreement to Agent for filing by Agent with the United States Patent and
Trademark Office (the "PTO") and United States Copyright Office (the "Copyright
Office") (and any other relevant recording systems in any domestic or foreign
jurisdiction) as further evidence of and to effectuate such grant of a security
interest in such intellectual property rights.
Accordingly, Grantors and Agent hereby agree as follows:
SECTION 1 Definitions; Interpretation. All capitalized terms
used in this Agreement and not otherwise defined herein shall have the meanings
assigned to them in the Security Agreement and the rules of construction set out
in the Security Agreement shall be equally applicable hereto.
SECTION 2 Grant of Security Interest.
As a continuing security for the payment and performance of
the Obligations, the Grantors hereby grant and convey a security interest in and
mortgage to Agent of all of their
106
respective rights, title and interests in, to and under the following property,
whether now existing or owned or hereafter acquired, developed or arising
(collectively, the "Intellectual Property Collateral"):
(i) all intellectual property rights of any nature or
character including, without limitation, and whether domestic or foreign: (i)
all patents and patent applications, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses, all rights
to xxx for past, present or future infringement thereof, all rights arising
therefrom and pertaining thereto and all reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof; (ii) all copyrights and
applications for copyright, together with the underlying works of authorship
(including titles), whether or not the underlying works of authorship have been
published and whether said copyrights are statutory or arise under the common
law, and all other rights and works of authorship, all rights, claims and
demands in any way relating to any such copyrights or works, including royalties
and rights to xxx for past, present or future infringement, and all rights of
renewal and extension of copyright; (iii) all state (including common law),
federal and foreign trademarks, service marks and trade names, and applications
for registration of such trademarks, service marks and trade names, all licenses
relating to any of the foregoing and all income and royalties with respect to
any licenses, whether registered or unregistered and wherever registered, all
rights to xxx for past, present or future infringement or unconsented use
thereof, all rights arising therefrom and pertaining thereto and all reissues,
extensions and renewals thereof; and (iv) all trade secrets, trade dress, trade
styles, logos, other source of business identifiers, mask-works, mask-work
registrations, mask-work applications, software, confidential information,
customer lists, license rights, advertising materials, operating manuals,
methods, processes, know-how, algorithms, formulae, databases, quality control
procedures, product, service and technical specifications, operating, production
and quality control manuals, sales literature, drawings, specifications, blue
prints, descriptions, inventions, name plates and catalogs (the foregoing rights
and interests collectively, the "Intellectual Property Rights") and including,
without limitation, those Intellectual Property Rights listed, from time to
time, on the Exhibits to this Agreement; and
(ii) the entire goodwill of or associated with the businesses
now or hereafter conducted by Grantors connected with and symbolized by any of
the aforementioned properties and assets; and
(iii) all products and proceeds at any time of any and all of
the foregoing including products of products and proceeds of proceeds.
Notwithstanding the foregoing provisions of this Section 2,
the grant of a security interest as provided herein shall not extend to, and the
term "Intellectual Property Collateral" shall not include, any General
Intangibles of a Grantor (whether owned or held as licensee or lessee, or
otherwise), to the extent that (i) such General Intangibles are not assignable
or capable of being encumbered as a matter of law or under the terms of the
license or lease applicable thereto (but solely to the extent that any such
restriction shall be enforceable under applicable law against an assignee),
without the consent of the licensor or lessor thereof and (ii) such consent has
not been obtained; provided, however, that the foregoing grant of security
interest shall extend to, and the term "Intellectual Property Collateral" shall
include, (A) any General Intangible which is an Account or a Proceed of, or
otherwise related to the enforcement or
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collection of, any Account, or goods which are the subject of any Account, (B)
any and all Proceeds of any General Intangibles which are otherwise excluded to
the extent that the assignment or encumbrance of such Proceeds is not so
restricted, and (C) upon obtaining the consent of any such licensor or lessor
with respect to any such otherwise excluded General Intangibles, such General
Intangibles as well as any and all Proceeds thereof that might have theretofore
have been excluded from such grant of a security interest and the term
"Intellectual Property Collateral."
SECTION 3 Further Assurances; Appointment of Agent as
Attorney-in-Fact. The Grantors at their expense shall execute and deliver, or
cause to be executed and delivered, to Agent any and all documents and
instruments, in form and substance satisfactory to Agent, and take any and all
action, which Agent may request from time to time, to perfect and continue
perfected, maintain the priority of or provide notice of Agent's security
interest in the Intellectual Property Collateral and to accomplish the purposes
of this Agreement. Agent shall have the right, in the name of the Grantors, or
in the name of Agent or otherwise, upon notice to but without the requirement of
assent by the Grantors, and the Grantors hereby constitute and appoint Agent
(and any of Agent's officers or employees or agents designated by Agent) as the
Grantors' true and lawful attorney-in-fact with full power and authority, to:
(i) sign any financing statements and documents and instruments which Agent
deems necessary or advisable to perfect or continue perfected, maintain the
priority of or provide notice of Agent's security interest in the Intellectual
Property Collateral; (ii) assert, adjust, xxx for, compromise or release any
claims under any policies of insurance; and (iii) execute any and all such other
documents and instruments, and do any and all acts and things for and on behalf
of the Grantors, which Agent may deem necessary or advisable to maintain,
protect, realize upon and preserve the Intellectual Property Collateral and
Agent's security interest therein and to accomplish the purposes of this
Agreement, including (A) to defend, settle, adjust or institute any action, suit
or proceeding with respect to the Intellectual Property Collateral, (B) to
assert or retain any rights under any license agreement for any of the
Intellectual Property Collateral, including without limitation any rights of the
Grantors arising under Section 365(n) of the Bankruptcy Code, and (C) to execute
any and all applications, documents, papers and instruments for Agent to use the
Intellectual Property Collateral, to grant or issue any exclusive or
non-exclusive license or sub-license with respect to any Intellectual Property
Collateral, and to assign, convey or otherwise transfer title in or dispose of
the Intellectual Property Collateral; provided, however, that Agent agrees that,
except upon and during the continuance of a Default, it shall not exercise the
power of attorney pursuant to clauses (ii) and (iii). The power of attorney set
forth in this Section 3, being coupled with an interest, is irrevocable so long
as this Agreement shall not have terminated.
SECTION 4 Future Rights. Except as otherwise expressly agreed
to in writing by Agent, if and when any of the Grantors shall obtain rights to
any new Intellectual Property Rights, or obtain rights or benefits with respect
to any reissue, division, continuation, renewal, extension or
continuation-in-part of any Intellectual Property Rights, or any improvement of
any Intellectual Property Rights, which Intellectual Property Rights if existing
at the date hereof would be within the scope of Section 2, the provisions of
Section 2 shall automatically apply thereto. The Grantors shall give to Agent,
at the times required under Section 5 of the Security Agreement, notice of any
registrations or applications any Grantor may make or obtain to any Intellectual
Property Rights. The Grantors shall do all things deemed necessary or advisable
by Agent to ensure the validity, perfection, priority and enforceability of the
security interests of
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Agent in such future acquired Intellectual Property Collateral. The Grantors
hereby authorize Agent to modify, amend, or supplement the Exhibits hereto and
to reexecute this Agreement from time to time on Grantors' behalf and as their
attorney-in-fact to include any such future Intellectual Property Collateral and
to cause such reexecuted Agreement or such modified, amended or supplemented
Exhibits to be filed with the PTO and/or Copyright Office as appropriate.
SECTION 5 Agent's Duties. Notwithstanding any provision
contained in this Agreement, Agent shall have no duty to exercise any of the
rights, privileges or powers afforded to it and shall not be responsible to the
Grantors or any other Person for any failure to do so or delay in doing so.
Except for the accounting for moneys actually received by Agent hereunder or in
connection herewith, Agent shall have no duty or liability to exercise or
preserve any rights, privileges or powers pertaining to the Intellectual
Property Collateral.
SECTION 6 Agent's Rights and Remedies.
(a) Upon and during the continuation of a Default, Agent shall
have all rights and remedies available to it under this Agreement, the Security
Agreement and applicable law with respect to the security interests in any of
the Intellectual Property Collateral. Grantors agrees that such rights and
remedies include, but are not limited to, the right of Agent as a secured party
to sell or otherwise dispose of the Intellectual Property Collateral pursuant to
the UCC.
(b) The cash proceeds actually received from the sale or other
disposition or collection of Intellectual Property Collateral, and any other
amounts received in respect of the Intellectual Property Collateral the
application of which is not otherwise provided for herein, shall be applied as
provided in the Security Agreement.
SECTION 7 Security Agreement. The provisions of Sections 11
through (and including) 20 and Section 24 of the Security Agreement are
incorporated herein by reference and shall be applied as if references to the
"Collateral," and "Agreement" therein were references to the Intellectual
Property Collateral and this Agreement respectively. The Grantors acknowledge
that the rights and remedies of the Agent with respect to the security interests
in the Intellectual Property Collateral granted hereby are more fully set forth
in the Security Agreement and that such rights and remedies are cumulative.
SECTION 8 Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 9 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so
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executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE GRANTORS
READ-RITE CORPORATION
By:
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Title:
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Address:
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Attn.:
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Fax No.:
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SUNWARD TECHNOLOGIES, INC.
By:
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Title:
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Address:
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Attn.:
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Fax No.:
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SUNWARD TECHNOLOGIES, CALIFORNIA
By:
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Title:
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Address:
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Attn.:
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Fax No.:
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[COUNTERPART SIGNATURE PAGE TO
INTELLECTUAL PROPERTY SECURITY AGREEMENT]
111
THE AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY, as Agent
By:
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Title:
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[COUNTERPART SIGNATURE PAGE TO
INTELLECTUAL PROPERTY SECURITY AGREEMENT]
112
SCHEDULE 1
to the Intellectual Property Security Agreement
GRANTORS
Read-Rite Corporation
Sunward Technologies, Inc.
Sunward Technologies, California
S1-1
113
EXHIBIT A
Issued U.S. Patents of Grantors
Grantor Patent No. Issue Date Inventors Title Agent
------- ---------- ---------- --------- ----- -----
A-1
114
EXHIBIT A
Pending Patent Applications of Grantors
Grantor Application No. Filing Date Inventors Title
------- --------------- ----------- --------- -----
A-2
115
EXHIBIT B
U.S. Trademarks of Grantors
Grantor Registration No. Registration Date Filing Date Registered Owner Xxxx
------- ---------------- ----------------- ----------- ---------------- ----
B-1
116
EXHIBIT B
Pending U.S. Trademark Applications of Grantors
Grantor Application No. Filing Date Applicant Xxxx
------- --------------- ----------- --------- ----
B-2
117
EXHIBIT C
Copyrights of Grantors
Mask-Works of Grantors
C-1
118
EXHIBIT C
U.S. Copyright/Mask-Work Registrations of Grantors
Grantor Copyright/Mask Work Reg. No. Date of Issue
------- ------------------- -------- -------------
C-2
119
EXHIBIT C
U.S. Copyright/Mask-Works Applications of Grantors
Grantor Copyright/Mask Work Application No. Date of Application
------- ------------------- --------------- -------------------
C-3
120
EXHIBIT C
Copyright/Mask-Work Licenses of Grantors
Grantor Copyright/Mask Work Owner Reg. No. Date of Issue
------- ------------------------- -------- -------------
C-4
