-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, C+mu84S74xiFjsF26DBrCSGZYeS64raanfCUHmDAYDhdWR33erw/E33zRHb93tEh NFG7DrcOUs6s3Dc0lfHieA== 0000950109-94-000617.txt : 19940404 0000950109-94-000617.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950109-94-000617 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNER PERIPHERALS INC CENTRAL INDEX KEY: 0000792397 STANDARD INDUSTRIAL CLASSIFICATION: 3572 IRS NUMBER: 942968210 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10639 FILM NUMBER: 94520006 BUSINESS ADDRESS: STREET 1: 3081 ZANKER RD CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084564500 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1993 or [_] TRANSITION REPORT PURSUANT TO SECTION 14 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to _________ Commission file number 1-10639 CONNER PERIPHERALS, INC. [Exact name of registrant as specified in its charter] DELAWARE 94-2968210 (State of incorporation) (I.R.S. Employer Identification No.) 3081 ZANKER ROAD SAN JOSE, CALIFORNIA 95134 (Address of principal executive offices) Registrant's telephone number, including area code: (408) 456-4500 ----------------------------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.001 par value 6-1/2% Convertible Subordinated Debentures due 2001 6-3/4% Convertible Subordinated Debentures due 2002 (Title of class) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate value of voting stock held by nonaffiliates of the Registrant was approximately $776,629,000 as of March 5, 1994 based upon the closing sales price on the New York Stock Exchange reported for such date. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may, under certain circumstances, be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. 50,767,965 shares of Common Stock issued and outstanding as of March 5, 1994. DOCUMENTS INCORPORATED BY REFERENCE The following documents (or portions thereof) are incorporated by reference into the Parts of this Annual Report on Form 10-K noted: (1) Portions of the Annual Report to Stockholders for the fiscal year ended January 1, 1994 (the "Annual Report") - Parts II and IV. With the exception of the information specifically incorporated by reference from the Annual Report into Parts II and IV hereof, the Company's Annual Report is not to be deemed filed as part of this report. (2) Proxy Statement filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held April 19, 1994 (the "Proxy Statement") - Part III. PART I Item 1. BUSINESS -------- Conner Peripherals, Inc. ("Conner" or the "Company") was incorporated in California in June 1985 and was reincorporated in Delaware in September 1992. The Company's principal executive offices are located at 3081 Zanker Road, San Jose, California 95134, and its telephone number is (408) 456-4500. GENERAL - ------- Conner designs, builds and sells information storage solutions products, including a large selection of hard disk drives, tape drives, software and integrated systems for a wide range of computer storage applications. In June 1992, the Company began the process of repositioning itself from being solely a manufacturer of Winchester disk drives to becoming a leading supplier of total storage solutions for the computer industry. In December 1992 Conner completed the acquisition of Archive Corporation ("Archive") by means of a merger. The acquisition of Archive strengthened Conner's position in the tape drive, software and storage systems markets, thereby supporting its strategy of being a leader in information storage solutions and storage and data protection products. During 1993, the Company took action to rationalize these operations in order to better streamline product development, sales and marketing and support activities. Demand for all of the Company's products is driven by several distinct market trends. First, the shift from centralized computing based on mainframes and minicomputers to networks and client-server architectures has resulted in an increased demand for compact, high capacity, high-performance storage devices and systems for use in networks of personal computers and workstations. Second, the increasing complexity of personal computer operating systems, such as Windows, OS/2, as well as the software applications designed to support them, has resulted in the demand for greater storage capacity in individual computers. Third, the substantial storage requirements necessary to store high resolution images, sound and video data applications is adding significantly to the amount of storage required on personal computer systems, both in the business and home environments. As the amount of data stored on individual computers increases, the need for efficient and reliable data protection also increases. This need is causing an increase in the demand for tape drives and the complex software which manages the transfer of data from disk drives to tape drives on a network and on individual computer systems. The Company's products are sold to original equipment manufacturers ("OEMs"), distributors, Value-Added Resellers ("VARs"), dealers and distributors in the U.S. and abroad, with the exact channel -2- dependent on the product and division. In addition, the Company distributes disk drive, tape drive and software products through its Storage Systems Group, which acts as a VAR to dealers in the U.S. DISK DRIVES - ----------- Disk drives address the escalating requirements of high performance microcomputers and workstations for greater storage capacity, faster access time, lower power consumption and smaller size at increasingly lower costs through the use of advanced technologies. Every disk drive incorporates the same operating concepts. One or more rigid disks are attached to a spin motor assembly, which rotates the disks at a constant speed within a sealed, contamination-free enclosure. Typically, both surfaces of each disk are coated with a thin layer of magnetic material. Magnetic heads record and retrieve data from discrete magnetic domains located on pre-formatted concentric tracks in the magnetic layers of the rotating disks. An actuator positions the head over the proper track upon instructions from the drive's electronic circuitry. Most disk drives are "intelligent" disk drives, which incorporate an embedded controller to manage communications with the computer. Disk Drive Design - ----------------- During the last five years, the Company has pioneered a variety of disk drive innovations, many of which have achieved broad acceptance in the disk drive industry in general. The Company was the first to utilize an architecture employing a high microcode content, resulting in significant flexibility and improved reliability in its drives. In addition, the Company was among the earliest to introduce drives using a high-performance voice coil actuator and on-board electronic diagnostics. As a result of various design innovations, the Company's disk drives achieve high performance with low power consumption. Finally, the Company was the first to introduce drives in a low-profile one inch package. Many of these innovations are protected by patent rights belonging to the Company. The Company believes that its disk drive design has certain important performance characteristics. The benefits to the user include (1) fast access time; (2) low heat dissipation; (3) quiet operation; (4) low power consumption; and, (5) extended product life. Fast access is a performance requirement for systems incorporating 64-bit and 32-bit microprocessors, such as Intel Corporation's ("Intel") Pentium and 80486 and Motorola's 68040 family of microprocessors. Low heat dissipation is an important determinant of a disk drive's reliability because heat may contribute to component failure. Low heat dissipation allows the possibility of eliminating or reducing the size of cooling fans in computers and thus increases the potential for quieter computer system operation. Low power consumption is also a critical factor in all portable computing applications because these computers use battery power -3- supplies and disk drives are a large power consumer in such systems. Consequently, low power consumption in disk drives reduces the need for a computer to incorporate a large power supply as a standard feature. The benefits of the Company's disk drive design include reduced parts count, higher reliability and the built-in ability for self-testing. These benefits may result in the possibility of lower aggregate component costs and reduced requirements for expensive disk drive test equipment, when compared to conventional disk drive designs. Disk Drive Products - ------------------- The Company's disk drive products include 2.5-inch and 3.5-inch disk drives which offer storage capacities ranging from 170 megabytes to over 1 gigabyte of formatted capacity. The Company's products include the following product families: Filepro Series. The Filepro Series products include one- and two-disk, -------------- low-profile (one-inch high) 3.5-inch hard disk drives, in capacities of 210 and 420 megabytes. The Filepro Series is designed to offer the entry level PC user a combination of high capacity, performance, reliability and low price. Filepro Advantage Series. The Filepro Advantage Series of 3.5-inch disk ------------------------ drives offers low cost storage for value systems, including networked and desktop PCs used for advanced applications, databases and multimedia. The Filepro Advantage Series is available in capacities of 340 and 540 megabytes. The Company has announced new versions of these products with storage capacities of 810 and 1080 megabytes. The Company expects to commence volume shipment of these products during the second quarter of 1994. Filepro Performance Series. The Filepro Performance Series disk drives are -------------------------- available with 545 and 1060 megabytes of capacity and feature seek times as fast as 9 milliseconds and data transfer rates of up to 55 megabits per second. These disk drives are primarily used in advanced workstation and network systems. Filepro Notebook Series. The Filepro Notebook Series of 2.5-inch disk ----------------------- drives provide capacities from 170 to 340 megabytes and addresses the needs of mobile users of portable PCs and notebook computers, with low power, light weight and a high degree of shock resistance. TAPE DRIVES - ----------- Tape drives are peripheral hardware devices which enable low cost storage or data protection of large volumes of data through use of digital tape stored on small cartridges used singly or in multiple autoloader applications. -4- Tape Drive Products - ------------------- Computer systems of all types increasingly need dedicated backup storage peripherals that combine high capacity, exceptional performance, low cost and reliability. Conner's full line of minicartridge, DAT and data cartridge tape products meets the needs of the entry, value, performance and portable markets to complement Conner's line of disk drive products. Minicartridge Tape Drives. Conner produces a number of low profile ------------------------- minicartridge tape drives which are designed to provide up to 250 megabytes of reliable data storage on a single low cost removable cartridge. These drives are currently manufactured for Conner in Japan. DAT Drives. High speed, networked computer environments need automatic ---------- data protection and backup in the form of dedicated removable storage peripherals that combine high capacity, absolute reliability, state-of-the-art backup performance and low cost per megabyte in a small form factor. The Conner family of True Computer Grade Digital Audio Tape (DAT) products provides a balance of these features, storing up to 8 gigabytes of data on a single 4mm cartridge. In addition, the Company offers DAT Autoloaders, which enable the storage of up to 96 gigabytes through an automated loading mechanism of up to 12 DAT tape cartridges in a single tape drive. Data Cartridge Drives. Conner Data Cartridge Drives provide high capacity --------------------- and field-proven data storage in a 5.25-inch, half-high form factor. These Data Cartridge drives are available in internal and external models with capacities ranging from 250 megabytes to 1.35 gigabytes, and provide high performance data storage using the industry standard Quarter Inch Cartridge (QIC) format that guarantees full backward read compatibility with previous generations of drives. SOFTWARE PRODUCTS - ----------------- Conner offers a variety of data protection and storage management software through Arcada Holdings, Inc. ("Arcada"), a majority-owned subsidiary. Arcada develops data protection and storage management software products that operate across multiple desktop and client-server environments, including those of Microsoft, Inc. and Novell, Inc. Arcada markets its products worldwide under the Backup Exec(TM) brand name to OEMs, systems integrators, VARs, retailers -- and large corporate users. Backup Exec for NetWare. Backup Exec for NetWare delivers sophisticated ----------------------- client/server based data protection for all servers and workstations on certain networks, including, DOS, Windows, OS/2, Apple Macintosh, and UNIX workstations as well as NetWare 3.x and 4.x, LAN Manager, LAN Server and Lotus Notes servers. Backup Exec is the first storage software certified by Novell for its new NetWare 4.x network operating system. Backup Exec is offered in single server, enterprise wide and Windows workstation editions. -5- Backup Exec for Windows NT. Backup Exec for Windows NT is a 32-bit backup -------------------------- application created for Microsoft Windows NT which offers a comprehensive data storage solution for Windows NT workstations and servers operating in both local and wide area networks. STORAGE SYSTEMS - --------------- Conner Storage Systems integrates hardware and software solutions to allow consumers to meet the demanding requirements of the current mixed network environments. The products offered include those manufactured or developed by Conner, as well as integrated systems which include components or products of third parties. Storage Systems products address the entire storage solutions marketplace, including disk, optical, and tape subsystems and storage management software for local area networks and workstation environments. Conner Storage Systems products are marketed and sold to VARs and distributors for resale to large corporate users and financial institutions to manage their network storage and data protection needs. Storage Systems Products - ------------------------ From basic single-user needs to complex network storage requirements, Conner Storage Systems delivers turn-key solutions, coupled with customized service and support. Conner's Storage Systems products address the needs of users ranging from entry-level PCs to enterprise-wide network administrators. Conner MS Systems. Conner MS Systems disk and tape products offer data ----------------- storage and protection for networks including OS/2, DOS, Macintosh and Windows, workstations, and LAN Manager and NetWare servers. Conner MS Systems are supported by Conner's Backup Exec software. GENERAL SALES AND DISTRIBUTION - ------------------------------ The Company sells its disk and tape drive and software products principally to OEMs through a direct sales force. The Company focuses its sales efforts on manufacturers of desktop computers and workstations, as well as to manufacturers of portable computers and storage subsystems such as servers and arrays. Many of the Company's OEM customers enter into master purchase agreements with the Company. These agreements do not require the OEMs to purchase minimum quantities of the Company's products. Product deliveries are scheduled upon the Company's receipt of purchase orders under the related agreements. Generally, these purchase agreements also allow customers to reschedule delivery dates and cancel purchase orders under certain circumstances without significant penalties. Sales of the Company's disk drives to Compaq Computer Corporation ("Compaq") accounted for approximately 13%, 15% and 12% of the Company's -6- net sales in 1993, 1992 and 1991, respectively. Sales to Peripherals Europe GmbH accounted for 12% of the Company's net sales in 1992. No other customer represented more than 10% of net sales for the three years ended December 31, 1993. The Company's sales to any single OEM customer are subject to significant variability from quarter to quarter based on a variety of factors including new product acceptance, price, end user demand, product availability and competitive offerings. The Company also sells products to non-OEM purchasers, such as distributors. Such sales represented 29%, 31% and 16% of net sales for the years ended December 31, 1993, 1992 and 1991, respectively. The Company's distributors typically enter into non-exclusive agreements for the distribution of the Company's products. Product deliveries are scheduled upon the Company's receipt of purchase orders. Certain of these agreements provide the distributors with price protection with respect to their inventory of drives and also provide limited rights to return the products. The Company also sells its products through VARs and has recently began to expand its marketing efforts to address different channels that sell computer systems through retailers that sell directly to end users. The Company's foreign sales are generally made directly, or through the Company's wholly-owned subsidiaries Peripherals Singapore or Conner Peripherals Europe. Sales to foreign customers may be subject to certain risks, including requirements for the obtaining of export/import licenses, exposure to tariffs and other trade regulations, currency fluctuations and repatriation of profits. The Company's foreign sales represented 54%, 61% and 64% of total net sales for 1993, 1992 and 1991, respectively. Backlog - ------- At December 31, 1993, the Company's backlog of orders was approximately $486 million as compared to a backlog of approximately $241 million (including Archive) at December 31, 1992. Backlog includes only those units for which a customer has specified delivery within six months. Demand for the Company's products is cyclical as the industry has recently experienced alternating periods of severe product shortages and significant overcapacity. During periods of product shortages, the Company's backlog has increased significantly and frequently reflects abnormal customer order patterns, including double ordering, as customers seek to insure the availability of products to support future production. During periods of overcapacity, the Company's backlog has declined precipitously as both OEM customers and distributors seek to reduce their inventories of disk drives or reduce their purchase commitments. During the first quarter of 1994, the Company has also experienced a significantly higher backlog due to increased demand for the Company's new disk drive products. -7- The Company's backlog may fluctuate due to certain OEM practices of submitting single large purchase orders to be shipped over an extended period of time. Lead times for the release of purchase orders from other customers depend upon the scheduling practices of the customers, and the Company anticipates that the rate of new purchase orders will vary significantly from month to month. In addition, the Company's actual shipments depend on its production capacity and component availability. Moreover, the pricing of the Company's products as delivered often depends on the date of delivery as prices may be adjusted between the time an order is booked into backlog and the time the product is actually shipped. Based on its past experience and knowledge of the disk drive industry, the Company anticipates that it will experience significant volatility in the scheduling of present and future orders. For these reasons, the Company's backlog as of any particular date may not be indicative of the Company's actual sales for any succeeding fiscal period. Competition - ----------- The disk drive and tape drive industry is intensely competitive. The principal competitive factors in the industry are price, early product availability, product performance, storage capacity, low cost manufacturing, responsiveness to customers, and increasingly schedule predictability. The Company believes that it is currently able to compete on the basis of all of these factors. The Company believes that its reliance on outside vendors-- which is different from certain other companies in the industry that have become more vertically integrated -- has given it a competitive advantage both in establishing strong relationships with vendors and in permitting maximum flexibility in product design. The Company believes that competition in the OEM sector of the disk drive industry has become more intense as major disk drive manufacturers commit greater resources to the timely introduction of new products. The Company primarily competes against independent manufacturers of 2.5- inch and 3.5-inch disk drives, including companies such as Maxtor Corporation, Quantum Corporation, Seagate Technology, Inc. and Western Digital Corporation. The Company also competes indirectly with disk drive divisions of larger computer manufacturers such as Digital Equipment Corporation, The Hewlett- Packard Company, IBM and Toshiba. Should other major OEMs develop disk drive manufacturing capabilities, the demand for the Company's products would be reduced. The Company's principal competitors in tape drive products are Hewlett-Packard, Exabyte Corp. and Rexon, Inc. -8- MANUFACTURING - ------------- The Company expects that it will continue to purchase a substantial majority of most components from outside sources. However, from time to time the Company may establish limited internal production of certain components, particularly during periods of supply constraints or when internal production capability may contribute to new product development efforts. For example, the Company is currently manufacturing the majority of its media requirements. The Company's disk drive manufacturing operations consist primarily of final assembly of heads and disks in a class-10 clean area as well as the formatting and testing of the assembly. Printed circuit boards are tested before they are assembled with head/disk assemblies into disk drives. After assembly, each disk drive is operated in a self-diagnostic mode where actual data transfers take place and various parameters in the disk drive are tested and adjusted specifically for that disk drive. The Company's testing procedures may vary depending upon the requirements of particular OEM customers. From time-to-time in the past, the Company has experienced production delays due to yield shortfalls and other production difficulties and the Company could experience similar delays in the future. Control and continuous improvement of process yields by both Conner and its suppliers are key determinants of manufacturing output and efficiency, product quality and reliability and overall profitability. Moreover, there can be no assurance that a defect will not escape identification in the factory and require costly recall from customer sites. The Company's business conditions require it to establish high-volume manufacturing capability in anticipation of market demand. The Company's ability to establish high-volume, low-cost manufacturing capacity depends in part on its ability to obtain uninterrupted access to advanced technology components in required volumes and at competitive prices. At the present time, certain of these components are available only from single sources, although the Company maintains ongoing programs to qualify additional sources for such components where practicable. In particular, the Company has recently experienced shortages of certain semiconductor and head components, which shortage has adversely affected the Company's sales and ability to satisfy customer demand in recent periods. There can be no assurance that these supply constraints will not recur. To reduce its exposure to production delays at times of component shortage, the Company often seeks to qualify alternative components when practicable. However, a prolonged interruption, or a reduction in the supply of one or more key components, could nevertheless occur and would adversely affect the Company's operating results and customer relationships. -9- As part of an effort to improve manufacturing costs, the Company continues to shift volume production of its disk drives to Singapore and Malaysia. The Company is currently expanding its Malaysia production facilities and is consolidating its Singapore operations. The Company also began in December 1992 to manufacture in the People's Republic of China through Conner-Shenzhen Peripherals, Ltd., a joint venture with Shenzhen CPC. Through this venture, Conner became the first company to establish disk drive manufacturing in the People's Republic of China. The expansion of production in offshore facilities requires tight inventory and cost controls and employee training. In addition, the transfer of production of a product to a new facility requires qualification of the facility by certain of the Company's major OEM customers. Accordingly, such transfers may have a short-term disruptive effect on the Company's operations. Foreign manufacturing is also subject to certain risks, including changes of governmental policies, transportation delays and interruptions and the imposition of tariffs and import and export controls. There are also risks inherent in being the first company to manufacture disk drives in the People's Republic of China. Furthermore, currency exchange fluctuations could increase the cost of components manufactured abroad. A significant portion of Conner's tape drive manufacturing is done by one outside vendor, Matsushita Kotubuki Electronics ("MKE"). Conner also manufactures and/or assembles some of its own tape drive products at its Singapore facility. Conner has consolidated its existing Singapore facilities with those of Archive. RESEARCH AND DEVELOPMENT - ------------------------ The Company participates in an industry that is subject to rapid technological changes, and its ability to remain competitive depends on, among other things, its ability to maintain a leadership position in technology innovation. As a result, the Company has devoted and will continue to devote substantial resources to product development and process engineering efforts. In 1993, 1992 and 1991 the Company's research and development expenses were $137,465,000, $94,652,000 and $85,007,000, respectively. The Company's research and development expenses have increased substantially in the past year as the Company has expanded prototype production and testing associated with the planned introduction of several new products and technologies. The Company's current research and development efforts are principally directed to the development and prototype production of new high performance 3.5-inch and 2.5-inch disk drives. Disk drives currently in development employ more complex designs and a greater number of technologically advanced components than previous disk drive generations. Accordingly, it is possible that it will be more difficult to introduce these disk drives to volume manufacturing than was the case with previous disk drive generations. -10- The Company's disk drive research and new product development is conducted primarily at its facilities in San Jose, California and Longmont, Colorado. The Company's process engineering and final product development is conducted principally in San Jose and at its facilities in Singapore. PATENTS AND LICENSES - -------------------- The Company has been granted or has acquired 31 United States patents and has approximately 65 patent applications pending related to disk drive technology. The Company's issued patents include a patent covering the Company's microprocessor and microcode based architecture, and a patent covering the self-testing diagnostic features incorporated in its disk drives. In addition, the Company has been granted a patent covering its brushless motor design and a patent covering certain mechanical design features of its low profile drives, including various design features related to the one-inch high form factor. The Company has obtained or applied for a variety of additional patents relating to other aspects of its drives, including certain features used in achieving the low power functionalities of its disk drives which are important for laptop and notebook applications, as well as certain desktop applications. The Company has also acquired or been granted 80 United States patents, and has approximately 25 patent applications pending, as part of the Archive acquisition in December 1992 which relate to tape drive designs or technologies. In addition to patent protection, the Company relies on the laws of unfair competition, copyright and trade secrets to protect its proprietary rights. The Company believes that its technological know-how and abilities, protectable on these bodies of law, are equally important to its business as technical innovations subject to patent protection. As is typical in the disk drive industry, Conner has from time to time been notified that it may be infringing certain patents and other intellectual property rights of others, and the Company is engaged in several patent infringement lawsuits, both as plaintiff and defendant. Although the Company may offer licenses in connection with these claims, there can be no assurance that such claims will not result in litigation in the future regarding patents, mask works, copyrights, trademarks or trade secrets, or that any licenses or other rights can be obtained on acceptable terms. See "Legal Proceedings." FACTORS AFFECTING EARNINGS AND STOCK PRICE - ------------------------------------------ In the past, the Company's sales and earnings have experienced significant fluctuations due to precipitous changes in industry demand, product cycles and pricing pressures. During 1993, the Company experienced substantial losses as a result of distribution problems in Europe, new product introduction delays and severe competition across -11- all the Company's product lines. Although the Company has successfully introduced a range of new disk drive and tape drive products since then, there can be no assurance that the Company will not again experience these problems in the future. In addition, there can be no assurance that the Company will succeed in ramping production of new products in time to take advantage of customer demand or that the Company will achieve profitable operations in any given period or fiscal quarter. Due to the volatility in the Company's business, the Company expects that its stock price will continue to be subject to significant fluctuations. The Company's stock price could decline precipitously due to unsubstantiated rumors or to actual short-term performance that fails to meet analysts' expectations for sales or net income. Investors in the Company's securities must be willing to accept the risk of such fluctuations and stock price volatility. EMPLOYEES - --------- At December 31, 1993, the Company had 9,097 employees, of whom 817 were in research and development or process development engineering; 395 were in marketing, sales and service; 584 were in general administration; and 7,301 were in operations, with 4,851 in direct labor and the remainder in quality assurance, test and manufacturing engineering, procurement and material management and production management. None of the Company's employees, except those in Italy, are represented by a labor union. The Company believes that its relationship with its employees is satisfactory. Item 2. PROPERTIES ---------- Facilities - ---------- The following table sets forth information concerning the principal operating facilities of the Company as of December 31, 1993:
Square Feet ------- Manufacturing: United States (7 buildings)............... 410,000 Asia (4 buildings)........................ 830,000 Europe (3 buildings)...................... 142,000 Administration, Research and Development: United States (13 buildings).............. 440,000 Asia (1 building)......................... 1,200 Sales and Customer Service: Sales and customer service offices (28 buildings in North America, Asia and Europe)......................... 148,000
-12- The Company believes that it may require additional facilities in the United States to address its near term space requirements and expects to be able to lease such facilities on a short term basis, although there is no assurance such short term leases will be available at attractive rates. Item 3. LEGAL PROCEEDINGS ----------------- The Company and certain officers and directors are defendants in a securities class action lawsuit which purports to represent a class of investors who purchased or otherwise acquired the Company's common stock between January 1992 and May 1993. Certain officers and directors are also defendants in a related shareholders derivative suit. Both complaints seek unspecified damages and other relief. The Company intends to defend the actions vigorously. In August 1993, the Company was served with a patent infringement complaint filed by IBM in the United States District Court for the Northern District of California. The complaint alleges that products manufactured by the Company have infringed nine patents owned by IBM. In addition, the complaint seeks declaratory relief to the effect that drives produced by IBM do not infringe five patents held by the Company and seeks to have such patents declared invalid. The Company answered the complaint, denying all material allegations and counter claiming that IBM disk drives infringe six patents owned by Conner, including the five contained in the IBM complaint. The Company believes that it has meritorious defenses against these allegations, that it has valid claims against IBM and will defend this action vigorously. However, the Company is unable to predict the outcome of the litigation or ultimate effect, if any, on its operations or financial condition. Regardless of the merits of the respective patent claims, the Company believes that the existence of the IBM litigation could have an adverse effect on its business and expects that this litigation will require the Company to incur significant costs and uncertainty, including substantial legal expenses. Although the Company has engaged in continuous discussions with IBM toward an appropriate cross-licensing arrangement, no assurance can be given as to the outcome of the litigation or settlement negotiations. In February 1992, the Company filed a patent infringement lawsuit against Western Digital Corporation ("Western Digital") alleging the infringement of five of the Company's patents by Western Digital. The suit is currently pending in the Northern District of California. Shortly after the commencement of this action, Western Digital filed a claim in the Central District of California alleging infringement of one patent by the Company. Subsequently, Western Digital amended its claim to assert infringement by the Company of two additional disk drive patents. The Western Digital complaint has been transferred to the Northern District of California. Although the Company believes it has valid claims against Western Digital and meritorious defenses to the claims asserted by Western Digital, there can be no assurance as to the -13- outcome of this litigation or that the Company will prevail in its claims and defenses. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not applicable. -14- PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS --------------------------------------------------------------------- Information regarding the market for the Registrant's common equity and related stockholder matters is set forth under the heading "Consolidated Statements of Stockholders' Equity" on page 18 and under the heading "Market Price of Common Stock" on the inside back cover of the Annual Report, which sections are incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA ----------------------- Information regarding selected financial information is set forth under the headings "Consolidated Statement of Operations Data," "Consolidated Balance Sheet Data," and "Summary Quarterly Data" on page 8 of the Annual Report, which sections are incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Information regarding management's discussion and analysis of financial condition and results of operations is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 9-14 of the Annual Report, which section is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- Consolidated Financial Statements of the Company at January 1, 1994 and January 2, 1993, and for each of the three fiscal years in the period ended January 1, 1994 and the report of independent accountants therein, as well as the Company's unaudited quarterly financial information for the two-year period ended January 1, 1994 is set forth on pages 15 through 29 and on page 8 of the Annual Report, which sections are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable. -15- PART III Certain information required by Part III is omitted from this Report on Form 10-K in that the Company has filed a definitive proxy statement pursuant to Regulation 14A with respect to the Annual Meeting of Stockholders to be held April 19, 1994 (the "Proxy Statement") with the Securities and Exchange Commission and certain information included therein is incorporated herein by reference. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required by this Item is incorporated by reference to the information under the caption "PROPOSAL NO. 1-- ELECTION OF DIRECTORS" in the Proxy Statement. The information concerning executive officers of the Company is incorporated by reference to the information under the caption "Proposal No. 1--ELECTION OF DIRECTORS" and under the caption "OTHER INFORMATION--Executive Officers" in the Proxy Statement. Item 11. EXECUTIVE COMPENSATION ---------------------- The information required by this Item is incorporated by reference to the information under the captions "EXECUTIVE OFFICER COMPENSATION--Summary Compensation Table," "--Option Grants in Last Fiscal Year", and "--Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values" in the Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required by this Item is incorporated by reference to the information under the caption "OTHER INFORMATION-- Share Ownership by Principal Stockholders and Management" in the Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required by this Item is incorporated by reference to the information under the captions "CERTAIN TRANSACTIONS" and "EXECUTIVE COMPENSATION--Compensation Committee Interlocks and Insider Participation" in the Proxy Statement. -16- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a) The financial statements listed in the following index to consolidated financial statements are filed as part of this Annual Report on Form 10-K. Page in 1. Financial Statements Annual Report ------------- Consolidated Balance Sheets at December 31, 1993 15 and December 31, 1992 Consolidated Statements of Operations for the 16 three years ended December 31, 1993 Consolidated Statements of Cash Flows for the 17 three years ended December 31, 1993 Consolidated Statement of Stockholders' Equity 18 for the three years ended December 31, 1993 Notes to Consolidated Financial Statements 19 Report of Independent Accountants 29 2. Financial Statement Schedules Schedule Description Page ---------- ----------------------------------- ---- I Marketable Securities - Other S-1 Investments VIII Valuation and Qualifying Accounts S-2 Report of Independent Accountants S-3 Schedules not listed above have been omitted because they are either inapplicable or the required information has been provided in the financial statements or notes thereto. 3. Exhibits Refer to (c) below. (b) Reports on Form 8-K No reports on Form 8-K were filed on behalf of Registrant during the quarter ended January 1, 1994. (c) Exhibits -17-
Exhibit Number Description ------------ ----------- 2.1(6) Agreement and Plan of Merger between Conner Peripherals, Inc., a Delaware corporation, and Conner Peripherals, Inc., a California corporation, dated July 13, 1992. 2.2(7) Agreement and Plan of Merger between Archive Corporation, Conner Acquisition Corp. and Conner Peripherals, Inc. dated November 18, 1992, as amended. 3.1(6) Certificate of Incorporation of Registrant, as amended to date. 3.2(6) Bylaws of Registrant as amended to date. 4.1(3) Form of Indenture relating to the Registrant's 6-3/4% Convertible Sub-ordinated Debentures due 2001. 4.2(4) Form of Indenture relating to the Registrant's 6-1/2% Convertible Sub-ordinated Debentures due 2002. 10.1(2) * Registrant's Profit Sharing Plan, as amended to date. 10.2(9) * Registrant's 1986 Incentive Stock Plan, together with forms of agreements thereunder, as amended. 10.3(5) * Registrant's 1992 Restricted Stock Plan. 10.4(6) * Form of Officer and Director Amended and Restated Indemnification Agreement. 10.6 * Registrant's Employee Stock Purchase Plan, as amended. 10.7(1) Lease Agreement dated August 19, 1988 between Registrant and Corporate Plaza, Phase I, a California general partnership, for certain land and improvements commonly known as Corporate Plaza, located in San Jose, California. 10.8(1) Lease Agreement dated June 16, 1988 between Conner Peripherals, Singapore, Ltd. and
-18-
Exhibit Number Description ------------ ----------- Newton Investment Ltd. for the sixth story of 151 Lorong Chuan, Singapore. 10.9(1) Lease Agreement dated December 8, 1988 between Conner Peripherals Singapore, Ltd. for the fifth story of 151 Lorong Chuan, Singapore. 10.10(4) Amendment to Lease Agreements dated June 16, 1988 and December 8, 1988 between Conner Peripherals, Singapore, Ltd. and Newton Investment Ltd. for the sixth and fifth stories, respectively, of 151 Lorong Chuan, Singapore, dated October 23, 1991. See Exhibits 10.8 and 10.9 listed above. 10.11 Sixth Amendment dated December 22, 1993 (the "Sixth Amendment") to Note Purchase Agreement among Registrant and Principal Mutual Life Insurance Company, Northwestern National Life Insurance Company, Northern Life Insurance Company, The North Atlantic Life Insurance Company of America and Ministers Life - a Mutual Life Insurance Company dated June 1, 1989 (the "Note Purchase Agreement"). Exhibit A to the Sixth Amendment is a copy of the Amended and Restated Note Purchase Agreement which includes all amendments and agreements entered into to date with respect to the Note Purchase Agreement. 10.12 Fifth Amendment dated December 22, 1993 (the "Fifth Amendment") to the Note Agreement dated as of March 29, 1991 (the "Note Agreement") among the Registrant and the Purchasers listed in such agreement relating to the Registrant's Series A and Series B Senior Notes. Exhibit A to the Fifth Amendment is a copy of the Amended and Restated Note Agreement which includes all amendments and agreements entered into to date with respect to the Note Agreement. 10.13(6) Lease Agreement to supersede the Lease Agreement that is dated August 1, 1989, on August 1, 1992 for Building 1 at 2400 Trade Centre Drive, Longmont, CO.
-19-
Exhibit Number Description ------------ ----------- 10.14(6) Stock Purchase Agreement between Compaq Computer Corporation and the Registrant, dated July 28, 1992. 10.15(8) * Stock Option and Restricted Stock Purchase Plan - 1981 and form of option agreement with respect thereto. 10.16(8) * Incentive Stock Option Plan - 1981 and form of option agreement with respect thereto. 10.17(9) Lease Agreement dated March 21, 1992 between Newton Investment LTD and Conner Peripherals PTE LTD for the third story of 151 Lorong Chuan, Singapore. 10.18 Sublease Agreement between the Registrant and General Signal Corporation for the property located at 195 South Milpitas Boulevard, Milpitas, California, dated February 20, 1993. 10.19 Credit Agreement dated December 23, 1993 among the Registrant and Bank of America National Trust and Savings Association, as Agent, and the other financial institutions which are parties thereto. 11.1 Statement regarding computation of Registrant's earnings per share. 13 1993 Annual Report to Stockholders. 21.1 Subsidiaries of Registrant. 23.1 Consent of Independent Public Accountants. 24.1 Power of Attorney (see pages 22 and 23).
______________________ -20- (1) Incorporated by reference to exhibit filed with Registration Statement No. 33-26831. (2) Incorporated by reference to exhibit filed with Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989. (3) Incorporated by reference to exhibit filed with Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990. (4) Incorporated by reference to exhibit filed with Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991. (5) Incorporated by reference to exhibit filed with Registrant's Registration Statement No. 33-46886. (6) Incorporated by reference to exhibit filed with Registrant's Form 8-B filed with the Securities and Exchange Commission on September 9, 1992. (7) Incorporated by reference to exhibit filed with the Tender Offer Statement on Schedule 14D-1, as amended, of Conner Acquisition Corporation and Conner Peripherals, Inc., filed with the Securities and Exchange Commission on November 24, 1992. (8) Incorporated by reference to exhibit filed with Registrant's Registration Statement No. 33-56878. (9) Incorporated by reference to exhibit filed with Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992. ___________________________ * Denotes a management contract or compensatory plan or arrangement. -21- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on the 30th day of March, 1994. CONNER PERIPHERALS, INC. By: /s/ P. Jackson Bell ----------------------------------------- P. Jackson Bell, Executive Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David T. Mitchell and Finis F. Conner and each of them, his or her attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign on behalf of the undersigned any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and each of the undersigned does hereby ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Finis F. Conner ------------------------- Chairman of the Board March 30, 1994 (Finis F. Conner) of Directors and Chief Executive Officer (Principal Executive Officer) /s/ David T. Mitchell ------------------------- President, Chief March 30, 1994 (David T. Mitchell) Operating Officer and Director -22- /s/ William J. Schroeder ------------------------- Vice Chairman and March 30, 1994 (William J. Schroeder) Director Director March __, 1994 - ------------------------- (John P. Squires) /s/ P. Jackson Bell - ------------------------- Executive Vice President March 30, 1994 (P. Jackson Bell) and Chief Financial Officer (Principal Financial and and Accounting Officer) /s/ William S. Anderson Director March 30, 1994 - ------------------------- (William S. Anderson) /s/ Mark Rossi Director March 30, 1994 - ------------------------- (Mark Rossi) /s/ Linda Wertheimer Hart Director March 30, 1994 - ------------------------- (Linda Wertheimer Hart) /s/ L. Paul Bremer Director March 30, 1994 - ------------------------- (L. Paul Bremer) /s/ Roger S. Penske Director March 30, 1994 - ------------------------- (Roger S. Penske) -23- CONNER PERIPHERALS, INC. 1993 Annual Report on Form 10-K Index to Financial Statement Schedules
Schedule Description Page - ---------- --------------------------- ---- I Marketable Securities-Other S-1 Investments VIII Valuation and Qualifying S-2 Accounts Report of Independent S-3 Accountants
-24- CONNER PERIPHERALS, INC. ------------------------ SCHEDULE I--MARKETABLE SECURITIES--OTHER INVESTMENTS
Amount At Number Of Which Carried Shares Or Market In Balance Description Principal Amount Cost Value Sheet - ----------- ---------------- ---- ----- ----- U.S. Government and Agencies $ 20,000,000 $ 19,936,000 $ 19,967,000 $ 19,969,000 U.S. Certificates of Deposit 25,000,000 25,000,000 25,000,000 25,000,000 European Certificates of Deposit 16,000,000 16,004,000 16,004,000 16,004,000 European Bonds 41,285,000 42,969,000 42,606,000 42,643,000 Money Market Funds 103,206,000 103,033,000 103,206,000 103,206,000 Commercial Paper 25,000,000 24,713,000 24,829,000 24,829,000 Corporate Notes, Bonds and Medium Term Notes 107,000,000 98,519,000 107,251,000 107,278,000 Taxable Municipal Bonds 14,500,000 14,500,000 14,520,000 14,500,000 Tax Exempt Municipal Bonds 12,000,000 12,000,000 12,000,000 12,000,000 Taxable Floating Preferred Stock 16,000,000 16,000,000 16,000,000 16,000,000 Tax Exempt Floating Preferred Stock 76,850,000 76,817,000 76,821,000 76,821,000 ------------ $458,250,000 ============
S-1 CONNER PERIPHERALS, INC. ------------------------ SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged Charged to Balance Beginning to Costs Other at End Classification of Period and Expenses Accounts/1/ Deductions of Period -------------- --------- ------------ ----------- ---------- --------- 1991: Allowance for accounts receivable $ 6,694,000 $ 3,360,000 $ -- $ -- $10,054,000 1992: Allowance for accounts receivable $10,054,000 $19,339,000 $4,299,000 $ -- $33,692,000 1993: Allowance for accounts receivable $33,692,000 $ 9,749,000 $ -- $(4,011,000) $39,430,000
- ----------------------------- /1/ Charged to Other Accounts in 1992 includes reserves relating to Archive Corporation. S-2 REPORT OF INDEPENDENT ACCOUNTANTS ON ------------------------------------ FINANCIAL STATEMENT SCHEDULES ----------------------------- To the Board of Directors of Conner Peripherals, Inc. Our audits of the consolidated financial statements referred to in our report dated January 20, 1994 appearing on page 29 of the 1993 Annual Report to Stockholders of Conner Peripherals, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE Price Waterhouse San Jose, California January 20, 1994 S-3 CONNER PERIPHERALS, INC. 1993 Annual Report on Form 10-K Index to Exhibits Number Description - ------ -----------
10.6 Registrant's Employee Stock Purchase Plan, as amended. 10.11 Sixth Amendment dated December 22, 1993 (the "Sixth Amendment") to Note Purchase Agreement among Regis- trant and Principal Mutual Life Insurance Company, Northwestern National Life Insurance Company, Northern Life Insurance Company, The North Atlantic Life Insurance Company of America and Ministers Life - a Mutual Life Insurance Company dated June 1, 1989 (the "Note Purchase Agreement"). Exhibit A to the Sixth Amendment is a copy of the Amended and Restated Note Purchase Agreement which includes all amendments and agreements entered into to date with respect to the Note Purchase Agreement. 10.12 Fifth Amendment dated December 22, 1993 (the "Fifth Amendment") to the Note Agreement dated as of March 29, 1991 (the "Note Agreement") among the Registrant and the Purchasers listed in such agreement relating to the Registrant's Series A and Series B Senior Notes. Exhibit A to the Fifth Amendment is a copy of the Amended and Restated Note Agreement which includes all amendments and agreements entered into to date with respect to the Note Agreement. 10.18 Sublease Agreement between the Registrant and General Signal Corporation for the property located at 195 South Milpitas Boulevard, Milpitas, California, dated February 20, 1993. 10.19 Credit Agreement dated December 23, 1993 among the Registrant Bank of America National Trust and Savings Association, as Agent, and the other financial institutions which are parties thereto. 11.1 Statement regarding computation of Registrant's earnings per share. 13.1 1993 Annual Report to Stockholders. 21.1 Subsidiaries of Registrant. 23.1 Consent of Independent Accountants.
EX-10.6 2 EMPLOYEE STOCK PURCHASE PLAN CONNER PERIPHERALS, INC. EMPLOYEE STOCK PURCHASE PLAN (As Amended through October 1993) The following constitute the provisions of the Employee Stock Purchase Plan of Conner Peripherals, Inc. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Board" shall mean the Board of Directors of the Company. ------- (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. ------ (c) "Common Stock" shall mean the Common Stock, no par value, of the -------------- Company. (d) "Company" shall mean Conner Peripherals, Inc., a Delaware --------- corporation. (e) "Compensation" shall mean all regular straight time gross -------------- earnings, exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions or other compensation. Effective beginning with the Plan offering period that commences on or about April 30, 1994 and thereafter, "Compensation" shall mean all regular straight time gross earnings and commissions, exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, or other compensation. (f) "Continuous Status as an Employee" shall mean the absence of any ---------------------------------- interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (g) "Designated Subsidiaries" shall mean the Subsidiaries which have ------------------------- been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (h) "Employee" shall mean any person, including an officer, who is ---------- customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (i) "Exercise Date" shall mean the last day of each offering period --------------- of the Plan. (j) "Offering Date" shall mean the first day of each offering period --------------- of the Plan. (k) "Plan" shall mean this Employee Stock Purchase Plan. ------ (l) "Subsidiary" shall mean a corporation, domestic or foreign, of ------------ which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. Eligibility. ----------- (a) Any person who is an Employee as of the Offering Date of a given offering period shall be eligible to participate in such offering period under the Plan, subject to the requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of the Code. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 425(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) which permits his rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. -2- 4. Offering Periods. Effective October 5, 1993, the Plan shall be ---------------- implemented by offering periods of approximately six months in duration, commencing on the first trading day following the last day of the preceding offering period and ending on the last Friday in April or October, as the case may be, that is not the end of a payroll period. Offering periods shall continue thereafter until the Plan is terminated in accordance with paragraph 19 hereof. The Board of Directors of the Company shall have the power to change the duration of offering periods with respect to future offerings without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first offering period to be affected. 5. Participation. ------------- (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deduction on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given offering. (b) Payroll deductions for a participant shall commence on the first payroll following the Offering Date and shall end on the Exercise Date of the offering to which such authorization is applicable, unless sooner terminated by the participant as provided in paragraph 10. 6. Payroll Deductions. ------------------ (a) At the time a participant files his subscription agreement, he shall elect to have payroll deductions made on each payday during the offering period in an amount not exceeding fifteen percent (15%) of the Compensation which he received on the payday immediately preceding the Offering Date, and the aggregate of such payroll deductions during the offering period shall not exceed fifteen percent (15%) of his aggregate Compensation during said offering period. (b) All payroll deductions made by a participant shall be credited to his account under the Plan. A participant may not make any additional payments into such account. (c) A participant may discontinue his participation in the Plan as provided in paragraph 10, or may lower, but not increase, the rate of his payroll deductions during the offering period by completing or filing with the Company a new authorization for payroll deduction. The change in rate shall be effective -3- fifteen (15) days following the Company's receipt of the new authorization. (d) A participant's subscription agreement shall remain in effect for successive Offering Periods unless revised as provided herein or terminated as provided in paragraph 10. 7. Grant of Option. --------------- (a) On the Offering Date of each offering period, each eligible Employee participating in the Plan shall be granted an option to purchase (at the per share option price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions to be accumulated during such offering period (not to exceed an amount equal to fifteen percent (15%) of his Compensation as of the date of the commencement of the applicable offering period) by eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date, subject to the limitations set forth in Section 3(b) and 12 hereof. Fair market value of a share of the Company's Common Stock shall be determined as provided in Section 7(b) herein. (b) The option price per share of the shares offered in a given offering period shall be the lower of: (i) 85% of the fair market value of a share of the Common Stock of the Company on the Offering Date; or (ii) 85% of the fair market value of a share of the Common Stock of the Company on the Exercise Date. The fair market value of the Company's Common Stock on a given date shall be determined by the Board in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices of the Common Stock for such date, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange on such date, as reported in the Wall Street Journal. 8. Exercise of Option. Unless a participant withdraws from the Plan as ------------------ provided in paragraph 10, his option for the purchase of shares will be exercised automatically on the Exercise Date of the offering period, and the maximum number of full shares subject to option will be purchased for him at the applicable option price with the accumulated payroll deductions in his account. The shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Exercise Date. During his lifetime, a participant's option to purchase shares hereunder is exercisable only by him. -4- 9. Delivery. As promptly as practicable after the Exercise Date of each -------- offering period, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his option. Any cash remaining to the credit of a participant's account under the Plan after a purchase by him of shares at the termination of each offering period, or which is insufficient to purchase a full share of Common Stock of the Company, shall be returned to said participant. 10. Withdrawal; Termination of Employment. ------------------------------------- (a) A participant may withdraw all but not less than all the payroll deductions credited to his account under the Plan at any time prior to the Exercise Date of the offering period by giving written notice to the Company. All of the participant's payroll deductions credited to his account will be paid to him promptly after receipt of his notice of withdrawal and his option for the current period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the offering period. (b) Upon termination of the participant's Continuous Status as an Employee prior to the Exercise Date of the offering period for any reason, including retirement or death, the payroll deductions credited to his account will be returned to him or, in the case of his death, to the person or persons entitled thereto under paragraph 14, and his option will be automatically terminated. (c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the offering period in which the employee is a participant, he will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his account will be returned to him and his option terminated. (d) A participant's withdrawal from an offering will not have any effect upon his eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. 11. Interest. No interest shall accrue on the payroll deductions of a -------- participant in the Plan. 12. Stock. ----- (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 4,500,000 shares, subject to adjustment upon changes in capital- -5- ization of the Company as provided in paragraph 18. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) hereof on the Offering Date of an offering period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of payroll deductions, if necessary. (b) The participant will have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his spouse. 13. Administration. The Plan shall be administered by the Board of the -------------- Company or a committee of members of the Board appointed by the Board. The administration, interpretation or application of the Plan by the Board or its committee shall be final, conclusive and binding upon all participants. Members of the Board who are eligible Employees are permitted to participate in the Plan, provided that: (a) Members of the Board who are eligible to participate in the Plan may not vote on any matter affecting the administration of the Plan or the grant of any option pursuant to the Plan. (b) If a Committee is established to administer the Plan, no member of the Board who is eligible to participate in the Plan may be a member of the Committee. 14. Designation of Beneficiary. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of the offering period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Exercise Date of the offering period. -6- (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither payroll deductions credited to a --------------- participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with paragraph 10. 16. Use of Funds. All payroll deductions received or held by the Company ------------ under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each participant ------- in the Plan. Statements of account will be given to participating Employees promptly following the Exercise Date, which statements will set forth the amounts of payroll deductions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization. Subject to any required ------------------------------------------ action by the shareholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to -7- have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the offering period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. In the event that such successor corporation does not agree to assume the option or substitute an equivalent option, the Board shall in lieu of such assumption or substitution, provide for the participant to have the right to exercise the option as to all of the optioned stock, including shares as to which the option would not otherwise be exercisable. If the Board makes an option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the participant that the option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the option will terminate upon the expiration of such period. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 19. Amendment or Termination. The Board of Directors of the Company may ------------------------ at any time terminate or amend the Plan. Except as provided in paragraph 18, no such termination can affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant, nor may an amendment be made without prior approval of the shareholders of the Company (obtained in the manner described in paragraph 21) if such amendment would: (a) Increase the number of shares that may be issued under the Plan; -8- (b) Permit payroll deductions at a rate in excess of fifteen percent (15%) of the participant's Compensation; (c) Change the designation of the employees (or class of employees) eligible for participation in the Plan; or (d) If the Company has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") at the time of such amendment, materially increase the benefits which may accrue to participants under the Plan. If any amendment requiring shareholder approval under this paragraph 19 of the Plan is made subsequent to the first registration of any class of equity securities by the Company under Section 12 of the Exchange Act, such shareholder approval shall be solicited as described in paragraph 21 of the Plan. 20. Notices. All notices or other communications by a participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Shareholder Approval. -------------------- (a) Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. If such shareholder approval is obtained at a duly held shareholders' meeting, it must be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company, or if such shareholder approval is obtained by written consent, it must be obtained by the unanimous written consent of all shareholders of the Company; provided, however, that approval at a meeting or by written consent may be obtained by a lesser degree of shareholder approval if the Board determines, in its discretion after consultation with the Company's legal counsel, that such a lesser degree of shareholder approval will comply with all applicable laws and will not adverse- ly affect the qualification of the Plan under Section 423 of the Code. (b) If and in the event that the Company registers any class of equity securities pursuant to Section 12 of the Exchange Act, any required approval of the shareholders of the Company obtained after such registration shall be solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. -9- (c) If any required approval by the shareholders of the Plan itself or of any amendment thereto is solicited at any time otherwise than in the manner described in paragraph 21(b) hereof, then the Company shall, at or prior to the first annual meeting of shareholders held subsequent to the later of (1) the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act or (2) the granting of an option hereunder to an officer or director after such registration, do the following: (i) furnish in writing to the holders entitled to vote for the Plan substantially the same information which would be required (if proxies to be voted with respect to approval or disapproval of the Plan or amendment were then being solicited) by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and (ii) file with, or mail for filing to, the Securities and Exchange Commission four copies of the written information referred to in subsection (i) hereof not later than the date on which such information is first sent or given to shareholders. 22. Conditions Upon Issuance of Shares. Shares shall not be issued with ---------------------------------- respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the afore- mentioned applicable provisions of law. 23. Term of Plan. The Plan shall become effective upon the earlier to occur ------------ of its adoption by the Board of Directors or its approval by the shareholders of the Company as described in paragraph 21. It shall continue in effect for a term of twenty (20) years unless sooner terminated under paragraph 19. -10- CONNER PERIPHERALS, INC. EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT Offering Date: ________________ Offering Period: ______________ ___ Original Application ___ Change to Payroll Deduction Rate ___ Change to No Payroll Deduction, without Refund ___ Withdrawal from Plan with Refund ___ Change of Beneficiary(ies) 1. --------------------------------------------------------------------------- Print Clearly Employee Last Name First Middle Employee Number Department Number --------------- ---------- hereby elects to participate in the Conner Peripherals, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan") and subscribes to purchase shares of Common Stock of Conner Peripherals, Inc. (the "Company") in accordance with this Subscription Agreement and the Stock Purchase Plan. 2. I hereby authorize a payroll deduction from each paycheck in the amount of _____ % of my base pay, I understand that payroll deductions for this Offering Period will begin with my paycheck for the pay period which includes ______ and will continue throughout the paycheck for the last full pay period ending before _______, unless I terminate my deduction or withdraw from the Stock Purchase Plan before the end of the Offering Period. 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Stock Purchase Plan. I further understand that, except as otherwise set forth in the Stock Purchase Plan, shares will be purchased for me automatically at the end of the Offering Period (the "Exercise Date") unless I otherwise withdraw from the Stock Purchase Plan by giving written notice to the Company for such purpose. 4. I have received a copy of the Company's "Employee Stock Purchase Plan Questions and Answers and I understand that I may obtain the complete "Conner Peripherals, Inc. Employee Stock Purchase Plan" by contacting Human Resources or Finance. I further understand that my participation in the Stock Purchase Plan is in all respects subject to the terms of the Stock Purchase Plan. 5. (This item describes U.S. tax consequences only and does not apply to all participants.) I understand that if I sell any shares received by me pursuant to the Stock Purchase Plan, I may be treated for income tax purposes as having received ordinary income at the time of such sale in the amount equal to the excess of the fair market value of the shares at the time such shares were transferred to me over the price which I paid for the shares. I further understand that the difference between the price of the shares at the time of such sale and the fair market value at the time such shares were transferred to me will be reportable as a capital gain or lost for income tax purposes in the year in which the sale of the shares occurred. 6. I hereby agree to notify the Company on the required form within 30 days after the date of any such disposition of my shares as described in Item 5 above, if I dispose of such shares at any time within two (2) years after the Offering Date or within one (1) year after the Exercise Date. 7. I hereby authorize the Company to act on my behalf to dispose of shares acquired by me pursuant to the Stock Purchase Plan, if and when requested to do so. 8. I hereby agree to be bound by the terms of the Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Stock Purchase Plan. 9. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Stock Purchase Plan: PLEASE PRINT CLEARLY: --------------------------------------------------------------------------- NAME FIRST MIDDLE LAST RELATIONSHIP --------------------------------------------------------------------------- ADDRESS NO. & STREET CITY STATE ZIP --------------------------------------------------------------------------- NAME FIRST MIDDLE LAST RELATIONSHIP --------------------------------------------------------------------------- ADDRESS NO. & STREET CITY STATE ZIP I understand that this Subscription Agreement shall remain in effect throughout successive offering periods unless terminated by me. --------------- ------------------------------------ DATED SIGNATURE OF EMPLOYER EX-10.11 3 NOTE PURCHASE AGREEMENT CONNER PERIPHERALS, INC. Note Agreement Dated as of June 1, 1989 $15,000,000 Series A Senior Notes due 1992 $15,000,000 Series B Senior Notes due 1994 SIXTH AMENDMENT TO NOTE AGREEMENT Dated as of December 22, 1993 To the Person Signatory Hereto as Holder of Notes Ladies and Gentlemen: CONNER PERIPHERALS, INC. (together with its successors and assigns, the "Company"), a Delaware corporation, hereby agrees with you as follows: 1. PRELIMINARY STATEMENT. 1.1 The Company entered into those certain separate Note Agreements, each dated as of June 1, 1989 (collectively, as in effect immediately prior to the Effective Date, the "Existing Note Agreement," and, as amended hereby, the "Amended Note Agreement"), with each of Principal Mutual Life Insurance Company, Northwestern National Life Insurance Company, Northern Life Insurance Company, The North Atlantic Life Insurance Company of America, and Minsiters Life - A Mutual Life Insurance Company (individually, a "Purchaser," and collectively, the "Purchasers"), pursuant to which the Company issued and sold to the Purchasers, and the Purchasers purchased from the Company, an aggregate principal amount of Fifteen Million Dollars ($15,000,000) of the Company's Series A Senior Notes (the "Series A Senior Notes") due 1992 and Fifteen Million Dollars ($15,000,000) of the Company's Series B Senior Notes due 1994 (collectively, as in effect immediately prior to the Effective Date, the Series B Senior Notes referred to herein as the "Notes."). 1.2 The Existing Note Agreement has been, prior to the Effective Date, and by agreement by the parties thereto, amended pursuant to that certain First Amendment to Note Agreement, dated as of January 21, 1992, that certain Second Amendment to Note Agreement, dated as of July 29, 1992, that certain Third Amendment and Assumption Agreement to Note Agreement, dated as of August 31, 1992, that certain Fourth Amendment to Note Agreement, dated as of March 31, 1993 and that certain Fifth Amendment to Note Agreement, dated as of June 25, 1993. 1.2 As of the date hereof, none of the Series A Senior Notes are outstanding, and Principal Mutual Life Insurance Company holds one hundred percent (100%) of the Notes outstanding on the Effective Date (the "Holder"). 1.3 The Company and the Holder desire to amend and restate in full Section 4, Section 5, Section 7 and Section 12(a) of the Existing Note Agreement and to execute this Amendment (the "Amendment") to effect such amendment and restatement. 1.4 The terms used herein and not defined herein have the meanings specified in the Amended Note Agreement. NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2. AMENDMENTS TO THE EXISTING NOTE AGREEMENTS. 2.1 Amendment to Existing Note Agreement. The Existing Note Agreement (excluding all Appendices and Exhibits thereto) is hereby amended and restated in full in the form attached hereto as Exhibit A. 2.2 Waiver Letter. That certain waiver agreement (the "Waiver") between the Company and the Holder, dated as of November 12, 1993, as extended through the date hereof, pursuant to which the Holder waived compliance with certain provisions of the Existing Note Agreement, is hereby made permanent. 2.3 Understanding Re Definition of Liens. The parties hereto agree and acknowledge that Section 4C of those certain separate Note Agreements, dated as of March 29 1991, in respect of the Company's Series A Senior Notes due 1996 and its Series B Senior Notes due 1998, does not constitute or create a "Lien" under and as defined in the Amended Note Agreement. 3. WARRANTIES AND REPRESENTATIONS. To induce the Holder to enter into this Amendment, the Company warrants and represents to the Holder that as of the Effective Date: 3.1 Organization, Existence and Authority. Each of the Company and the Restricted Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation. The Company has all requisite power and authority to execute and deliver this Amendment. 3.2 Authorization, Execution and Enforceability. The execution and delivery by the Company of this Amendment and the performance by the Company of its obligations hereunder and under the Amended Note Agreement have been duly authorized by all necessary corporate action on the part of the Company. This Amendment has been duly executed and delivered by the Company and this Amendment and 2 Amendment Agreement the Amended Note Agreement (the "Transaction Documents"), are valid and binding obligations of the Company, enforceable in accordance with their respective terms. 3.3 No Conflicts or Defaults. Neither the execution and delivery by the Company of this Amendment, nor the performance by the Company of its obligations under the Transaction Documents, conflicts with, results in any breach in any of the provisions of, constitutes a default under, violates or results in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of: (a) any charter document or the bylaws of the Company or any of the Subsidiaries; (b) any agreement, instrument or conveyance to which the Company or any of the Subsidiaries or any of their respective Properties may be bound or affected; or (c) any statute, rule or regulation or any order, judgment or award of any court, tribunal or arbitrator by which the Company or any of the Subsidiaries or any of their respective Properties may be bound or affected. 3.4 Governmental Consent. Neither the execution and delivery by the Company of this Amendment, nor the performance by the Company of its obligations under the Transaction Documents, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of any one or more of the Company and the Subsidiaries as a condition thereto under the circumstances and conditions contemplated by this Amendment. 3.5 Disclosure of Defaults under Existing Note Agreement. After giving effect to the Waiver, no event has occurred and no condition exists that would constitute a Default or an Event of Default under the Existing Note Agreement, and no event has occurred and no condition exists that would constitute a Default or an Event of Default under the Amended Note Agreement. 4. CONDITIONS PRECEDENT TO THIS AMENDMENT. The amendment of the Existing Note Agreement provided for in Section 2 hereof shall not become effective until a counterpart of the certificate attached hereto as Exhibit B shall have been executed and delivered by the Holder to the Company, on or prior to December 22, 1993 (the date of such satisfaction being herein referred to as the "Effective Date"). The Holder shall not deliver such certificate until the following conditions precedent have been satisfied in the opinion of the Holder. 3 Amendment Agreement 4.1 No Default; Representations And Warranties True. No Default or Event of Default under the Amended Note Agreement shall exist and the warranties and representations set forth in Section 3 hereof shall be true and correct on the Effective Date. 4.2 Authorization of Transactions. The Company shall have authorized, by all necessary corporate action, the execution and delivery of this Agreement and each of the other documents and instruments executed and delivered in connection herewith and the performance of all obligations of, and the satisfaction of all conditions precedent pursuant to this Section 4 by, and the consummation of all transactions contemplated by this Amendment by, the Company. The Holder shall have received a certificate, in form and substance satisfactory to the Holder certifying the adoption of resolutions of the board of directors of the Company authorizing such execution, delivery, performance, satisfaction and consummation, which resolutions shall be attached to such certificate and shall be in full force and effect. The certificate shall indicate that there has been no resolution passed by the board of directors of the Company which conflicts with, amends or rescinds such resolutions. 4.3 Execution of Documents and Agreements. The Company shall have entered into a binding commitment (the "Commitment") with Bank of America whereby the Bank of America has agreed to arrange a revolving loan facility (the "Revolving Loan") for the Company for a period of not less than two (2) years from the Effective Date and in an amount of not less than Fifty Million Dollars ($50,000,000). The Company shall have delivered to each Holder a true and correct copy of the executed commitment with respect to such revolving loan facility as in effect on the Effective Date, which shall be in form and substance satisfactory to the Holder. 4.4 Arcada Holdings, Inc. The Company shall have provided you with a true and correct copy of that certain Letter of Intent dated as of December 13, 1993, as in effect on the Effective Date, which Letter of Intent correctly describes the transactions related to the acquisition of Quest Development Corporation by Arcada Holdings, Inc., the formation and capitalization of Arcada Holdings, Inc. and the related material transactions. 4.5 Expenses. The Company shall have paid all costs and expenses of the Holder relating to this Amendment and the Waiver, in accordance with Section 9 of the Existing Note Agreement. 4.6 Proceedings Satisfactory. All proceedings taken in connection with this Amendment and all documents and papers relating thereto shall be satisfactory to the Holder and its special counsel. The Holder 4 Amendment Agreement and its special counsel shall have received copies of such documents and papers as they may reasonably request in connection therewith, in form and substance satisfactory to them. 5. CONDITION SUBSEQUENT. The amendment of the Existing Note Agreement provided for in Section 2 hereof shall terminate and be of no force or effect on and after January 31, 1994, unless on or prior to such date, the Revolving Loan shall have become effective on substantially the same terms as provided in the Commitment, and the Company shall have delivered to each Holder a true and correct copy of the agreement constituting the Revolving Loan as in effect at the time of such delivery. 6. WAIVER AND AFFIRMATION OF OBLIGATIONS. The terms of this Amendment shall not operate as a waiver by the Holder of, or otherwise prejudice the Holder's rights, remedies or powers under, the Existing Note Agreement or under applicable law, except to the extent provided herein. Except as expressly provided herein and in the Amended Note Agreement: (a) no terms and provisions of any agreement (including, without limitation, the Existing Note Agreement and the Existing Notes) are modified or changed by this Amendment; and (b) the terms and provisions of the Existing Note Agreement and the Existing Notes shall continue in full force and effect. The Company hereby acknowledges and affirms all of its obligations and duties under the Amended Note Agreement. 7. MISCELLANEOUS. 7.1 Section Headings, etc. The titles of the Sections appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Amendment as a whole and not to any particular Section or other subdivision. 7.2 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW. 7.3 Duplicate Originals; Execution in Counterpart. Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be 5 Amendment Agreement effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 7.4 Waivers and Amendments. Neither this Amendment nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by each of the parties signatory hereto. The terms and provisions of the Amended Note Agreement may be further amended or modified in accordance with the provisions of the Amended Note Agreement. 7.5 Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. The provisions hereof are intended to be for the benefit of all holders, from time to time, of Notes, and shall be enforceable by any such holder, whether or not an express assignment to such holder of rights hereunder shall have been made by you or your successor or assign. 7.6 Entire Agreement. This Amendment constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms. [Remainder of Page Intentionally Blank. Next Page is Signature Page] 6 Amendment Agreement If this Amendment is satisfactory to you, please so indicate by signing the acceptance at the foot of a counterpart hereof and returning such counterpart to the Company, whereupon this Amendment shall become binding between us in accordance with its terms. CONNER PERIPHERALS, INC. By: /s/ P. Jackson Bell -------------------------------- Name: Title: Agreed and Accepted by the Holder of the Notes: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: /s/ Nora M. Everett ------------------------------- Name: Title: By: /s/ Principal Mutual Life Insurance Company ------------------------------- Name: Title: [SIGNATURE PAGE to AMENDMENT NO. 6, dated as of DECEMBER 22, 1993, to CONNER PERIPHERALS, INC.'S NOTE AGREEMENT dated as of JUNE 1, 1989] Amendment Agreement EXHIBIT A TO AMENDMENT NO. 6 AMENDED AND RESTATED NOTE AGREEMENT [Exhibit A begins on the next page] Exhibit A - 1 ================================================================================ CONNER PERIPHERALS, INC. NOTE PURCHASE AGREEMENT WITH PRINCIPAL MUTUAL LIFE INSURANCE COMPANY NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY NORTHERN LIFE INSURANCE COMPANY THE NORTH ATLANTIC LIFE INSURANCE COMPANY OF AMERICA AND MINISTERS LIFE--A MUTUAL LIFE INSURANCE COMPANY Dated as of June 1, 1989 as amended by First Amendment to Note Agreement, dated as of January 21, 1992 Second Amendment to Note Agreement, dated as of July 29, 1992 Third Amendment and Assumption Agreement to Note Agreement, dated as of August 31, 1992 Fourth Amendment to Note Agreement, dated as of March 31, 1993 Fifth Amendment to Note Agreement, dated as of June 25, 1993. Sixth Amendment to Note Agreement, dated as of December 22, 1993. $15,000,000 11.55% Series A Senior Notes Due 1992 $15,000,000 12% Series B Senior Notes Due 1994 ================================================================================ Exhibit A - 2 TABLE OF CONTENTS (Not Part of Agreement)
PAGE 1. PURCHASE AND SALE OF NOTES........................................... 1 (a) The Series A Notes.............................................. 1 (b) The Series B Notes.............................................. 1 (c) Purchases to be Several......................................... 2 (d) Default Rate.................................................... 2 (e) Manner of Payment............................................... 2 2. VOLUNTARY PREPAYMENTS OF THE NOTES................................... 2 (a) Voluntary Prepayments With Premium.............................. 2 (b) Restrictions on Partial Prepayments............................. 3 (c) Manner of Effecting Prepayment.................................. 3 (d) Addenda to Notes................................................ 3 3. REPRESENTATIONS AND WARRANTIES....................................... 3 (a) Corporate Organization.......................................... 3 (b) No Prohibition.................................................. 4 (c) Due Authorization............................................... 4 (d) Legal Proceedings............................................... 4 (e) Financial Statements............................................ 5 (f) Title to Assets: Patents and Trademarks......................... 5 (g) Securities Matters.............................................. 5 (h) Licenses and Permits............................................ 6 (i) No Defaults on Indebtedness..................................... 6 (j) Tax Returns..................................................... 6 (k) No Margin Stock................................................. 6 (l) ERISA Matters................................................... 6 (m) Brokers and Finders............................................. 7 (n) Use of Proceeds................................................. 7 (o) Investment Company Act.......................................... 7 (p) Environmental Laws.............................................. 7 (q) Full Disclosure................................................. 7 4. AFFIRMATIVE COVENANTS................................................ 8 (a) Financial Statements............................................ 8 (b) Inspection of Property.......................................... 13 (c) Covenant to Secure Note Equally................................. 13 (d) ERISA Compliance................................................ 14 (e) Payment of Taxes and Claims..................................... 14 (f) Maintenance of Properties and Corporate Existence............... 14 (g) Payment of Notes and Maintenance of Office...................... 15 5. NEGATIVE COVENANTS................................................... 15 (a) Consolidated Tangible Net Worth................................. 15 (b) Consolidated Debt............................................... 16 (c) Consolidated Fixed Charges; Consolidated Net Income............. 18 (d) Liens........................................................... 18 (e) Sale/Leaseback Transactions..................................... 22 (f) Restricted Subsidiary Debt and Preferred Stock.................. 22
Note Agreement Through 6th Amendment Exhibit A - ii TABLE OF CONTENTS (Cont.) (Not Part of Agreement)
PAGE (g) Merger and Consolidation; Sale of Assets........................ 22 (h) Permitted Investments........................................... 27 (i) Transactions with Affiliates.................................... 31 (j) Line of Business................................................ 31 (k) Designation of Subsidiaries..................................... 31 (l) Private Offering................................................ 32 (m) Subordinated Debt............................................... 32 (n) Liquidity Coverage.............................................. 33 (o) Restricted Payments............................................. 33 (p) Accounting Period............................................... 33 6. CONDITIONS PRECEDENT................................................. 33 (a) Conditions to Closing........................................... 33 (b) Waiver of Conditions............................................ 34 7. EVENTS OF DEFAULT.................................................... 35 (a) Acceleration.................................................... 35 (b) Other Remedies.................................................. 37 (c) Annulment of Acceleration of Notes.............................. 38 8. PAYMENTS ON AND REGISTRATION AND TRANSFER OF NOTES................... 38 9. EXPENSES............................................................. 39 10. DELIVERY OF DOCUMENTS; PRO RATA PAYMENTS; AMENDMENTS AND CONSENTS............................................................. 39 (a) Delivery of Documents........................................... 39 (b) Pro Rata Payments............................................... 39 (c) Amendments and Consents......................................... 39 (d) Solicitation of Noteholders..................................... 40 11. REPRESENTATIONS AND AGREEMENTS OF PURCHASERS......................... 40 (a) Investment Purpose.............................................. 40 (b) ERISA Representation............................................ 40 (c) Confidentiality................................................. 41 12. DEFINITIONS.......................................................... 41 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................... 58 14. SUCCESSORS AND ASSIGNS............................................... 58 15. NOTICES.............................................................. 58 16. INTEGRATION.......................................................... 58 17. GOVERNING LAW........................................................ 58
Note Agreement Through 6th Amendment Exhibit A - iii TABLE OF CONTENTS (Cont.) (Not Part of Agreement)
PAGE 18. COUNTERPARTS......................................................... 58 19. CAPTIONS............................................................. 58
APPENDIX I -- PURCHASERS APPENDIX II -- ALLOCATION OF NOTES EXHIBIT A-1 -- FORM OF SERIES A NOTE EXHIBIT A-2 -- FORM OF SERIES B NOTE EXHIBIT B -- SUBSIDIARIES EXHIBIT C -- PERMITTED EXISTING INDEBTEDNESS AND LIENS EXHIBIT D -- PERMITTED EXISTING INVESTMENTS EXHIBIT E -- FORM OF OPINION OF COMPANY COUNSEL EXHIBIT F -- FORM OF SUBORDINATION PROVISIONS EXHIBIT G -- FORM OF STATISTICAL RELEASE Note Agreement Through 6th Amendment Exhibit A - iv CONNER PERIPHERALS, INC. NOTE PURCHASE AGREEMENT Dated as of June 1, 1989 TO THE PURCHASERS NAMED IN APPENDIX I HERETO: Ladies & Gentlemen: The undersigned, Conner Peripherals, Inc., a California corporation (together with its successors and assigns, including, as of August 31, 1992, Conner Peripherals, Inc. a Delaware corporation as successor by merger to Conner Peripherals, Inc. a California corporation, the "Company"), hereby confirms its agreements set forth below with the parties listed on Appendix I hereto (the "Purchasers", comprised of the Series A Purchasers and the Series B Purchaser, as defined in paragraphs 1(a) and 1(b) below). Reference is made to paragraph 12 hereof for definitions of capitalized terms used herein and not otherwise defined. 1. PURCHASE AND SALE OF NOTES. (a) The Series A Notes. Subject to the terms and conditions herein, the Company will sell to Northwestern National Life Insurance Company, Northern Life Insurance Company, The North Atlantic Life Insurance Company of America and Ministers Life--A Mutual Life Insurance Company (collectively, the "Series A Purchasers") on such date on or prior to July 15, 1989 as the Company shall specify on not less than five days written notice to the Purchasers (the date of sale being herein called the "Closing Date"), and each of the Series A Purchasers will purchase from the Company on the Closing Date, at 100% of the principal amount thereof, a promissory note of the Company (which, together with any note or notes issued in exchange or substitution therefor, are herein collectively called the "Series A Notes" and individually a "Series A Note"), in the principal amount specified on Appendix II hereto, dated the Closing Date. The principal amount of the Series A Notes shall be due in full on the third anniversary date of the Series A Notes. The Series A Notes shall bear interest from the Closing Date until payment in full of the principal amount thereof at the rate of 11.55% per annum (provided that solely for the purpose of determining the portion of annual interest allocable to any interest payment period, it shall be assumed that a year is composed of 360 days and twelve 30- day months), payable quarterly on the outstanding balance, commencing three months after the Closing Date and continuing until payment in full of the principal amount of the Series A Notes. The Series A Notes shall not be subject to optional prepayment except as hereinafter provided, shall in all respects be subject to the terms of this Agreement, and shall be substantially in the form of Exhibit A-I hereto. (b) The Series B Notes. Subject to the terms and conditions herein, the Company will sell to Principal Mutual Life Insurance Company (the "Series B Purchaser") on the Closing Date, and the Series B Purchaser will purchase from the Company on the Closing Date, at 100% of the principal amount thereof, a promissory note of the Company (which, together with any note or notes issued in exchange or substitution therefor, is herein called the "Series B Note" or, as the context may require, the "Series B Notes", and together with the Series A Notes herein sometimes called collectively the "Notes" or individually a "Note") in the principal amount specified on Appendix II hereto, dated the Closing Date. The principal Note Agreement Through 6th Amendment Exhibit A - 1 1. PURCHASE AND SALE OF NOTES amount of the Series B Note shall be due in four equal consecutive annual installments of $1,500,000 each commencing on the first anniversary date of the Series B Note through and including the fourth anniversary date of the Series B Note with a final payment of $9,000,000 due on the fifth anniversary date of the Series B Note. The Series B Note shall bear interest from the Closing Date until payment in full of the principal amount thereof at the rate of 12% per annum (provided that solely for the purpose of determining the portion of annual interest allocable to any interest payment period, it shall be assumed that a year is composed of 360 days and twelve 30-day months), payable semi-annually on the outstanding balance, commencing six months after the Closing Date and continuing until payment in full of the principal amount of the Series B Note. The Series B Note shall not be subject to optional prepayment except as hereinafter provided, shall in all respects be subject to the terms of this Agreement, and shall be substantially in the form of Exhibit A-2 hereto. (c) Purchases to be Several. The purchase of each of the Notes by the respective Purchasers shall be separate and several, but the purchase of each Note of each series shall be a condition concurrent to the purchase of each other Note. (d) Default Rate. If all or any portion of the principal amount of or interest on any Note shall not be paid when due, such principal (and, if so permitted by law, such interest) shall bear interest at a rate equal to the lesser of the highest rate permitted by law or the sum of 2% and the rate borne by such Note (computed on the basis of a 360-day year composed of twelve 30-day months) from the date of nonpayment until payment in full. (e) Manner of Payment. The Purchasers will pay the purchase price of the Notes by wire transfer of immediately available Federal funds to such accounts as shall be specified by the Company, or in such other funds or in such other manner as may be mutually agreed upon by the Purchasers and the Company, against delivery to the Purchasers of the Notes. 2. VOLUNTARY PREPAYMENTS OF THE NOTES. (a) Voluntary Prepayments With Premium. The Company may at its option, at any time, prepay either or both series of the Notes, in whole or in part (but if in part only in the aggregate amount of $100,000 or integral multiples' thereof for each series of Notes to be prepaid), upon 30 days' prior written notice to the holders of the series of Notes to be prepaid, and upon payment of a prepayment premium (calculated and payable separately for each series of Notes to be prepaid) equal to the excess, if any, of (i) the amount equal to the present value, discounted back to the date of prepayment, of all installments (or portions thereof) of principal and interest which are avoided by such prepayment, determined by discounting such payments of principal and interest at a rate per annum equal to the Treasury Yield Percentage, over (ii) the principal amount to be prepaid. In no event shall such prepayment premium be less than zero. Except in accordance with this paragraph 2, the Company shall not be permitted to voluntarily prepay the Notes. Note Agreement Through 6th Amendment Exhibit A - 2 2. VOLUNTARY PREPAYMENTS OF THE NOTES (b) Restrictions on Partial Prepayments. No partial prepayment shall be made pursuant to paragraph 2(a) unless immediately prior to the time of such partial prepayment the Company and its Restricted Subsidiaries, on a consolidated basis, shall (i) giving effect to such partial prepayment, have outstanding no indebtedness other than indebtedness permitted by this Agreement, and (ii) have delivered to the holders of the Notes a certificate signed by a responsible officer of the Company to such effect and to the effect that the partial prepayment will not reduce the working capital of the Company and its Restricted Subsidiaries, on a consolidated basis, below an amount which is considered adequate by the officers of the Company for the safe conduct of the business of the Company and its Restricted Subsidiaries. (c) Manner of Effecting Prepayment. In the event the Company shall give notice of any prepayment in accordance with paragraph 2(a) above, such notice shall specify the series of Notes and the principal amount thereof to be prepaid and the date of proposed prepayment and thereupon such principal amount, together with accrued and unpaid interest thereon to the prepayment date and together with the applicable premium, if any, shall become due and payable on the prepayment date. No more than ten and no less than five business days prior to such prepayment, the Company shall deliver to the holders of the Notes to be prepaid a second notice, setting forth an estimate of the prepayment premium and showing the Company's method of calculating the same. In the event any prepayment shall be less than the entire unpaid principal amount of a series of the Notes, the amount of such prepayment shall be applied pro rata on all Notes of the series being prepaid, and shall be allocated pro rata to all installments. (d) Addenda to Notes. Upon any prepayment of a series of Notes which causes a variation from the original payment schedule to be made thereunder, the Company shall enter into an addendum to each Note of such series to better evidence the payments to be made thereunder, but the new payment amounts shall be operative whether or not such addenda are executed. 3. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Purchasers as follows: (a) Corporate Organization. The Company and its Subsidiaries are corporations organized and existing and in good standing under the laws of the jurisdictions of their incorporation, and are duly qualified to do business and are in good standing under the laws of each jurisdiction where the nature of the business done or property owned require such qualification and failure to so qualify would have a material adverse effect upon the Company, Conner Singapore or the Company and its Subsidiaries, taken as a whole. The Company is organized under the laws of the State of California. Exhibit B hereto correctly (i) sets forth the name of each Subsidiary, its jurisdiction of incorporation and the percentage of the outstanding capital stock of such Subsidiary owned by the Company or another Subsidiary, and Note Agreement Through 6th Amendment Exhibit A - 3 3. REPRESENTATIONS AND WARRANTIES (ii) identifies each such Subsidiary as a Restricted or an Unrestricted Subsidiary. Except as set forth in Exhibit B and Exhibit D hereto, the Company does not own, directly or indirectly, more than 1% of the total outstanding capital stock of any class of any other corporation. (b) No Prohibition. There is no provision in the charter documents of the Company or its Subsidiaries, or in their bylaws, which prohibits the execution and delivery by the Company of this Agreement or of the Notes, or the performance or observance by the Company and its Subsidiaries of any of the terms or conditions of this Agreement or of the Notes. (c) Due Authorization. The execution, delivery and performance of this Agreement and the Notes have been duly authorized by all necessary corporate action of the Company and its Subsidiaries and do not and will not (i) require any consent or approval of the stockholders of the Company, or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect having applicability to the Company or any Subsidiary, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement other than defaults which will be waived on or prior to the Closing Date pursuant to the waiver described in paragraph 6(a)(v) hereof, (iv) result in a breach of or constitute a default under any other agreement, lease or instrument to which the Company or any Subsidiary is a party or by which it or its properties may be bound or affected which is material to the Company, Conner Singapore or the Company and its Subsidiaries, taken as a whole, or (v) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Company or any Subsidiary. (d) Legal Proceedings. Except for the Company's patent litigation with Rodime plc, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or against any property of the Company or its Subsidiaries in any court or before any federal, state, municipal or other governmental agency, which, if decided adversely to the Company or any of its Subsidiaries, would have a material adverse effect upon the Company, Conner Singapore, or the Company and its Subsidiaries taken as a whole, or upon the business and properties of the Company, Conner Singapore, or the Company and its Subsidiaries taken as a whole, and neither the Company nor Conner Singapore is in default with respect to any order of any court or governmental agency. The description of the Company's patent litigation with Rodime set Note Agreement Through 6th Amendment Exhibit A - 4 3. REPRESENTATIONS AND WARRANTIES forth in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1988 is accurate in all material respects. (e) Financial Statements. The Company has furnished to the Purchasers a consolidated balance sheet, statement of income, statement of shareholders' equity and statement of cash flows of the Company and its Subsidiaries for the fiscal years ended December 31, 1987 and December 31, 1988, certified by Price Waterhouse, independent certified public accountants, and unaudited consolidated and consolidating balance sheets, statement of operations and statement of cash flows of the Company and its Subsidiaries for the three months ended March 31, 1989. Said financial statements fairly present the financial condition of the Company and its Subsidiaries at the dates thereof and the results of operations of the Company and its Subsidiaries for the periods indicated, all in conformity with generally accepted accounting principles consistently followed throughout the periods involved; provided, however, that the unaudited financial statements are subject to audit and year-end adjustments and are not accompanied by explanatory footnotes. There have been no material adverse changes in the condition, financial or otherwise, of the Company and its Subsidiaries since the fiscal year ended December 31, 1988. (f) Title to Assets: Patents and Trademarks. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good title to all personal property they purport to own, including (except as they have been affected by transactions in the ordinary course of business) all properties and assets reflected in the most recent balance sheet referred to in paragraph 3(e) hereof, except for such assets the absence of which would not, individually or in the aggregate, have a materially adverse effect upon the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole or upon the business or other properties of the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole. Without limiting the generality of the foregoing, the Company and each Subsidiary owns or possesses, or can obtain by the payment of royalties in amounts which, individually or in the aggregate, do not and will not have a materially adverse effect upon the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole or upon the business or properties of the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole, all the patents, trademarks, trade names, service marks, copyrights, licenses and rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any known conflict with the rights of others. In the case of property used in their trades or businesses but not owned by them, the Company and its Subsidiaries have a valid, binding and enforceable right to use all such property which is material to the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole pursuant to a written lease, license or other agreement. All of the assets of the Company and its Subsidiaries are free and clear of all mortgages, liens, pledges, charges and encumbrances (other than liens permitted by paragraph 5(d) hereof). (g) Securities Matters. Neither the Company nor any of its Subsidiaries nor any agent acting on the behalf of the Company or any of its Subsidiaries has offered the Notes, or any part thereof, or any similar obligation for sale to, or solicited any offers to buy such Notes, or any part thereof, or any similar obligation from, any person or persons so as to bring the issue or sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended, and neither the Company nor any of its Subsidiaries will sell or offer for sale any note or any similar obligation of the Company or any Subsidiary to, or solicit any offer to buy any similar obligation of the Company or any Subsidiary from, any person or persons so as Note Agreement Through 6th Amendment Exhibit A - 5 3. REPRESENTATIONS AND WARRANTIES to bring the issue or sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. (h) Licenses and Permits. The Company and its Subsidiaries have procured and are now in possession of and in substantial compliance with all licenses or permits (including, without limitation, environmental permits) required by federal, state or local laws for the operation of the business of the Company and its Restricted Subsidiaries in each jurisdiction wherein the Company or any Restricted Subsidiary is now conducting or proposes to conduct business, other than such licenses and permits the absence of which, individually or in the aggregate, would not have a material adverse effect upon the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole or upon the business or properties of the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole. (i) No Defaults on Indebtedness. Neither the Company nor any of its Subsidiaries is in default in the payment of the principal of or interest on any indebtedness for borrowed money nor is in default under any instrument or agreement under and subject to which any indebtedness for borrowed money has been issued, and no event has occurred under the provisions of any such instrument or agreement which with or without the passing of time or the giving of notice, or both, constitutes or would constitute an event of default thereunder. (j) Tax Returns. The Company and its Subsidiaries have filed all Federal and State income tax returns which, to the knowledge of the officers of the Company, are required to be filed, and have paid all taxes shown on said returns and all assessments received by them to the extent that they have become due. The Federal income tax returns of the Company have been finally determined by the Internal Revenue Service to be satisfactory (or have been closed by the applicable statute of limitations) for all years prior to and including the year ended December 31, 1985. No claims have been asserted against the Company in respect of Federal income tax returns for any subsequent year. (k) No Margin Stock. Neither the Company nor any of its Subsidiaries owns any Margin Stock and none of the proceeds received by the Company or any Subsidiary from the sale of the Notes will be used for the purpose of purchasing or carrying a Margin Stock or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase a Margin Stock or for any other purpose not permitted by Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System, as amended from time to time. (l) ERISA Matters. Each qualified retirement plan of the Company and each ERISA Affiliate in which any employees of the Company or any ERISA Affiliate participate that is subject to any provisions of ERISA (a "Qualified Plan") is being administered in all material respects in accordance with the documents and instruments governing such Qualified Plan, and such documents and instruments are consistent with those provisions of ERISA which have become effective and operative with respect to such Plan as of the date of this Agreement. No such Qualified Plan has incurred any accumulated funding deficiency within the meaning of Section 302 of ERISA (whether or not waived), and neither the Company nor any ERISA Affiliate has incurred any material liability (including any material contingent liability) to the PBGC in connection with any such Qualified Plan. No such Qualified Plan nor any trust created thereunder nor any trustee or administrator thereof has engaged in a "prohibited transaction" within the meaning of ERISA or Section 4975 of the Internal Revenue Note Agreement Through 6th Amendment Exhibit A - 6 3. REPRESENTATIONS AND WARRANTIES Code and the issuance and sale of the Notes as contemplated hereby will not constitute a "prohibited transaction". The representation of the Company in the immediately preceding sentence is made in reliance upon and subject to the paragraph 11(b) hereof as to the source of the funds to be used accuracy of the representations of the Purchasers appearing in to pay the purchase price of the Notes to be purchased by the Purchasers. No such Qualified Plan nor any trust created thereunder has been terminated, nor have there been any "reportable events" within the meaning of Section 4043 of ERISA with respect to any such Qualified Plan. Neither the Company nor any ERISA Affiliate contributes to or has any employees who are covered by any "multi-employer plan," as such term is defined in Section 3(37) of ERISA, and neither the Company nor any ERISA Affiliate has incurred any withdrawal liability with respect to any such multi-employer plan. (m) Brokers and Finders. Neither the Company, any agent acting on its behalf nor any person controlling, controlled by or under common control with the Company has taken any action the effect of which would be to cause the Purchasers to be liable for any broker's, finder's or agent's fee or commission in connection with the placement of the Notes or any other transactions contemplated by this Agreement. The Company has retained The Chase Manhattan Bank, N.A. as its agent in connection with the placement of the Notes and is solely responsible for any fees and expenses payable to such agent. (n) Use of Proceeds. The Company will use the proceeds of the Notes for general working capital purposes and for the purchase of equipment and capital improvements to plants or for the repayment of bank indebtedness incurred in June 1989, the proceeds of which will be used for the foregoing purposes. (o) Investment Company Act. Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). (p) Environmental Laws. The Company is in compliance with all applicable Federal, state or local laws, statutes, rules, regulations or ordinances relating to public health, safety or the environment, including, without limitation, those relating to releases, discharges, emissions or disposals to air, water, land or ground water, to the withdrawal or use of ground water, to the use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, its derivatives, by-products or other hydrocarbons), to exposure to toxic, hazardous or other controlled, prohibited or regulated substances the failure to comply with which could have a material adverse effect on the Company, Conner Singapore or the Company and its Subsidiaries, taken as a whole, or upon the business and properties of the Company, Conner Singapore or the Company and its Subsidiaries, taken as a whole. The Company does not know of any liability of the Company or any Subsidiary under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601). (q) Full Disclosure. Neither this Agreement, the financial statements referred to in paragraph 3(e) hereof, the Private Placement Offering Memorandum of The Chase Manhattan Bank, N.A. dated February 1989 nor any other document, certificate or instrument delivered to the Purchasers on behalf of the Company or any Subsidiary in connection with the Note Agreement Through 6th Amendment Exhibit A - 7 3. REPRESENTATIONS AND WARRANTIES transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. There is no material fact (other than general economic conditions or facts or information available to the public generally) that has not been disclosed in writing to the Purchasers that materially adversely affects or, as far as the Company can now reasonably foresee, may materially adversely affect, the business operations or financial or other condition of the Company or any Subsidiary, or the ability of the Company or any Subsidiary to perform this Agreement or to pay the principal of or interest on the Notes and other sums payable under this Agreement when due. 4. AFFIRMATIVE COVENANTS. (a) Financial Statements. The Company covenants that it will deliver to each holder of Notes (except with respect to the information referred to in clause (viii) below which shall only be delivered to Significant Holders of Notes) in duplicate: (i) as soon as available and in any event within 90 days after the end of each fiscal year (except in the case of subclause (C), as to which the period shall be 120 days after the end of such fiscal year), (A) consolidated statements of income and cash flows of the Company and the Subsidiaries for such year, and a consolidated balance sheet of the Company and the Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding fiscal year, all in reasonable detail and accompanied by the unqualified opinion of independent certified public accountants of recognized national standing selected by the Company, (B) consolidating statements of income and cash flows of the Company and the Subsidiaries for such year, and consolidating balance sheets of the Company and the Subsidiaries as at the end of such year, all in reasonable detail; provided that such financial statements shall not be required to be delivered if financial statements for the same dates and periods are delivered pursuant to subclause (C) of this clause (i), and (C) consolidated statements of income and cash flows of the Company and the Restricted Subsidiaries for such year, and a consolidated balance sheet of the Company and the Restricted Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding fiscal year, all in reasonable detail and reviewed in accordance with generally accepted auditing standards by independent public accountants of recognized national standing selected by the Company whose report on such review shall state that such accountants are not aware of any material modifications that should be made to such financial statements in order for them to be in conformity with generally accepted accounting principles; provided that such financial statements shall not be required to be delivered if no Material Unrestricted Subsidiaries exist as of the end of the period covered by such financial statements; Note Agreement Through 6th Amendment Exhibit A - 8 4. AFFIRMATIVE COVENANTS (ii) as soon as available and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, (A) consolidated statements of income and cash flows of the Company and the Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and the Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods in the preceding fiscal year, all in reasonable detail, subject to changes resulting from year-end adjustments, (B) consolidating statements of income and cash flows of the Company and the Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and consolidating balance sheets of the Company and the Subsidiaries as at the end of such quarterly period, subject to changes resulting from year-end adjustments, all in reasonable detail; provided that such financial statements shall not be required to be delivered if financial statements for the same dates and periods are delivered pursuant to subclause (C) of this clause (ii), and (C) consolidated statements of income and cash flows of the Company and the Restricted Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and the Restricted Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods in the preceding fiscal year, all in reasonable detail, subject to changes resulting from year-end adjustments; provided that such financial statements shall not be required to be delivered if no Material Unrestricted Subsidiaries exist as of the end of the period covered by such financial statements; (iii) together with each set of financial statements delivered pursuant to clause (i) and clause (ii) of this paragraph 4(a), a certificate of a Responsible Officer, (A) stating that (I) the accompanying financial statements described in clause (A) of clause (i) or clause (ii), as the case may be, of this paragraph 4(a), present fairly the financial position and results of operations of the companies being reported on, in accordance with generally accepted accounting principles subject, in the case of interim financial statements, to the absence of footnotes and changes resulting from year-end adjustments, and (II) with respect to the accompanying financial statements described in clause (C) of clause (i) or clause (ii), as the case may be, of this paragraph 4(a) (if such financial statements are required to be delivered), such officer is not aware of any material modifications that should be made to such financial statements in order for them to be in conformity with generally accepted accounting principles subject, in the case of interim financial statements, to the absence of footnotes and changes resulting from year-end adjustments, Note Agreement Through 6th Amendment Exhibit A - 9 4. AFFIRMATIVE COVENANTS (B) stating that no Default or Event of Default then exists, or if a Default or Event of Default exists, disclosing the nature and period of existence of each such Default or Event of Default, and describing all actions the Company has taken and intends to take in respect to each such Default and Event of Default, (C) certifying compliance, as of the last day of the period to which such financial statements relate, with paragraph 5(a), paragraph 5(b), paragraph 5(c), paragraph 5(d)(xv), paragraph 5(e), paragraph 5(f), paragraph 5(g)(ii), and paragraph 5(h)(xx) of this Agreement, and setting forth in reasonable detail the calculations necessary to demonstrate such compliance, in a form reasonably acceptable to the Required Holders, (D) either (I) stating that, during the period of eight consecutive fiscal quarters of the Company most recently ended as of the date of such certificate (the "Two Year Period"), the Company and the Restricted Subsidiaries have not consummated any Transfer subject to paragraph 5(g)(ii)(D) which requires any deduction pursuant to subclause (cc) of paragraph 5(g)(ii)(D)(1) or paragraph 5(g)(ii)(D)(2) in order for such Transfer to be in compliance with paragraph 5(g)(ii) or (II) (aa) containing a brief description of all Transfers consummated during the Two Year Period as to which such deduction was necessary in order for such compliance to be achieved, (bb) setting forth the respective dates on which such Transfers were consummated, (cc) setting forth the respective amounts required to be so deducted in respect of such Transfers, and (dd) setting forth a brief description of the application of any of the amounts referred to in the foregoing subclause (cc) to the purposes identified in subclause (cc) of paragraph 5(g)(ii)(D)(1) and paragraph 5(g)(ii)(D)(2); and (E) the notice, if any, required by paragraph 5(b)(iii); (iv) within five days of a Responsible Officer obtaining knowledge of an Event of Default or Default, a certificate of a Responsible Officer specifying the nature and period of existence thereof and what action the Company has taken and proposes to take with respect to such Default or Event of Default; (v) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it sends to its public stockholders generally, copies of all final registration statements on Form S-1 or Form S-3 (without exhibits) or their successor forms relating to offerings of debt or equity Securities on behalf of Note Agreement Through 6th Amendment Exhibit A - 10 4. AFFIRMATIVE COVENANTS the Company, and copies of all Form 10-Ks, Form 10-Qs, and Form 8-Ks or their successor forms, and all amendments to such forms, that the Company files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (vi) promptly upon receipt thereof by the Company, a copy of the final management letter, if any, submitted by the Company's independent accountants in connection with any annual audit made by them of the books of the Company and the Subsidiaries; (vii) promptly upon the request of any holder of Notes, any information required to be delivered (to the extent not already delivered to such holder pursuant to the other requirements of this paragraph 4(a)) to any transferee of Notes by Rule 144A (17 C.F.R. (S) 230.144A) under the Securities Act (or any successor provision) as a condition to the transfer of any Note pursuant to such Rule; (viii) subject to the second and third provisos to paragraph 4(b) of this Agreement, with reasonable promptness, such other financial data as any Significant Holder of Notes may reasonably request (including, without limitation, a copy of each report, in addition to those referred to in clauses (i) and (vi) of this paragraph 4(a), submitted to the Company or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any Subsidiary); (ix) immediately upon becoming aware of the occurrence of any (A) material "reportable event" (as such term is defined in Section 4043 of ERISA), or (B) "prohibited transactions" (as such term is defined in Section 406 or Section 4975 of the IRC) in connection with any Pension Plan or any trust created thereunder, a certificate of the a Responsible Officer specifying the nature thereof, what action the Company is taking or proposes to take with respect thereto, and, when known, any action taken by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (x) prompt written notice and a description of (A) any failure to make a contribution to a Pension Plan if such failure has given rise to a Lien pursuant to Section 302(f)(1) of ERISA, or (B) any request pursuant to Section 303 of ERISA or Section 412 of the IRC for, or notice of the granting pursuant to said Section 303 or Section 412 of, a waiver in respect of all or part of the minimum funding standard set forth in ERISA or the IRC, as the case may be, of any Pension Plan, and, in connection with the granting of any such waiver, the amount of any waived Note Agreement Through 6th Amendment Exhibit A - 11 4. AFFIRMATIVE COVENANTS funding deficiency (as such term is defined in said Section 303 or said Section 412) and the terms of such waiver; and (xi) prompt written notice of and, where applicable, a description of (A) any notice from the PBGC in respect of the commencement of any proceedings pursuant to Section 4042 of ERISA to terminate any Pension Plan or for the appointment of a trustee to administer any Pension Plan, (B) any distress termination notice delivered to the PBGC under Section 4041 of ERISA in respect of any Pension Plan, and any determination of the PBGC in respect thereof, (C) the placement of any Multiemployer Plan in reorganization status under Title IV of ERISA, (D) any Multiemployer Plan becoming "insolvent" (as such term is defined in Section 4245 of ERISA under Title IV of ERISA), (E) the whole or partial withdrawal of the Company or any ERISA Affiliate from any Multiemployer Plan and the withdrawal liability incurred in connection therewith, and (F) the withdrawal of the Company or any ERISA Affiliate from any Pension Plan with respect to which it is a "substantial employer" under, and as defined in, ERISA and the withdrawal liability under ERISA incurred in connection therewith. Together with each delivery of financial statements required by clause (i) (A) above, the Company will deliver to each holder of Notes a statement by such accountants certifying that, in making the examination upon which such opinion was based, no information came to their attention which, to their knowledge, indicated that an Event of Default existed as the result of the failure of the Company to comply with the covenants specified below or a statement specifying such failure (it being understood that such accountants' audit will not be directed toward obtaining knowledge of any such failure): (1) paragraph 5(a), as of the Company's fiscal year end, (2) paragraph 5(b), as of the Company's fiscal year end, based solely on amounts included in the consolidated financial statements or disclosed in the notes thereto, (3) paragraph 5(c), for the Company's fiscal year, based solely on amounts included in the consolidated financial statements or disclosed in the notes thereto, (4) paragraph 5(d)(xv), as of the Company's fiscal year end, based solely on amounts included in the consolidated financial statements or disclosed in the notes thereto, Note Agreement Through 6th Amendment Exhibit A - 12 4. AFFIRMATIVE COVENANTS (5) paragraph 5(e), but only as to individual transactions in excess of $5,000,000, and (6) paragraph 5(f), as of the Company's fiscal year end, based solely on the amounts included in the consolidating balance sheets of the Restricted Subsidiaries. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default that would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. (b) Inspection of Property. The Company covenants that it will permit any employee of, or any financial, legal, environmental or other professional consultant or advisor to, any Significant Holder that is designated by such Significant Holder in writing, at such Significant Holder's expense or, so long as an Event of Default shall exist, at the expense of the Company, upon reasonable notice to the Company, to visit and inspect any of the properties of the Company and the Subsidiaries, to examine the corporate books and financial records of the Company and the Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants (the "Inspection Rights") and by this paragraph the Company authorizes such officers and accountants to discuss such affairs, finances and accounts, all at such reasonable times and as often as such holder may reasonably request, provided that, in the event that the Company reasonably objects to any Significant Holder within two Business Days of such notice that any Person so designated by such Significant Holder is a Competitor or an employee thereof, the Company shall not be required to afford such Person any of the foregoing Inspection Rights, provided, further, that the Company and the Restricted Subsidiaries will not be required to disclose, permit the inspection, examination, copying or making extracts of, or discuss, any portion of, any document, or any information, (i) that constitutes non-financial trade secrets, non-financial proprietary information or product-by-product information relating to production, pricing, profitability or failure rates, or (ii) in respect of which disclosure to such Significant Holder is then prohibited by (A) law, or (B) an agreement binding on the Company or any Subsidiary that was not entered into by the Company or such Subsidiary for the primary purpose of concealing information from such Significant Holder, and in respect of which a Responsible Officer has provided a certificate to such holder setting forth a brief description of the law or agreement (including, in the case of an agreement, without limitation, the nature and purpose of the agreement, the parties to the agreement, and the provision of the agreement that prohibits such disclosure), provided, however, that if disclosure of the existence of any agreement is prohibited by the provisions thereof, such certificate may state generally, with respect to such agreement, that there are agreements pertaining to the matter as to which information Note Agreement Through 6th Amendment Exhibit A - 13 4. AFFIRMATIVE COVENANTS was requested which are binding on the Company or a Subsidiary and which prohibit disclosure of the existence thereof. (c) Covenant to Secure Note Equally. The Company will, if it or any Restricted Subsidiary creates or assumes any Lien upon any of its Property, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 5(d) of this Agreement (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 10(c) of this Agreement), make or cause to be made, pursuant to such agreements and instruments as shall be approved by the Required Holders, effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. (d) ERISA Compliance. The Company covenants that it will, and will cause each ERISA Affiliate to, at all times (i) with respect to each Pension Plan, make timely payments of contributions required to meet the minimum funding standard set forth in ERISA or the IRC with respect thereto and, with respect to each Multiemployer Plan, make timely payment of contributions required to be paid thereto as provided by Section 515 of ERISA and (ii) comply with all other provisions of ERISA, except for such failures to make contributions and failures to comply as would not have a material adverse effect on the business, prospects, Properties or financial condition of the Company and the Subsidiaries taken as a whole. (e) Payment of Taxes and Claims. The Company will, and will cause each Subsidiary to, pay before they become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or its Property, provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings as long as adequate reserves, to the extent required by generally accepted accounting principles, have been established and maintained and exist with respect thereto and, provided, further, that the contesting Person's right to use any material Property is not materially adversely affected thereby. (f) Maintenance of Properties and Corporate Existence. The Company will, and will cause each Restricted Subsidiary to, (i) Property -- maintain in good working order and condition all of its Property which is material to the continued conduct of the business of the Company and the Restricted Subsidiaries taken as a whole; (ii) Insurance -- maintain, with financially sound and reputable insurers, insurance with respect to its Property and business against such casualties and contingencies, of such types (including, without limitation, loss or damage, public liability, business interruption, larceny, embezzlement or other criminal misappropriation) and in such amounts as is customary in the case of corporations of established reputations engaged in the same or a similar business and similarly situated; Note Agreement Through 6th Amendment Exhibit A - 14 4. AFFIRMATIVE COVENANTS (iii) Financial Records -- maintain sound accounting policies and an adequate and effective system of accounts and internal accounting control that will safeguard assets, properly record income, expenses and liabilities, and assure the production of proper financial statements in accordance with generally accepted accounting principles; (iv) Corporate Existence and Rights -- do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises, except as otherwise permitted by paragraph 5(g) or paragraph 5(k) of this Agreement and except, in each case, where the failure to take any such action would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes; provided that the corporate existence of any Restricted Subsidiary may be terminated, and any rights and franchises may be terminated or permitted to lapse, if, in the good faith judgment of the Company, such determination or lapse is in the best interests of the Company and is not disadvantageous to the holders of the Notes; and (v) Compliance with Law -- (a) comply with all applicable laws, rules, regulations, orders, judgments and decrees of any governmental authority, except where any failure to comply would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes and (b) obtain all licenses, permits, franchises and other governmental authorizations necessary to the ownership of its Properties or to the conduct of its business, except where any failure to so obtain would not have a material adverse effect on the business, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. (g) Payment of Notes and Maintenance of Office. The Company will punctually pay, or cause to be paid, the principal and interest (and premium, if any) to become due in respect of the Notes according to the terms thereof and will maintain an office in compliance with paragraph 15 of this Agreement (or such other address which the Company shall have specified in writing in accordance with paragraph 15) where notices, presentations and demands in respect of this Agreement or the Notes may be made upon it. Such office will be maintained at such address until such time as the Company will notify the holders of the Notes of any change of location of such office, which will in any event be located in the United States of America. 5. NEGATIVE COVENANTS. (a) Consolidated Tangible Net Worth. The Company will not permit Consolidated Tangible Net Worth, determined as of any Determination Date, to be, (i) if such Determination Date is prior to December 22, 1993, then less than the sum of Note Agreement Through 6th Amendment Exhibit A - 15 5. NEGATIVE COVENANTS (A) $525,000,000, plus (B) 45% of Consolidated Net Income for each fiscal year ended during the period beginning on January 1, 1991 and ending on or prior to such Determination Date (unless Consolidated Net Income shall be a loss in any fiscal year, in which event the amount determined pursuant to this clause (B) for such fiscal year shall be zero), plus (C) the net proceeds to the Company from the sale of any capital stock of the Company made during the period beginning on January 1, 1991 and ending on such Determination Date, plus (D) without duplication with clauses (i)(B) or (i)(C) above, an amount equal to the aggregate principal amount of any Debt Security of the Company (other than Debt Securities held by Restricted Subsidiaries), minus the costs and fees incurred upon the original issuance of such Debt Security, any unamortized original issue discount with respect to any such Debt Security and any costs and expenses of conversion, which has been converted into or exchanged for capital stock during the period beginning on January 1, 1991 and ending on such Determination Date, but only to the extent such conversion or exchange increases Consolidated Tangible Net Worth, and (ii) if such Determination Date is on or after December 22, 1993, then less than the sum of (A) $125,000,000, plus (B) 50% of Consolidated Net Income for each fiscal quarter ended during the period beginning on October 3, 1993 and ending on or prior to such Determination Date (unless Consolidated Net Income shall be a loss in any fiscal quarter, in which event the amount determined pursuant to this clause (B) for such fiscal quarter shall be zero), plus (C) the net proceeds to the Company from the sale of any capital stock of the Company made during the period beginning on October 3, 1993 and ending on such Determination Date, plus (D) without duplication with clauses (ii)(B) or (ii)(C) above, an amount equal to the aggregate principal amount of any Debt Security of the Company (other than Debt Securities held by Restricted Subsidiaries), minus the costs and fees incurred upon the original issuance of such Debt Security, any unamortized original issue discount with respect to any such Debt Security and any costs and expenses of conversion, which has been converted into or exchanged for capital stock during the period beginning on October 3, 1993 and ending on such Determination Date, but only to the extent such conversion or exchange increases Consolidated Tangible Net Worth. Note Agreement Through 6th Amendment Exhibit A - 16 5. NEGATIVE COVENANTS (b) Consolidated Debt. (i) Consolidated Senior Debt. The Company will not permit, on any Determination Date, Consolidated Senior Debt, to exceed the percentage of Consolidated Tangible Net Worth set forth in the following table opposite such Determination Date, in each case determined as of such Determination Date:
================================================================================ Determination Date Percentage - -------------------------------------------------------------------------------- All Determination Dates occurring between March 29, 1991 to and 75% including the Determination Date occurring nearest to September 30, 1993 - -------------------------------------------------------------------------------- Determination Date occurring nearest to December 31, 1993 115% - -------------------------------------------------------------------------------- Determination Date occurring nearest to March 31, 1994 90% - -------------------------------------------------------------------------------- All Determination Dates occurring after the Determination Date 75% occurring nearest to March 31, 1994 ================================================================================
(ii) Consolidated Debt. The Company will not permit, on any Determination Date, Consolidated Debt to exceed the percentage of Consolidated Tangible Net Worth set forth in the following table opposite such Determination Date, in each case determined as of such Determination Date:
================================================================================ Determination Date Percentage - -------------------------------------------------------------------------------- All Determination Dates occurring between March 29, 1991 to and 125% including the Determination Date occurring nearest to September 30, 1993 - -------------------------------------------------------------------------------- Determination Date occurring nearest to December 31, 1993 515% - -------------------------------------------------------------------------------- Determination Date occurring nearest to March 31, 1994 455% - -------------------------------------------------------------------------------- Determination Date occurring nearest to June 30, 1994 405% - -------------------------------------------------------------------------------- Determination Date occurring nearest to September 30, 1994 365% - -------------------------------------------------------------------------------- Determination Date occurring nearest to December 31, 1994 335% - -------------------------------------------------------------------------------- Determination Date occurring nearest to March 31, 1995 295% - -------------------------------------------------------------------------------- Determination Date occurring nearest to June 30, 1995 275% - -------------------------------------------------------------------------------- Determination Date occurring nearest to September 30, 1995 255% - -------------------------------------------------------------------------------- Determination Date occurring nearest to December 31, 1995 240% - -------------------------------------------------------------------------------- Determination Date occurring nearest to March 31, 1996 220% - -------------------------------------------------------------------------------- All Determination Dates occurring after the Determination Date 200% occurring nearest to March 31, 1996 ================================================================================
Note Agreement Through 6th Amendment Exhibit A - 17 5. NEGATIVE COVENANTS (iii) Adjustments to Consolidated Debt Percentages. The percentages set forth in the table in paragraph 5(b)(ii) hereof shall be adjusted as of each Determination Date to be equal to the Adjusted Consolidated Debt Percentage calculated in respect thereof if (A) during the fiscal quarter ended on such Determination Date the Company issues capital stock, other than issuances of capital stock pursuant to (or pursuant to options, warrants or other securities issued pursuant to) employee stock option plans, director stock options plans, employee stock purchase plans or any similar arrangements intended to provide incentives for employee and directors, and (B) the percentage set forth in such table in respect of such Determination Date, as then previously adjusted as provided in this subparagraph (iii), is greater than 125%. The Company shall provide a notice with respect to each Determination Date as to which an adjustment in such percentage is required by this subparagraph (iii), together with the certificate required by paragraph 4(a)(iii) delivered in respect of such fiscal quarter, to all holders of Notes, providing in detail the calculation of the Adjusted Consolidated Debt Percentages determined in respect of such fiscal quarter and all subsequent fiscal quarters. The Adjusted Consolidated Debt Percentages specified in such notice shall apply to such fiscal quarter and to all subsequent fiscal quarters and such table shall be deemed to be amended in accordance with such notice. Such notice shall be satisfactory in all respects to the Required Holders. (c) Consolidated Fixed Charges; Consolidated Net Income. (i) Consolidated Fixed Charges. The Company will not permit the ratio of (i) the sum of Consolidated Net Income plus Consolidated Fixed Charges plus taxes deducted from revenues in the computation of such Consolidated Net Income, to (ii) Consolidated Fixed Charges to be less for any period of two consecutive fiscal quarters of the Company than the ratio set forth opposite the relevant period in the table below:
=============================================================================== Two Fiscal Quarter Period Ending Ratio - ------------------------------------------------------------------------------- On the Determination Date occurring nearest to March 31, 1994 1.0 : 1.0 - ------------------------------------------------------------------------------- On the Determination Date occurring nearest to June 30, 1994 1.85 : 1.0 - ------------------------------------------------------------------------------- On the Determination Date occurring nearest to September 30, 1994 2.0 : 1.0 - ------------------------------------------------------------------------------- On the Determination Date occurring nearest to December 31, 1994 2.0 : 1.0 ===============================================================================
The Company will not permit, at any time on or after the Determination Date occurring nearest to March 31, 1995, the ratio of (i) the sum of Consolidated Net Income plus Consolidated Fixed Charges plus taxes deducted from revenues in the computation of such Consolidated Net Income, to (ii) Consolidated Fixed Charges to be less for any period of four consecutive fiscal quarters of the Company than 2.0 to 1.0. Note Agreement Through 6th Amendment Exhibit A - 18 5. NEGATIVE COVENANTS (ii) Consolidated Net Income. The Company will not permit Consolidated Net Income for the three-month period ending on the Determination Date occurring nearest to December 31, 1993 to be less than a deficit of $12,000,000. (d) Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the provisions of paragraph 4(c) of this Agreement), except (i) Liens in existence on the Closing Date and described on Annex 2 to this Agreement; (ii) Liens for taxes that are not yet due or that are being actively contested in good faith by appropriate proceedings, and in respect of which adequate reserves are being maintained to the extent required by generally accepted accounting principles; (iii) Liens incurred or deposits made in the ordinary course of business, (A) in respect of leases, statutory obligations or claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons that are not yet due or that are being actively contested in good faith by appropriate proceedings, and in respect of which adequate reserves are carried on the books of the Person liable therefor to the extent required by generally accepted accounting principles, (B) in connection with workers' compensation, unemployment insurance, social security and other like laws, (C) to secure the performance of letters of credit, bids, leases, tenders, sales contracts, statutory obligations, government contracts, surety and performance bonds and other similar obligations not incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property, (D) incidental to the conduct of its business or ownership of its Property, provided that, (1) such obligations shall not have arisen in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property, and (2) such Liens shall not in the aggregate materially detract from the value of the Property encumbered thereby or materially interfere with the use of such Property in the ordinary conduct of the owning Person's business, (E) which constitute purchase money security interests with respect to advances or the payment of deferred purchase price in connection with the purchase of goods and services in the ordinary course of business, provided Note Agreement Through 6th Amendment Exhibit A - 19 5. NEGATIVE COVENANTS that, at the time any such security interest is created, the Company or such Restricted Subsidiary intends to pay the amount secured thereby within 180 days after such creation, provided further that any such security interest runs in favor of the provider of such goods or services and is not part of a floor plan financing arrangement or any other arrangement with any Person that is primarily in the business of making loans or extending other financial accommodations, or (F) which constitute Liens with respect to conditional sale or other title retention agreements and any lease in the nature thereof, provided that any such Lien with respect to conditional sales or other title retention agreements encumbers only Property and accretions thereto (and proceeds arising from the disposition thereof) which are subject to such conditional sale or other title retention agreement or lease in the nature thereof and, provided, further, that the aggregate amount secured by all such conditional sale or other title retention agreements and leases in the nature thereof shall not be more than $5,000,000 (it being understood that additional amounts may be so secured if permissible under any other provision of this paragraph 5(d) including, without limitation, clause (xv) of this paragraph 5(d)); (iv) reservations, exceptions, encroachments, easements, rights-of- way, covenants, conditions, restrictions and other similar title exceptions or encumbrances affecting real Property, provided such Liens do not interfere with the use of such Property in the ordinary conduct of the business of the Company and the Restricted Subsidiaries, taken as a whole; (v) Liens on Property of a Restricted Subsidiary to secure obligations of such Restricted Subsidiary to the Company or another Restricted Subsidiary; (vi) Liens with respect to Capitalized Lease Obligations (together with any related interest), provided, that such Liens encumber only Property and accretions thereto (and proceeds arising from the disposition thereof) acquired with the proceeds of the indebtedness secured thereby; (vii) leases and subleases of, and licenses and sub-licenses with respect to, Property where the Company or a Restricted Subsidiary is the lessor or licensor (or sublessor or sublicensor), provided that such leases, subleases, licenses and sub-licenses do not in the aggregate materially interfere with the business of the Company and the Restricted Subsidiaries taken as a whole; (viii) (A) Liens to secure appeal bonds, supersedeas bonds and other similar Liens arising in connection with court proceedings (including, without limitation, surety bonds and letters of credit) or any other instrument serving a similar purpose, provided that the aggregate amount so secured, together with the aggregate amount secured pursuant to paragraph 5(d)(viii)(B), shall not at any time exceed $5,000,000 (it being understood that additional amounts may be so secured if permissible under any other provision of this paragraph 5(d) including, without limitation, clause (xv) of this paragraph 5(d)), Note Agreement Through 6th Amendment Exhibit A - 20 5. NEGATIVE COVENANTS (B) attachments, judgments and other similar Liens arising in connection with court proceedings, provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings and provided further, that the aggregate amount so secured, together with the aggregate amount secured pursuant to paragraph 5(d)(viii)(A) of this Agreement, shall not exceed $5,000,000 (it being understood that additional amounts may be so secured if permissible under any other provision of this paragraph 5(d) including, without limitation, clause (xv) of this paragraph 5(d)), (ix) Liens on the Property of any corporation at the time such corporation becomes a Restricted Subsidiary, or such corporation is acquired by, consolidated with or merged into the Company or a Restricted Subsidiary, and Liens on any Property at the time acquired by the Company or a Restricted Subsidiary, provided, in each case, that such Lien was not incurred in contemplation of such transaction; (x) any Lien permitted by this paragraph 5(d) securing Debt that is being renewed, extended or refunded, provided that the principal amount of such Debt outstanding at the time of such renewal, extension or refunding is not increased and such Lien is not extended to any other Property (other than pursuant to its original terms); (xi) Purchase Money Mortgages, provided that each such Purchase Money Mortgage secures an amount not exceeding 100% of the lesser of the cost (including liabilities assumed) or the Fair Market Value at the time of acquisition or construction of the Property to which it relates (as determined in good faith by the Board of Directors); (xii) Liens consisting of an agreement to file or give a financing statement set forth in operating leases (it being understood that, upon the filing of any such financing statement, the Lien created thereby must be permissible under any other provision of this paragraph 5(d) including, without limitation, clause (iii)(F) and clause (xv) of this paragraph 5(d)); (xiii) Liens which constitute rights of set-off of a customary nature or bankers' Liens with respect to amounts on deposit, whether arising by operation of law or by contract, in connection with working capital facilities, lines of credit, term loans, or other credit facilities and similar arrangements entered into with banks in the ordinary course of business; (xiv) Liens in the nature of rights of first refusal and restrictions on transfer on the capital stock of Arcada Holdings, Inc. arising in connection with the purchase of Quest Development Corporation and described in that certain Letter of Intent dated as of December 13, 1993, related thereto; and (xv) Liens not otherwise permitted by this paragraph 5(d) on Property of the Company or any Restricted Subsidiary, provided that, as of each Determination Date, the amount of Note Agreement Through 6th Amendment Exhibit A - 21 5. NEGATIVE COVENANTS (A) all Debt secured by Liens permitted only by this paragraph 5(d)(xv), plus (B) all Debt of Restricted Subsidiaries (other than Debt owed by a Restricted Subsidiary to the Company or another Restricted Subsidiary) and all Preferred Stock of Restricted Subsidiaries (other than Preferred Stock of a Restricted Subsidiary owned by the Company or another Restricted Subsidiary), plus (C) the Sale/Leaseback Transaction Amount, (without duplication) does not exceed 20% of Consolidated Tangible Net Worth, in each case determined as of such Determination Date. (e) Sale/Leaseback Transactions. The Company will not, nor will it permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction at any time, unless after giving effect thereto, the sum of (i) the Sale/Leaseback Transaction Amount, plus (ii) the amount of all Debt secured only by Liens permitted by paragraph 5(d)(xv) of this Agreement, plus (iii) all Debt of Restricted Subsidiaries (other than Debt owed by a Restricted Subsidiary to the Company or another Restricted Subsidiary) and all Preferred Stock of Restricted Subsidiaries (other than Preferred Stock of a Restricted Subsidiary owned by the Company or another Restricted Subsidiary), (without duplication) does not exceed 20% of Consolidated Tangible Net Worth, in each case determined as of such time. (f) Restricted Subsidiary Debt and Preferred Stock. The Company will not, at any time, permit any Restricted Subsidiary to create, incur or assume any Debt, or to issue any Preferred Stock, unless, immediately after the creation, incurrence or assumption of such Debt, or the issuance of such Preferred Stock, and after giving effect thereto, the sum of (i) the Sale/Leaseback Transaction Amount, plus (ii) the amount of all Debt secured by Liens permitted only by paragraph 5(d)(xv) of this Agreement, plus (iii) all Debt of Restricted Subsidiaries (other than Debt owed by a Restricted Subsidiary to the Company or another Restricted Subsidiary) and all Preferred Stock of Restricted Subsidiaries (other than Preferred Stock of a Restricted Subsidiary owned by the Company or another Restricted Subsidiary), (without duplication) does not exceed 20% of Consolidated Tangible Net Worth, in each case determined as of such time. Notwithstanding the foregoing, the prepayment of the 8-7/8% Note Agreement Through 6th Amendment Exhibit A - 22 5. NEGATIVE COVENANTS Convertible Subordinated Debentures issued by Archive pursuant to the Convertible Subordinated Debenture Agreement dated as of May 11, 1990, as heretofore amended, and outstanding on the Merger Date, not to exceed in aggregate amount $10,000,000 shall be permitted. (g) Merger and Consolidation; Sale of Assets. (i) Merger and Consolidation. (A) The Company will not permit any other Person to consolidate with or merge into it (except that a Restricted Subsidiary may consolidate with or merge into the Company); provided that the foregoing restriction does not apply to the merger or consolidation of the Company with another corporation, if: (1) either (aa) the Company shall be the continuing or surviving corporation or (bb) the successor corporation that results from such merger or consolidation (the "Surviving Corporation") is organized under the laws of any State of the United States (or the District of Columbia), and the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes, according to their tenor, and the due and punctual performance and observance of all the covenants in the Notes and this Agreement to be performed or observed by the Company, are expressly assumed in writing by the Surviving Corporation; and (2) immediately prior to, and immediately after the consummation of the transaction, and after giving effect thereto, no Default or Event of Default exists or would exist under any provision of this Agreement. (B) The Company will not permit any Restricted Subsidiary to consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it (except that a Restricted Subsidiary may consolidate with or merge into the Company as contemplated by paragraph 5(g)(i)(A) and a Restricted Subsidiary may consolidate with or merge into another Restricted Subsidiary); provided that a Restricted Subsidiary may merge or consolidate with another Person if (1) such transaction would be permitted under the provisions of paragraph 5(g)(ii) (deeming such transaction to be a Transfer of all of the assets and liabilities of such Restricted Subsidiary, in the case of any such merger or consolidation which results in a surviving entity which is not a Restricted Subsidiary); or (2) the surviving corporation is the Company or a Restricted Subsidiary. Note Agreement Through 6th Amendment Exhibit A - 23 5. NEGATIVE COVENANTS (ii) Sale of Assets. The Company will not, nor will it permit any Restricted Subsidiary to, sell, lease as lessor, transfer or otherwise dispose of Property (collectively, "Transfers"), except (A) Transfers in the ordinary course of business, (B) Transfers to the Company or a Restricted Subsidiary other than an Arcada Restricted Subsidiary; (C) Transfers which (I) constitute dispositions of cash or cash equivalents not prohibited by this Agreement, (II) constitute Investments which are Permitted Investments or (III) constitute the liquidation of any Permitted Investment; and (D) any other Transfer if all of the following conditions shall have been satisfied: (1) the sum (without duplication) of (aa) the net book value of such Property on the date of the Transfer (the "Asset Disposition Date"), expressed as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the Asset Disposition Date, plus (bb) the net book value of each other item of Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 5(g)(ii)(D) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 5(g)(i)) during the period ending on the Asset Disposition Date and commencing on the first day of the period of 12 consecutive calendar months most recently ended as of the Asset Disposition Date (the "Annual Disposition Measurement Period") (Subsidiary Stock being deemed to have a net book value equal to the net book value of all assets of the issuer of such Subsidiary Stock at such time, or the appropriate portion thereof if less than all Subsidiary Stock of such issuer is the subject of such Transfer), expressed in each case as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the date of each such Transfer, minus (cc) the aggregate net book value of all Property Transferred pursuant to this paragraph 5(g)(ii)(D) during the Annual Disposition Measurement Period to the extent that the net proceeds arising therefrom have been either reinvested in the business of the Company and the Restricted Subsidiaries or applied to, or irrevocably committed to make, Senior Debt Prepayments within the period of 12 consecutive months after the respective Transfers of such Property pursuant to this Note Agreement Through 6th Amendment Exhibit A - 24 5. NEGATIVE COVENANTS paragraph 5(g)(ii)(D), such aggregate net book value (or the portion thereof corresponding to the portion of such net proceeds so applied or to be so applied) being expressed as a percentage of Consolidated Total Assets determined on the Determination Date most recently preceding the date of each such Transfer; provided, that any such net proceeds spent for operating expenses or principal, premium or interest in respect of Debt or held in deposit accounts or otherwise as short term investments shall not be deemed to have been reinvested in the business of the Company and the Restricted Subsidiaries, provided, further, that such percentage shall not, in any event, exceed 10%; will not exceed 15%; (2) the sum (without duplication) of (aa) the Cash Flow Contribution of such Property during the period of four consecutive fiscal quarters of the Company most recently ended prior to the Asset Disposition Date (the "Four Quarter Period"), plus (bb) the Cash Flow Contribution of each other item of Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 5(g)(ii)(D) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 5(g)(i)) during the Annual Disposition Measurement Period, such Cash Flow Contribution for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the Transfer of such Property, minus (cc) the Cash Flow Contribution of all Property Transferred by the Company and the Restricted Subsidiaries during the Annual Disposition Measurement Period to the extent that the net proceeds arising therefrom have been either reinvested in the business of the Company and the Restricted Subsidiaries or applied to, or irrevocably committed to make, Senior Debt Prepayments within the period of 12 consecutive months after the respective Transfers of such Property pursuant to this paragraph 5(g)(ii)(D), such Cash Flow Contribution (or the portion thereof corresponding to the portion of such net proceeds so applied or to be so applied) for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the disposition of such Property, provided, that any such net proceeds spent for operating expenses or principal, premium or interest in respect of Debt or held in deposit accounts or otherwise as short term investments shall not be deemed to have been reinvested in the business of the Company and the Restricted Subsidiaries, Note Agreement Through 6th Amendment Exhibit A - 25 5. NEGATIVE COVENANTS provided, further, that the Cash Flow Contribution of all such Property shall not, in any event, exceed 10% of Consolidated Operating Cash Flow during the Four Quarter Period, will not exceed 15%; (3) the sum (without duplication) of (aa) the net book value of such Property on the Asset Disposition Date, expressed as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the Asset Disposition Date, plus (bb) the net book value of each other item of Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 5(g)(ii)(D) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 5(g)(i)) during the period ending on the Asset Disposition Date and commencing on the first day of the period of 36 consecutive calendar months most recently ended as of the Asset Disposition Date (the "Three Year Disposition Measurement Period") (Subsidiary Stock being deemed to have a net book value equal to the net book value of all assets of the issuer of such Subsidiary Stock, or the appropriate portion thereof if less than all Subsidiary Stock of such issuer is the subject of such Transfer), expressed in each case as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the date of each such Transfer, will not exceed 40%; (4) the sum (without duplication) of (aa) the Cash Flow Contribution of such Property during the Four Quarter Period, plus (bb) the Cash Flow Contribution of all other Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 5(g)(ii)(D) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 5(g)(i)) during such Three Year Disposition Measurement Period, such Cash Flow Contribution for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the disposition of such Property, will not exceed 40%; Note Agreement Through 6th Amendment Exhibit A - 26 5. NEGATIVE COVENANTS (5) with respect to any Transfer, or series of related Transfers, of Property pursuant to this paragraph 5(g)(ii)(D) for consideration in an amount which is at least equal to the sum of $25,000,000 plus 5% of the amount, if any, by which Consolidated Total Assets, determined as of the most recent Determination Date at the time of such Transfer, exceeds Consolidated Total Assets, determined as of December 31, 1990, in the opinion of the Board of Directors, the sale is for Fair Market Value and is in the best interests of the Company and the Restricted Subsidiaries; and (6) immediately prior to, and immediately after the consummation of the transaction, and after giving effect thereto, no Default or Event of Default exists or would exist under any provision of this Agreement. If the Company shall make any Transfer which would be prohibited by this paragraph 5(g) but for the deduction provided for in subclause (cc) of either or both of paragraph 5(g)(ii)(D)(1) or paragraph 5(g)(ii)(D)(2), the Company shall be deemed to have covenanted that the net proceeds from such Transfer shall be reinvested in the business of the Company and the Restricted Subsidiaries (subject to the limitations of the first proviso to such subclause) or applied to, or irrevocably committed to make, Senior Debt Prepayments within the period of 12 consecutive months after such Transfer. (h) Permitted Investments. The Company will not and will not permit any Restricted Subsidiary to purchase or make investments in, purchase stock or Securities of, or make loans or advances to, or make other investments in, or guarantee the obligations of, any other Person (including investments in or loans or advances to any corporation proposed to be acquired or created as a Subsidiary) (all of the foregoing referred to as "Investments," and all of the below-listed Investments referred to as "Permitted Investments") except: (i) obligations of, or obligations guaranteed by, the United States government, its agencies, or any public instrumentality thereof with maturities not to exceed (or an unconditional right to compel purchase within) seven years from the date of acquisition; (ii) Investments in or to the Company or Restricted Subsidiaries and Investments in or to companies which simultaneously with such Investments become Restricted Subsidiaries, and guarantees by the Company of the obligations of the Restricted Subsidiaries and guarantees by Restricted Subsidiaries of obligations of the Company or other Restricted Subsidiaries; (iii) commercial paper or loan participations maturing within seven years of the date of acquisition issued by a Person organized under the laws of the United States, Canada, a country that is a member of the European Community, Singapore, Taiwan, Malaysia or Japan, rated at the time of acquisition (or issued by Persons organized under the laws of such jurisdiction with other outstanding unsecured and unsupported debt securities ranking pari passu with such commercial paper or loan participations and rated at the time of acquisition) in the top rating classification by Moody's Note Agreement Through 6th Amendment Exhibit A - 27 5. NEGATIVE COVENANTS Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community at the time of acquisition thereof; (iv) Investments arising from transactions by the Company or the Restricted Subsidiaries with customers or suppliers (including Investments received in settlement of trade receivables which trade receivables are fully reserved against on the books of the Company or such Restricted Subsidiary or are less than one year overdue) in the ordinary course of business; (v) Investments consisting of (A) travel advances, employee relocation loans, and other employee loans and advances in the ordinary course of business, (B) loans to employees, officers or directors relating to the purchase of equity securities of the Company or the Restricted Subsidiaries, or (C) other loans to officers and employees approved by the Board of Directors in an aggregate amount not in excess of $10,000,000 outstanding at any time; (vi) operating deposit accounts maintained in the ordinary course of business for operating fund purposes including Investments therein denominated in French francs, Deutsche marks, Chinese renminbi and otherwise with Permitted Banks, consistent with past practice; (vii) Securities issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof with maturities not to exceed (or an unconditional right to compel purchase within) seven years of the date of acquisition, that are rated in one of the highest two rating classifications by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States; (viii) demand and time deposits with, Eurodollar deposits with, certificates of deposit issued by, or obligations or securities fully backed by letters of credit issued by (A) any bank organized under the laws of the United States, any state thereof, the District of Columbia or Canada having combined capital and surplus aggregating at least $100,000,000, and outstanding unsecured and unsupported Debt rated "A" or better at the time of acquisition thereof by Standard and Poor's Corporation, Moody's Investor Service, Inc., Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community, (B) the banks listed on Annex 2 to this Agreement, and Note Agreement Through 6th Amendment Exhibit A - 28 5. NEGATIVE COVENANTS (C) any other bank organized under the laws of a country that is a member of the European Community (or any political subdivision of any such country), Japan, Singapore, Taiwan, Malaysia, the Cayman Islands, the British West Indies or the Bahamas, having combined capital and surplus of not less than $500,000,000 or the equivalent thereof in a currency other than United States dollars, (the banks described in the foregoing subclauses (A) to (C), inclusive, being referred to in this Agreement as "Permitted Banks"); (ix) bankers' acceptances accepted by a Permitted Bank and eligible for rediscount under the requirements of the Board of Governors of the Federal Reserve System; (x) repurchase agreements with any of (A) the Permitted Banks, (B) Alex. Brown & Sons Incorporated, Bear, Stearns & Co., Dean Witter Reynolds Inc., The First Boston Corporation, Goldman Sachs & Co., J.P. Morgan Securities, Inc., Kidder, Peabody & Co., Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Paine Webber Incorporated, Salomon Brothers, Inc., Shearson Lehman Hutton, Inc., Smith Barney, Harris Upham & Co., Incorporated, or (C) any other bank or securities dealer of a similar quality approved by a Responsible Officer, or (D) any affiliate of the foregoing, such repurchase agreements to be (at the time entered into) fully collateralized by securities of a type described in clause (i), clause (iii), clause (vii) or clause (viii) above, in each case made in accordance with the Company's internal investment policy in effect at such time; (xi) Investments in money market programs that would be classified on the balance sheet of the investing Person as a current asset in accordance with generally accepted accounting principles, which money market programs have total invested assets in excess of $1,000,000,000; (xii) Investments in money market preferred stocks or other equivalent Dutch-auction preferred stock of any corporation maturing within seven years of the date of acquisition thereof and with a credit rating at the time of acquisition thereof of "AA+" or "aa1" or better (or a comparable rating) by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community; Note Agreement Through 6th Amendment Exhibit A - 29 5. NEGATIVE COVENANTS (xiii) notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers in the ordinary course of business so long as such notes, prepaid royalties or other credit extensions are due within one year of the date of acquisition thereof or cover no more than a reasonable estimate of one year's obligations to such customers or suppliers, as the case may be; (xiv) foreign currency swaps and hedging arrangements entered into in the ordinary course of business to protect against currency losses, and interest rate swaps and caps entered into in the ordinary course of business to protect against interest rate exposure on Debt of the Company and the Restricted Subsidiaries bearing interest at a variable or adjusting rate so long as, at the time any such transaction shall be entered into, the counterparty in such transaction has outstanding Debt Securities rated (A) "A1" or better, or "A+" or better (or a comparable rating), or (B) "A2" or "A-" (or a comparable rating) provided that the term of each such swap or arrangement is less than 2 years, by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community; (xv) (A) guarantees by the Company and Restricted Subsidiaries of the obligations of Unrestricted Subsidiaries and of vendors and suppliers of Unrestricted Subsidiaries, in each case in respect of transactions of such Unrestricted Subsidiaries entered into in the ordinary course of business of such Unrestricted Subsidiaries and such vendors and suppliers and directly related to the business conducted by such vendors and suppliers with such Unrestricted Subsidiaries, provided that such guarantees shall not at any time exceed 5% of Consolidated Tangible Net Worth, and (B) guarantees by the Company and Restricted Subsidiaries of the obligations of Restricted Subsidiaries and of vendors and suppliers of Restricted Subsidiaries, in each case in respect of transactions of such Restricted Subsidiaries entered into in the ordinary course of business of such Restricted Subsidiaries and such vendors and suppliers and directly related to the business conducted by such vendors and suppliers with such Restricted Subsidiaries; (xvi) Investments existing on the Closing Date not in excess, in the aggregate, of $20,000,000; (xvii) regardless of the occurrence or non-occurrence of the Merger Date, and in any event, prior to the occurrence of the Merger Date, investments in (a) the stock of Archive and its subsidiaries as contemplated by the Archive Tender Offer, and (b) Investments to enable Archive to repay its outstanding obligations for borrowed money not to exceed in the aggregate $150,000,000; (xviii) Investments made by any corporation at the time it becomes a Restricted Subsidiary, or such corporation is acquired by, consolidated with or merged into the Note Agreement Through 6th Amendment Exhibit A - 30 5. NEGATIVE COVENANTS Company or a Restricted Subsidiary, provided that such Investments were not made in contemplation of such transaction; (xix) Investments consisting of repurchases of Subordinated Debt permitted by paragraph 5(m); and (xx) Investments not otherwise permitted by the other provisions of this paragraph 5(h), if, on the date of the making of any such Investment, and after giving effect to such Investment, (A) the aggregate cost of all Investments outstanding on such date made pursuant to this paragraph 5(h)(xx), minus (B) the net return of capital received by the Company and the Restricted Subsidiaries on or prior to such date from all Investments made pursuant to this paragraph 5(h)(xx) during the period commencing on January 1, 1991 and ending on such date, does not exceed 15% of Consolidated Tangible Net Worth on such date. No Investments can be made pursuant to the provisions of paragraph 5(h)(xx) of this Agreement during any period when a Default or Event of Default has occurred and is then continuing. Notwithstanding any provision herein to the contrary, none of the following shall constitute Investments for purposes of this Agreement: (a) any dividends or other distributions paid or made in respect of the stock of the Company or any Restricted Subsidiary (whether in cash, Property, or stock of the Company or any Restricted Subsidiary), or (b) any payments (whether in cash, Property or stock of the Company or any Restricted Subsidiary) to redeem, purchase or otherwise acquire, directly or indirectly, any stock of the Company or any Restricted Subsidiary. For purposes of the preceding sentence, the term "stock" shall include warrants, options and rights to purchase stock. For purposes of calculations required by this paragraph 5(h), Investments denominated in currencies other than U.S. dollars shall be translated into U.S dollars in accordance with generally accepted accounting principles applicable to such types of Investments. (i) Transactions with Affiliates. The Company will not, nor will it permit any Restricted Subsidiary to, enter into any transaction, including, without limitation, the purchase, sale or exchange of Property or the rendering of any service, with any Affiliate unless (i) such transaction, when taken in the light of a series of transactions of which such transaction is a part (if any), is upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained in a comparable arm's-length transaction with a Person not an Affiliate, or (ii) if, at the time of such transaction, such Affiliate is an officer, director or employee of the Company or such Restricted Subsidiary and such transaction relates to such Person's compensation, (a) such transaction is in the best interests of the Company and the Restricted Subsidiaries, taken as a whole, and has been approved by the Board of Directors or the board of directors of such Restricted Subsidiary, as Note Agreement Through 6th Amendment Exhibit A - 31 5. NEGATIVE COVENANTS the case may be, and (b) at the time of such transaction, the Company is required to file reports pursuant to Section 13 of the Exchange Act. It is acknowledged that the Archive Tender Offer, the merger of Archive into Conner Acquisition Corp., and the repayment by the Company of the debt of Archive and its subsidiaries outstanding on the Acquisition Date in an amount not to exceed in the aggregate $150,000,000 shall be deemed permitted transactions hereunder. The purchase by the Company or any Restricted Subsidiaries of shares of outstanding capital stock of the Company's Subsidiary formed under the laws of China shall be deemed to comply with this paragraph 5(i) so long as the Company or such Restricted Subsidiary pays fair value for such shares, as determined by the Board of Directors of the Company. The transactions described in the Arcada Letter of Intent shall be deemed to comply with this paragraph 5(i). (j) Line of Business. The Company will not, nor will it permit any Restricted Subsidiary to, engage in any business other than the businesses currently engaged in by the Company and the Subsidiaries and any business substantially similar or substantially related thereto. (k) Designation of Subsidiaries. The Board of Directors may at any time designate any Restricted Subsidiary as an Unrestricted Subsidiary provided that no Default or Event of Default shall exist immediately after, and after giving effect to, any such designation (whether or not caused by such designation), but it may not thereafter redesignate such Subsidiary as a Restricted Subsidiary. (l) Private Offering. The Company will not, nor will it permit anyone acting on its behalf to, offer the Notes or any part thereof or any similar Securities for issue or sale to, or solicit any offer to acquire any of the same from, anyone so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act. (m) Subordinated Debt. The Company will not, and will not permit any Restricted Subsidiary to, make any payment or redemption of Subordinated Debt, other than mandatory prepayments or mandatory redemptions scheduled at the time of issuance of such Subordinated Debt, or otherwise purchase or acquire any Subordinated Debt, directly or indirectly, or give any notice that irrevocably binds it to take any such action, unless: (i) no Default or Event of Default shall exist immediately prior to, or immediately after, the consummation of any such action or the giving of such notice, whichever shall first occur, and the Company has delivered a certificate to such effect to each holder of Notes prior to, but not more than 30 days prior to, taking such action or giving such notice, whichever shall first occur, together with a brief description of such action or the action contemplated by such notice; and (ii) at the time it shall become irrevocably bound to take such action, or the time it shall take such action, whichever shall first occur, one of the following conditions shall be satisfied: (A) the Company or such Restricted Subsidiary, as the case may be, could incur Senior Debt in an amount equal to the amount of Subordinated Debt to be so prepaid, redeemed or otherwise purchased or acquired; Note Agreement Through 6th Amendment Exhibit A - 32 5. NEGATIVE COVENANTS (B) the Subordinated Debt to be so prepaid, redeemed or otherwise purchased or acquired is convertible into a number of shares of capital stock of the Company having a Fair Market Value at the time that the Company or such Restricted Subsidiary becomes obligated to take such action which is at least 25% in excess of the principal amount of such Subordinated Debt; or (C) the Subordinated Debt to be so prepaid, redeemed or otherwise purchased or acquired is convertible into a number of shares of capital stock of the Company having a Fair Market Value at the time that the Company or such Restricted Subsidiary becomes obligated to take such action which is a least 15% in excess of the principal amount of such Subordinated Debt, and the Company has entered into a firm commitment underwriting agreement with one or more underwriters, which agreement contains terms and conditions no less favorable to the Company than those generally included in comparable agreements for similarly situated issuers at such time (as determined by the Company in its reasonable judgment), and pursuant to which such underwriters have agreed to purchase capital stock of the Company for an amount sufficient to prepay, redeem or otherwise purchase or acquire all or any part of such Subordinated Debt that is not so converted into such capital stock prior to such prepayment, redemption, purchase or acquisition; provided that no such action shall be taken and no such notice given during the period beginning on October 3, 1993 and ending on the Determination Date occurring nearest to March 31, 1995, inclusive. Nothing set forth in this paragraph 5(m) shall prevent the Company or any Restricted Subsidiary from purchasing or acquiring any Subordinated Debt in privately negotiated transactions or in open-market transactions if (a) the price paid is less than par plus accrued interest; (b) no Default or Event of Default shall exist immediately prior to, or immediately after, such purchase or acquisition; and (c) the aggregate amount paid by the Company for all such purchases or acquisitions in any period of twelve consecutive months, which purchases or acquisitions are not otherwise permitted pursuant to this paragraph 5(m), shall not exceed $25 million; provided that the Company will not enter into, or agree to enter into, any such transactions during the period beginning on October 3, 1993 and ending on the Determination Date occurring nearest to March 31, 1995, inclusive. (n) Liquidity Coverage. The Company will not permit, on any Determination Date, the Liquidity Coverage to be less than the percentage set forth in the following table opposite such Determination Date, in each case determined as of such Determination Date: Note Agreement Through 6th Amendment Exhibit A - 33 5. NEGATIVE COVENANTS
=============================================================================== Determination Date Percentage - ------------------------------------------------------------------------------- All Determination Dates occurring during the period beginning 200% with the Determination Date occurring nearest to June 30, 1993 to and including the Determination Date occurring nearest to September 30, 1993 - ------------------------------------------------------------------------------- All Determination Dates occurring during the period beginning 125% with the Determination Date occurring nearest to December 31, 1993 to and including the Determination Date occurring nearest to March 31, 1995 ===============================================================================
(o) Restricted Payments. The Company shall not make any Restricted Payments during the period beginning of October 3, 1993 and ending on the Determination Date occurring nearest to March 31, 1995, inclusive. (p) Accounting Period. The Company shall not change the method in which it determines its fiscal year or its fiscal quarters. 6. CONDITIONS PRECEDENT. (a) Conditions to Closing. The obligations of the Purchasers to purchase the Notes, as provided in paragraph 1 hereof, shall be subject to the satisfaction, on or before the Closing Date, of the following conditions: (i) The representations and warranties contained in paragraph 3 hereof shall be true and correct as of the Closing Date; the Company shall not be in default with respect to any of the provisions hereof and there shall exist no event which, with the passage of time or the giving of notice, or both, would constitute such a default; neither the Company nor any Subsidiary shall have suffered a material adverse change in financial condition, nor shall there exist any material action, suit or proceeding pending, or to the knowledge of the Company threatened, against the Company or any of its Subsidiaries which, if decided adversely to the Company or any of its Subsidiaries, would have a materially adverse effect upon the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole or upon any of the business or properties of the Company, Conner Singapore or the Company and its Subsidiaries taken as a whole; and the Company shall have delivered to the Purchasers a certificate signed by a responsible officer of the Company to such effects. (ii) The Purchasers shall have received from Wilson Sonsini Goodrich & Rosati, counsel for the Company, a favorable opinion in form and substance satisfactory to the Purchasers as to all matters specified in Exhibit E hereto and such other matters incident to the transaction herein contemplated as the Purchasers may reasonably request. (iii) The Purchasers shall have received from their special counsel, Faegre & Benson, a favorable opinion in form and substance satisfactory to the Purchasers, as to such matters incident to the transaction herein contemplated as the Purchasers may reasonably request. (iv) The Purchasers shall have received a Uniform Commercial Code Search against the Company from the States of California and Colorado, and from such other jurisdictions as the Purchasers may reasonably request, as of a date no more than Note Agreement Through 6th Amendment Exhibit A - 34 6. CONDITIONS PRECEDENT fifteen days prior to the Closing Date, certified by a reporting service satisfactory to the Purchasers, and disclosing no security under paragraph 5(d) of this Agreement. (v) The Company shall have received a waiver from Bank of the West, Banque Nationale de Paris and The First National Bank of Boston under their Loan Agreement with the Company dated as of November 21, 1988, as amended, permitting the issuance and sale of the Notes and the performance by the Company hereunder. (vi) All proceedings to be taken in connection with the transaction contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to the Purchasers and their counsel and the Purchasers shall have received copies of all documents which the Purchasers may reasonably request. (b) Waiver of Conditions. If on the Closing Date the Company fails to tender to each Purchaser the Notes to be issued to it on such date or if the conditions specified in paragraph 6(a) above have not been fulfilled, the Purchasers may thereupon elect to be relieved of all further obligations under this Agreement. Without limiting the foregoing, if the conditions specified in paragraph 6(a) above have not been fulfilled, the Purchasers may waive compliance by the Company with any such condition to such extent as the Purchasers may in their sole discretion determine. Nothing in this paragraph 6(b) shall operate to relieve the Company of any of its obligations hereunder or to waive any of the Purchasers' rights against the Company. 7. EVENTS OF DEFAULT. (a) Acceleration. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or premium on any Note when the same shall become due, either by the terms thereof or otherwise as provided in this Agreement; or (ii) the Company defaults in the payment of any interest on any Note for more than 5 Business Days after the date due; or (iii) the Company fails to perform or observe any agreement contained in paragraph 5 or paragraph 4(c) of this Agreement; or (iv) the Company fails to perform or observe any other agreement contained in this Agreement and such failure shall not be remedied within thirty (30) days after any Responsible Officer obtains actual knowledge thereof; or (v) any representation or warranty made by the Company in this Agreement or in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or Note Agreement Through 6th Amendment Exhibit A - 35 7. EVENTS OF DEFAULT (vi) the Company or any Restricted Subsidiary, (A) defaults in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for Property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit, but not any obligation in respect of trade credit incurred in the ordinary course of business) beyond any period of grace in effect prior to the occurrence of such default, or (B) fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to any originally stated maturity, or to require that such obligation be repurchased by the Company or any Subsidiary, provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration or repurchase shall occur and be continuing exceeds $10,000,000 and provided further that this paragraph 7(a)(vi) shall not apply to the Specified Debt, so long as the Specified Debt is paid in full within 30 days after it becomes due; or (vii) the Company or any Restricted Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Company or any Restricted Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or (ix) the Company or any Restricted Subsidiary (A) petitions or applies to any tribunal for, or consents to, the appointment of, or the taking of possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Restricted Subsidiary, or of any substantial part of the Property of the Company or any Restricted Subsidiary, or (B) commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Restricted Subsidiary) relating to the Company or any Restricted Subsidiary under the Bankruptcy Law of any other jurisdiction; or Note Agreement Through 6th Amendment Exhibit A - 36 7. EVENTS OF DEFAULT (x) any petition or application referred to in paragraph 7(a)(ix) is filed, or any such proceedings are commenced, against the Company or any Restricted Subsidiary, and the Company or such Restricted Subsidiary by any act indicates its approval thereof, consent thereto, or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Restricted Subsidiary decreeing a split-up of the Company or such Restricted Subsidiary that requires the divestiture of assets representing a Substantial Part, or the divestiture of the stock of a Restricted Subsidiary whose assets represent a Substantial Part, of the consolidated assets of the Company and the Restricted Subsidiaries (determined in accordance with generally accepted accounting principles) or that requires the divestiture of assets, or stock of a Restricted Subsidiary, that shall have contributed a Substantial Part of the Consolidated Net Income for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xiii) a final judgment for the payment of money or the transfer of Property in an amount in excess of $5,000,000 (excluding that portion of any such judgment covered by insurance in respect of which coverage is undisputed) is rendered against the Company or any Restricted Subsidiary and, within 60 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment is not discharged or execution thereof stayed pending further appeal; then (A) if such event is an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7(a) with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, (B) if such event is any other Event of Default, the Required Holders may at their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, provided that the Yield- Maintenance Amount, if any, with respect to each Note shall be due and payable upon such declaration only if Note Agreement Through 6th Amendment Exhibit A - 37 7. EVENTS OF DEFAULT (1) such event is an Event of Default specified in any of clause (i) to clause (vi), inclusive, or clause (xiii) of this paragraph 7(a), (2) the Required Holders shall have given to the Company, at least 10 Business Days before such declaration, written notice stating its or their intention so to declare the Notes to be immediately due and payable and identifying one or more such Events of Default whose occurrence on or before the date of such notice permits such declaration and (3) one or more of the Events of Default so identified shall be continuing at the time of such declaration, and (C) if such event is an Event of Default specified in clause (i) or clause (ii) of this paragraph 7(a) and irrespective of whether the Required Holders shall have declared the Notes to be due and payable pursuant to the foregoing clause (B), any holder of Notes may at its option, by notice in writing to the Company, declare all of the Notes held by such holder to be, and all of such Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield- Maintenance Amount, if any, with respect to each such Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company. (b) Other Remedies. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise. (c) Annulment of Acceleration of Notes. If a declaration is made pursuant to paragraph 7(a)(b) of this Agreement by the Required Holders or paragraph 7(a)(c) of this Agreement by any holder of Notes, then and in every such case, the Required Holders may, by written instrument filed with the Company, rescind and annul such declaration within 90 days thereafter, and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (i) no judgment or decree shall have been entered for the payment of any moneys due on or pursuant to the Notes or this Agreement; (ii) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal of, or interest or premium on, the Notes which shall have become due and payable by reason of such declaration under paragraph 7(a)(b) or paragraph 7(a)(c) of this Agreement) shall have been duly paid; and Note Agreement Through 6th Amendment Exhibit A - 38 7. EVENTS OF DEFAULT (iii) each and every other Default and Event of Default shall have been waived pursuant to paragraph 10(c) of this Agreement or otherwise made good or cured, and provided further that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon. 8. PAYMENTS ON AND REGISTRATION AND TRANSFER OF NOTES. The Company agrees that it will make payment of the principal of, premium, if any, and interest on the Notes by wire transfer of immediately available Federal funds with sufficient information to identify the source and application of funds to each of the Purchasers in accordance with the wire transfer instructions set forth in Appendix I hereto, or to such other accounts within the United States or in such other commercial manner as may from time to time be designated by the holder of a Note, without presentment of the Notes and without the rendering of any bills therefor. Each Purchaser agrees (and any transferee of any Note, by its purchase of such Note agrees) that if it sells or transfers any Note it will, prior to the delivery thereof, make a notation thereon of the date to which interest has been paid thereon and the amount of any prepayments or installments made on account of the principal thereof. The Company shall keep at its principal executive office a register in which the Company shall provide for the registration of the Notes and of transfers of the Notes (the "Note Register"). Upon surrender of any Note for transfer at the principal executive office of the Company, subject to compliance with applicable federal and state securities laws, the Company shall execute and deliver, in the name of the designated transferee, a new Note of the same series as that surrendered in a principal amount equal to the unpaid principal amount of, and dated the date to which interest has been paid on, the Note so surrendered. When a Note shall be presented or surrendered for transfer it shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder thereof or his attorney duly authorized in writing. The Company may treat the person in whose name the Note is registered on the Note Register as the owner of the Note for the purpose of receiving payment of principal of and interest on the Note and for all other purposes and the Company shall not be affected by notice to the contrary. The Company may require payment by the transferor of a Note (or its transferee) of the amount of any stamp tax or governmental charge otherwise payable by the Company with respect to the transfer of a Note by such transferor. 9. EXPENSES. The Company agrees, whether or not the purchase of the Notes herein contemplated shall be consummated, to pay and save the Purchasers harmless against liability for the payment of all out-of-pocket expenses arising in connection with this transaction including any documentary stamp taxes payable upon original issue of the Notes (including interest and penalties, if any) or printing expenses, which may be determined to be due and payable with respect to the execution and delivery of the Notes, and the reasonable fees and expenses of counsel to the Purchasers. The Company also agrees to pay, and to save the Purchasers harmless against liability for the payment of, the reasonable fees and expenses of counsel to the Purchasers in connection with any documentation and related services arising after the Closing Date in connection with the preparation of waivers or amendments of any provisions of this Agreement or the Notes. In addition, the Company agrees to pay, and to save the holders of the Notes harmless against, any loss or damage arising from any claim of any Note Agreement Through 6th Amendment Exhibit A - 39 9. EXPENSES person claiming by, under or through the Company for brokerage or finders fees incurred in connection with the transaction contemplated by this Agreement. 10. DELIVERY OF DOCUMENTS; PRO RATA PAYMENTS; AMENDMENTS AND CONSENTS. (a) Delivery of Documents. All notices, certificates, requests, statements and other documents required or permitted to be delivered to the Purchasers or the holders of Notes by any provision hereof shall also be delivered to each Significant Holder. (b) Pro Rata Payments. Until the occurrence of a default in the payment of principal or interest on any Notes, all interest payments and payments or prepayments of principal shall be made and applied to the Notes in accordance with their respective terms and the terms of paragraph 2 hereof. If a default in the payment of principal or interest on any Note has occurred and is continuing, all interest payments and payments or prepayments of principal shall be made and applied pro rata on all Notes outstanding in accordance with the respective unpaid principal amounts thereof. (c) Amendments and Consents. The registered holder or holders of at least two-thirds of the unpaid principal amount of the Notes at the time outstanding may by agreement with the Company amend this Agreement, and any consent, notice, request, demand or waiver required or permitted to be given by the Purchasers or the holders of the Notes by any provision hereof shall be sufficient if given by the holder or holders of at least two-thirds of the unpaid principal amount of the Notes at the time outstanding, except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this Agreement shall change the maturity of any Note, or decrease the rate of interest or any premium payable with respect to any Note, or alter the preference between holders of the Notes or between holders of the Notes and other creditors of the Company and its Restricted Subsidiaries, or affect the amount or timing of any required payments or prepayments of principal or interest, or reduce the proportion of the principal amount of the Notes required with respect to any amendment or consent. (d) Solicitation of Noteholders. The Company will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement or the Notes unless each holder of the Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company and shall be afforded the opportunity of considering the same for a period of not less than 15 business days and shall be supplied by the Company with a brief statement regarding the reasons for any such proposed waiver or amendment, a copy of the proposed waiver or amendment and such other information as any holder of the Notes shall reasonably request regarding such amendment or waiver to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or amendment effected pursuant to the provisions of this paragraph 10 shall be delivered by the Company to each holder of outstanding Notes within 30 days following the date on which the same shall have been executed and delivered by the holder or holders of the requisite percentage of outstanding Notes. The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any holder of the Notes as consideration for or as an inducement to the entering into by any holder of the Notes of any waiver or amendment of any of the terms and provisions of this Agreement unless such Note Agreement Through 6th Amendment Exhibit A - 40 10. DELIVERY OF DOCUMENTS; PRO RATA PAYMENTS; AMENDMENTS AND CONSENTS remuneration is concurrently paid, on the same terms, ratably to the holders of all of the Notes then outstanding. 11. REPRESENTATIONS AND AGREEMENTS OF PURCHASERS. (a) Investment Purpose. Each Purchaser represents that the acquisition of the Notes by it will be for investment for its own account and not with a view to resale in connection with any distribution thereof nor with any present intention of distributing or selling such Notes, it being understood, however, that the disposition of the property of each Purchaser shall at all times be within its control. Each of the Purchasers acknowledges that the Note to be purchased by it has not been registered under the Securities Act of 1933, as amended, or registered and/or qualified under the securities laws of any state and, therefore, cannot be resold unless (i) registered under the Securities Act of 1933, as amended, and applicable state securities laws, or (ii) an exemption from registration is available. (b) ERISA Representation. Unless a Purchaser shall have made contrary disclosures to the Company, each of the Purchasers separately and severally represents either (a) that no part of the funds to be used by it to make the loan evidenced by the Note to be purchased by it constitutes assets allocated to any separate account maintained by it or (b) that no part of the funds to be used by it to make the loan evidenced by the Note to be purchased by it constitutes assets allocated to any separate account maintained by it such that the application of such funds constitutes a prohibited transaction under Section 406(a) of ERISA. As used in this paragraph, the term "separate account" shall have the meaning assigned to such term in Section 3 of ERISA. (c) Confidentiality. It is understood that each holder of a Note will from time to time receive from the Company or another holder of a Note certain data and documents regarding the business and operations of the Company and its Subsidiaries and/or the Notes which are not publicly available and which the Company and its Subsidiaries consider to be confidential, proprietary or trade secrets (all such data and documents, collectively, being hereinafter referred to as "Confidential Information"). The term "Confidential Information" does not include information which (a) becomes generally available to the public other than as a result of disclosure by such holder of a Note, (b) was available on a non-confidential basis prior to its disclosure to such holder of a Note by the Company, any of its Restricted Subsidiaries or their respective representative or Note Agreement Through 6th Amendment Exhibit A - 41 11. REPRESENTATIONS AND AGREEMENTS OF PURCHASERS (c) becomes available to such holder of a Note on a nonconfidential basis from a source other than the Company, any of its Restricted Subsidiaries or their respective representative, provided, that such source is not bound by a confidentiality agreement. No holder of a Note will disseminate any Confidential Information except, and the Company hereby consents to the dissemination of Confidential Information by any holder of a Note: (a) to any transferee or proposed transferee of a Note; (b) to officers, employees, attorneys, certified public accountants and (to the extent required by their involvement) other outside consultants and experts of any holder of a Note, its affiliates and any transferee or proposed transferee of a Note; or (c) to any other person as may be necessary with respect to enforcement or protection of rights with respect to the Notes, or otherwise as may be required pursuant to legal process or regulatory requirements. Except in connection with the transactions contemplated by this Agreement or as otherwise contemplated or permitted herein, no holder of a Note will make any use of any Confidential Information, and each holder of a Note will disseminate all Confidential Information to others under a prior or contemporaneous notice of confidentiality unsubstantially to the effect hereof. Each transferee of a Note, by its acceptance of such Note, agrees to be bound to the provisions of this paragraph 11(c). 12. DEFINITIONS. For purposes of this Agreement the following terms shall have the following meanings: "Acquisition Date" means the date on which the Archive Tender Offer is consummated. "Adjusted Consolidated Debt Percentage" means, with respect to any sale of capital stock to which paragraph 5(b)(iii) applies, the greater of (a) the lesser of (I) the percentage in effect in accordance with paragraph 5(b)(ii) in respect of the Determination Date immediately preceding such sale of capital stock, or (II) the percentage determined by dividing the Adjusted Consolidated Debt Amount by the Adjusted Consolidated Tangible Net Worth Amount, in each case determined after giving effect to such sale, or (b) 125%. The Adjusted Consolidated Debt Percentage determined by the foregoing calculation shall apply to the first period, as set forth in the table in paragraph 5(b)(ii) hereof, immediately following the date of the sale of such capital stock. If the Adjusted Consolidated Debt Note Agreement Through 6th Amendment Exhibit A - 42 12. DEFINITIONS Percentage for such first period is greater than 125%, then the Adjusted Consolidated Debt Percentage in each period succeeding such first period shall be determined by deducting 20 percentage points from the Adjusted Consolidated Debt Percentage determined as herein provided for the immediately preceding period until a period is reached where the Adjusted Consolidated Debt Percentage is reduced to, but not below 125% (the last deduction to arrive at 125% being 20 percentage points or such lesser number of percentage points as is necessary to arrive at 125%). Thereafter, the Adjusted Consolidated Debt Percentage shall be 125%. As used in this definition, "Adjusted Consolidated Debt Amount" means, with respect to any sale of capital stock to which paragraph 5(b)(iii) hereof applies, the Existing Consolidated Debt Amount with respect thereto plus 50% of the Net Cash Proceeds of such sale of capital stock. "Adjusted Consolidated Tangible Net Worth Amount" means, with respect to any sale of capital stock to which paragraph 5(b)(iii) hereof applies, the Existing Consolidated Tangible Net Worth Amount with respect thereto plus 100% of the Net Cash Proceeds of such sale of capital stock. "Existing Consolidated Debt Amount" means, with respect to any sale of capital stock to which paragraph 5(b)(iii) hereof applies, the amount of Consolidated Debt outstanding on the Determination Date immediately preceding such sale. "Existing Consolidated Tangible Net Worth Amount" means, with respect to any sale of capital stock to which paragraph 5(b)(iii) hereof applies, the amount of Consolidated Tangible Net Worth determined on the Determination Date immediately preceding such sale. "Net Cash Proceeds" means, with respect to any sale of capital stock to which paragraph 5(b)(iii) hereof applies, the net cash proceeds of the sale of such stock of the Company, net of all costs related to the sale thereof, and net of the Fair Market Value of any contingent obligations the Company has assumed with respect to any Person in connection with such sale. "Affiliate" means any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Restricted Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Annual Disposition Measurement Period" has the meaning assigned to such term in paragraph 5(g)(ii)(D)(1) of this Agreement. "Arcada Holdings, Inc." means that certain corporation formed, or to be formed, pursuant the Arcada Letter of Intent to act as the holding company for the Company's software disk backup, data management, hierarchical storage management and related applications business. Note Agreement Through 6th Amendment Exhibit A - 43 12. DEFINITIONS "Arcada Letter of Intent" means that certain Letter of Intent, entered into as of December 13, 1993, between Archive, the Company and Quest Development Corporation. "Arcada Restricted Subsidiary" means, at any time, (i) Arcada Holdings, Inc., provided that (a) at least (I) 65% of the Voting Stock of which, except directors qualifying shares and any shares issued to comply with local ownership legal requirements (provided that such directors qualifying shares and other shares shall not represent in excess of 3% of the outstanding shares of the stock of any class of such Restricted Subsidiary and, after taking such shares into account, the Company shall, directly or indirectly, own a majority of the Voting Stock of such Subsidiary), and (II) 65% of all non-voting stock of every other class of which, is, at such time, owned by the Company either directly or through Restricted Subsidiaries other than Restricted Subsidiaries that qualify as such solely by virtue of this definition of "Arcada Restricted Subsidiary," (b) Arcada Holdings, Inc. has at such time never been designated an Unrestricted Subsidiary by the Board of Directors pursuant to paragraph 5(k) of this Agreement, and (c) Arcada Holdings, Inc. qualifies at such time as a Subsidiary, and (ii) any other Subsidiary of the Company provided that (a) (I) 100% of the Voting Stock of which, except directors qualifying shares and any shares issued to comply with local ownership legal requirements (provided that such directors qualifying shares and other shares shall not represent in excess of 3% of the outstanding shares of the stock of any class of such Restricted Subsidiary and, after taking such shares into account, the Company shall, directly or indirectly, own a majority of the Voting Stock of such Subsidiary), and (II) 100% of all non-voting stock of every other class of which, is, at such time, owned by Arcada Holdings, Inc. either directly or through other Restricted Subsidiaries, (b) such Subsidiary has at such time never been designated an Unrestricted Subsidiary by the Board of Directors pursuant to paragraph 5(k) of this Agreement, and Note Agreement Through 6th Amendment Exhibit A - 44 12. DEFINITIONS (c) Arcada Holdings, Inc. qualifies at such time as a Restricted Subsidiary. Any Subsidiary that qualifies as a Restricted Subsidiary under the definition of "Restricted Subsidiary" in this paragraph 12 without reference to this definition of "Arcada Restricted Subsidiary" shall be deemed to be a Restricted Subsidiary but not an Arcada Restricted Subsidiary. "Archive" means Archive Corporation, a Delaware corporation. "Archive Tender Offer" means the offer by the Company for all of the shares of the outstanding capital stock of Archive pursuant to an Offer to Purchase dated November 24, 1992. "Asset Disposition Date" has the meaning assigned to such term in paragraph 5(g)(ii)(D)(1) of this Agreement. "Bankruptcy Law" has the meaning assigned to it in paragraph 7(a)(viii) of this Agreement. "Board of Directors" means, at any time, the board of directors of the Company or any committee thereof which, in the instance, shall have the lawful power to exercise the power and authority of such board of directors. "Capital Lease" means a lease with respect to which the rental obligation thereunder is a Capitalized Lease Obligation. "Capitalized Lease Obligation" means, with respect to any Person, any rental obligation that, under generally accepted accounting principles, is required to be capitalized on the books of such Person, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. "Cash Equivalents" means (a) cash, (b) all Investments permitted by subparagraph 5(h) (i), (iii), (vi), (vii), (viii), (ix), (x), (xi) and (xii), and (c) any other Investments which would properly be classified as "cash equivalents" in accordance with generally accepted accounting principles. "Cash Flow Contribution" means, for any period, in respect of any Property of the Company or a Restricted Subsidiary, the amount of Consolidated Operating Cash Flow fairly attributable to such Property during such period, expressed as a percentage of such Consolidated Operating Cash Flow. "Closing Date" shall have the meaning set forth in paragraph 1(a). Note Agreement Through 6th Amendment Exhibit A - 45 12. DEFINITIONS "Company" shall have the meaning set forth in the preamble. "Competitor" means any Person who, at the time of determination, is commonly known to have a portion of its business in the same line of business as the Company or the Subsidiaries, or is commonly known to be an affiliate of such Person provided, that neither you, any of your affiliates, any Purchaser, any affiliate of any Purchaser, nor any Financial Institution (other than a finance company or a pension plan) shall be deemed to be Competitors. "Confidential Information" has the meaning assigned to it in paragraph 11(c) of this Agreement. "Conner Singapore" shall mean, collectively, Conner Peripherals Singapore, Ltd., a Cayman Islands corporation and Conner Peripherals Singapore, Ltd., a Singapore branch of Conner Peripherals Singapore, Ltd., a Cayman Islands corporation. "Consolidated Debt" means, at any time, without duplication, the amount of Debt of the Company and the Restricted Subsidiaries outstanding at such time, determined on a consolidated basis. "Consolidated Fixed Charges" means, with respect to any period, the greater of zero and the amount of all expenses of the Company and the Restricted Subsidiaries during such period of the following types: (i) interest due on, or with respect to, Consolidated Debt (including, without limitation, interest due on the Notes), amortization of debt discount and expense with respect to Consolidated Debt, and imputed interest on Capitalized Lease Obligations, plus (ii) Rentals with respect to all leases, determined on a consolidated basis in accordance with generally accepted accounting principles; provided that, if the net earnings (or loss) of any Person shall not be taken into account pursuant to clauses (f) or (h) of the definition of "Consolidated Net Income" in determining Consolidated Net Income for any period in respect of which Consolidated Fixed Charges is being determined, all of the foregoing items attributable to such Person for such period shall only be taken into account to the extent that, in the aggregate, they exceed the net earnings of such Person, provided further that, if the net earnings (or loss) of any Person shall not be taken into account pursuant to clauses (c), (d) or (g) of the definition of "Consolidated Net Income" in determining Consolidated Net Income for any period in respect of which Consolidated Fixed Charges is being determined, all of the foregoing items attributable to such Person for such period shall be excluded from Consolidated Fixed Charges for such period. As used in this definition, "Rentals" means, with respect to any period, all fixed payments which the lessee is required to make during such period by the terms of any lease of one year or more, but shall not include amounts required to be paid in respect of Capital Leases. Note Agreement Through 6th Amendment Exhibit A - 46 12. DEFINITIONS "Consolidated Net Income" -- for any fiscal period means net earnings (or loss) after income taxes of the Company and the Restricted Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles, but excluding: (a) any gain or loss arising from the sale of capital assets (other than any gain or loss of less than $100,000 from any such sale); (b) any gain or loss arising from any write-up of assets subsequent to December 31, 1990 (other than as a consequence of a physical review of inventory or other assets), any gain arising from the acquisition of any Securities of the Company or any Restricted Subsidiary, or any other extraordinary item; (c) earnings of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary; (d) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such other Person prior to the date of such acquisition; (e) net earnings of any Person (other than a Restricted Subsidiary) in which the Company or any Restricted Subsidiary shall have an ownership interest unless such net earnings shall have actually been received by the Company or such Restricted Subsidiary in the form of cash distributions or cancellation of Debt; (f) any portion of the net earnings of any Restricted Subsidiary that for any reason is unavailable, by law or pursuant to any contractual restriction, for payment of dividends to the Company or any other Restricted Subsidiary; (g) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; and (h) any portion of the net earnings of the Company that cannot be converted into United States dollars; all determined in accordance with generally accepted accounting principles. "Consolidated Operating Cash Flow" means, for any period, (a) Consolidated Net Income for such period, plus (b) the aggregate amount of depreciation and amortization accrued for such period by the Company and the Restricted Subsidiaries (to the extent, but only to the extent, each component of such aggregate amount was reflected in the computation of Consolidated Net Income for such period), determined on a consolidated basis. "Consolidated Senior Debt" means, at any time, without duplication, the amount of Senior Debt outstanding at such time, determined on a consolidated basis. Note Agreement Through 6th Amendment Exhibit A - 47 12. DEFINITIONS "Consolidated Tangible Net Worth" means at any time: (a) the net book value (after deducting related depreciation, obsolescence, amortization, valuation and other proper reserves relating to such assets) at which the Tangible Assets of the Company and all Restricted Subsidiaries would be shown on a consolidated balance sheet at such time prepared in accordance with generally accepted accounting principles (subject to any modification required by the definition of "Tangible Assets" below), but excluding any amount on account of write-ups of assets after December 31, 1990 (other than as a consequence of a physical review of inventory or other assets), at such time, minus (b) the amount at which the liabilities of the Company and the Restricted Subsidiaries would be shown on such balance sheet, and including as liabilities all reserves for contingencies and other potential liabilities (specifically including therein, without limitation, actuarially determined unfunded vested pension liabilities and liabilities in respect of other post-retirement benefits) and all minority interests in Restricted Subsidiaries at such time, all determined in accordance with generally accepted accounting principles (subject to any modification required by the preceding parenthetical expression in this clause (b)), plus (c) if such time is on or after the Determination Date occurring nearest to December 31, 1993, $0, and if such time is prior to such Determination Date, (i) the aggregate amount paid by the Company to Compaq Computer Corporation during the Company's fiscal quarter ended October 3, 1992 for the purchase of outstanding shares of the Company's common stock owned by Compaq Computer Corporation subject to an aggregate limit of $150 million, plus (ii) following the Acquisition Date, an amount representing intangibles, including goodwill, in an aggregate amount equal, on the relevant date of reference thereto, to the amount specified in the table below opposite the period during which such date occurs:
=============================================================================== Period Amount - ------------------------------------------------------------------------------- Acquisition Date to the Determination Date occurring nearest to $245,000,000 June 30, 1993, inclusive 0 - ------------------------------------------------------------------------------- From the date immediately following the Determination Date $215,000,000 occurring nearest to June 30, 1993 to the date immediately 0 preceding the Determination Date occurring nearest to December 31, 1993, inclusive ===============================================================================
As used in this definition, "Tangible Assets" means all assets (including, without duplication, the capitalized value of any leasehold interest under any Capitalized Lease Obligation) except: Note Agreement Through 6th Amendment Exhibit A - 48 12. DEFINITIONS (i) the aggregate amount of deferred assets, other than prepaid insurance and prepaid taxes, in excess of $10,000,000; (ii) patents, copyrights, trademarks, trade names, franchises, goodwill and other similar intangible assets; (iii) all Investments made pursuant to paragraph 5(h)(xx) and any other Investments not permitted by any other provision of paragraph 5(h) of this Agreement (except that "Tangible Assets" shall include outstanding Investments made pursuant to paragraph 5(h)(xx) at any time when "Consolidated Tangible Net Worth" is being determined for purposes of determining the amount of Investments which may be made pursuant to such paragraph); and (iv) unamortized debt discount and expense (other than not more than $6,500,000 of unamortized debt expense attributable to the issuance of Debt prior to the date hereof (which expense shall be included in "Tangible Assets"). "Consolidated Total Assets" means, at any time of determination, the net book value of all assets of the Company and the Restricted Subsidiaries that would be shown on a consolidated balance sheet of the Company and the Restricted Subsidiaries prepared at such time of determination in accordance with generally accepted accounting principles, excluding changes in the net book value of assets resulting from write-ups of assets subsequent to December 31, 1990 (other than as a consequence of a physical review of inventory or other assets). "Debentures" means the 6 3/4% Convertible Subordinated Debentures Due 2001 of the Company issued pursuant to that certain Indenture, dated as of March 1, 1991, between the Company and The First National Bank of Boston, as trustee, and the 6 1/2% Convertible Subordinated Debentures Due 2002 of the Company issued pursuant to that certain Indenture, dated as of March 1, 1992, between the Company and The First National Bank of Boston, as trustee. "Debt" of any Person, at any time, means (i) indebtedness for money borrowed of such Person; (ii) indebtedness that is secured by any Lien on Property owned by such Person, whether or not the indebtedness secured thereby shall have been assumed by such Person; (iii) Capitalized Lease Obligations of such Person; (iv) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) of such Person in connection with the obligations, stock or dividends of any other Person, provided that guarantees by such Person of contingent obligations of other Persons shall be excluded from this clause (iv); Note Agreement Through 6th Amendment Exhibit A - 49 12. DEFINITIONS (v) obligations of such Person under any contract providing for the making of loans, advances or capital contributions to any other Person, or for the purchase of any Property from any other Person, in each case primarily in order to enable such other Person to maintain working capital, net worth or any other balance sheet condition or to pay debts, dividends or expenses, to the extent that such other Person is obligated to maintain such condition or make such payments and has failed to do so; (vi) obligations of such Person under any contract for the purchase of materials, supplies or other Property or services if such contract (or any related document) requires that payment for such materials, supplies or other Property or services shall be made regardless of whether or not delivery of such materials, supplies or other Property or services is ever made or tendered; and (vii) obligations under any other contract which, in legal effect, is substantially equivalent to a guarantee, provided that guarantees by such Person of contingent obligations of other Persons shall be excluded from this clause (vii), all as determined in accordance with generally accepted accounting principles, provided that such items shall only constitute Debt to the extent that, in accordance with generally accepted accounting principles, such items would be (and only to the extent such items would be) included in determining total liabilities as shown on the liability side of the balance sheet of such Person (assuming that such Person were the primary obligor in respect of the underlying obligation with respect to any guarantee or other contingent obligation, as contemplated by the next succeeding sentence), provided further that, notwithstanding the foregoing, "Debt" shall not include (a) accrued compensation, (b) taxes payable and deferred taxes, (c) trade payables, including intercompany payables in the nature of trade payables, (d) any obligations payable, at the option of the obligor, in equity Securities of the obligor, (e) any guarantee or contingent liability or obligation with respect to any of the items set forth in the foregoing clauses (a) to (d), inclusive or (f) obligations of Archive and its Subsidiaries which would otherwise constituting "Debt" hereunder, to the extent that such obligations are repaid in full within 60 days following the Acquisition Date. For purposes of computing the amount of any obligation specified in either of the foregoing clauses (iv) and (vii), it shall be assumed that the indebtedness or other obligations which are the subject of such guarantee, endorsement or other contingent liability are direct obligations of the obligor on such guarantee, endorsement or contingent liability (but not in an amount in excess of the maximum liability of such obligor) and, therefore, are of the nature and type of, and bear interest at the rate applicable to, such indebtedness or other obligations. Note Agreement Through 6th Amendment Exhibit A - 50 12. DEFINITIONS "Default" means any of the events specified in paragraph 7 of this Agreement, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Determination Date" means the last day of each fiscal quarter of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any corporation or trade or business that (a) is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the IRC) as the Company or (b) is under common control (within the meaning of Section 414(c) of the IRC) with the Company. "Event of Default" means any of the events specified in paragraph 7 of this Agreement, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, at any time, with respect to any Property, the sale value of such Property that would be realized in an arm's-length sale at such time between an informed and willing buyer, and an informed and willing seller, under no compulsion to buy or sell, respectively. "Financial Institution" means (i) any bank, savings bank, savings and loan association or insurance company, (ii) any pension plan or portfolio or investment fund managed or administered by any bank, savings bank, savings and loan association or insurance company, (iii) any investment company owned by any bank, savings bank, savings and loan association or insurance company, or the majority of the shares of the capital stock of which are traded on a national securities exchange or in the National Association of Securities Dealers automated quotation system, (iv) any investment banking company, or (v) any finance company. "Four Quarter Period" has the meaning assigned to such term in paragraph 5(g)(ii)(D)(2). Note Agreement Through 6th Amendment Exhibit A - 51 12. DEFINITIONS "Inspection Rights" has the meaning assigned to such term in paragraph 4(b) of this Agreement. "Investment" has the meaning assigned to such term in paragraph 5(h) of this Agreement. "IRC" means the Internal Revenue Code of 1986, as amended from time to time, and all rules and regulations promulgated thereunder. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "Liquidity Coverage" means the ratio (expressed as a percentage) of (i) Cash Equivalents, to (ii) Senior Debt of the Company and the Restricted Subsidiaries, in each case determined on a consolidated basis. "Margin Stock" shall have the meaning ascribed to that term in Section 207.2(i) of Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve Board. "Material Unrestricted Subsidiaries" shall be deemed to exist with respect to any consolidated financial statement of the Company and the Subsidiaries if the amounts of either revenue or total assets (as the case may be), reflected on such consolidated financial statement vary by more than 10% from the amount of the same item reflected on the same type of consolidated financial statement of the Company and the Restricted Subsidiaries, prepared as of the same date, or covering the same period, as the case may be. "Merger Date" means the date on which Archive is merged into Conner Acquisition Corp., a Delaware corporation and a wholly owned Subsidiary of the Company. "Multiemployer Plan" means any "multiemployer plan" (as such term is defined in ERISA) in respect of which the Company or any ERISA Affiliate is an "employer" (as such term is defined in ERISA). "Note" or "Notes" shall have the meaning set forth in paragraph 1(b). "Note Register" shall have the meaning set forth in paragraph 8. "PBGC" shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Pension Plans" means any "employee pension benefit plan" (as such term is defined in ERISA) maintained by the Company or any ERISA Affiliate for employees of the Company Note Agreement Through 6th Amendment Exhibit A - 52 12. DEFINITIONS or such ERISA Affiliate, excluding any Multiemployer Plan, but including, without limitation, any Multiple Employer Pension Plan. "Permitted Banks" has the meaning assigned to such term in paragraph 5(h)(viii)(C) of this Agreement. "Permitted Investment" has the meaning assigned to such term in paragraph 5(h) of this Agreement. "Person" means any of an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Preferred Stock" means, at any time, with respect to any Person, capital stock of such Person that is preferred as to the payment of dividends, or as to the distribution of Property on any voluntary or involuntary liquidation or dissolution of such Person, over any other class of capital stock of such Person (in each case, taken at the greater of its voluntary or involuntary liquidation preference at the time of calculation thereof, but exclusive of accrued dividends) provided that the term "Preferred Stock" shall not include preferred stock issued by Arcada Holdings, Inc. so long as Arcada Holdings, Inc. is a Restricted Subsidiary. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Purchase Money Mortgages" means a Lien held by any Person (whether or not the seller of such assets) on tangible Property (other than assets acquired to replace, repair, upgrade or alter tangible Property owned by the Company or any Restricted Subsidiary on the date of this Agreement), provided that such Lien (a) secures all or a portion of the related purchase price or construction costs of such assets, (b) encumbers only tangible Property, accretions and accessions thereto and any theretofore unimproved real property on which such Property is located (and the proceeds of the disposition thereof) acquired or constructed with the proceeds of the indebtedness secured thereby, and (c) is created concurrently with or within one year of the acquisition or substantial completion of construction of such tangible Property. "Purchaser" or "Purchasers" shall have the meaning set forth in the preamble. "Qualified Plan" has the meaning assigned to such term in paragraph 3(l) of this Agreement. "Required Holders" means the holder or holders of more than 50% of the aggregate principal amount of the Notes from time to time outstanding. "Responsible Officer" means each of the Chairman of the Board of Directors, the President, any Vice President and the Treasurer of the Company. Note Agreement Through 6th Amendment Exhibit A - 53 12. DEFINITIONS "Restricted Payments" means, in respect of any corporation, (a) dividends or other distributions on capital stock of the corporation (except distributions in such capital stock); and (b) the redemption or acquisition made by or on behalf of such corporation of such capital stock or of warrants, rights, other options to purchase such stock or securities convertible into or exchangeable for such capital stock (except when solely in exchange for such capital stock) unless made, contemporaneously, from the net proceeds of a sale of such capital stock. "Restricted Subsidiary" means, at any time, any of a Subsidiary that is an Arcada Restricted Subsidiary and a Subsidiary (i) at least (a) 80% (a majority in the case of Conner Peripherals Europe or any Subsidiary organized under the laws of Japan, Taiwan or Singapore) of the Voting Stock of which, except directors qualifying shares and any shares issued to comply with local ownership legal requirements (provided that such directors qualifying shares and other shares shall not represent in excess of 3% of the outstanding shares of the stock of any class of such Restricted Subsidiary and, after taking such shares into account, the Company shall, directly or indirectly, own a majority of the Voting Stock of such Subsidiary), and (b) 80% of all non-voting stock of every other class, except Preferred Stock, of which, is, at such time, owned by the Company either directly or through other Subsidiaries meeting the requirements of clause (i) and clause (ii) of this definition, and (ii) that has never been designated an Unrestricted Subsidiary by the Board of Directors pursuant to paragraph 5(k) of this Agreement. "Sale/Leaseback Transaction" means any transaction or series of related transactions in which the Company or a Restricted Subsidiary sells or transfers any of its assets to any Person (other than to the Company or to a Restricted Subsidiary) and within one year thereafter rents or leases such transferred Property or substantially similar Property from any Person. "Sale/Leaseback Transaction Amount" means, on any date, after giving effect to all Sale/Leaseback Transactions occurring on such date, the greater of (a) the present value, discounted at 9% per annum, of all unpaid payment obligations of the Company and the Restricted Subsidiaries in respect of all Sale/Leaseback Transactions in effect on such date, or (b) the depreciated purchase price of all Property subject to Sale/Leaseback Transactions at such time, on such date, Note Agreement Through 6th Amendment Exhibit A - 54 12. DEFINITIONS "Securities Act" shall mean the Securities Act of 1933, as amended. "Security" has the meaning specified in Section 2(1) of the Securities Act. "Senior Debt" means, at any time, Debt of the Company outstanding at such time that is not Subordinated Debt, except for Subordinated Debt that the Company has become obligated to prepay, redeem or otherwise purchase or acquire (other than obligations to make mandatory prepayments or mandatory redemptions scheduled at the time of issuance of such Subordinated Debt), and all Debt and Preferred Stock of Restricted Subsidiaries. "Senior Debt Prepayments" means, at any time, an optional principal prepayment of Senior Prepayment Debt made in accordance with the following procedure: (a) such offer shall be made in writing by the Company, pro rata, to all holders of Senior Prepayment Debt with an outstanding principal amount at such time of at least $1 million, such pro rata portion to be determined on the basis of the principal amount of such Senior Prepayment Debt; (b) such offer shall be deemed to be rejected by a holder if not accepted within 30 days of the receipt of such offer by such holder; and (c) in the case of the holders of Notes who accept such offer, the prepayment shall be made in conformity with the terms of paragraph 2(a) of this Agreement, provided that those holders of Senior Prepayment Debt who have accepted such offer shall also be offered promptly in writing a pro rata portion of the amounts in respect of which such offer of prepayment was not accepted, such pro rata portion to be determined on the basis of the principal amount of the Senior Prepayment Debt held by all such accepting holders and provided further that such offer shall be deemed to be rejected by a holder if not accepted within 30 days of the receipt of such offer by such holder. Required prepayments of Senior Debt shall not be "Senior Debt Prepayments." As used in this definition "Senior Prepayment Debt" means, at any time, all Debt for money borrowed owed directly by the Company that is not at such time Subordinated Debt and which, at such time, can be prepaid in whole or in substantial part by the Company. "Series A Notes" shall have the meaning set forth in paragraph 1(a). "Series A Purchasers" shall have the meaning set forth in paragraph 1(a). "Series B Notes" shall have the meaning set forth in paragraph 1(b). "Series B Purchaser" shall have the meaning set forth in paragraph 1(b). "Significant Holder" means Note Agreement Through 6th Amendment Exhibit A - 55 12. DEFINITIONS (i) you or any of your affiliates, so long as you or such affiliate shall hold (or shall be committed under this Agreement to purchase) any Note, (ii) during the period on or prior to March 30, 1996 (or such later date as of which all of the Series A Notes shall have been paid in full), any other holder of at least 2% of the aggregate principal amount of the Notes from time to time outstanding which is an immediate transferee of a Purchaser, and any other holder of at least 5% of the aggregate principal amount of the Notes from time to time outstanding and (iii) at any time after March 30, 1996 (or such later date as of which the Series A Notes shall have been paid in full), any other holder of at least 5% of the aggregate principal amount of the Notes from time to time outstanding which is an immediate transferee of a Purchaser, and any other holder of at least 10% of the aggregate principal amount of the Notes from time to time outstanding. "Specified Debt" means that certain Indebtedness incurred by Conner Peripherals Europe S.p.A., in an aggregate principal amount (expressed in Italian Lire) equivalent to approximately $16,800,000 as of December 22, 1993, and not to exceed such principal amount except as a result of currency fluctuations, plus accrued interest in respect thereof, arising under the following agreements: (i) the agreement dated as of December 10, 1991, entered into with Finaosta S.p.A. in the original principal amount of Lire 9,000,000,000, (ii) the agreement dated as of December 29, 1992, entered into with Finaosta S.p.A., in the original principal amount of Lire 4,500,000,000, (iii) agreement dated as of June 25, 1991, entered into with Finaosta S.p.A., in the original principal amount of Lire 10,000,000,000, (iv) agreement dated as of October 31, 1989, entered into with I.M.I. Instituto Mobiliare Italiano and Olivetti System & Network S.r.l., in the original principal amount of Lire 10,350,000,000, and (v) agreement dated as of April 30, 1991, entered into with I.M.I. Instituto Mobiliare Italiano and Olivetti System & Network S.r.l., in the original principal amount of Lire 6,400,000,000. "Statistical Release" shall mean, as of any date, (i) the Federal Reserve Statistical Release (Form H.15(519) Selected Interest Rates), an illustrative copy of which is attached hereto as Exhibit G, or (ii) if such release is not then published, any Federal Reserve Board release comparable thereto or (iii) if a Federal Reserve Board release comparable thereto is not then published, any official publication or release of any other United States Government department or agency comparable thereto. Note Agreement Through 6th Amendment Exhibit A - 56 12. DEFINITIONS "Subordinated Debt" means the Debentures and any Debt of the Company that (a) is subject to subordination provisions no less favorable to the holders of the Notes than those set forth in the form attached to this Agreement as Annex 4 or other subordination provisions consented to by the Required Holders, (b) has a maturity date of later than March 30, 1998, and (c) has a Weighted Average Life to Maturity at any time greater than the Weighted Average Life to Maturity of both of the Series A Notes and the Series B Notes at such time. As used in this definition, "Weighted Average Life to Maturity" at any time with respect to any indebtedness for borrowed money means the number of years obtained by dividing the then Remaining Dollar-Years of such indebtedness by the then outstanding principal amount of such indebtedness. "Remaining Dollar-Years" at any time with respect to any indebtedness for borrowed money means the result obtained by (a) multiplying (i) the amount of each then remaining required principal payment (including repayment of principal at final maturity) of such borrowing unpaid immediately prior to such time, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such time and the date each such required principal payment is due, and (b) calculating the sum of the products obtained in the preceding subsection (a). "Subsidiary" means, at any time, any corporation that would be included in the consolidated financial statements of the Company prepared at such time in accordance with generally accepted accounting principles. "Subsidiary" or "Subsidiaries" shall mean any corporation, association or partnership a majority of which or more of the voting stock is owned directly or indirectly by the parent corporation or any one or more of its Subsidiaries. "Subsidiary Stock" means common stock, preferred stock, warrants, stock rights and other securities convertible into common stock and preferred stock, in each case issued by a Subsidiary. "Substantial Part" means, when used with respect to assets at any time, more than 10% of consolidated assets of the Company and the Restricted Subsidiaries at such time, Note Agreement Through 6th Amendment Exhibit A - 57 12. DEFINITIONS and, when used with respect to Consolidated Net Income in respect of any period, more than 10% of Consolidated Net Income for such period. "Surviving Corporation" has the meaning assigned to such term in paragraph 5(g)(i)(A)(1) of this Agreement. "Three Year Disposition Measurement Period" has the meaning assigned to such term in paragraph 5(g)(ii)(D)(3) of this Agreement. "Transfer" has the meaning assigned to such term in paragraph 5(g)(ii) of this Agreement. "Treasury Yield Percentage" shall mean, as of any date, the most recent weekly average yield (as of a date no more than five business days before the scheduled prepayment) on actively traded U.S. Treasury obligations having a final maturity approximately equal to the then-remaining average life of the principal of the Notes to be prepaid as determined by reference to the week- ending figures published in the most recent Statistical Release which shall have become available at least two business days prior to the date as of which such yield is to be determined, or, if a Statistical Release is not then published, the arithmetic average (rounded to the nearest .01%) of the per annum yields to maturity for each business day during the week ending at least two business days prior to the date as of which such determination is made, of all the issues of actively traded marketable United States Treasury fixed interest rate securities with a constant maturity equal to, or not more than 30 days longer or 30 days shorter than the average life of the payments of principal and interest that are avoided by any prepayment (excluding all such securities which can be surrendered at the option of the holder at face value in payment of any Federal estate tax, which provide for tax benefits to the holder or which were issued at substantial discount) as published in The Wall Street Journal or, if The Wall Street Journal shall cease such publication, based on average asked prices (or yields) as quoted by each of three United States government securities dealers of recognized national standing selected by the holders of the Notes. If the average life of the payments of Principal and interest that are avoided by any prepayment is not equal to the constant maturity of a U.S. Treasury obligation for which a weekly average yield is published or quoted, the Treasury Yield Percentage shall be calculated by linear interpolation (to the nearest one- twelfth of a year) from the most recent weekly average yields of actively traded U.S. Treasury obligations for which such yields are published or quoted; provided, however, that if the average life of the payments of principal and interest that are avoided by any prepayment is less than one year, the Treasury Yield Percentage shall equal the most recent weekly average yield published or quoted on actively traded U.S. Treasury obligations with a constant maturity of one year. "Two Year Period" has the meaning assigned to such term in paragraph 4(a)(iii)(D) of this Agreement. "Unrestricted Subsidiary" shall mean any Subsidiary which does not qualify as a Restricted Subsidiary or which is designated by the Company in a writing duly delivered to the holders of the Notes as an Unrestricted Subsidiary. A Subsidiary that has been designated an Unrestricted Subsidiary may not subsequently be designated a Restricted Subsidiary. Note Agreement Through 6th Amendment Exhibit A - 58 12. DEFINITIONS "Voting Stock" means, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes has or might have such voting power by reason of the happening of any contingency). 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in writing in connection herewith shall survive the execution and delivery of this Agreement and of the Notes. 14. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. 15. NOTICES. All communications provided for hereunder shall be sent by first class mail and, if to the Purchasers, addressed to the Purchasers at the notice address listed on Appendix I hereto, and if to the Company, addressed to 3081 Zanker Road, San Jose, California 95134-2128, Attention: Treasurer, or to such other address with respect to any party as such party shall notify the others in writing. 16. INTEGRATION. This Agreement supersedes, replaces and terminates any prior oral offers, negotiations, understandings or agreements and any commitment letters or similar writings relating to any of the matters contemplated herein. 17. GOVERNING LAW. This Agreement is being delivered and is intended to be performed in the State of Minnesota, and shall be construed and enforced in accordance with the laws of such State. 18. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be an original, but all of which shall constitute but one agreement. 19. CAPTIONS. The captions in this Agreement are for convenience only and shall not be considered in the interpretation of any of the provisions hereof. Note Agreement Through 6th Amendment Exhibit A - 59 19. CAPTIONS If the Purchasers are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the undersigned. Upon acceptance by all the Purchasers, this letter shall become a binding agreement between the Purchasers and the undersigned. Very truly yours, CONNER PERIPHERALS, INC. By Its Note Agreement Through 6th Amendment Exhibit A - 60 EXHIBIT B TO AMENDMENT NO. 6 CERTIFICATE OF CLOSING December 22, 1993 Conner Peripherals, Inc. 3081 Zanker Road San Jose, CA 95134 Attn: Mr. P. Jackson Bell Reference is made to that certain Sixth Amendment, dated as of December 22, 1993, in respect of that Note Agreement dated as of June 1, 1989, as amended through December 21, 1993, between Conner Peripherals, Inc. and the person identified therein as Purchaser, in respect of Conner Peripherals, Inc.'s Series A Senior Notes due 1992 and its Series B Senior Notes due 1994. In accordance with Section 4 of the Sixth Amendment, the undersigned hereby notifies you that the conditions precedent set forth in such Section 4 have been satisfied. PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: EX-10.12 4 NOTE AGREEMENT CONNER PERIPHERALS, INC. Note Agreement Dated as of March 29, 1991 $80,000,000 Series A Senior Notes due March 30, 1996 $25,000,000 Series B Senior Notes due March 30, 1998 FIFTH AMENDMENT TO NOTE AGREEMENT Dated as of December 22, 1993 To Each of the Persons Signatory Hereto as Holders of Notes Ladies and Gentlemen: CONNER PERIPHERALS, INC. (together with its successors and assigns, the "Company"), a Delaware corporation, hereby agrees with you as follows: 1. PRELIMINARY STATEMENT. 1.1 The Company entered into those certain separate Note Agreements, each dated as of March 29, 1991 (collectively, as in effect immediately prior to the Effective Date, the "Existing Note Agreement," and, as amended hereby, the "Amended Note Agreement"), with each of The Prudential Insurance Company of America, Principal Mutual Life Insurance Company, Connecticut Mutual Life Insurance Company, CIGNA Property and Casualty Insurance Company, Connecticut General Life Insurance Company, New England Mutual Life Insurance Company, AID Association for Lutherans, and General American Life Insurance Company (individually, a "Purchaser," and collectively, the "Purchasers"), pursuant to which the Company issued and sold to the Purchasers, and the Purchasers purchased from the Company, an aggregate principal amount of Eighty Million Dollars ($80,000,000) of the Company's Series A Senior Notes due March 30, 1996 and Twenty Five Million Dollars ($25,000,000) of the Company's Series B Senior Notes due March 30, 1998 (collectively, as in effect immediately prior to the Effective Date, the "Existing Notes," and as amended hereby, the "Amended Notes"). 1.2 The Existing Note Agreement has been, prior to the Effective Date, and by agreement by the parties thereto, amended pursuant to that certain Waiver and First Amendment to Note Agreement, dated as of February 5, 1992, that certain Second Amendment to Note Agreement, dated as of July 29, 1992, that certain Third Amendment to Note Agreement, dated as of December 18, 1992, that certain Fourth Amendment to Note Agreement, dated as of June 25, 1993, and that certain Assumption Agreement, dated as of August 31, 1992. 1.3 As of the date hereof, The Prudential Insurance Company of America holds Thirty-Five Million Dollars ($35,000,000) in principal amount of the Existing Notes, Principal Mutual Life Insurance Company holds Twenty-Five Million Dollars ($25,000,000) in principal amount of the Existing Notes, Connecticut General Life Insurance Company holds Forty Million Dollars ($40,000,000) in principal amount of the Existing Notes, and General American Life Insurance Company holds Five Million Dollars ($5,000,000) in principal amount of the Existing Notes. The Persons signatory hereto as holders of the Notes (the "Holders") are the holders of one hundred percent (100%) of the Existing Notes outstanding as of the Effective Date. 1.4 The Company and each of the Holders desire to amend and restate in full the Existing Note Agreement and the Existing Notes, and to execute this Amendment (the "Amendment") to effect such amendment and restatement. 1.5 The terms used herein and not defined herein have the meanings specified in the Amended Note Agreement. NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2. AMENDMENTS TO THE EXISTING NOTE AGREEMENTS. 2.1 Amendment to Existing Note Agreement. The Existing Note Agreement (including Exhibit A1 and Exhibit A2 thereto, but not including Exhibit B1, Exhibit B2, Exhibit C, Exhibit D, Annex 1, Annex 2, Annex 3 and Annex 4 thereto) is hereby amended and restated in full in the form attached hereto as Exhibit A. 2.2 Amendment of Existing Notes. (a) The form of 8.84% Senior Note due March 30, 1996 attached to the Existing Note Agreement as Exhibit A1 is hereby amended and restated in full in the form attached as Exhibit A1 to the Amended Note Agreement. (b) The form of 9.08% Senior Note due March 30, 1998 attached to the Existing Note Agreement as Exhibit A2 is hereby amended and restated in full in the form attached as Exhibit A2 to the Amended Note Agreement. (c) All Existing Notes outstanding on the Effective Date are hereby, without any further action being required on the part of the holders thereof or on the part of any other Person, deemed to be conformed to the form of, and have the terms provided in, the Amended Notes attached to the Amended Note Agreement as Exhibit A1 or Exhibit A2, as the case may be. The outstanding Amended Notes shall be and are entitled to all of the rights and benefits provided therefor in the Amended Note Agreement. Upon the request of any holder of Notes, made in accordance with paragraph 11D of the Amended Note Agreement, the Company shall deliver, pursuant to paragraph 11D of the Amended Note Agreement, a new Note or Notes, in the form of Exhibit A1 or Exhibit A2 attached to the Amended Note Agreement, as the case may be. 2 2.3 Waiver Letter. That certain waiver agreement (the "Waiver") among the Company and the Holders, dated as of November 12, 1993, as extended to the date hereof, pursuant to which the Holders waived compliance with certain provisions of the Existing Note Agreement, is hereby made permanent. 2.4 Understanding Re Definition of Liens. The parties hereto agree and acknowledge that Section 4C of those certain separate Note Agreements, dated as of June 1, 1989, in respect of the Company's Series B Senior Notes due 1994, does not constitute or create a "Lien" under and as defined in the Amended Note Agreement. 3. WARRANTIES AND REPRESENTATIONS. To induce the Holders to enter into this Amendment, the Company warrants and represents to the Holders that as of the Effective Date: 3.1 Organization, Existence and Authority. Each of the Company and the Restricted Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation. The Company has all requisite power and authority to execute and deliver this Amendment and the Amended Notes. 3.2 Authorization, Execution and Enforceability. The execution and delivery by the Company of this Amendment and the performance by the Company of its obligations hereunder and under the Amended Note Agreement and the Amended Notes have been duly authorized by all necessary corporate action on the part of the Company. This Amendment has been duly executed and delivered by the Company and this Amendment, the Amended Note Agreement and the Amended Notes (the "Transaction Documents"), are valid and binding obligations of the Company, enforceable in accordance with their respective terms. 3.3 No Conflicts or Defaults. Neither the execution and delivery by the Company of this Amendment, nor the performance by the Company of its obligations under the Transaction Documents, conflicts with, results in any breach in any of the provisions of, constitutes a default under, violates or results in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of: (a) any charter document or the bylaws of the Company or any of the Subsidiaries; 3 (b) any agreement, instrument or conveyance to which the Company or any of the Subsidiaries or any of their respective Properties may be bound or affected; or (c) any statute, rule or regulation or any order, judgment or award of any court, tribunal or arbitrator by which the Company or any of the Subsidiaries or any of their respective Properties may be bound or affected. 3.4 Governmental Consent. Neither the execution and delivery by the Company of this Amendment or the Amended Notes, nor the performance by the Company of its obligations under the Transaction Documents, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of any one or more of the Company and the Subsidiaries as a condition thereto under the circumstances and conditions contemplated by this Amendment. 3.5 Disclosure of Defaults under Existing Note Agreement. After giving effect to the Waiver, no event has occurred and no condition exists that would constitute a Default or an Event of Default under the Existing Note Agreement, and no event has occurred and no condition exists that would constitute a Default or an Event of Default under the Amended Note Agreement. 4. CONDITIONS PRECEDENT TO THIS AMENDMENT. The amendment of the Existing Note Agreement and the Existing Notes provided for in Section 2 hereof shall not become effective until a counterpart of the certificate attached hereto as Exhibit B shall have been executed and delivered by each of the Holders to the Company, on or prior to December 22, 1993 (the date of such satisfaction being herein referred to as the "Effective Date"). The Holders shall not deliver such certificate until the following conditions precedent have been satisfied in the opinion of the Holders. 4.1 No Default; Representations And Warranties True. No Default or Event of Default under the Amended Note Agreement shall exist and the warranties and representations set forth in Section 3 hereof shall be true and correct on the Effective Date. 4.2 Authorization of Transactions. The Company shall have authorized, by all necessary corporate action, the execution and delivery of this Amendment and each of the other documents and instruments executed and delivered in connection herewith and the performance of all obligations of, and the satisfaction of all conditions precedent pursuant to this Section 4 by, and the consummation of all transactions contemplated by this Amendment by, the Company. The Holders shall have received a certificate, in form and substance satisfactory to the Holders certifying the adoption of resolutions of the board of directors of the Company authorizing such execution, delivery, performance, satisfaction and consummation, which resolutions shall be attached 4 to such certificate and shall be in full force and effect. The certificate shall indicate that there has been no resolution passed by the board of directors of the Company which conflicts with, amends or rescinds such resolutions. 4.3 Payment of Restructuring Fee. The Company shall have paid to the Holders on the Effective Date, by wire transfer of immediately available funds, an aggregate amount of One Hundred Five Thousand Dollars ($105,000) as a restructuring fee in respect of the transactions contemplated by this Amendment. Such payment shall be divided among and paid to each of the Holders in proportion, as nearly as practicable, to the respective unpaid principal amount of Existing Notes held by each Holder at such time, in the manner provided in the Existing Note Agreement for the payment of principal. 4.4 Execution of Documents and Agreements. The Company shall have entered into a binding commitment (the "Commitment") with Bank of America whereby the Bank of America has agreed to arrange a revolving loan facility (the "Revolving Loan") for the Company for a period of not less than two (2) years from the Effective Date and in an amount of not less than Fifty Million Dollars ($50,000,000). The Company shall have delivered to each Holder a true and correct copy of the executed commitment with respect to such revolving loan facility as in effect on the Effective Date, which shall be in form and substance satisfactory to the Holders. 4.5 Arcada Holdings, Inc. The Company shall have provided you with a true and correct copy of that certain Letter of Intent dated as of December 13, 1993, as in effect on the Effective Date, which Letter of Intent correctly describes the transactions related to the acquisition of Quest Development Corporation by Arcada Holdings, Inc., the formation and capitalization of Arcada Holdings, Inc. and the related material transactions. 4.6 Expenses. The Company shall have paid all costs and expenses of the Holders relating to this Amendment and the Waiver, in accordance with paragraph 11B of the Existing Note Agreement. 4.7 Proceedings Satisfactory. All proceedings taken in connection with this Amendment and all documents and papers relating thereto shall be satisfactory to the Holders and their special counsel. The Holders and their special counsel shall have received copies of such documents and papers as they may reasonably request in connection therewith, in form and substance satisfactory to them. 5. CONDITION SUBSEQUENT. 5 The amendment of the Existing Note Agreement and the Existing Notes provided for in Section 2 hereof shall terminate and be of no force or effect on and after January 31, 1994, unless on or prior to such date, the Revolving Loan shall have become effective on substantially the same terms as provided in the Commitment, and the Company shall have delivered to each Holder a true and correct copy of the agreement constituting the Revolving Loan as in effect at the time of such delivery. 6. WAIVER AND AFFIRMATION OF OBLIGATIONS. The terms of this Amendment shall not operate as a waiver by the Holders of, or otherwise prejudice the Holders' rights, remedies or powers under, the Existing Note Agreement, the Existing Notes or under applicable law, except to the extent provided herein. Except as expressly provided herein and in the Amended Note Agreement and the Amended Notes: (a) no terms and provisions of any agreement (including, without limitation, the Existing Note Agreement and the Existing Notes) are modified or changed by this Amendment; and (b) the terms and provisions of the Existing Note Agreement and the Existing Notes shall continue in full force and effect. The Company hereby acknowledges and affirms all of its obligations and duties under the Amended Note Agreement and the Amended Notes. 7. MISCELLANEOUS. 7.1 Section Headings, etc. The titles of the Sections appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Amendment as a whole and not to any particular Section or other subdivision. 7.2 Governing Law. THIS AMENDMENT AND THE AMENDED NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW. 7.3 Duplicate Originals; Execution in Counterpart. Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 6 7.4 Waivers and Amendments. Neither this Amendment nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by each of the parties signatory hereto. The terms and provisions of the Amended Note Agreement and the Amended Notes may be further amended or modified in accordance with the provisions of the Amended Note Agreement. 7.5 Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. The provisions hereof are intended to be for the benefit of all holders, from time to time, of Notes, and shall be enforceable by any such holder, whether or not an express assignment to such holder of rights hereunder shall have been made by you or your successor or assign. 7.6 Entire Agreement. This Amendment constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms. [Remainder of Page Intentionally Blank. Next Page is Signature Page] 7 If this Amendment is satisfactory to you, please so indicate by signing the acceptance at the foot of a counterpart hereof and returning such counterpart to the Company, whereupon this Amendment shall become binding between us in accordance with its terms. CONNER PERIPHERALS, INC. By: /s/ P. Jackson Bell --------------------------------------- Name: Title: Agreed and Accepted by the Holders of the Notes: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ The Prudential Insurance Company of America --------------------------------------- Name: Title: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: /s/ Principal Mutual Life Insurance Company --------------------------------------- Name: Title: By: /s/ Principal Mutual Life Insurance Company --------------------------------------- Name: Title: [SIGNATURE PAGE to AMENDMENT NO. 5, dated as of DECEMBER 22, 1993, to CONNER PERIPHERALS, INC.'S NOTE AGREEMENT dated as of MARCH 29, 1991]. 8 CIG & CO. c/o CIGNA Investments, Inc. By: /s/ CIG & CO --------------------------------------- Name: Title: GENERAL AMERICAN LIFE INSURANCE COMPANY By: /s/ General American Life Insurance Company --------------------------------------- Name: Title: [SIGNATURE PAGE to AMENDMENT NO. 5, dated as of DECEMBER 22, 1993, to CONNER PERIPHERALS, INC.'S NOTE AGREEMENT dated as of MARCH 29, 1991]. 9 EXHIBIT A TO AMENDMENT NO. 5 AMENDED AND RESTATED NOTE AGREEMENT [Exhibit A begins on the next page] Exhibit A-1 ================================================================================ CONNER PERIPHERALS, INC. ------------------------ NOTE AGREEMENT ------------------------ Dated as of March 29, 1991 as amended by Waiver and First Amendment to Note Agreement, dated as of February 5, 1992 Second Amendment to Note Agreement, dated as of July 29, 1992 Third Amendment to Note Agreement, dated as of December 18, 1992 Fourth Amendment to Note Agreement, dated as of June 25, 1993 Fifth Amendment to Note Agreement, dated as of December 22, 1993 Assumption Agreement, dated as of August 31, 1992 $80,000,000 Series A Senior Notes Due March 30, 1996 $25,000,000 Series B Senior Notes Due March 30, 1998 ================================================================================ Exhibit A-2 TABLE OF CONTENTS (Not Part of Agreement)
PAGE 1. AUTHORIZATION OF ISSUE OF NOTES...................................... 1 2. PURCHASE AND SALE OF NOTES........................................... 2 3. CONDITIONS OF CLOSING................................................ 2 3A. Opinion of Purchaser's Special Counsel........................ 2 3B. Opinion of Company's Counsel.................................. 2 3C. Representations and Warranties; No Default.................... 2 3D. Sale of Notes to Other Purchasers............................. 2 3E. Purchase Permitted by Applicable Laws......................... 3 3F. Private Placement Number...................................... 3 3G. Closing Expenses.............................................. 3 3H. Proceedings................................................... 3 4. PREPAYMENTS.......................................................... 3 4A. Required Prepayments.......................................... 3 4B. Optional Prepayment With Yield-Maintenance Amount............. 4 4C. Notice of Optional Prepayment................................. 4 4D. Partial Payments Pro Rata..................................... 4 4E. Required Prepayments Upon Change in Control................... 4 4F. Retirement of Notes........................................... 5 5. AFFIRMATIVE COVENANTS................................................ 5 5A. Financial Statements.......................................... 5 5B. Inspection of Property........................................ 10 5C. Covenant to Secure Note Equally............................... 11 5D. ERISA Compliance.............................................. 11 5E. Payment of Taxes and Claims................................... 11 5F. Maintenance of Properties and Corporate Existence............. 12 5G. Payment of Notes and Maintenance of Office.................... 13 6. NEGATIVE COVENANTS................................................... 13 6A. Consolidated Tangible Net Worth............................... 13 6B. Consolidated Debt............................................. 14 6C. Consolidated Fixed Charges; Consolidated Net Income........... 16 6D. Liens......................................................... 16 6E. Sale/Leaseback Transactions................................... 19 6F. Restricted Subsidiary Debt and Preferred Stock................ 20 6G. Merger and Consolidation; Sale of Assets...................... 20 6H. Permitted Investments......................................... 24 6I. Transactions with Affiliates.................................. 29 6J. Line of Business.............................................. 29 6K. Designation of Subsidiaries................................... 29 6L. Private Offering.............................................. 29 6M. Subordinated Debt............................................. 29
Exhibit A-ii TABLE OF CONTENTS (Cont.) (Not Part of Agreement)
PAGE 6N. Liquidity Coverage............................................ 31 6O. Restricted Payments........................................... 31 6P. Accounting Period............................................. 31 7. EVENTS OF DEFAULT.................................................... 31 7A. Acceleration.................................................. 31 7B. Other Remedies................................................ 34 7C. Annulment of Acceleration of Notes............................ 34 8. REPRESENTATIONS AND WARRANTIES....................................... 35 8A. Corporate Organization and Authority; Compliance with Law..... 35 8B. Conflicting Agreements and Other Matters...................... 36 8C. Sale is Legal and Authorized; Notes are Enforceable........... 36 8D. Financial Statements.......................................... 36 8E. Material Adverse Change....................................... 37 8F. Actions Pending............................................... 37 8G. Outstanding Debt.............................................. 37 8H. Taxes......................................................... 37 8I. Title to Properties; Patents and Copyrights................... 37 8J. Environmental Compliance...................................... 38 8K. ERISA......................................................... 38 8L. No Defaults................................................... 39 8M. Regulation G, etc............................................. 39 8N. Offering of Notes............................................. 39 8O. Governmental Consent.......................................... 39 8P Certain Laws.................................................. 40 8Q. Disclosure.................................................... 40 8R. No Unrestricted Subsidiaries.................................. 41 9. REPRESENTATIONS OF THE PURCHASER..................................... 41 10. DEFINITIONS.......................................................... 41 10A. Yield-Maintenance Terms....................................... 41 10B. Other Terms................................................... 43 11. MISCELLANEOUS........................................................ 61 11A. Note Payments................................................. 61 11B. Expenses...................................................... 61 11C. Consent to Amendments......................................... 61 11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes............................................. 62 11E. Persons Deemed Owners; Participations......................... 63 11F. Survival of Representations and Warranties; Entire Agreement..................................................... 63 11G. Successors and Assigns........................................ 63 11H. Disclosure to Other Persons................................... 63
Exhibit A-iii Table of Contents (Cont.) (Not Part of Agreement)
PAGE 11I. Notices....................................................... 64 11J. Descriptive Headings.......................................... 65 11K. Governing Law................................................. 65 11L. Counterparts.................................................. 65
Annex 1 -- Purchaser Schedule Annex 2 -- Information as to Company Annex 3 -- Payment Instructions at Closing Annex 4 -- Subordination Provisions Exhibit A1 -- Form of Series A Senior Note Due March 30, 1996 Exhibit A2 -- Form of Series B Senior Note Due March 30, 1998 Exhibit B1 -- Form of Special Counsel Opinion Exhibit B2 -- Form of Company Opinion Exhibit C -- Form of Officers' Certificate Exhibit D -- Form of Secretary's Certificate
Exhibit A-iv CONNER PERIPHERALS, INC. Note Agreement $80,000,000 Senior Notes Due March 30, 1996 $25,000,000 Senior Notes Due March 30, 1998 Dated as of March 29, 1991 as amended through December 22, 1993 [Separately addressed to each of the Purchasers listed on Annex 1 attached hereto] Ladies and Gentlemen: The undersigned, CONNER PERIPHERALS, INC., a California corporation (together with its successors and assigns, including, as of August 31, 1992, Conner Peripherals, Inc. a Delaware corporation as successor by merger to Conner Peripherals, Inc. a California corporation, the "Company"), hereby agrees with you as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. (i) Authorization of Notes. The Company will authorize the issue of: (a) Eighty Million Dollars ($80,000,000) in aggregate principal amount of its and Series A Senior Notes due March 30, 1996 (the "Series A Notes"); and (b) Twenty-Five Million Dollars ($25,000,000) in aggregate principal amount of its Series B Senior Notes due March 30, 1998 (the "Series B Notes") (the Series A Notes and the Series B Notes are referred to in this Agreement collectively as the "Notes"). (ii) Provisions. (a) Each Series A Note shall bear interest as provided therein, mature on March 30, 1996; and be in the form of the Note set out in Exhibit A1 to this Agreement. Exhibit A-1 (b) Each Series B Note shall bear interest as provided therein, mature on March 30, 1998 and be in the form of the Note set out in Exhibit A2 to this Agreement. The term "Notes" as used in this Agreement shall include each Note delivered pursuant to any provision of this Agreement or the Other Note Agreements referred to in paragraph 2 of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. 2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to you and, subject to the terms and conditions set forth in this Agreement, you agree to purchase from the Company the aggregate principal amount of Notes set forth opposite your name in the Purchaser Schedule attached to this Agreement as Annex 1, at 100% of such aggregate principal amount. The Company will deliver to you, at the offices of Hebb & Gitlin, a professional corporation, One State Street, Hartford, Connecticut 06103, one or more Notes registered in your name, evidencing the aggregate principal amount of Notes to be purchased by you and in the denomination or denominations specified with respect to you in Annex 1 to this Agreement, against payment of the purchase price thereof by transfer of immediately available funds as directed by the Company on Annex 3 to this Agreement on the date of closing, which shall be April 1, 1991 (the "Closing Date"). Concurrently with the execution and delivery of this Agreement, the Company is entering into other Note Agreements (the "Other Note Agreements") identical with this Agreement (except as to the identity of the purchaser and the principal amount of Notes to be purchased) with the other purchasers (the "Other Purchasers") named in Annex 1 to this Agreement. The sale to you and the sales to the Other Purchasers are to be separate and several sales. 3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the Notes to be purchased by you hereunder is subject to the satisfaction, on or before the Closing Date, of the following conditions: 3A. Opinion of Purchaser's Special Counsel. You shall have received from Hebb & Gitlin, a professional corporation, which is acting as special counsel for you in connection with this transaction, a favorable opinion satisfactory to you and substantially in the form of Exhibit B1 to this Agreement. 3B. Opinion of Company's Counsel. You shall have received from Wilson, Sonsini, Goodrich & Rosati, special counsel for the Company, a favorable opinion satisfactory to you and substantially in the form of Exhibit B2 to this Agreement. 3C. Representations and Warranties; No Default. The representations and warranties contained in paragraph 8 of this Agreement shall be true on and as of the Closing Date, except to the extent of changes caused by the transactions contemplated in this Agreement; there shall exist on the Closing Date no Event of Default or Default; and you shall have received a certificate dated the Closing Date and signed by the President, a Vice-President or the Treasurer of the Company, substantially in the form of Exhibit C to this Agreement, certifying to both such effects, and a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, substantially in the form of Exhibit D to this Agreement, with respect to the matters therein set forth. Exhibit A-2 3D. Sale of Notes to Other Purchasers. The Company shall have sold to the Other Purchasers the Notes to be purchased by them on the Closing Date and shall have received payment in full therefor. 3E. Purchase Permitted by Applicable Laws. The offer, purchase and sale of, and payment for, the Notes to be purchased by you on the Closing Date on the terms and conditions provided in this Agreement (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject you to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and you shall have received such certificates or other evidence as you may request to establish compliance with this condition. 3F. Private Placement Number. The Company shall have obtained a private placement number for each series of the Notes from the CUSIP Division of Standard & Poor's Corporation. 3G. Closing Expenses. The Company shall have paid the statement for fees and disbursements of the special counsel to you and the Other Purchasers presented on the Closing Date. 3H. Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident to this Agreement shall be satisfactory in substance and form to you, and you shall have received all such counterpart originals or certified or other copies of such documents as you may reasonably request. 4. PREPAYMENTS. The Notes shall be subject to prepayment with respect to the required prepayments specified in paragraph 4A of this Agreement and also under the circumstances set forth in paragraph 4B and paragraph 4E of this Agreement. 4A. Required Prepayments. (i) Series A Notes. Until the Notes shall be paid in full, the Company shall apply to the prepayment of the Series A Notes, without premium, the sum of $26,667,000 on March 30 in each of 1994 and 1995, and such principal amounts of the Notes, together with interest thereon to the prepayment dates, shall become due on such prepayment dates. The remaining $26,666,000 principal amount of the Series A Notes, together with interest accrued thereon, shall become due on the maturity date of the Series A Notes. (ii) Series B Notes. Until the Notes shall be paid in full, the Company shall apply to the prepayment of the Series B Notes, without premium, the sum of $5,000,000 on March 30 in each of the years 1994 through 1997, inclusive, and such principal amounts of the Notes, together with interest thereon to the prepayment dates, shall become due on such prepayment dates. The remaining $5,000,000 Exhibit A-3 principal amount of the Series B Notes, together with interest accrued thereon, shall become due on the maturity date of the Series B Notes. (iii) Application of Other Prepayments. Each prepayment of any Note pursuant to paragraph 4E of this Agreement shall reduce pro rata the prepayments becoming due after such prepayment and payments at maturity required by paragraph 4A(i) and paragraph 4A(ii) of this Agreement in respect of all Notes of the same series as such Note, such pro rata reduction to be determined by multiplying any such prepayment or payment by the quotient of the principal amount of the Note so prepaid divided by the principal amount of Notes of the same series outstanding immediately prior to such prepayment. Any prepayment of Notes pursuant to paragraph 4B of this Agreement shall be applied first, to the amount due on the maturity date of the Notes and second, to the mandatory prepayments applicable to the Notes, as set forth in this paragraph 4A, in the inverse order of the maturity thereof. 4B. Optional Prepayment With Yield-Maintenance Amount. The Notes shall be subject to prepayment, in whole at any time or from time to time in part (in a minimum aggregate principal amount of $1,000,000 or integral multiples of $100,000 in excess thereof, or if the aggregate principal amount of Notes outstanding is less than $1,000,000, then such lesser aggregate principal amount), at the option of the Company, at 100% of the principal amount so to be prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each such Note. 4C. Notice of Optional Prepayment. The Company shall give the holder of each Note irrevocable written notice of any prepayment to be made pursuant to paragraph 4 of this Agreement not less than 10 Business Days prior to the prepayment date, specifying such prepayment date and the principal amount of the Notes, and of the Notes held by such holder, to be prepaid on such date and stating that such prepayment is to be made pursuant to paragraph 4B of this Agreement. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the premium, if any, provided in this Agreement, shall become due and payable on such prepayment date. 4D. Partial Payments Pro Rata. Upon any partial prepayment of Notes, the principal amount so prepaid shall be allocated to all Notes at the time outstanding in proportion to the respective aggregate principal amounts of Notes then outstanding. 4E. Required Prepayments Upon Change in Control. (i) Notice. In the event that the Company obtains actual knowledge of a Change in Control, the Company shall, within 5 Business Days of obtaining such knowledge, give written notice of such Change in Control to each holder of Notes and, simultaneously with the sending of such notice, use reasonable efforts to give telephonic advice of such Change in Control to the investment officer of each such holder specified in Annex 1 to this Agreement (as supplemented by written notice from each such holder). Each such notice shall contain a description, in reasonable detail, of such Change in Control. Exhibit A-4 (ii) Consolidated Debt. If on any day during the period of twelve complete consecutive calendar months commencing immediately after a Change in Control, Consolidated Debt, determined as of such day, shall exceed 125% of Consolidated Tangible Net Worth, determined as of such day, the Company shall, within 5 Business Days after such day, give written notice of such fact to each holder of Notes and, simultaneously with the sending of such notice, use reasonable efforts to give telephonic advice of such fact to the investment officer of each such holder specified in Annex 1 to this Agreement (as supplemented by written notice from each such holder). Such written notice (the "Offer Notice") shall contain and constitute an irrevocable offer to prepay all, but not less than all, the Notes held by such holder. (iii) Offer to Purchase. To accept such offered prepayment, a holder of Notes shall cause a written notice of such acceptance with respect to all, but not less than all, the Notes held by such holder (which acceptance will be irrevocable) to be delivered to the Company not later than the 90th day following its receipt of the Offer Notice whereupon such offered prepayment shall be due and payable on the 10th Business Day following delivery of such acceptance to the Company (the date of such prepayment being referred to as the "Control Prepayment Date"). Such offered prepayment shall be made at 100% of the principal amount of Notes so to be prepaid, plus interest thereon to the Control Prepayment Date and the Yield-Maintenance Amount, if any, with respect to such Notes. 4F. Retirement of Notes. The Company shall not, and shall not permit any of the Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their respective stated final maturities (other than by prepayment pursuant to paragraph 4A, paragraph 4B or paragraph 4E of this Agreement or the Other Note Agreements or upon acceleration of such final maturity pursuant to paragraph 7A of this Agreement or the Other Note Agreements), or purchase, or otherwise acquire, directly or indirectly, Notes held by any Person. Any Notes so prepaid or otherwise retired by the Company shall not be deemed to be outstanding for any purpose under this Agreement (including, without limitation, any determination of the "Required Holders"). 5. AFFIRMATIVE COVENANTS. 5A. Financial Statements. The Company covenants that it will deliver to each holder of Notes (except with respect to the information referred to in clause (viii) below which shall only be delivered to Significant Holders of Notes) in duplicate: (i) as soon as available and in any event within 90 days after the end of each fiscal year (except in the case of subclause (c), as to which the period shall be 120 days after the end of such fiscal year), (a) consolidated statements of income and cash flows of the Company and the Subsidiaries for such year, and a consolidated balance sheet of the Company and the Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding fiscal year, all in reasonable detail and accompanied by the unqualified opinion Exhibit A-5 of independent certified public accountants of recognized national standing selected by the Company, (b) consolidating statements of income and cash flows of the Company and the Subsidiaries for such year, and consolidating balance sheets of the Company and the Subsidiaries as at the end of such year, all in reasonable detail; provided that such financial statements shall not be required to be delivered if financial statements for the same dates and periods are delivered pursuant to subclause (c) of this clause (i), and (c) consolidated statements of income and cash flows of the Company and the Restricted Subsidiaries for such year, and a consolidated balance sheet of the Company and the Restricted Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding fiscal year, all in reasonable detail and reviewed in accordance with generally accepted auditing standards by independent public accountants of recognized national standing selected by the Company whose report on such review shall state that such accountants are not aware of any material modifications that should be made to such financial statements in order for them to be in conformity with generally accepted accounting principles; provided that such financial statements shall not be required to be delivered if no Material Unrestricted Subsidiaries exist as of the end of the period covered by such financial statements; (ii) as soon as available and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, (a) consolidated statements of income and cash flows of the Company and the Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and the Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods in the preceding fiscal year, all in reasonable detail, subject to changes resulting from year-end adjustments, (b) consolidating statements of income and cash flows of the Company and the Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and consolidating balance sheets of the Company and the Subsidiaries as at the end of such quarterly period, subject to changes resulting from year-end adjustments, all in reasonable detail; provided that such financial statements shall not be required to be delivered if financial statements for the same dates and periods are delivered pursuant to subclause (c) of this clause (ii), and (c) consolidated statements of income and cash flows of the Company and the Restricted Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and the Restricted Subsidiaries Exhibit A-6 as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods in the preceding fiscal year, all in reasonable detail, subject to changes resulting from year-end adjustments; provided that such financial statements shall not be required to be delivered if no Material Unrestricted Subsidiaries exist as of the end of the period covered by such financial statements; (iii) together with each set of financial statements delivered pursuant to clause (i) and clause (ii) of this paragraph 5A, a certificate of a Responsible Officer, (a) stating that (I) the accompanying financial statements described in clause (a) of clause (i) or clause (ii), as the case may be, of this paragraph 5A, present fairly the financial position and results of operations of the companies being reported on, in accordance with generally accepted accounting principles subject, in the case of interim financial statements, to the absence of footnotes and changes resulting from year-end adjustments, and (II) with respect to the accompanying financial statements described in clause (c) of clause (i) or clause (ii), as the case may be, of this paragraph 5A (if such financial statements are required to be delivered), such officer is not aware of any material modifications that should be made to such financial statements in order for them to be in conformity with generally accepted accounting principles subject, in the case of interim financial statements, to the absence of footnotes and changes resulting from year-end adjustments, (b) stating that no Default or Event of Default then exists, or if a Default or Event of Default exists, disclosing the nature and period of existence of each such Default or Event of Default, and describing all actions the Company has taken and intends to take in respect to each such Default and Event of Default, (c) certifying compliance, as of the last day of the period to which such financial statements relate, with paragraph 6A, paragraph 6B, paragraph 6C, paragraph 6D(xv), paragraph 6E, paragraph 6F, paragraph 6G(ii), and paragraph 6H(xx) of this Agreement, and setting forth in reasonable detail the calculations necessary to demonstrate such compliance, in a form reasonably acceptable to the Required Holders, (d) either (I) stating that, during the period of eight consecutive fiscal quarters of the Company most recently ended as of the date of such certificate (the "Two Year Period"), the Company and the Restricted Subsidiaries have not consummated any Transfer subject to paragraph 6G(ii)(d) which requires any deduction pursuant to subclause (cc) of paragraph 6G(ii)(d)(I) or paragraph 6G(ii)(d)(II) in order for such Transfer to be in compliance with paragraph 6G(ii) or (II) (aa) containing a brief description of all Transfers consummated during the Two Year Period as to which such Exhibit A-7 deduction was necessary in order for such compliance to be achieved, (bb) setting forth the respective dates on which such Transfers were consummated, (cc) setting forth the respective amounts required to be so deducted in respect of such Transfers, and (dd) setting forth a brief description of the application of any of the amounts referred to in the foregoing subclause (cc) to the purposes identified in subclause (cc) of paragraph 6G(ii)(d)(I) and paragraph 6G(ii)(d)(II); and (e) the notice, if any, required by paragraph 6B(iii); (iv) within five days of a Responsible Officer obtaining knowledge of an Event of Default or Default, a certificate of a Responsible Officer specifying the nature and period of existence thereof and what action the Company has taken and proposes to take with respect to such Default or Event of Default; (v) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it sends to its public stockholders generally, copies of all final registration statements on Form S-1 or Form S-3 (without exhibits) or their successor forms relating to offerings of debt or equity Securities on behalf of the Company, and copies of all Form 10-Ks, Form 10-Qs, and Form 8-Ks or their successor forms, and all amendments to such forms, that the Company files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (vi) promptly upon receipt thereof by the Company, a copy of the final management letter, if any, submitted by the Company's independent accountants in connection with any annual audit made by them of the books of the Company and the Subsidiaries; (vii) promptly upon the request of any holder of Notes, any information required to be delivered (to the extent not already delivered to such holder pursuant to the other requirements of this paragraph 5A) to any transferee of Notes by Rule 144A (17 C.F.R. (S) 230.144A) under the Securities Act (or any successor provision) as a condition to the transfer of any Note pursuant to such Rule; (viii) subject to the second and third provisos to paragraph 5B of this Agreement, with reasonable promptness, such other financial data as any Significant Holder of Notes may reasonably request (including, without limitation, a copy of each report, in addition to those referred to in clauses (i) and (vi) of this paragraph 5B, submitted to the Company or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any Subsidiary); Exhibit A-8 (ix) immediately upon becoming aware of the occurrence of any (a) material "reportable event" (as such term is defined in Section 4043 of ERISA), or (b) "prohibited transactions" (as such term is defined in Section 406 or Section 4975 of the IRC) in connection with any Pension Plan or any trust created thereunder, a certificate of the a Responsible Officer specifying the nature thereof, what action the Company is taking or proposes to take with respect thereto, and, when known, any action taken by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (x) prompt written notice and a description of (a) any failure to make a contribution to a Pension Plan if such failure has given rise to a Lien pursuant to Section 302(f)(1) of ERISA, or (b) any request pursuant to Section 303 of ERISA or Section 412 of the IRC for, or notice of the granting pursuant to said Section 303 or Section 412 of, a waiver in respect of all or part of the minimum funding standard set forth in ERISA or the IRC, as the case may be, of any Pension Plan, and, in connection with the granting of any such waiver, the amount of any waived funding deficiency (as such term is defined in said Section 303 or said Section 412) and the terms of such waiver; and (xi) prompt written notice of and, where applicable, a description of (a) any notice from the PBGC in respect of the commencement of any proceedings pursuant to Section 4042 of ERISA to terminate any Pension Plan or for the appointment of a trustee to administer any Pension Plan, (b) any distress termination notice delivered to the PBGC under Section 4041 of ERISA in respect of any Pension Plan, and any determination of the PBGC in respect thereof, (c) the placement of any Multiemployer Plan in reorganization status under Title IV of ERISA, (d) any Multiemployer Plan becoming "insolvent" (as such term is defined in Section 4245 of ERISA under Title IV of ERISA), (e) the whole or partial withdrawal of the Company or any ERISA Affiliate from any Multiemployer Plan and the withdrawal liability incurred in connection therewith, and Exhibit A-9 (f) the withdrawal of the Company or any ERISA Affiliate from any Pension Plan with respect to which it is a "substantial employer" under, and as defined in, ERISA and the withdrawal liability under ERISA incurred in connection therewith. Together with each delivery of financial statements required by clause (i) (a) above, the Company will deliver to each holder of Notes a statement by such accountants certifying that, in making the examination upon which such opinion was based, no information came to their attention which, to their knowledge, indicated that an Event of Default existed as the result of the failure of the Company to comply with the covenants specified below or a statement specifying such failure (it being understood that such accountants' audit will not be directed toward obtaining knowledge of any such failure): (1) paragraph 6A, as of the Company's fiscal year end, (2) paragraph 6B, as of the Company's fiscal year end, based solely on amounts included in the consolidated financial statements or disclosed in the notes thereto, (3) paragraph 6C, for the Company's fiscal year, based solely on amounts included in the consolidated financial statements or disclosed in the notes thereto, (4) paragraph 6D(xv), as of the Company's fiscal year end, based solely on amounts included in the consolidated financial statements or disclosed in the notes thereto, (5) paragraph 6E, but only as to individual transactions in excess of $5,000,000, and (6) paragraph 6F, as of the Company's fiscal year end, based solely on the amounts included in the consolidating balance sheets of the Restricted Subsidiaries. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default that would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. 5B. Inspection of Property. The Company covenants that it will permit any employee of, or any financial, legal, environmental or other professional consultant or advisor to, any Significant Holder that is designated by such Significant Holder in writing, at such Significant Holder's expense or, so long as an Event of Default shall exist, at the expense of the Company, upon reasonable notice to the Company, to visit and inspect any of the properties of the Company and the Subsidiaries, to examine the corporate books and financial records of the Company and the Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants (the "Inspection Rights") and by this paragraph the Company authorizes such officers and accountants to discuss such affairs, finances and accounts, all at such reasonable times and as often as such Exhibit A-10 holder may reasonably request, provided that, in the event that the Company reasonably objects to any Significant Holder within two Business Days of such notice that any Person so designated by such Significant Holder is a Competitor or an employee thereof, the Company shall not be required to afford such Person any of the foregoing Inspection Rights, provided, further, that the Company and the Restricted Subsidiaries will not be required to disclose, permit the inspection, examination, copying or making extracts of, or discuss, any portion of, any document, or any information, (i) that constitutes non-financial trade secrets, non-financial proprietary information or product-by-product information relating to production, pricing, profitability or failure rates, or (ii) in respect of which disclosure to such Significant Holder is then prohibited by (a) law, or (b) an agreement binding on the Company or any Subsidiary that was not entered into by the Company or such Subsidiary for the primary purpose of concealing information from such Significant Holder, and in respect of which a Responsible Officer has provided a certificate to such holder setting forth a brief description of the law or agreement (including, in the case of an agreement, without limitation, the nature and purpose of the agreement, the parties to the agreement, and the provision of the agreement that prohibits such disclosure), provided, however, that if disclosure of the existence of any agreement is prohibited by the provisions thereof, such certificate may state generally, with respect to such agreement, that there are agreements pertaining to the matter as to which information was requested which are binding on the Company or a Subsidiary and which prohibit disclosure of the existence thereof. 5C. Covenant to Secure Note Equally. The Company will, if it or any Restricted Subsidiary creates or assumes any Lien upon any of its Property, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6D of this Agreement (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C of this Agreement), make or cause to be made, pursuant to such agreements and instruments as shall be approved by the Required Holders, effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. 5D. ERISA Compliance. The Company covenants that it will, and will cause each ERISA Affiliate to, at all times (i) with respect to each Pension Plan, make timely payments of contributions required to meet the minimum funding standard set forth in ERISA or the IRC with respect thereto and, with respect to each Multiemployer Plan, make timely payment of contributions required to be paid thereto as provided by Section 515 of ERISA and Exhibit A-11 (ii) comply with all other provisions of ERISA, except for such failures to make contributions and failures to comply as would not have a material adverse effect on the business, prospects, Properties or financial condition of the Company and the Subsidiaries taken as a whole. 5E. Payment of Taxes and Claims. The Company will, and will cause each Subsidiary to, pay before they become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or its Property, provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings as long as adequate reserves, to the extent required by generally accepted accounting principles, have been established and maintained and exist with respect thereto and, provided, further, that the contesting Person's right to use any material Property is not materially adversely affected thereby. 5F. Maintenance of Properties and Corporate Existence. The Company will, and will cause each Restricted Subsidiary to, (i) Property -- maintain in good working order and condition all of its Property which is material to the continued conduct of the business of the Company and the Restricted Subsidiaries taken as a whole; (ii) Insurance -- maintain, with financially sound and reputable insurers, insurance with respect to its Property and business against such casualties and contingencies, of such types (including, without limitation, loss or damage, public liability, business interruption, larceny, embezzlement or other criminal misappropriation) and in such amounts as is customary in the case of corporations of established reputations engaged in the same or a similar business and similarly situated; (iii) Financial Records -- maintain sound accounting policies and an adequate and effective system of accounts and internal accounting control that will safeguard assets, properly record income, expenses and liabilities, and assure the production of proper financial statements in accordance with generally accepted accounting principles; (iv) Corporate Existence and Rights -- do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises, except as otherwise permitted by paragraph 6G or paragraph 6K of this Agreement and except, in each case, where the failure to take any such action would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes; provided that the corporate existence of any Restricted Subsidiary may be terminated, and any rights and franchises may be terminated or permitted to lapse, if, in the good faith judgment of the Company, such determination or lapse is in the best interests of the Company and is not disadvantageous to the holders of the Notes; and Exhibit A-12 (v) Compliance with Law -- (a) comply with all applicable laws, rules, regulations, orders, judgments and decrees of any governmental authority, except where any failure to comply would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes and (b) obtain all licenses, permits, franchises and other governmental authorizations necessary to the ownership of its Properties or to the conduct of its business, except where any failure to so obtain would not have a material adverse effect on the business, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. 5G. Payment of Notes and Maintenance of Office. The Company will punctually pay, or cause to be paid, the principal and interest (and premium, if any) to become due in respect of the Notes according to the terms thereof and will maintain an office in compliance with paragraph 11I of this Agreement (or such other address which the Company shall have specified in writing in accordance with paragraph 11I) where notices, presentations and demands in respect of this Agreement or the Notes may be made upon it. Such office will be maintained at such address until such time as the Company will notify the holders of the Notes of any change of location of such office, which will in any event be located in the United States of America. 6. NEGATIVE COVENANTS. 6A. Consolidated Tangible Net Worth. The Company will not permit Consolidated Tangible Net Worth, determined as of any Determination Date, to be, (i) if such Determination Date is prior to December 22, 1993, then less than the sum of (a) $525,000,000, plus (b) 45% of Consolidated Net Income for each fiscal year ended during the period beginning on January 1, 1991 and ending on or prior to such Determination Date (unless Consolidated Net Income shall be a loss in any fiscal year, in which event the amount determined pursuant to this clause (b) for such fiscal year shall be zero), plus (c) the net proceeds to the Company from the sale of any capital stock of the Company made during the period beginning on January 1, 1991 and ending on such Determination Date, plus (d) without duplication with clauses (i)(b) or (i)(c) above, an amount equal to the aggregate principal amount of any Debt Security of the Company (other than Debt Securities held by Restricted Subsidiaries), minus the costs and fees incurred upon the original issuance of such Debt Security, any unamortized original issue discount with respect to any such Debt Security and Exhibit A-13 any costs and expenses of conversion, which has been converted into or exchanged for capital stock during the period beginning on January 1, 1991 and ending on such Determination Date, but only to the extent such conversion or exchange increases Consolidated Tangible Net Worth, and (ii) if such Determination Date is on or after December 22, 1993, then less than the sum of (a) $125,000,000, plus (b) 50% of Consolidated Net Income for each fiscal quarter ended during the period beginning on October 3, 1993 and ending on or prior to such Determination Date (unless Consolidated Net Income shall be a loss in any fiscal quarter, in which event the amount determined pursuant to this clause (b) for such fiscal quarter shall be zero), plus (c) the net proceeds to the Company from the sale of any capital stock of the Company made during the period beginning on October 3, 1993 and ending on such Determination Date, plus (d) without duplication with clauses (ii)(b) or (ii)(c) above, an amount equal to the aggregate principal amount of any Debt Security of the Company (other than Debt Securities held by Restricted Subsidiaries), minus the costs and fees incurred upon the original issuance of such Debt Security, any unamortized original issue discount with respect to any such Debt Security and any costs and expenses of conversion, which has been converted into or exchanged for capital stock during the period beginning on October 3, 1993 and ending on such Determination Date, but only to the extent such conversion or exchange increases Consolidated Tangible Net Worth. 6B. Consolidated Debt. (i) Consolidated Senior Debt. The Company will not permit, on any Determination Date, Consolidated Senior Debt, to exceed the percentage of Consolidated Tangible Net Worth set forth in the following table opposite such Determination Date, in each case determined as of such Determination Date:
================================================================================ Determination Date Percentage - -------------------------------------------------------------------------------- All Determination Dates occurring between March 29, 1991 to and 75% including the Determination Date occurring nearest to September 30, 1993 - -------------------------------------------------------------------------------- Determination Date occurring nearest to December 31, 1993 115% - -------------------------------------------------------------------------------- Determination Date occurring nearest to March 31, 1994 90% - --------------------------------------------------------------------------------
Exhibit A-14
Determination Date All Determination Dates occurring after the Determination Date 75% occurring nearest to March 31, 1994
(ii) Consolidated Debt. The Company will not permit, on any Determination Date, Consolidated Debt to exceed the percentage of Consolidated Tangible Net Worth set forth in the following table opposite such Determination Date, in each case determined as of such Determination Date:
Determination Date Percentage All Determination Dates 125% occurring between March 29, 1991 to and including the Determination Date occurring nearest to September 30, 1993 Determination Date 515% occurring nearest to December 31, 1993 Determination Date 455% occurring nearest to March 31, 1994 Determination Date 405% occurring nearest to June 30, 1994 Determination Date 365% occurring nearest to September 30, 1994 Determination Date 335% occurring nearest to December 31, 1994 Determination Date 295% occurring nearest to March 31, 1995 Determination Date 275% occurring nearest to June 30, 1995 Determination Date 255% occurring nearest to September 30, 1995 Determination Date 240% occurring nearest to December 31, 1995 Determination Date 220% occurring nearest to March 31, 1996 All Determination Dates 200% occurring after the Determination Date occurring nearest to March 31, 1996
(iii) Adjustments to Consolidated Debt Percentages. The percentages set forth in the table in paragraph 6B(ii) hereof shall be adjusted as of each Determination Date to be equal to the Adjusted Consolidated Debt Percentage calculated in respect thereof if (a) during the fiscal quarter ended on such Determination Date the Company issues capital stock, other than issuances of capital stock pursuant to (or pursuant to options, warrants or other securities issued pursuant to) employee stock option plans, director stock options plans, employee stock purchase plans or any similar arrangements intended to provide incentives for employee and directors, and Exhibit A-15 (b) the percentage set forth in such table in respect of such Determination Date, as then previously adjusted as provided in this subparagraph (iii), is greater than 125%. The Company shall provide a notice with respect to each Determination Date as to which an adjustment in such percentage is required by this subparagraph (iii), together with the certificate required by paragraph 5A(iii) delivered in respect of such fiscal quarter, to all holders of Notes, providing in detail the calculation of the Adjusted Consolidated Debt Percentages determined in respect of such fiscal quarter and all subsequent fiscal quarters. The Adjusted Consolidated Debt Percentages specified in such notice shall apply to such fiscal quarter and to all subsequent fiscal quarters and such table shall be deemed to be amended in accordance with such notice. Such notice shall be satisfactory in all respects to the Required Holders. 6C. Consolidated Fixed Charges; Consolidated Net Income. (i) Consolidated Fixed Charges. The Company will not permit the ratio of (i) the sum of Consolidated Net Income plus Consolidated Fixed Charges plus taxes deducted from revenues in the computation of such Consolidated Net Income, to (ii) Consolidated Fixed Charges to be less for any period of two consecutive fiscal quarters of the Company than the ratio set forth opposite the relevant period in the table below:
Two Fiscal Quarter Period Ending Ratio On the Determination Date occurring nearest to March 31, 1994 1.0 : 1.0 On the Determination Date occurring nearest to June 30, 1994 1.85 : 1.0 On the Determination Date occurring nearest to September 30, 1994 2.0 : 1.0 On the Determination Date occurring nearest to December 31, 1994 2.0 : 1.0
The Company will not permit, at any time on or after the Determination Date occurring nearest to March 31, 1995, the ratio of (i) the sum of Consolidated Net Income plus Consolidated Fixed Charges plus taxes deducted from revenues in the computation of such Consolidated Net Income, to (ii) Consolidated Fixed Charges to be less for any period of four consecutive fiscal quarters of the Company than 2.0 to 1.0. (ii) Consolidated Net Income. The Company will not permit Consolidated Net Income for the three-month period ending on the Determination Date occurring nearest to December 31, 1993 to be less than a deficit of $12,000,000. 6D. Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the provisions of paragraph 5C of this Agreement), except Exhibit A-16 (i) Liens in existence on the Closing Date and described on Annex 2 to this Agreement; (ii) Liens for taxes that are not yet due or that are being actively contested in good faith by appropriate proceedings, and in respect of which adequate reserves are being maintained to the extent required by generally accepted accounting principles; (iii) Liens incurred or deposits made in the ordinary course of business, (a) in respect of leases, statutory obligations or claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons that are not yet due or that are being actively contested in good faith by appropriate proceedings, and in respect of which adequate reserves are carried on the books of the Person liable therefor to the extent required by generally accepted accounting principles, (b) in connection with workers' compensation, unemployment insurance, social security and other like laws, (c) to secure the performance of letters of credit, bids, leases, tenders, sales contracts, statutory obligations, government contracts, surety and performance bonds and other similar obligations not incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property, (d) incidental to the conduct of its business or ownership of its Property, provided that, (I) such obligations shall not have arisen in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property, and (II) such Liens shall not in the aggregate materially detract from the value of the Property encumbered thereby or materially interfere with the use of such Property in the ordinary conduct of the owning Person's business, (e) which constitute purchase money security interests with respect to advances or the payment of deferred purchase price in connection with the purchase of goods and services in the ordinary course of business, provided that, at the time any such security interest is created, the Company or such Restricted Subsidiary intends to pay the amount secured thereby within 180 days after such creation, provided further that any such security interest runs in favor of the provider of such goods or services and is not part of a floor plan financing arrangement or any other arrangement with any Person that is primarily in the business of making loans or extending other financial accommodations, or Exhibit A-17 (f) which constitute Liens with respect to conditional sale or other title retention agreements and any lease in the nature thereof, provided that any such Lien with respect to conditional sales or other title retention agreements encumbers only Property and accretions thereto (and proceeds arising from the disposition thereof) which are subject to such conditional sale or other title retention agreement or lease in the nature thereof and, provided, further, that the aggregate amount secured by all such conditional sale or other title retention agreements and leases in the nature thereof shall not be more than $5,000,000 (it being understood that additional amounts may be so secured if permissible under any other provision of this paragraph 6D including, without limitation, clause (xv) of this paragraph 6D); (iv) reservations, exceptions, encroachments, easements, rights-of- way, covenants, conditions, restrictions and other similar title exceptions or encumbrances affecting real Property, provided such Liens do not interfere with the use of such Property in the ordinary conduct of the business of the Company and the Restricted Subsidiaries, taken as a whole; (v) Liens on Property of a Restricted Subsidiary to secure obligations of such Restricted Subsidiary to the Company or another Restricted Subsidiary; (vi) Liens with respect to Capitalized Lease Obligations (together with any related interest), provided, that such Liens encumber only Property and accretions thereto (and proceeds arising from the disposition thereof) acquired with the proceeds of the indebtedness secured thereby; (vii) leases and subleases of, and licenses and sub-licenses with respect to, Property where the Company or a Restricted Subsidiary is the lessor or licensor (or sublessor or sublicensor), provided that such leases, subleases, licenses and sublicenses do not in the aggregate materially interfere with the business of the Company and the Restricted Subsidiaries taken as a whole; (viii) (a) Liens to secure appeal bonds, supersedeas bonds and other similar Liens arising in connection with court proceedings (including, without limitation, surety bonds and letters of credit) or any other instrument serving a similar purpose, provided that the aggregate amount so secured, together with the aggregate amount secured pursuant to paragraph 6D(viii)(b), shall not at any time exceed $5,000,000 (it being understood that additional amounts may be so secured if permissible under any other provision of this paragraph 6D including, without limitation, clause (xv) of this paragraph 6D), (b) attachments, judgments and other similar Liens arising in connection with court proceedings, provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings and provided further, that the aggregate amount so secured, together with the aggregate amount secured pursuant to paragraph 6D(viii)(a) of this Agreement, shall not exceed $5,000,000 (it being understood that additional amounts may be so Exhibit A-18 secured if permissible under any other provision of this paragraph 6D including, without limitation, clause (xv) of this paragraph 6D), (ix) Liens on the Property of any corporation at the time such corporation becomes a Restricted Subsidiary, or such corporation is acquired by, consolidated with or merged into the Company or a Restricted Subsidiary, and Liens on any Property at the time acquired by the Company or a Restricted Subsidiary, provided, in each case, that such Lien was not incurred in contemplation of such transaction; (x) any Lien permitted by this paragraph 6D securing Debt that is being renewed, extended or refunded, provided that the principal amount of such Debt outstanding at the time of such renewal, extension or refunding is not increased and such Lien is not extended to any other Property (other than pursuant to its original terms); (xi) Purchase Money Mortgages, provided that each such Purchase Money Mortgage secures an amount not exceeding 100% of the lesser of the cost (including liabilities assumed) or the Fair Market Value at the time of acquisition or construction of the Property to which it relates (as determined in good faith by the Board of Directors); (xii) Liens consisting of an agreement to file or give a financing statement set forth in operating leases (it being understood that, upon the filing of any such financing statement, the Lien created thereby must be permissible under any other provision of this paragraph 6D including, without limitation, clause (iii)(f) and clause (xv) of this paragraph 6D); (xiii) Liens which constitute rights of set-off of a customary nature or bankers' Liens with respect to amounts on deposit, whether arising by operation of law or by contract, in connection with working capital facilities, lines of credit, term loans, or other credit facilities and similar arrangements entered into with banks in the ordinary course of business; (xiv) Liens in the nature of rights of first refusal and restrictions on transfer on the capital stock of Arcada Holdings, Inc. arising in connection with the purchase of Quest Development Corporation and described in that certain Letter of Intent dated as of December 13, 1993, related thereto; and (xv) Liens not otherwise permitted by this paragraph 6 on Property of the Company or any Restricted Subsidiary, provided that, as of each Determination Date, the amount of (a) all Debt secured by Liens permitted only by this paragraph 6D(xv), plus (b) all Debt of Restricted Subsidiaries (other than Debt owed by a Restricted Subsidiary to the Company or another Restricted Subsidiary) and all Preferred Stock of Restricted Subsidiaries (other than Preferred Stock of a Exhibit A-19 Restricted Subsidiary owned by the Company or another Restricted Subsidiary), plus (c) the Sale/Leaseback Transaction Amount, (without duplication) does not exceed 20% of Consolidated Tangible Net Worth, in each case determined as of such Determination Date. 6E. Sale/Leaseback Transactions. The Company will not, nor will it permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction at any time, unless after giving effect thereto, the sum of (i) the Sale/Leaseback Transaction Amount, plus (ii) the amount of all Debt secured only by Liens permitted by paragraph 6(xv) of this Agreement, plus (iii) all Debt of Restricted Subsidiaries (other than Debt owed by a Restricted Subsidiary to the Company or another Restricted Subsidiary) and all Preferred Stock of Restricted Subsidiaries (other than Preferred Stock of a Restricted Subsidiary owned by the Company or another Restricted Subsidiary), (without duplication) does not exceed 20% of Consolidated Tangible Net Worth, in each case determined as of such time. 6F. Restricted Subsidiary Debt and Preferred Stock. The Company will not, at any time, permit any Restricted Subsidiary to create, incur or assume any Debt, or to issue any Preferred Stock, unless, immediately after the creation, incurrence or assumption of such Debt, or the issuance of such Preferred Stock, and after giving effect thereto, the sum of (i) the Sale/Leaseback Transaction Amount, plus (ii) the amount of all Debt secured by Liens permitted only by paragraph 6(xv) of this Agreement, plus (iii) all Debt of Restricted Subsidiaries (other than Debt owed by a Restricted Subsidiary to the Company or another Restricted Subsidiary) and all Preferred Stock of Restricted Subsidiaries (other than Preferred Stock of a Restricted Subsidiary owned by the Company or another Restricted Subsidiary), (without duplication) does not exceed 20% of Consolidated Tangible Net Worth, in each case determined as of such time. Notwithstanding the foregoing, the prepayment of the 8 7/8% Convertible Subordinated Debentures issued by Archive pursuant to the Convertible Subordinated Debenture Agreement dated as of May 11, 1990, as heretofore amended, and outstanding on the Merger Date, not to exceed in aggregate amount $10,000,000 shall be permitted. Exhibit A-20 6G. Merger and Consolidation; Sale of Assets. (i) Merger and Consolidation. (a) The Company will not permit any other Person to consolidate with or merge into it (except that a Restricted Subsidiary may consolidate with or merge into the Company); provided that the foregoing restriction does not apply to the merger or consolidation of the Company with another corporation, if: (I) either (aa) the Company shall be the continuing or surviving corporation or (bb) the successor corporation that results from such merger or consolidation (the "Surviving Corporation") is organized under the laws of any State of the United States (or the District of Columbia), and the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes, according to their tenor, and the due and punctual performance and observance of all the covenants in the Notes and this Agreement to be performed or observed by the Company, are expressly assumed in writing by the Surviving Corporation; and (II) immediately prior to, and immediately after the consummation of the transaction, and after giving effect thereto, no Default or Event of Default exists or would exist under any provision of this Agreement. (b) The Company will not permit any Restricted Subsidiary to consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it (except that a Restricted Subsidiary may consolidate with or merge into the Company as contemplated by paragraph 6G(i)(a) and a Restricted Subsidiary may consolidate with or merge into another Restricted Subsidiary); provided that a Restricted Subsidiary may merge or consolidate with another Person if (I) such transaction would be permitted under the provisions of paragraph 6G(ii) (deeming such transaction to be a Transfer of all of the assets and liabilities of such Restricted Subsidiary, in the case of any such merger or consolidation which results in a surviving entity which is not a Restricted Subsidiary); or (II) the surviving corporation is the Company or a Restricted Subsidiary. (ii) Sale of Assets. The Company will not, nor will it permit any Restricted Subsidiary to, sell, lease as lessor, transfer or otherwise dispose of Property (collectively, "Transfers"), except (a) Transfers in the ordinary course of business, Exhibit A-21 (b) Transfers to the Company or a Restricted Subsidiary other than an Arcada Restricted Subsidiary; (c) Transfers which (I) constitute dispositions of cash or cash equivalents not prohibited by this Agreement, (II) constitute Investments which are Permitted Investments or (III) constitute the liquidation of any Permitted Investment; and (d) any other Transfer if all of the following conditions shall have been satisfied: (I) the sum (without duplication) of (aa) the net book value of such Property on the date of the Transfer (the "Asset Disposition Date"), expressed as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the Asset Disposition Date, plus (bb) the net book value of each other item of Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 6G(ii)(d) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 6G(i)) during the period ending on the Asset Disposition Date and commencing on the first day of the period of 12 consecutive calendar months most recently ended as of the Asset Disposition Date (the "Annual Disposition Measurement Period") (Subsidiary Stock being deemed to have a net book value equal to the net book value of all assets of the issuer of such Subsidiary Stock at such time, or the appropriate portion thereof if less than all Subsidiary Stock of such issuer is the subject of such Transfer), expressed in each case as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the date of each such Transfer, minus (cc) the aggregate net book value of all Property Transferred pursuant to this paragraph 6G(ii)(d) during the Annual Disposition Measurement Period to the extent that the net proceeds arising therefrom have been either reinvested in the business of the Company and the Restricted Subsidiaries or applied to, or irrevocably committed to make, Senior Debt Prepayments within the period of 12 consecutive months after the respective Transfers of such Property pursuant to this paragraph 6G(ii)(d), such aggregate net book value (or the portion thereof corresponding to the portion of such net proceeds so applied or to be so applied) being expressed as a percentage of Consolidated Total Assets determined on the Determination Date most recently preceding the date of each such Transfer; Exhibit A-22 provided, that any such net proceeds spent for operating expenses or principal, premium or interest in respect of Debt or held in deposit accounts or otherwise as short term investments shall not be deemed to have been reinvested in the business of the Company and the Restricted Subsidiaries, provided, further, that such percentage shall not, in any event, exceed 10%; will not exceed 15%; (II) the sum (without duplication) of (aa) the Cash Flow Contribution of such Property during the period of four consecutive fiscal quarters of the Company most recently ended prior to the Asset Disposition Date (the "Four Quarter Period"), plus (bb) the Cash Flow Contribution of each other item of Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 6G(ii)(d) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 6G(i)) during the Annual Disposition Measurement Period, such Cash Flow Contribution for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the Transfer of such Property, minus (cc) the Cash Flow Contribution of all Property Transferred by the Company and the Restricted Subsidiaries during the Annual Disposition Measurement Period to the extent that the net proceeds arising therefrom have been either reinvested in the business of the Company and the Restricted Subsidiaries or applied to, or irrevocably committed to make, Senior Debt Prepayments within the period of 12 consecutive months after the respective Transfers of such Property pursuant to this paragraph 6G(ii)(d), such Cash Flow Contribution (or the portion thereof corresponding to the portion of such net proceeds so applied or to be so applied) for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the disposition of such Property, provided, that any such net proceeds spent for operating expenses or principal, premium or interest in respect of Debt or held in deposit accounts or otherwise as short term investments shall not be deemed to have been reinvested in the business of the Company and the Restricted Subsidiaries, provided, further, that the Cash Flow Contribution of all such Property shall not, in any event, exceed 10% of Consolidated Operating Cash Flow during the Four Quarter Period, Exhibit A-23 will not exceed 15%; (III) the sum (without duplication) of (aa) the net book value of such Property on the Asset Disposition Date, expressed as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the Asset Disposition Date, plus (bb) the net book value of each other item of Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 6(ii)(d) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 6(i)) during the period ending on the Asset Disposition Date and commencing on the first day of the period of 36 consecutive calendar months most recently ended as of the Asset Disposition Date (the "Three Year Disposition Measurement Period") (Subsidiary Stock being deemed to have a net book value equal to the net book value of all assets of the issuer of such Subsidiary Stock, or the appropriate portion thereof if less than all Subsidiary Stock of such issuer is the subject of such Transfer), expressed in each case as a percentage of Consolidated Total Assets on the Determination Date most recently preceding the date of each such Transfer, will not exceed 40%; (IV) the sum (without duplication) of (aa) the Cash Flow Contribution of such Property during the Four Quarter Period, plus (bb) the Cash Flow Contribution of all other Property of the Company and the Restricted Subsidiaries that was Transferred pursuant to this paragraph 6(ii)(d) (including, without limitation, a Transfer by merger or consolidation, as contemplated by paragraph 6(i)) during such Three Year Disposition Measurement Period, such Cash Flow Contribution for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the disposition of such Property, will not exceed 40%; (V) with respect to any Transfer, or series of related Transfers, of Property pursuant to this paragraph 6(ii)(d) for consideration in an amount which is at least equal to the sum of $25,000,000 plus 5% of the amount, if any, by which Consolidated Total Assets, determined as Exhibit A-24 of the most recent Determination Date at the time of such Transfer, exceeds Consolidated Total Assets, determined as of December 31, 1990, in the opinion of the Board of Directors, the sale is for Fair Market Value and is in the best interests of the Company and the Restricted Subsidiaries; and (VI) immediately prior to, and immediately after the consummation of the transaction, and after giving effect thereto, no Default or Event of Default exists or would exist under any provision of this Agreement. If the Company shall make any Transfer which would be prohibited by this paragraph 6G but for the deduction provided for in subclause (cc) of either or both of paragraph 6G(ii)(d)(I) or paragraph 6G(ii)(d)(II), the Company shall be deemed to have covenanted that the net proceeds from such Transfer shall be reinvested in the business of the Company and the Restricted Subsidiaries (subject to the limitations of the first proviso to such subclause) or applied to, or irrevocably committed to make, Senior Debt Prepayments within the period of 12 consecutive months after such Transfer. 6H. Permitted Investments. The Company will not and will not permit any Restricted Subsidiary to purchase or make investments in, purchase stock or Securities of, or make loans or advances to, or make other investments in, or guarantee the obligations of, any other Person (including investments in or loans or advances to any corporation proposed to be acquired or created as a Subsidiary) (all of the foregoing referred to as "Investments," and all of the below-listed Investments referred to as "Permitted Investments") except: (i) obligations of, or obligations guaranteed by, the United States government, its agencies, or any public instrumentality thereof with maturities not to exceed (or an unconditional right to compel purchase within) seven years from the date of acquisition; (ii) Investments in or to the Company or Restricted Subsidiaries and Investments in or to companies which simultaneously with such Investments become Restricted Subsidiaries, and guarantees by the Company of the obligations of the Restricted Subsidiaries and guarantees by Restricted Subsidiaries of obligations of the Company or other Restricted Subsidiaries; (iii) commercial paper or loan participations maturing within seven years of the date of acquisition issued by a Person organized under the laws of the United States, Canada, a country that is a member of the European Community, Singapore, Taiwan, Malaysia or Japan, rated at the time of acquisition (or issued by Persons organized under the laws of such jurisdiction with other outstanding unsecured and unsupported debt securities ranking pari passu with such commercial paper or loan participations and rated at the time of acquisition) in the top rating classification by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community at the time of acquisition thereof; Exhibit A-25 (iv) Investments arising from transactions by the Company or the Restricted Subsidiaries with customers or suppliers (including Investments received in settlement of trade receivables which trade receivables are fully reserved against on the books of the Company or such Restricted Subsidiary or are less than one year overdue) in the ordinary course of business; (v) Investments consisting of (a) travel advances, employee relocation loans, and other employee loans and advances in the ordinary course of business, (b) loans to employees, officers or directors relating to the purchase of equity securities of the Company or the Restricted Subsidiaries, or (c) other loans to officers and employees approved by the Board of Directors in an aggregate amount not in excess of $10,000,000 outstanding at any time; (vi) operating deposit accounts maintained in the ordinary course of business for operating fund purposes including Investments therein denominated in French francs, Deutsche marks, Chinese renminbi and otherwise with Permitted Banks, consistent with past practice; (vii) Securities issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof with maturities not to exceed (or an unconditional right to compel purchase within) seven years of the date of acquisition, that are rated in one of the highest two rating classifications by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States; (viii) demand and time deposits with, Eurodollar deposits with, certificates of deposit issued by, or obligations or securities fully backed by letters of credit issued by (a) any bank organized under the laws of the United States, any state thereof, the District of Columbia or Canada having combined capital and surplus aggregating at least $100,000,000, and outstanding unsecured and unsupported Debt rated "A" or better at the time of acquisition thereof by Standard and Poor's Corporation, Moody's Investor Service, Inc., Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community, (b) the banks listed on Annex 2 to this Agreement, and (c) any other bank organized under the laws of a country that is a member of the European Community (or any political subdivision of any such country), Japan, Singapore, Taiwan, Malaysia, the Cayman Islands, the British West Indies or the Bahamas, having combined capital and surplus of not less Exhibit A-26 than $500,000,000 or the equivalent thereof in a currency other than United States dollars, (the banks described in the foregoing subclauses (a) to (c), inclusive, being referred to in this Agreement as "Permitted Banks"); (ix) bankers' acceptances accepted by a Permitted Bank and eligible for rediscount under the requirements of the Board of Governors of the Federal Reserve System; (x) repurchase agreements with any of (a) the Permitted Banks, (b) Alex. Brown & Sons Incorporated, Bear, Stearns & Co., Dean Witter Reynolds Inc., The First Boston Corporation, Goldman Sachs & Co., J.P. Morgan Securities, Inc., Kidder, Peabody & Co., Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Paine Webber Incorporated, Salomon Brothers, Inc., Shearson Lehman Hutton, Inc., Smith Barney, Harris Upham & Co., Incorporated, or (c) any other bank or securities dealer of a similar quality approved by a Responsible Officer, or (d) any affiliate of the foregoing, such repurchase agreements to be (at the time entered into) fully collateralized by securities of a type described in clause (i), clause (iii), clause (vii) or clause (viii) above, in each case made in accordance with the Company's internal investment policy in effect at such time; (xi) Investments in money market programs that would be classified on the balance sheet of the investing Person as a current asset in accordance with generally accepted accounting principles, which money market programs have total invested assets in excess of $1,000,000,000; (xii) Investments in money market preferred stocks or other equivalent Dutch-auction preferred stock of any corporation maturing within seven years of the date of acquisition thereof and with a credit rating at the time of acquisition thereof of "AA+" or "aa1" or better (or a comparable rating) by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community; (xiii) notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers in the ordinary course of business so long as such notes, prepaid royalties or other credit extensions are due within one year of the date of Exhibit A-27 acquisition thereof or cover no more than a reasonable estimate of one year's obligations to such customers or suppliers, as the case may be; (xiv) foreign currency swaps and hedging arrangements entered into in the ordinary course of business to protect against currency losses, and interest rate swaps and caps entered into in the ordinary course of business to protect against interest rate exposure on Debt of the Company and the Restricted Subsidiaries bearing interest at a variable or adjusting rate so long as, at the time any such transaction shall be entered into, the counterparty in such transaction has outstanding Debt Securities rated (a) "A1" or better, or "A+" or better (or a comparable rating), or (b) "A2" or "A-" (or a comparable rating) provided that the term of each such swap or arrangement is less than 2 years, by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community; (xv) (a) guarantees by the Company and Restricted Subsidiaries of the obligations of Unrestricted Subsidiaries and of vendors and suppliers of Unrestricted Subsidiaries, in each case in respect of transactions of such Unrestricted Subsidiaries entered into in the ordinary course of business of such Unrestricted Subsidiaries and such vendors and suppliers and directly related to the business conducted by such vendors and suppliers with such Unrestricted Subsidiaries, provided that such guarantees shall not at any time exceed 5% of Consolidated Tangible Net Worth, and (b) guarantees by the Company and Restricted Subsidiaries of the obligations of Restricted Subsidiaries and of vendors and suppliers of Restricted Subsidiaries, in each case in respect of transactions of such Restricted Subsidiaries entered into in the ordinary course of business of such Restricted Subsidiaries and such vendors and suppliers and directly related to the business conducted by such vendors and suppliers with such Restricted Subsidiaries; (xvi) Investments existing on the Closing Date not in excess, in the aggregate, of $20,000,000; (xvii) regardless of the occurrence or non-occurrence of the Merger Date, and in any event, prior to the occurrence of the Merger Date, investments in (a) the stock of Archive and its subsidiaries as contemplated by the Archive Tender Offer, and (b) Investments to enable Archive to repay its outstanding obligations for borrowed money not to exceed in the aggregate $150,000,000; (xviii) Investments made by any corporation at the time it becomes a Restricted Subsidiary, or such corporation is acquired by, consolidated with or merged into the Company or a Restricted Subsidiary, provided that such Investments were not made in contemplation of such transaction; Exhibit A-28 (xix) Investments consisting of repurchases of Subordinated Debt permitted by paragraph 6M; and (xx) Investments not otherwise permitted by the other provisions of this paragraph 6H, if, on the date of the making of any such Investment, and after giving effect to such Investment, (a) the aggregate cost of all Investments outstanding on such date made pursuant to this paragraph 6H(xx), minus (b) the net return of capital received by the Company and the Restricted Subsidiaries on or prior to such date from all Investments made pursuant to this paragraph 6H(xx) during the period commencing on January 1, 1991 and ending on such date, does not exceed 15% of Consolidated Tangible Net Worth on such date. No Investments can be made pursuant to the provisions of paragraph 6H(xx) of this Agreement during any period when a Default or Event of Default has occurred and is then continuing. Notwithstanding any provision herein to the contrary, none of the following shall constitute Investments for purposes of this Agreement: (a) any dividends or other distributions paid or made in respect of the stock of the Company or any Restricted Subsidiary (whether in cash, Property, or stock of the Company or any Restricted Subsidiary), or (b) any payments (whether in cash, Property or stock of the Company or any Restricted Subsidiary) to redeem, purchase or otherwise acquire, directly or indirectly, any stock of the Company or any Restricted Subsidiary. For purposes of the preceding sentence, the term "stock" shall include warrants, options and rights to purchase stock. For purposes of calculations required by this paragraph 6H, Investments denominated in currencies other than U.S. dollars shall be translated into U.S dollars in accordance with generally accepted accounting principles applicable to such types of Investments. 6I. Transactions with Affiliates. The Company will not, nor will it permit any Restricted Subsidiary to, enter into any transaction, including, without limitation, the purchase, sale or exchange of Property or the rendering of any service, with any Affiliate unless (i) such transaction, when taken in the light of a series of transactions of which such transaction is a part (if any), is upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained in a comparable arm's-length transaction with a Person not an Affiliate, or (ii) if, at the time of such transaction, such Affiliate is an officer, director or employee of the Company or such Restricted Subsidiary and such transaction relates to such Person's compensation, (a) such transaction is in the best interests of the Company and the Restricted Subsidiaries, taken as a whole, and has been approved by the Board of Directors or the board of directors of such Restricted Subsidiary, as the case may be, and (b) at the time of such transaction, the Company is required to file reports pursuant to Section 13 of the Exchange Act. Exhibit A-29 It is acknowledged that the Archive Tender Offer, the merger of Archive into Conner Acquisition Corp., and the repayment by the Company of the debt of Archive and its subsidiaries outstanding on the Acquisition Date in an amount not to exceed in the aggregate $150,000,000 shall be deemed permitted transactions hereunder. The purchase by the Company or any Restricted Subsidiaries of shares of outstanding capital stock of the Company's Subsidiary formed under the laws of China shall be deemed to comply with this paragraph 6I so long as the Company or such Restricted Subsidiary pays fair value for such shares, as determined by the Board of Directors of the Company. The transactions described in the Arcada Letter of Intent shall be deemed to comply with this paragraph 6I. 6J. Line of Business. The Company will not, nor will it permit any Restricted Subsidiary to, engage in any business other than the businesses currently engaged in by the Company and the Subsidiaries and any business substantially similar or substantially related thereto. 6K. Designation of Subsidiaries. The Board of Directors may at any time designate any Restricted Subsidiary as an Unrestricted Subsidiary provided that no Default or Event of Default shall exist immediately after, and after giving effect to, any such designation (whether or not caused by such designation), but it may not thereafter redesignate such Subsidiary as a Restricted Subsidiary. 6L. Private Offering. The Company will not, nor will it permit anyone acting on its behalf to, offer the Notes or any part thereof or any similar Securities for issue or sale to, or solicit any offer to acquire any of the same from, anyone so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act. 6M. Subordinated Debt. The Company will not, and will not permit any Restricted Subsidiary to, make any payment or redemption of Subordinated Debt, other than mandatory prepayments or mandatory redemptions scheduled at the time of issuance of such Subordinated Debt, or otherwise purchase or acquire any Subordinated Debt, directly or indirectly, or give any notice that irrevocably binds it to take any such action, unless: (i) no Default or Event of Default shall exist immediately prior to, or immediately after, the consummation of any such action or the giving of such notice, whichever shall first occur, and the Company has delivered a certificate to such effect to each holder of Notes prior to, but not more than 30 days prior to, taking such action or giving such notice, whichever shall first occur, together with a brief description of such action or the action contemplated by such notice; and (ii) at the time it shall become irrevocably bound to take such action, or the time it shall take such action, whichever shall first occur, one of the following conditions shall be satisfied: (a) the Company or such Restricted Subsidiary, as the case may be, could incur Senior Debt in an amount equal to the amount of Subordinated Debt to be so prepaid, redeemed or otherwise purchased or acquired; Exhibit A-30 (b) the Subordinated Debt to be so prepaid, redeemed or otherwise purchased or acquired is convertible into a number of shares of capital stock of the Company having a Fair Market Value at the time that the Company or such Restricted Subsidiary becomes obligated to take such action which is at least 25% in excess of the principal amount of such Subordinated Debt; or (c) the Subordinated Debt to be so prepaid, redeemed or otherwise purchased or acquired is convertible into a number of shares of capital stock of the Company having a Fair Market Value at the time that the Company or such Restricted Subsidiary becomes obligated to take such action which is a least 15% in excess of the principal amount of such Subordinated Debt, and the Company has entered into a firm commitment underwriting agreement with one or more underwriters, which agreement contains terms and conditions no less favorable to the Company than those generally included in comparable agreements for similarly situated issuers at such time (as determined by the Company in its reasonable judgment), and pursuant to which such underwriters have agreed to purchase capital stock of the Company for an amount sufficient to prepay, redeem or otherwise purchase or acquire all or any part of such Subordinated Debt that is not so converted into such capital stock prior to such prepayment, redemption, purchase or acquisition; provided that no such action shall be taken and no such notice given during the period beginning on October 3, 1993 and ending on the Determination Date occurring nearest to March 31, 1995, inclusive. Nothing set forth in this paragraph 6M shall prevent the Company or any Restricted Subsidiary from purchasing or acquiring any Subordinated Debt in privately negotiated transactions or in open-market transactions if (1) the price paid is less than par plus accrued interest; (2) no Default or Event of Default shall exist immediately prior to, or immediately after, such purchase or acquisition; and (3) the aggregate amount paid by the Company for all such purchases or acquisitions in any period of twelve consecutive months, which purchases or acquisitions are not otherwise permitted pursuant to this paragraph 6M, shall not exceed $25 million; provided that the Company will not enter into, or agree to enter into, any such transactions during the period beginning on October 3, 1993 and ending on the Determination Date occurring nearest to March 31, 1995, inclusive. 6N. Liquidity Coverage. The Company will not permit, on any Determination Date, the Liquidity Coverage to be less than the percentage set forth in the following table opposite such Determination Date, in each case determined as of such Determination Date: Exhibit A-31
================================================================================================== Determination Date Percentage - -------------------------------------------------------------------------------------------------- All Determination Dates occurring during the period beginning with 200% the Determination Date occurring nearest to June 30, 1993 to and including the Determination Date occurring nearest to September 30, 1993 All Determination Dates occurring during the period beginning with the 125% Determination Date occurring nearest to December 31, 1993 to and including the Determination Date occurring nearest to March 31, 1995 ==================================================================================================
6O. Restricted Payments. The Company shall not make any Restricted Payments during the period beginning of October 3, 1993 and ending on the Determination Date occurring nearest to March 31, 1995, inclusive. 6P. Accounting Period. The Company shall not change the method in which it determines its fiscal year or its fiscal quarters. 7. EVENTS OF DEFAULT. 7A. Acceleration. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or premium on any Note when the same shall become due, either by the terms thereof or otherwise as provided in this Agreement; or (ii) the Company defaults in the payment of any interest on any Note for more than 5 Business Days after the date due; or (iii) the Company fails to perform or observe any agreement contained in paragraph 6 or paragraph 5C of this Agreement; or (iv) the Company fails to perform or observe any other agreement contained in this Agreement and such failure shall not be remedied within thirty (30) days after any Responsible Officer obtains actual knowledge thereof; or (v) any representation or warranty made by the Company in this Agreement or in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or (vi) the Company or any Restricted Subsidiary, (a) defaults in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for Property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit, but not any Exhibit A-32 obligation in respect of trade credit incurred in the ordinary course of business) beyond any period of grace in effect prior to the occurrence of such default, or (b) fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to any originally stated maturity, or to require that such obligation be repurchased by the Company or any Subsidiary, provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration or repurchase shall occur and be continuing exceeds $10,000,000 and provided further that this paragraph 7A(vi) shall not apply to the Specified Debt, so long as the Specified Debt is paid in full within 30 days after it becomes due; or (vii) the Company or any Restricted Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Company or any Restricted Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or (ix) the Company or any Restricted Subsidiary (a) petitions or applies to any tribunal for, or consents to, the appointment of, or the taking of possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Restricted Subsidiary, or of any substantial part of the Property of the Company or any Restricted Subsidiary, or (b) commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Restricted Subsidiary) relating to the Company or any Restricted Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any petition or application referred to in paragraph 7A(ix) is filed, or any such proceedings are commenced, against the Company or any Restricted Subsidiary, and the Company or such Restricted Subsidiary by any act indicates its approval thereof, consent thereto, or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or Exhibit A-33 (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Restricted Subsidiary decreeing a split-up of the Company or such Restricted Subsidiary that requires the divestiture of assets representing a Substantial Part, or the divestiture of the stock of a Restricted Subsidiary whose assets represent a Substantial Part, of the consolidated assets of the Company and the Restricted Subsidiaries (determined in accordance with generally accepted accounting principles) or that requires the divestiture of assets, or stock of a Restricted Subsidiary, that shall have contributed a Substantial Part of the Consolidated Net Income for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xiii) a final judgment for the payment of money or the transfer of Property in an amount in excess of $5,000,000 (excluding that portion of any such judgment covered by insurance in respect of which coverage is undisputed) is rendered against the Company or any Restricted Subsidiary and, within 60 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment is not discharged or execution thereof stayed pending further appeal; then (a) if such event is an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, (b) if such event is any other Event of Default, the Required Holders may at their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, provided that the Yield-Maintenance Amount, if any, with respect to each Note shall be due and payable upon such declaration only if (I) such event is an Event of Default specified in any of clause (i) to clause (vi), inclusive, or clause (xiii) of this paragraph 7A, (II) the Required Holders shall have given to the Company, at least 10 Business Days before such declaration, written notice stating its or their intention so to declare the Notes to be immediately due and payable and identifying one or more such Events of Default whose occurrence on or before the date of such notice permits such declaration and Exhibit A-34 (III) one or more of the Events of Default so identified shall be continuing at the time of such declaration, and (c) if such event is an Event of Default specified in clause (i) or clause (ii) of this paragraph 7A and irrespective of whether the Required Holders shall have declared the Notes to be due and payable pursuant to the foregoing clause (b), any holder of Notes may at its option, by notice in writing to the Company, declare all of the Notes held by such holder to be, and all of such Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each such Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company. 7B. Other Remedies. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise. 7C. Annulment of Acceleration of Notes. If a declaration is made pursuant to paragraph 7A(b) of this Agreement by the Required Holders or paragraph 7A(c) of this Agreement by any holder of Notes, then and in every such case, the Required Holders may, by written instrument filed with the Company, rescind and annul such declaration within 90 days thereafter, and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (i) no judgment or decree shall have been entered for the payment of any moneys due on or pursuant to the Notes or this Agreement; (ii) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal of, or interest or premium on, the Notes which shall have become due and payable by reason of such declaration under paragraph 7A(b) or paragraph 7A(c) of this Agreement) shall have been duly paid; and (iii) each and every other Default and Event of Default shall have been waived pursuant to paragraph 11C of this Agreement or otherwise made good or cured, and provided further that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon. 8. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants: Exhibit A-35 8A. Corporate Organization and Authority; Compliance with Law. Each of the Company and the Restricted Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (ii) has all legal and corporate power and authority to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, (iii) has all necessary licenses, certificates and permits to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the failure to have such licenses, certificates and permits, in the aggregate, would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes, (iv) has duly qualified or has been duly licensed, and is authorized to do business and is in good standing, as a foreign corporation in each jurisdiction where such qualification or authorization is required, except where the failure to be so qualified or licensed and authorized and in good standing, in the aggregate, would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes, and (v) is in compliance with all of its contractual obligations and all laws, ordinances, and governmental rules and regulations to which it is subject, except where the failure so to be in compliance would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. 8B. Conflicting Agreements and Other Matters. (i) Conflict with Notes. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions of this Agreement and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the Properties of the Company or any of the Restricted Subsidiaries pursuant to, the charter or by-laws of the Company or any of the Restricted Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of the Restricted Subsidiaries is subject. Exhibit A-36 (ii) Restrictions on Debt. Neither the Company nor any of the Restricted Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of the Company or such Restricted Subsidiary, any agreement relating to this Agreement or any other contract or agreement (including its charter), in each case relating to Debt in an outstanding aggregate principal amount in excess of $1,000,000, that limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Annex 2 to this Agreement. 8C. Sale is Legal and Authorized; Notes are Enforceable. (i) Sale Is Authorized. Each of the sale of the Notes by the Company and compliance by the Company with all of the provisions of this Agreement and of the Notes is within the corporate powers of the Company. (ii) Notes are Enforceable. The obligations of the Company under this Agreement and the Notes are valid, binding and enforceable in accordance with the terms of this Agreement and the Notes, except that the enforceability of this Agreement and the Notes may be: (a) limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights generally; and (b) subject to the availability of equitable remedies. 8D. Financial Statements. The Company has furnished you with the following financial statements, identified by a principal financial officer of the Company: a consolidated balance sheet of the Company and the Subsidiaries as at December 31 in each of the years 1987 to 1990, inclusive, all certified by Price, Waterhouse & Co.; and consolidated statements of income and cash flows of the Company and the Subsidiaries for each such year, all certified by Price, Waterhouse & Co. Such financial statements (including any related schedules and notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and the Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and the Subsidiaries as at the dates thereof, and the statements of income and statements of cash flows fairly present the results of the operations of the Company and the Subsidiaries for the periods indicated. 8E. Material Adverse Change. Except as set forth in the Supplemental Disclosure Letter, since December 31, 1990, there has been no material adverse change in the business, prospects, Properties or condition (financial or otherwise) of the Company and the Subsidiaries taken as a whole, or in the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. Exhibit A-37 8F. Actions Pending. Except as set forth in the Supplemental Disclosure Letter or the SEC Documents, there is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Restricted Subsidiaries, or any Properties or rights of the Company or any of the Restricted Subsidiaries, by or before any court, arbitrator or administrative or governmental body that, in the aggregate, if adversely determined, would result in a materially adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. 8G. Outstanding Debt. Neither the Company nor any of the Subsidiaries has outstanding any Debt except as permitted by paragraph 6 of this Agreement. All Debt with an outstanding principal amount in excess of $1 million is described on Annex 2 to this Agreement. The aggregate principal amount of all other Debt does not exceed $5,000,000. 8H. Taxes. Each of the Company and the Subsidiaries has filed all Federal, State and other income tax returns and other material tax returns that, to the best knowledge of the officers of the Company, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings for which adequate reserves (to the extent required) have been established in accordance with generally accepted accounting principles. 8I. Title to Properties; Patents and Copyrights. (i) Title to Properties. Each of the Company and the Restricted Subsidiaries has good and indefeasible title to its respective real Properties (other than Properties that it leases) and good title to all of its other respective Properties (other than Intellectual Property Rights), including the Properties reflected in the balance sheet as at December 31, 1990 referred to in paragraph 8D of this Agreement (other than Properties disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6D of this Agreement. All leases necessary in any material respect for the conduct of the respective businesses of the Company and the Subsidiaries are valid and subsisting and are in full force and effect. Notwithstanding the foregoing, no representation or warranty is made by the Company in this paragraph 8I(i) with respect to Intellectual Property Rights. (ii) Patents and Copyrights. Except as disclosed in the SEC Documents or the Supplemental Disclosure Letter, each of the Company and the Restricted Subsidiaries owns or possesses, or could obtain ownership or possession on terms not materially adverse to the financial condition of the Person so obtaining ownership or possession of, all of the patents, trademarks, service marks, trade names, copyrights, licenses, and rights with respect thereto ("Intellectual Property Rights") necessary for the present and presently planned future conduct of its business, without any known conflict with the rights of others, except where such conflicts, in the aggregate, would not have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Restricted Subsidiaries taken as a whole, Exhibit A-38 or the ability of the Company to perform its obligations set forth in this Agreement and the Notes. 8J. Environmental Compliance. (i) Compliance. Each of the Company and the Subsidiaries has been, since its incorporation, complying with, and, on the Closing Date will be in compliance with, all Environmental Protection Laws in effect in each jurisdiction where it is presently doing business and in which the failure so to comply would have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Subsidiaries taken as a whole, or the ability of the Company to perform its obligations under this Agreement and the Notes; and (ii) Liability.Neither the Company nor any of the Subsidiaries is subject to any liability under any Environmental Protection Laws that, in the aggregate, would have a material adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Subsidiaries taken as a whole, or the ability of the Company to perform its obligations under this Agreement and the Notes. 8K. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the IRC), whether or not waived, exists with respect to any Pension Plan (other than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Company or any other ERISA Affiliate to be incurred with respect to any Pension Plan (other than a Multiemployer Plan) by the Company or any other ERISA Affiliate that is or would be materially adverse to the business, prospects, Properties or condition (financial or otherwise) of the Company and the Subsidiaries taken as a whole, or the ability of the Company to perform its obligations under this Agreement and the Notes. Neither the Company nor any ERISA Affiliates have incurred or presently expect to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan that is or would have a materially adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Subsidiaries taken as a whole, or the ability of the Company to perform its obligations under the this Agreement and the Notes. The execution and delivery of this Agreement and the issuance and sale of the Notes will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the IRC. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of your representation in paragraph 9 of this Agreement as to the source of the funds to be used to pay the purchase price of the Notes to be purchased by you. 8L. No Defaults. No event has occurred and no condition exists that, upon the issue of the Notes, would constitute a Default or an Event of Default. Neither the Company nor any Subsidiary is in violation in any respect of any term of any charter instrument or bylaw and neither the Company nor any Subsidiary is in violation in any material respect of any term in any agreement or other instrument to which it is a party or by which it or any of its Property may be bound, except for violations that, in the aggregate, could not have a materially adverse effect on the business, prospects, Properties or condition (financial or otherwise) of the Company and the Subsidiaries taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. Exhibit A-39 8M. Regulation G, etc. Neither the Company nor any Subsidiary owns or has any present intention of acquiring any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System ("Margin Stock"), other than incidental amounts thereof which would, in no event, exceed a value of (based on the higher of purchase price or current fair market value) of $5,000,000 and would not cause the Notes to be "indirectly secured" by margin stock, as such term is used in Regulation G. The proceeds of sale of the Notes will be used to fund capital expenditures and for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock or for the purpose of maintaining, reducing or retiring any indebtedness that was originally incurred to purchase or carry any stock that is currently a Margin Stock or for any other purpose that might constitute this transaction a "purpose credit" within the meaning of such Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action that might cause this Agreement or the Notes to violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. 8N. Offering of Notes. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar Security of the Company for sale to, or solicited any offers to buy the Notes or any similar Security of the Company from, or otherwise approached or negotiated with respect to this Agreement with, any Person other than you, the Other Purchasers, and 59 other institutional investors, and neither the Company nor any agent acting on its behalf has taken or will take any action that would subject the issuance or sale of the Notes to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 8O. Governmental Consent. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or Properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the date of closing with the Securities and Exchange Commission and state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions of this Agreement or of the Notes (other than any of the foregoing required after the date hereof to comply with the covenants set forth herein but otherwise unrelated to this Agreement or the transactions contemplated hereby). 8P Certain Laws. (i) Investment Company Act. The Company is not, and is not directly or indirectly controlled by, or acting on behalf of any Person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (ii) Absence of Foreign or Enemy Status. The Company is not Exhibit A-40 (a) an "enemy" or an "ally of the enemy" within the meaning of Section 2 of the Trading with the Enemy Act, as amended, or any executive orders or regulations issued or promulgated pursuant thereto, or (b) a "national" of any "designated enemy country" as such terms are defined in Executive Order No. 9095, as amended, of the President of the United States of America. Neither the issue and sale of the Notes by the Company nor its use of the proceeds thereof as contemplated by this Agreement will violate the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Fund Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations, the South African Transactions Regulations, the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations or the Panamanian Transactions Regulations, of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) or Executive Orders 12722 and 12724 (transactions with Iraq and Executive Orders 12723 and 12725 (transactions with Kuwait). (iii) Holding Company Status. The Company is not a "holding company" or an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utilities Holding Company Act of 1935, as amended. (iv) South African Investments Prohibited. None of the transactions contemplated in this Agreement (including without limitation, the use of the proceeds from the sale of the Notes) will violate the Comprehensive Anti-Apartheid Act of 1986, or any rules or regulations promulgated thereunder. 8Q. Disclosure. The Private Placement Memorandum with respect to the Company, dated January 1991, prepared by J.P. Morgan Securities, Inc., for use in connection with the Company's private placement of the Notes, taken together with the SEC Documents and the Supplemental Disclosure Letter, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of the Subsidiaries that materially adversely affects the business, Properties or condition (financial or otherwise) of the Company and the Subsidiaries taken as a whole, and that has not been set forth in this Agreement or in the other documents, certificates and written statements furnished to you by or on behalf of the Company prior to the date of this Agreement in connection with the transactions contemplated hereby. 8R. No Unrestricted Subsidiaries. The Company has no Subsidiaries other than Restricted Subsidiaries. 9. REPRESENTATIONS OF THE PURCHASER. You represent, and in making this sale to you it is specifically understood and agreed, that you are not acquiring the Notes to be purchased by you hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of your Property shall at all times be and remain within your control. You also represent that no part Exhibit A-41 of the funds being used by you to pay the purchase price of the Notes being purchased by you under this Agreement constitutes assets allocated to any separate account maintained by you in which any employee benefit plan, other than employee benefit plans identified on a list that has been furnished by you to the Company, participates to the extent of 10% or more. For the purpose of this paragraph 9, the terms "separate account" and "employee benefit plan" have the respective meanings specified in Section 3 of ERISA. 10. DEFINITIONS. For the purpose of this Agreement, the following terms shall have the meanings specified with respect to this Agreement below: 10A. Yield-Maintenance Terms. "Adjusted Reinvestment Yield" means, with respect to any Settlement Date, the Reinvestment Yield for such Settlement Date, plus (a) zero (0) if such Settlement Date is prior to March 30, 1994, and (b) twenty five one-hundredths percent (0.25%) per annum if such Settlement Date is on or after March 30, 1994. "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "Called Principal" shall mean, with respect to any Note, the principal of such Note that (i) is to be prepaid pursuant to paragraph 4B of this Agreement (any prepayment of less than all the Notes being applied to required payments of principal as provided in paragraph 4A(iii) of this Agreement), (ii) is to be prepaid pursuant to paragraph 4E of this Agreement (any prepayment of less than all the Notes being applied to required payments of principal as provided in paragraph 4A(iii) of this Agreement), or (iii) is declared to be immediately due and payable pursuant to paragraph 7A of this Agreement, as the context requires. "Discounted Value" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a semiannual basis) equal to the Adjusted Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" shall mean, with respect to the Called Principal of any Note, the yield to maturity implied by either, Exhibit A-42 (i) the yields reported, as of 10:00 A.M. (New York City time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, then (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond- equivalent yields in accordance with accepted financial practice, and (b) interpolating linearly between reported yields. "Remaining Average Life" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one-twelfth (1/12) year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, assuming, for purposes of calculation, that the rate of interest on the Series A Senior Notes was 8.84% per annum at all times, and that the rate of interest on the Series B Senior Notes was 9.08% per annum at all times "Settlement Date" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4B or Exhibit A-43 paragraph 4E of this Agreement or is declared to be immediately due and payable pursuant to paragraph 7A of this Agreement, as the context requires. "Yield-Maintenance Amount" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (a) such Called Principal plus (b) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero. 10B. Other Terms. "Acquisition Date" means the date on which the Archive Tender Offer is consummated. "Adjusted Consolidated Debt Percentage" means, with respect to any sale of capital stock to which paragraph 6B(iii) applies, the greater of (a) the lesser of (I) the percentage in effect in accordance with paragraph 6B(ii) in respect of the Determination Date immediately preceding such sale of capital stock, or (II) the percentage determined by dividing the Adjusted Consolidated Debt Amount by the Adjusted Consolidated Tangible Net Worth Amount, in each case determined after giving effect to such sale, or (b) 125%. The Adjusted Consolidated Debt Percentage determined by the foregoing calculation shall apply to the first period, as set forth in the table in paragraph 6B(ii) hereof, immediately following the date of the sale of such capital stock. If the Adjusted Consolidated Debt Percentage for such first period is greater than 125%, then the Adjusted Consolidated Debt Percentage in each period succeeding such first period shall be determined by deducting 20 percentage points from the Adjusted Consolidated Debt Percentage determined as herein provided for the immediately preceding period until a period is reached where the Adjusted Consolidated Debt Percentage is reduced to, but not below 125% (the last deduction to arrive at 125% being 20 percentage points or such lesser number of percentage points as is necessary to arrive at 125%). Thereafter, the Adjusted Consolidated Debt Percentage shall be 125%. As used in this definition, Exhibit A-44 "Adjusted Consolidated Debt Amount" means, with respect to any sale of capital stock to which paragraph 6B(iii) hereof applies, the Existing Consolidated Debt Amount with respect thereto plus 50% of the Net Cash Proceeds of such sale of capital stock. "Adjusted Consolidated Tangible Net Worth Amount" means, with respect to any sale of capital stock to which paragraph 6B(iii) hereof applies, the Existing Consolidated Tangible Net Worth Amount with respect thereto plus 100% of the Net Cash Proceeds of such sale of capital stock. "Existing Consolidated Debt Amount" means, with respect to any sale of capital stock to which paragraph 6B(iii) hereof applies, the amount of Consolidated Debt outstanding on the Determination Date immediately preceding such sale. "Existing Consolidated Tangible Net Worth Amount" means, with respect to any sale of capital stock to which paragraph 6B(iii) hereof applies, the amount of Consolidated Tangible Net Worth determined on the Determination Date immediately preceding such sale. "Net Cash Proceeds" means, with respect to any sale of capital stock to which paragraph 6B(iii) hereof applies, the net cash proceeds of the sale of such stock of the Company, net of all costs related to the sale thereof, and net of the Fair Market Value of any contingent obligations the Company has assumed with respect to any Person in connection with such sale. "Affiliate" means any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Restricted Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Annual Disposition Measurement Period" has the meaning assigned to such term in paragraph 6G(ii)(d)(l) of this Agreement. "Arcada Holdings, Inc." means that certain corporation formed, or to be formed, pursuant the Arcada Letter of Intent to act as the holding company for the Company's software disk backup, data management, hierarchical storage management an related applications business. "Arcada Letter of Intent" means that certain Letter of Intent, entered into as of December 13, 1993, between Archive, the Company and Quest Development Corporation. "Arcada Restricted Subsidiary" means, at any time, (i) Arcada Holdings, Inc., provided that Exhibit A-45 (a) at least (I) 65% of the Voting Stock of which, except directors qualifying shares and any shares issued to comply with local ownership legal requirements (provided that such directors qualifying shares and other shares shall not represent in excess of 3% of the outstanding shares of the stock of any class of such Restricted Subsidiary and, after taking such shares into account, the Company shall, directly or indirectly, own a majority of the Voting Stock of such Subsidiary), and (II) 65% of all non-voting stock of every other class of which, is, at such time, owned by the Company either directly or through Restricted Subsidiaries other than Restricted Subsidiaries that qualify as such solely by virtue of this definition of "Arcada Restricted Subsidiary," (b) Arcada Holdings, Inc. has at such time never been designated an Unrestricted Subsidiary by the Board of Directors pursuant to paragraph 6K of this Agreement, and (c) Arcada Holdings, Inc. qualifies at such time as a Subsidiary, and (ii) any other Subsidiary of the Company provided that (a) (I) 100% of the Voting Stock of which, except directors qualifying shares and any shares issued to comply with local ownership legal requirements (provided that such directors qualifying shares and other shares shall not represent in excess of 3% of the outstanding shares of the stock of any class of such Restricted Subsidiary and, after taking such shares into account, the Company shall, directly or indirectly, own a majority of the Voting Stock of such Subsidiary), and (II) 100% of all non-voting stock of every other class of which, is, at such time, owned by Arcada Holdings, Inc. either directly or through other Restricted Subsidiaries, (b) such Subsidiary has at such time never been designated an Unrestricted Subsidiary by the Board of Directors pursuant to paragraph 6K of this Agreement, and (c) Arcada Holdings, Inc. qualifies at such time as a Restricted Subsidiary. Exhibit A-46 Any Subsidiary that qualifies as a Restricted Subsidiary under the definition of "Restricted Subsidiary" in this paragraph 10B without reference to this definition of "Arcada Restricted Subsidiary" shall be deemed to be a Restricted Subsidiary but not an Arcada Restricted Subsidiary. "Archive" means Archive Corporation, a Delaware corporation. "Archive Tender Offer" means the offer by the Company for all of the shares of the outstanding capital stock of Archive pursuant to an Offer to Purchase dated November 24, 1992. "Asset Disposition Date" has the meaning assigned to such term in paragraph 6G(ii)(d)(l) of this Agreement. "Bankruptcy Law" has the meaning assigned to it in paragraph 7A(viii) of this Agreement. "Board of Directors" means, at any time, the board of directors of the Company or any committee thereof which, in the instance, shall have the lawful power to exercise the power and authority of such board of directors. "Capital Lease" means a lease with respect to which the rental obligation thereunder is a Capitalized Lease Obligation. "Capitalized Lease Obligation" means, with respect to any Person, any rental obligation that, under generally accepted accounting principles, is required to be capitalized on the books of such Person, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. "Cash Equivalents" means (a) cash, (b) all Investments permitted by subparagraph 6H (i), (iii), (vi), (vii), (viii), (ix), (x), (xi) and (xii), and (c) any other Investments which would properly be classified as "cash equivalents" in accordance with generally accepted accounting principles. "Cash Flow Contribution" means, for any period, in respect of any Property of the Company or a Restricted Subsidiary, the amount of Consolidated Operating Cash Flow fairly attributable to such Property during such period, expressed as a percentage of such Consolidated Operating Cash Flow. "Change in Control" means the direct or indirect acquisition by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act), or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of Exhibit A-47 (i) beneficial ownership of issued and outstanding shares of Voting Stock of the Company, the result of which acquisition is that such person or such group possesses in excess of 50% of the combined voting power of all then issued and outstanding Voting Stock of the Company, or (ii) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the Board of Directors. "Closing Date" has the meaning assigned to such term in paragraph 2 of this Agreement. "Company" has the meaning assigned to such term in the introductory sentence of this Agreement. "Competitor" means any Person who, at the time of determination, is commonly known to have a portion of its business in the same line of business as the Company or the Subsidiaries, or is commonly known to be an affiliate of such Person provided, that neither you, any of your affiliates, any Purchaser, any affiliate of any Purchaser, nor any Financial Institution (other than a finance company or a pension plan) shall be deemed to be Competitors. "Consolidated Debt" means, at any time, without duplication, the amount of Debt of the Company and the Restricted Subsidiaries outstanding at such time, determined on a consolidated basis. "Consolidated Fixed Charges" means, with respect to any period, the greater of zero and the amount of all expenses of the Company and the Restricted Subsidiaries during such period of the following types: (i) interest due on, or with respect to, Consolidated Debt (including, without limitation, interest due on the Notes), amortization of debt discount and expense with respect to Consolidated Debt, and imputed interest on Capitalized Lease Obligations, plus (ii) Rentals with respect to all leases, determined on a consolidated basis in accordance with generally accepted accounting principles; provided that, if the net earnings (or loss) of any Person shall not be taken into account pursuant to clauses (f) or (h) of the definition of "Consolidated Net Income" in determining Consolidated Net Income for any period in respect of which Consolidated Fixed Charges is being determined, all of the foregoing items attributable to such Person for such period shall only be taken into account to the extent that, in the aggregate, they exceed the net earnings of such Person, provided further that, if the net earnings (or loss) of any Person shall not be taken into account pursuant to clauses (c), (d) or (g) of the definition of "Consolidated Net Income" in determining Consolidated Net Income for any period in respect of which Consolidated Fixed Charges is being determined, all of the foregoing items attributable to such Person for such period shall be excluded from Consolidated Fixed Charges for such period. Exhibit A-48 As used in this definition, "Rentals" means, with respect to any period, all fixed payments which the lessee is required to make during such period by the terms of any lease of one year or more, but shall not include amounts required to be paid in respect of Capital Leases. "Consolidated Net Income" -- for any fiscal period means net earnings (or loss) after income taxes of the Company and the Restricted Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles, but excluding: (a) any gain or loss arising from the sale of capital assets (other than any gain or loss of less than $100,000 from any such sale); (b) any gain or loss arising from any write-up of assets subsequent to December 31, 1990 (other than as a consequence of a physical review of inventory or other assets), any gain arising from the acquisition of any Securities of the Company or any Restricted Subsidiary, or any other extraordinary item; (c) earnings of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary; (d) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such other Person prior to the date of such acquisition; (e) net earnings of any Person (other than a Restricted Subsidiary) in which the Company or any Restricted Subsidiary shall have an ownership interest unless such net earnings shall have actually been received by the Company or such Restricted Subsidiary in the form of cash distributions or cancellation of Debt; (f) any portion of the net earnings of any Restricted Subsidiary that for any reason is unavailable, by law or pursuant to any contractual restriction, for payment of dividends to the Company or any other Restricted Subsidiary; (g) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; and (h) any portion of the net earnings of the Company that cannot be converted into United States dollars; all determined in accordance with generally accepted accounting principles. "Consolidated Operating Cash Flow" means, for any period, Exhibit A-49 (a) Consolidated Net Income for such period, plus (b) the aggregate amount of depreciation and amortization accrued for such period by the Company and the Restricted Subsidiaries (to the extent, but only to the extent, each component of such aggregate amount was reflected in the computation of Consolidated Net Income for such period), determined on a consolidated basis. "Consolidated Senior Debt" means, at any time, without duplication, the amount of Senior Debt outstanding at such time, determined on a consolidated basis. "Consolidated Tangible Net Worth" means at any time: (a) the net book value (after deducting related depreciation, obsolescence, amortization, valuation and other proper reserves relating to such assets) at which the Tangible Assets of the Company and all Restricted Subsidiaries would be shown on a consolidated balance sheet at such time prepared in accordance with generally accepted accounting principles (subject to any modification required by the definition of "Tangible Assets" below), but excluding any amount on account of write-ups of assets after December 31, 1990 (other than as a consequence of a physical review of inventory or other assets), at such time, minus (b) the amount at which the liabilities of the Company and the Restricted Subsidiaries would be shown on such balance sheet, and including as liabilities all reserves for contingencies and other potential liabilities (specifically including therein, without limitation, actuarially determined unfunded vested pension liabilities and liabilities in respect of other post-retirement benefits) and all minority interests in Restricted Subsidiaries at such time, all determined in accordance with generally accepted accounting principles (subject to any modification required by the preceding parenthetical expression in this clause (b)), plus (c) if such time is on or after the Determination Date occurring nearest to December 31, 1993, $0, and if such time is prior to such Determination Date, (i) the aggregate amount paid by the Company to Compaq Computer Corporation during the Company's fiscal quarter ended October 3, 1992 for the purchase of outstanding shares of the Company 's common stock owned by Compaq Computer Corporation subject to an aggregate limit of $150 million, plus (ii) following the Acquisition Date, an amount representing intangibles, including goodwill, in an aggregate amount equal, on the relevant date of reference thereto, to the amount specified in the table below opposite the period during which such date occurs: Exhibit A-50
Period Amount =============================================================================== Acquisition Date to the Determination Date occurring nearest to $245,000,000 June 30, 1993, inclusive =============================================================================== From the date immediately following the Determination Date $215,000,000 occurring nearest to June 30, 1993 to the day immediately preceding the Determination Date occurring nearest to December 31, 1993, inclusive ===============================================================================
As used in this definition, "Tangible Assets" means all assets (including, without duplication, the capitalized value of any leasehold interest under any Capitalized Lease Obligation) except: (i) the aggregate amount of deferred assets, other than prepaid insurance and prepaid taxes, in excess of $10,000,000; (ii) patents, copyrights, trademarks, trade names, franchises, goodwill and other similar intangible assets; (iii) all Investments made pursuant to paragraph 6H(xx) and any other Investments not permitted by any other provision of paragraph 6H of this Agreement (except that "Tangible Assets" shall include outstanding Investments made pursuant to paragraph 6H(xx) at any time when "Consolidated Tangible Net Worth" is being determined for purposes of determining the amount of Investments which may be made pursuant to such paragraph); and (iv) unamortized debt discount and expense (other than not more than $6,500,000 of unamortized debt expense attributable to the issuance of Debt prior to the date hereof (which expense shall be included in "Tangible Assets"). "Consolidated Total Assets" means, at any time of determination, the net book value of all assets of the Company and the Restricted Subsidiaries that would be shown on a consolidated balance sheet of the Company and the Restricted Subsidiaries prepared at such time of determination in accordance with generally accepted accounting principles, excluding changes in the net book value of assets resulting from write-ups of assets subsequent to December 31, 1990 (other than as a consequence of a physical review of inventory or other assets). "Control Prepayment Date" has the meaning assigned to such term in paragraph 4E(iii) of this Agreement. Exhibit A-51 "Debentures" means the 6-3/4% Convertible Subordinated Debentures Due 2001 of the Company issued pursuant to that certain Indenture, dated as of March 1, 1991, between the Company and The First National Bank of Boston, as trustee, and the 6-1/2% Convertible Subordinated Debentures Due 2002 of the Company issued pursuant to that certain Indenture, dated as of March 1, 1992, between the Company and The First National Bank of Boston, as trustee. "Debt" of any Person, at any time, means (i) indebtedness for money borrowed of such Person; (ii) indebtedness that is secured by any Lien on Property owned by such Person, whether or not the indebtedness secured thereby shall have been assumed by such Person; (iii) Capitalized Lease Obligations of such Person; (iv) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) of such Person in connection with the obligations, stock or dividends of any other Person, provided that guarantees by such Person of contingent obligations of other Persons shall be excluded from this clause (iv); (v) obligations of such Person under any contract providing for the making of loans, advances or capital contributions to any other Person, or for the purchase of any Property from any other Person, in each case primarily in order to enable such other Person to maintain working capital, net worth or any other balance sheet condition or to pay debts, dividends or expenses, to the extent that such other Person is obligated to maintain such condition or make such payments and has failed to do so; (vi) obligations of such Person under any contract for the purchase of materials, supplies or other Property or services if such contract (or any related document) requires that payment for such materials, supplies or other Property or services shall be made regardless of whether or not delivery of such materials, supplies or other Property or services is ever made or tendered; and (vii) obligations under any other contract which, in legal effect, is substantially equivalent to a guarantee, provided that guarantees by such Person of contingent obligations of other Persons shall be excluded from this clause (vii), all as determined in accordance with generally accepted accounting principles, provided that such items shall only constitute Debt to the extent that, in accordance with generally accepted accounting principles, such items would be (and only to the extent such items would be) included in determining total liabilities as shown on the liability side of the balance sheet of such Person (assuming that such Person were the primary Exhibit A-52 obligor in respect of the underlying obligation with respect to any guarantee or other contingent obligation, as contemplated by the next succeeding sentence), provided further that, notwithstanding the foregoing, "Debt" shall not include (a) accrued compensation, (b) taxes payable and deferred taxes, (c) trade payables, including intercompany payables in the nature of trade payables, (d) any obligations payable, at the option of the obligor, in equity Securities of the obligor, (e) any guarantee or contingent liability or obligation with respect to any of the items set forth in the foregoing clauses (a) to (d), inclusive or (f) obligations of Archive and its Subsidiaries which would otherwise constituting "Debt" hereunder, to the extent that such obligations are repaid in full within 60 days following the Acquisition Date. For purposes of computing the amount of any obligation specified in either of the foregoing clauses (iv) and (vii), it shall be assumed that the indebtedness or other obligations which are the subject of such guarantee, endorsement or other contingent liability are direct obligations of the obligor on such guarantee, endorsement or contingent liability (but not in an amount in excess of the maximum liability of such obligor) and, therefore, are of the nature and type of, and bear interest at the rate applicable to, such indebtedness or other obligations. "Default" means any of the events specified in paragraph 7 of this Agreement, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Determination Date" means the last day of each fiscal quarter of the Company. "Environmental Protection Law" means any federal, state, county, regional or local law, statute, or regulation (including, without limitation, CERCLA, RCRA and SARA) enacted in connection with or relating to the protection or regulation of the environment, including, without limitation, those laws, statutes, and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing, or transporting of Hazardous Substances, and any regulations, issued or promulgated in connection with such statutes by any Governmental Authority and any orders, decrees or judgments issued by any court of competent jurisdiction in connection with any of the foregoing. As used in this definition, Exhibit A-53 "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended from time to time (by SARA or otherwise), and all rules and regulations promulgated in connection therewith; "Governmental Authority" means the government of the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any such government. "Hazardous Substances" has the meaning assigned to such term in 42 U.S.C. Section 9601(14), as amended from time to time. "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended, and any rules and regulations issued in connection therewith; and "SARA" means the Superfund Amendments and Reauthorization Act of 1986, as amended from time to time, and all rules and regulations promulgated in connection therewith. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any corporation or trade or business that (a) is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the IRC) as the Company or (b) is under common control (within the meaning of Section 414(c) of the IRC) with the Company. "Event of Default" means any of the events specified in paragraph 7 of this Agreement, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, at any time, with respect to any Property, the sale value of such Property that would be realized in an arm's-length sale at such time between an informed and willing buyer, and an informed and willing seller, under no compulsion to buy or sell, respectively. "Financial Institution" means (i) any bank, savings bank, savings and loan association or insurance company, (ii) any pension plan or portfolio or investment fund managed or administered by any bank, savings bank, savings and loan association or insurance company, (iii) any investment company owned by any bank, savings bank, savings and loan association or insurance company, or the majority of the shares of Exhibit A-54 the capital stock of which are traded on a national securities exchange or in the National Association of Securities Dealers automated quotation system, (iv) any investment banking company, or (v) any finance company. "Four Quarter Period" has the meaning assigned to such term in paragraph 6G(ii)(d)(II). "Inspection Rights" has the meaning assigned to such term in paragraph 5B of this Agreement. "Intellectual Property Rights" has the meaning assigned to such term in paragraph 8I(ii) of this Agreement. "Investment" has the meaning assigned to such term in paragraph 6H of this Agreement. "IRC" means the Internal Revenue Code of 1986, as amended from time to time, and all rules and regulations promulgated thereunder. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "Liquidity Coverage" means the ratio (expressed as a percentage) of (i) Cash Equivalents, to (ii) Senior Debt of the Company and the Restricted Subsidiaries, in each case determined on a consolidated basis. "Margin Stock" has the meaning assigned to such term in paragraph 8M of this Agreement. "Material Unrestricted Subsidiaries" shall be deemed to exist with respect to any consolidated financial statement of the Company and the Subsidiaries if the amounts of either revenue or total assets (as the case may be), reflected on such consolidated financial statement vary by more than 10% from the amount of the same item reflected on the same type of consolidated financial statement of the Company and the Restricted Subsidiaries, prepared as of the same date, or covering the same period, as the case may be. "Merger Date" means the date on which Archive is merged into Conner Acquisition Corp., a Delaware corporation and a wholly owned Subsidiary of the Company. "Multiemployer Plan" means any "multiemployer plan" (as such term is defined in ERISA) in respect of which the Company or any ERISA Affiliate is an "employer" (as such term is defined in ERISA). Exhibit A-55 "Multiple Employer Pension Plan" means any "employee pension benefit plan" (as such term is defined in ERISA) other than a Multiemployer Plan to which the Company or any ERISA Affiliate and an "employer" (as such term is defined in ERISA) other than an ERISA Affiliate or the Company contribute. "Notes" has the meaning assigned to such term in paragraph 1 of this Agreement. "Offer Notice" has the meaning assigned to such term in paragraph 4E(ii) of this Agreement. "Other Note Agreements" has the meaning assigned to such term in paragraph 2 of this Agreement. "Other Purchasers" has the meaning assigned to such term in paragraph 2 of this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation, and its successors and assigns. "Pension Plans" means any "employee pension benefit plan" (as such term is defined in ERISA) maintained by the Company or any ERISA Affiliate for employees of the Company or such ERISA Affiliate, excluding any Multiemployer Plan, but including, without limitation, any Multiple Employer Pension Plan. "Permitted Banks" has the meaning assigned to such term in paragraph 6H(viii)(c) of this Agreement. "Permitted Investment" has the meaning assigned to such term in paragraph 6H of this Agreement. "Permitted Transferee" means (i) any Financial Institution which is not a Competitor and (ii) any other proposed Transferee consented to in writing by the Company, which consent shall not be unreasonably withheld. "Person" means any of an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Preferred Stock" means, at any time, with respect to any Person, capital stock of such Person that is preferred as to the payment of dividends, or as to the distribution of Property on any voluntary or involuntary liquidation or dissolution of such Person, over any other class of capital stock of such Person (in each case, taken at the greater of its voluntary or involuntary liquidation preference at the time of calculation thereof, but exclusive of accrued dividends) provided that the term "Preferred Stock" shall not include preferred stock issued by Arcada Holdings, Inc. so long as Arcada Holdings, Inc. is a Restricted Subsidiary. Exhibit A-56 "Property" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Purchase Money Mortgages" means a Lien held by any Person (whether or not the seller of such assets) on tangible Property (other than assets acquired to replace, repair, upgrade or alter tangible Property owned by the Company or any Restricted Subsidiary on the date of this Agreement), provided that such Lien (a) secures all or a portion of the related purchase price or construction costs of such assets, (b) encumbers only tangible Property, accretions and accessions thereto and any theretofore unimproved real property on which such Property is located (and the proceeds of the disposition thereof) acquired or constructed with the proceeds of the indebtedness secured thereby, and (c) is created concurrently with or within one year of the acquisition or substantial completion of construction of such tangible Property. "Purchaser" means you and the Other Purchasers. "Required Holders" means the holder or holders of more than 50% of the aggregate principal amount of the Notes from time to time outstanding. "Responsible Officer" means each of the Chairman of the Board of Directors, the President, any Vice President and the Treasurer of the Company. "Restricted Payments" means, in respect of any corporation, (a) dividends or other distributions on capital stock of the corporation (except distributions in such capital stock); and (b) the redemption or acquisition made by or on behalf of such corporation of such capital stock or of warrants, rights, other options to purchase such stock or securities convertible into or exchangeable for such capital stock (except when solely in exchange for such capital stock) unless made, contemporaneously, from the net proceeds of a sale of such capital stock. "Restricted Subsidiary" means, at any time, any of a Subsidiary that is an Arcada Restricted Subsidiary and a Subsidiary (i) at least (a) 80% (a majority in the case of Conner Peripherals Europe or any Subsidiary organized under the laws of Japan, Taiwan or Singapore) of the Voting Stock of which, except directors qualifying shares and any shares issued to comply with local ownership legal Exhibit A-57 requirements (provided that such directors qualifying shares and other shares shall not represent in excess of 3% of the outstanding shares of the stock of any class of such Restricted Subsidiary and, after taking such shares into account, the Company shall, directly or indirectly, own a majority of the Voting Stock of such Subsidiary), and (b) 80% of all non-voting stock of every other class, except Preferred Stock, of which, is, at such time, owned by the Company either directly or through other Subsidiaries meeting the requirements of clause (i) and clause (ii) of this definition, and (ii) that has never been designated an Unrestricted Subsidiary by the Board of Directors pursuant to paragraph 6K of this Agreement. "Sale/Leaseback Transaction" means any transaction or series of related transactions in which the Company or a Restricted Subsidiary sells or transfers any of its assets to any Person (other than to the Company or to a Restricted Subsidiary) and within one year thereafter rents or leases such transferred Property or substantially similar Property from any Person. "Sale/Leaseback Transaction Amount" means, on any date, after giving effect to all Sale/Leaseback Transactions occurring on such date, the greater of (a) the present value, discounted at 9% per annum, of all unpaid payment obligations of the Company and the Restricted Subsidiaries in respect of all Sale/Leaseback Transactions in effect on such date, or (b) the depreciated purchase price of all Property subject to Sale/Leaseback Transactions at such time, on such date, "SEC Documents" means (i) the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1990, (ii) the Company's Annual Report on Form 10-K for such fiscal year, as filed with the Securities and Exchange Commission, and (iii) the Company's Registration Statement on Form S-1 filed with the Securities and Exchange Commission in connection with the issuance and sale of the Debentures. "Securities Act" shall mean the Securities Act of 1933, as amended. "Security" has the meaning specified in Section 2(1) of the Securities Act. "Senior Debt" means, at any time, Debt of the Company outstanding at such time that is not Subordinated Debt, except for Subordinated Debt that the Company has become obligated to prepay, redeem or otherwise purchase or acquire (other than obligations to make mandatory prepayments or mandatory redemptions scheduled at the time of issuance of such Subordinated Debt), and all Debt and Preferred Stock of Restricted Subsidiaries. Exhibit A-58 "Senior Debt Prepayments" means, at any time, an optional principal prepayment of Senior Prepayment Debt made in accordance with the following procedure: (a) such offer shall be made in writing by the Company, pro rata, to all holders of Senior Prepayment Debt with an outstanding principal amount at such time of at least $1 million, such pro rata portion to be determined on the basis of the principal amount of such Senior Prepayment Debt; (b) such offer shall be deemed to be rejected by a holder if not accepted within 30 days of the receipt of such offer by such holder; and (c) in the case of the holders of Notes who accept such offer, the prepayment shall be made in conformity with the terms of paragraph 4B of this Agreement, provided that those holders of Senior Prepayment Debt who have accepted such offer shall also be offered promptly in writing a pro rata portion of the amounts in respect of which such offer of prepayment was not accepted, such pro rata portion to be determined on the basis of the principal amount of the Senior Prepayment Debt held by all such accepting holders and provided further that such offer shall be deemed to be rejected by a holder if not accepted within 30 days of the receipt of such offer by such holder. Required prepayments of Senior Debt shall not be "Senior Debt Prepayments." As used in this definition "Senior Prepayment Debt" means, at any time, all Debt for money borrowed owed directly by the Company that is not at such time Subordinated Debt and which, at such time, can be prepaid in whole or in substantial part by the Company. "Series A Notes" has the meaning assigned to such term in paragraph 1 of this Agreement. "Series B Notes" has the meaning assigned to such term in paragraph 1 of this Agreement. "Significant Holder" means (i) you or any of your affiliates, so long as you or such affiliate shall hold (or shall be committed under this Agreement to purchase) any Note, (ii) during the period on or prior to March 30, 1996 (or such later date as of which all of the Series A Notes shall have been paid in full), any other holder of at least 2% of the aggregate principal amount of the Notes from time to time outstanding which is an immediate transferee of a Purchaser, and any other holder of at least 5% of the aggregate principal amount of the Notes from time to time outstanding and Exhibit A-59 (iii) at any time after March 30, 1996 (or such later date as of which the Series A Notes shall have been paid in full), any other holder of at least 5% of the aggregate principal amount of the Notes from time to time outstanding which is an immediate transferee of a Purchaser, and any other holder of at least 10% of the aggregate principal amount of the Notes from time to time outstanding. "Specified Debt" means that certain Indebtedness incurred by Conner Peripherals Europe S.p.A., in an aggregate principal amount (expressed in Italian Lire) equivalent to approximately $16,800,000 as of December 22, 1993, and not to exceed such principal amount except as a result of currency fluctuations, plus accrued interest in respect thereof, arising under the following agreements: (i) the agreement dated as of December 10, 1991, entered into with Finaosta S.p.A. in the original principal amount of Lire 9,000,000,000, (ii) the agreement dated as of December 29, 1992, entered into with Finaosta S.p.A., in the original principal amount of Lire 4,500,000,000, (iii) agreement dated as of June 25, 1991, entered into with Finaosta S.p.A., in the original principal amount of Lire 10,000,000,000, (iv) agreement dated as of October 31, 1989, entered into with I.M.I. Instituto Mobiliare Italiano and Olivetti System & Network S.r.l., in the original principal amount of Lire 10,350,000,000, and (v) agreement dated as of April 30, 1991, entered into with I.M.I. Instituto Mobiliare Italiano and Olivetti System & Network S.r.l., in the original principal amount of Lire 6,400,000,000. "Subordinated Debt" means the Debentures and any Debt of the Company that (a) is subject to subordination provisions no less favorable to the holders of the Notes than those set forth in the form attached to this Agreement as Annex 4 or other subordination provisions consented to by the Required Holders, (b) has a maturity date of later than March 30, 1998, and (c) has a Weighted Average Life to Maturity at any time greater than the Weighted Average Life to Maturity of both of the Series A Notes and the Series B Notes at such time. As used in this definition, "Weighted Average Life to Maturity" at any time with respect to any indebtedness for borrowed money means the number of years obtained by Exhibit A-60 dividing the then Remaining Dollar-Years of such indebtedness by the then outstanding principal amount of such indebtedness. "Remaining Dollar-Years" at any time with respect to any indebtedness for borrowed money means the result obtained by (a) multiplying (i) the amount of each then remaining required principal payment (including repayment of principal at final maturity) of such borrowing unpaid immediately prior to such time, by (ii) the number of years (calculated to the nearest one- twelfth) that will elapse between such time and the date each such required principal payment is due, and (b) calculating the sum of the products obtained in the preceding subsection (a). "Subsidiary" means, at any time, any corporation that would be included in the consolidated financial statements of the Company prepared at such time in accordance with generally accepted accounting principles. "Subsidiary Stock" means common stock, preferred stock, warrants, stock rights and other securities convertible into common stock and preferred stock, in each case issued by a Subsidiary. "Substantial Part" means, when used with respect to assets at any time, more than 10% of consolidated assets of the Company and the Restricted Subsidiaries at such time, and, when used with respect to Consolidated Net Income in respect of any period, more than 10% of Consolidated Net Income for such period. "Supplemental Disclosure Letter" means that certain letter addressed to each of the Purchasers, dated as of the Closing Date, executed by the Company and delivered on the Closing Date to each of the Purchasers. "Surviving Corporation" has the meaning assigned to such term in paragraph 6G(i)(a)(l) of this Agreement. "Three Year Disposition Measurement Period" has the meaning assigned to such term in paragraph 6G(ii)(d)(lll) of this Agreement. "Transfer" has the meaning assigned to such term in paragraph 6G(ii) of this Agreement. "Transferee" means any direct or indirect transferee of all or any part of any Note purchased by you under this Agreement. Exhibit A-61 "Two Year Period" has the meaning assigned to such term in paragraph 5A(iii)(d) of this Agreement. "Unrestricted Subsidiary" at any time means a Subsidiary other than a Restricted Subsidiary. "Voting Stock" means, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes has or might have such voting power by reason of the happening of any contingency). 11. MISCELLANEOUS. 11A. Note Payments. The Company agrees that, so long as you shall hold any Note, it will make payments of principal thereof and Yield-Maintenance Amount, if any, and interest thereon, that comply with the terms of this Agreement, by wire transfer of immediately available funds for credit to your account or accounts as specified in Annex 1 to this Agreement, or such other account or accounts in the United States as you may designate in writing, notwithstanding any contrary provision in this Agreement or in any Note with respect to the place of payment. You agree that, before disposing of any Note, you will make a notation thereon (or on a schedule attached to this Agreement) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11A to any Permitted Transferee that shall have made the same agreement as you have made in this paragraph 11A. 11B. Expenses. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to pay, and save you and any Permitted Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including (i) all document production and duplication charges and the fees and expenses of any special counsel engaged by you or any Permitted Transferee in connection with this Agreement, the transactions contemplated hereby and any subsequent proposed modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or proposed consent granted, and (ii) the costs and expenses, including attorneys' fees, incurred by you or any Permitted Transferee in enforcing any rights under this Agreement or the Notes or in responding to any subpoena or other legal process issued in connection with this Agreement or the transactions contemplated hereby or by reason of your or any Permitted Transferee's having acquired any Note, including without limitation costs and expenses incurred in any bankruptcy case, but excluding any of the foregoing (including transfer taxes) incurred in connection with the transfer of a Note to a Transferee, except as otherwise provided in paragraph 11D. The Exhibit A-62 obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by you or any Transferee and the payment of any Note. 11C. Consent to Amendments. This Agreement may only be amended, and the Company may only take any action prohibited in this Agreement, or omit to perform any act required in this Agreement to be performed by it, if the Company shall obtain the written consent of the Required Holders to such amendment, action or omission to act except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this Agreement shall change the maturity of any Note, or change the principal of, or the rate or time of payment of interest or any Yield-Maintenance Amount payable with respect to any Note, or affect the time, amount or allocation of any required prepayments, reduce the proportion of the principal amount of the Notes required with respect to any consent, or otherwise modify paragraph 4 of this Agreement. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used in this Agreement and in the Notes, the term "this Agreement" and references to this Agreement shall mean this Agreement as it may from time to time be amended or supplemented. 11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. (i) Form, Registration, Transfer and Exchange of Notes. The Notes are issuable as registered notes without coupons in denominations of at least Five Hundred Thousand Dollars ($500,000), except as may be necessary to reflect any principal amount not evenly divisible by Five Hundred Thousand Dollars ($500,000). The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes that the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue that were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. (ii) Lost Notes. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such Exhibit A-63 loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement (provided that the Company may require security in the case of a holder which is not a Financial Institution), or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note at the expense of such holder. (iii) Limitation on Transfer. No holder of Notes shall assign, sell, transfer, negotiate, or otherwise dispose of all or any of its Notes, or any part thereof, unless (a) the principal amount of Notes so assigned, sold, transferred, negotiated or disposed of is not less than the lesser of One Million Dollars or an amount equal to such holder's entire holding of Notes, and (b) the Transferee is a Permitted Transferee. 11E. Persons Deemed Owners; Participations. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and Yield-Maintenance Amount, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion, provided, that the Company shall have no obligations to any such participant by virtue of its having acquired a participation in all or part of any Note. 11F. Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Permitted Transferee, regardless of any investigation made at any time by or on behalf of you or any Permitted Transferee. Subject to the preceding sentence, this Agreement (together with the Annexes and Exhibits hereto and the Supplemental Disclosure Letter) and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter of this Agreement. 11G. Successors and Assigns. All covenants and other agreements in this Agreement contained by or on behalf of either of the parties to this Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of the parties to this Agreement (including, without limitation, any Permitted Transferee) whether so expressed or not. 11H. Disclosure to Other Persons. The Company acknowledges that the holder of any Note may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder, by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement to Exhibit A-64 (i) such holder's directors, officers, employees, agents and professional consultants, (ii) any other holder of any Note, (iii) any Permitted Transferee to which such holder offers to sell such Note or any part thereof, (iv) any Permitted Transferee to which such holder sells or offers to sell a participation in all or any part of such Note, (v) any federal or state regulatory authority having jurisdiction over such holder, (vi) the National Association of Insurance Commissioners or any similar organization, or (vii) any other Person to which such delivery or disclosure may be necessary (a) to comply with any law, rule, regulation or order applicable to such holder, (b) to respond to any subpoena or other legal process, (c) in connection with any litigation to which such holder is a party, or (d) in order to protect such holder's investment in such Note. You agree, and each Permitted Transferee by purchasing a Note agrees, that any information concerning the Company or the Subsidiaries that has been supplied to you or to such Permitted Transferee, as the case may be, by the Company or the Subsidiaries and identified in writing by the Company as confidential which is not, at the time supplied to you or to such Permitted Transferee, as the case may be, information available to the public, shall be treated as confidential by you or such Permitted Transferee, as the case may be, in accordance with the procedures and standards that you or such Permitted Transferee, as the case may be, generally apply to information of a confidential nature. 11I. Notices. All written communications provided for under this Agreement shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to you, addressed to you at the address specified for such communications in the Purchaser Schedule to this Agreement, or at such other address as you shall have specified to the Company in writing, (ii) if to any other holder of any Note, addressed to such other holder at such address as such other holder shall have specified to the Company in writing or, if any such other holder shall not have so specified an address to the Company, then addressed to such other holder in care of the last holder of such Note that shall have so specified an address to the Company, and Exhibit A-65 (iii) if to the Company, addressed to it at 3081 Zanker Road, San Jose, California 95134, Attention: Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing so long as such office is located in the United States of America; provided that any such communication to the Company may also, at the option of the holder of any Note, be delivered by hand to the Senior Vice President, Financial or Treasurer (or an equivalent officer) of the Company. Any notice described in this paragraph 11I shall be deemed given only upon receipt. 11J. Descriptive Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11K. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York. 11L. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. [Remainder of page intentionally blank. Next page is signature page.] Exhibit A-66 If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, CONNER PERIPHERALS, INC. By ---------------------------- Name: Title: The foregoing Agreement is hereby accepted as of the date first above written. [NAME OF PURCHASER] By -------------------------- Name: Title: [Signature page of the NOTE AGREEMENT dated as of March 29, 1991 of CONNER PERIPHERALS, INC. in respect of $80,000,000 in aggregate principal amount of its Series A Senior Notes Due March 30, 1996, and $25,000,000 in aggregate principal amount of its Series B Senior Notes Due March 30, 1998]. EXHIBIT A1 TO AMENDMENT NO. 5 AMENDED AND RESTATED SERIES A SENIOR NOTE CONNER PERIPHERALS, INC. Series A Senior Note Due March 30, 1996 No. RA- [Closing Date] $________ PPN: 208108 A@ 9 FOR VALUE RECEIVED, the undersigned, CONNER PERIPHERALS, INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to ______ or registered assigns, the principal sum of ______ DOLLARS ($______) on March 30, 1996 with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of eight and eighty-four one-hundredths percent (8.84%) per annum from April 1, 1991 until September 30, 1993, inclusive, nine and thirty-four one-hundredths percent (9.34%) per annum from October 1, 1993 until March 31, 1995, inclusive, and eight and eighty-four one- hundredths percent (8.84%) per annum on and after April 1, 1995 and to pay, as additional interest, over and above the foregoing rates of interest, interest at a rate of forty one-hundredths percent (0.40%) per annum at any time on and after October 1, 1993 when this Note does not have at such time an Acceptable Rating, in each case payable semi-annually on the thirtieth (30th) day of March and September in each year commencing with the later of September 30, 1991 or the interest payment date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield- Maintenance Amount (as defined in the Note Agreement referred to below) and, to the extent permitted by applicable law, any overdue payment of interest, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) the per annum rate of interest that is payable at such time on this Note as provided above (including any additional interest payable as provided above) plus two percent (2%) per annum, or (ii) the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time in New York City as its Prime Rate. Payments of principal, Yield-Maintenance Amount, if any, and interest are to be made as provided in the Purchaser Schedule attached as Annex 1 to the Note Agreement referred to below or at such other place as the holder hereof shall designate to the Company, in writing, in lawful money of the United States of America. This Note is one of a series of Series A Senior Notes (herein called the "Notes") issued pursuant to separate identical Note Agreements, each dated as of March 29, 1991 (collectively, as amended from time to time, the "Note Agreement"), between the Company EXHIBIT A1-1 and the respective original purchasers of the Notes named in the Purchaser Schedule attached thereto as Annex 1, and the holder hereof is entitled to the benefits and subject to the provisions thereof. As provided in the Note Agreement, this Note is subject to prepayment in whole or from time to time in part, in certain cases without a Yield-Maintenance Amount and in other cases with a Yield-Maintenance Amount, as specified in the Note Agreement. This Note is a registered Note and, as provided in the Note Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. The Company agrees to make prepayments of principal on the dates and in the amounts specified in the Note Agreement. In case an Event of Default, as defined in the Note Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Note Agreement. THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAW OF SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. CONNER PERIPHERALS, INC. By: -------------------- Name: Title: Exhibit A1-2 EXHIBIT A2 TO AMENDMENT NO. 5 AMENDED AND RESTATED SERIES B SENIOR NOTE CONNER PERIPHERALS, INC. Series B Senior Note Due March 30, 1998 No. RB- [Closing Date] $________ PPN: 208108 A# 7 FOR VALUE RECEIVED, the undersigned, CONNER PERIPHERALS, INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to ______ or registered assigns, the principal sum of ______ DOLLARS ($______) on March 30, 1998, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of nine and eight one-hundredths percent (9.08%) per annum from April 1, 1991 until September 30, 1993, inclusive, nine and fifty-eight one-hundredths percent (9.58%) per annum from October 1, 1993 until March 31, 1995, inclusive, and nine and eight one-hundredths percent (9.08%) per annum on and after April 1, 1995 and to pay, as additional interest, over and above the foregoing rates of interest, interest at a rate of forty one- hundredths percent (0.40%) per annum at any time on and after October 1, 1993 when this Note does not have at such time an Acceptable Rating, in each case payable semi-annually on the thirtieth (30th) day of March and September in each year commencing with the later of September 30, 1991 or the interest payment date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield-Maintenance Amount (as defined in the Note Agreement referred to below) and, to the extent permitted by applicable law, any overdue payment of interest, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) the per annum rate of interest that is payable at such time on this Note as provided above (including any additional interest payable as provided above) plus two percent (2%) per annum, or (ii) the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time in New York City as its Prime Rate. Payments of principal, Yield-Maintenance Amount, if any, and interest are to be made as provided in the Purchaser Schedule attached as Annex 1 to the Note Agreement referred to below or at such other place as the holder hereof shall designate to the Company, in writing, in lawful money of the United States of America. This Note is one of a series of Series B Senior Notes (herein called the "Notes") issued pursuant to separate identical Note Agreements, each dated as of March 29, 1991 (collectively, as amended from time to time, the "Note Agreement"), between the Company Exhibit A2-3 and the respective original purchasers of the Notes named in the Purchaser Schedule attached thereto as Annex 1, and the holder hereof is entitled to the benefits and subject to the provisions thereof. As provided in the Note Agreement, this Note is subject to prepayment in whole or from time to time in part, in certain cases without a Yield-Maintenance Amount and in other cases with a Yield-Maintenance Amount, as specified in the Note Agreement. This Note is a registered Note and, as provided in the Note Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. The Company agrees to make prepayments of principal on the dates and in the amounts specified in the Note Agreement. In case an Event of Default, as defined in the Note Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Note Agreement. THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAW OF SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. CONNER PERIPHERALS, INC. By:____________________ Name: Title: Exhibit A2-4 EXHIBIT B TO AMENDMENT NO. 5 CERTIFICATE OF CLOSING December 22, 1993 Conner Peripherals, Inc. 3081 Zanker Road San Jose, CA 95134 Attn: Mr. P. Jackson Bell Reference is made to that certain Fifth Amendment, dated as of December 22, 1993, in respect of those certain separate Note Agreements dated as of March 29, 1991, as amended through December 21, 1993, between Conner Peripherals, Inc. and the person identified therein as Purchaser, in respect of Conner Peripherals, Inc.'s Series A Senior Notes due March 30, 1996 and its Series B Senior Notes due March 30, 1998. In accordance with Section 4 of the Fifth Amendment, the undersigned hereby notify you that the conditions precedent set forth in such Section 4 have been satisfied. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By:______________________ Name: Title: Certificate of Closing December 22, 1993 Page 2 PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By:________________________ Name: Title: By:________________________ Name: Title: CIG & CO. c/o CIGNA Investments, Inc. By:_______________________ Name: Title: GENERAL AMERICAN LIFE INSURANCE COMPANY By:_________________________ Name: Title: EX-10.18 5 SUBLEASE AGREEMENT SUBLEASE AGREEMENT 195 SOUTH MILPITAS BOULEVARD MILPITAS, CALIFORNIA This Sublease (hereinafter the "Sublease") is made and entered into by and between GENERAL SIGNAL CORPORATION, a New York corporation (hereinafter "Sublessor"), and CONNER PERIPHERALS, INC. a Delaware corporation (hereinafter "Sublessee") for the Premises hereinafter described. Sublessor is the Tenant, as successor in interest to Telecommunications Technology, Inc. ("TTI"), under that certain Net Lease Agreement for the Premises between the Bryan Family Partnership II, Ltd. (the ultimate successor in interest to CAMSI II, a California general partnership), as Landlord, and TTI, as Tenant, dated December 20, 1985, as supplemented and amended by that certain Addendum to the Net Lease Agreement, that certain First amendment to Lease dated October 24, 1986, and that certain Second Amendment to Lease dated September 30, 1988, a copy of which is attached hereto as Exhibit "X" to the Sublease (hereinafter the "Master Lease"). The Bryan Family Partnership II, Ltd., Landlord under the Master Lease, is hereinafter referred to as the "Master Lessor". Sublessor hereby leases to Sublessee and Sublessee hereby hires from Sublessor the Premises for the term and on and subject to the terms, conditions, covenants and agreements hereinafter set forth. 1. Premises. The Premises shall consist of that certain approximately Seventy-Seven Thousand Two Hundred (77,200) square foot building located in the City of Milpitas, County of Santa Clara, State of California, shown cross-hatched on Exhibit "Y" attached hereto and incorporated herein by this reference, and commonly referred to as 195 South Milpitas Boulevard. Sublessee also shall have the following appurtenant rights with respect to the real property on which the Premises are located, which is described in Exhibit "Z" attached hereto and incorporated herein by this reference (hereinafter the "Common Area"): (i) the exclusive right to use the parking spaces located in the Common Area (the location of which may be redesignated from time to time by the Master Lessor without affecting Sublessee's obligations under this Sublease); and (ii) such other rights as are necessary and convenient to Sublessee's use and possession of the Premises or performance of Sublessee's obligations under this Sublease. (Notwithstanding the number of parking spaces existing as of the commencement of the Term of this Sublease, in the event by reason of any rule, regulation, order, law, statute or ordinance of any governmental or quasi-governmental authority relating to or affecting parking on the Common Area, or any other cause beyond the Master Lessor's reasonable control, the Master Lessor is required to reduce the number of parking spaces on the Common Area, the Master Lessor shall have the right to proportionately reduce the number of parking spaces available for Sublessee's exclusive use without affecting Sublessee's obligations under this Sublease.) In addition, Sublessee shall have a non-exclusive easement for vehicular ingress and egress in and over the paved roadways in the Common Area and pedestrian ingress and egress in and over the Common Area. Except for the right of Sublessor and/or Master Lessor to enter upon and use the Common Area as may be necessary for the performance of their respective obligations under this Sublease and/or the Master Lease, and subject to conditions, covenants, restrictions, easements and encumbrances of record, Sublessee shall have the exclusive right to use the Common Area; provided, however, that Sublessee's rights to use that portion of the Common Area marked by the dashed lines on Exhibit "Y" shall be subject to the terms and conditions of that certain Deed from Beatrice C. Wrigley to the City and County of San Francisco dated October 31, 1949, and recorded November 14, 1949, Book 1875, Page 312 of the Official Records, Santa Clara County and that certain San Francisco Water Department Land Use Permit by and between the City and County of San Francisco and Master Lessor's predecessor in interest, dated 1 June 21, 1984 and recorded July 3, 1984 at Book I 692, Pages 502-509 of the Official Records, Santa Clara County. Sublessor and Sublessee acknowledge and agree that the building referred to in the Master Lease as 185 South Milpitas Boulevard and the building commonly referred to as 195 South Milpitas Boulevard are one and the same and said building constitutes the Premises under this Sublease. Sublessor and the Sublessee also agree that the information printed on Exhibit "Y" regarding the Premises is for reference only and does not constitute a representation or warranty by Sublessor as to the accuracy of such information. 2. Term. Subject to the condition precedent in Paragraph 12 of this Sublease, the Term of this Sublease shall commence on the date Sublessor delivers possession of the Premises to Sublessee (and Sublessor shall deliver possession of the Premises to Sublessee promptly upon satisfaction of the condition precedent in Paragraph 12), and, unless sooner terminated as hereinafter provided, shall end on April 27, 1996. 3. Rent. Sublessee shall pay to Sublessor as basic rent ("Rent") for the Premises the sum of Fifty Seven Thousand Nine Hundred Dollars ($57,900.00) per month. The Rent shall be due and payable in advance on or before the first day of each and every calendar month during the Term of this Sublease, shall be paid to Sublessor at the address designated in this Sublease for notices to Sublessor, or at such other address as Sublessor shall designate in writing, and shall be paid in lawful money of the United States without deduction, offset, prior notice or demand. The Rent shall be pro-rated for any partial month during the Term of the Sublease. The foregoing notwithstanding, the Rent for the first month, or partial month, of the Term of the Sublease shall be payable on the commencement date of this Sublease. 4. Additional Rent. In addition to the Rent payable by Sublessee during the Term of this Sublease, from and after the commencement date of the Sublease, Sublessee shall pay to Sublessor (unless Sublessor otherwise directs Sublessee in writing) as Additional Rent, at the times specified in and otherwise in accordance with the terms of the Master Lease, all Taxes (as defined in the Master Lease), insurance premiums, charges for Services (as defined in the Master Lease), maintenance costs, Operating Expenses (as defined in the Master Lease), and other charges, costs and expenses that Sublessor is required to pay under the Master Lease, it being understood and agreed by Sublessor and Sublessee that this Sublease is to be a net lease as to Sublessor and that Sublessee, therefore, shall pay any and all amounts and shall perform all acts which Sublessor is obligated to pay and/or perform under the Master Lease (except for the difference between the basic Rent payable by Sublessee under this Sublease and the basic Rent payable by Sublessor under the Master Lease or amounts Sublessor may become obligated to pay by reason of a breach of the Master Lease by an act or omission of Sublessor). Sublessor reserves the right to direct Sublessee to make payments constituting Additional Rent directly to the Master Lessor or to other third parties, and concurrently with the payment thereof, Sublessee shall give Sublessor written notice (and/or such other reasonable documentation as Sublessor may request) confirming the making of any such payment and the amount thereof. 5. Use. The Premises shall be used for electronic research and development, assembly, manufacturing and warehousing, and related office uses, but the Premises shall not be used for any other purpose or purposes whatsoever. 6. Services. It is understood and agreed by Sublessee that the obligations imposed on the Landlord under Paragraphs 6.2, 10.1, 11.2, 15.2.1, 15.2.2 and 15.3.1 of the Master Lease are obligations of the Master Lessor, and Sublessee will look solely to said Master Lessor to perform said obligations. 2 Sublessor shall permit Sublessee to make demand on the Master Lessor in Sublessor's name to perform such obligations, and Sublessor shall reasonably cooperate with Sublessee to enable Sublessee to make such demand, provided that Sublessee agrees to pay all expenses incurred in connection with any such demand and Sublessor's cooperation therewith, and to indemnify, defend and hold harmless Sublessor against and from any claim, demand, liability, cost and expense, including without limitation attorneys' fees, arising out of or resulting from making or prosecuting any such demand and Sublessor providing any such cooperation. Sublessee acknowledges and agrees that this Sublease shall be a net lease as to Sublessor and that Sublessor shall have no obligations to provide or to perform for the benefit of Sublessee any services, utilities, improvements (other than those already in place at the commencement of the Term of this Sublease), maintenance or repairs. 7. Condition of Premises. Sublessee agrees that by taking possession of the Premises it shall be deemed to have accepted the Premises and the Common Area as being in good and sanitary order, condition and repair and to have accepted the Premises and the Common Area in their condition existing as of the date Sublessor delivers possession of the Premises to Sublessee, subject to all applicable laws, covenants, conditions, restrictions, easements and other matters of public record and the rules and regulations from time to time promulgated by the Master Lessor governing the use of the Premises and the Common Area. Sublessee further agrees (i) that Sublessor has no obligation to repair, paint, improve or otherwise alter the Premises or the Common Area (and that Sublessee is accepting the Premises and Common Area in their "AS-IS" condition as of the commencement of the Term of the Sublease), (ii) that neither Sublessor nor Sublessor's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Sublessee's business, the condition of the Premises (except as otherwise expressly set forth in Paragraph 13 of this Sublease), or the use or occupancy which may be made thereof, and (iii) that Sublessee has independently investigated the Premises and matters related to Sublessee's use thereof and is satisfied that the Premises are suitable for Sublessee's intended use and that the Premises meet all governmental requirements for such intended use. 8. Subject to Master Lease. This Sublease is subject and subordinate to the Master Lease, and to all of the provisions thereof; and Sublessee shall not commit any act or omit to perform any act that will constitute a breach of the Master Lease. At any time, or from time to time, Sublessor, by prior written notice to Sublessee, can elect to require Sublessee to perform its obligations (or any of same) under this Sublease directly to the Master Lessor, in which case Sublessee agrees to do so and to provide to Sublessor (i) copies of any and all notices or other communications it shall give to or receive from the Master Lessor at the time that any such notice or other communication is given or received, and (ii) written confirmation that any such obligation has been performed. Sublessor represents that, subject to the condition precedent specified in Paragraph 12 of this Sublease, it has the right to enter into this Sublease and this Sublease does not violate any provision of the Master Lease. Sublessor further represents and warrants that the copy of the Master Lease attached hereto as Exhibit "X" is a true, correct and complete copy of the entire Master Lease and all amendments relating thereto, that such Master Lease is in full force and effect as of the date hereof and will be in full force and effect as of the commencement date of the Sublease term, and that there currently is no Default by Tenant (as that phrase is defined in the Master Lease), default by the Master Lessor, or, to the best of Sublessor's knowledge, other event which (with the giving of notice or the passage of time or both) could constitute a Default by Tenant or default by the Master 3 Lessor under the Master Lease, nor shall any such Default by Tenant or default by the Master Lessor, or, to the best of Sublessor's knowledge, such other event, have occurred prior to the commencement date of the Sublease term. In addition, so long as Sublessee is not in default of its obligations under this Sublease, Sublessor shall (a) keep the Master Lease in effect, (b) not amend or waive any provisions thereof without Sublessee's prior written consent, which shall not be unreasonably withheld or delayed, (c) pay the Rent due under the Master Lease and, unless relieved of such obligation as provided herein, comply with its obligation under Paragraph 8.2(a) of the Master Lease (as it reads in the Second Amendment to Lease) to maintain the insurance coverage specified therein, and (d) reasonably cooperate with Sublessee as provided in Paragraph 6 of this Sublease in connection with enforcing the performance of the obligations of the Master Lessor under the Master Lease. The foregoing notwithstanding, if the Master Lease is terminated for any reason, whether by the Master Lessor, Sublessor or otherwise (including, without limitation, termination by Sublessor as permitted under Paragraphs 15.3.2 and 15.4 of the Master Lease (subject to Sublessee's right to prevent such termination as provided in this Sublease)), this Sublease shall terminate (without any liability on the part of Sublessor to Sublessee by reason of such termination, except as hereinafter expressly provided), and the parties shall be relieved of any further liabilities and obligations under this Sublease (other than those that survive termination); provided, however, if this Sublease is terminated due to a default under the Master Lease, the party committing the act or omission that constitutes the default under the Master Lease shall be liable to the non-defaulting party for any liabilities, damages, costs and expenses, including without limitation attorneys' fees, incurred or suffered by the non-defaulting party as a result of or in connection with the termination, and such defaulting party hereby agrees to indemnify, defend and hold harmless the non-defaulting party against and from such liabilities, damages, costs and expenses. 9. Incorporation by Reference/Assumption. The terms, covenants and conditions contained in the Master Lease (a copy of which is attached hereto as Exhibit "X") are incorporated by this reference into this Sublease and shall be a party hereof to the extent and in the manner hereinafter specified, and Sublessee agrees to be bound by and perform such terms, covenants and conditions of the Master Lease. (a) The following terms, covenants and conditions of the Master Lease are not incorporated by reference into this Sublease and shall not be a part thereof: Paragraphs 1, 2, 3, 4.1, 8.1, 30.2(a), 37, 42, The Addendum to the Net Lease Agreement (consisting of Paragraphs 43, 44, 45, 46, 47, 48, 49, and 50 of the Master Lease), Exhibits to the Master Lease (including Exhibits A, B and C), and the First Amendment to Lease. (b) The following terms, covenants and conditions of the Master Lease are incorporated by reference into this Sublease and shall be a part thereof, except that the term "Tenant" as used therein shall mean the Sublessee and the term "Landlord" as used therein shall mean the Sublessor: Paragraphs 4.2, 4.3, 7, 8.2(c), 8.3, 8.5, 8.6, 9, 12.2, 14, 15.6, 15.7, 15.8, 15.9, 16, 19, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30.1, 30.2(b), 30.2(c), 30.3, 30.4, 30.5, 30.6, 30.7, 30.8, 30.9, 30.10, 30.11, 33, 34, 36, 38, 39, and 40. (c) The following terms, covenants and conditions of the Master Lease are incorporated by reference into the Sublease and shall be a part thereof, except that the term "Tenant" as used therein shall mean the sublessee and the term "Landlord" as used therein shall mean both the Sublessor and the Master Lessor: Paragraphs 6.1, 6.3, 8.2(a) (as it reads in the Second Amendment 4 to Lease, which is incorporated by reference into the Sublease), 8.2(b), 8.2(d), 8.4, 10.2, 12.1, 17, 18, 20, 31, 32, and 35. (d) The following terms, covenants and conditions of the Master Lease are incorporated by reference into the Sublease and shall be a part thereof, except that the term "Tenant" as used therein shall mean the Sublessee and the term "Landlord" as used therein shall mean only the Master Lessor: Paragraphs 6.2, 10.1, 11, 13, 15.1, 15.2, 15.3, 15.4, 15.5, and 41. (e) The foregoing notwithstanding, Sublessor and Sublessee agree that: (1) As to Paragraph 6.2 of the Master Lease, Sublessee's obligation to promptly comply, at Sublessee's sole cost, with all laws, statutes, ordinances, rules, regulations, orders or requirements shall include, without limitation, the obligation to comply with the provisions of the Americans with Disabilities Act ("ADA") (and Sublessor makes no representation or warranty that the Premises and Common Area are in compliance with the provisions of the ADA, nor shall the Sublessor be responsible for bringing the Premises and Common Area into compliance with the provisions of the ADA). (2) As to Paragraph 7 of the Master Lease, to the extent it references Taxes laid, levied, assessed or imposed upon Landlord, such reference shall mean any such Taxes laid, levied, assessed or imposed upon Sublessor and/or the Master Lessor. In addition, the insert to Paragraph 7.3(a) of the Master Lease that is referenced by an asterisk shall refer to assessments existing as of the commencement date of the Sublease term. (3) As to Paragraph 8.2(a) of the Master Lease (as such Paragraph is amended and made a part of the Master Lease by the Second Amendment to Lease), Sublessor shall continue to obtain and maintain the "all risk" property insurance, including the rental income insurance, required thereunder, and Sublessee shall pay to Sublessor, as Additional Rent, the amount of the premium and shall be responsible for any deductible (said payments to be made by Sublessee upon presentation of an invoice therefor by Sublessor); and in the event Sublessor maintains such "all risk" insurance as part of a blanket policy, the amount to be reimbursed by Sublessee hereunder shall be reasonably determined by Sublessor on the basis of what such coverage would cost if a separate policy were obtained for the Premises but then allowing a reasonable discount to account for the fact that the coverage is maintained as part of a blanket policy. The foregoing notwithstanding, Sublessee shall be entitled to obtain and maintain the insurance required under Paragraph 8.2(a) of the Master Lease, provided that Sublessee first obtains the written consent thereto of the Master Lessor and the Master Lessor's written agreement that maintenance of such insurance by Sublessee shall be in lieu of Sublessor maintaining the insurance and Sublessor shall be relieved of its obligation to do so under the Master Lease. (4) As to Paragraph 8.2(d) of the Master Lease, the insert appearing on Page 5-A of the Master Lease that is referenced by the three asterisks shall not be a part of the Sublease. (5) As to Paragraph 10.1 of the Master Lease, the insert denoted by one asterisk in the margin regarding the landlord's obligation to reseal and restripe the parking lot and wash the exterior of the Premises shall not be a part of the Sublease. (6) As to Paragraph 12.1 of the Master Lease, the reference to the "Landlord" in the sixth to the last line thereof shall refer only to the Master Lessor. 5 (7) As to Paragraph 12.2 of the Master Lease, the time and method of payment and accounting for all Operating Expenses payable under this Sublease shall be in the same manner as required by the Master Lessor under the Master Lease. (8) As to the last sentence of Paragraph 13.1 of the Master Lease, Sublessee shall be entitled to make structural changes to the Premises provided that Sublessee first obtains the written consent of the Master Lessor authorizing such changes. (9) As to Paragraphs 15.3.2 and 15.4 of the Master Lease, their incorporation by reference into the Sublease shall not be construed to modify or limit Sublessor's right to terminate the Master Lease (without incurring any liability to Sublessee) under the circumstances specified therein. The foregoing notwithstanding, Sublessor shall immediately provide to Sublessee, by personal delivery or via telecopier, copies of the Master Lessor's notice of termination (in the case of Paragraph 15.3.2 of the Master Lease) or estimate of the time needed to complete repair or restoration of the Premises (in the case of Paragraph 15.4 of the Master Lease), and: (i) in the case of Paragraph 15.3.2, Sublessor shall not exercise its right to terminate the Master Lease and, instead, will give the Master Lessor the written notice required under Paragraph 15.3.2 to keep the Master Lease in effect, if Sublessee gives written notice to Sublessor, by personal delivery or via telecopier not less than three (3) days prior to the expiration of the ten (10) day period specified in Paragraph 15.3.2 of the Master Lease, stating (a) that Sublessee does not want Sublessor to terminate the Master Lease, (b) that Sublessee will pay all costs and perform all other obligations required under Paragraph 15.3.2 of the Master Lease to keep the Master Lease in effect, (c) that Sublessee waives its right to terminate the Sublease pursuant to Paragraph 15.3.2 on account of the damage or destruction giving rise to the Master Lessor's notice, and (d) that from and after the date of Sublessee giving the notice to Sublessor the Rent payable by Sublessee to Sublessor under this Sublease shall be the same amount as the Rent payable by Sublessor to the Master Lessor under the Master Lease, as said Rent may be adjusted under the terms of the Master Lease; and (ii) in the case of Paragraph 15.4, Sublessor shall not exercise its right to terminate the Master Lease if Sublessee gives written notice to Sublessor, by personal delivery or via telecopier not less than three (3) days prior to the expiration of the ten (10) day period specified in Paragraph 15.4 of the Master Lease, stating (a) that Sublessee does not want Sublessor to terminate the Master Lease, (b) that Sublessee waives its right to terminate the Sublease pursuant to Paragraph 15.4 on account of the damage or destruction giving rise to the Master Lessor's notice, and (c) that from and after the date of Sublessee giving the notice to Sublessor the Rent payable by Sublessee to Sublessor under this Sublease shall be the same amount as the Rent payable by Sublessor to the Master Lessor under the Master Lease, as said Rent may be adjusted under the terms of the Master Lease. The parties agree that in the event Sublessee gives the notice described herein to Sublessor, Paragraph 3 of this Sublease shall thereby, without any further action on the part of Sublessee or Sublessor being required, be amended to provide that the Rent payable under this Sublease shall be the same as the Rent payable by Sublessor to Master Lessor under the Master Lease, as said Master Lease Rent may be adjusted pursuant to the Master Lease; but the other terms and conditions of the Sublease shall remain the same and in full force and effect. (10) As to Paragraph 18 of the Master Lease, Sublessor agrees that so long as Sublessee is not in default of its obligations under the Sublease, and provided the entry into the Premises is not for the purpose of protecting the Premises in the event of an emergency, Sublessor, in exercising its rights under said Paragraph 18, shall be accompanied by a representative 6 of Sublessee while Sublessor is on the Premises, and shall comply with all reasonable securrity measures from time to time requested in writing by Sublessee. Sublessor further agrees that even if Sublessee is in default of its obligations under the Sublease, Sublessor, in exercising its rights under Paragraph 18 of the Master Lease, will comply with those reasonable security measures requested in writing by Sublessee that do not unreasonably interfere with the exercise of Sublessor's rights under said Paragraph 18. (11) As to Paragraph 22 of the Master Lease, the address for notices to Sublessor shall be: General Signal Corporation P.O. Box 10010 Stamford, CT 06904 Attention: General Counsel with a copy to: Hoffman, Finney & Klinedinst 351 California Street Suite 800 San Francisco, CA 94104 Attention: Kenneth H. Finney and the address for notices to Sublessee shall be: Conner Peripherals, Inc. 3081 Zanker Road M/S 4408 San Jose, CA 95134-2128 Attention: Marla Ann Stark, Esq. with a copy to: Conner Peripherals, Inc. 3081 Zanker Road M/S 4408 San Jose, CA 95134-2128 Attention: Mr. Carl Neun with a copy to: Conner Peripherals, Inc. 311 Turquoise Street Milpitas, CA 95035 Attention: Mr. Ed Roney provided, however, that this shall not preclude Sublessor from giving notices to Sublessee at the Premises as permitted by said Paragraph 22. In addition, anything in Paragraph 22 of the Master Lease to the contrary notwithstanding, the notices that can be given by Sublessee to Sublessor pursuant to Paragraph 9(e)(9) of this Sublease must be given by personal delivery or via telecopier. (12) As to Paragraph 24.2 of the Master Lease, Sublessee understands and agrees that Sublessor, in turn, shall have to follow the procedures specified therein vis-a-vis the Master Lessor, including without limitation obtaining the Master Lessor's consent to any proposed assignment or subletting by Sublessee, and that the refusal by the Master Lessor to consent to any such proposed assignment or subletting by Sublessee shall, without more, entitle Sublessor to withhold its consent (and the withholding of Sublessor's consent under these circumstances shall be presumptively reasonable). (13) As to Paragraph 24.5 of the Master Lease, the interlineation denoted by three asterisks in the margin shall not be incorporated into the Sublease. (14) As to Paragraph 26 of the Master Lease, the interlineation denoted by four asterisks shall not be part of the Sublease, and the obligations specified in Paragraph 26 pursuant to which Sublessee must give notice to any beneficiary of a deed 7 of trust affecting the Premises of a default by the "Landlord" shall refer to a default by the Master Lessor. In addition, the second sentence of such Paragraph 26 shall not be incorporated into this Sublease. (15) As to Paragraph 39 of the Master Lease, Sublessee understands and agrees that Sublessor is not responsible for the acts or omissions of the Master Lessor and/or any third party that succeeds the Master Lessor, and, accordingly, Sublessor shall not be liable to Sublessee for a breach of said Paragraph 39 that arises out of or results from an act or omission of the Master Lessor or any such successor to the Master Lessor. (16) As to any paragraphs in the Master Lease in which the term "Landlord" has been deemed to mean either the Master Lessor alone or both the Master Lessor and the Sublessor (such as, by way of example, Paragraphs 10.1 and 10.2), and a payment is to be made to the "Landlord" by Sublessee, such payment shall be made to Sublessor, unless Sublessor otherwise instructs Sublessee in writing. (17) As to Paragraph 8.6 of the Master Lease, for purposes of the release and waiver given by Sublessee, the property covered, and the circumstances under which the release and waiver apply, the term "Landlord" as used therein shall mean both the Sublessor and the Master Lessor. (18) The term "Lease," as used in the Master Lease shall mean this Sublease and/or the Master Lease as appropriate to effectuate the parties' intention to incorporate the terms, covenants and conditions of the Master Lease into this Sublease. 10. Indemnity. In addition to, and not in lieu of other indemnities given by Sublessee, including without limitation the indemnities in Paragraph 8.4 of the Master Lease and in Paragraph 13 of this Sublease, Sublessee hereby agrees to indemnify, defend and hold harmless Sublessor against and from any claims, demands, liabilities, damages, costs and expenses, including without limitation attorneys' fees, arising out or resulting from (i) a breach by Sublessee of any term, covenant or condition of this Sublease, including without limitation any act or omission by Sublessee that constitutes a breach of the Master Lease, and (ii) the making by Sublessee of any "alterations" (as that term is defined in Paragraph 13.1 of the Master Lease) in, on, about or to the Premises, on any part thereof, including without limitation any structural changes permitted in accordance with Paragraph 9(e)(8) of this Sublease. This provision shall survive termination of this Sublease. 11. Right to Reenter. Sublessor, in addition to any other rights it may have under this Sublease or at law upon the occurrence of a breach of this Sublease by Sublessee, shall have the right to reenter and retake possession of the Premises from Sublessee, and to remove all persons and property from the Premises and the Common Area, any property that is so removed to be stored in a public warehouse or elsewhere at the cost of and for the account of Sublessee. No such reentry or retaking of possession of the Premises by Sublessor pursuant to this provision shall be construed as an election to terminate this Sublease unless a written notice of such termination is given to Sublessee. 12. Condition Precedent. Sublessee understands and agrees that it is a condition precedent to this Sublease that the Master Lessor give its prior written consent to this Sublease in accordance with the terms of the Master Lease. In the event the Master Lessor does not give its written consent to this Sublease in accordance with the terms of the Master Lease, either party, 8 at its option, may thereafter terminate this Sublease by giving written notice of termination to the other party; and neither Sublessor nor Sublessee shall have any liability to the other in the event of such termination by reason of the failure of the Master Lessor to give its consent. The consent of the Master Lessor shall include: (i) the Master Lessor's certification that (a) the Master Lease attached hereto as Exhibit "X" constitutes the entire Master Lease and all amendments relating thereto, (b) the Master Lease is in full force and effect, and (c) there currently is no Default by Tenant (as that phrase is defined in the Master Lease), default by the Master Lessor, or, to the best of Master Lessor's knowledge, other event which (with the giving of notice or the passage of time or both) could constitute a Default by Tenant or default by the Master Lessor under the Master Lease; (ii) the Master Lessor's agreement (a) to give Sublessee copies of any written notice given to Sublessor of any default under the Master Lease or events of which the Master Lessor has knowledge that (with the giving of further notice or the passage of time or both) would constitute a default under the Master Lease, at the same times and in the same manner as such notices are given to Sublessor, and (b) to accept tender of payment or performance by Sublessee to remedy any such default; (iii) a waiver of subrogation in favor of Sublessee on and subject to the same terms and conditions as are contained in Paragraph 8.6 of the Master Lease; (iv) the Master Lessor's agreement to adhere to the same restrictions on entry into the Premises imposed on Sublessor under Paragraph 9(e)(10) of this Sublease; and (v) the Master Lessor's agreement that its consent to a sublet of the Premises or assignment of this Sublease will not be required in connection with a subletting or assignment described in Paragraph 16 of this Sublease. 13. Environmental Indemnities. ------------------------- (a) Neither Sublessee nor its agents, contractors, employees, invitees, assignees or sublessees shall transport, store, use or dispose of any Hazardous Materials in, on or about the Premises or Common Area without the prior written consent of Sublessor, which Sublessor shall not unreasonably withhold so long as Sublessee demonstrates to Sublessor's reasonable satisfaction that any such Hazardous Materials are necessary or useful to Sublessee's business at the Premises and will be brought upon the Premises, stored, used and/or disposed of in compliance with all federal, state and local laws, rules, regulations, ordinances, and other requirements applicable to any such Hazardous Materials. Sublessee, in any event, at its sole cost and expense, shall comply with all federal, state and local laws, rules, regulations, ordinances, and other requirements applicable to Sublessee's transport, storage, use and/or disposal of Hazardous Materials in, on or about the Premises, and Sublessee shall be solely responsible for and shall indemnify, defend and hold harmless Sublessor and the Master Lessor from and against any and all claims, costs, liabilities, losses, damages, obligations and expenses, including without limitation attorneys' fees, arising out of or resulting from Sublessee or its agents, contractors, employees, invitees, assignees or sublessees transporting, storing, using and/or disposing of or otherwise releasing Hazardous Materials in, on or about the Premises or the Common Area. The foregoing indemnity shall include, without limitation, all claims, costs, liabilities, losses, damages, obligations and expenses, including attorneys' fees, arising out of or resulting from any investigation, testing, monitoring, removal, cleanup, restoration and/or other remedial work required by any federal, state, or local government agency or political subdivision, required by reason of any action initiated by a private party, or otherwise necessitated by reason of any use, storage, disposal or release of Hazardous Materials in, on or around the Premises or the Common Area by Sublessee or its agents, contractors, employees, invitees, assignees or sublessees. 9 (b) Sublessor represents and warrants to Sublessee that to the best of Sublessor's actual knowledge there are no Hazardous Materials present in, on or about the Premises or the Common Area as of February 1, 1993. Sublessor shall be solely responsible for and shall indemnify, defend and hold harmless Sublessee from and against any and all claims, costs, liabilities, losses, damages, obligations and expenses, including without limitation attorneys' fees, arising out of or resulting from a breach of the foregoing representation and warranty by Sublessor and/or any use, storage, disposal or release of Hazardous Materials by Sublessor or its agents in, on or about the Premises or the Common Area prior to the commencement of the Term of the Sublease. Said indemnity shall include, without limitation, all claims, costs, liabilities, losses, damages, obligations and expenses, including attorneys' fees, arising out of or resulting from any investigation, testing, monitoring, removal, cleanup, restoration and/or other remedial work required by any federal, state or local government agency or political subdivision, required by reason of any action initiated by a private party, or otherwise necessitated by reason of any use, storage, disposal or release of Hazardous Materials in, on or around the Premises or the Common Area by Sublessor or its agents prior to the commencement of the Term of the Sublease. (c) The term Hazardous Materials, as used herein, shall mean all hazardous, toxic, and/or radioactive materials, substances, and wastes, and shall include, without limitation, all materials, substances, and wastes, defined as "hazardous substances", "hazardous materials", or "toxic substances" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq, the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq, the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq, or those materials, substances and wastes defined as "hazardous wastes" in Section 25117 of the California Health & Safety Code or as "hazardous substances" in Section 25316 of the California Health & Safety Code, petroleum and petroleum products, and any other materials, substances or wastes defined as hazardous, toxic or radioactive in any laws, regulations, statutes, ordinances or rules adopted or promulgated by and federal, state or local government agency. (d) Sublessee's and Sublessor's indemnity obligations under this Paragraph 13 shall survive the termination of this Sublease. If at any time during or after the term of this Sublease Sublessor or Sublessee becomes aware of any inquiry, investigation, administrative proceeding, or judicial proceeding by any governmental agency or any action by a private party regarding the presence of any Hazardous Materials in, on or about the Premises or the Common Area, such party shall, within five days after learning of such inquiry, investigation, proceeding, or action give the other party written notice advising Sublessor of same. 14. Commissions. Sublessee represents and warrants to Sublessor that Sublessee has dealt with no broker in connection with this Sublease other than Cornish & Carey Commercial Real Estate, and Sublessor represents and warrants to Sublessee that Sublessor has dealt with no broker in connection with this Sublease other than Grubb & Ellis Company Commercial Real Estate Services. Sublessor agrees to be liable for and to pay all real estate brokerage commissions earned by the aforementioned brokers in connection with this Sublease, and Sublessor understands and agrees that said commissions shall total one and one half (1-1/2) times the commission payable to Grubb & Ellis pursuant to Sublessor's separate agreement with Grubb & Ellis, with Cornish & Carey receiving a commission equal to the full amount due under said separate agreement and Grubb & Ellis receiving a commission equal to one half of the full amount due under said separate agreement. Sublessor shall pay all amounts due to Grubb & Ellis 10 (and Grubb & Ellis, in turn, shall be responsible for forwarding payment of its share to Cornish & Carey); provided, however, that anything in said separate agreement to the contrary notwithstanding such commissions shall be payable as follows: (i) fifty percent (50%) at such time as the conditions precedent in Paragraph 12 of this Sublease have been satisfied; and (ii) fifty percent (50%) upon the commencement of the Term of this Sublease. Sublessor and Sublessee each (as "Indemnitor") agree to indemnify, defend and hold harmless the other against and from any claims, demands, liabilities, costs and expenses, including without limitation attorneys' fees, arising out of or resulting from a claim by any person or entity (other than Cornish & Carey and Grubb & Ellis) that it is entitled to a commission, finders fee or other compensation in connection with this Sublease transaction based on acts or omissions of the Indemnitor. 15. Entire Agreement. There are no other agreements between Sublessor and Sublessee regarding the Premises, the Common Area or the Sublease, and this Sublease supersedes and cancels any and all prior negotiations, arrangements, agreements, representations, and understandings, whether oral or written, between Sublessor and Sublessee or made by Sublessor or its agents to Sublessee with respect to the subject matter of this Sublease. This Sublease constitutes the entire agreement between the parties and may be amended or modified only by a written instrument signed by the parties. 16. Assignment and Subletting. Notwithstanding anything to the contrary in this Sublease, Sublessee may, without Sublessor's prior written consent and without any participation by Sublessor in assignment or subletting proceeds, sublet the Premises or assign this Sublease to (i) a subsidiary, affiliate, division or corporation controlled by or under common control with Sublessee , (ii) a successor corporation related to Sublessee by merger, consolidation, non-bankruptcy reorganization or government action, or (iii) a purchaser of substantially all of the assets of Sublessee's division occupying the Premises; provided, however, that any such sublease or assignment shall not be construed to relieve Sublessee of its obligations under this Sublease. 17. Approvals. Notwithstanding anything to the contrary in this Sublease, whenever this Sublease expressly requires an approval or consent by Sublessor or Sublessee, such approval or consent shall not be unreasonably withheld or delayed. 18. Communications with Master Lessor. Sublessee agrees to provide to Sublessor (i) copies of any communications and/or other documentation given by Sublessee to the Master Lessor, including without limitation any requests for the Master Lessor's consent required under Paragraphs 9(e)(3) and (e)(8) of this Sublease, at the same times and in the same manner that any such communications and/or other documentation are submitted to the Master Lessor, and (ii) copies of any communications received by Sublessee from the Master Lessor promptly upon receipt thereof. IN WITNESS WHEREOF, the parties have executed this Lease as of the 22 day of February, 1993 SUBLESSOR: SUBLESSEE: General Signal Corporation Conner Peripherals, Inc. /s/ /s/ Carl W. Neun By:_________________________ By:__________________________ Its: VP & Treasurer Its: CFO -------------------- --------------------- 11 INDEX NET LEASE
Page 1. Summary of Lease Provisions ........................................... 1 2. Property Leased ....................................................... 2 3. Term .................................................................. 2 4. Rent .................................................................. 3 5. Security Deposit ...................................................... 3 6. Use of Premises ....................................................... 3 7. Taxes ................................................................. 4 8. Insurance; Indemnity; Waiver .......................................... 5 9. Utilities ............................................................. 6 10. Repairs and Maintenance ............................................... 6 11. Common Area ........................................................... 6 12. Operating Expenses .................................................... 7 13. Alterations and Improvements .......................................... 7 14. Default and Remedies .................................................. 7 15. Damage or Destruction ................................................. 8 16. Condemnation .......................................................... 9 17. Liens ................................................................. 9 18. Landlord's Right of Access to Premises ................................ 10 19. Landlord's Right to Perform Tenant's Covenants ........................ 10 20. Lender Requirements ................................................... 10 21. Holding Over .......................................................... 11 22. Notices ............................................................... 11 23. Attorneys' Fees ....................................................... 11 24. Assignment, Subletting and Hypothecation .............................. 11 25. Successors ............................................................ 12 26. Landlord Default; Mortgage Protection ................................. 12 27. Exhibits .............................................................. 13 28. Surrender of Lease Not Merger ......................................... 13 29. Waiver ................................................................ 13 30. General ............................................................... 13 31. Signs ................................................................. 13 32. Landlord as Party Defendant ........................................... 14 33. Landlord Not a Trustee ................................................ 14 34. Interest .............................................................. 14 35. Surrender of Premises ................................................. 14 36. No Partnership or Joint Venture ....................................... 14 37. Entire Agreement ...................................................... 14 38. Submission of Lease ................................................... 14 39. Quiet Enjoyment ....................................................... 14 40. Authority ............................................................. 14 41. Building Plans ........................................................ 14 42. Addendum .............................................................. 14 43. Option to Extend Lease Term ........................................... 15 44. Rent During Extended Term ............................................. 15 45. Moving Costs .......................................................... 17 46. Existing Leases ....................................................... 17 47. Right of First Refusal ................................................ 17 48. Right of First Negotiation - Expansion Building ....................... 18 49. Condition of Title .................................................... 18 50. Environmental Compliance .............................................. 18
Exhibit "X" to Sublease 12 NET LEASE AGREEMENT 1. SUMMARY OF LEASE PROVISIONS For and in consideration of the rentals, covenants, and conditions hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord, the herein described Premises for the term, at the rental and subject to and upon all of the terms, covenants and agreements set forth in this Net Lease Agreement, including Landlord's right to recover the Premises pursuant to Paragraph 24 below ("Lease"): 1.1 Tenant: TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware ---------------------------------------------------------------- corporation ___________________________________________________________("Tenant"). 1.2 Landlord: CAMSI II, a California general partnership -------------------------------------------------------------- ___________________________________________________________("Landlord"). 1.3 Date of Lease, for reference purposes only: December 20, 19 85 _________________ _______. 1.4 Premises: That certain building located in the city of Milpitas ________________, County of Santa Clara State of California, shown cross-hatched on the ___________, site plan attached hereto as Exhibit "A", and commonly referred to as 185 So. Milpitas Boulevard __________________________, _________________ together with certain rights appurtenant thereto. (Paragraph 2.1) 1.5 Term: Ten (10) years (Paragraph 3) ----------------------------------------------------- 1.6 Commencement Date: May 1, 1986 subject to the provisions --------------------------, of Paragraph 3 below. (Paragraph 3) 1.7 Ending Date: April 30, 1996 unless sooner terminated _________________________________, pursuant to the terms of this Lease, subject to extension pursuant to Paragraph 43. 1.8 Rent: (Paragraph 4) Period Monthly Amount ------ -------------- 5/1/86 - 4/30/97 -0- 5/1/87 - 4/30/92 $60,988 5/1/92 - 4/30/93 $64,076 5/1/93 - 4/30/94 $67,936 5/1/94 - 4/30/96 $76,428 Subject to adjustment pursuant to Paragraph 2(e) of the Improvement Agreement attached as Exhibit "C" hereto. Receipt of the first month's Rent is hereby acknowledged by Landlord. 1.9 Use of Premises: electronic research and development, assembly, ------------------------------------------------------- manufacturing, and warehousing and related office use (Paragraph 6) ----------------------------------------------------------- 1.10 Security Deposit: none ------------------------------------------------------ -----------------------------------------------------------(Paragraph 5) 1.11 Addresses for Notices: To Landlord. CAMSI II ----------------------------------------------------------- P. O. Box 4360 ----------------------------------------------------------- Santa Clara, CA 95054 ----------------------------------------------------------- To Tenant. To the Premises, with a courtesy copy to: General Signal Corporation (Guarantor) ----------------------------------------------------------- High Ridge Park ----------------------------------------------------------- Stamford, Connecticut 06904 Attention: General Counsel ----------------------------------------------------------- 1.12 Exclusive Right to Use No More than Two hundred Ninety-Three ( 293 ) -------------------------- ------- parking spaces within the Common Area. (Paragraph 2.1) 1.13 SUMMARY PROVISIONS IN GENERAL. Parenthetical references in this Paragraph 1 to other paragraphs in this Lease are for convenience of reference, and designate some of the other Lease paragraphs where applicable provisions are set forth. All of the terms and conditions of each such referenced paragraph shall be construed to be incorporated within and made a part of each of the above referring Summary of Lease Provisions. In the event of any conflict between any Summary of Lease Provision as set forth above and the balance of the Lease, the latter shall control. 13 2. PROPERTY LEASED 2.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, upon the terms and conditions herein set forth, that certain building ("Premises") referred to in Paragraph 1.4 above, shown cross-hatched on the site plan attached hereto as Exhibit "A". In addition, Tenant shall have the following rights with respect to the real property more particularly described in the legal description attached as Exhibit "B" hereto (if applicable) and outlined in red on Exhibit "A" ("Common Area"): (i) the exclusive right to use no more than the number of parking spaces set forth in Paragraph 1.12 above, as shown on Exhibit "A", the location of which may be redesignated from time to time by Landlord; and (ii) such other rights as are necessary and convenient to Tenant's possession of the Premises or performance of Tenant's obligations under this Lease. (Notwithstanding the number of parking spaces designated for Tenant's exclusive use, in the event by reason of any rule, regulation, order, law, statute or ordinance of any governmental or quasi-governmental authority relating to or affecting parking on the Common Area, or any other cause beyond Landlord's reasonable control, Landlord is required to reduce the number of parking spaces on the Common Area. Landlord shall have the right to proportionately reduce the number of parking spaces designated herein for Tenant's exclusive use.) In addition, Landlord grants to Tenant a non-exclusive easement for vehicular ingress and egress in and over the paved roadways in the Common Area and pedestrian ingress and egress in and over the Common Area. (*See attached Page 2-A.) 2.2 IMPROVEMENTS. The improvements to be constructed by Landlord for Tenant's use in the Premises are set forth in detail on the attached Exhibit "C". In the event of changes to any of the work set forth in Exhibit "C" (whether such changes are required by any public agency, or by reason of any error or omission in plans because of information provided to Landlord by Tenant, or because requested in writing by Tenant and accepted in writing by Landlord), Tenant shall pay to Landlord, Landlord's costs related to such changes before work in regard to such changes is commenced; provided, however, in no event shall Landlord's failure to demand such payment before commencement of work in regard to such changes, or Tenant's failure to pay for the same before commencement of work in regard to such changes be deemed to be a waiver of Landlord's right to require or enforce collection of such payment for changes at any time thereafter. Landlord's costs related to the changes shall include, without limitation, all architectural, contractor, and engineering expenses, and the cost of all building and other permits and inspection fees. Tenant acknowledges that Landlord or a person or entity related to Landlord and/or controlled by Landlord may serve as Landlord's architect, engineer and/or contractor in regard to the above-described work and in the event of any changes, Landlord's costs shall be deemed to include architect, engineering and/or contractor expenses at the rates charged to third parties by Landlord and/or such related person or entity for such services, when performed independently of any lease agreement. Since any construction work on the Premises by Tenant prior to substantial completion of the work required of Landlord pursuant to this Paragraph 2.2 may interfere with the work required of Landlord or with Landlord's ability to obtain a Certificate of Occupancy therefor, any such work by Tenant shall be subject to the provisions of Paragraph 13.1 hereof, and Landlord may withhold its consent to any such work by Tenant, provided that such consent is not unreasonably withheld. It shall not be deemed unreasonable for Landlord to withhold its consent if Tenant proposes to use non-union labor. 2.3 ACCEPTANCE OF PREMISES. By taking possession of the Premises, Tenant shall be deemed to have accepted the Premises as being in good and sanitary order, condition and repair and to have accepted the Premises in their condition existing as of the date Tenant takes possession of the Premises, subject to all applicable laws, covenants, conditions, restrictions, easements and other matters of public record and the rules and regulations from time to time promulgated by Landlord governing the use of the Premises, and Common Area, and further, to have accepted tenant improvements to be constructed by Landlord (if any) as being completed in accordance with the plans and specifications for such improvements, subject only to completion of items on Landlord's punch list. (**See attached Page 2-A.) Tenant acknowledges that neither Landlord nor Landlord's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, the condition of the Premises, or the use or occupancy which may be made thereof and Tenant has independently investigated and is satisfied that the Premises are suitable for Tenant's intended use and that the Premises meets all governmental requirements for such intended use. 3. TERM 3.1 COMMENCEMENT DATE. The term of this Lease ("Lease Term") shall be for the period specified in Paragraph 1.5 above, commencing on the date set forth in Paragraph 1.6 ("Commencement Date"); provided, however, in the event any improvements to be constructed by Landlord, as set forth on Exhibit "C" are not completed by the aforesaid Commencement Date or are completed prior to such Commencement Date, then the Commencement Date shall be deemed to be the date on which the improvements to be constructed by Landlord are substantially completed. (***Time is of the essence.) Such improvements shall be deemed to be substantially completed upon the occurrence of the earlier of the following: (a) The date on which all improvements to be constructed by Landlord have been substantially completed except for: (i) punch list items which do not prevent Tenant from using the Premises for its intended use; (ii) such work as Landlord is required to perform but which is delayed because of fault or neglect of Tenant, acts of Tenant or Tenant's agents (including without limitation delays caused by work done on the Premises by Tenant or Tenant's agents or by acts of Tenant's contractors or subcontractors) or delays caused by change orders requested by Tenant or required because of any errors or omissions in plans submitted by Tenant; and (iii) such work as Landlord is required to perform but cannot complete until Tenant performs necessary portions of construction work it has elected or is required to do; or (b) The issuance of appropriate governmental approvals for occupancy of the Premises; or (c) The date Tenant opens for business in the Premises. If the Commencement Date is a date other than the date set forth in Paragraph 1.6, then the Ending Date set forth in Paragraph 1.7, the rental adjustment dates set forth in Paragraph 1.8 and any other dates certain specified herein shall be adjusted accordingly. When the Commencement Date, Ending Date, rental adjustment dates, and such other dates become ascertainable, Landlord and Tenant shall specify the same in writing, in the form of the attached Exhibit "D", which writing shall be deemed incorporated herein. Tenant's failure to execute and deliver the letter attached hereto as Exhibit "D" shall be a Default by Tenant hereunder. The expiration of the Lease Term or sooner termination of this Lease is referred to herein as the "Lease Termination". 3.2 DELAY OF COMMENCEMENT DATE. Landlord shall not be liable for any damage or loss incurred by Tenant for Landlord's failure for whatever cause to deliver possession of the Premises by any particular date (including the Commencement Date), nor shall this Lease be void or voidable on account of such failure to deliver possession of the Premises; provided that if Landlord does not deliver possession of the Premises to Tenant by the date which is thirty (30) days from the date as set forth in Paragraph 1.6 above. Tenant shall have the right to terminate this Lease by written notice delivered to Landlord within five (5) days thereafter, and Landlord and Tenant shall be relieved of their respective obligations hereunder; provided further that said thirty (30) day period shall be extended by the number of days work on the Premises is delayed due to fault or neglect of Tenant, acts of Tenant or Tenant's agents, or due to acts of God, labor disputes, strikes, fires, rainy or stormy weather, acts or failures to act of public agencies, inability to obtain labor or materials, earthquake, war, insurrection, riots and other causes beyond Landlord's reasonable control. 3.3 EARLY OCCUPANCY. If Tenant takes possession of the Premises prior to the Commencement Date, Tenant shall do so subject to all of the terms and conditions hereof and shall pay the Rentals provided for herein. 3.4 TENANT TO PHYSICALLY OCCUPY PREMISES. Tenant shall, no later than thirty (30) days after the Commencement Date, go into actual physical occupancy of the Premises and open the Premises for business in accordance with the uses specified in Paragraph 6 below; provided, however, the date of Tenant's physical occupancy of the Premises shall in no event extend the Commencement Date, the Lease Termination date or the date the payment of Rentals hereunder commences. Time is of the essence. 14 PAGE 2-A 2.1 *Except for the right of Landlord to enter upon and use the Common Area as may be necessary for the performance of Landlord's obligations hereunder, Tenant shall have the exclusive right to use the Common Area. The foregoing notwithstanding, Tenant's rights to use that portion of the Common Area marked by dashed lines on Exhibit "A" shall be subject to the terms and conditions of that certain Deed from Beatrice C. Wrigley to the City and County of San Francisco dated October 31, 1949, and recorded November 14, 1949 Book 1875 Page 312 of the Official Records, Santa Clara County and that certain San Francisco Water Department Land Use Permit by and between the City and County of San Francisco and Landlord, dated June 21, 1984 and recorded July 3, 1984 at Book I 692 Pages 502-509 of the Official Records, Santa Clara County. 2.3 **Tenant shall be a beneficiary of all warranties received by Landlord from contractors and subcontractors performing work on the Premises. Landlord represents to Tenant that it has received or will receive the following warranties from its contractors and subcontractors in connection with construction of the Premises and the Improvements: (a) With respect to the Building shell, a one (1) year warranty from date of completion (May 9, 1985) (parts and labor) with respect to defects in construction. (b) With respect to the interim improvements, a one (1) year warranty from date of completion (parts and labor) with respect to defects in construction. 15 4. RENT 4.1 RENT. Tenant shall pay to Landlord as rent for the Premises ("Rent"), in advance, on the first day of each calendar month, commencing on the date specified in Paragraph 1.8 and continuing throughout the Lease Term (until adjusted pursuant to Paragraph 4.4. below) the Rent set forth in Paragraph 1.8 above. Rent shall be prorated, based on thirty days per month, for any partial month during the Lease Term. Rent shall be payable without deduction, offset, prior notice or demand in lawful money of the United States to Landlord at the address herein specified for purposes of notice or to such other persons or such other places as Landlord may designate in writing. 4.2 LATE CHARGE. Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or deed of trust covering the Premises. Accordingly, Tenant shall pay to Landlord, as additional rent (as defined in paragraph 4.3 below), without the necessity of prior notice or demand, a late charge equal to ten percent (10%) of any installment of Rent which is not received by Landlord within ten (10) days after the due date for such installment. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any installment of Rent or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay such installment of Rent when due, including without limitation the right to terminate this Lease. In the event any installment of Rent is not received by Landlord by the thirtieth (30th) day after the due date for such installment, such installment shall bear interest at the annual rate set forth in Paragraph 34 below, commencing on the thirty-first (31st) day after the due date for such installment and continuing until such installment is paid in full. 4.3 ADDITIONAL RENT. All taxes, charges, costs and expenses and other sums which Tenant is required to pay hereunder (together with all interest and charges that may accrue thereon in the event of Tenant's failure to pay the same), and all damages, costs and expenses which Landlord may incur by reason of any Default by Tenant shall be deemed to be additional Rent hereunder ("Additional Rent"). Additional Rent shall accrue commencing on the Commencement Date. In the event of nonpayment by Tenant of any Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for the nonpayment of Rent. The term "Rentals" as used in the Lease shall mean Rent and Additional Rent. 5. SECURITY DEPOSIT - n/a. 6. USE OF PREMISES 6.1 PERMITTED USES. Tenant shall use the Premises and the Common Area only in conformance with applicable governmental laws, regulations, rules and ordinances for the purposes set forth in Paragraph 1.9 above, and for no other purpose without the prior written consent of Landlord, which consent Landlord will not unreasonably withhold. Any change in use of the Premises or the Common Area without the prior written consent of Landlord shall be a Default by Tenant. Tenant and Tenant's agents shall comply with the provisions of the existing Declaration of Covenants, Conditions, and Restrictions affecting the Premises and the Common Area. Said Declaration of Covenants, Conditions, and Restrictions shall not be modified without the consent of Tenant, which consent shall not be unreasonably withheld. 6.2 TENANT TO COMPLY WITH LEGAL REQUIREMENTS. Tenant shall, at its sole cost, promptly comply with all laws, statutes, ordinances, rules, regulations, orders or requirements of all municipal, county, state and federal authorities and all quasi-governmental authorities relating to or affecting the use, occupational safety, occupancy or condition of the Premises or the Common Area, now in force, or which may hereafter be in force, including without limitation any of the foregoing relating to utility usage and load or number of permissible occupants or users of the Premises, whether or not the same are now contemplated by the parties; with the provisions of all recorded documents affecting the Premises or the Common Area insofar as the same relate to or affect the use, occupational safety, occupancy, or condition of the Premises or the Common Area; and with the requirements of any board of fire underwriters (or similar body now or hereafter constituted) relating to or affecting the use, occupational safety, occupancy or condition of the Premises or the Common Area. Tenant's obligations pursuant to this Paragraph 6.2 shall include without limitation maintaining or restoring the Premises or the Common Area and making structural and non-structural alterations and additions in compliance and conformity with all laws and recorded documents relating to the use, occupational safety, occupancy or condition of the Premises or the Common Area during the Lease Term; provided, however, that Landlord shall make any alteration or addition required to bring the Premises or the Common Area into compliance with legal requirements in effect at the time the Premises, any improvements installed therein by Landlord, or the Common Area, respectively, were originally constructed. At Landlord's option, Landlord may make the required alteration, addition or change, and Tenant shall pay the cost thereof as Additional Rent. With respect to any alterations or additions as may be hereafter required due to a change in laws and 16 unrelated to Tenant's specific use of the Premises or the Common Area. Tenant shall be required to pay a pro rata portion of the cost thereof, which amount shall be determined by multiplying the total cost by a fraction, the numerator of which is the number of months remaining in the Lease Term at the time of the alteration or addition, and the denominator of which is the number of months in the useful life of the alteration or addition. Tenant shall obtain prior to taking possession of the Premises any permits, licenses or other authorizations required for the lawful operation of its business at the Premises. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant, regardless of whether Landlord be a party thereto or not, that Tenant has violated such ordinance, regulation, rule, requirement, recorded document or statute relating to the use, occupational safety, occupancy or condition of the Premises or the Common Area shall be conclusive of the fact of such violation by Tenant. Any alterations or additions undertaken by Tenant pursuant to this Paragraph 6.2 shall be subject to the requirements of Paragraph 13.1 below. 6.3 PROHIBITED USES. Tenant and Tenant's agents shall not commit or suffer to be committed any waste upon the Premises. Tenant and Tenant's agents shall not do or permit anything to be done in or about the Premises or Common Area which will in any way obstruct or interfere with the rights of any authorized users of the Common Area or occupants of neighboring property, or injure or annoy them. Tenant shall not conduct or permit any auction or sale open to the public to be held or conducted on or about the Premises or Common Area. Tenant and Tenant's agents shall not use or allow the Premises to be used for any unlawful, immoral or hazardous purpose or any purpose not permitted by this Lease, nor shall Tenant or Tenant's agents cause, maintain, or permit any nuisance in, on or about the Premises. Tenant and Tenant's agents shall not do or permit anything to be done in or about the Premises or Common Area nor bring or keep anything in the Premises or Common Area which will in any way increase the rate of any insurance upon the Premises or Common Area or any part thereof or any of its contents, or cause a cancellation of any insurance policy covering the Premises or Common Area or any part thereof or any of its contents, nor shall Tenant or Tenant's agents keep, use or sell or permit to be kept, used or sold in or about the Premises any articles which may be prohibited by a standard form policy of fire insurance. In the event the rate of any insurance upon the Premises or Common Area or any part thereof or any of its contents is increased because of the acts or omissions of Tenant or Tenant's agents, Tenant shall pay, as Additional Rent, the full cost of such increase; provided, however this provision shall in no event be deemed to constitute a waiver of Landlord's right to declare a default hereunder by reason of such increase or of any other rights or remedies of Landlord in connection with such increase. Tenant and Tenant's agents shall not place any loads upon the floor, walls or ceiling of the Premises which would endanger the Premises or the structural elements thereof, nor place any harmful liquids in the drainage system of the Premises. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or Common Area except in enclosed trash containers. No materials, supplies, equipment, finished products (or semi-finished products), raw materials, or other articles of any nature shall be stored upon, or be permitted to remain on, any portion of the Common Area. Tenant shall not allow any activity which in the reasonable opinion of Landlord is detrimental to the operation of the Common Area or to tenants of Landlord in other buildings located on the Common Area or upon real property owned by Landlord adjacent to the Common Area, including but not limited to any picketing, work stoppage, or other concerted activity. Landlord shall have the right to require Tenant, at Tenant's own expense and within a reasonable period of time, to use Tenant's best efforts to terminate or control any such picketing, work stoppage or other concerted activity to the extent necessary to eliminate any interference with the operation of the Common Area or such tenants. Failure by Tenant to use its best efforts to do so shall be a Default by Tenant. Nothing contained in this paragraph shall be construed as placing Landlord in an employer-employee relationship with any of Tenant's employees or with any other employees who may be involved in such activity. 7. TAXES 7.1 PERSONAL PROPERTY TAXES. Tenant shall cause Tenant's trade fixtures, equipment, furnishings, furniture, merchandise, inventory, machinery, appliances and other personal property installed or located on the Premises (collectively the "personal property") to be assessed and billed separately from the Premises. Tenant shall pay before delinquency any and all taxes, assessments and public charges levied, assessed or imposed upon or against Tenant's personal property. If any of Tenant's personal property shall be assessed with the real property comprising the Common Area or with the Premises. Tenant shall pay to Landlord, as Additional Rent, the amounts attributable to Tenant's personal property within ten (10) days after receipt of a written statement from Landlord setting forth the amount of such taxes, assessments and public charges attributable to Tenant's personal property. Tenant shall comply with the provisions of any law, ordinance, rule or regulation of taxing authorities which require Tenant to file a report of Tenant's personal property located on the Premises. 7.2 OTHER TAXES PAYABLE SEPARATELY BY TENANT. Tenant shall pay (or reimburse Landlord, as Additional Rent, if Landlord is assessed), prior to delinquency or within ten (10) days after receipt of Landlord's statement thereof, any and all taxes, levies, assessments or surcharges payable by Landlord or Tenant (other than Landlord's net income, succession, transfer, gift, franchise, estate or inheritance taxes, and Taxes, as that term is defined in Paragraph 7.3(a) below, payable as an Operating Expense), whether or not now customary or within the contemplation of the parties hereto, whether or not now in force or which may hereafter become effective, including but not limited to taxes: (a) Upon, allocable to, or measured by the area of the Premises or the Rentals payable hereunder, including without limitation any gross income, gross receipts, excise, or other tax levied by the state, any political subdivision thereof, city or federal government with respect to the receipt of such Rentals; (b) Upon or with respect to the use, possession, occupancy, leasing, operation and management of the Premises or any portion thereof; (c) Upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises; or (d) Imposed as a means of controlling or abating environmental pollution or the use of energy, including, without limitation, any parking taxes, levies or charges or vehicular regulations imposed by any governmental agency. Tenant shall also pay, prior to delinquency, all privilege, sales, excise, use, business, occupation, or other taxes, assessments, license fees, or charges levied, assessed or imposed upon Tenant's business operations conducted at the Premises. In the event any such taxes are payable by Landlord and it shall not be lawful for Tenant to reimburse Landlord for such taxes, then the Rentals payable hereunder shall be increased to net Landlord the same net Rental after imposition of any such tax upon Landlord as would have been payable to Landlord prior to the imposition of any such tax. 7.3 COMMON TAXES. (a) DEFINITION OF TAXES. The term "Taxes" as used in this Lease shall collectively mean (to the extent any of the following are not paid by Tenant pursuant to Paragraphs 7.1 and 7.2 above) all real estate taxes; personal property taxes; taxes based on vehicles utilizing parking areas on the Common Area; taxes computed or based on rental income or on the square footage of the Premises (including without limitation any municipal business tax but excluding federal, state and municipal net income taxes); environmental surcharges; excise taxes; gross receipts taxes; sales and/or use taxes; employee taxes; water and sewer taxes, levies, assessments and other charges in the nature of taxes or assessments (including, but not limited to, assessments for public improvements or benefit), but excluding assessments existing as of the Date of Lease set forth in Paragraph 1.3, and all other governmental, quasi-governmental or special district impositions of any kind and nature whatsoever, regardless of whether now customary or within the contemplation of the parties hereto and regardless of whether resulting from increased rate and/or valuation, or whether extraordinary or ordinary, general or special, unforeseen or foreseen, or similar or dissimilar to any of the foregoing and which during the Lease Term are laid, levied, assessed or imposed upon Landlord and/or become a lien upon or chargeable against the Premises and/or Common Area under or by virtue of any present or future laws, statutes, ordinances, regulations, or other requirements of any governmental, quasi-governmental or special district authority whatsoever. The term "environmental surcharges'' shall include any and all expenses, taxes, charges or penalties imposed by the Federal Department of Energy, Federal Environmental Protection Agency, the Federal Clean Air Act, or any regulations promulgated thereunder, or imposed by any other local, state or federal governmental agency or entity now or hereafter vested with the power to impose taxes, assessments or other types of surcharges as a means of controlling or abating 17 environmental pollution or the use of energy in regard to the use, operation or occupancy of the Premises and/or the Common Area. The term "Taxes" shall include (to the extent the same are not paid by Tenant pursuant to Paragraphs 7.1 and 7.2 above), without limitation, all taxes, assessments, levies, fees, impositions or charges levied, imposed, assessed, measured, or based in any manner whatsoever upon or with respect to the use, possession, occupancy, leasing, operation or management of the Premises and/or Common Area or in lieu of or equivalent to any Taxes set forth in this Paragraph 7.3(a). In the event any such taxes are payable by Landlord and it shall not be lawful for Tenant to reimburse Landlord for such taxes, then the Rentals payable hereunder shall be increased to net Landlord the same net Rental after imposition of any such tax upon Landlord as would have been payable to Landlord prior to the imposition of any such tax. (b) OPERATING EXPENSE. All Taxes which are levied or assessed or which become a lien upon the Premises and/or Common Area or which become due or accrue during the Lease Term shall be an Operating Expense, and Tenant shall pay as Additional Rent each month during the Lease Term 1/12th of such Taxes, based on Landlord's estimate thereof, pursuant to Paragraph 12 below. Taxes during any partial tax fiscal year(s) within the Lease Term shall be prorated according to the ratio which the number of days during the Lease Term or of actual occupancy of the Premises by Tenant, whichever is greater, during such year bears to 365. 8. INSURANCE; INDEMNITY; WAIVER 8.1 INSURANCE BY LANDLORD. (a) Landlord shall, during the Lease Term, procure and keep in force the following insurance, the cost of which shall be an Operating Expense, payable by tenant pursuant to Paragraph 12 below: (i) Property Insurance. "All risk" property insurance, including, without limitation, coverage for earthquake and flood; boiler and machinery (if applicable); sprinkler damage; vandalism; malicious mischief; full coverage plate glass insurance; and demolition. Increased cost of construction and contingent liability from change in building laws on the Premises and Common Area, including any improvements or fixtures constructed or installed on the Premises and Common Area by Landlord. Such insurance shall be in the full amount of the replacement cost of the foregoing, with reasonable deductible amounts, which deductible amounts shall be an Operating Expense, payable by Tenant pursuant to Paragraph 12. Such insurance shall also include rental income insurance, insuring that one hundred percent (100%) of the Rentals (as the same may be adjusted hereunder) will be paid to Landlord for a period of up to twelve (12) months if the Premises are destroyed or damaged, as may be required by any beneficiary of a deed of trust or any mortgagee of any mortgage affecting the Premises. Such insurance shall not cover any leasehold improvements installed in the Premises by Tenant at its expense, or Tenant's equipment, trade fixtures, inventory, fixtures or personal property located on or in the Premises; and (ii) Other. Such other insurance as Landlord deems necessary and prudent. 8.2 INSURANCE BY TENANT. Tenant shall, during the Lease Term, at Tenant's sole cost and expense, procure and keep in force the following insurance: (a) n/a. (b) LIABILITY INSURANCE. Comprehensive general liability insurance for the mutual benefit of Landlord and Tenant, against any and all claims for personal injury, death or property damage occurring in, or about the Premises and Common Area (and Tenant's operations on the Premises), or arising out of Tenant's or Tenant's agents' use of the Common Area or use or occupancy of the Premises. Such insurance shall have a combined single limit of not less than Three Million Dollars ($3,000,000). Such insurance shall contain a cross- liability (severability of interests) clause and an extended liability endorsement, including blanket contractual coverage. The minimum limits specified above are the minimum amounts required by Landlord, and may be revised by Landlord from time to time to meet changed circumstances, including without limitation to reflect (i) changes in the purchasing power of the dollar, (ii) changes indicated by the amount of plaintiffs' verdicts in personal injury actions in the State of California, or (iii) changes consistent with the standards required by other landlords in the county in which the Premises are located. Such liability insurance shall be primary and not contributing to any insurance available to Landlord, and Landlord's insurance (if any) shall be in excess thereto. As long as General Signal Corporation, a New York corporation ("General Signal"), is the guarantor of Tenant's obligations hereunder, the minimum amounts of insurance required by Landlord shall not exceed the amount of coverage carried by General Signal for itself and its subsidiaries, which shall in no event be less than Three Million Dollars ($3,000,000). (c) OTHER. Such other insurance as required by law, including, without limitation, workers' compensation insurance. (d) FORM OF THE POLICIES. The policies required to be maintained by Tenant pursuant to Paragraphs 8.2(a), (b), and (c) above shall be with companies, on forms, with deductible amounts (if any), and loss payable clauses reasonably satisfactory to Landlord, shall include Landlord and the beneficiary or mortgagee of any deed of trust or mortgage encumbering the Premises and/or the real property comprising the Common Area as additional insureds, and shall provide that such parties may, although additional insureds, recover for any loss suffered by Tenant's negligence. Certified copies of policies or certificates of insurance shall be delivered to Landlord prior to the Commencement Date; a new policy or certificate shall be delivered to Landlord at least thirty (30) days prior to the expiration date of the old policy. Tenant shall have the right to provide insurance coverage which it is obligated to carry pursuant to the terms hereof in a blanket policy, provided such blanket policy expressly affords coverage to the Premises and to Tenant as required by this Lease. Tenant shall obtain a written obligation on the part of Tenant's insurer(s) to notify Landlord and any beneficiary or mortgagee of a deed of trust or mortgage encumbering the Premises and/or the real property comprising the Common Area in writing of any delinquency in premium payments and at least thirty (30) days prior to any cancellation or modification of any policy. It is contemplated by the parties that the insurance required pursuant to this Paragraph 8.2 shall be procured and maintained by General Signal for itself and its subsidiaries. 8.3 FAILURE BY TENANT TO OBTAIN INSURANCE. If Tenant does not take out the insurance required pursuant to Paragraph 8.2 or keep the same in full force and effect, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefor, and Tenant shall repay to Landlord, as Additional Rent, the amount so paid promptly upon demand. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as Additional Rent, any and all reasonable expenses (including attorneys' fees) and damages which Landlord may sustain by reason of the failure of Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon. 8.4 INDEMNIFICATION. Tenant shall indemnify, hold harmless, and defend Landlord (except for Landlord's negligence or willful misconduct) against all claims, losses or liabilities for injury or death to any person or for damage to or loss of use of any property arising out of any occurrence in, on or about the Premises or Common Area, if caused or contributed to by Tenant or Tenant's agents, or arising out of any occurrence in, upon or at the Premises or on account of the use, condition, occupational safety or occupancy of the Premises. Such indemnification shall include and apply to attorneys' fees, investigation costs, and other costs actually incurred by Landlord. Tenant shall further indemnify, defend and hold harmless Landlord from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease. The provisions of this Paragraph 8.4 shall survive Lease Termination with respect to any damage, injury, death, breach or default occurring prior to such termination. This Lease is made on the express condition that Landlord shall not be liable for, or suffer loss by reason of, injury to person or property, from whatever cause, in any way connected with the condition, use, occupational safety or occupancy of the Premises specifically including, without limitation, any liability for injury to the person or property of Tenant or Tenant's agents. The provisions of this Paragraph 8.4 shall not apply to any damage or injury caused by Landlord's willful misconduct or negligence. 18 8.5 CLAIMS BY TENANT. Landlord shall not be liable to Tenant, and Tenant waives all claims against Landlord, for injury or death to any person, damage to any property, or loss of use of any Property in the Premises or Common Area by and from all causes, including without limitation, any defect in the Premises or Common Area and/or any damage or injury resulting from fire, steam, electricity, gas, water or rain, which may leak or flow from or into any part of the Premises, or from breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether the damage or injury results from conditions arising upon the Premises or Common Area or from other sources. Landlord shall not be liable for any damamges arising from any act or neglect of any other user of the Common Area. Tenant or Tenant's agents shall promptly notify the Landlord in writing of any known defect in the Premises or Common Area. The provisions of this Paragraph 8.5 shall not apply to any damage or injury caused by the Landlord's willful misconduct or negligence. 8.6 MUTUAL WAIVER OF SUBROGATION. Landlord hereby releases Tenant, and Tenant hereby releases Landlord, and their respective officers, agents, employees and servants, from any and all claims or demands of damages, loss, expense or injury to the Premises or the Common Area, or to the furnishings, equipment, inventory or other property of either the Landlord or Tenant in, about or upon the Premises or the Common Area, which is caused by or results from perils, events or happenings which are the subject of issuance carried by the respective parties pursuant to this Paragraph 8 and in force at the time of any such loss, whether due to the negligence of the other party or its agents and regardless of cause or origin; provided, however, that such waiver shall be effective only to the extent permitted by the insurance covering such loss and to the extent such insurance is not prejudiced thereby. 9. UTILITIES. Tenant shall pay during the Lease Term and prior to delinquency all charges for water, gas, light, heat, power, electricity, telephone or other communication service, janitorial service, trash pick-up, sewer and all other services supplied to or consumed on the Premises (collectively the "Services") and all taxes, levies, fees, or surcharges therefor. Tenant shall arrange for Services to be supplied to the Premises and shall contract for all of the Services in Tenant's name prior to the Commencement Date. The Commencement Date shall not be delayed by reason of any failure by Tenant to so contract for Services. In the event that any of the Services cannot be separately billed or metered to the Premises, or if any of the Services are not separately metered as of the Commencement Date, the cost of such Services shall be an Operating Expense and Tenant shall pay such cost to Landlord, as Additional Rent, as provided in Paragraph 12 below. The lack or shortage of any Services due to any cause whatsoever shall not affect any obligation of Tenant hereunder, and Tenant shall faithfully keep and observe all the terms, conditions and covenants of this Lease and pay all Rentals due hereunder, all without diminution, credit or deduction. 10. MAINTENANCE AND REPAIRS 10.1 LANDLORD'S RESPONSIBILITIES. Landlord, at Landlord's sole cost and expense, shall reseal and restripe the existing parking lot and wash the exterior brick of the Building prior to the Commencement Date. Subject to the provisions of Paragraph 15 below, Landlord shall maintain in reasonably good order and repair the structural roof and roof surface, structural and exterior walls (including painting thereof) and foundations of the Premises, except for any repairs required because of the wrongful act of Tenant or Tenant's agents, which repairs shall be made at the expense of Tenant and as Additional Rent. In addition, Landlord may elect at any time, at its option, to maintain the heating and air conditioning systems of the Premises. Tenant shall give prompt written notice to Landlord of any known maintenance work required to be made by Landlord pursuant to this Paragraph 10.1. The costs of repairs and maintenance which are the obligation of Landlord hereunder or which Landlord elects to perform hereunder (excluding the costs of maintenance of the foundations, structural walls, structural roof and roof surface, which shall be paid by Landlord, except for any repairs required because of the wrongful act of Tenant or Tenant's agents, which repairs shall be made at the expense of Tenant and as Additional Rent) shall be an Operating Expense and Tenant shall pay such costs to Landlord as Additional Rent, as provided in Paragraph 12 below. To the extent any labor dispute in which Tenant is involved or of which Tenant is the object interferes with the performance of Landlord's duties hereunder, Landlord shall be excused from the performance of such duties during the period of such interference. 10.2 TENANT'S RESPONSIBILITIES. Except as expressly provided in Paragraph 10.1 above, and except for any repairs required because of the wrongful act of Landlord or Landlord's agents, which repairs shall be made at the expense of Landlord, tenant shall, at its sole cost, maintain the entire Premises and every part thereof, including without limitation, windows, skylights, window frames, plate glass, freight docks, doors and related hardware, interior walls and partitions, and the electrical, plumbing, lighting, heating and air conditioning systems (unless Landlord has elected to keep and maintain the heating and air conditioning systems pursuant to Paragraph 10.1 above) in good order, condition and repair. If Landlord has not elected to keep and maintain the heating and air conditioning systems, Tenant shall deliver to Landlord, every six (6) months during the Lease Term, a certificate of maintenance or its equivalent, signed by a licensed HVAC repair and maintenance contractor and statng that the heating and air conditioning systems servicing the Premises have been inspected, serviced and are in good order, condition and repair. Tenant's failure to deliver said certificate or its equivalent shalal be a Default by Tenant. If Tenant fails to make repairs or perform maintenance work required of Tenant hereunder or to commence and deligently pursue the same to completion within ten (10) working days after notice from Landlord specifying the need for such repairs or maintenance work. Landlord or Landlord's agents may, in addition to all other rights and remedies available hereunder or by law and without waiving any alternative remedies, enter into the Premises and make such repairs and/or perform such maintenance work. If Landlord makes such repairs and/or performs such maintenance work, Tenant shall reimburse Landlord upon demand and as Additional Rent, for the cost of such repairs and/or maintenance work. Landlord shall have no liability to Tenant for any damage, inconvenience or interference with the use of the Premises by Tenant or Tenant's agents as a result of Landlord performing any such repairs or maintenance, except for damage, inconvenience or interference caused by Landlord's willful misconduct or negligence, Tenant shall reimburse Landlord, on demand and as Additional Rent, for the cost of damage to the Premises and/or Common Area caused by Tenant or Tenant's agents. Tenant expressly waives the benefits of any statute now or hereafter in effect (including without limitation the provisions of subsection 1 of Section 1932, Section 1941 and Section 1942 of the California Civil Code and any similar law, statute or ordinance now or hereafter in effect) which would otherwise afford Tenant the right to make repairs at Landdlord's expense (or to deduct the cost of such repairs from Rentals due hereunder) or to terminate this Lease because of Landlord's failure to keep the Premises in good and sanitary order. 11. COMMON AREA 11.1 IN GENERAL. Subject to the terms and conditions of this Lease and such reasonable rules and regulations as Landlord may from time to time prescribe, Tenant and Tenant's agents shall have the nonexclusive right to use during the Lease Term the access roads, sidewalks, landscaped areas and other facilities on the Common Area. This right to use the Common Area shall terminate upon Lease Termination. Neither Tenant nor Tenant's agents shall at any time park or permit the parking of their vehicles in any portion of the Common Area not designated by Landlord as a parking area. Landlord reserves the right from time to time to make reasonable changes in the shape, size, location, amount and extent of the Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of all or any portion of the Common Area and to reasonably amend such rules and regulations from time to time, with or without advance notice, as may be reasonably appropriate. Any amendments to the rules and regulations shall be effective as to Tenant, and binding on Tenant, upon delivery of a copy of such rules and regulations to Tenant. Tenant and Tenant's agents shall observe such rules and regulations and any failure by Tenant or Tenant's agents to observe and comply with the rules and regulations shall be a Default by Tenant. Landlord shall not be responsible for the nonperformance of the rules and regulations by any tenants or occupants of the buildings or improvements which now exist or may hereafter be constructed upon the Common Area or upon the real property owned by Landlord adjacent to the Common Area or by any other user authorized by Landlord. Landlord furthermore reserves the right, after having given Tenant reasonable notice, to have any vehicles owned by Tenant or Tenant's agents which are parked in violation of the provisions of this Paragraph 11.1 or in violation of Landlord's rules and regulations relating to parking, to be towed away at Tenant's cost. Landlord shall have the right to close, at reasonable times, all or any portion of the Common Area for any reasonable purpose, including without limitation, the prevention of a dedication thereof, or the accrual of rights of any person or public therein. 11.2 MAINTENANCE BY LANDLORD. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the sole discretion of Landlord. The cost of such maintenance, operation and management, shall be an "Operating Expense", and Tenant shall pay such costs to Landlord, as Additional Rent, as provided in Paragraph 12 below. Alternatively, Landlord may elect at any time, at its option, to require Tenant to operate, manage and maintain all or any portion of the Common Area. If Landlord so elects, Tenant shall operate, manage and maintain that portion of the Common Area designated by Landlord, at Tenant's sole cost and expense. 19 12. OPERATING EXPENSES 12.1 DEFINITION. "Operating Expense" or "Operating Expenses" as used in this Lease shall mean and include all items identified in other paragraphs of this Lease as an Operating Expense and the total cost paid or incurred by Landlord for the operation, maintenance, repair, and management of the Premises and Common Area, which costs shall include, without limitation; the cost of Services and utilities supplied to the Premises and Common Area (to the extent the same are not separately charged or metered to Tenant; water; sewage; fuel; electricity; lighting systems; fire protection systems; storm drainage and sanitary sewer systems; HVAC including air conditioning (to the extent the heating and air-conditioning systems in the Premises are not maintained by Tenant at Tenant's sole cost and expense); maintenance and repair of the floor slab; property insurance covering the Premises and any other insurance carried by Landlord pursuant to Paragraph 8 above; cleaning, sweeping, striping, resurfacing of parking and driveway areas; cleaning the Common Area following storms or other severe weather; cleaning and repairing of sidewalks, curbs, stairways; costs related to irrigation systems; the cost of complying with rules, regulations and orders of governmental authorities, including, without limitation, maintenance, alterations and repairs required in connection therewith; costs related to landscape maintenance; and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses. Operating Expenses shall also include a management fee to Landlord in an amount equal to ten percent (10%) of the total Operating Expenses. The specific examples of Operating Expenses stated in this Paragraph 12.1 are in no way intended to and shall not limit the costs comprising Operating Expenses, nor shall such examples be deemed to obligate Landlord to incur such costs or to provide such services or to take such actions except as Landlord may be expressly required in other portions of this Lease, or except as Landlord, in its sole discretion, may elect. All costs incurred by Landlord in good faith for the operation, maintenance, repair and management of the Premises and Common Area shall be deemed conclusively binding on Tenant. The provisions of this Paragraph 12.1 shall be subject and subordinate to any conflicting provisions in this Lease, including but not limited to the provisions of Paragraph 10.1 12.2 PAYMENT OF OPERATING EXPENSES BY TENANT. Tenant shall pay the Operating Expenses to Landlord as Additional Rent and without deduction or offset. Payment of Operating Expenses by Tenant shall be made by whichever of the following methods is from time to time designated by Landlord, and Landlord may change the method of payment at any time. Operating Expenses actually incurred or paid by Landlord but not theretofore billed to Tenant, as invoiced by Landlord, shall be payable by Tenant within ten (10) days after receipt of Landlord's invoice, but not more often than once each calendar month. Alternatively, Tenant's payment of Operating Expenses shall be based upon Landlord's estimate of Operating Expenses and shall be payable in equal monthly installments in advance on the first day of each calendar month commencing with the month following receipt of Landlord's estimate (and subject to Landlord's right to change the method of payment). Within ninety (90) days after the end of each calendar year (or at Lease Termination) Landlord shall furnish Tenant a statement showing the actual Operating Expenses for the period to which Landlord's estimate pertains and shall concurrently either bill Tenant for the balance due (payable upon demand by Landlord) or credit Tenant's account for the excess previously paid. 13. ALTERATIONS AND IMPROVEMENTS 13.1 IN GENERAL. Tenant shall not make, or permit to be made, any alterations, changes, enlargements, improvements or additions (collectively "alterations") in, on, about or to the Premises, or any part thereof, including alterations required pursuant to Paragraph 6.2, without the prior written consent of Landlord which consent shall not be unreasonably withheld and without acquiring and complying with the conditions of all permits required for such alterations by any governmental authority having jurisdiction thereof. The term "alterations" as used in this Paragraph 13 shall also include all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, and partitioning in the Premises made by Tenant, regardless of how affixed to the Premises. As a condition to the giving of its consent, Landlord may impose such requirements which may be reasonably necessary, including without limitation, the manner in which the work is done; a right of approval of the contractor by whom the work is to be performed; the requirement that Tenant post a completion bond in an amount and form reasonably satisfactory to Landlord; and the requirement that Tenant reimburse Landlord, as Additional Rent, for Landlord's actual costs incurred in reviewing any proposed alteration, whether or not Landlord's consent is granted. In the event Landlord consents to the making of any alterations by Tenant, the same shall be made by Tenant at Tenant's sole cost and expense, in accordance with the plans and specifications approved by Landlord. Tenant shall give written notice to Landlord five (5) days prior to employing any laborer or contractor to perform services related to, or receiving materials for use upon the Premises, and prior to the commencement of any work or improvement on the Premises. Any alterations to the Premises made by Tenant shall be made in accordance with applicable laws, ordinances, regulations and codes and in a first-class workmanlike manner. In making any such alterations, Tenant shall, at Tenant's sole cost and expense, file for and secure and comply with any and all permits or approvals required by any governmental departments or authorities having jurisdiction thereof and any utility company having an interest therein. In no event shall Tenant make any structural changes to the Premises or make any changes to the Premises which would weaken or impair the structural integrity of the Premises. 13.2 REMOVAL UPON LEASE TERMINATION. At the time Tenant requests Landlord's consent, Tenant shall request a decision from Landlord in writing as to whether Landlord will require Tenant, at Tenant's expense, to remove any such alterations and restore the Premises to their prior condition at Lease Termination. Landlord may defer such decision until Tenant's request for such decision prior to the expiration of the Lease Term as described below. In the event Tenant failed to earlier obtain Landlord's written decision as to whether Tenant will be required to remove any alteration, or in the event Landlord elected to defer such decision, then no less than ninety (90) nor more than one hundred twenty (120) days prior to the expiration of the Lease Term. Tenant by written notice to Landlord shall request Landlord to inform Tenant whether or not Landlord desires to have any alterations made to the Premises by Tenant removed at Lease Termination. Following receipt of such notice, Landlord may elect to have all or a portion of Tenant's alterations removed from the Premises at Lease Termination, and Tenant shall, at its sole cost and expense, remove at Lease Termination such alterations designed by Landlord for removal and repair all damage to the Premises and Common Area arising from such removal. In the event Tenant fails to so request Landlord's decision or fails to remove any alterations designated by Landlord for removal. Landlord may remove any alterations made to the Premises by Tenant and repair all damage to the Premises and Common Area arising from such removal, and may recover from Tenant all reasonable costs and expenses incurred thereby. Tenant's obligation to pay such costs and expenses to Landlord shall survive Lease Termination. Unless Landlord elects to have Tenant remove (or, upon Tenant's failure to obtain Landlord's decision, Landlord removes) any such alterations, all such alterations, except for moveable furniture and trade fixtures of Tenant, shall become the property of Landlord upon Lease Termination (without any payment therefor) and remain upon and be surrendered with the Premises at Lease Termination. 13.3 LANDLORD'S IMPROVEMENTS. All fixtures, improvements or equipment which are installed, constructed on or attached to the Premises or Common Area by Landlord shall be a part of the realty and belong to Landlord. 14. DEFAULT AND REMEDIES 14.1 EVENTS OF DEFAULT. The term "Default by Tenant" as used in this Lease shall mean the occurrence of any of the following events: (a) Tenant's failure to pay when due any Rentals; (b) Tenant's vacation or abandonment of the Premises; (c) Commencement and continuation for at least thirty (30) days of any case, action or proceeding by, against or concerning Tenant under any federal or state bankruptcy, insolvency or other debtor's relief law, including without limitation, (i) a case under Title 11 of the United States Code concerning Tenant, whether under Chapter 7, 11, or 13 of such Title or under any other Chapter, or (ii) a case, action or proceeding seeking Tenant's financial reorganization or an arrangement with any of Tenant's creditors; (d) Voluntary or involuntary appointment of a receiver, trustee, keeper, or other person who takes possession for more than thirty (30) days of substantially all of Tenant's assets or of any asset used in Tenant's business on the Premises, regardless of whether such appointment is as a result of insolvency or any other cause; 20 (e) Execution of an assignment for the benefit of creditors of substantially all assets of Tenant available by law for the satisfaction of judgment creditors; (f) Commencement of proceedings for winding up or dissolving (whether voluntary or involuntary) the entity of Tenant, if Tenant is a corporation or a partnership; (g) Levy of a writ of attachment or execution on Tenant's interest under this Lease, if such unit continues for a period of ten (10) days; (h) Transfer or attempted Transfer of this Lease or the Premises by Tenant contrary to the provisions of Paragraph 24 below; or (i) Breach by Tenant of any term, covenant, condition, warranty, or other provision contained in this Lease or of any other obligation owing or due to Landlord. 14.2 REMEDIES. Upon any Default by Tenant, Landlord shall have the following remedies, in addition to all other rights and remedies provided by law, to which Landlord may resort cumulatively, or in the alternative; 14.21 TERMINATION. Upon any Default by Tenant, Landlord shall have the right (but not the obligation) to give written notice to Tenant of such default, and terminate this Lease and Tenant's right to possession of the Premises if (i) such default is in the payment of Rentals and is not cured within five (5) working days after any such notice, or, (ii) with respect to the defaults referred to in subparagraphs 14.1(b), (e), (f), (h) and (i), such default is not cured within thirty (30) days after any such notice (or if a default under subparagraphs 14.1(b) or (i) cannot be reasonably cured within thirty (30) days, if Tenant does not commence to cure the default within the thirty (30) day period or does not diligently and in good faith prosecute the cure to completion), or, (iii) with respect to the defaults specified in subparagraphs 14.1(c), (d) and (g) such default is not cured within the respective time periods specified in those subparagraphs. The parties agree that any notice given by Landlord to Tenant pursuant to this Paragraph 14.2.1 shall be sufficient notice for purposes of California Code of Civil Procedure Section 1151 and Landlord shall not be required to give any additional notice in order to be entitled to commence an unlawful detainer proceeding. Upon termination of this Lease and Tenant's right to possession of the Premises, Landlord shall have the right to recover from Tenant; (a) The worth at the time of award of the unpaid Rentals which had been earned at the time of termination; (b) The worth at the time of award of the amount by which the Rentals which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) The worth at the time of award (computed by discounting at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent) of the amount by which the Rentals for the balance of the Lease Term after the time of award exceed the amount of such rental loss that Tenant proves could be reasonably avoided; (d) Any other amounts necessary to compensate Landlord for all detriment proximately caused by the Default by Tenant or which in the ordinary course of events would likely result, including without limitation the following; (i) Expenses in retaking possession of the Premises; (ii) Expenses for cleaning, repairing or restoring the Premises; (iii) Any unamortized real estate brokerage commission paid in connection with this Lease; (iv) Expenses for removing, transporting, and storing any of Tenant's property left at the Premises (although Landlord shall have no obligation to remove, transport, or store any such property); (v) Expenses of reletting the Premises, including without limitation, brokerage commissions and attorneys' fees; (vi) Attorneys' fees and court costs; and (vii) Costs of carrying the Premises such as repairs; maintenance, taxes and insurance premiums, utilities and security precautions (if any). (e) The "worth at the time of award" of the amounts referred to in subparagraphs (a) and (b) of this Paragraph 14.2.1 is computed by allowing interest at an annual rate equal to the greater of: 10%; or 5% plus the rate established by the Federal Reserve Bank of San Francisco, as of the 25th day of the month immediately preceding the Default by Tenant, on advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act, as now in effect or hereafter from time to time amended, not to exceed the maximum rate allowable by law. 14.2.2 CONTINUANCE OF LEASE. Upon any Default by Tenant and unless and until Landlord elects to terminate this Lease pursuant to Paragraph 14.2.1 above, this Lease shall continue in effect after the Default by Tenant and Landlord may enforce all its rights and remedies under this Lease, including without limitation, the right to recover payment of Rentals as they become due. Neither efforts by Landlord to mitigate damages caused by a Default by Tenant nor the acceptance of any Rentals shall constitute a waiver by Landlord of any of Landlord's rights or remedies, including the rights and remedies specified in Paragraph 14.2.1 above. 15. DAMAGE OR DESTRUCTION 15.1 DEFINITION OF TERMS. For the purposes of this Lease, the term: (a) "Insured Casualty" means damage to or destruction of the Premises from a cause actually insured against, for which the insurance proceeds paid or made available to Landlord are sufficient to rebuild or restore the Premises under then-existing building codes to the condition existing immediately prior to the damage or destruction; and (b) "Uninsured Casualty" means damage to or destruction of the Premises from a cause not actually insured against, or from a cause actually insured against but for which the insurance proceeds paid or made available to Landlord are for any reason insufficient to rebuild or restore the Premises under then-existing building codes to the condition existing immediately prior to the damage or destruction, or from a cause actually insured against but for which the insurance proceeds are not paid or made available to Landlord within sixty (60) days of the event of damage or destruction. 15.2 INSURED CASUALTY. 15.2.1 REBUILDING REQUIRED. In the event of an Insured Casualty where the extent of damage or destruction is less than twenty percent (20%) of the then full replacement cost of the Premises, Landlord shall rebuild or restore the Premises to the condition existing immediately prior to the damage or destruction, provided that there exist no governmental codes or regulations that would interfere with Landlord's ability to so rebuild or restore. 15.2.2 LANDLORD'S ELECTION. In the event of an Insured Casualty where the extent of damage or destruction is equal to or greater than twenty percent (20%) of the then full replacement cost of the Premises, Landlord may, at its option and at its sole discretion, rebuild or restore the Premises to the condition existing immediately prior to the damage or destruction, or terminate this Lease. Landlord shall notify Tenant in writing within sixty (60) days from the event of damage or destruction of Landlord's election to either rebuild or restore the Premises or terminate this Lease. 15.2.3 CONTINUANCE OF LEASE. If Landlord is required to rebuild or restore the Premises pursuant to Paragraph 15.2.1 or if Landlord elects to rebuild or restore the Premises pursuant to Paragraph 15.2.2, this Lease shall remain in effect and Tenant shall have no claim against Landlord for compensation for inconvenience or loss of business during any period of repair or restoration. 15.3 UNINSURED CASUALTY. 15.3.1 LANDLORD'S ELECTION. In the event of an Uninsured Casualty, Landlord may, at its option and at its sole discretion (i) rebuild or restore the Premises as soon as reasonably possible at Landlord's expense (unless the damage or destruction was caused by a negligent or willful act of Tenant, in which event Tenant shall pay all costs of rebuilding or restoring), in which event this Lease shall continue in full force and effect or (ii) terminate this Lease, in which event Landlord shall give written notice to Tenant within sixty (60) days after the event of damage or destruction of Landlord's election to terminate this Lease as of the date of the event of damage or destruction, and if the damage or destruction was caused by a negligent or willful act to Tenant. Tenant shall be liable therefor to Landlord. 21 15.3.2 TENANTS ABILITY TO CONTINUE LEASE. If Landlord elects to terminate this Lease and the extent of damage or destruction is less than twenty percent (20%) of the then full replacement cost of the Premises or the proceeds paid or made available to Landlord are for any reason insufficient to rebuild or restore the Premises under then-existing building codes to the condition existing immediately prior to the damage or destruction, and if there exist no governmental codes or regulations that would interfere with Landlord's ability to so repair or restore, then Tenant may nevertheless cause the Lease to continue in effect by (i) notifying Landlord in writing within ten (10) days of Landlord's notice of termination of Tenant's agreement to pay all costs of rebuilding or restoring not covered by insurance, and (ii) providing Landlord with reasonable security for or assurance of such payment. Tenant shall pay to Landlord in cash no later than thirty (30) days prior to the date of commencement of construction the reasonable estimated cost of rebuilding or restoring. In the event Tenant fails to pay such cost to Landlord by the date specified. Landlord may immediately terminate the Lease and recover from Tenant all costs incurred by Landlord in preparation for construction. If the actual cost of rebuilding or restoring exceeds the estimated cost of such work, Tenant shall pay the difference to Landlord in cash upon notification by Landlord of the final cost. If the cost of rebuilding or restoring is less than the estimated cost of such work. Tenant shall be entitled to a refund of the difference upon completion of the rebuilding or restoring and determination of final cost. 15.4 TENANT'S ELECTION. Notwithstanding anything to the contrary contained in this Paragraph 15, Tenant may elect to terminate this Lease in the event the Premises are damaged or destroyed and, in the reasonable opinion of Landlord's architect or construction consultants, the restoration of the Premises cannot be substantially completed within one hundred eighty (180) days after the event of damage or destruction. Tenant's election shall be made by written notice to Landlord within ten (10) days after Tenant receives from Landlord the estimate of the time needed to complete repair or restoration of the Premises. If Tenant does not deliver said notice within said ten (10) day period. Tenant may not later terminate this Lease even if substantial completion of the rebuilding or restoration occurs subsequent to said one hundred eighty (180) day period, provided that Landlord is proceeding with diligence to rebuild or restore the Premises. If Tenant delivers said notice within said ten (10) day period, this Lease shall terminate as of the date of the event of damage or destruction. 15.5 DAMAGE OR DESTRUCTION NEAR END OF LEASE TERM. Notwithstanding anything to the contrary contained in this Paragraph 15, in the event the Premises are damaged or destroyed in whole or in part (regardless of the extent of damage) from any cause during the last twelve (12) months of the Lease Term, Landlord may, at Landlord's option, terminate this Lease as of the date of the event of damage or destruction by giving written notice to Tenant of Landlord's election to do so within thirty (30) days after the event of such damage or destruction. For purposes of this Paragraph 15.4, if Tenant has been granted an option to extend or renew the Lease Term pursuant to another provision of this Lease, then the damage or destruction shall be deemed to have occurred during the last twelve (12) months of the Lease Term if Tenant fails to exercise its option to extend or renew within twenty (20) days of the event of damage or destruction. 15.6 TERMINATION OF LEASE. If the Lease is terminated pursuant to this Paragraph 15, the unused balance of the Security Deposit shall be refunded to Tenant. The current Rent shall be proportionately reduced during the period following the event of damage or destruction until the date on which Tenant surrenders the Premises, based upon the extent to which the damage or destruction interferes with Tenant's business conducted in the Premises, as reasonably determined by Landlord, to the extent such loss is covered as an insured peril by the insurance carried by Landlord pursuant to Paragraph 8.1. All other Rentals due hereunder shall continue unaffected during such period. The proceeds of insurance carried by Tenant pursuant to Paragraph 8.2 shall be paid to Landlord and Tenant, as their interests appear. 15.7 ABATEMENT OF RENTALS. If the Premises are to be rebuilt or restored pursuant to this Paragraph 15, the then current Rent shall be proportionately reduced during the period of repair or restoration, based upon the extent to which the making of repairs interferes with Tenant's business conducted in the Premises, as reasonably determined by Landlord, to the extent such loss is covered as an insured peril by the insurance carried by Landlord pursuant to Paragraph 8.1. All other Rentals due hereunder shall continue unaffected. 15.8 LIABILITY FOR PERSONAL PROPERTY. In no event shall Landlord have any liability for, nor shall it be required to repair or restore, any injury or damage to any improvements, alterations or additions to the Premises made by Tenant, trade fixtures, equipment, merchandise, furniture, or any other property installed by Tenant or at the expense of Tenant. 15.9 WAIVER OF CIVIL CODE REMEDIES. Landlord and Tenant acknowledge that the rights and obligations of the parties upon damage or destruction of the Premises are as set forth herein; therefore Tenant hereby expressly waives any rights to terminate this Lease upon damage or destruction of the Premises, except as specifically provided by this Lease, including without limitation any rights pursuant to the provisions of Subdivision 2 of Section 1932 and Subdivision 4 of Section 1933 of the California Civil Code, as amended from time to time, and the provisions of any similar law hereinafter enacted, which provisions relate to the termination of the hiring of a thing upon its substantial damage or destruction. 16. CONDEMNATION 16.1 DEFINITION OF TERMS. For the purposes of this Lease, the term: (a) "Taking" means a taking of the Premises or Common Area or damage related to the exercise of the power of eminent domain and includes, without limitation, a voluntary conveyance, in lieu of court proceedings, to any agency, authority, public utility, person or corporate entity empowered to condemn property; (b) "Total Taking" means the Taking of the entire Premises or so much of the Premises of Common Area as to prevent or substantially impair the use thereof by Tenant for the uses herein specified; provided, however, that in no event shall the Taking of less than twenty percent (20%) of the Premises be considered a Total Taking; (c) "Partial Taking" means the Taking of only a portion of the Premises or Common Area which does not constitute a Total Taking; (d) "Date of Taking" means the date upon which the title to the Premises or Common Area or a portion thereof, passes to and vests in the condemnor or the effective date of any order for possession if issued prior to the date title vests in the condemnor; (e) "Award" means the amount of any award made, consideration paid, or damages ordered as a result of a Taking. 16.2 RIGHTS. The parties agree that in the event of a Taking all rights between them or in and to an Award shall be as set forth herein. 16.3 TOTAL TAKING. In the event of a Total Taking during the Lease Term: (a) the rights of Tenant under this Lease and the leasehold estate of Tenant in and to the Premises shall cease and terminate as of the date of Taking; (b) Landlord shall refund to Tenant any prepaid Rent and the unused balance of the Security Deposit; (c) Tenant shall pay Landlord any Rentals due Landlord under the Lease, prorated as of the date of Taking; (d) to the extent the Award is not payable to the beneficiary or mortgagee of a deed of trust or mortgage affecting the Premises, Tenant shall receive from the Award those portions of the Award attributable to trade fixtures of Tenant; (e) the remainder of the Award shall be paid to and be the property of Landlord. 16.4 PARTIAL TAKING. In the event of a Partial Taking during the Lease Term that does not prevent Tenant from conducting its business in substantially the same manner as prior to the Partial Taking: (a) the rights of Tenant under the Lease and the leasehold estate of Tenant in and to the portion of the Premises taken shall cease and terminate as of the Date of Taking; (b) from and after the Date of Taking the Rent shall be an amount equal to the product obtained by multiplying the then market value of the Premises immediately prior to the Taking; (c) Tenant shall receive from the Award the portions of the Award attributable to trade fixtures of Tenant; and (d) the remainder of the Award shall be paid to and be the property of Landlord. 17. LIENS 17.1 PREMISES TO BE FREE OF LIENS. Tenant shall pay for all labor and services performed for, and all materials used by or furnished to Tenant, Tenant's agents, or any contractor employed by Tenant with respect to the Premises. Tenant shall indemnify and hold Landlord harmless from and keep the Premises and Common Area free from any liens, claims, demands, encumbrances or judgments, including all costs, liabilities and attorneys' fees with respect thereto, created or suffered by reason of any labor of services performed for, or materials used by or furnished to Tenant or Tenant's agents or any contractor employed by Tenant will 22 respect to the Premises, Landlord shall have the right, at all times, to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord and the Premises and Common Area, and any other party having an interest therein, from mechanics' and materialmen's liens, including without limitation a notice of nonresponsibility. In the event Tenant is required to post an improvement bond with a public agency in connection with any work performed by Tenant on or to the Premises, Tenant shall include Landlord as an additional obligee. 17.2 NOTICE OF LIEN: BOND. Should any claims of lien be filed against, or any action be commenced affecting the Premises, Tenant's interest in the Premises or the Common Area, Tenant shall give Landlord notice of such lien or action within five (5) business days after Tenant receives notice of the filing of the lien or the commencement of the action. In the event that Tenant shall not, within twenty days following the imposition of any such lien, cause such lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien or posting of a proper bond. All such sums paid by Landlord and all expenses incurred by Landlord in connection therewith, including reasonable attorneys' fees and costs, shall be payable to Landlord by Tenant as Additional Rent on demand. 18. LANDLORD'S RIGHT OF ACCESS TO PREMISES Landlord reserves and shall have the right and Tenant and Tenant's agents shall permit Landlord and Landlord's agents to enter the Premises at any reasonable time for the purpose of (i) inspecting the Premises, (ii) performing Landlord's maintenance and repair responsibilities set forth herein, (iii) posting notices of non-responsibility, (iv) placing on the Premises ordinary "For Lease" signs at any time within ninety (90) days prior to Lease Termination, or at any time Tenant is in default hereunder, or at such other times as agreed to by Landlord and Tenant, (v) protecting the Premises in the event of an emergency, and (vi) exhibiting the Premises to prospective purchasers, lenders or tenants. In the event of an emergency, Landlord shall have the right to use any and all means which Landlord may deem proper to gain access to the Premises. Any entry to the Premises by Landlord or Landlord's agents in accordance with this Paragraph 18 or any other provision of this Lease shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of the Premises, or an eviction of Tenant from the Premises or any portion thereof nor give Tenant the right to abate the Rentals payable under this Lease. Tenant hereby waives any claims for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned by Landlord's or Landlord's agents' entry into the Premises as permitted by this paragraph 18 or any other provision of this Lease. 19. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS Except as otherwise expressly provided herein, if Tenant shall at any time fail to make any payment or perform any other act required to be made or performed by Tenant under this Lease, Landlord may upon ten (10) days written notice to Tenant, but shall not be obligated to and without waiving or releasing Tenant from any obligation under this Lease, make such payment or perform such other act to the extent that Landlord may deem desirable, and in connection therewith, pay expenses and employ counsel. All sums so paid by Landlord and all penalties, interest and reasonable costs in connection therewith shall be due and payable by Tenant as Additional Rent upon demand. 20. LENDER REQUIREMENTS 20.1 SUBORDINATION. This Lease, at Landlord's option, shall be subject and subordinate to the lien of any mortgages or deeds of trust (including all advances thereunder, renewals, replacements, modifications, supplements, consolidations, and extensions thereof) in any amount(s) whatsoever now or hereafter placed on or against or affecting the Premises and/or the real property comprising the Common Area or Landlord's interest or estate therein, without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination. If any mortgagee or beneficiary shall elect to have this Lease prior to the lien of its mortgage or deed of trust, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage or deed of trust, whether this Lease is dated prior or subsequent to the date of such mortgage or deed of trust or the date of the recording thereof. 20.2 SUBORDINATION AGREEMENTS. Tenant shall execute and deliver, without charge therefor, such further instruments evidencing subordination of this Lease to the lien of any mortgages or deeds of trust affecting the Premises and/or real property comprising the Common Area as may be required by Landlord within ten (10) days following Landlord's request therefor; provided that such mortgagee or beneficiary under such mortgage or deed of trust agrees in writing that this Lease shall not be terminated in the event of any foreclosure if Tenant is not in default under this Lease. Failure of Tenant to execute such instruments evidencing subordination of this Lease shall constitute a Default by Tenant hereunder. 20.3 APPROVAL BY LENDERS. Tenant recognizes that the provisions of this Lease may be subject to the approval of any financial institution that may make a loan secured by a new or subsequent deed of trust or mortgage affecting the Premises and/or real property comprising the Common Area. If the financial institution should require, as a condition to such financing, any modifications of this Lease in order to protect its security interest in the Premises, including without limitation, modification of the provisions relating to damage to and/or condemnation of the Premises, Tenant agrees to execute the appropriate amendments; provided, however, that no modification shall substantially change the size, location or dimension of the Premises, or increase the Rentals payable by Tenant hereunder or substantially increase or change Tenant's rights or obligations under the Lease. If Tenant refuses to execute any such amendment, Landlord may, in Landlord's discretion, terminate this Lease. 20.4 ATTORNMENT. In the event of foreclosure or the exercise of the power of sale under any mortgage or deed of trust made by Landlord and covering the Premises and/or real property comprising the Common Area, Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease, provided such purchaser expressly agrees in writing to be bound by the terms of the Lease, including, but not limited to, the quiet enjoyment provisions of Paragraph 39. 20.5 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS. (a) DELIVERY BY TENANT. Tenant shall, within ten (10) days following request by Landlord therefor and without charge, execute and deliver to Landlord any and all documents, estoppel certificates, and current financial statements of Tenant reasonably requested by Landlord in connection with the sale or financing of the Premises and/or real property comprising the Common Area, or reasonably requested by any lender making a loan affecting the Premises and/or real property comprising the Common Area. Landlord may require that Tenant in any estoppel certificate shall (i) certify that this Lease is unmodified and in full force and effect (or, if modified, state the nature of such modification and certify that this Lease, as so modified, is in full force and effect) and has not been assigned, (ii) certify the date to which Rentals are paid in advance, if any, (iii) acknowledge that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specify such defaults if claimed, (iv) evidence the status of this Lease as may be required either by a lender making a loan to Landlord to be secured by a deed of trust or mortgage covering the Premises and/or real property comprising the Common Area or a purchaser of the Premises and/or real property comprising the Common Area from Landlord, (v) warrant that in the event any beneficiary of any security instrument encumbering the Premises and/or real property comprising the Common Area forecloses on the security instrument or sells the Premises and/or real property comprising the Common Area pursuant to any power of sale contained in such security instrument, such beneficiary shall not be liable for the Security Deposit, (vi) certify the date Tenant entered into occupancy of the Premises and that Tenant is conducting business at the Premises, (vii) certify that all improvements to be constructed on the Premises by Landlord have been substantially completed except for punch list items which do not prevent Tenant from using the Premises for its intended use, and (viii) certify such other matters relating to the Lease and/or Premises as may be requested by a lender making a loan to Landlord or a purchaser of the Premises and/or real property comprising the Common Area from Landlord. Any such estoppel certificate may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises and/or real property comprising the Common Area. Any financial statements of Tenant shall include an opinion of a certified public accountant (if available) and a balance sheet and profit and loss statement for the most recent fiscal year, all prepared in accordance with generally accepted accounting principles consistently applied. Notwithstanding the foregoing, the most recent certified financial statements, balance sheet and profit and loss statement of General Signal shall satisfy the requirements of this Paragraph 20.5. (b) NONDELIVERY BY TENANT. Tenant's failure to deliver an estoppel certificate as required pursuant to Paragraph 20.5(a) above shall be conclusive upon Tenant that (i) this Lease is in full force and effect, without modification except as may be represented by Landlord and has not been assigned, (ii) there are now no uncured defaults in Landlord's performance, (iii) no Rentals have been paid in advance except those that are set forth in this Lease, (iv) no beneficiary of any security instrument encumbering the Premises and/or real property comprising the Common Area shall be liable for the Security Deposit in the event of a foreclosure or sale under such security instrument, (v) the improvements to be constructed on the Premises by Landlord have been substantially completed except for punch list items which do not prevent Tenant from 23 using the Premises for its intended use, and (vi) Tenant has entered into occupancy of the Premises on such date as may be represented by Landlord and is open and conducting business at the Premises. Tenant's failure to deliver any financial statements, estoppel certificates or other documents as required pursuant to Paragraph 20.5(a) above shall be a Default by Tenant. 21. HOLDING OVER This Lease shall terminate without further notice at the expiration of the Lease Term. It is the desire of Landlord either to enter into a new lease with Tenant for the Premises prior to the expiration of the Lease Term, or to have Tenant vacate the Premises pursuant to Paragraph 35 below. Therefore, any holding over by Tenant after Lease Termination shall not constitute a renewal or extension of the Lease Term, nor give Tenant any rights in or to the Premises except as expressly provided in this Lease. Any holding over after Lease Termination with the consent of Landlord shall be construed to be a tenancy from month to month, at 200% of the monthly Rent for the month preceding Lease Termination in addition to all Additional Rent payable hereunder, and shall otherwise be on the terms and conditions herein specified insofar as applicable. If Tenant remains in possession of the Premises after Lease Termination without Landlord's consent, Tenant shall indemnify Landlord against any loss or liability resulting from Tenant's failure to surrender the Premises, including without limitation, any claims made by any succeeding tenant based on delay in the availability of the Premises. 22. NOTICES Any notice required or desired to be given under this Lease shall be in writing, and all notices shall be given by personal delivery or mailing. All notices personally given on Tenant may be delivered to any person apparently in charge at the Premises or to the corporate officer or agent of Tenant if Tenant is a corporation, or on any one signatory party if more than one party signs this Lease on behalf of Tenant; any notice so given shall be binding upon all signatory parties as if served upon each such party personally. Any notice given pursuant to this Paragraph 22 shall be deemed to have been given when personally delivered, or if mailed, when seventy-two hours have elapsed from the time when such notice was deposited in the United States mail certified or registered mail and postage prepaid, addressed to the party at the last address given for purposes of notice pursuant to the provisions of this Paragraph 22. At the date of execution of this Lease, the addresses of Landlord and Tenant are set forth in Paragraph 1.11 above. 23. ATTORNEYS' FEES In the event either party hereto shall bring any action or legal proceeding for damages for an alleged breach of any provision of this Lease, to recover Rentals, to enforce an indemnity obligation, to terminate the tenancy of the Premises, or to enforce, protect, interpret, or establish any term, condition, or covenant of this Lease or right or remedy of either party, the prevailing party shall be entitled to recover, as a part of such action or proceeding, reasonable attorneys' fees and court costs, including attorneys' fees and costs for appeal, as may be fixed by the court or jury. 24. ASSIGNMENT, SUBLETTING AND HYPOTHECATION 24.1 IN GENERAL. Tenant shall not voluntarily sell, assign or transfer all or any part of Tenant's interest in this Lease or in the Premises or any part thereof, sublease all or any part of the Premises, or permit all or any part of the Premises to be used by any person or entity other than Tenant or Tenant's employees, except as specifically provided in this Paragraph 24. 24.2 VOLUNTARY ASSIGNMENT AND SUBLETTING. (a) NOTICE TO LANDLORD. Tenant shall, by written notice, advise Landlord of Tenant's desire on a stated date (which date shall not be less than thirty (30) days nor more than ninety (90) days after the date of Tenant's notice) to assign this Lease or to sublet all or any part of the Premises for any part of the Lease Term. Said notice shall state that the notice constitutes an offer to terminate the Lease or Tenant's interest in the portion of the Premises specified pursuant to Paragraph 24.2(b) if the notice applies to a proposed assignment of the Lease or Tenant's interest therein, a proposed sublease of all or any part of the Premises for more than fifty percent (50%) of the remainder of the Lease Term, or a proposed sublease of more than fifty percent (50%) of the Premises for any period. Tenant's notice shall state the name, legal composition and address of the proposed assignee or subtenant, and Tenant shall provide the following information to Landlord with said notice: a true and complete copy of the proposed assignment agreement or sublease; financial statement of the proposed assignee or subtenant prepared in accordance with generally accepted accounting principles within one year prior to the proposed effective date of the assignment or sublease; the nature of the proposed assignee's or subtenant's business to be carried on in the Premises; the payments to be made or other consideration to be given on account of the assignment or sublease; a current financial statement of Tenant; and such other pertinent information as may be requested by Landlord, all in sufficient detail to enable Landlord to evaluate the proposed assignment or sublease and the prospective assignee or subtenant. Tenant's notice shall not be deemed to have been served or given until such time as Tenant has provided Landlord with all information reasonably requested by Landlord pursuant to this Paragraph 24.2. Tenant shall immediately notify Landlord of any modification to the proposed terms of such assignment or sublease. Tenant may withdraw its notice at anytime prior to exercise by Landlord of Landlord's right to terminate as described in Paragraph 24.2(b). (b) OFFER TO TERMINATE. If Tenant notifies Landlord of its desire to assign this Lease or any interest herein, to sublet all or any part of the Premises for more than fifty percent (50%) of the remainder of the Lease Term, or to sublet more than fifty percent (50%) of the Premises for any period. Tenant's notice shall constitute an offer to terminate this Lease or Tenant's interest in the portion of the Premises specified and Landlord shall have the right, to be exercised by giving written notice to Tenant within thirty (30) days after receipt of Tenant's notice, to terminate the Lease (i) entirely, in the event of a proposed assignment or a sublease of the entire Premises for the remainder of the Lease Term, (ii) as to the portion of the Premises which is the subject of a proposed sublease for more than fifty percent (50%) of the remainder, or (iii) as to the portion of the Premises which is the subject of a proposed sublease of more than fifty percent (50%) of the Premises for any period, as specified in Tenant's notice. For purposes of this Paragraph 24.2(b), (i) the term of a proposed sublease shall include all options to extend or renew, and (ii) a proposed sublease shall be deemed to be for the remainder of the Lease Term if the term of the proposed sublease will expire within one year of the end of the Lease Term. If Tenant's notice specifies all of the Premises and Landlord elects to terminate, this Lease shall terminate on the date stated in the notice given by Tenant pursuant to Paragraph 24.2(a), subject to any obligations which have accrued and are unfulfilled as of such date. If Tenant's notice specifies less than all of the Premises and Landlord elects to terminate, this Lease shall terminate on the date stated with respect to that portion of the Premises, and Base Rent and all other costs and expenses payable by Tenant hereunder shall be adjusted pro rata, based upon the number of net leaseable square feet retained by Tenant after the termination, compared to the total number of net leaseable square feet in the entire Premises excluding any areas of the Premises designated in the proposed sublease for ingress and egress and common areas, if any. The Lease as so amended shall continue thereafter in full force and effect. Landlord and Tenant shall execute an amendment to this Lease specifying the new Premises, the adjusted Base Rent, a reasonable method for apportioning maintenance and operating obligations based on the multi-tenant nature of the Premises, and Tenant's sharer of costs and expenses; provided, however, that failure by either party to execute such an amendment shall not affect the validity of this Lease. (c) LANDLORD'S CONSENT. If Landlord does not exercise its right to terminate pursuant to Paragraph 24.2(b) within thirty (30) days after receipt of Tenant's notice or if a proposed sublease is not subject to the provisions of Paragraph 24.2(b), Landlord shall not unreasonably withhold its consent to the proposed assignment or subletting, on the terms and conditions specified in said notice. If Tenant's notice fails to state that it constitutes an offer to terminate the Lease as may be required pursuant to Paragraph 24.2(a), such notice shall be deemed insufficient for the purposes of this Paragraph 24.2, and Landlord may withhold its consent to the proposed assignment or subletting in Landlord's absolute discretion. Without otherwise limiting the criteria upon which Landlord may withhold its consent to any proposed assignment or sublease, if Landlord withholds its consent where Tenant is in default at the time of the giving of Tenant's notice or at any time thereafter, or where the net worth of the proposed assignee or subtenant (according to generally accepted accounting principles) is substantially less than the greater of (i) the net worth of Tenant immediately prior to the assignment or sublease, (ii) or the net worth of Tenant at the time this Lease is executed, such withholding of consent shall be presumptively reasonable. Any and all rent paid by an assignee or subtenant, including, but not limited to, any rent in excess of the Rentals to be paid under this Lease (prorated in the event of a sublease of less than the entire Premises), shall be paid directly to Landlord, as Additional Rent, at the time and place specified in this Lease.* For the purposes of this Paragraph 24, the term "rent" shall include any consideration of any kind received, or to be received, by Tenant from an assignee or subtenant, if such sums are related to Tenant's interest in this Lease or in the Premises, including, but not limited to, key money, bonus money, and payments (substantially in excess of the fair market value thereof) for Tenant's assets, fixtures, trade fixtures, inventory, accounts, goodwill, equipment, furniture, general intangibles, and any capital stock or other equity ownership interest *The foregoing notwithstanding, with respect to any sublease, all rents in excess of the Rentals to be paid under this Lease (prorated on the basis of the square footage of the subleased portion) shall be paid fifty percent (50%) to Landlord, as and when received, and fifty percent (50%) to Tenant, after deducting any advertising expenses, sublessee improvements or brokerage fees actually incurred by Tenant in connection therewith, amortized over the term of the sublease. 24 of Tenant. Any assignment or subletting without Landlord's consent shall be voidable at Landlord's option, and shall constitute a Default by Tenant. Landlord's consent to any one assignment or sublease shall not constitute a waiver of the provisions of this Paragraph 24 as to any subsequent assignment or sublease nor a consent to any subsequent assignment or sublease; further, unless the parties otherwise agree in writing. Landlord's consent to an assignment or sublease shall not release Tenant from Tenant's obligations under this Lease, and Tenant shall remain jointly and severally liable with the assignee or subtenant. If Landlord agrees to release Tenant from its obligations hereunder upon an assignment of the Lease, General Signal shall also be released from its obligations as guarantor. (d) ASSUMPTION OF OBLIGATIONS. In the event Landlord consents to any assignment, such consent shall be conditioned upon the assignee expressly assuming and agreeing to be bound by each of Tenant's covenants, agreements and obligations contained in this Lease, pursuant to a written assignment and assumption agreement in a form approved by Landlord. Landlord's consent to any assignment or sublease shall be evidenced by Landlord's signature on said assignment and assumption agreement or on said sublease or by a separate written consent. In the event Landlord consents to a proposed assignment or sublease, such assignment or sublease shall be valid and the assignee or subtenant shall have the right to take possession of the Premises only if an executed original of the assignment or sublease is delivered to Landlord, and such document contains the same terms and conditions as stated in Tenant's notice to Landlord given pursuant to Paragraph 24.2(a) above, except for any such modifications to which Landlord has consented in writing. 24.3 COLLECTION OF RENT. Tenant hereby irrevocably gives to and confers upon Landlord, as security for Tenant's obligations under this Lease, the right, power and authority to collect all rents from any assignee or subtenant of all or any part of the Premises as permitted by this Paragraph 24, or otherwise, and Landlord, as assignee of Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this Lease; provided, however, that until the occurrence of any Default by Tenant or except as provided by the provisions of Paragraph 24.2(b) above. Tenant shall have the right to collect such rent. Upon the occurrence of any Default by Tenant, Landlord may at any time without notice in Landlord's own name sue for or otherwise collect such rent, including rent past due and unpaid, and apply the same, less costs and expenses of operations and collection, including reasonable attorneys' fees, toward Tenant's obligations under this Lease. Landlord's collection of such rents shall not constitute an acceptance by Landlord of attornment by such subtenants; in the event of a Default by Tenant, Landlord shall have all rights provided by this Lease and by law, and Landlord may, upon re-entry and taking possession of the Premises, eject all parties in possession or eject some and not others, or eject none, as Landlord shall determine in Landlord's sole discretion. 24.4 NO BONUS VALUE. Subject to the provisions of Paragraph 24.2(c), it is the intent of the parties hereto that this Lease shall confer upon Tenant only the right to use and occupy the Premises, and to exercise such other rights as are conferred upon Tenant by this Lease. The parties agree that this Lease is not intended to have a bonus value, nor to serve as a vehicle whereby Tenant may profit by a future assignment or sublease of this Lease or the right to use or occupy the Premises as a result of any favorable terms contained herein or any future changes in the market for leased space. It is the intent of the parties that any such bonus value that may attach to this Lease shall be and remain the exclusive property of Landlord. 24.5 CORPORATIONS AND PARTNERSHIPS. If Tenant is a partnership, any withdrawal or substitution (whether voluntary, involuntary, or by operation of law and whether occurring at one time or over a period of time) of any partner(s) owning fifty percent (50%) or more of the partnership, any assignment(s) of fifty percent (50%) or more (cumulatively) of any interest in the capital or profits of the partnership, or the dissolution of the partnership shall be deemed an assignment of this Lease requiring the prior written consent of Landlord. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, any sale or transfer (or cumulative sales or transfers) of the capital stock of Tenant in excess of fifty percent (50%), or any sale (or cumulative sales) of all of the assets of Tenant shall be deemed an assignment of this Lease requiring the prior written consent of Landlord, provided that no such consent will be required as long as General Signal continues to be the guarantor of the Lease. Any such withdrawal or substitution of partners or assignment of any interest in or dissolution of a partnership tenant, and any such sale of stock or assets of a corporate tenant without the prior written consent of Landlord shall be a Default by Tenant hereunder. The foregoing notwithstanding, the sale or transfer of any or all of the capital stock of a corporation, the capital stock of which is now or hereafter becomes publicly traded, shall not be deemed an assignment of this Lease. 24.6 REASONABLE PROVISIONS. Tenant expressly agrees that the provisions of this Paragraph 24 are not unreasonable standards or conditions for purposes of Section 1951.4(b)(2) of the California Civil Code, as amended from time to time. 24.7 ATTORNEYS' FEES. Tenant shall pay, as Additional Rent, Landlord's actual attorneys' fees for reviewing, investigating, processing and/or documenting any requested assignment or sublease, whether or not Landlord's consent is granted. 24.8 INVOLUNTARY TRANSFER. No interest of Tenant in this Lease shall be assignable by operation of law, including, without limitation, the transfer of this Lease by testacy or intestacy. Each of the following acts shall be considered an involuntary assignment: (a) If Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors, or a proceeding under the Bankruptcy Act is instituted in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankruptor insolvent, or makes an assignment for the benefit of creditors; (b) Levy of a writ of attachment or execution on this Lease; (c) Appointment of a receiver with authority to take possession of the Premises in any proceeding or action to which Tenant is a party; or (d) Foreclosure of any lien affecting Tenant's interest in the Premises, which lien was not consented to by Landlord pursuant to Paragraph 24.9. An involuntary assignment shall constitute a Default by Tenant and Landlord shall have the right to terminate this Lease, in which case this Lease shall not be treated as an asset of Tenant. In the event the Lease is not terminated, the provision sof Paragraph 24.2(c) regarding rents paid by an assignee or subtenant and Paragraph 24.4 shall apply. If a writ of attachment or execution is levied on this Lease, or if any involuntary proceeding in bankruptcy is brought against Tenant or a receiver is appointed. Tenant shall have sixty (60) days in which to cause the attachment or execution to be removed, the involuntary proceeding dismissed, or the receiver removed. 24.9 HYPOTHECATION. Tenant shall not hypothecate, mortgage or encumber Tenant's interest in this Lease or in the Premises or otherwise use this Lease as a security device in any manner without the consent of Landlord, which consent Landlord may withhold in its absolute discretion. Consent by Landlord to any such hypothecation or creation of a lien or mortgage shall not constitute consent to an assignment or other transfer of this Lease following foreclosure of any permitted lien or mortgage. 24.10 BINDING ON SUCCESSORS. The provisions of this Paragraph 24 expressly apply to all heirs, successors, sublessees, assignees and transfers of Tenant. SUCCESSORS 25. Subject to the provisions of Paragraph 24 above and Paragraph 30.2(a) below, the covenants, conditions, and agreements contained in this Lease shall be binding on the parties hereto and on their respective heirs, successors and assigns. LANDLORD DEFAULT; MORTGAGE PROTECTION 26. Landlord shall not be in default under this Lease unless Tenant shall have given Landlord written notice of the breach and, within thirty (30) days after notice, Landlord has not cured the breach or, if the breach is such that it cannot reasonably be cured under the circumstances within thirty (30) days, has not commenced diligently to prosecute the cure to completion. Any money judgment obtained by Tenant based upon Landlord's breach of this Lease shall be satisfied only out of the proceeds of the sale or disposition of Landlord's interest in the Premises (whether by Landlord or by execution of judgment). In the event of any default on the part of Landlord under this Lease, Tenant shall give notice by registered or certified mail to any beneficiary of a deed of trust or any mortgage of a mortgage affecting the Premises and/or real property comprising the Common Area whose address shall have been furnished to Tenant, and shall offer such beneficiary or mortgage a reasonable opportunity too cure the default, including time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should prove necessary to effect a cure. Landlord shall take no act that would reduce Landlord's equity in the Building to less than One Million Dollars ($1,000,000), determined by the capitalized income appraisal method. 25 27. EXHIBITS All exhibits attached to this Lease shall be deemed to be incorporated herein by the individual reference to each such exhibit, and all such exhibits shall be deemed to be a part of this Lease as though set forth in full in the body of the Lease. 28. SURRENDER OF LEASE NOT MERGER The voluntary merger surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenants, or may, at the option of Landlord, operate as an assignment to Landlord of any or all such subleases or subtenants. 29. WAIVER The waiver by Landlord of any breach of any term, covenant or condition herein contained (or the acceptance by Landlord of any performance by Tenant after the time the same shall become due) shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach thereof or of any other term, covenant or condition herein contained, unless otherwise expressly agreed to by Landlord in writing. The acceptance by Landlord of any sum less than that which is required to be paid by Tenant shall be deemed to have been received only on account of the obligation for which it is paid (or for which it is allocated by Landlord, in Landlord's absolute discretion, if Tenant does not designate the obligation as to which the payment should be credited), and shall not be deemed an accord and satisfaction notwithstanding any provisions to the contrary written on any check or contained in any letter of transmittal. The acceptance by Landlord of any sum tendered by a purported assignee or transferee of Tenant shall not be deemed a consent by Landlord to any assignment or transfer of Tenant's interest herein. No custom or practice which may arise between the parties hereto in the administration of the terms of this Lease shall be construed as a waiver or diminution of Landlord's right to demand performance by Tenant in strict accordance with the terms of this Lease. 30. GENERAL 30.1 CAPTIONS AND HEADINGS. The captions and paragraph headings used in this Lease are for convenience of reference only. They shall not be construed to limit or extend the meaning of any part of this Lease and shall not be deemed relevant in resolving any question of interpretation or construction of any paragraph of this Lease. 30.2 DEFINITIONS. (a) LANDLORD. The term Landlord as used in this Lease, so far as the covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner at the time in question of the fee title to the Premises. In the event of any transfer(s) of such interest, the Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall have no further liability under this Lease to Tenant except as to matters of liability which have accrued and are unsatisfied as of the date of such transfer, it being intended that the covenants and obligations contained in this Lease on the part of Landlord shall be binding on Landlord and its successors and assigns only during and in respect of their respective periods of ownership of the fee; provided that any funds in the possession of Landlord or the then grantor and as to which Tenant has an interest, less any deductions permitted by law or this Lease, shall be turned over to the grantee. The covenants and obligations contained in this Lease on the part of Landlord shall, subject to the provisions of this Paragraph 30.2(a), be binding upon each Landlord and such Landlord's heirs, personal representatives, successors and assigns only during its respective period of ownership. Except as provided in this Paragraph 30.2(a), this Lease shall not be affected by any transfer of Landlord's interest in the Premises, and Tenant shall attorn to any transferee of Landlord provided that all of Landlord's obligations hereunder are assumed in writing by such transferee. (b) AGENTS. For purposes of this Lease and without otherwise affecting the definition of the word "agent" or the meaning of an "agency", the term "agents" shall be deemed to include the agents, employees, officers, directors, servants, invitees, contractors, successors, representatives, subcontractors, guests, customers, suppliers, partners, affiliated companies, and any other person or entity related in any way to the respective party, Tenant or Landlord. (c) INTERPRETATION OF TERMS. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words in the neuter gender include the masculine and feminine and words in the masculine or feminine gender include the neuter. 30.3 COPIES. Any executed copy of this Lease shall be deemed an original for all purposes. 30.4 TIME OF ESSENCE. Time is of the essence as to each and every provision in this Lease requiring performance within a specified time. 30.5 SEVERABILITY. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein. However, if Tenant's obligation to pay the Rentals is determined to be invalid or unenforceable, this Lease at the option of Landlord shall terminate. 30.6 GOVERNING LAW. This lease shall be construed and enforced in accordance with the laws of the State of California. 30.7 JOINT AND SEVERAL LIABILITY. If Tenant is more than one person or entity, each such person or entity shall be jointly and severally liable for the obligations of Tenant hereunder. If Tenant is a husband and wife, the obligations hereunder shall extend to their sole and separate property as well as community property. 30.8 CONSTRUCTION OF LEASE PROVISIONS. Although printed provisions of this Lease were prepared by Landlord, this Lease shall not be construed either for or against Tenant or Landlord, but shall be construed in accordance with the general tenor of the language to reach a fair and equitable result. 30.9 CONDITIONS. All agreements by Tenant contained in this Lease, whether expressed as covenants or conditions, shall be construed to be both covenants and conditions, conferring upon Landlord, in the event of a breach thereof, the right to terminate this Lease. 30.10 TENANT'S FINANCIAL STATEMENTS. Tenant hereby warrants that all financial statements delivered by Tenant to Landlord are true, correct, and complete, and prepared in accordance with generally accepted accounting principles. Tenant acknowledges and agrees that Landlord is relying on such financial statements in accepting this Lease, and that a breach of Tenant's warranty as to such financial statements shall constitute a Default by Tenant. 30.11 WITHHOLDING OF LANDLORD'S CONSENT. Notwithstanding any other provision of this Lease, where Tenant is required to obtain the consent (whether written or oral) of Landlord to do any act, or to refrain from the performance of any act. Tenant agrees that if Tenant is in default with respect to any substantial term, condition, covenant or provision of this Lease, then Landlord shall be deemed to have acted reasonably in withholding its consent if said consent is in fact, withheld. 31. SIGNS Tenant shall not place or permit to be placed any sign or decoration on the Common Area or the exterior of the Premises or that would be visible from the exterior of the Premises, without the prior written consent of Landlord, which consent will not be unreasonably withheld. In no event shall any such sign revolve, rotate, move or create the illusion of revolving, rotating or moving or be internally illuminated and, except for a spotlight which Tenant may install on the existing monument sign, there shall be no exterior spotlighting or other illumination on any such sign. Tenant, upon written notice by Landlord, shall immediately remove any of Tenant's signs or decorations that are visible from the exterior of the Premises which were installed without Landlord's prior written consent, which shall not be unreasonably withheld or that Tenant has placed or permitted to be placed on the Common Area or the exterior of the Premises without the prior written consent of Landlord. If Tenant fails to so remove such sign or decoration within five (5) working days after Landlord's written notice, Landlord may enter the Premises and remove such sign or decoration and Tenant shall pay Landlord, as Additional Rent upon demand, the cost of such removal. All signs placed on the Premises or Common Area by Tenant shall comply with all recorded documents affecting the Premises, including but not limited to any Declaration of Conditions, Covenants and Restrictions; the sign criteria, which will be attached hereto as Exhibit "E" if applicable (as the same may be amended from time to time); and applicable statutes, ordinances, rules and regulations of governmental agencies having jurisdiction thereof. At Landlord's option, Tenant shall at Lease Termination remove any sign which is has placed on the Premises or the Common Area, and shall, at its sole cost, repair any damage caused by the installation or removal of such sign. 26 32. LANDLORD AS PARTY DEFENDANT If, by reason of any act or omission by Tenant or Tenant's agents, Landlord is made a party defendant concerning this Lease (other than as a defendant in an action brought against Landlord by Tenant or Tenant's agent), the Premises, or the Common Area, Tenant shall indemnify Landlord against all liability incurred (or threatened against) Landlord as a party defendant including all damages, costs and attorneys' fees. 33. LANDLORD NOT A TRUSTEE Landlord shall not be deemed to be a trustee of any funds paid to Landlord by Tenant (or held by Landlord for Tenant) pursuant to this Lease, including without limitation the Security Deposit. Landlord shall not be required to keep any such funds separate from Landlord's general funds. Any funds held by Landlord pursuant to this Lease shall not bear interest. 34. INTEREST Any payment due from Tenant to Landlord, except for Rent received by Landlord within thirty (30) days after the same is due, shall bear interest from the date due until paid, at an annual rate equal to the greater of: ten percent (10%); or five percent (5%) plus the rate established by the Federal Reserve Bank of San Francisco, as of the twenty-fifth (25th) day of the month immediately preceding the due date, on advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act, as now in effect or hereafter from time to time amended. In addition, Tenant shall pay all costs and attorneys' fees incurred by Landlord in the collection of such amounts. 35. SURRENDER OF PREMISES On the last day of the Lease Term or upon the sooner termination of this Lease, Tenant shall, to the reasonable satisfaction of Landlord, surrender the Premises to Landlord in good condition (reasonable wear and tear excepted) with all originally painted interior walls washed, or re-painted if marked or damaged and other interior walls cleaned and repaired or replaced, all carpets cleaned and in good condition, the air conditioning, ventilating and heating equipment inspected, serviced and repaired by a reputable and licensed service firm (unless Landlord has elected to maintain heating and air conditioning systems pursuant to Paragraph 10.1 above), and all floors cleaned and waxed. Tenant shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed shall be deemed abandoned by Tenant. Furthermore, Tenant shall immediately repair all damage to the Premises and Common Area caused by any such removal. If the Premises are not so surrendered at Lease Termination, Tenant shall indemnify Landlord against any loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant or losses to Landlord due to lost opportunities to lease to succeeding tenants. 36. NO PARTNERSHIP OR JOINT VENTURE Nothing in this Lease shall be construed as creating a partnership or joint venture between Landlord, Tenant, or any other party, or cause Landlord to be responsible for the debts or obligations of Tenant or any other party. 37. ENTIRE AGREEMENT Any agreements, warranties, or representations not expressly contained herein shall in no way bind either Landlord or Tenant, and Landlord and Tenant expressly waive all claims for damages by reason of any statement, representation, warranty, promise or agreement, if any, not contained in this Lease. This Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, whether written or oral, between Landlord and its agents and Tenant and its agents with respect to the Premises, Common Area or this Lease. This Lease constitutes the entire agreement between the parties hereto and no addition to, or modification of, any term or provision of this Lease shall be effective until and unless set forth in a written instrument signed by both Landlord and Tenant. 38. SUBMISSION OF LEASE Submission of this instrument for Tenant's examination or execution does not constitute a reservation of space nor an option to lease. This instrument shall not be effective until executed by both Landlord and Tenant. Execution of this Lease by Tenant shall constitute an offer by Tenant to lease the Premises, which offer shall be deemed accepted by Landlord when this Lease is executed by Landlord and delivered to Tenant. 39. QUIET ENJOYMENT Landlord covenants and agrees with Tenant that upon Tenant paying Rentals and performing its covenants and conditions under the Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises for the Lease Term, subject, however, to the terms of this Lease and of any mortgages or deeds of trust affecting the Premises and/or the real property comprising the Common Area, and the rights reserved by Landlord hereunder. Any purchaser upon any foreclosure or exercise of the power of sale under any mortgage or deed of trust made by Landlord and covering the Premises to whom Tenant xxxxxx pursuant to Paragraph 20.4 above shall be bound by the terms if this Paragraph 39. 40. AUTHORITY The undersigned parties hereby warrant that they have proper authority and are empowered to execute this Lease on behalf of the Landlord and Tenant, respectively. If Tenant is a corporation (or partnership), each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the bylaws of said corporation (or on behalf of said partnership in accordance with the partnership agreement of such partnership), and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, upon execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease or a certificate of the Secretary or Assistant Secretary of Tenant stating that a resolution is not necessary. In the event Tenant should fail to deliver such resolution to Landlord upon execution of this Lease, Landlord shall not be deemed to have waived its right to require delivery of such resolution, and at any time during the Lease Term Landlord may request Tenant to deliver the same, and Tenant agrees it shall thereafter promptly deliver such resolution to Landlord. If Tenant is a corporation, Tenant warrants that: (a) Tenant is a valid and existing corporation; (b) Tenant is qualified to do business in California; (c) All fees and all franchise and corporate taxes are paid to date, and will be paid when due; (d) All required forms and reports will be filed when due; and (e) The signers of this Lease are properly authorized to execute this Lease. 41. BUILDING PLANS Tenant acknowledges that any plan of the Premises and Common Area which may have been displayed or furnished to Tenant or which may be a part of Exhibit "A" is tentative; Landlord may change the exterior of the Premises and the shape, size, location, number, and extent of the Common Area improvements shown on any such plan and eliminate or add any improvements to the Common Area in Landlord's reasonable sole discretion; provided, however, that the Premises shall be substantially as shown on such plan. 42. ADDENDUM Paragraphs 43 through 50 are added hereto and made a part of this Lease. IN WITNESS WHEREOF, the parties have executed this Lease effective as of the date set forth below. LANDLORD: TENANT: CAMSI II, a California general TELECOMMUNICATIONS TECHNOLOGY, INC., partnership a Delaware corporation - ------------------------------ ------------------------------------ By: WESTALL CORPORATION, a California By: /s/ Norman B. Petermeier ---------------------------------- -------------------------------- corporation, its General Partner Title President ---------------------------------- ------------------------------ By: /s/ Kimball W. Small, President By: ---------------------------------- -------------------------------- KIMBALL W. SMALL, President Title: ---------------------------------- ----------------------------- By: KIMBALL SMALL INVESTMENTS 102, Date: 12/20/85 a California limited partnership, ------------------------------ its General Partner By: WESTALL CORPORATION, a California corporation, its General Partner By /s/ Kimball W. Small --------------------------- KIMBALL W. SMALL, President 27 ADDENDUM TO THAT CERTAIN NET LEASE AGREEMENT DATED DECEMBER 20, 1985, BY AND BETWEEN TELECOMMUNICATION TECHNOLOGY, INC., A DELAWARE CORPORATION ("TENANT") AND CAMSI II, A CALIFORNIA GENERAL PARTNERSHIP ("LANDLORD") - ------------------------------------------------------------------------------ 43. Option to Extend Lease Term. In consideration for Tenant not having been in default under this Lease more than three (3) times in any one (1) calendar year during the Lease Term, Landlord hereby grants to Tenant the option to extend the Lease Term for one (1) additional period of five (5) years ("Extended Term"), on the following terms and conditions: (a) Tenant shall give Landlord written notice of its exercise of the option to extend the Lease Term no earlier than twelve (12) months nor later than six (6) months before the date the Lease Term would end but for said exercise. Time is of the essence. (b) Tenant may not extend the Lease Term pursuant to this Paragraph 43 if Tenant has been in default in the performance of any of the terms and conditions of this Lease more than three (3) times in any one (1) calendar year prior to the date of Tenant's notice of exercise of this option, or if Tenant shall have assigned or otherwise transferred its interest in this Lease and/or the Premises, whether or not Landlord's consent to such assignment or transfer has been given. If Tenant is in default under this Lease on the date that the Extended Term is to commence, then Landlord may elect to terminate this Lease notwithstanding any notice given by Tenant of an exercise of its option to extend. (c) All terms and conditions of this Lease shall apply during the Extended Term, except that the Rent for the Extended Term shall be determined in accordance with Paragraph 44 below. (d) Once Tenant delivers notice of its exercise of the option to extend the Lease Term, Tenant may not withdraw such exercise and, subject to the provisions of this paragraph, such notice shall operate to extend the Lease Term. Upon the extension of the Lease Term pursuant to this paragraph, the term "Lease Term" as used in this Lease shall thereafter include the Extended Term and the Lease Termination date shall be the expiration date of the Extended Term. 44. Rent During Extended Term. If Tenant elects to extend the Lease Term pursuant to Paragraph 43 above, the Rent for the Extended Term shall be an amount equal to ninety percent (90%) of the fair market rental value of the Premises in relation to market conditions at the time of the extension (including, but not limited to, rental rates for comparable space with comparable tenant improvements (e.g., a 77,200 square foot comparable building with tenant improvements of Twenty Dollars ($20) per square foot [adjusted for cost of living increases during the Lease Term], and in a comparable location) and taking into consideration any adjustments to rent based upon direct costs (operating expenses) and taxes, load factors, financing charges, and/or cost of living or other rental adjustments; the relative strength of the tenants; the size of the space; and any other factors which affect market rental values at the time of extension); provided, that the Rent for the Extended Term shall in no -28- event be lower than the Rent for the last Lease Year of the original Lease Term. The Rent for the Extended Term shall be determined as follows: (a) Mutual Agreement. After timely receipt by Landlord of Tenant's notice of exercise of the option to extend the Lease Term, Landlord and Tenant shall have a period of fifteen (15) days in which to agree on the Rent for Extended Term. If Landlord and Tenant agree on the Rent during that period, they shall immediately execute an amendment to this Lease stating the Rent for the Extended Term. If Landlord and Tenant are unable to so agree, the provisions of Paragraph 44(b) shall apply. (b) Appraisal. Within five (5) days after the expiration of the fifteen (15) day period described in Paragraph 44(a) above, each party, at its cost and by giving notice to the other party, shall appoint an M.A.I. real estate appraiser, with at least five (5) years full-time commercial appraisal experience in the area in which the Premises are located, to appraise and set the fair market rental value of the Premises. If a party does not appoint an appraiser within five (5) days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the fair market rental value. The cost of such sole appraiser shall be borne equally by the parties. If two appraisers are appointed by the parties as provided in this paragraph, the two appraisers shall meet promptly and attempt to set the fair market rental value. If they are unable to agree within twenty (20) days after the last appraiser has been appointed, then the two appraisers shall select a third appraiser meeting the qualifications stated in this Paragraph 44(b) within ten (10) days after the last day the two appraisers are given to set the fair market rental value. If they are unable to agree on the third appraiser, either of the parties to this Lease, by giving ten (10) days notice to the other party, may apply to the presiding judge of the Superior Court of Santa Clara County for the selection of a third appraiser who meets the qualifications stated above. Each of the parties shall bear one-half (1/2) of the cost of appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party. Within twenty (20) days after the selection of the third appraiser, the majority of the appraisers shall set the fair market rental value. If the majority of the appraisers are unable to set the fair market rental value within said twenty (20) day period, the three appraisals shall be added together and the total divided by three; the resulting quotient shall be the fair market rental value of the Premises. Ninety percent (90%) of such amount shall be the Rent for the Extended Term. Provided, however, that if any appraisal differs from the median appraisal by an amount equal to more than ten percent (10%) of such median appraisal, that appraisal shall be disregarded, and the average of the remaining appraisals (or the remaining appraisal) shall be the fair market rental value. In establishing the fair market rental value, the appraiser or appraisers shall consider the reasonable market rental value for the highest and best use for the Premises (including, but not limited to, rental rates for comparable space with comparable tenant improvements and any adjustments to rent based upon direct costs (operating expenses) and taxes, load 29 factors, financing charges, and/or cost of living or other rental adjustments; the relative strength of the tenants; and the size of the space); without regard to the existence of this Lease but taking into consideration the absolute nature of this Lease. 45. Moving Costs. On the Commencement Date, Landlord shall reimburse Tenant for its actual out-of-pocket moving expenses incurred in relocating to the Premises, not to exceed the sum of Sixty Thousand Dollars ($60,000). 46. Existing Leases. In consideration of Tenant entering into this Lease, Landlord shall assume all future obligations of Tenant under those certain leases more particularly described below from the later of (i) the Commencement Date or (ii) the date on which Tenant vacates the below-described premises in the condition required at lease termination pursuant to the terms of each such lease:
Size Monthly Lease Address of Premises (Sq. Ft.) Rent Expiration Landlord - ------------------- --------- ------- ---------- -------- 525 Del Rey Avenue 3,065 $1,992.25 8/31/88 Harris Sunnyvale Properties 535 Del Rey Avenue 20,000 6,616.00 11/14/87 Perry/ Sunnyvale Arrillaga 555 Del Rey Avenue 23,600 7,600.00 11/14/87 Perry Sunnyvale Industrial Park 650 Vaqueros Avenue 6,120 2,950.00 11/30/87 Pacific Sunnyvale Property Management
Tenant shall indemnify and hold Landlord harmless for all obligations under said leases, including but not limited to obligations to restore and repair any damage to said Premises, incurred or relating to time periods up to and including the date of Tenant's vacation of said Premises. On or before the date on which Tenant vacates each of the above-described premises, but no sooner than thirty (30) days before the date on which Tenant vacates the respective premises, and as a condition precedent to Landlord's obligation under this Paragraph 46 to assume the obligations of Tenant therefor, Tenant shall deliver to Landlord an estoppel certificate from the landlord under the respective lease in the form attached as Exhibit "F" hereto. 47. Right of First Refusal. If at any time during the Lease Term, Landlord desires to sell the Premises, Landlord shall first offer to sell the Premises to Tenant by delivering to Tenant a written notice of the proposed price. Landlord shall not offer the Premises for sale to a third party until Tenant has had a period of forty-five (45) days to respond to Landlord's offer and to negotiate with Landlord the complete terms of an agreement for the purchase and sale of the Premises. In the event Landlord and Tenant have not executed an agreement for the purchase and sale of the Premises within said forty-five (45) day period, Landlord may thereafter offer the Premises for sale to third parties, and Tenant shall have 30 no further right to acquire the Premises pursuant to this Paragraph 47. 48. Right of First Negotiation -- Expansion Building. Landlord hereby grants to Tenant the right of first negotiation with respect to a building to be constructed by Landlord (the "Expansion Building") on that certain real property immediately adjacent to the Land on the north, commonly referred to as Parcel No. 18 (the "Expansion Land"), on the terms and conditions set forth herein. The Expansion Building shall consist of approximately thirty-three thousand five hundred eighteen (33,518) square feet, the design of which shall be determined by Landlord in Landlord's sole discretion. In no event shall construction of the Expansion Building commence earlier than January 1, 1988. No late than sixty (60) days prior to the date on which Landlord proposes to commence construction of the Expansion Building, Landlord shall offer to lease the Expansion Building to Tenant. In the event that Landlord and Tenant have not executed a lease agreement for the Expansion Building within one hundred twenty (120) days after the date of delivery of Landlord's notice to Tenant, Landlord may thereafter offer the Expansion Building for lease to third parties, and Tenant shall have no further right to lease the Expansion Building pursuant to this Paragraph 48. Landlord hereby agrees that, except for that parcel of property commonly known as Parcel No. 21, the Expansion Land will be the last parcel of land developed by Landlord within the North Valley Business Park. 49. Condition of Title. Landlord represents and warrants that there are no liens or encumbrances affecting the real property described in Exhibit "B" other than as shown in the preliminary title report prepared by Santa Clara Land Title Company dated August 6, 1985, No. SP 2220-A, a copy of which has been provided to Tenant, and that Landlord intends to create no additional liens prior to the Commencement Date other than the lien of a permanent loan. 50. Environmental Compliance. Landlord warrants and represents to Tenant that, to the best knowledge of Landlord and without making tests or specific inquiry, before the commencement of the term of this Lease, there have not been any (a) toxic, hazardous or regulated substances, (b) toxic, hazardous or special wastes, or (c) underground tanks, vessels, piping or containers, as all such terms are defined under applicable federal, state and local laws, on or below the surface of the real property. Landlord will defend, indemnify and hold harmless Tenant against any and all costs of compliance with local, state and federal environmental laws, statutes, ordinances and regulations that Tenant incurs as a result of any (a) toxic, hazardous or regulated substances, (b) toxic, hazardous or special wastes, or (c) underground tanks, vessels, piping or containers, as all such terms are defined under applicable federal, state and local laws, that were on or below the surface of the real property as of or before the commencement of the term of this Lease. This indemnity shall not extend to, nor shall Landlord have any liability for, any consequential damages which may be suffered by Tenant in connection with any of the above-described conditions. 31 EXHIBIT A (PROPERTY DESCRIPTION AND LOCATION DIAGRAMS APPEAR HERE) 32 EXHIBIT B LEGAL DESCRIPTION: All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: PARCEL 1, as shown upon that certain Map entitled, "PARCEL MAP, ALL OF PARCELS 19 AND 21 OF THE PARCEL MAP RECORDED IN BOOK 461 OF MAPS, PAGES 36 AND 37, SANTA CLARA COUNTY RECORDS AND A PORTION OF THE MILPITAS RANCHO, CITY OF MILPITAS, CALIFORNIA", which Map was filed for record July 3, 1984 in Book 531 of Maps at Page 17, Santa Clara County Records. 33 EXHIBIT "C" IMPROVEMENT AGREEMENT This Improvement Agreement ("Agreement") is made part of that Lease dated December 20, 1985 by and between CAMSI II, a California general partnership ("Landlord"), and TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation ("Tenant"). Landlord and Tenant agree that the following terms are hereby added to the Lease: 1. Definitions. Unless otherwise defined in this Agreement, capitalized terms used herein shall have the same meaning and definition as set forth for such terms in the Lease. The terms listed below, when used in this Agreement, shall mean the following: (a) Approved Interior Plans. The term "Approved Interior Plans" shall have the meaning set forth in Paragraph 2(a) of this Agreement. (b) Improvements. The term "Improvements" shall mean all improvements to be constructed by Landlord within the Premises pursuant to the Approved Interior Plans. (c) Improvement Allowance. The term "Improvement Allowance" shall mean the maximum amount Landlord is required to spend toward the payment of Improvement Costs for the Improvements, which amount is One Million Five Hundred Forty-Five Thousand Dollars ($1,544,000) (the product obtained by multiplying (i) Twenty Dollars ($20) per square foot by (ii) 77,200 square feet (the "Gross Area" of the Premises)). The foregoing amount is subject to increase pursuant to Paragraph 2(e) below. The Improvement Allowance shall apply solely to general purpose improvements, and not to special purpose improvements which are unique to Tenant's intended use of the Premises, as determined by Landlord in its reasonable judgment. (d) Improvement Costs. The term "Improvement Costs" shall mean and include all of the following: (i) All "hard" construction costs for the construction of the Improvements according to the Approved Interior Plans and all approved changes thereto, including, but not limited to: (A) All labor and supervision costs; (B) Costs of all materials and supplies; (C) Contract price for all construction work undertaken by general contractors and sub-contractors; (D) Fees, taxes or other charges levied by governmental or quasi- governmental agencies (including public utilities) in connection with the issuance of all authorizations, approvals, licenses, and permits necessary to undertake construction of the Improvements; (E) The cost of all equipment and fixtures provided for in the Approved Interior Plans, including the 34 cost of installation; (F) The cost of all concrete, welding, survey and other testing expenses; (G) The cost of premiums for surety bonds, if any, including but not limited to payment and performance bonds and mechanics' lien bonds; (H) The cost of installing a meter or meters in the Premises to measure the utility services supplied to and consumed in the Premises; and (I) The cost of installing standard utility services (i.e., standard HVAC controls and distribution facilities; standard electrical panels, distribution facilities, wiring, fixtures, switches and receptacles) and special utility services (i.e., services other than those specified above). (ii) All "soft" construction costs directly or indirectly related to the construction of the Improvements including, but not limited to, the following: (A) Engineering, space planning and architectural fees for preparation of all plans, specifications and working drawings and processing of applications for all governmental authorizations, approvals, licenses and permits; (B) Fees of engineers, space planners, architects, attorneys and others providing professional or extra services in connection with the construction of the Improvements or the supervision of the construction; and (C) Inspection fees, recording costs and filing fees. (e) Prime Contractor and Architect. The terms "Architect" and "Prime Contractor" shall have the respective meanings set forth in Paragraph 2(b)(i) of this Agreement. 2. Construction of Improvements. Landlord agrees to construct the Improvements in the Premises in conformance with the Approved Interior Plans approved by both Landlord and Tenant and developed pursuant to this Paragraph 2. (a) Approval of Plans. On or before December 1, 1986, Tenant shall have delivered to Landlord information sufficient for Landlord to develop preliminary plans and specifications for the Improvements, including information sufficient for Landlord's contractor to determine Tenant's air conditioning requirements. Landlord shall deliver such preliminary plans to Tenant for its approval, which shall not be unreasonably withheld, within fifteen (15) days after execution of this Lease by Tenant. If Tenant disapproves such plans, then the parties shall confer and negotiate in good faith to reach agreement on preliminary plans and specifications for the Improvements. Such preliminary plans and specifications shall be approved by both parties no later than January 22, 1986. As soon as the preliminary plans and specifications are approved by both Landlord and Tenant, Landlord shall cause to be prepared final plans and specifications for the Improvements that are consistent with and are logical 35 evolutions of the preliminary plans and specifications approved by the parties. As soon as such final plans and specifications are completed, Landlord shall deliver the same to Tenant for its approval. Such final plans and specifications shall be approved by both parties no later than February 4, 1986. As soon as approved by Landlord and Tenant, Landlord shall submit such final plans and specifications and working drawings to all appropriate governmental agencies for approval. Immediately after all such governmental approvals have been obtained, three (3) copies of such final plans and specifications shall be initialled and dated by Landlord and Tenant. The final plans and specifications so approved, and all change orders specifically permitted by this Agreement, are referred to herein as the "Approved Interior Plans" and shall become part of this Lease as though set forth in full. Landlord shall deliver to Tenant a copy of the Approved Interior Plans within five (5) days of receipt of all necessary governmental approvals. (b) Architectural and Construction Contracts. Landlord shall contract for the design and construction of the Improvements in the following manner: (i) It is presently contemplated that the Improvements will be designed and constructed by Devcon Construction, Inc., architects and general contractors, of Milpitas, California, however, Landlord shall have no obligation to hire Devcon Construction, Inc., or any other specific architect or general contractor, for the purpose of designing and constructing the Improvements, and Landlord may select for such purposes any licensed architect and general contractor it may deem qualified to perform such work. The architect and general contractor so selected by Landlord are referred to herein as the "Architect" and "Prime Contractor", respectively. (ii) Prior to commencement of construction of the Improvements, Landlord shall cause the Prime Contractor to prepare and submit to Landlord and Tenant an itemized breakdown of the "hard" costs (defined in Paragraph 1(d)(i)) for the Improvements. (iii) If the overall cost of the Improvements (i.e., "hard" costs including Prime Contractor's fees, plus estimated "soft" costs, including architect's fees) exceeds the Improvement Allowance, then, at Tenant's option, the parties shall confer in good faith to modify the Approved Interior Plans to reduce the estimated overall cost of the Improvements. (c) Changes to Approved Interior Plans. Once the Approved Interior Plans have been finally approved by Landlord and Tenant and the general construction contract signed with the Prime Contractor, neither Landlord nor Tenant shall have the right to order extra work or change orders with respect to the construction of the Improvements without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed. All extra work or change orders requested by either Landlord or Tenant shall be made in writing, shall specify the amount of delay or the time saved resulting therefrom, shall specify any added or reduced cost resulting therefrom, and shall become effective and a part of the Approved Interior Plans once approved in writing by both 36 parties. (d) Commencement and Completion of the Improvements. As soon as (i) the Approved Interior Plans have been Developed as provided above, (ii) all necessary governmental approvals have been obtained, and (iii) Landlord has entered into a general construction contract with Prime Contractor for construction of the Improvements, Landlord shall cause construction of the Improvements to be commenced and diligently prosecuted to completion so that the Improvements may be substantially completed on or before May 1, 1986, but without representation or warranty as to when the Improvement will be completed. (e) Payment of Improvement Cost: Adjustment of Rent. The Rent specified in Paragraph 1.8 of the Lease was computed based on the total Improvement Costs not exceeding Twenty Dollars ($20) per square foot of Gross Area. Landlord shall pay all Improvement Costs up to an amount equal to the Improvement Allowance. In the event that the total Improvement Cost exceeds Twenty Dollars ($20) per square foot of Gross Area but does not exceed Twenty-Five Dollars ($25) per square foot of Gross Area (for a total cost of One Million Nine Hundred Thirty Thousand Dollars [$1,930,000]), fifty percent (50%) of the amount of said excess cost shall be repaid by Tenant to Landlord in the form of an increase in Rent, the "per square foot" amount of which shall be equal to the quotient obtained by dividing one-half (1/2) of the difference between (i) the actual Improvement Costs (but in no event more than the maximum Improvement Allowance of Twenty-Five Dollars ($25) per square foot of Gross Area or a total cost of One Million Nine Hundred Thirty Thousand Dollars [$1,930,000]) and (ii) Twenty Dollars ($20) per square foot ($1,544,000), by seventy-seven thousand two hundred (77,200) and amortizing said quotient over the remaining balance of the nine (9) year rental payment term at the rate of one and one-half percent (1-1/2%) per month. In the event the Improvement Costs exceed the Improvement Allowance by more than Five Dollars ($5) per square foot (i.e., exceed a total of One Million Nine Hundred Thirty Thousand Dollars [$1,930,000]), Tenant shall repay to Landlord the entire amount of the excess over Twenty-Five Dollars ($25) per square foot of Gross Area in the form of an increase in Rent, the "per square foot" amount of which shall be a sum equal to the quotient obtained by dividing the excess of the actual Improvement Costs over One Million Nine Hundred Thirty Thousand Dollars ($1,930,000) by seventy-seven thousand two hundred (77,200) and amortizing said quotient over the remaining balance of the nine (9) year rental payment term at the rate of one and one-half percent (1-1/2%) per month. 3. Headings. The Paragraph headings used in this Agreement are for convenience of reference only. They shall not be construed to limit or extend the meaning of any part of this Agreement, and shall not be deemed relevant in resolving any questions of interpretation or construction of any Paragraph of this Agreement. 37 LANDLORD: Dated: Dec. 23, 1985 CAMSI II, a California general --------------- partnership By: WESTALL CORPORATION, a California corporation, its General Partner By /s/ Kimball W. Small ---------------------- KIMBALL W. SMALL, President By: KIMBALL SMALL INVESTMENTS 102, a California limited partnership, its General Partner By: WESTALL CORRPORATION, a Cali- fornia corporation, its General Partner By /s/ Kimball W. Small ---------------------- KIMBALL W. SMALL, President TENANT: Dated: 12-20-85 TELECOMMUNICATIONS TECHNOLOGY, --------------- INC., a Delaware corporation By /s/ Norman B. Petermeier ------------------------- Its President ------------------------- By ------------------------- Its ------------------------- 38 FIRST AMENDMENT TO LEASE ------------------------ This is an amendment ("Amendment") to that certain Net Lease Agreement dated December 20, 1985 ("Lease"), by and between TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation ("Tenant"), and CAMSI II, a California general partnership ("Landlord"). RECITALS -------- A. Landlord and Tenant are parties to the Lease for the demise of that certain building located in the City of Milpitas, County of Santa Clara, State of California, shown cross-hatched on the site plan attached hereto as Exhibit "A" and commonly referred to as 185 South Milpitas Boulevard. B. Landlord and Tenant desire to modify and amend the Lease as more particularly described below. NOW, THEREFORE, the parties hereto agree as follows: 1. Paragraphs 46 and 48 of the Lease are hereby deleted in their entirety. 2. Except as otherwise provided herein, the terms and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment on the 24th day of October, 1986. LANDLORD: CAMSI II, a California general partnership By: WESTALL CORPORATION, a California corporation, its General Partner By /s/ Kimball W. Small ---------------------- Kimball W. Small, President By: KIMBALL SMALL INVESTMENTS 102, a California limited partnership, its General Partner 39 By: WESTALL CORPORATION, a California corporation, its General Partner By /s/ Kimball W. Small ---------------------- Kimball W. Small, President TENANT: TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation By /s/ Norman B. Petermeier -------------------------- Its President -------------------------- By ---------------------------- Its --------------------------- Acknowledged and agreed to by Lease Guarantor: GENERAL SIGNAL CORPORATION, a New York corporation By /s/ Edward C. Prellwitz --------------------------- Edward C. Prellwitz Its Vice President - Planning ------------------------- 40 SECOND AMENDMENT TO LEASE ------------------------- This is an amendment ("Amendment") to that certain Net Lease Agreement dated December 20, 1985 ("Lease"), by and between TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation ("Tenant"), and the Fraser Family Trust, successor in interest to CAMSI II, a California general partnership ("Landlord"). RECITALS -------- A. Landlord and Tenant are parties to the Lease for the demise of that certain building located in the City of Milpitas, County of Santa Clara, State of California, shown cross-hatched on the site plan attached hereto as Exhibit "A" and commonly referred to as 185 South Milpitas Boulevard. B. Landlord and Tenant desire to modify and amend the Lease as more particularly described below. NOW, THEREFORE, the parties hereto agree as follows: 1. Paragraph 8.1 of the Lease is hereby deleted in its entirety. 2. Paragraph 8.2 of the Lease shall be amended to include the following: (a) PROPERTY INSURANCE. "All risk" property insurance, including, without limitation, coverage for earthquake and flood; boiler and machinery (if applicable); sprinkler damage; vandalism; malicious mischief; full coverage plate glass insurance; and demolition, increased cost of construction and contingent liability from change in building laws on the Premises and Common Area, 41 including any improvements or fixtures constructed or installed on the Premises and Common Area by Landlord. Such insurance shall be in the full amount of the replacement cost of the foregoing, with reasonable deductible amounts, which deductible shall be paid by Tenant. Such insurance shall also include rental income insurance, insuring that one hundred percent (100%) of the Rentals (as the same may be adjusted hereunder) will be paid to Landlord for a period of up to twelve (12) months if the Premises are destroyed or damaged, as may be required by any beneficiary of a deed of trust or any mortgagee of any mortgage affecting the Premises. 3. Except as otherwise provided herein, the terms and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment on the 30th day of September, 1988. LANDLORD: Fraser Family Trust By: /s/ Peter M. Fraser ---------------------------- ---------------------------- TENANT: TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation By: /s/ Norman B. Petermeier ---------------------------- President 42 EXHIBIT A (PROPERTY DESCRIPTION AND LOCATION DIAGRAMS APPEAR HERE) 43 Exhibit "Y" to Sublease (PROPERTY DESCRIPTION AND LOCATION DIAGRAMS APPEAR HERE) 44 Exhibit "Z" to Sublease LEGAL DESCRIPTION: All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: PARCEL 1, as shown upon that certain Map entitled, "PARCEL MAP, ALL OF PARCELS 19 AND 21 OF THE PARCEL MAP RECORDED IN BOOK 461 OF MAPS, PAGES 36 AND 37, SANTA CLARA COUNTY RECORDS AND A PORTION OF THE MILPITAS RANCHO, CITY OF MILPITAS, CALIFORNIA", which Map was filed for record July 3, 1984 in Book 531 of Maps at Page 17, Santa Clara County Records. 45 CONSENT TO SUBLEASE The Bryan Family Partnership II, Ltd., the Landlord (as ultimate successor-in-interest to CAMSI II, a California general partnership) under that certain Net Lease Agreement with General Signal Corporation as Tenant (as successor-in-interest to Telecommunications Technology, Inc.), dated December 20, 1985, for the Premises described therein, hereby consents to the sublease of the Premises to Conner Peripherals, Inc. pursuant to that certain Sublease Agreement attached hereto as Exhibit "A"; provided, however, that such consent shall be without waiver of the restriction in the aforementioned Net Lease Agreement concerning any further subletting (except as provided in Paragraph 2(c) below). In addition, the Bryan Family Partnership II, Ltd. (hereinafter, the "Master Lessor") acknowledges that it is beneficial to have Conner Peripherals, Inc. sublet the Premises, and in consideration thereof hereby makes the following certifications and agreements: 1. Master Lessor certifies that: (i) the copy of the Master Lease attached to the Sublease as Exhibit "X" constitutes the entire Master Lease and all amendments relating thereto; (ii) the Master Lease is in full force and effect; and (iii) there currently is no Default by Tenant (as that phrase is defined in the Master Lease), default by the Master Lessor, or, to the best of Master Lessor's knowledge, other event which (with the giving of notice or the passage of time or both) could constitute a Default by Tenant or default by the Master Lessor under the Master Lease. 2. The Master Lessor agrees: (a) to give Conner Peripherals, Inc. (hereinafter, the "Sublessee"), at the same time and in the same manner as such notice is given to General Signal Corporation (hereinafter, the "Sublessor"), a copy of any written notice advising the Sublessor of a Default by Tenant under the Master Lease or of an event of which the Master Lessor has knowledge which (with the giving of further notice or the passage of time or both) would constitute a Default by Tenant under the Master Lease: and to accept tender of payment or performance by Sublessee to remedy any such Default by Tenant; (b) to adhere, under the circumstances and subject to the conditions specified therein, to the same restrictions on entry into the Premises imposed on the Sublessor under Paragraph 9(e)(10) of the Sublease; and (c) that its prior written consent will not be required in the case of a sublease of the Premises or assignment of this 46 Sublease by Sublessee to (i) a subsidiary, affiliate, division or corporation controlled by or under common control with Sublessee, (ii) a successor corporation related to Sublessee by merger, consolidation, non-bankruptcy reorganization or government action, or (iii) a purchaser of substantially all of the assets of Sublessee's division occupying the Premises. (d) to release Sublessee, and its officers, agents, employees and servants from any and all claims or demands of damages, loss, expense or injury to the Premises or the Common Area, or to the furnishings, fixtures, equipment, inventory or other property of either Master Lessor or Sublessee in, about or upon the Premises or the Common Area, which is caused by or results from perils, events or happenings which are the subject to insurance carried by the Master Lessor, Sublessor or Sublessee pursuant to the Master Lease or the Sublease and in force at the time of any such loss, whether due to the negligence of the Sublessee or its agents and regardless of cause or origin; provided, however, that such waiver shall be effective only to the extent permitted by the insurance covering such loss and to the extent such insurance is not prejudiced thereby. IN WITNESS WHEREOF, the Master Lessor has executed this Consent to Sublease as of the 23rd day of February, 1993. THE BRYAN FAMILY PARTNERSHIP II, LTD. /s/ Robert A. Bryan BY: ____________________________ Robert A. Bryan, Trustee General Partner 47 (Kimball Small Properties Letterhead) October 24, 1986 Mr. Norman B. Petermeier, President TELECOMMUNICATIONS TECHNOLOGY, INC. 195 So. Milpitas Boulevard Milpitas, CA 95035 Re: 185 So. Milpitas Boulevard, Milpitas, California Dear Mr. Petermeier: In consideration of Telecommunications Technology, Inc., a Delaware Corporation ("Tenant") entering into that certain First Amendment to Lease dated October 24, 1986, amending that certain Net Lease Agreement by and between Tenant and Camsi II, a California general partnership ("Landlord") dated December 20, 1985 (the "New Lease"), Landlord and Tenant agree to the following: Existing Leases. In consideration of Tenant entering into the Lease, Landlord shall assume all future obligations of Tenant under those certain leases more particularly described below from April 28, 1986:
Size Monthly Lease Address of Premises (Sq. Ft.) Rent Expiration Landlord - ------------------- --------- --------- ---------- -------- 525 Del Rey Ave. 3,065 $1,992.25 8/31/86 Harris Sunnyvale Properties 535 Del Rey Ave. 20,000 6,616.00 11/14/87 Perry/ Sunnyvale Arrillaga 555 Del Rey Ave. 23,600 7,600.00 11/14/87 Perry Sunnyvale Industrial Park 650 Vaqueros Ave. 6,120 2,950.00 11/30/87 Pacific Sunnyvale Property Management
48 Norman B. Petermeier, President October 24, 1986 Page 2 Tenant shall indemnify and hold Landlord harmless for all obligations under said leases, incurred or relating to time periods up to and including April 28, 1986. Attached is a statement agreed to by Tenant and Landlord regarding the condition of the premises as of April 28, 1986. Right of First Negotiation-Expansion Building. In consideration of Tenant entering into the Lease, Landlord hereby grants to Tenant the right of first negotiation with respect to a building to be constructed by Landlord (the "Expansion Building") on that certain real property immediately adjacent to the Land on the north, commonly referred to as Parcel No. 18 (the "Expansion Land"), on the terms and conditions set forth herein. The Expansion Building shall consist of approximately 33,518 square feet, the design of which shall be determined by Landlord in Landlord's sole discretion. In no event shall construction of the Expansion Building commence earlier than January 1, 1988. No later than sixty (60) days prior to the date on which Landlord proposes to commence construction of the Expansion Building, Landlord shall offer to lease the Expansion Building to Tenant. In the event that Landlord and Tenant have not executed a Lease agreement for the Expansion Building, then one hundred twenty (120) days after the date of delivery of Landlord's notice to Tenant, Landlord may thereafter offer the Expansion Building for lease to third parties, and Tenant shall have no further right to lease the Expansion Building pursuant to this letter agreement. Landlord hereby agrees that, except for that parcel of property commonly known as Parcel No. 21, the Expansion Land will be the last parcel of land developed by Landlord within the North Valley Business Park. Very truly yours, CAMSI II, a California general partnership By: WESTALL CORPORATION, its General Partner /s/ Kimball W. Small By_____________________ KIMBALL W. SMALL President 49 Norman B. Petermeier, President October 24, 1986 Page 3 By: KIMBALL SMALL INVESTMENTS 102 a California limited partnership its General Partner By: WESTALL CORPORATION a California corporation, its General Partner /s/ Kimball W. Small By_______________________ KIMBALL W. SMALL, President AGREED TO AND ACCEPTED BY: TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation /s/ Norman B. Petermeier By___________________________ President Title________________________ By___________________________ Title________________________ Date: _______________________ 50 SECOND AMENDMENT TO LEASE This is an amendment ("Amendment") to that certain Net Lease Agreement dated December 20, 1985 ("Lease"), by and between TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation ("Tenant"), and the Fraser Family Trust, successor in interest to CAMSI II, a California general partnership ("Landlord"). RECITALS A. Landlord and Tenant are parties to the Lease for the demise of that certain building located in the City of Milpitas, County of Santa Clara, State of California, shown cross-hatched on the site plan attached hereto as Exhibit "A" and commonly referred to as 185 South Milpitas Boulevard. B. Landlord and Tenant desire to modify and amend the Lease as more particularly described below. NOW, THEREFORE, the parties hereto agree as follows: 1. Paragraph 8.1 of the Lease is hereby deleted in its entirety. 2. Paragraph 8.2 of the Lease shall be amended to include the following: (a) PROPERTY INSURANCE. "All risk" property insurance, including, without limitation, coverage for earthquake and flood; boiler and machinery (if applicable); sprinkler damage; vandalism; malicious mischief; full coverage plate glass insurance; and demolition, increased cost of construction and continent liability from change in building laws on the Premises and Common Area, 51 including any improvements or fixtures constructed or installed on the Premises and Common Area by Landlord. Such insurance shall be in the full amount of the replacement cost of the foregoing, with reasonable deductible amounts, which deductible shall be paid by Tenant. Such insurance shall also include rental income insurance, insuring that one hundred percent (100%) of the Rentals (as the same may be adjusted hereunder) will be paid to Landlord for a period of up to twelve (12) months if the Premises are destroyed or damaged, as may be required by any beneficiary of a deed of trust or any mortgagee of any mortgage affecting the Premises. 3. Except as otherwise provided herein, the terms and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment on the 30th day of September, 1988. LANDLORD: Fraser Family Trust /s/ Peter M. Fraser By: ______________________ ______________________ TENANT: TELECOMMUNICATIONS TECHNOLOGY, INC., a Delaware corporation /s/ Norman B. Petermeier By: __________________________ President 52 EX-10.19 6 CREDIT AGREEMENT ------------------------------------------------------------- ============================================================= ------------------------------------------------------------- CREDIT AGREEMENT Dated as of December 23, 1993 among CONNER PERIPHERALS, INC., BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as Agent and THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO ------------------------------------------------------------- ============================================================= TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS........................ 1 1.1 Defined Terms........................................... 1 1.2 Other Definitional Provisions........................... 23 ARTICLE II THE CREDITS....................... 24 2.1 Amounts and Terms of Commitments........................ 24 2.2 Loan Accounts........................................... 25 2.3 Procedure for Borrowing................................. 25 2.4 Conversion and Continuation Elections................... 26 2.5 Voluntary Termination or Reduction of Commitments....... 28 2.6 Optional Prepayments.................................... 28 2.7 Mandatory Prepayment.................................... 29 2.8 Repayment............................................... 29 2.9 Interest................................................ 29 2.10 Fees................................................... 30 2.11 Computation of Fees and Interest....................... 30 2.12 Payments by the Company................................ 31 2.13 Payments by the Banks to the Agent..................... 32 2.14 Sharing of Payments, etc............................... 33 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY.......... 33 3.1 Taxes................................................... 33 3.2 Illegality.............................................. 37 3.3 Increased Costs and Reduction of Return................. 37 3.4 Funding Losses.......................................... 38 3.5 Inability to Determine Rates............................ 39 3.6 Certificates of Banks................................... 39 ARTICLE IV CONDITIONS PRECEDENT.................. 40 4.1 Conditions of Commitments............................... 40 (a) Credit Agreement................................. 40 (b) Resolutions; Incumbency.......................... 40 (c) Articles of Incorporation; By-laws and Good Standing................................ 40 (d) Legal Opinions................................... 40 (e) Payment of Fees.................................. 41 (f) Certificate...................................... 41 (g) Financial Statements............................. 41 (h) Certified Documents.............................. 41 (i) Other Documents.................................. 41
Page ---- 4.2 Conditions to all Borrowings............................ 41 (a) Notice of Borrowing.............................. 41 (b) Continuation of Representations and Warranties....................................... 41 (c) No Existing Default.............................. 41 (d) No Material Adverse Change....................... 42 ARTICLE V REPRESENTATIONS AND WARRANTIES............. 42 5.1 Corporate Existence and Power........................... 42 5.2 Corporate Authorization; No Contravention............... 43 5.3 Governmental Authorization.............................. 43 5.4 Binding Effect.......................................... 43 5.5 Litigation.............................................. 43 5.6 No Default.............................................. 44 5.7 ERISA Compliance........................................ 44 5.8 Use of Proceeds; Margin Regulations..................... 45 5.9 Title to Properties; Liens.............................. 45 5.10 Taxes................................................... 45 5.11 Financial Condition..................................... 45 5.12 Environmental Matters................................... 46 5.13 Regulatory Entities..................................... 46 5.14 No Burdensome Restrictions.............................. 47 5.15 Solvency................................................ 47 5.16 Labor Relations......................................... 47 5.17 Intellectual Property Matters........................... 47 5.18 Subsidiaries............................................ 48 5.19 Broker's; Transaction Fees.............................. 48 5.20 Insurance............................................... 48 5.21 Internal Control........................................ 48 5.22 Full Disclosure......................................... 48 ARTICLE VI AFFIRMATIVE COVENANTS................. 49 6.1 Financial Statements.................................... 49 6.2 Certificates; Other Information......................... 50 6.3 Notices................................................. 50 6.4 Preservation of Corporate Existence, Etc................ 52 6.5 Maintenance of Property................................. 53 6.6 Insurance............................................... 53 6.7 Payment of Obligations.................................. 53 6.8 Compliance with Laws.................................... 53 6.9 Inspection of Property and Books and Records............ 54 6.10 Environmental Laws...................................... 55 6.11 Use of Proceeds......................................... 55 6.12 Internal Controls....................................... 55 6.13 Subordinated Debt Notices............................... 56
Page ---- ARTICLE VII NEGATIVE COVENANTS..................... 56 7.1 Limitation on Liens..................................... 56 7.2 Dispositions of Assets.................................. 61 7.3 Consolidations and Mergers.............................. 65 7.4 Loans and Investments................................... 66 7.5 Limitation on Subsidiary Debt........................... 71 7.6 Transactions with Affiliates............................ 71 7.7 Compliance with ERISA................................... 71 7.8 Restricted Payments..................................... 72 7.9 Modified Quick Ratio.................................... 73 7.10 Leverage Ratio.......................................... 73 7.11 Minimum Tangible Net Worth.............................. 73 7.12 Losses in One Quarter................................... 74 7.13 Losses in Two Consecutive Quarters...................... 74 7.14 Change in Business...................................... 74 7.15 Accounting Changes...................................... 74 7.16 Indenture/Note Amendment................................ 74 7.17 Cessation of Business................................... 74 ARTICLE VIII EVENTS OF DEFAULT................... 75 8.1 Event of Default........................................ 75 (a) Non-Payment...................................... 75 (b) Non-Payment of Other Amounts..................... 75 (c) Representation or Warranty....................... 75 (d) Specific Defaults................................ 75 (e) Other Defaults................................... 75 (f) Cross-Default.................................... 75 (g) Cross-Acceleration............................... 76 (h) Bankruptcy or Insolvency......................... 76 (i) Involuntary Proceedings.......................... 77 (j) ERISA............................................ 77 (k) Monetary Judgments............................... 78 (l) Non-Monetary Judgments........................... 78 (m) Invalidity of Subordination Provisions....................................... 78 8.2 Remedies................................................ 78 8.3 Rights Not Exclusive.................................... 79 8.4 Certain Financial Covenant Defaults..................... 79 ARTICLE IX THE AGENT....................... 79 9.1 Appointment and Authorization........................... 79 9.2 Delegation of Duties.................................... 79 9.3 Liability of Agent...................................... 80 9.4 Reliance by Agent....................................... 80 9.5 Notice of Default....................................... 81
Page ---- 9.6 Credit Decision......................................... 81 9.7 Indemnification......................................... 82 9.8 Agent in Individual Capacity............................ 82 9.9 Successor Agent......................................... 82 ARTICLE X MISCELLANEOUS...................... 83 10.1 Amendments and Waivers................................. 83 10.2 Notices................................................ 84 10.3 No Waiver; Cumulative Remedies......................... 84 10.4 Costs and Expenses..................................... 85 10.5 Indemnity.............................................. 85 10.6 Payments Set Aside..................................... 85 10.7 Successors and Assigns................................. 86 10.8 Assignments, Participations, etc....................... 86 10.9 Set-off................................................ 88 10.10 Termination of the Commitments under Existing Facility. 88 10.11 Notification of Addresses, Lending Offices, Etc........ 88 10.12 Counterparts........................................... 89 10.13 Severability........................................... 89 10.14 No Third Parties Benefited............................. 89 10.15 Governing Law and Jurisdiction......................... 89 10.16 Waiver of Jury Trial................................... 89 10.17 Entire Agreement....................................... 90 SCHEDULES - --------- Schedule 2.1(a) Commitments Schedule 2.3(c) Payment Offices Schedule 7.1 Permitted Liens Schedule 7.4(h) Permissible Banks Schedule 7.4(p) Investments EXHIBITS - -------- Exhibit 2.3 Notice of Borrowing Exhibit 2.4 Notice of Conversion/Continuation Exhibit 4.1(d)(i) Opinion of Company's Counsel Exhibit 6.1(b) Consolidating Statement Certificate Exhibit 6.2(a) Compliance Certificate Exhibit 6.13 Notice to Trustee Exhibit 10.8(a) Assignment and Acceptance
CREDIT AGREEMENT ---------------- THIS CREDIT AGREEMENT is entered into as of December 23, 1993, among CONNER PERIPHERALS, INC., a Delaware corporation (the "Company"), the several financial ------- institutions from time to time party to this Agreement (collectively, the "Banks"; individually, a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ----- ---- ASSOCIATION, as agent for the Banks (the "Agent"). ----- WHEREAS, the Banks have agreed to make available to the Company a revolving credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Defined Terms. In addition to the terms defined elsewhere in this ------------- Agreement, the following terms have the following meanings: "Affiliate" means, as to any Person, any other Person which, directly --------- or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract or otherwise. Without limitation, any director, executive officer or beneficial owner of ten percent (10%) or more of the equity of a Person shall for the purposes of this Agreement, be deemed to control the other Person. "Agent" means Bank of America National Trust and Savings Association in ----- its capacity as agent for the Banks hereunder, and any successor agent. "Agent-Related Persons" means BofA and any successor agent arising --------------------- under Section 9.9, together with their respective Affiliates, including the Arranger (in the case of BofA), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Aggregate Commitment" means the combined Commitments of the Banks in -------------------- the amount of $100,000,000, as such amount may be reduced from time to time pursuant to this Agreement. "Agreement" means this Credit Agreement, together with the exhibits and --------- Schedules hereto and the Disclosure Letter, in each case, as amended, supplemented or modified from time to time. "Annual Disposition Measurement Period" has the meaning specified in ------------------------------------- subsection 7.2(f)(i)(B). "Applicable Margin" means -----------------
======================================================= For each day on which the The Applicable aggregate principal of Margin, per annum, outstanding Loans (after is: taking into account any ____________________ Loans made or paid on such For Base For day) is: Rate Euro- Loans: dollar Rate Loans: - ------------------------------------------------------- Less than or equal to 50% 0.00% 1.00% of the Aggregate Commitment - ------------------------------------------------------- More than 50% of the 0.25% 1.25% Aggregate Commitment =======================================================
The Applicable Margin shall be adjusted automatically as to all Loans then outstanding as of the effective date of any change in the Applicable Margin, as set forth therein. "Arcada Holdings" means that certain corporation formed, or to be --------------- formed, pursuant to the Arcada Letter of Intent to act as the holding company for the Company's software disk back-up, data management, hierarchical storage management and related applications business. "Arcada Letter of Intent" means that certain Letter of Intent, entered ----------------------- into as of December 13, 1993, between Archive Corporation, a wholly-owned subsidiary of the Company, the Company and Quest Development Corporation. "Arranger" means BA Securities, Inc., a wholly-owned subsidiary of -------- BankAmerica Corporation. The Arranger is a registered broker-dealer and permitted to underwrite and deal in Ineligible Securities. "Asset Disposition Date" has the meaning specified in subsection ---------------------- 7.2(f)(i)(A). "Assignee" has the meaning specified in Section 103. -------- "Assignment and Acceptance" has the meaning specified in subsection ------------------------- 10.8(a). "Attorney Costs" means and includes all reasonable fees and ---------------- disbursements of any law firm or other external counsel, the reasonable allocated cost of internal legal services and all reasonable disbursement of internal counsel. "Banks" means the financial institutions from time to time party to ----- this Agreement. "Base Rate" means, for any day, the higher of: --------- (a) the rate of interest in effect for such day as publicly announced from time to time by BofA in San Francisco, California, as its "reference rate." (It is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.); and (b) 0.50% per annum above the latest Federal Funds Rate. Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan that bears interest based on the Base -------------- Rate. "Board of Directors" means, at any time, the board of directors of the ------------------ Company or any committee thereof which, in the instance, shall have the lawful power to exercise the power and authority of such board of directors. "BofA" means Bank of America National Trust and Savings Association, a ---- national banking association. "Borrowing" means a borrowing hereunder consisting of Loans made to the --------- Company on the same day by the Banks pursuant to Article II. "Borrowing Date" means any date on which a Borrowing occurs under -------------- Section 2.3. "Business Day" means any day other than a Saturday, Sunday or other day ------------ on which commercial banks in Boston, New York City or San Francisco are authorized or required by law to close and, if the applicable Business Day relates to any Eurodollar Rate Loan, means such a day on which dealings are carried on in the London interbank market. "Capital Adequacy Regulation" means any guideline, request or directive --------------------------- of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capitalized Lease Obligations" means any rental obligation of the ----------------------------- Company or any of its Subsidiaries that, under GAAP, is required to be capitalized on the books of the Company and its Subsidiaries, taken at the amount thereof accounted for as indebtedness net of interest expense determined on a consolidated basis, in accordance with GAAP. "Cash Equivalents" means all Investments described in subsections ---------------- 7.4(a), (c), (f), (g), (h), (i), (j), (k) and (l), to the extent classified as current assets in accordance with GAAP. "Cash Flow Contribution" means, for any period, in respect of any ---------------------- Property of the Company or a Subsidiary of the Company, the amount of Consolidated Operating Cash Flow fairly attributable to such Property during such period, expressed as a percentage of such Consolidated Operating Cash Flow. "Change in Control" means the direct or indirect acquisition by any ----------------- person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act), or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (i) beneficial ownership of issued and outstanding shares of voting stock of the Company, the result of which acquisition is that such person or such group possesses in excess of 50% of the combined voting power of all then issued and outstanding voting stock of the Company, or (ii) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the Board of Directors. "Closing Date" means the date on which all conditions precedent set ------------ forth in Section 4.1 are satisfied or waived. "Code" means the Internal Revenue Code of 1986, as amended. ---- "Commitment", with respect to each Bank, has the meaning specified in ---------- subsection 2.1(a). "Commitment Percentage" means, as to any Bank, the percentage --------------------- equivalent of such Bank's Commitment divided by the Aggregate Commitment. "Consolidated Assets" means, as of any date of determination, the ------------------- aggregate amount of all assets of the Company and its Subsidiaries that would, in accordance with GAAP, be required to be shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of such date. "Consolidated Current Liabilities" means, as of any date of -------------------------------- determination, all amounts which would, in accordance with GAAP, be included under current liabilities on a consolidated balance sheet of the Company and its Subsidiaries at such date. "Consolidated Net Income" for any fiscal period means net earnings (or ----------------------- loss) after income taxes of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP, but excluding: (a) any gain or loss arising from the sale of capital assets (other than any gain or loss of less than $100,000 from any such sale); (b) any gain or loss arising from any write-up of assets subsequent to December 31, 1992 (other than as a consequence of a physical review of inventory or other assets), any gain arising from the acquisition of any securities of the Company or any Subsidiary, or any other extraordinary item; (c) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such other Person prior to the date of such acquisition; (d) net earnings of any Person (other than a Subsidiary) in which the Company or any Subsidiary shall have an ownership interest unless such net earnings shall have actually been received by the Company or such Subsidiary in the form of cash distributions or cancellation of Debt; (e) any portion of the net earnings of any Subsidiary that for any reason is unavailable, by law or pursuant to any contractual restriction, for payment of dividends to the Company or any other Subsidiary; (f) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; and (g) any portion of the net earnings of the Company that cannot be converted into United States dollars; all determined in accordance with GAAP. "Consolidated Operating Cash Flow" means, for any period, determined on -------------------------------- a consolidated basis for the Company and its Subsidiaries, (a) Consolidated Net Income for such period, plus (b) the aggregate amount of depreciation and amortization accrued for such period by the Company and its Subsidiaries (to the extent, but only to the extent, each component of such aggregate amount was reflected in the computation of Consolidated Net Income for such period) determined on a consolidated basis. "Consolidated Senior Debt" means, at any time, without duplication, the ------------------------ amount of Senior Debt outstanding at such time, determined on a consolidated basis. "Consolidated Subsidiary" means, at any time, any Subsidiary of the ----------------------- Company that in accordance with GAAP would be consolidated with the Company for financial reporting purposes. "Contingent Obligation" means, as applied to the Company and its --------------------- Subsidiaries, any direct or indirect liability of any such Person with respect to any Indebtedness, lease (other than operating lease obligations), dividend, letter of credit or other obligation (the "primary obligations") of another Person, other than the Company or any of its Consolidated Subsidiaries (the "primary obligor"), including, without limitation, any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any Property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof or (e) the liability of a general partner in connection with a partnership that is not a Subsidiary of such Person; provided, however, that the term Contingent Obligation shall not ----------------- include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation supported by such Contingent Obligation or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof. "Contractual Obligations" means, as to any Person, any provision of any ----------------------- security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its Property is bound. "Controlled Group" means the Company and all Persons (whether or not ---------------- incorporated) under common control with the Company or any of its Subsidiaries pursuant to section 414(b) or (c) of the Code. "Conversion/Continuation Date" means any date on which the Company ---------------------------- elects to convert a Base Rate Loan to a Eurodollar Rate Loan or a Eurodollar Rate Loan to a Base Rate Loan, or to continue a Eurodollar Rate Loan maturing on such date as a Eurodollar Rate Loan with a new Interest Period, all as set forth in a Notice of Conversion/Continuation. "Debt" of any Person, at any time, means: ---- (a) indebtedness for money borrowed of such Person; (b) indebtedness that is secured by any Lien on Property owned by such Person, whether or not the indebtedness secured thereby shall have been assumed by such Person; (c) Capitalized Lease Obligations of such Person; (d) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) of such Person in connection with the obligations, stock or dividends of any other Person, provided that guarantees by such Person of contingent -------- obligations of other Persons shall be excluded from this clause (d); (e) obligations of such Person under any contract providing for the making of loans, advances or capital contributions to any other Person, or for the purchase of any Property from any other Person, in each case primarily in order to enable such other Person to maintain working capital, net worth or any other balance sheet condition or to pay debts, dividends or expenses, to the extent that such other Person is obligated to maintain such condition or make such payments and has failed to do so; (f) obligations of such Person under any contract for the purchase of materials, supplies or other Property or services if such contract (or any related document) requires that payment for such materials, supplies or other Property or services shall be made regardless of whether or not delivery of such materials, supplies or other Property or services is ever made or tendered; and (g) obligations under any other contract which, in legal effect, is substantially equivalent to a guarantee, provided that guarantees by -------- such Person of contingent obligations of other Persons shall be excluded from this clause (g), all as determined in accordance with GAAP, provided that such items shall -------- only constitute Debt to the extent that, in accordance with GAAP, such items would be (and only to the extent such items would be) included in determining total liabilities as shown on the liability side of the balance sheet of such Person (assuming that such Person was the primary obligor in respect of the underlying obligation with respect to any guarantee or other contingent obligation, as contemplated by the next succeeding sentence), provided, -------- further, that notwithstanding the foregoing, "Debt" shall not include (i) ------- accrued compensation, (ii) taxes payable and deferred taxes, (iii) trade payables, including intercompany payables in the nature of trade payables, (iv) any obligations payable, at the option of the obligor, in equity securities of the obligor, or (v) any guarantee or contingent liability or obligation with respect to any of the items set forth in the foregoing clauses (i) to (iv), inclusive. For purposes of computing the amount of any obligation specified in either of the foregoing clauses (d) or (g), it shall be assumed that the indebtedness or other obligations which are the subject of such guarantee, endorsement or other contingent liability are direct obligations of the obligor on such guarantee, endorsement or contingent liability (but not in an amount in excess of the maximum liability of such obligor) and, therefore, are of the nature and type of, and bear interest at the rate applicable to, such indebtedness or other obligations. "Default" means any event which, with the giving of notice, the lapse of ------- time, or both, would constitute an Event of Default other than an Event of Default described in Section 8.1(b). "Determination Date" means the last day of each fiscal quarter of the ------------------ Company. "Disclosure Letter" means that certain letter of even date herewith by ----------------- the Company addressed to the Agent containing the Schedules referenced in Article V hereof. "documents" includes any and all instruments, documents, agreements, --------- certificates and other writings, however evidenced. "Dollars," "dollars" and "$" each mean lawful money of the United ------- ------- - States. "Domestic Lending Office" means, with respect to each Bank, the office ----------------------- of that Bank designated as such in the signature pages hereto or such other office of the Bank as it may from time to time specify to the Company and the Agent. "Domestic Receivables" means all receivables of the Company and any -------------------- Consolidated Subsidiary of the Company having its chief executive office located in the United States, as determined in accordance with GAAP, excluding any receivable representing an obligation of the Company or any Subsidiary of the Company. "Eligible Receivables" means all Domestic Receivables and Foreign -------------------- Receivables, provided, however, that Foreign Receivables shall not exceed 50% -------- ------- of such aggregate amount. "Eligible Transferee" means (i) a commercial bank organized under the ------------------- laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; or (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a ---- political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States. "Environmental Claim" means all claims, however asserted, by any ------------------- Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in or from Property, whether or not owned by the Company, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" means all federal, state or local laws, statutes, ------------------ common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health and safety; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 USC (S)(S) 4601, et. seq.), the Clean Air Act (42 USC (S) 7401), the Federal Water Pollution Control Act of 1972 (33 USC (S) 1251), the Solid Waste Disposal Act (42 USC (S) 6901), the Federal Resource Conservation and Recovery Act (42 USC (S)(S) 6901 et seq.), the Toxic Substances Control Act (15 USC (S) 2601), the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law (Health and Safety Code (S)(S) 25100 et. seq.), the California Solid Waste Management, Resource, Recovery and Recycling Act (Government Code (S) 66796.22), the California Water Code and the California Health and Safety Code. "Environmental Permits" means all licenses, permits, authorizations and --------------------- registrations required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and any regulation promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not --------------- incorporated) under common control with the Company or any Subsidiary of the Company within the meaning of section 414(b) or 414(c) of the Code. "ERISA Event" means (a) a Reportable Event with respect to a Qualified ----------- Plan or a Multiemployer Plan; (b) a withdrawal by any member of the Controlled Group from a Qualified Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in section 4001(a)(2) of ERISA); (c) a complete or partial withdrawal (as such terms are defined in section 4201(b) of ERISA) by any member of the Controlled Group from a Multiemployer Plan; (d) the filing of a notice of intent to terminate, the treatment of a plan amendment as a termination under section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to terminate a Qualified Plan or Multiemployer Plan subject to Title IV of ERISA; (e) a failure to make required contributions to a Qualified Plan or Multiemployer Plan; (f) an event or condition which could reasonably be expected to constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Qualified Plan or Multiemployer Plan; (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under section 4007 of ERISA, upon any member of the Controlled Group; (h) an application for a funding waiver or an extension of any amortization period pursuant to section 412 of the Code with respect to any Qualified Plan, Multiemployer Plan or any other plan that would be a Qualified Plan or Multiemployer Plan if the term "Controlled Group" were defined to include Persons under common control with the Company or any of its Subsidiaries pursuant to section 414(m) or (o) of the Code; or (i) any member of the Controlled Group engages in or otherwise becomes liable for a non- exempt prohibited transaction (as defined in section 406 of ERISA or section 4975 of the Code with respect to any Qualified Plan or Multiemployer Plan). "Existing Facility" means the Credit Agreement dated as of January 3, ----------------- 1992, as heretofore amended, among the Company, the several financial institutions party thereto and Bank of America National Trust and Savings Association, as agent for such financial institutions. "Eurodollar Lending Office" means with respect to each Bank, the office ------------------------- of such Bank designated as such in the signature pages hereto or such other office of such Bank as such Bank may from time to time specify to the Company and the Agent. "Eurodollar Rate" means, for any Interest Period, with respect to --------------- Eurodollar Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the nearest 1/16th of 1%) determined by the Agent as follows: LIBOR Eurodollar Rate = ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest ----------------------------- Period the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect on such day (whether or not applicable to any Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities") having a term comparable to such Interest Period; and "LIBOR" means the rate of interest per annum determined by the ----- Agent to be the rate of interest per annum (rounded upward to the nearest 1/16th of 1%) notified to the Agent by the Reference Bank as the rate of interest at which dollar deposits in the approximate amount of the amount of the Loan to be made or continued as, or converted into, a Eurodollar Rate Loan by the Reference Bank and having a maturity comparable to such Interest Period would be offered to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. The Eurodollar Rate shall be adjusted automatically as to all Eurodollar Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "Eurodollar Rate Loan" means a Loan that bears interest at a rate based -------------------- on the Eurodollar Rate. "Event of Default" means any of the events specified in Section 8.1. ---------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Federal Funds Rate" means, for any day, the rate set forth in the ------------------ weekly statistical release designated as H.15(519), or any successor publication, published by the FRB (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "Foreign Receivables" means all receivables of any Consolidated ------------------- Subsidiary of the Company not having its chief executive office located in the United States, as determined in accordance with GAAP, excluding any receivable representing an obligation of the Company or any Subsidiary of the Company. "Four Quarter Period" has the meaning specified in subsection ------------------- 7.2(f)(ii)(A). "FRB" means the Board of Governors of the Federal Reserve System or any --- successor thereof. "GAAP" means generally accepted accounting principles set forth from ---- time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or ---------------------- other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of any of the foregoing, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Hazardous Materials" means all those substances which are regulated by, ------------------- or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, waste, solid waste, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. "Indebtedness" of any Person means, without duplication, (a) all ------------ indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of Property or services (other than ordinary course trade payables); (c) all reimbursement obligations with respect to surety bonds, letters of credit, bankers' acceptances and similar instruments (in each case, whether or not matured); (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of Property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to Property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such Property); (f) all Capitalized Lease Obligations; (g) all net obligations with respect to Rate Contracts; (h) all indebtedness referred to in paragraphs (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in Property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (but only to the extent of the lesser of (x) the indebtedness referred to in paragraphs (a) through (g) above so secured or (y) the fair market value of the Property subject to such Lien); and (i) all direct or indirect guaranties in respect of and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in paragraphs (a) through (g) above. "Indemnified Liabilities" has the meaning specified in Section 10.5. ----------------------- "Indemnified Person" has the meaning specified in Section 10.5. ------------------ "Ineligible Securities" means securities which may not be underwritten --------------------- or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. (S) 24, Seventh), as amended. "Insolvency Proceeding" means (a) any case, action or proceeding before --------------------- any court or other Governmental Authority of competent jurisdiction relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code (12 U.S.C. (S) 101 et seq.). -- --- "Interest Payment Date" means, with respect to a Eurodollar Rate Loan, --------------------- the last day of each Interest Period applicable to such Loan and, with respect to a Base Rate Loan, the last day of each calendar quarter and each date such Base Rate Loan is converted into a Eurodollar Rate Loan; provided, -------- however, that if any Interest Period for a Eurodollar Rate Loan exceeds three ------- months, interest shall also be paid on the date which falls three months after the beginning of such Interest Period. "Interest Period" means, with respect to any Eurodollar Rate Loan, the --------------- period commencing on the Business Day the Loan is disbursed or on the Conversion/Continuation Date on which the Loan is converted into or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: -------- (i) if any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall be requested for any Loan that extends beyond the Termination Date. "Investment" has the meaning specified in Section 7.4. ---------- "IRS" means the Internal Revenue Service or any entity succeeding to any --- of its principal functions under the Code. "Italian Debt" means Indebtedness incurred by Conner Peripherals Europe ------------ S.p.A., in an aggregate principal amount (expressed in Italian Lire) equivalent to approximately $16,800,000 of the date of this Agreement, and not to exceed such principal amount except as a result of currency fluctuations, plus accrued interest in respect thereof, arising under the following agreements: (i) the agreement dated as of December 10, 1991, entered into with Finaosta S.p.A. in the original principal amount of Lire 9,000,000,000, (ii) the agreement dated as of December 29, 1992, entered into with Finaosta S.p.A., in the original principal amount of Lire 4,500,000,000, (iii) agreement dated as of June 25, 1991, entered into with Finaosta S.p.A., in the original principal amount of Lire 10,000,000,000, (iv) agreement dated as of October 31, 1989, entered into with I.M.I. Istituto Mobiliare Italiano and Olivetti System & Network S.r.l., in the original principal amount of Lire 10,350,000,000, and (v) agreement dated as of April 30, 1991, entered into with I.M.I. Instituto Mobiliare Italiano and Olivetti System & Network S.r.l., in the original principal amount of Lire 6,400,000,000. "Lending Office" means, with respect to any Bank, the office or offices -------------- of the Bank specified as its "Lending Office" or "Domestic Lending Office" or "Eurodollar Lending Office", as the case may be, beneath its name on the applicable signature page hereto, or such other office or offices of the Bank as it may from time to time specify to the Company and the Agent. "Lien" means any mortgage, deed of trust, pledge, hypothecation, ---- security interest, assignment intended for security (whether whole or partial, absolute or contingent) or of accounts or chattel paper, charge or deposit arrangement, encumbrance, lien (statutory or other) or other priority or preferential arrangement of any kind or nature whatsoever in respect of any Property owned or held by any Person (including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a Capitalized Lease Obligation, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the UCC or any comparable law) and any contingent or other agreement to provide any of the foregoing. "Loan" means an extension of credit by a Bank to the Company pursuant to ---- Article II, and may be a Base Rate Loan or Eurodollar Rate Loan. "Loan Agreements" means this Agreement, together with all amendments, --------------- modifications and supplements thereto from time to time entered into by the parties hereto in accordance with the terms hereof, and any and all consents, waivers and other instruments and agreements executed by the parties hereto in connection with any of the foregoing. "Loan Documents" means the Loan Agreements, together with all -------------- certificates, delivered from time to time to the Agent in connection therewith, including without limitation the Disclosure Letter. "Majority Banks" means at any time Banks holding at least sixty percent -------------- (60%) of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, Banks having at least sixty percent (60%) of the Commitments. "Margin Stock" means "margin stock" as such term is defined in ------------ Regulation G, T, U or X of the FRB. "Material Adverse Compliance Effect" means a material adverse change in ---------------------------------- or a material adverse effect upon, any of (a) the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole; (b) the ability of the Company to perform its obligations and to avoid any Event of Default under any Loan Agreement (other than any such non-performance or any Event of Default which has been waived in accordance with the terms hereof); or (c) the legality, validity, binding effect or enforceability of any Loan Agreement. "Material Adverse Payment Effect" means a material adverse change in, or ------------------------------- a material adverse effect upon, any of (a) the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole; (b) the ability of the Company to perform its Obligations hereunder in accordance with their terms; or (c) the legality, validity, binding effect or enforceability of any Loan Agreement. "Material Subsidiary" means, at any time, (a) any Consolidated ------------------- Subsidiary which either (i) at such time owns assets having a net book value equal to or greater than ten percent (10%) of Consolidated Assets, or (ii) for the most recent fiscal quarter or the most recent fiscal year had income from operations equal to or greater than five percent (5%) of the income from operations for the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, and (b) any Consolidated Subsidiary owning more than 50% of the voting stock or other equity interest of any Subsidiary described in clause (a) of this definition. "Miscellaneous Payment Amounts" means the amount of any and all fees, ----------------------------- expenses, costs, indemnity and reimbursement obligations and other Obligations arising and outstanding from time to time hereunder, other than (a) the principal amount of the Loans, (b) interest accrued thereon (or on accrued interest), and (c) fees described in Section 2.10. "Miscellaneous Payment Notice" means a written notice by the Agent or ---------------------------- any Bank entitled to receive any such payment amount, to the Company, relating to any Miscellaneous Payment Amount and containing a reasonable description of such Miscellaneous Payment Amount. "Multiemployer Plan" means a "multiemployer plan" (within the meaning of ------------------ section 4001(a)(3) of ERISA) and to which any member of the Controlled Group makes, is making, or is obligated to make contributions or has made, or been obligated to make (at any time during the five (5) calendar years preceding the date of this Agreement), contributions. "Net Proceeds" means, with respect to a sale of equity securities, the ------------ gross proceeds thereof reduced by all reasonable out-of-pocket costs and expenses paid or incurred by the Company directly in connection therewith, including underwriter's commissions or discounts, registration and filing fees, legal and accounting fees, and printing costs. "1991 Indenture" means that certain Indenture dated as of March 1, 1991 -------------- by the Company to The First National Bank of Boston, as Trustee, as supplemented through the date hereof. "1992 Indenture" means that Indenture dated as of March 1, 1992, by and -------------- between the Company and The First National Bank of Boston, as trustee, relating to 6 1/2% convertible subordinated debentures due 2002, as supplemented through the date hereof. "Note Agreement" means that certain Note Agreement dated as of March 29, -------------- 1991 by and among the Company and the Purchasers listed on Annex 1 thereto, as heretofore amended and as further amended from time to time in accordance with the terms hereof. "Note Purchase Agreement" means that certain Note Purchase Agreement ----------------------- dated as of June 1, 1989 by and among the Company and the purchasers named in Appendix 1 thereto relating to $15,000,000 in Series A and $15,000,000 in Series B notes of the Company, as heretofore amended and as further amended from time to time in accordance with the terms hereof. "Notice of Borrowing" means a notice given by the Company to the Agent ------------------- pursuant to Section 2.3, in substantially the form of Exhibit 2.3. ----------- "Notice of Conversion/Continuation" means a notice given by the Company --------------------------------- to the Agent pursuant to Section 2.4, in substantially the form of Exhibit ------- 2.4. --- "Notice of Lien" means any "notice of lien" or similar document intended -------------- to be filed or recorded with any court, registry, recorder's office, central filing office or Governmental Authority for the purpose of evidencing, creating, perfecting or preserving the priority of a Lien securing obligations owing to a Governmental Authority. "Obligations" means all Loans, and other Indebtedness, advances, debts ----------- and payment obligations owing by the Company to any Bank, the Agent, or any other Person required to be indemnified under any Loan Agreement, of any kind or nature, present or future, arising under any Loan Agreement, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising. "Other Taxes" has the meaning specified in subsection 3.1(b). ----------- "Participant" has the meaning specified in subsection 10.8(d). ----------- "PBGC" means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to any or all of its functions under ERISA. "Permitted Banks" has the meaning specified in subsection 7.4(h). --------------- "Permitted Investments" has the meaning specified in Section 7.4. --------------------- "Permitted Liens" has the meaning specified in Section 7.1. --------------- "Person" means an individual, partnership, corporation, business trust, ------ joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ---- ERISA) which the Company or any member of the Controlled Group sponsors or maintains or to which the Company or member of the Controlled Group makes or is obligated to make contributions, and includes any Multiemployer Plan or Qualified Plan. "Preferred Stock" means, at any time, with respect to any Person, --------------- capital stock of such Person that is preferred as to the payment of dividends, or as to the distribution of Property on any voluntary or involuntary liquidation or dissolution of such Person, over any other class of capital stock of such Person (in each case, taken at the greater of its voluntary or involuntary liquidation preference at the time of calculation thereof, but exclusive of accrued dividends), provided, that the term "Preferred Stock" shall not -------- include up to $6,500,000 of the shares of preferred stock of Arcada Holdings issued, or to be issued, as contemplated by the Arcada Letter of Intent. "Property" means any interest in any kind of property or asset, whether -------- real, personal or mixed, and whether tangible or intangible. "Purchase Money Mortgage" means a Lien held by any Person (whether or ----------------------- not the seller of the assets covered by such Lien) on tangible Property (other than assets acquired to replace, repair, upgrade or alter tangible Property owned by the Company or any of its Subsidiaries on the date of this Agreement), provided that such Lien: -------- (a) secures all or a portion of the related purchase price or construction costs of such Property; (b) encumbers only tangible Property, accretions and accessions thereto and (in the case of any Lien in respect of improvements to real estate) any theretofore unimproved real Property on which such Property is located (and the proceeds of the disposition thereof) acquired or constructed with the proceeds of the indebtedness secured by such Lien; and (c) is created concurrently with or within one year of the acquisition or substantial completion of construction of such tangible Property. "Qualified Plan" means a pension plan (as defined in section 3(2) of -------------- ERISA) intended to be tax-qualified under section 401(a) of the Code and which any member of the Controlled Group sponsors, maintains, or to which it makes or is obligated to make contributions, or in the case of a multiple employer plan (as described in section 4064(a) of ERISA) has made contributions at any time during the immediately preceding period covering at least five (5) plan years, but excluding any Multiemployer Plan. "Rate Contracts" means interest rate and currency swap agreements, cap, -------------- floor and collar agreements, interest rate insurance, currency spot and forward contracts and other agreements or arrangements designed to provide protection against fluctuations in interest or currency exchange rates. "Reference Bank" means BofA, or any successor "Reference Bank" -------------- designated by the Majority Banks. "Reportable Event" means any of the events set forth in Section 4043(b) ---------------- of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of thirty (30) days' notice to the PBGC is waived under applicable regulations, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4062(e) of ERISA. "Requirement of Law" means, as to any Person, any law (statutory or ------------------ common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its Property or to which the Person or any of its Property is subject. "Responsible Officer" means the Chief Executive Officer or the President ------------------- of the Company or, with respect to financial matters, the Chief Financial Officer or the Treasurer of the Company. "Restricted Payment" has the meaning specified in subsection 7.8(a). ------------------ "Sale/Leaseback Transaction" means any transaction or series of related -------------------------- transactions in which the Company or a Subsidiary of the Company sells or transfers any of its Property to any Person (other than to the Company or to a Subsidiary of the Company) and within one (1) year thereafter rents or leases such transferred Property or substantially similar Property from any Person. "Sale/Leaseback Transaction Amount" means, on any date, after giving --------------------------------- effect to all Sale/Leaseback Transactions occurring on such date, the greater of: (a) the present value, discounted at six and one-half percent (6.5%) per annum, of all unpaid payment obligations of the Company and its Subsidiaries in respect of all Sale/Leaseback Transactions in effect on such date; or (b) the depreciated purchase price of all Property, subject to Sale/Leaseback Transactions at such time, on such date. "Section 20 Subsidiary" means the subsidiary of the bank holding company --------------------- of any Bank, which has been granted authority by the FRB to underwrite and deal in Ineligible Securities. "Senior Debt" means, at any time, (a) all Debt of the Company ----------- outstanding at such time that is not Subordinated Debt, except for Subordinated Debt that the Company has become obligated to prepay, redeem or otherwise purchase or acquire (other than obligations to make mandatory prepayments or mandatory redemptions scheduled at the time of issuance of such Subordinated Debt), and (b) all Debt and Preferred Stock of any Subsidiary of the Company. "Solvent" means, (a) as to the Company at any time, that (i) the fair ------- value of the Property of the Company is greater than the amount of the Company's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of section 101(31) of the United States Bankruptcy Code (12 U.S.C. (S) 101 et seq.); (ii) the present fair saleable value of the Property of the -- --- Company is not less than the amount that will be required to pay the probable liability of the Company on its debts as they become absolute and matured; (iii) the Company 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) the Company does not intend to, and does not believe that it will, incur debts or liabilities beyond the Company's ability to pay as such debts and liabilities mature; and (v) the Company is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which the Company's Property would constitute unreasonably small capital; and (b) as to the Company and its Subsidiaries on a consolidated basis, that (i) the fair value of the consolidated assets of such Persons is greater than the amount of such Persons' consolidated liabilities (including, contingent and unliquidated liabilities) as such value would be established and liabilities evaluated for purposes of section 101(31) of the United States Bankruptcy Code (12 U.S.C. (S) 101, et seq.); and (ii) the present fair saleable value of the ------- consolidated assets of such Persons is not less than the amount that will be required to pay the probable liability of such Persons on their consolidated liabilities as they become absolute and matured. "Subordinated Debt" means all Debt of the Company under the 1991 ----------------- Indenture, the 1992 Indenture, or which is subject to subordination provisions in favor of the holders of the Obligations no less favorable to such holders than those attached to the Note Agreement as Annex 4 or is otherwise consented to in writing as "Subordinated Debt" by the Majority Banks. "Subsidiary" of a Person means any corporation, association, ---------- partnership, joint venture or other business entity of which more than fifty percent (50%) of the voting stock or other equity interests is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Tangible Assets" means, at any time, as to the Company and its --------------- Subsidiaries on a consolidated basis, all assets (including, without duplication, the capitalized value of any leasehold interest under any Capitalized Lease Obligation) of such Persons, except: ------ (a) the aggregate amount of deferred assets, other than prepaid insurance and prepaid taxes, in excess of $10,000,000; (b) patents, copyrights, trademarks, trade names, franchises, goodwill and other similar intangible assets; and (c) unamortized debt discount and expense (other than not more than $6,500,000 of unamortized debt expense attributable to the issuance of Indebtedness prior to the date hereof (which expense shall be included in ("Tangible Assets")). --------------- "Tangible Net Worth" means at any time, as to the Company and its ------------------ Subsidiaries on a consolidated basis: (a) the net book value (after deducting related depreciation, obsolescence, amortization, valuation and other proper reserves relating to such assets) at which the Tangible Assets would be shown on a consolidated balance sheet at such time prepared in accordance with GAAP (subject to any modification required by the definition of "Tangible Assets"), but excluding any amount on account of write-ups of assets after December 31, 1992 (other than as a consequence of a physical review of inventory or other assets), at such time, minus ----- (b) the amount at which the liabilities of the Company and its Subsidiaries would be shown on such balance sheet, and including as liabilities all reserves for contingencies and other potential liabilities (specifically including therein, without limitation, actuarially determined unfunded vested pension liabilities and the liabilities in respect of other post-retirement benefits) and all minority interests in the Company's Subsidiaries at such time, all determined in accordance with GAAP (subject to any modification required by the preceding parenthetical expression in this clause (b)). "Taxes" has the meaning specified in subsection 3.1(a). ----- "Termination Date" means the earlier to occur of the second anniversary ---------------- of the Closing Date and December 31, 1995, subject to extension as provided in subsection 2.1(b), or such earlier date on which the Commitments shall terminate in accordance with the provisions of this Agreement. "Three Year Disposition Measurement Period" has the meaning specified in ----------------------------------------- subsection 7.2(f)(iii)(B). "Total Liabilities" means at any time, as to the Company and its ----------------- Subsidiaries on a consolidated basis, all liabilities of such Persons which in accordance with GAAP would be shown on the liability side of a consolidated balance sheet of the Company, as determined in accordance with GAAP. "Transferred Property" has the meaning specified in subsection -------------------- 7.2(f)(i)(B). "Transfers" has the meaning specified in Section 7.2. --------- "UCC" means the Uniform Commercial Code as in effect in the State of --- California, or to the extent such laws would be deemed the applicable law under California Uniform Commercial Code Section 9103, any other jurisdiction. "Unfunded Pension Liabilities" means the excess of the present value of ---------------------------- a Qualified Plan's or Multiemployer Plan's benefit liabilities under section 4001(a)(16) of ERISA over the current value of such Qualified Plan's or Multiemployer Plan's assets. "United States" and "U.S." each mean the United States of America. ------------- ---- "Wholly-Owned Subsidiary" means a Subsidiary of the Company (or of any ----------------------- Subsidiary of the Company) of which 100% of the voting stock is owned beneficially and of record, directly or indirectly, by the Company (or one or more Wholly-Owned Subsidiaries of the Company or a combination thereof), provided that directors qualifying shares and shares issued to comply with local ownership legal requirements not exceeding in the aggregate 3% of the voting stock of such Subsidiary may be owned by Persons other than the Company or a Subsidiary of the Company. 1.2 Other Definitional Provisions. ----------------------------- (a) Unless otherwise specified herein or therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) All accounting terms not expressly defined herein shall be construed, except where the context otherwise requires, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied (subject to mandatory changes in GAAP). (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, schedule and exhibit references are to this Agreement unless otherwise specified. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. The term "including" is not limiting and means "including without limitation." The term "pro rata" means, with respect to the Banks, ratably in accordance with the respective Commitment Percentages. (d) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." (e) References to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement. (f) References to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation. (g) The captions and headings of this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. (h) This Agreement and the other Loan Documents are the result of negotiations among and has been reviewed by counsel to the Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. ARTICLE II THE CREDITS ----------- 2.1 Amounts and Terms of Commitments. -------------------------------- (a) Each Bank severally agrees, on the terms and conditions hereinafter set forth, to make Loans to the Company from time to time on any Business Day during the period from the Closing Date to the Termination Date, in an aggregate amount not to exceed at any time outstanding the amount set forth opposite the Bank's name in Schedule 2.1(a) under the heading "Commitment" (such amount as the same --------------- may be reduced pursuant to Section 2.5 or as a result of one or more assignments pursuant to Section 10.8, the Bank's "Commitment"); provided, however, that, ---------- -------- ------- after giving effect to any Borrowing, the aggregate principal amount of all outstanding Loans shall not exceed the Aggregate Commitment. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this subsection 2.1(a), prepay pursuant to Section 2.6 and reborrow pursuant to this subsection 2.l(a). (b) Upon the written request of the Company, received by the Agent not less than ninety (90) days prior to the then current Termination Date and upon the written concurrence not less than thirty (30) days prior to such Termination Date by all of the Banks with such request, the Termination Date may be extended in the sole discretion of the Agent and the Banks for successive additional one- year periods commencing on the then current Termination Date. In the event such written concurrence from the Banks is not received by the Agent at least thirty (30) days prior to the Termination Date, the Termination Date shall not be extended. The Agent will promptly notify each Bank of the receipt by it of a request under this subsection. 2.2 Loan Accounts. The Loans made by each Bank shall be evidenced by one or ------------- more loan accounts or records maintained by such Bank in the ordinary course of business. The loan accounts or records maintained by the Agent and each Bank shall be conclusive (absent manifest error) of the amount of the Loans made by the Banks to the Company and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. The Agent shall cause to be maintained a register in which the Agent shall record the Loans by each Bank and any transfers or assignments thereof. With respect to such register, the Agent shall be entitled to rely on any information provided to it by any Person reasonably believed by it to be authorized by the Company or any Bank to deliver such information. The Agent shall have no liability in connection with the maintenance of such register except for acts of gross negligence or willful misconduct. 2.3 Procedure for Borrowing. ----------------------- (a) Each Borrowing shall be made upon the written notice (or notice via facsimile transmission, confirmed by a telephone call by the Company, provided such notice is immediately confirmed by an original written notice sent by mail or overnight courier) of the Company, delivered to the Agent, in the form of a Notice of Borrowing (which notice must be received by the Agent prior to 9:00 A.M. (San Francisco time)) (i) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Rate Loans; and (ii) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum principal amount of $10,000,000 for Eurodollar Rate Loans or $5,000,000 for Base Rate Loans or in either case any integral multiple of $1,000,000 in excess of the applicable minimum principal amount; (B) the requested Borrowing Date, which shall be a Business Day; (C) whether the Borrowing is to be comprised of Eurodollar Rate Loans or Base Rate Loans (or a combination thereof); and (D) the duration of the Interest Period or Interest Periods applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing of Eurodollar Rate Loans, such Interest Period shall be three (3) months. (b) Upon receipt of the Notice of Borrowing, the Agent will promptly notify each Bank of its receipt thereof and of the amount of such Bank's Commitment Percentage of the Borrowing. (c) Each Bank will make the amount of its Commitment Percentage of each Borrowing available to the Agent for the account of the Company at the office set forth on Schedule 2.3(c), or otherwise specified by the Agent in accordance --------------- with Section 10.2 for payment by 11:00 A.M. (San Francisco time) on the Borrowing Date requested by the Company in funds immediately available to the Agent. Unless any applicable condition specified in Article IV has not been satisfied, the proceeds of all such Loans will then be made available to the Company by the Agent at such office by crediting the account of the Company on the books of the Agent with the aggregate of the amounts made available to the Agent by the Banks and in like funds as received by the Agent. (d) Subsection 2.3(a) notwithstanding, if the Company shall not have given a timely Notice of Borrowing to be made on the last day of any Interest Period for outstanding Loans, then unless the Agent shall have received notice that the Company elects not to make a Borrowing on such day (such notice to have been received at least one Business Day prior to such day) the Agent shall be deemed to have received a Notice of Borrowing from the Company requesting Base Rate Loans to be made on such day in an amount equal to the amount of such outstanding Loans (reduced to the extent necessary to reflect any reductions of the Commitments on or prior to such day). 2.4 Conversion and Continuation Elections. ------------------------------------- (a) The Company may upon irrevocable written notice to the Agent by delivery of a Notice of Conversion/Continuation in accordance with subsection 2.4(b): (i) elect to convert on any Business Day, any Base Rate Loans (or any part thereof in an amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof) into Eurodollar Rate Loans; (ii) elect to convert on any Interest Payment Date, any Eurodollar Rate Loans maturing on such Interest Payment Date (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof) into Base Rate Loans; or (iii) elect to renew, on any Interest Payment Date therefor, any Eurodollar Rate Loans (or any part thereof in an amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof); provided, that if at any time the aggregate amount of Eurodollar Rate Loans - -------- shall have been reduced, by payment, prepayment, or conversion of part thereof to be less than $10,000,000, the Eurodollar Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as Eurodollar Rate Loans shall terminate and the Company shall reimburse each Bank for any actual loss or actual expense sustained or incurred as set forth in subsection 3.4 hereof. (b) The Company shall deliver by telex, cable or facsimile, confirmed by a telephone call by the Company and confirmed immediately by an original writing sent by mail or overnight courier, a Notice of Conversion/Continuation to be received by the Agent not later than 9:00 A.M. (San Francisco time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Eurodollar Rate Loans; and (ii) one Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the nature of the proposed conversion or continuation; and (D) the duration of the requested Interest Period or Interest Periods for Eurodollar Rate Loans. If the Notice of Conversion/Continuation shall fail to specify the duration of the Interest Period, such Interest Period shall be three (3) months. (c) If upon the expiration of any Interest Period, the Company has failed to select timely a new Interest Period to be applicable to the respective Eurodollar Rate Loans, or if any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Eurodollar Rate Loans into Base Rate Loans effective as of the expiration date of such expiring Interest Period. (d) Upon receipt of a Notice of Conversion/Continuation, the Agent will promptly notify each Bank of its receipt thereof, or, if no timely notice is provided by the Company, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Majority Banks otherwise agree, during the existence of a Default or Event of Default pursuant to Section 8.1(a), (b) or (g), the Company may not elect to have a Loan converted into or continued as a Eurodollar Rate Loan, and during the existence of a Default or Event of Default other than pursuant to Section 8.1(a), (b) or (g), the Company may not elect to have a Loan converted into or continued as a Eurodollar Rate Loan with an Interest Period longer than one month. (f) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Loans, there shall not be more than five (5) different Interest Periods in respect of Eurodollar Rate Loans in effect. 2.5 Voluntary Termination or Reduction of Commitments. The Company may, ------------------------------------------------- upon not less than three Business Days' prior notice to the Agent, terminate the Aggregate Commitments or permanently reduce the Aggregate Commitment by an aggregate minimum amount of $5,000,000, or any integral multiple of $1,000,000 in excess thereof, provided that no such reduction or termination shall be -------- permitted if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, the then outstanding principal amount of the Loans would exceed the amount of the Aggregate Commitment then in effect and, provided, further, that once reduced in accordance with this Section 2.5, the - -------- ------- Aggregate Commitments may not be increased. Any reduction of the Aggregate Commitments shall be applied pro rata to each Bank's Commitment in accordance with such Bank's Commitment Percentage. All accrued commitment fees to, but not including the effective date of any reduction or termination of the Commitments shall be paid on the effective date of such reduction or termination. 2.6 Optional Prepayments. Subject to Section 3.4, the Company may, at any -------------------- time or from time to time, upon notice to the Agent as described in the following sentence, ratably prepay Loans in whole or in part, in minimum amounts of $5,000,000 for Base Rate Loans and $10,000,000 for Eurodollar Rate Loans or in either case any multiple of $1,000,000 in excess of the applicable minimum amount. Such notice of prepayment shall be provided to the Agent by no later than 9:00 A.M. (San Francisco time) not less than three Business Days prior to the proposed date of prepayment in respect of any Eurodollar Rate Loans, and by no later than 9:00 A.M. (San Francisco time) not less than one Business Day prior to the proposed date of prepayment in respect of any Base Rate Loans. Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Base Rate Loans or Eurodollar Rate Loans, or any combination thereof. Such notice shall not thereafter be revocable by the Company, and the Agent will promptly notify each Bank of its receipt thereof. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.4. 2.7 Mandatory Prepayment. The principal amount of the outstanding Loans, -------------------- together with all interest accrued thereon, and amounts required pursuant to Section 3.4, shall be immediately due and payable, and the Commitments shall terminate, upon the occurrence of a Change in Control. If the aggregate outstanding amount of the Loans shall at any time be less than $5,000,000, such outstanding principal amount, together with all interest accrued thereon shall be immediately due and payable, together with amounts required pursuant to Section 3.4. 2.8 Repayment. The Company agrees to repay to the Banks in full on the --------- Termination Date the aggregate principal amount of the Loans outstanding on such date. 2.9 Interest. -------- (a) Subject to subsection 2.9(c), each Loan shall bear interest on the outstanding principal amount thereof from the date when made until it becomes due at a rate per annum equal to the Eurodollar Rate or the Base Rate, as the case may be, plus the Applicable Margin. ---- (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans pursuant to Section 2.6 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, after the occurrence and during the continuance of any Event of Default, interest shall be payable on demand. (c) If any amount of principal of or interest on any Loan, or any other amount payable under Section 2.10 hereof is not paid in full when due (whether at stated maturity, by acceleration, demand or otherwise), the Company agrees to pay interest on such unpaid principal, interest or fee from the date such amount becomes due until the date such amount is paid in full, and after as well as before any entry of judgment thereon, to the extent permitted by applicable law, payable on demand, at a rate per annum equal to the applicable rate, which shall be the Base Rate for either Base Rate or Eurodollar Rate Loans, plus two percent (2%); provided, however, that in respect of payments of principal or interest -------- ------- coming due in respect of any Eurodollar Rate Loans prior to the termination of the then current interest period, the applicable rate shall be the Eurodollar Rate plus two percent (2%) until the end of such then current Interest Period. (d) Interest shall accrue on unpaid Miscellaneous Payment Amounts at a rate per annum equal to the Base Rate commencing on the day that is five Business Days after the date a Miscellaneous Payment Notice is given by the Agent or the applicable Bank to the Company; provided that from the 30th day after a Miscellaneous Payment Notice is given, to the extent permitted by applicable law, interest shall accrue on outstanding amounts at the rate per annum equal to the Base Rate plus 2%. All such interest shall be paid upon demand. 2.10 Fees. ---- (a) The Company shall pay to the Agent an agency fee for the Agent's account and an arrangement fee for the Arranger's account in the amounts and at the time or times set forth in the commitment letter dated December 3, 1993 from the Agent and the Arranger to, and accepted and agreed by, the Company, which letter, to the extent it relates to the payment of fees, is incorporated herein by reference. (b) The Company shall pay to the Agent for the account of each Bank a commitment fee of 0.5 percent per annum on the average daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Agent. Such commitment fee shall accrue from the Closing Date to the Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each quarter commencing on March 31, 1994 through the Termination Date, with the final payment to be made on the Termination Date; provided that, in connection with any reduction or termination -------- of Commitments under Section 2.5, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The commitment fees provided in this subsection shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article IV are not met. (c) On the Closing Date, the Company shall pay to the Agent for the account of each Bank which has committed $30,000,000 or more to this credit, an upfront fee equal to 0.25 percent of the aggregate amount of each such Bank's Commitment. 2.11 Computation of Fees and Interest. -------------------------------- (a) All computations of interest for Base Rate Loans when the Base Rate is determined by BofA's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest under this Agreement shall be made on the basis of a 360 day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365- or 366-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) The Agent will, with reasonable promptness, notify the Company and the Banks of each determination of a Eurodollar Rate, provided that any failure to -------- do so shall not relieve the Company of any liability hereunder. (c) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Banks in the absence of manifest error. The Agent will, at the request of the Company or any Bank, deliver to the Company or the Bank, as the case may be, a statement showing any quotation used by the Agent in determining any interest rate. 2.12 Payments by the Company. ----------------------- (a) All payments (including prepayments) to be made by the Company on account of principal, interest, fees and Miscellaneous Payment Amounts shall be made without set-off or counterclaim and shall be made to the Agent, for the account of the Banks (except as otherwise provided in subsection 2.13(b) and Sections 3.l, 3.3 and 3.4), at the Agent's office referenced on Schedule 2.3(c) --------------- or otherwise notified by the Agent in accordance with Section 10.2, in dollars and in immediately available funds no later than 9:00 A.M. (San Francisco time). The Agent will promptly distribute to each Bank its pro rata share of such principal, interest, fees or other amounts, in like funds as received, except to the extent non-ratable payments are expressly provided for herein. Any payment which is received by the Agent later than 9:00 A.M. (San Francisco time) shall be deemed to have been received on the immediately succeeding Business Day. (b) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be; subject to the provisions set forth in the definition of "Interest Period" herein. (c) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Banks hereunder that the Company will not make such payment in full as and when due, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Company has not made such payment in full to the Agent, each Bank shall repay to the Agent on demand such amount distributed to such Bank or in the event of receipt by the Agent of partial payment by the Company, such Bank's ratable portion of the amount not paid by the Company, together with interest thereon for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate as in effect on such date. In the event the Agent actually receives a payment of principal from the Company in accordance with the terms of this Agreement by 9:00 A.M. (San Francisco time) and does not pay the Banks their portion of such payment on the same day, the Banks shall receive interest from the Agent at the Federal Funds Rate for each day such payment is not received. 2.13 Payments by the Banks to the Agent. ---------------------------------- (a) Subject to the terms and conditions hereof, each Bank shall make available to the Agent in immediately available funds for the account of the Company the amount of its Commitment Percentage of any Borrowing. (b) Unless the Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Bank will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Bank's Commitment Percentage of the Borrowing, the Agent may assume that each Bank has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, that Bank shall within two Business Days following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A certificate of the Agent submitted to any Bank with respect to amounts owing under this subsection 2.13(b) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent within two Business Days following such Borrowing Date, the Agent shall notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (c) The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any Borrowing Date. 2.14 Sharing of Payments, etc. If, other than as provided in subsection ------------------------- 2.9(d) or 2.10(a) or Section 3.1, 3.3, 3.4 or 10.4, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Commitment Percentage of payments on account of the Loans obtained by all the Banks, such Bank shall forthwith (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such -------- ------- excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor together with an amount equal to such paying Bank's Commitment Percentage (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.8) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent shall keep records (which shall be conclusive and binding in the absence of manifest error), of participations purchased pursuant to this Section 2.14 and shall in each case notify the Banks following any such purchases or repayments. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY -------------------------------------- 3.1 Taxes. ----- (a) Subject to subsection 3.1(g), any and all payments by the Company to each Bank or the Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's net income by the jurisdiction under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). ----- (b) In addition, the Company shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Agreement (hereinafter referred to as "Other Taxes"). ----------- (c) Subject to subsection 3.1(g), the Company shall indemnify and hold harmless each Bank and the Agent upon demand for the full amount of Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.1) paid by the Bank or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Each of the Agent and the Banks hereby severally agrees to notify the Company with reasonable promptness if it obtains knowledge of such Taxes or Other Taxes. (d) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then, subject to subsection 3.1(g): (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.1) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made; (ii) the Company shall make such deductions; and (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Within thirty (30) days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish to the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (f) Each Bank which is a foreign person (i.e., a person other than a United States person for United States Federal income tax purposes) agrees that: (i) it shall, no later than the Closing Date (or, in the case of a Bank which becomes a party hereto pursuant to Section 10.7 after the Closing Date, the date upon which the Bank becomes a party hereto) deliver to the Company through the Agent two accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), or two accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001"), as appropriate, in each case indicating that the Bank is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax; (ii) if at any time the Bank makes any changes necessitating a new Form, it shall with reasonable promptness deliver to the Company through the Agent in replacement for, or in addition to, the forms previously delivered by it hereunder, two accurate and complete signed originals of Form 4224; or two accurate and complete signed originals of Form 1001, as appropriate, in each case indicating that the Bank is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax; (iii) it shall, before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in (ii) above) requiring a change in the most recent Form 4224 or Form 1001 previously delivered by such Bank and if the delivery of the same be lawful, deliver to the Company through the Agent two accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by the Bank; and (iv) it shall, promptly upon the Company's reasonable request to that effect, deliver to the Company such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Bank's tax status for withholding purposes. (g) The Company will not be required to pay any additional amounts in respect of United States Federal income tax pursuant to subsection 3.1(d) to any Bank for the account of any Lending Office of such Bank: (i) if the obligation to pay such additional amounts would not have arisen but for a failure by such Bank to comply with its obligations under subsection 3.1(f) in respect of such Lending Office; (ii) if such Bank shall have delivered to the Company a Form 4224 in respect of such Lending Office pursuant to subsection 3.1(f)(i), and such Bank shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or in the official interpretation of such law or regulations by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 4224; or (iii) if the Bank shall have delivered to the Company a Form 1001 in respect of such Lending Office pursuant to subsection 3.1(f)(ii), and such Bank shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or any applicable tax treaty or regulations or in the official interpretation of any such law, treaty or regulations by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 1001. (h) If, at any time, the Company requests any Bank to deliver any forms or other documentation pursuant to subsection 3.1(f)(iv), then the Company shall, on demand of such Bank through the Agent, reimburse such Bank for any costs and expenses (including Attorney Costs) reasonably incurred by such Bank in the preparation or delivery of such forms or other documentation. (i) If the Company is required to pay additional amounts to any Bank or the Agent pursuant to subsection 3.1(d), then such Bank shall use its reasonable best efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue if such change in the judgment of such Bank is not otherwise disadvantageous to such Bank. (j) The agreements and obligations of the Company contained in this Section 3.1 shall survive the payment in full of all other Obligations. (k) Each Bank and the Agent agree that (i) it will take all reasonable actions by all usual means to maintain all exemptions, if any, available to it from the United States withholding taxes (whether available by treaty, existing administrative waiver or otherwise) and (ii) otherwise cooperate with the Company to minimize amounts payable by the Company under this Section 3.1; provided, however, that, the Agent and any Bank shall not be obligated by reason - ----------------- of this subsection 3.1(j) to disclose any information regarding its tax affairs or tax computations or to reorder its tax or other affairs or tax or other planning, or to undertake any action that the Agent or such Bank deems to involve incurring any risk of liability or cost to itself or which requires any expenditure of effort that such Agent or Bank deems unreasonable under the circumstances. (l) Each Bank (or, if applicable, the Agent) which is organized under the laws of the United States or any State thereof, shall provide the Company and the Agent with two duplicates of statements conforming to the requirements of Treasury Regulation 1.1441-5(b) or any successor thereto. 3.2 Illegality. ---------- (a) If any Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make Eurodollar Rate Loans, then, on notice thereof by the Bank to the Company through the Agent, any obligation of that Bank to make Eurodollar Rate Loans shall be suspended until the Bank notifies the Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any Eurodollar Rate Loan, upon notice to such effect by such Bank to the Company, all Eurodollar Rate Loans of the Bank then outstanding will immediately and automatically convert to a Base Rate Loan and the Company shall pay to such Bank all amounts required to be paid under Section 3.4 on the day that is three (3) Business Days after the date of such notice. (c) If the obligation of any Bank to make Eurodollar Rate Loans has been so terminated or suspended, the Company may elect, by giving notice to the Bank through the Agent that all Loans which would otherwise be made by the Bank as Eurodollar Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Agent pursuant to this Section 3.2, the affected Bank shall designate a different Lending Office with respect to its Eurodollar Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 3.3 Increased Costs and Reduction of Return. --------------------------------------- (a) If any Bank determines that, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation after the Closing Date or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) promulgated or becoming effective after the Closing Date, there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans (other than an increase in Taxes or Other Taxes), then the Company shall be liable for, and shall from time to time, upon demand therefor by such Bank (with a copy of such demand to be sent to the Agent), pay to such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Agent, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 3.4 Funding Losses. The Company shall reimburse each Bank and hold each -------------- Bank harmless from any actual loss or actual expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any Eurodollar Rate Loan (including payments made after any acceleration thereof); (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.6; (d) the prepayment (including pursuant to Section 2.7) or other payment (including after any acceleration thereof) of a Eurodollar Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the conversion of a Eurodollar Rate Loan to a Base Rate Loan on a day which is not the last day of the Interest Period with respect thereto, provided, however, the Company shall not be required to compensate the Banks -------- ------- for lost profits under this clause (e) of this Section 3.4; including, in each case, any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Eurodollar Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Company to the Banks under this Section and under subsection 3.3(a), each Eurodollar Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan is in fact so funded. This covenant shall survive the payment in full of all other Obligations. 3.5 Inability to Determine Rates. If the Majority Banks determine that for ---------------------------- any reason adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan or that the Eurodollar Rate applicable pursuant to subsection 2.9(a) for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Banks of funding such Loan, the Agent will promptly so notify the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain Eurodollar Rate Loans, as the case may be, hereunder shall be suspended until the Agent revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such notice, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans. 3.6 Certificates of Banks. Any Bank claiming reimbursement or compensation --------------------- pursuant to this Article III shall deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder (including a description in reasonable detail of the way in which such amount was determined) and such certificate shall be conclusive and binding on the Company in the absence of manifest error; provided, however, that the Company shall not be liable for any such amount attributable to any period prior to the date one hundred eighty (180) days prior to the date of such certificate. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1 Conditions of Commitments. The Commitment of each Bank hereunder is ------------------------- subject to the condition that the Agent shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Agent and its counsel and to the Banks and in sufficient copies for each Bank: (a) Credit Agreement. This Agreement executed by the Company, the Agent ---------------- and each of the Banks; (b) Resolutions; Incumbency. ----------------------- (i) Copies of the resolutions of the board of directors of the Company approving and authorizing the execution, delivery and performance by the Company of this Agreement, the other Loan Documents to be delivered hereunder and authorizing the borrowing of the Loans, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute and deliver, as applicable, this Agreement, and all other Loan Documents to be delivered hereunder; (c) Articles of Incorporation; By-laws and Good Standing. Each of the ---------------------------------------------------- following documents: (i) the articles of incorporation of the Company as in effect on the Closing Date, certified by the Secretary of State of the State of incorporation of the Company as of a recent date and by the Secretary or Assistant Secretary of the Company as of the Closing Date and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (ii) a good standing certificate for the Company from the Secretary of State of the State of Delaware and each state where the Company is qualified to do business as a foreign corporation as of a recent date, and a bring-down certificate by telex or facsimile, dated the Closing Date from the Secretary of State of the State of Delaware; (d) Legal Opinions. Opinions of Wilson, Sonsini, Goodrich & Rosati, special -------------- counsel to the Company, and Marla Stark, Esquire, general counsel to the Company, and addressed to the Agent and the Banks, collectively substantially in the form of Exhibit 4.1(d)(i); ----------------- (e) Payment of Fees. The Company shall have paid all costs, accrued and --------------- unpaid fees and expenses (including, without limitation, Attorney Costs) to the extent invoiced prior to or otherwise then due and payable on the Closing Date, including any arising under subsection 2.10(a) and (c) and Sections 3.1, 10.4 and 10.10; (f) Certificate. A certificate signed by a Responsible Officer, dated as of ----------- the Closing Date, stating that: (i) the representations and warranties contained in Article V are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists as of such date; and (iii) no Material Adverse Compliance Effect has occurred since September 30, 1993; (g) Financial Statements. A certified copy of financial statements of the -------------------- Company and its Subsidiaries referred to in Section 5.11; (h) Certified Documents. Certified copies of the 1991 Indenture, 1992 ------------------- Indenture, Note Agreement and Note Purchase Agreement, each as supplemented through the date hereof. (i) Other Documents. Such other approvals, opinions or documents as any --------------- Bank may reasonably request. 4.2 Conditions to all Borrowings. The obligation of each Bank to make any ---------------------------- Loan to be made by it hereunder (including its initial Loan) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date: (a) Notice of Borrowing. The Agent shall have received, with a ------------------- counterpart for each Bank, a Notice of Borrowing; (b) Continuation of Representations and Warranties. The ---------------------------------------------- representations and warranties made by the Company contained in Article V shall be true and correct on and as of such Borrowing Date, with the same effect as if made on and as of such date (except to the extent such representations or warranties specifically relate to an earlier date, in which case they shall be true and correct as of such date); (c) No Existing Default. No Default or Event of Default shall exist or ------------------- shall result from such Borrowing; and (d) No Material Adverse Change. No Material Adverse Compliance Effect -------------------------- shall have occurred since September 30, 1993. Each Borrowing by the Company hereunder shall constitute a representation and warranty by the Company hereunder as of each such Borrowing Date that the conditions in this Section 4.2 have been satisfied. The representations, warranties and conditions set forth in this Article IV are solely for the benefit of Agent and the Banks, and the Agent with the written consent of each of the Banks may waive any or all of such conditions in whole or in part; provided that no such waiver of a condition shall constitute a waiver by the Agent or Banks of any of their other respective rights or remedies under this Agreement or otherwise at law or in equity if the Company should be in default of any of its covenants, agreements, representations or warranties under this Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants to the Agent and each Bank that: 5.1 Corporate Existence and Power. The Company and each of its Material ----------------------------- Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals (i) to own its assets and carry on its business and other activities as currently conducted and (ii) to execute, deliver and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case referred to in subclause (b)(i), clause (c) or clause (d), to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Compliance Effect. 5.2 Corporate Authorization; No Contravention. The execution, delivery and ----------------------------------------- performance by the Company of this Agreement and any other Loan Document to which it is a party, have been duly authorized by all necessary corporate action and do not and will not: (a) contravene the terms of the Company's certificate of incorporation, bylaws or other organization document; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any indenture, agreement, lease, instrument, Contractual Obligation, injunction, order, decree or undertaking to which the Company or any of its Subsidiaries is a party; or (c) violate any Requirement of Law including the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Fund Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations, the South African Transactions Regulations, the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations or the Panamanian Transactions Regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) or Executive Orders 12722 and 12724 (transactions with Iraq and Executive Orders 12723 and 12725 (transactions with Kuwait). 5.3 Governmental Authorization. No approval, consent, exemption, -------------------------- authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery, payment or repayment by the Company of the Obligations, or enforcement against the Company, of this Agreement or any other Loan Document. 5.4 Binding Effect. This Agreement and each other Loan Agreement to which -------------- the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.5 Litigation. Except as set forth in Schedule 5.5 to the Disclosure ---------- ------------ Letter, (a) there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries, or any of their respective properties, which purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; and (b) there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company as of the Closing Date, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries, or any of their respective properties, which, if determined adversely to the Company, or its Subsidiaries, could reasonably be expected to have a Material Adverse Compliance Effect; provided, however, that for purposes of making any such ----------------- determination, at all times prior to the earlier of (i) the time that such damages have been awarded at trial by a judge, jury or other determiner of fact, and (ii) the time as of which accrual of such damage amounts would be recognized for purposes of the Company's consolidated financial statements in accordance with GAAP, the Company may disregard the effect of punitive damages claimed by any opposing party, other than treble damages asserted in connection with antitrust litigation. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 5.6 No Default. No Default or Event of Default exists or would result from ---------- the incurring of obligations by the Company under this Agreement or any other Loan Agreement. Neither the Company, nor any of its Subsidiaries, is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Compliance Effect. 5.7 ERISA Compliance. No accumulated funding deficiency (as defined in ---------------- section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Qualified Plan or to any Plan that would be a Qualified Plan if the term "Controlled Group" were defined to include Persons under common control with the Company or any of its Subsidiaries pursuant to section 414(m) or (o) of the Code. No liability to the PBGC (other than for required premium payments) has been incurred or could reasonably be expected to be incurred by the Company or any other ERISA Affiliate with respect to any Qualified Plan that could reasonably be expected to have a Material Adverse Payment Effect. Neither the Company nor any ERISA Affiliates have incurred or could reasonably expect to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan that could reasonably be expected to have a Material Adverse Payment Effect. To the best knowledge of the Company, the execution and delivery of this Agreement will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the Code. 5.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans shall be ----------------------------------- used solely for the purposes permitted by Section 6.11. No portion of the Loans will be used, directly or indirectly, (a) to purchase or carry Margin Stock or (b) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (c) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (d) to make payments of principal or interest on Ineligible Securities underwritten by any Section 20 Subsidiary and issued by or for the benefit of the Company or any Affiliate of the Company. No proceeds of any Loans will be used to acquire any security in any transaction which is subject to Section 13 or 14 of the Exchange Act. 5.9 Title to Properties; Liens. The Company and each of its Subsidiaries -------------------------- has good record and marketable title in fee simple to or valid leasehold interests in all its real Property, except for such defects in title as could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Payment Effect. As of the Closing Date, the property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 5.10 Taxes. The Company and each of its Subsidiaries have filed all ----- Federal, state, foreign and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties in accordance with such returns and reports except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP and no Notice of Lien has been filed or recorded. The Company has received no notice from any Governmental Authority of any deficiency in respect of any such return or report in an amount which, if assessed or required to be paid, would have a Material Adverse Compliance Effect. 5.11 Financial Condition. ------------------- (a) The Company's consolidated balance sheet dated September 30, 1993, and related consolidated statements of income and cash flows for the quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (ii) accurately and fairly present in all material respects, in accordance with GAAP, the consolidated financial condition of the Company and its Consolidated Subsidiaries as of the date thereof and results of operations for the period covered thereby, subject only to normal year end adjustments and the absence of complete footnotes. (b) The audited consolidated balance sheet of the Company and its Consolidated Subsidiaries dated December 31, 1992, and the related consolidated statements of operations, shareholders equity and cash flows for the fiscal year ending on such date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as expressly noted therein; and (ii) in accordance with GAAP, are complete and accurate and fairly present in all material respects, the financial condition of the Company and its Consolidated Subsidiaries as of the date thereof and the results of operations for the period covered thereby. (c) Since September 30, 1993 there has been no Material Adverse Compliance Effect. 5.12 Environmental Matters. --------------------- (a) The operations of the Company and each of its Subsidiaries comply in all respects with all Environmental Laws, except where non-compliance could not reasonably be expected to have a Material Adverse Compliance Effect. (b) Each of the Company and its Subsidiaries has obtained all Environmental Permits necessary for its respective operations, and all such Environmental Permits are in good standing, and the Company and each of its Subsidiaries is in compliance with all terms and conditions of such Environmental Permits, except where failure to obtain such Environmental Permits, maintain such Environmental Permits in good standing or be in compliance with such Environmental Permits could not reasonably be expected to have a Material Adverse Compliance Effect. (c) The Company and its Subsidiaries have received no notice that any of their present Property or operations is subject to any outstanding written order from or agreement with any Governmental Authority or other Person, nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material that could reasonably be expected to, individually or in the aggregate, have a Material Adverse Compliance Effect. (d) There are no conditions or circumstances which may give rise to any Environmental Claim arising from the operations of the Company or its Subsidiaries, including Environmental Claims associated with any operations of the Company or its Subsidiaries which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Compliance Effect. 5.13 Regulatory Entities. None of the Company, any Person controlling the ------------------- Company, or any Subsidiary of the Company, is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 5.14 No Burdensome Restrictions. Neither the Company, nor any of its -------------------------- Subsidiaries is a party to or bound by any Contractual Obligation or subject to any charter or corporate restriction or any Requirement of Law which could reasonably be expected to have a Material Adverse Compliance Effect. 5.15 Solvency. The Company is Solvent. The Company and its Consolidated -------- Subsidiaries, on a consolidated basis, are Solvent. 5.16 Labor Relations. As of the Closing Date there are no strikes, lockouts --------------- or other labor disputes against the Company or any of its Subsidiaries, or, to the best of the Company's knowledge, threatened against or affecting the Company or any of its Subsidiaries, and no significant unfair labor practice complaint is pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against any of them before any Governmental Authority. After the Closing Date, except as could not be reasonably expected to have a Material Adverse Compliance Effect individually or in the aggregate, there are no strikes, lockouts or other labor disputes against the Company or any of its Subsidiaries, or, to the best of the Company's knowledge, threatened against or affecting the Company or any of its Subsidiaries, and no significant unfair labor practice complaint is pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against any of them before any Governmental Authority. 5.17 Intellectual Property Matters. Except as set forth in Schedule 5.17 to ----------------------------- ------------- the Disclosure Letter, the Company or any of its Subsidiaries own or are licensed or otherwise have the right to use (or could obtain ownership of licenses or rights on terms not materially adverse to such Person and under circumstances that could not reasonably be expected to have a Material Adverse Compliance Effect) all of the patents, trademarks, service marks, trade names, copyrights, other intellectual property rights and licenses to any of the foregoing, that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person except where such conflict could not be reasonably expected to have a Material Adverse Compliance Effect. To the best of the Company's knowledge, except as set forth on Schedule 5.17 to the Disclosure Letter, as of the Closing Date there is no ------------- claim or litigation regarding any of the foregoing pending or threatened, and no patent, invention, device, application or principle is pending or proposed, which, in either case, could reasonably be expected to result in a Material Adverse Compliance Effect. 5.18 Subsidiaries. As of the Closing Date, the Company has no Subsidiaries ------------ other than those listed on Schedule 5.18(a) to the Disclosure Letter and has no ---------------- equity investments or minority interests in any other corporation or entity in excess of 5% thereof other than those listed on Schedule 5.18(b) to the Dis- ---------------- closure Letter. As of the Closing Date, the Material Subsidiaries are as listed on Schedule 5.18(c) to the Disclosure Letter. ---------------- 5.19 Broker's; Transaction Fees. Neither the Company nor any of its -------------------------- Subsidiaries has any obligation to any Person in respect of any finder's, broker's or investment banker's fee in connection with the transactions contemplated hereby. 5.20 Insurance. The properties of the Company and its Subsidiaries are --------- insured with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 5.21 Internal Control. The Company has established and maintains reasonable ---------------- internal controls and reporting systems designed to insure that Responsible Officers will be promptly informed of all material financial, operational and compliance matters relevant to compliance with the provisions of the Loan Agreements. 5.22 Full Disclosure. The documents, certificates and written statements --------------- (including the Loan Documents) furnished by the Company to the Agent or any Bank pursuant to any provision of any Loan Agreement, or for use in connection with the transactions contemplated by any Loan Agreement, taken together with all such documents, certificates and written statements, do not contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading; provided, however, that -------- ------- (a) it is recognized by the Agent and the Banks that projections and forecasts provided by the Company, while reflecting the Company's good faith projections or forecasts based upon methods and data the Company believes to be reasonable and accurate, are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results and (b) nothing contained in this Section 5.22 shall in any way impair the Agent's and the Banks' right to declare and enforce an Event of Default under subsection 8.1(c) if any representation or warranty by the Company in any Loan Document shall prove to be incorrect in any material respect on or as of the date made or deemed made. ARTICLE VI AFFIRMATIVE COVENANTS --------------------- So long as any Bank shall have any Commitment hereunder, or any Loan, interest, fee or Miscellaneous Payment Amount owing shall remain unpaid, unless the Majority Banks waive compliance in writing: 6.1 Financial Statements. The Company shall deliver to the Agent, with -------------------- copies for each Bank: (a) as soon as available, but not later than 95 days after the end of each fiscal year of the Company, a copy of the audited consolidated balance sheet of the Company as at the end of such year and the related consolidated statements of operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous year, and accompanied by the unqualified opinion of Price Waterhouse or another nationally recognized independent public accounting firm which report shall state that such consolidated financial statements present fairly, in all material respects, the financial position for the periods indicated in conformity with GAAP; (b) as soon as available, but not later than 95 days after the end of each fiscal year of the Company, an unaudited consolidating balance sheet of the Company and each of its Subsidiaries as at the end of such fiscal year and the related consolidating statement of operations, shareholders' equity and cash flows for such fiscal year, all in reasonable detail, together with a certificate by an appropriate Responsible Officer in the form of Exhibit ------- 6.1(b); and ------ (c) as soon as available, but not later than 50 days after the end of each of the first three fiscal quarters of each year a copy of the unaudited consolidated balance sheet of the Company as of the end of such quarter and the related consolidated statements of income, and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by an appropriate Responsible Officer as being, in all material respects, complete and correct and fairly presenting, in accordance with GAAP, the consolidated financial position and the results of operations of the Company and the Company's Consolidated Subsidiaries, subject only to normal year end adjustments and the absence of footnotes. 6.2 Certificates; Other Information. The Company shall furnish to the Agent ------------------------------- with sufficient copies for each Bank: (a) concurrently with the delivery of the financial statements referred to in subsections 6.1(a) and (c) above, a compliance certificate of a Responsible Officer in the form of Exhibit 6.2(a) hereto; -------------- (b) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as the Company sends to its public stockholders generally, copies of all final registration statements on Form S-1 or Form S-3 (without exhibits) or their successor forms relating to offerings of debt or equity securities on behalf of the Company, and copies of all Form 10-K's, Form 10-Q's, and Form 8-K's or their successor forms, and all amendments to such forms, that the Company files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (c) promptly upon receipt thereof by the Company, a copy of the final management letter, if any, submitted by the Company's independent accountants in connection with any annual audit made by them of the books of the Company and its Subsidiaries; and (d) promptly, such additional financial and other information as the Agent, at the request of any Bank, may from time to time reasonably request, including any changes in accounting practices or procedures, subject to the second proviso of Section 6.9 hereof. 6.3 Notices. The Company shall notify the Agent and each Bank: ------- (a) promptly of the occurrence of any Default or Event of Default or of any event or circumstance that forseeably will result in a Default or Event of Default; (b) promptly after any Responsible Officer becomes aware thereof, of any (i) breach or non-performance of, or any default under any Contractual Obligation of the Company or any of its Material Subsidiaries which could reasonably be expected to result in a Material Adverse Compliance Effect; or (ii) dispute, litigation, investigation, proceeding or suspension which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority which, if adversely determined, could reasonably be expected to have a Material Adverse Compliance Effect; (c) promptly after any Responsible Officer becomes aware thereof, of the commencement of, or any material and adverse pre-trial judicial or administrative determination in, any litigation or proceeding affecting the Company or any of its Subsidiaries (i) in which the amount of damages claimed is $5,000,000 (or its equivalent in another currency or currencies) or more, (ii) in which injunctive or similar relief is sought and which, if adversely determined, could reasonably be expected to have a Material Adverse Compliance Effect, or (iii) in which the relief sought is an injunction or other stay of the performance of this Agreement or any Loan Document or the operations of the Company or any of its Subsidiaries; (d) promptly upon, but in no event later than ten days after, a Responsible Officer becomes aware thereof of any of the following which if adversely determined could have a Material Adverse Compliance Effect, of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Company or any Subsidiary of the Company or any of their properties pursuant to any applicable Environmental Laws, (ii) all other Environmental Claims, and (iii) any environmental or similar condition on any real Property adjoining or in the vicinity of the Property of the Company or any Subsidiary of the Company that could reasonably be anticipated to cause such Property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such Property under any Environmental Laws; (e) promptly of any other litigation or proceeding affecting the Company or any of its Subsidiaries which the Company would be required to report to the Securities and Exchange Commission pursuant to the Exchange Act, within four days after reporting the same to the Securities and Exchange Commission; (f) promptly of any ERISA Event affecting the Company or any member of its Controlled Group (but in no event more than 20 days after such ERISA Event) and (i) a copy of any notice with respect to such ERISA Event that may be required to be filed with the PBGC (within 20 days following the required filing date) and (ii) any notice delivered by the PBGC to the Company or any member or its Controlled Group with respect to such ERISA Event (within 20 days after receipt of such notice); (g) promptly after any Responsible Officer becomes aware thereof, of any Material Adverse Compliance Effect subsequent to the date of the most recent audited financial statements of the Company delivered to the Banks pursuant to subsection 6.1(a); (h) promptly of (including, where applicable, a description of) (i) the placement of any Multiemployer Plan in reorganization status under Title IV of ERISA; or (ii) any Multiemployer Plan becoming "insolvent" (as such term is defined in Section 4245 of ERISA under Title IV of ERISA); (i) promptly after any Responsible Officer becomes aware thereof, of any labor controversy including any strike, work stoppage, boycott, shutdown or other labor disruption against or involving the Company or any of its Subsidiaries which has continued for more than 15 days; (j) promptly after any Responsible Officer becomes aware thereof, of the giving or receiving of any notices of prepayment, redemption, repurchase or default under the Note Agreement, the 1991 Indenture, the 1992 Indenture, the Note Purchase Agreement, or any agreement entered into by the Company or its Subsidiaries after the date hereof pursuant to which the Company is obligated in respect of debt for borrowed money aggregating in excess of $15,000,000 (in the case of any one such agreement); (k) promptly upon obtaining knowledge of any actual Change in Control or the execution by the Company of an agreement providing for a Change in Control; and (l) promptly after any Responsible Officer becomes aware thereof, of any transaction described in Section 7.3(b) hereof. Each notice pursuant to this Section shall be accompanied by a written certificate by a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company or the affected Subsidiary proposes to take with respect thereto. 6.4 Preservation of Corporate Existence, Etc. Except as otherwise permitted ---------------------------------------- by Section 7.2 or 7.3 hereof, the Company shall and shall cause each of its Material Subsidiaries to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its State or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all rights, privileges, qualifications, permits, licenses and franchises necessary or material to the normal conduct of its business, except where the failure to do so could not individually or in the aggregate be reasonably expected to have a Material Adverse Payment Effect; (c) use its reasonable efforts, in the ordinary course and consistent with past practice, to preserve its business and the goodwill of its business; and (d) preserve or renew all of its registered trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Payment Effect. 6.5 Maintenance of Property. Except as otherwise permitted by Section 7.2 ----------------------- or 7.3 hereof, the Company shall maintain, and shall cause each of its Subsidiaries to maintain in good working order and condition, all its Property which are material to the conduct of business by the Company or the Company and its Subsidiaries taken as a whole. 6.6 Insurance. The Company shall maintain, and shall cause each of its --------- Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage (including workers' compensation insurance, public liability and Property and casualty insurance and business interruption insurance) of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances (other than the Company's financial circumstances) by such other Persons. Upon request of the Agent, the Company shall furnish the Agent, with copies for each Bank, at reasonable intervals (but not more than once per calendar year) a certificate of a Responsible Officer of the Company (and, if requested by the Agent, any insurance broker of the Company) setting forth the nature and extent of all insurance maintained by the Company and its Subsidiaries in accordance with this Section 6.6 (and which, in the case of a certificate of a broker, were placed through such broker). 6.7 Payment of Obligations. The Company shall, and shall cause each of its ---------------------- Subsidiaries to, (a) timely prepare and file all reports and returns in respect of Federal, state, foreign and other income and franchise taxes and timely pay all amounts in accordance therewith, together with all additional amounts assessed by the applicable Governmental Authority in respect thereof, and (b) pay before they become delinquent, all other material taxes, assessments and governmental charges or levies imposed upon it or its Property; provided that -------- items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings as long as adequate reserves, to the extent required by GAAP, have been established and maintained and exist with respect thereto and, provided, further, that the contesting Person's right to ----------------- use any material Property is not materially adversely affected thereby. 6.8 Compliance with Laws. The Company shall comply, and shall cause each of -------------------- its Subsidiaries to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith, as to which a bona fide dispute may exist, or where the failure to so comply could not (a) impair or adversely affect the validity, binding effect or enforceability of any Loan Agreement, including any remedy set forth therein; (b) result, directly or indirectly, in any liability to the Agent or any Bank or cause the Agent or any Bank to violate any Requirement of Law; or (c) reasonably be expected to result in a material adverse effect upon the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole. 6.9 Inspection of Property and Books and Records. The Company shall -------------------------------------------- maintain and shall cause each of its Subsidiaries to maintain sound accounting policies and an adequate and effective system of accounts and internal accounting control that will safeguard assets, properly record income, expenses and liabilities, and assure the timely production of proper financial statements in accordance with GAAP consistently applied in all material respects. The Company shall permit, and shall cause each of its Subsidiaries to permit, any employee of, or any financial, legal, environmental or other professional consultant or advisor to, the Agent or any Bank, at the Agent's or such Bank's expense, to visit and inspect any of their respective properties, to examine all their respective corporate, financial and operating books and records and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, that when an Event of Default -------- ------- exists, the Agent or any Bank may visit, inspect, examine, make copies or abstracts of and discuss, at the expense of the Company such properties at any time during business hours and without advance notice; provided, further, -------- ------- however, that the Company and its Subsidiaries will not be required to disclose, - ------- permit the inspection, examination, copying or making extracts of, or discuss, any portion of, any document, or any information, in respect of which and to the extent that disclosure to the Agent or such Bank is then prohibited by law or by agreement binding on the Company or any Subsidiary of the Company and entered into between the Company or any such Subsidiary and any Person not an Affiliate of the Company and that was not entered into by the Company or such Subsidiary for the purpose of concealing information from the Agent, the Banks or other creditors having contract provisions similar to this Section in particular, and in respect of which (in the case of any such agreement) a Responsible Officer has provided the Agent with a certificate setting forth a brief description of the agreement (including, without limitation, the nature and purpose of the agreement, the parties to the agreement, and the provision of the agreement that prohibits such disclosure), provided, however, that if disclosure of the ----------------- existence of any agreement is prohibited by the provisions thereof, such certificate may state generally, with respect to such agreement, that there are agreements pertaining to the matter as to which information was requested which are binding on the Company or a Subsidiary and which prohibit disclosure of the existence thereof. The Company and its Subsidiaries shall use their reasonable efforts to obtain a waiver of any contractual prohibition provided the Banks execute a confidentiality agreement; provided, however, in no event shall the Company be required to disclose - ----------------- personnel records. Nothing set forth in this Section 6.9 shall in any way relieve the Company of its obligations to deliver documents pursuant to Section 6.1, 6.2(a) through (c) or 6.3 hereof. 6.10 Environmental Laws. ------------------ (a) The Company shall, and shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its Property in compliance with all Environmental Laws, except where the failure to do so could not reasonably be expected to, in the aggregate, have a Material Adverse Payment Effect. (b) At any time as there exists an Event of Default, upon the written request of the Majority Banks, the Company shall prepare and submit and cause each of its Subsidiaries to prepare and submit, to the Agent, with copies for each Bank, at the Company's sole cost and expense at reasonable intervals, an audit report in form and detail satisfactory to the Majority Banks, providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any disclosure required or made pursuant to subsection 6.3(d) or Section 5.12 and any other environmental, health or safety compliance obligation, remedial obligation or liability. 6.11 Use of Proceeds. The Company shall use the proceeds of the Loans solely --------------- to repay in full the Existing Facility and for working capital and other general corporate purposes not in contravention of any Requirement of Law; provided, -------- however, that the Company shall not directly or indirectly use the proceeds of - ------- the Loans for any purchase or other acquisition of voting stock or equity of any Person if (a) the purpose of such purchase or other acquisition is to effect a material change in the business, corporate or capital structure of such Person, or the Company intends to acquire in excess of 50% of the combined voting power of all then issued and outstanding voting stock of such Person or otherwise to acquire the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the board of directors of such Person, and (b) such purchase or other acquisition has not been approved by the board of directors (or other body exercising similar authority) of such Person. 6.12 Internal Controls. The Company will maintain reason-able internal ----------------- controls and reporting systems designed to insure that a Responsible Officer will be promptly informed of all material financial, operational and compliance matters relevant to compliance with the provisions of the Loan Agreements. 6.13 Subordinated Debt Notices. Promptly after the initial Borrowing ------------------------- hereunder, the Company shall send a written notice to the trustee under each of the 1991 Indenture, the 1992 Indenture, and any and all other trustees or creditors in respect of Subordinated Debt then outstanding, informing each such Person that the Company has incurred "Senior Indebtedness" (or equivalent term, as defined in such Indentures) pursuant to this Agreement. At any time as there exists an Event of Default hereunder, the Company shall immediately upon the receipt of a notice of default from the Agent, together with the request by the Agent at the request of Banks holding in the aggregate the amount of "Senior Indebtedness" (or equivalent term) as is necessary under the applicable Subordinated Debt documentation to issue such notices, send by the most expeditious means available written notices in the form specified by, and in accordance with, Section 4.05 of the 1991 Indenture and the 1992 Indenture (or other, equivalent, section under other applicable documentation) to such trustee or other Person, and to all other Persons entitled to such notice pursuant to the terms of such indenture, with a copy to the Agent. If the Company shall fail to deliver any of the foregoing notices required by this Section 6.13, the Company irrevocably authorizes the Agent to prepare, execute and deliver a notice substantially in the form of Exhibit 6.13 (or in such other form as may ------------ be appropriate to such indenture). ARTICLE VII NEGATIVE COVENANTS ------------------ So long as any Bank shall have any Commitment hereunder, or any Loan, interest, fee or Miscellaneous Payment Amount owing shall remain unpaid, unless the Majority Banks waive compliance in writing: 7.1 Limitation on Liens. The Company shall not, nor shall it suffer or ------------------- permit any of its Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien (including any Lien granted pursuant to paragraph 5C of the Note Agreement) upon or with respect to any part of its Property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"): - ----------------- (a) any Lien (i) identified on Schedule 7.1, provided, that to the ------------ -------- extent such Lien shall attach to receivables of the Company or a Subsidiary (other than as proceeds of other collateral), such Lien shall be subject to subsection 7.1(q), (ii) arising in connection with the Agreement dated as of September 1991 between the Company and Olivetti Finfactoring SpA, providing for the factoring by Olivetti of receivables of the Company and its Subsidiaries, provided, that the aggregate principal amount secured by any -------- such Lien shall not at any time exceed the Italian Lire equivalent of $5,000,000 plus accrued interest, and (iii) (A) arising under paragraph 5C of the Note Agreement (as in effect on the date hereof, without regard for any future amendments thereof) securing the notes issued pursuant thereto and (B) arising under paragraph 4C of the Note Purchase Agreement (as in effect on the date hereof, without regard for any future amendments thereof) securing the notes issued pursuant thereto; (b) any Lien created under any Loan Document; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 6.7, provided that no Notice of Lien has been filed or recorded; (d) Liens incurred or deposits made in the ordinary course of business, (i) in respect of leases, statutory obligations or claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons that are not yet due or that are being actively contested in good faith by appropriate proceedings, and in respect of which adequate reserves are carried on the books of the Person liable therefor to the extent required by GAAP, (ii) in connection with workers' compensation, unemployment insurance, social security and other like laws (other than ERISA), (iii) to secure the performance of letters of credit used in place of performance bonds, bids, leases, tenders, sales contracts, statutory obligations, government contracts, surety and performance bonds and other similar obligations not incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property, (iv) incidental to the conduct of the Company's business or ownership of its Property, provided that, -------- (A) such obligations shall not have arisen in connection with the borrowing of money, the obtaining of advances or credit, the sale of accounts receivable or the payment of the deferred purchase price of Property, and (B) such Liens shall not in the aggregate materially detract from the value of the Property encumbered thereby or materially interfere with the use of such Property in the ordinary conduct of the owning Person's business. (v) which constitute purchase money security interests with respect to advances or the payment of deferred purchase price in connection with the purchase of goods and services in the ordinary course of business, provided that, at the time any such security -------- interest is created, the Company or the Company's Subsidiary intends to pay the amount secured thereby within 180 days after such creation, provided, further, that any such security interest runs in favor of the -------- ------- provider of such goods or services and is not part of a floor plan financing arrangement or any other arrangement with any Person that is primarily in the business of making loans or extending other financial accommodations, or (vi) which constitute Liens with respect to conditional sale or other title retention agreements and any lease in the nature thereof, provided that any such Lien with respect to conditional sales or other -------- title retention agreements encumbers only Property and accretions thereto (and proceeds arising from the disposition thereof) which are subject to such conditional sale or other title retention agreement or lease in the nature thereof and, provided, further, that the aggregate ----------------- amount secured by all such conditional sale or other title retention agreements and leases in the nature thereof shall not be more than $5,000,000 (it being understood that additional amounts may be so secured if permissible under any other provision of this Section 7.1); (e) reservations, exceptions, encroachments, ease-ments, rights-of-way, covenants, conditions, restrictions and other similar title exceptions or encumbrances affecting real Property, provided such Liens do not interfere -------- with the use of such Property in the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (f) Liens on Property of a Subsidiary of the Company to secure obligations of such Subsidiary to the Company or another Subsidiary of the Company; (g) Liens with respect to Capitalized Lease Obligations and financing leases (together with any related interest), provided that such Liens -------- encumber only Property and accretions thereto (and proceeds arising from the disposition thereof) acquired with the proceeds of the indebtedness secured thereby; (h) leases and subleases of, and licenses and sublicenses with respect to, Property where the Company or a Subsidiary of the Company is the lessor or licensor (or sublessor or sublicensor), provided that such leases, -------- subleases, licenses and sublicenses do not in the aggregate materially interfere with the business of the Company and its Subsidiaries taken as a whole; (i) (i) Liens to secure appeal bonds, supersedeas bonds and other similar Liens arising in connection with court proceedings (including, without limitation, surety bonds and letters of credit) or any other instrument serving a similar purpose, provided that the aggregate amount -------- so secured, together with the aggregate amount secured pursuant to clause (ii) below, shall not at any time exceed $5,000,000 (it being understood that additional amounts may be so secured if permissible under any provision of this Section 7.1), (ii) attachments, judgments and other similar Liens arising in connection with court proceedings, provided that the execution or other -------- enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings and, provided, further, that the aggregate amount so ----------------- secured, together with the aggregate amount secured pursuant to clause (i) above, shall not exceed $5,000,000 (it being understood that additional amounts may be so secured if permissible under any other provision of this Section 7.1); (j) Liens on the Property of any corporation at the time such corporation becomes a Subsidiary of the Company, or such corporation is acquired by, consolidated with or merged into the Company or a Subsidiary of the Company, and Liens on any Property at the time acquired by the Company or a Subsidiary of the Company, provided, in each case, that such Lien was not -------- incurred in contemplation of such transaction; (k) any Lien permitted by this Section 7.1 securing Debt that is being renewed, extended or refunded, provided that the principal amount of such -------- Debt outstanding at the time of such renewal, extension or refunding is not increased and such Lien is not extended to any other Property (other than pursuant to its original terms); (l) Purchase Money Mortgages, provided that each such Purchase Money -------- Mortgage secures an amount not exceeding 100% of the lesser of the cost (including liabilities assumed) or the fair market value at the time of acquisition or construction of the Property to which it relates (as determined in good faith by the Board of Directors); (m) Liens consisting of an agreement to file or give a financing statement set forth in operating leases (it being understood that, upon the filing of any such financing statement, the Lien created thereby must be permissible under another provision of this Section 7.1); (n) Liens which constitute rights of set-off of a customary nature or bankers' Liens with respect to amounts on deposit, whether arising by operation of law or by contract, in connection with working capital facilities, lines of credit, term loans, or other credit facilities and similar arrangements entered into with banks in the ordinary course of business; (o) Liens on inventory, if any, arising in connection with any arrangement pursuant to which the Company or a Subsidiary agrees to repurchase inventory from a customer or a third party providing financing to a customer, with respect to an aggregate amount of Debt of up to $30,000,000 at any time; (p) Liens with respect to shares of capital stock of Arcada Holding such as restrictions on transfer, rights of first refusal and similar restrictions as contemplated by the Arcada Letter of Intent; and (q) Liens not otherwise permitted by this Section 7.1 on Property of the Company or any Subsidiary of the Company; provided that, as of each -------- Determination Date, the amount of (i) all Debt secured by Liens permitted only by this subsection 7.1(q), plus ---- (ii) all Debt of Subsidiaries of the Company (other than Debt owed by a Subsidiary of the Company to the Company or another Subsidiary of the Company) and all Preferred Stock of the Company's Subsidiaries (other than such Preferred Stock owned by the Company or another Subsidiary of the Company), plus ---- (iii) the Sale/Leaseback Transaction Amount, (without duplication) does not exceed 20% of Tangible Net Worth, in each case determined as of such Determination Date; and further provided that such ------- -------- Liens do not secure indebtedness for borrowed money loans or advances (which should not be deemed to include receivables factoring). 7.2 Dispositions of Assets. The Company shall not, nor shall it permit any ---------------------- of its Subsidiaries to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) (collectively, "Transfers") any of its assets, business or Property (including --------- accounts and notes receivable (with or without recourse) and equipment sale- leaseback transactions) or enter into any agreement to do any of the foregoing except: (a) Transfers of inventory, or used, worn-out or surplus Property, all in the ordinary course of business; (b) Transfers of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; (c) Transfers in the ordinary course of business; (d) Transfers to the Company or any of its Subsidiaries; (e) Transfers which (i) constitute dispositions of cash or Cash Equivalents not prohibited by this Agreement, (ii) constitute Investments which are permitted under Section 7.4 hereof, or (iii) constitute the liquidation of any Permitted Investment; and (f) any other Transfers if all of the following conditions shall have been satisfied: (i) the sum (without duplication) of (A) the net book value of such Property on the date of the transfer (the "Asset Disposition Date"), expressed as a percentage of ---------------------- Consolidated Assets on the Determination Date most recently preceding the Asset Disposition Date, plus (B) the net book value of each other item of Property of the Company and its Subsidiaries that was Transferred pursuant to this subsection 7.2(f) (including, without limitation, a Transfer by merger or consolidation) ("Transferred Property"), during the period ending on -------------------- the Asset Disposition Date and commencing on the first day of the period of 12 consecutive calendar months most recently ended as of the Asset Disposition Date (the "Annual Disposition Measurement Period") (stock of ------------------------------------- the Company's Subsidiaries being deemed to have a net book value equal to the net book value of all assets of the issuer of stock in such Sub- sidiary at such time, or the appropriate portion thereof if less than all stock of such Subsidiary is the subject of such Transfer), expressed in each case as a percentage of Consolidated Assets on the Determination Date most recently preceding the date of each such Transfer, minus (C) the aggregate net book value of all Property transferred pursuant to this subsection 7.2(f) during the Annual Disposition Measurement Period to the extent that the net proceeds arising therefrom have been either reinvested in the business of the Company and the Company's Subsidiaries or applied to, or irrevocably committed to make, prepayments of Senior Debt within the period of 12 consecutive months after the respective Transfers of such Property pursuant to this subsection 7.2(f), such aggregate net book value (or the portion thereof corresponding to the portion of such net proceeds so applied or to be so applied) being expressed as a percentage of Consolidated Assets determined on the Determination Date most recently preceding the date of each such Transfer; provided, that any such net proceeds spent for operating expenses or principal, premium or interest in respect of Debt or held in deposit accounts or otherwise as short term investments shall not be deemed to have been reinvested in the business of the Company and the Company's Subsidiaries; provided, further, that such percentage shall not, in any event, exceed 10%; will not exceed 15%; (ii) the sum (without duplication) of (A) the Cash Flow Contribution of such Property during the period of four consecutive fiscal quarters of the Company most recently ended prior to the Asset Disposition Date (the "Four Quarter Period"), plus ------------------- (B) the Cash Flow Contribution of each other item of Transferred Property during the Annual Disposition Measurement Period, such Cash Flow Contribution for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the transfer of such Property, minus (C) the Cash Flow Contribution of all Property transferred by the Company and the Company's Subsidiaries during the Annual Disposition Measurement Period to the extent that the net proceeds arising therefrom have been either reinvested in the business of the Company and the Company's Subsidiaries or applied to, or irrevocably committed to make prepayments of Senior Debt within the period of 12 consecutive months after the respective transfers of such Property pursuant to this subsection 7.2(f), such Cash Flow Contribution (or the portion thereof corresponding to the portion of such net proceeds so applied or to be so applied) for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the disposition of such Property, provided, that any such net proceeds spent for operating expenses or principal, premium or interest in respect of debt or held in deposit accounts or otherwise as short term investments shall not be deemed to have been reinvested in the business of the Company or the Company's Subsidiaries; provided, further, that the Cash Flow Contribution of all such Property shall not, in any event, exceed 10% of Consolidated Operating Cash Flow during the Four Quarter Period, will not exceed 15%; (iii) the sum (without duplication) of (A) the net book value of such Property on the Asset Disposition Date, expressed as a percentage of Consolidated Assets on the Determination Date most recently preceding the Asset Disposition Date, plus (B) the net book value of each other item of Property of the Company and the Company's Subsidiaries that was transferred pursuant to this subsection 7.2(f) (including, without limitation, a transfer by merger or consolidation), during the period ending on the Asset Disposition Date and commencing on the first day of the period of 36 consecutive calendar months most recently ended as of the Asset Disposition Date (the "Three Year Disposition Measurement Period") ----------------------------------------- (stock of a Subsidiary of the Company being deemed to have a net book value equal to the net book value of all assets of the issuer of such stock, or the appropriate portion thereof if less than all stock of such Subsidiary is the subject of such Transfer), expressed in each case as a percentage of Consolidated Assets on the Determination Date most recently preceding the date of each such transfer, will not exceed 40%; (iv) the sum (without duplication) of (A) the Cash Flow Contribution of such Property during the Four Quarter Period, plus (B) the Cash Flow Contribution of all other Property of the Company and the Company's Subsidiaries that was transferred pursuant to this subsection 7.2(f) (including, without limitation, a Transfer by merger or consolidation) during such Three Year Disposition Measurement Period, such Cash Flow Contribution for any particular Property being measured for the period of four consecutive fiscal quarters of the Company most recently ended prior to the disposition of such Property, will not exceed 40%; (v) with respect to any Transfer, or series of related Transfers, of Property pursuant to this subsection 7.2(f) for consideration in an amount which is at least equal to the sum of $25,000,000 plus 5% of the amount, if any, by which Consolidated Assets, determined as of the most recent Determination Date at the time of such transfer, exceeds Consolidated Assets, determined as of December 31, 1992, in the opinion of the Board of Directors, the sale is for fair market value and is in the best interests of the Company and the Company's Subsidiaries; and (vi) immediately prior to, and immediately after the consummation of the transaction, and after giving effect thereto, no Default or Event of Default exists or would exist under any provision of this Agreement. If the Company shall make any Transfer which would be prohibited by this Section 7.2 but for the deduction provided for in subclause (C) of clause (i) or (ii) of subsection (f), the Company shall be deemed to have covenanted that the net proceeds from such Transfer shall be reinvested in the business of the Company and the Company's Subsidiaries (subject to the limitations of the first proviso to such subclause) or applied to, or irrevocably committed to make prepayments of Senior Debt within the period of 12 consecutive months after such Transfer. 7.3 Consolidations and Mergers. -------------------------- (a) The Company shall not, and shall not suffer or permit any of its Subsidiaries to, merge, consolidate with or into, nor shall the Company convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person except (i) any Subsidiary of the Company (other than a Subsidiary created for such purpose) may merge, consolidate or combine with or into, the Company (provided that the Company shall be the continuing or surviving corporation) or with any one or more Subsidiaries of the Company (provided that if any transaction shall be between a -------- Subsidiary of the Company and a Wholly-Owned Subsidiary of the Company, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation) and (ii) as expressly permitted in subsection 7.3(b). (b) The Company shall not, and shall not permit its Subsidiaries to, do any of the following, or enter into any agreement or make any offer to do any of the following: (i) merge or consolidate with or into any Person other than the Company or a Subsidiary of the Company, or (ii) purchase or otherwise acquire, directly or indirectly, all or substantially all of the assets of any Person, business or division other than of or from the Company or a Subsidiary of the Company, or (iii) purchase or otherwise acquire, directly or indirectly, in excess of 50% of the voting stock or equity of any Person other than a Subsidiary of the Company; provided that the Company and its Subsidiaries may so -------- merge (provided, in the case of the Company, that the Company is the surviving corporation), and may enter into agreements, make offers and engage in the transactions described in clauses (ii) and (iii) of this subsection if: (A) the amount of all cash consideration payable by the Company or any such Subsidiary (other than to the Company or a Wholly-Owned Subsidiary of the Company), when added to the amount of all cash consideration paid by the Company and all of its Subsidiaries for all prior transactions undertaken after the Closing Date which would not be permitted under this subsection 7.3(b) but for this proviso, is not greater than the greater of $25,000,000 and fifteen percent (15%) of the Company's Tangible Net Worth as of the end of the fiscal quarter immediately preceding the closing of any such transaction, (B) the amount of all consideration payable (including by assumption of liabilities and the fair market value of Property other than cash paid, including any consideration paid in the form of equity) by the Company or any such Subsidiary (other than to the Company or a Wholly-Owned Subsidiary of the Company), when added to the amount of all consideration paid or assumed by the Company and all of its Subsidiaries for all prior transactions undertaken after the Closing Date which would not be permitted under this subsection 7.3(b) but for this proviso, is not greater than $100,000,000, (C) such other Person is in the same line of business as the Company and its Subsidiaries or provides vertical integration for such line of business, and (D) at such time and immediately after giving effect thereto, no Default or Event of Default would exist. 7.4 Loans and Investments. The Company will not and will not permit any of --------------------- its Subsidiaries to purchase or make investments in, purchase stock or securities of, or make loans or advances to, or make other investments in, or guarantee the obligations of, any other Person (including investments in or loans or advances to any corporation proposed to be acquired or created as a Subsidiary) (all of the foregoing referred to as "Investments", and all of the ----------- below-listed investments referred to as "Permitted Investments") except: --------------------- (a) obligations of, or obligations guaranteed by (or insured by), the United States government, its agencies, or any public instrumentality thereof with maturities not to exceed (or an unconditional right to compel purchase within) seven years from the date of acquisition; (b) Investments in or to the Company or its Subsidiaries and Investments in or to companies which simultaneously with such Investments become Subsidiaries of the Company, and guarantees by the Company of the obligations of its Subsidiaries and guarantees by Subsidiaries of the Company of obligations of the Company or other Subsidiaries of the Company; (c) commercial paper or loan participations maturing within seven years of the date of acquisition issued by or granting participations in obligations of a Person organized under the laws of the United States, Canada, a country that is a member of the European Community, Singapore, Taiwan, Malaysia or Japan, rated at the time of acquisition (or issued by or granting participations in obligations of Persons organized under the laws of such jurisdiction with other outstanding unsecured and unsupported debt securities ranking pari passu with such commercial paper or loan participations and rated at the time of acquisition) in the top rating classification by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community at the time of acquisition thereof; (d) Investments arising from transactions by the Company or its Subsidiaries with customers or suppliers (including Investments received in settlement of trade receivables which trade receivables are fully reserved against on the books of the Company or such Subsidiary or are less than one year overdue) in the ordinary course of business; (e) Investments consisting of: (i) travel advances, employee relocation loans, and other employee loans and advances in the ordinary course of business, (ii) loans to employees, officers or directors relating to the purchase of equity securities of the Company or its Subsidiaries, or (iii) other loans to officers and employees approved by the Board of Directors in an aggregate amount not in excess of $10,000,000 outstanding at any time; (f) operating deposit accounts maintained in the ordinary course of business for operating fund purposes; (g) securities issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof with maturities not to exceed (or an unconditional right to compel purchase within) seven years of the date of acquisition, that are rated in one of the highest two rating classifications by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States; (h) demand and time deposits with, Eurodollar deposits with, certificates of deposit issued by, or obligations or securities fully backed by letters of credit issued by (i) any bank organized under the laws of the United States, any state thereof, the District of Columbia or Canada having combined capital and surplus aggregating at least $100,000,000, and outstanding unsecured and unsupported debt rated "A" or better at the time of acquisition thereof by Standard and Poor's Corporation, Moody's Investor Service, Inc., Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community, (ii) the banks listed in Schedule 7.4(h), or --------------- (iii) any other bank organized under the laws of a country that is a member of the European Community (or any political subdivision of any such country), Japan, Singapore, Taiwan, Malaysia, the Cayman Islands, the British West Indies or the Bahamas, having combined capital and surplus of not less than $500,000,000 or the equivalent thereof in a currency other than United States dollars. (the banks described in the foregoing subclauses (i) to (iii), inclusive, being referred to in this Agreement as "Permitted Banks"); --------------- (i) bankers' acceptances accepted by a Permitted Bank and eligible for rediscount under the requirements of the Board of Governors of the Federal Reserve System; (j) repurchase agreements with any of: (i) the Permitted Banks, (ii) Alex. Brown & Sons Incorporated, Bear, Stearns & Co., Dean Witter Reynolds Inc., The First Boston Corporation, Goldman Sachs & Co., J.P. Morgan Securities, Inc., Kidder, Peabody & Co., Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Paine Webber Incorporated, Salomon Brothers, Inc., Shearson Lehman Hutton, Inc., Smith Barney, Harris Upham & Co., Incorporated, or their successors, or (iii) any other bank or securities dealer of a similar quality approved by a Responsible Officer, or (iv) any Affiliate of the foregoing, such repurchase agreements to be (at the time entered into) fully collateralized by securities of a type described in subsection (a), (c), (g) or (h) above, in each case made in accordance with the Company's internal investment policy in effect at such time; (k) Investments in money market programs that would be classified on the balance sheet of the investing Person as a current asset in accordance with generally accepted accounting principles, which money market programs have total invested assets in excess of $1,000,000,000; (l) Investments in money market preferred stocks or other equivalent Dutch-auction preferred stock of any corporation maturing within one year of the date of acquisition thereof and with a credit rating at the time of acquisition thereof of "AA+" or "aa1" or better (or a comparable rating) by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community; (m) notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers in the ordinary course of business so long as such notes, prepaid royalties or other credit extensions are due within one year of the date of acquisition thereof or cover no more than a reasonable estimate of one year's obligations to such customers or suppliers, as the case may be; (n) Rate Contracts entered into in the ordinary course of business so long as, at the time any such transaction shall be entered into, the counterparty in such transaction is one of the Banks or has outstanding debt securities rated "A2" or better, or "A" or better (or a comparable rating), by Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps Inc. or any other rating agency nationally recognized in the United States, Japan or any country which is a member of the European Community; (o) guarantees by the Company and its Subsidiaries of the obligations of Subsidiaries of the Company and of vendors and suppliers of such Subsidiaries or the Company, in each case in respect of transactions of such Subsidiaries entered into in the ordinary course of business of such Subsidiaries and such vendors and suppliers and directly related to the business conducted by such vendors and suppliers with such Subsidiaries or the Company, as the case may be; (p) Investments existing on the Closing Date listed on Schedule 7.4(p); --------------- and other Investments existing on the Closing Date not in excess, in the aggregate, of $20,000,000; and (q) Investments not otherwise permitted by the other provisions of this Section 7.4, if, on the date of the making of any such Investment, and after giving effect to such Investment, the sum of (i) the difference between (A) the aggregate cost of all Investments outstanding on such date made pursuant to this subsection 7.4(q), minus (B) the net return of capital received by the Company and its Subsidiaries on or prior to such date from all Investments made pursuant to this subsection 7.4(q) during the period commencing on the Closing Date and ending on such date, plus (ii) the aggregate amount of Restricted Payments made pursuant to clause (iv) of subsection 7.8(a) (and not otherwise permitted under subsection 7.8(a)) during the period commencing on the Closing Date and ending on such date, does not exceed 15% of Tangible Net Worth on such date. No Investments can be made pursuant to the provisions of subsection 7.4(q) of this Agreement during any period when a Default or Event of Default has occurred and is then continuing. Notwithstanding any provision in this Section 7.4 to the contrary, none of the following shall constitute "Investments" for purposes of this Section 7.4: (i) Any distributions paid or made in respect of the stock of the Company or any Subsidiary of the Company (whether in cash, Property or stock of the Company or any such Subsidiary), or (ii) Any payments (whether in cash, Property or stock of the Company or any Subsidiary) to redeem, purchase or otherwise acquire any stock of the Company or any Subsidiary of the Company; provided, in each case, (A) that any such distribution or payment is otherwise permitted under the terms of this Agreement or consented to in writing by the Majority Banks, and (B) if any such distribution or payment is changed from the form in which it was received, it must comply with the provisions of this Section 7.4 or otherwise be consented to in writing by the Majority Banks. For purposes of the preceding sentence, the term "stock" shall include warrants, options and other rights to purchase stock. For purposes of calculating compliance with this covenant, with respect to any Investment denominated other than in Dollars, the equivalent in Dollars of any such other Investment on the last day of each fiscal quarter of the Company shall be deemed the amount of such Investment. 7.5 Limitation on Subsidiary Debt. The Company shall not, at any time, ----------------------------- suffer or permit any Subsidiary to create, incur or assume any Debt, or to issue any Preferred Stock unless, immediately after the creation, incurrence or assumption of such Debt, or the issuance of such Preferred Stock, and after giving effect thereto, the sum of (i) the Sale/Leaseback Transaction Amount, plus (ii) the amount of all Debt secured by Liens permitted only by subsection 7.1(q), plus (iii) all Debt of Subsidiaries of the Company (other than Debt owed by a Subsidiary to the Company or to another Subsidiary of the Company) and all Preferred Stock of the Subsidiaries of the Company (other than Preferred Stock of a Subsidiary owned by the Company or another Subsidiary of the Company) (without duplication) does not exceed 20% of Tangible Net Worth, in each case determined as of such time. 7.6 Transactions with Affiliates. The Company shall not and shall not ---------------------------- permit any of its Subsidiaries to enter into any transaction with any Affiliate of the Company or of any such Subsidiary except (a) in the ordinary course of business and pursuant to the reasonable requirements of the business of the Company or such Subsidiary and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary; (b) if (i) such transaction relates to the compensation of an Affiliate who is an officer, director or employee of the Company or any Subsidiary of the Company, then (ii) such transaction is in the best interests of the Company and its Subsidiaries, taken as a whole, (iii) such transaction has been approved by the board of directors of the Company or the Subsidiary, as applicable, and (iv) at the time of such transaction, the Company is required to file reports pursuant to Section 13 of the Exchange Act; or (c) transactions between the Company and a Subsidiary of the Company or between Subsidiaries of the Company. This Section 7.6 shall not apply to the transactions contemplated by the Arcada Letter of Intent. Purchases by the Company or any of its Subsidiaries of shares of outstanding capital of the Company's Subsidiary formed under the laws of China shall be deemed to comply with this Section 7.9 so long as the Company or such Subsidiary pays fair value for such shares, as determined by the Board of Directors of the Company. 7.7 Compliance with ERISA. The Company shall not directly or indirectly and --------------------- shall not permit any ERISA Affiliate directly or indirectly to, (i) terminate any Plan subject to Title IV of ERISA so as to result in any material (in the opinion of the Majority Banks) liability to the Company or any ERISA Affiliate, (ii) permit to exist any ERISA Event or any other event or condition, which presents the risk of a material (in the opinion of the Majority Banks) liability of the Company or any ERISA Affiliate, or (iii) make a complete or partial withdrawal (within the meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in any material (in the opinion of the Majority Banks) liability to the Company or any ERISA Affiliate, (iv) enter into any new Plan or modify any existing Plan (except in the ordinary course of business consistent with past practice) which could create Unfunded Pension Liabilities with respect to such Plan in an amount which exceeds $30,000,000, or (v) permit the Unfunded Pension Liabilities under any Plan to exceed $30,000,000. 7.8 Restricted Payments. ------------------- (a) The Company shall not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock or purchase, redeem or otherwise acquire for value (or permit any of its Subsidiaries to do so) any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding (collectively, Restricted Payments"); ------------------- except that (i) the Company may declare and make dividend payments or other - ----------- distributions payable solely in its capital stock, provided that immediately -------- after giving effect to any such proposed action, no Default or Event of Default would exist; (ii) any Subsidiary of the Company may declare and make dividend payments or other distributions of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock or redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, to or from the Company or to or from a Wholly-Owned Subsidiary of the Company; (iii) the Company or any of its Subsidiaries may purchase shares of preferred stock of Arcada Holdings at a cost not exceeding $6,000,000, plus accrued and unpaid dividends thereon, provided that immediately after giving effect to any such proposed action, no - -------- Default or Event of Default would exist; and (iv) the Company and its Subsidiaries may make such other Restricted Payments (other than the declaration or making by the Company of any dividend payment on account of any shares of any class of its capital stock) if, on the date of making such Restricted Payment, and after giving effect to such Restricted Payment, the sum of (A) the difference between (I) the aggregate cost of all Investments outstanding on the date of such Restricted Payment made pursuant to subsection 7.4(q), minus (II) the net return of capital received by the Company and its Subsidiaries on or prior to such date from all Investments made pursuant to subsection 7.4(q) during the period commencing on the Closing Date and ending on such date, plus (B) the aggregate amount of Restricted Payments made pursuant to this clause (iv) of subsection 7.8(a) (and not otherwise permitted under this subsection 7.8(a)) during the period commencing on the Closing Date and ending on such date, does not exceed 15% of Tangible Net Worth on such date, provided that -------- immediately after giving effect to any such proposed action, no Default or Event of Default would exist. (b) The Company shall not, and shall not permit any of its Subsidiaries to, make any payment of principal or redemption of Subordinated Debt, other than mandatory prepayments or mandatory redemptions scheduled at the time of issuance of such Subordinated Debt, or otherwise purchase or acquire any Subordinated Debt, directly or indirectly, or give any notice that irrevocably binds it to take any such action; provided, however, that as long as no Default or Event of Default -------- ------- shall exist immediately prior to, or immediately after, the consummation of any such action, the Company may refinance Subordinated Debt by issuing additional Subordinated Debt (the terms, conditions and provisions of which shall be approved by the Majority Banks in writing in advance) in an amount equal to or exceeding the amount required to redeem any Subordinated Debt. (c) The Company shall not, and shall not permit any of its Subsidiaries to, make any payment of principal or redemption of any notes issued under the Note Agreement or the Note Purchase Agreement, other than mandatory prepayments or mandatory redemptions scheduled at the time of issuance of such notes, or otherwise purchase or acquire any of such notes, directly or indirectly, or give any notice that irrevocably binds it to take any such action; provided, however, that as long as no Default or Event of Default shall exist immediately prior to, or immediately after, the consummation of any such action, the Company may refinance the indebtedness outstanding under the Note Agreement or the Note Purchase Agreement by issuing additional notes (the terms, conditions and provisions of which shall be approved by the Majority Banks in writing in advance) in an amount equal to or exceeding the amount required to redeem any such notes. 7.9 Modified Quick Ratio. The Company shall not at any time suffer or -------------------- permit its ratio (determined on a consolidated basis) of (a) cash plus the value of all Cash Equivalents (valued in accordance with GAAP), plus the amount of Eligible Receivables, net of any allowance for doubtful accounts, to (b) without duplication, (i) Consolidated Current Liabilities, plus (ii) Consolidated Senior Debt, plus (iii) Contingent Obligations of the Company and its Subsidiaries to the extent such obligations in the aggregate from time to time exceed $10,000,000, to be less than 1.20 to 1.00 during the period from the Closing Date through March 31, 1994, or to be less than 1.25 to 1:00 at any time thereafter. 7.10 Leverage Ratio. The Company shall not at any time suffer or permit the -------------- ratio of (a) Total Liabilities, less the aggregate principal amount outstanding under the 1991 Indenture and the 1992 Indenture as of the date of determination, to (b) Tangible Net Worth, plus the aggregate principal amount outstanding under the 1991 Indenture and the 1992 Indenture as of the date of determination, to be greater than 1.10 to 1.00. 7.11 Minimum Tangible Net Worth. The Company shall not suffer or permit its -------------------------- Tangible Net Worth as of the end of any fiscal quarter to be less than $115,000,000 plus (i) 75% of Consolidated Net Income from October 1, 1993 through the end of each fiscal quarter thereafter, determined quarterly on a consolidated basis and not reduced by any quarterly loss, plus (ii) 100% of the Net Proceeds of any sale of capital stock of the Company by or for the account of the Company, occurring on or after October 1, 1993, plus (iii) (without duplication) the amount by which the consolidated Tangible Net Worth of the Company is increased, in accordance with GAAP, due to conversions of Debt to equity occurring on or after October 1, 1993. 7.12 Losses in One Quarter. The Company, on a consolidated basis, shall not --------------------- incur or suffer or permit to be incurred in any fiscal quarter, beginning after September 30, 1993 (with the first computation being made as of December 31, 1993), an operating loss in excess of $40,000,000 or a net loss in excess of $40,000,000, all as determined in accordance with GAAP. 7.13 Losses in Two Consecutive Quarters. The Company, on a consolidated ---------------------------------- basis, shall not incur or suffer or permit to be incurred in any two consecutive fiscal quarters, beginning after September 30, 1993 (with the first computation being made as of March 31, 1994), treated as one fiscal period, an operating loss in excess of $25,000,000 or a net loss in excess of $25,000,000, all as determined in accordance with GAAP. 7.14 Change in Business. The Company shall not, and shall not suffer or ------------------ permit any of its Subsidiaries to, engage in any material respect in any business other than the development, manufacturing, distribution and sale of computer peripherals and computer peripheral components. 7.15 Accounting Changes. The Company shall not, and shall not suffer or ------------------ permit any of its Subsidiaries to, make any significant change in accounting treatment and reporting practices, except as required by GAAP, or change, suffer or permit to be changed the fiscal year of the Company or any of its Subsidiaries. 7.16 Indenture/Note Amendment. The Company shall not amend or agree to amend ------------------------ the Note Agreement or the Note Purchase Agreement, or the notes issued in connection with a refinancing of the Note Agreement or the Note Purchase Agreement pursuant to Section 7.8(c), to amend the repayment schedule with respect thereto so as to cause any principal amount thereof to be payable earlier than is provided on the date hereof. The Company shall not amend or agree to amend the 1991 Indenture or the 1992 Indenture, or any other documentation relating to Subordinated Debt, to amend the subordination provisions thereof, to amend the repayment schedule with respect thereto so as to cause any principal amount thereof to be payable earlier than is provided on the date hereof, or to amend any other provision in any manner adverse to the Banks. 7.17 Cessation of Business. The Company shall not voluntarily cease to --------------------- conduct its business, except short-term cessations in the ordinary course of business. ARTICLE VIII EVENTS OF DEFAULT ----------------- 8.1 Event of Default. Any of the following events shall constitute an ---------------- "Event of Default": ---------------- (a) Non-Payment. The Company fails to pay when due any amount of ----------- principal of any Loan, or fails to pay within three Business Days of the date when due, any interest on any Loan or any amount required by Section 2.10 hereof; (b) Non-Payment of Other Amounts. The Company fails to pay within ---------------------------- thirty (30) days of the date any Miscellaneous Payment Notice is given, any Miscellaneous Payment Amount; (c) Representation or Warranty. Any representation or warranty by the -------------------------- Company herein, or in any Loan Document, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (d) Specific Defaults. The Company fails to perform or observe any ----------------- term, covenant or agreement contained in Section 6.13 or Article VII hereof; or (e) Other Defaults. The Company fails to perform or observe any other -------------- term or covenant contained in this Agreement or any Loan Agreement, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date upon which a Responsible Officer of the Company knew or should have known of such failure or (ii) the date upon which written notice thereof has been given to the Company by the Agent or any Bank; or (f) Cross-Default. The Company or any of its Subsidiaries (i) fails to ------------- make any payment in respect of any Debt or Indebtedness having an aggregate principal amount (including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto; or (ii) fails to perform or observe any other condition or covenant or any other event shall occur or condition exist under any agreement or instrument relating to any such Debt or Indebtedness (in such aggregate principal amount), and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto if the effect of such event or condition is to cause, or to permit the holder or holders of such Debt or Indebtedness or beneficiary or beneficiaries of such Debt or Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Debt or Indebtedness to be declared to be due and payable prior to its stated maturity, or to be paid upon demand, or require the repurchase of such Debt or Indebtedness, or if in respect of an obligation that is contingent or unmatured, to compel the Company or such Subsidiary to deliver cash collateral (including in the form of Cash Equivalents) in an amount exceeding $10,000,000; provided, however, that no Event of Default shall ----------------- exist under this subsection 8.1(f) solely as a result of (A) the voluntary prepayment or redemptions of Debt or Indebtedness by the Company or any Subsidiary of the Company in the absence of any event of default thereunder, (B) reimbursement payments made in respect of any draws under letters of credit issued for the account of the Company or any such Subsidiary or payments made in satisfaction of guaranty obligations owing by the Company or any such Subsidiary, or (C) the acceleration of the Italian Debt; or (g) Cross-Acceleration. The Company fails to perform or observe any ------------------ payment obligation under any agreement or instrument of Indebtedness in favor of any Bank and such failure continues for a period of five Business Days after a written notice is delivered by such Bank (with a copy to the Agent) under this subsection 8.1(g), and in connection therewith: (i) such Bank has caused such agreement or instrument to be declared due and payable prior to its stated maturity; or (ii) if such agreement or instrument is an obligation specified in subclause (i) of the definition of "Indebtedness," such Bank shall have issued a notice of default due to non-payment of such obligation; or (iii) if such agreement or instrument is an obligation specified in subclause (c) of the definition of "Indebtedness," such Bank shall have issued a demand for cash collateralization in the case where such obligation has been drawn or the Company shall not have reimbursed such Bank in accordance with the terms of such obligation in the case where such obligation has been drawn; or (iv) if such agreement or instrument is a Rate Contract, following an event of default thereunder such Bank shall have issued a demand for payment of net obligations and the Company has not satisfied such demand on a timely basis; provided, however, that no Event of ----------------- Default shall exist under this subsection 8.1(g) solely as a result of the acceleration of the Italian Debt; or (h) Bankruptcy or Insolvency. (i) The Company is or becomes not ------------------------ Solvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; or (ii) the Company or any of its Subsidiaries (A) commences any Insolvency Proceeding or files any petition or answer in any Insolvency Proceeding; (B) acquiesces in the appointment of a receiver, trustee, custodian or liquidator for itself or a substantial portion of its Property, assets or business or effects a plan or other arrangement with its creditors; (C) admits the material allegations of a petition filed against it in any Insolvency Proceeding, or (D) takes any action to effectuate any of the foregoing; or (iii) the Company and its Subsidiaries on a consolidated basis are or become not Solvent; or (i) Involuntary Proceedings. Any involuntary Insolvency Proceeding is ----------------------- commenced or filed against the Company or any Subsidiary of the Company or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any of its Subsidiaries' assets and any such proceedings or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 consecutive days after commencement, filing or levy; or (j) ERISA. (i) The Company or an ERISA Affiliate shall fail to pay ----- when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under a Multiemployer Plan which could reasonably be expected to have a Material Adverse Payment Effect; (ii) the Company or an ERISA Affiliate shall fail to satisfy its contribution requirements under section 412(c)(11) of the Code, whether or not it has sought a waiver under Section 412(d) of the Code; (iii) in the case of an ERISA Event involving the withdrawal from a Plan of a "substantial employer" (as defined in section 4001(a)(2) or section 4062(e) of ERISA), the withdrawing employer's proportionate share of that Plan's Unfunded Pension Liabilities is more than $40,000,000; (iv) in the case of an ERISA Event involving the complete or partial withdrawal from a Multiemployer Plan by the Company or an ERISA Affiliate, there is incurred a withdrawal liability in an aggregate amount for the Company and all ERISA Affiliates of the Company exceeding $60,000,000; (v) in the case of an ERISA Event described in clause (d) or (f) of the definition of "ERISA Event," the Unfunded Pension Liabilities of the relevant Plan or Plans exceed $30,000,000; (vi) a Plan that is intended to be qualified under section 401(a) of the Code shall lose its qualification, and the loss could reasonably be expected to impose on the Company or an ERISA Affiliate liability (for additional taxes, to Plan participants, or otherwise) in the aggregate amount of $20,000,000 or more; (vii) the commencement or increase of contributions to, the adoption of, or the amendment of a Plan (excluding any amendment required to be made by ERISA, the Code or other applicable law) by, the Company or an ERISA Affiliate shall result in a net increase in Unfunded Pension Liabilities to the Company or an ERISA Affiliate in excess of $20,000,000; or (viii) the occurrence of any combination of events listed in clauses (iii) through (vii) that involves a net increase in aggregate Unfunded Pension Liabilities and unfunded liabilities in excess of $30,000,000; or (k) Monetary Judgments. One or more final judgments, orders or decrees ------------------ shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability of $50,000,000 or more (excluding amounts covered by insurance provided by a Person not an Affiliate of the Company under a policy to the extent to which such insurer has not contested coverage) and the same shall remain unvacated, undischarged (other than by payment thereof), and unstayed pending appeal, for a period of 45 consecutive days after the entry thereof; or (l) Non-Monetary Judgments. Any final non-monetary judgment, order or ---------------------- decree shall be rendered against the Company or any of its Subsidiaries which does or is likely to have a Material Adverse Payment Effect, and there shall be any period of 45 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect, unless such judgment, order or decree shall, within such 45-day period, be vacated or discharged (other than by satisfaction thereof); or (m) Invalidity of Subordination Provisions. The subordination -------------------------------------- provisions of the 1991 Indenture, the 1992 Indenture, or any agreement or instrument governing any other Subordinated Debt are for any reason revoked or invalidated, or otherwise cease to be in full force and effect. 8.2 Remedies. If any Event of Default occurs, the Agent shall, at the -------- request of, or may, with the consent of, the Majority Banks, (a) declare the Commitments of each Bank to make Loans to be terminated, whereupon such Commitments shall forthwith be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon and all other amounts payable hereunder to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise all rights and remedies available to it under the Loan Agreements or applicable law; or any one or more of the foregoing; provided, however, that upon the occurrence of any event -------- ------- specified in clause (h) or (i) above (in the case of such clause (i) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent or any Bank. 8.3 Rights Not Exclusive. The rights provided for in this Agreement and the -------------------- other Loan Agreements are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement. 8.4 Certain Financial Covenant Defaults. In the event that after the end of ----------------------------------- any fiscal period of the Company, after taking into account any extraordinary charge to earnings taken or to be taken as of the end of such fiscal period (a "Charge"), and if solely by virtue of such Charge, there would exist an Event of - ------- Default due to the breach of any of Sections 7.9, 7.10, 7.11, 7.12 or 7.13 as of such fiscal period end date, such Event of Default shall be deemed to arise upon the earlier of (a) the date the Company announces publicly it is taking or has taken such Charge (including an announcement in the form of a statement in a report filed with the SEC) and (b) the date the Company delivers to the Agent its audited annual or unaudited quarterly financial statements in respect of such fiscal period reflecting such Charge as taken. ARTICLE IX THE AGENT --------- 9.1 Appointment and Authorization. Each Bank hereby irrevocably appoints, ----------------------------- designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 9.2 Delegation of Duties. The Agent may execute any of its duties under -------------------- this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.3 Liability of Agent. None of the Agent-Related Persons shall (a) be ------------------ liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct) or (b) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary of the Company or any officer thereof contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of its Subsidiaries. 9.4 Reliance by Agent. ----------------- (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks, or to the extent expressly required herein, of all the Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 4.1, each Bank shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from the Bank on or prior to the Closing Date specifying its objection thereto and either such objection shall not have been withdrawn by notice to the Agent to that effect or the Bank shall not have made available to the Agent the Bank's ratable portion of such Borrowing. This subsection 9.4(b) is intended solely for the benefit of the Agent, and the Company shall not have any right or remedy as a result of this subsection. 9.5 Notice of Default. The Agent shall not be deemed to have knowledge or ----------------- notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees payable to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Article VIII; provided, however, that unless and until the Agent has received any such -------- ------- request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 9.6 Credit Decision. Each Bank acknowledges that none of the Agent-Related --------------- Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, Property, financial and other condition and creditworthiness of the Company and its Subsidiaries and made its own decision to enter into this Agreement and extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, Property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, Property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 9.7 Indemnification. Whether or not the transactions contemplated hereby --------------- are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no Bank shall be liable -------- ------- for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company; provided, however, each Bank shall only be required to reimburse -------- ------- the Agent for costs and out-of-pocket expenses with respect to accountants or outside consultants to the extent such Bank approved the hiring of such accountants or consultants. The undertaking in this Section shall survive the payment of all the Loans hereunder and the resignation or replacement of the Agent. 9.8 Agent in Individual Capacity. BofA and its Affiliates may make loans ---------------------------- to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though BofA were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, BofA or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, BofA shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" include BofA in its individual capacity. 9.9 Successor Agent. The Agent may, and at the request of the Majority --------------- Banks shall, resign as Agent upon thirty (30) days' notice to the Banks. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be approved by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX and Sections 10.4 and 10.5 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. ARTICLE X MISCELLANEOUS ------------- 10.1 Amendments and Waivers. No amendment or waiver of any provision of ---------------------- this Agreement or any other Loan Document and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks and the Company and acknowledged by the Agent, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such -------- ------- waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Bank (or reinstate any Commitment terminated pursuant to subsection 8.2(a)); (b) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) under any Loan Agreement; (c) reduce the principal of, or the rate of interest specified herein on, any Loan, or (subject to clause (ii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans or number of Banks which is required for the Banks or any of them to take any action hereunder; or (e) amend this Section 10.1, subsection 2.1(b) or Section 2.14, or any provision herein providing for consent or other action by all Banks; and, provided further, that (i) no amendment, waiver or consent shall, unless -------- ------- in writing and signed by the Agent in addition to the Majority Banks, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (ii) the fees contained in the commitment letter referred to in subsection 2.10(a) may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 10.2 Notices. ------- (a) All notices, requests and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on the applicable signature page hereof, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, telecopied or delivered, to the address or facsimile number specified for notices on the applicable signature page hereof; or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or telecopied, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II or IX shall not be effective until actually received by the Agent. (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Banks shall not have any liability to the Company or other Person on account of any action taken or not taken by the Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in ------------------------------ exercising, on the part of any Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 10.4 Costs and Expenses. The Company shall, whether or not the transactions ------------------ contemplated hereby shall be consummated: (a) pay or reimburse the Agent on demand for all costs and expenses incurred in connection with the development, preparation, negotiation, syndication, delivery, administration and execution of, and any amendment, supplement, waiver or modification to, this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including the Attorney Costs with respect thereto; (b) pay or reimburse each Bank and the Agent on demand for all costs and expenses incurred by them in connection with the enforcement or preservation of any rights (including in connection with any "workout" or restructuring regarding the Loans) under this Agreement, any Loan Document, and any such other documents, including Attorney Costs to the Agent and to each of the Banks; and (c) pay or reimburse the Agent on demand for all appraisal, audit, search and filing fees, incurred or sustained by the Agent in connection with the matters referred to under paragraphs (a) and (b) above. 10.5 Indemnity. The Company shall pay, indemnify, and hold each Bank, the --------- Agent and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and ------------------ against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs) of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any other Loan Documents or the transactions contemplated herein, and with respect to any investigation, litigation or proceeding related to this Agreement or the Loans or the use of the proceeds thereof (whether or not any Indemnified Person is a party thereto) (all the foregoing, collectively, the "Indemnified ----------- Liabilities"); provided, that the Company shall have no obligation hereunder to - ----------- -------- any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this section shall survive payment of all other Obligations. 10.6 Payments Set Aside. To the extent that the Company makes a payment to ------------------ the Agent or the Banks, or the Agent or the Banks exercise their right of set- off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its pro rata share of any amount so recovered from or repaid by the Agent. 10.7 Successors and Assigns. The provisions of this Agreement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement (other than by operation of law pursuant to any merger or consolidation permitted by Section 7.3) without the prior written consent of each Bank. 10.8 Assignments, Participations, etc. --------------------------------- (a) Any Bank may, with the written consent of the Company and the Agent, which consents shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Transferees and, with notice to the Agent but without the consent of the Company or the Agent, may assign to any of its wholly-owned Affiliates (each an "Assignee") all or any ratable part of all of -------- the Loans, the Commitments, and any other rights or obligations of such Bank hereunder, in a minimum amount of $10,000,000, provided, however, that the -------- ------- Company and the Agent may continue to deal solely and directly with such Bank in connection with the interests so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee and (ii) such Bank and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of Exhibit 10.8(a) ("Assignment and Acceptance"); and --------------- ------------------------- (iii) the processing fees of $2,500 shall have been paid to the Agent. (b) From and after the date that the Agent notifies the assignor Bank that it has received (and provided its consent to, if applicable) the Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Immediately upon each Assignee's making its payment under the Assignment and Acceptance, this Agreement, shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Bank pro tanto. - --- ----- (d) Any Bank may at any time sell to one or more Eligible Transferees (a "Participant") participating interests in any Loans, the Commitment of that Bank - ------------ or any other interest of that Bank hereunder; provided, however, that (i) the -------- ------- Bank's obligations under this Agreement shall remain unchanged, (ii) the Bank shall remain solely responsible for the performance of such obligations, (iii) the Company and the Agent shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations under this Agreement, and (iv) no Bank shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to this Agreement except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the first proviso to Section 10.1. In the case of any such participation, the ----- ------- Participant shall not have any rights under this Agreement, or any of the other Loan Documents, and all amounts payable by the Company hereunder shall be determined as if such Bank had not sold such participation, except that if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all non-public information provided to it by the Company or any Subsidiary of the Company or by the Agent on such Company's or Subsidiary's behalf in connection with this Agreement and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement, except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided further, however, that any Bank may ---------------- ------- disclose such information (A) at the request of any Bank regulatory authority or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable law; (D) at the express direction of any other agency of any State of the United States of America or of any other jurisdiction in which such Bank conducts its business; and (E) to such Bank's independent auditors and other professional advisors. Notwithstanding the foregoing, the Company authorizes the Agent and each Bank to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee such financial and other information in such Bank's possession concerning the Company or its Subsidiaries which has been delivered to the Banks pursuant to this Agreement or which has been delivered to the Banks by the Company in connection with the Banks' credit evaluation of the Company prior to entering into this Agreement; provided that such Transferee agrees in writing to such -------- Bank to keep such information confidential to the same extent required of the Banks hereunder. (f) Any Bank may hypothecate and pledge all or any part of the Obligations owing to it, together with its interest in the Loan Documents, to the FRB or any Federal Reserve Bank. 10.9 Set-off. In addition to any rights and remedies of the Banks provided ------- by law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, 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 the Company against any and all obligations of the Company now or hereafter existing under this Agreement or any other Loan Document and any Loan held by such Bank irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, -------- however, that the failure to give such notice shall not affect the validity of - ------- such set-off and application. The rights of each Bank under this Section 10.9 are in addition to the other rights and remedies (including without limitation, other rights of set-off) which the Bank may have. 10.10 Termination of the Commitments under Existing Facility. Pursuant to ------------------------------------------------------ Section 2.5 of the Existing Facility, the Company hereby terminates the Aggregate Commitments under, and as that term is defined in, the Existing Agreement as of the date hereof, and the Banks hereby waive the three Business Days' prior notice requirement in Section 2.5 for such notice. The Company agrees to pay, on the date hereof, all accrued commitment fees under the Existing Facility to, but not including, the date hereof. 10.11 Notification of Addresses, Lending Offices, Etc. Each Bank shall ----------------------------------------------- notify the Agent and the Company in writing of any changes in the address to which notices to the Bank should be directed, of addresses of its Eurodollar Lending Office and its Domestic Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 10.12 Counterparts. This Agreement may be executed in any number of ------------ separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 10.13 Severability. The illegality or unenforceability of any provision of ------------ this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 10.14 No Third Parties Benefited. This Agreement is made and entered into -------------------------- for the sole protection and legal benefit of the Company, the Banks, the Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 10.15 Governing Law and Jurisdiction. ------------------------------ (a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER -------------------- HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 10.16 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT WAIVE -------------------- THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BOUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 10.17 Entire Agreement. This Agreement, together with the other Loan ---------------- Documents, embodies the entire agreement and understanding among the Company, the Banks and the Agent and supersedes all prior or contemporaneous agreements and understandings of such persons, verbal or written, relating to the subject matter hereof and thereof except, to the extent it related to the payment of fees, for the commitment letter referenced in subsection 2.10(a). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in San Francisco, California by their proper and duly authorized officers as of the day and year first above written. CONNER PERIPHERALS, INC. By: /s/ Conner Peripherals Inc. --------------------------------- Title: ------------------------------ Address for notices: 3081 Zanker Road San Jose, Ca 95134 Attn: P. Jackson Bell Facsimile: (408) 456-3770 Telephone: (408) 456-3841 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ Bank of America NT & SA --------------------------------- Vice President Address for notices: Global Agency #5596 1455 Market Street, 12th Floor San Francisco, CA 94103 Attn: Judith L. Kramer Facsimile: (415) 622-4894 Telephone: (415) 953-2506 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ Bank of America NT & SA --------------------------------- Vice President Address for notices: Credit Products-High Technology #3697 555 California Street San Francisco, CA 94104 Attn: Michael A. Drevno Facsimile: (415) 622-2514 Telephone: (415) 622-8088 Domestic and Eurodollar Lending Offices: 1850 Gateway Boulevard Concord, CA 94520 THE FIRST NATIONAL BANK OF BOSTON By: /s/ The First National Bank of Boston -------------------------------------- Title: ----------------------------------- Address for notices: 435 Tasso Street Suite 250 Palo Alto, CA 94301 Attn: Alfred Artis & Lee Merkle Facsimile: (415) 853-1425 Telephone: (415) 853-0947 Domestic Lending Office: 100 Federal Street Boston, MA 02110 Eurodollar Lending Office: 100 Federal Street Boston, MA 02110 BARCLAYS BANK PLC /s/ Barclays Bank PLC By: _____________________________ Title: __________________________ Address for notices: 388 Market Street Suite 1700 San Francisco, CA 94111 Attn: Dean Chu Facsimile: (415) 765-4760 Telephone: (415) 765-4703 Domestic Lending Office: 75 Wall Street New York, NY 10265 Eurodollar Lending Office: Nassau Bahamas Branch c/o 75 Wall Street New York, NY 10265 SCHEDULE 2.1(a) Commitments -----------
Commitment Banks Commitment Percentage ----- ------------ ----------- Bank of America National Trust and Savings Association $ 35,000,000 35% The First National Bank of Boston $ 34,000,000 34% Barclays Bank PLC $ 31,000,000 31% Total $100,000,000 100% ============ ===
SCHEDULE 2.3(c) Payment Offices --------------- Bank of America National Trust and Savings Association ABA No. 121-000-358 Attn: Global Agency #5596 1850 Gateway Boulevard Concord, CA 94250 For credit to: Account No. 1233-3-15329 Reference: Conner Peripherals, Inc. The First National Bank of Boston ABA No. 011-000-390 Commercial Loan Services Mail Stop 7402-041 100 Rustcraft Road Dedham, MA 02026 Reference: ADM 50 High Tech, Conner Peripherals, Inc. Barclays Bank PLC ABA No. 026-002-574 75 Wall Street New York, NY 10265 Account No. 050-019104 Benf: CLAD Reference: Conner Peripherals, Inc. EXHIBIT 2.3 Notice of Borrowing ------------------- Date: ____________________ To: Bank of America National Trust and Savings Association as Agent for the several financial institutions from time to time party to the Credit Agreement dated as of December 23, 1993 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Conner ---------------- Peripherals, Inc., the several financial institutions from time to time party thereto and Bank of America National Trust and Savings Association, as Agent Ladies and Gentlemen: The undersigned, Conner Peripherals, Inc. (the "Company"), refers to the ------- Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 2.3 of the Credit Agreement, of the Borrowing specified herein: 1. The Business Day of the proposed Borrowing is ______ _____________________________, 19___. 2. The aggregate amount of the proposed Borrowing is $_________________. 3. The Borrowing is to be comprised of $___________ of [Eurodollar Rate] [Base Rate] Loans. 4. The duration of the Interest Period for the Eurodollar Rate Loans included in the Borrowing shall be [_______ days] [_______ months]. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Company contained in Article V of the Credit Agreement are true and correct as though made on and as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date); (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing; and (c) no Material Adverse Compliance Effect has occurred since September 30, 1993. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the date first set forth above. CONNER PERIPHERALS, INC. By: _________________________ Title: ______________________ EXHIBIT 2.4 Notice of Conversion/Continuation --------------------------------- Date: ____________________ To: Bank of America National Trust and Savings Association as Agent for the several financial institutions from time to time party to the Credit Agreement dated as of December 23, 1993 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Conner ---------------- Peripherals, Inc., the several financial institutions from time to time party thereto and Bank of America National Trust and Savings Association, as Agent Ladies and Gentlemen: The undersigned, Conner Peripherals, Inc. (the "Company"), refers to the ------- Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 2.4 of the Credit Agreement, of the [conversion] [continuation] of the Loans specified herein, that: 1. The date of the [conversion] [continuation] is ______________________, 19__. 2. The aggregate amount of the Loans to be [converted] [continued] is $______________. 3. The Loans are to be [converted into] [continued as] [Eurodollar Rate] [Base Rate] Loans. 4. [If applicable:] The duration of the Interest Period for the Loans included in the [conversion] [continuation] shall be [______ months]. The undersigned hereby certifies that as of the date hereof, and as of the date of the proposed [conversion][continuation], before and after giving effect thereto and to the application of the proceeds therefrom, no Default or Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation]. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the date first set forth above. CONNER PERIPHERALS, INC. By: _________________________ Title: ______________________ EXHIBIT 4.1(d)(i) Opinion of Company's Counsel ---------------------------- [Letterhead of Wilson, Sonsini, Goodrich & Rosati] December 23, 1993 Bank of America National Trust and Savings Association, as Agent 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Global Agency #5596 and The financial institutions listed on Schedule 1 hereto (the "Banks") ----- Re: Credit Agreement, dated as of December 23, 1993, among Conner Peripherals, Inc., the Banks named therein and Bank of America National Trust and Savings Association, as Agent for the Banks -------------------------------------------------------------- Ladies and Gentlemen: We have acted as counsel to Conner Peripherals, Inc., a California corporation (the "Company"), in connection with the negotiation, execution and ------- delivery of that certain Credit Agreement, dated as of December 23, 1993, including the exhibits and Schedules thereto and the Disclosure Letter (the "Credit Agreement"), among the Company, the Banks named therein and Bank of - ----------------- America National Trust and Savings Association, as Agent for the Banks. Capitalized terms used herein which are defined in the Credit Agreement shall have the respective meanings set forth in the Credit Agreement, unless otherwise defined herein. This opinion is rendered to you pursuant to Section 4.1(d)(i) of the Credit Agreement. In acting as such counsel, we have examined: (a) the Credit Agreement; (b) a letter agreement, dated as of the date hereof, by and between the Company and the Agent with respect to Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 2 certain fees payable in connection with the Credit Agreement (the "Fee --- Letter"); ------ (c) a Certificate of certain officers of the Company, dated as of the date hereof, executed and delivered to you by the Company pursuant to Section 4.1(f) of the Credit Agreement; (d) a Certificate of the Treasurer of the Company, dated as of the date hereof, with respect to certain financial statements of the Company, executed and delivered to you by the Company pursuant to Section 4.1 of the Credit Agreement; (e) a Certificate of the Assistant Secretary of the Company, dated as of the date hereof, executed and delivered to you pursuant to Sections 4.1(b) and 4.1(c) of the Credit Agreement, as to, among other things: (i) the incumbency and signature of certain officers of the Company); (ii) the Restated Articles of Incorporation of the Company; (iii) the bylaws of the Company; and (iv) the adoption of certain resolutions by the directors of the Company. (f) a copy of the Restated Articles of Incorporation of the Company, certified as of December __, 1993, by the Secretary of State of the State of California; (g) (i) a certificate of the Secretary of State of the State of California, dated December __, 1993, with respect to the status of the Company as a corporation incorporated under the laws of the State of California, and a tax status certificate of the Franchise Tax Board of the State of California, dated December __, 1993, with respect to the tax status of the Company; (ii) a certificate of the Secretary of State of the State of Colorado, dated December __, 1993, with respect to the standing of the Company as a foreign corporation qualified to do business in the State of Colorado; (iii) a certificate of the Secretary of State of the State of Massachusetts, dated December __, 1993, with respect to the standing of the Company as a foreign corporation qualified to do business in the State of Massachusetts; (iv) a certificate of the Secretary of State of the State of Minnesota, dated December __, 1993, with respect to the standing of the Company as a foreign corporation qualified to do business in the State of Minnesota; and (v) a certificate of the Secretary of Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 3 State of the State of Texas, dated December __, 1993, with respect to the standing of the Company as a foreign corporation qualified to do business in the State of Texas, and a certificate of the Controller of the State of Texas with respect to the tax status of the Company, dated December __, 1993; and (h) the documents and agreements listed on Schedule 2 hereto (the "Reviewed -------- Agreements") which the Company has certified to us constitute (i) all of ---------- the written indentures, debentures, loan agreements, lines of credit and guarantees as to which the Company or one of its Subsidiaries is a party, pursuant to which such party, as of December 23, 1993, is borrowing or guaranteeing (pursuant to such agreement and not in the aggregate) $5,000,000 or more, (ii) all of the documents listed as exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, included therein pursuant to the requirements of clauses (2), (4), (9) or (10) of Item 601(b) of Regulation S-K (other than those which have expired, terminated or are otherwise no longer in effect), and (iii) all of the documents required to be listed as exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (if such Annual Report were filed as of the date hereof), required to be included therein pursuant to the requirements of clauses (2), (4), (9) or (10) of Item 601(b) of Regulation S-K (other than those which have expired, terminated or are otherwise no longer in effect). The Credit Agreement, together with the Fee Letter incorporated therein by reference, is referred to herein as the Agreement. The Certificates referenced in paragraphs (c), (d) and (e) above are referred to herein collectively as the "Other Loan Documents". -------------------- With respect to any documents submitted for our review we have assumed that all signatures (other than those on behalf of the Company on the documents referred to in paragraphs (a), (b), (c), (d) and (e) above) are genuine, all documents submitted as originals are authentic, all documents submitted as copies conform to the original documents and that all documents, books and records made available to us by the Company are accurate and complete. Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 4 We have also relied upon and obtained from public officials and officers and representatives of the Company such other certificates and assurances as we consider necessary for the purposes of rendering this opinion. With respect to certain matters of fact we have relied upon, with your permission, the Certificate of the Assistant Secretary of the Company referenced in paragraph (e) above, an Officers' Certificate in the form attached to this opinion and the certificates of public officials referenced in paragraph (g) above. As used in this opinion, the expression "to our knowledge" or "known to us" with reference to matters of fact means that during the course of our representation of the Company in connection with the Agreement no information has come to the attention of the attorneys of our firm involved in this engagement which would give them actual knowledge of the existence or absence of such facts; however, except to the extent expressly set forth herein, we have made no independent investigation to determine the existence or absence of such facts, and any limited inquiry undertaken by us during the preparation of this opinion should not be regarded as such an investigation. No inference as to our knowledge of the existence or absence of such facts should be drawn from the fact of our representation of the Company. In rendering the opinion set forth in paragraph 7 below, we have not made any independent investigation of court or other governmental records to determine whether any actions have been filed. On the basis of the foregoing and in reliance thereon, and based upon examination of questions of law as we have deemed appropriate, and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we advise you that in our opinion: 1. The Company is a corporation duly incorporated and validly existing in good standing under the laws of the State of California. The Company is duly qualified to do business and is in good standing in the States of Colorado, Massachusetts, Minnesota and Texas. 2. The Company has the requisite corporate power and authority to enter into and perform the Agreement, to execute and deliver the Other Loan Documents, to own its properties and assets and to carry on its business as presently conducted. 3. The Agreement, the borrowings proposed to be made under the Agreement and the execution and delivery of the Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 5 Other Loan Documents have been duly authorized by all necessary corporate action on the part of the Company. The Agreement and the Other Loan Documents have been duly executed and delivered by the Company. The Agreement constitutes a legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 4. The execution and delivery of the Agreement, the execution and delivery of the Other Loan Documents, the borrowings of Loans in accordance with the Agreement, repayment of any such Loans by the Company and the undertaking of the covenants set forth in the Agreement do not (a) contravene the Company's Restated Articles of Incorporation or Bylaws, (b) contravene any order, writ, judgment, decree, determination or award of any court or arbitrator, known to us, to which the Company is a party or subject, (c) conflict with or constitute a breach of the terms, conditions or provisions of or constitute a default under any Reviewed Agreement, (d) result in, or require the creation or imposition of any lien, security interest or other encumbrance on any of the properties or revenues of the Company or any of its Subsidiaries pursuant to any Reviewed Agreement, or (e) contravene any provision of law, statute, rule or regulation having applicability to the Company. 5. No governmental consents, approvals, authorizations, registrations, declarations or filings are required to be made or obtained by the Company (or on its behalf) for the due authorization, execution and delivery by the Company of the Agreement and the Other Loan Documents, the borrowing of Loans in accordance with the Agreement or the repayment of any such Loans by the Company. 6. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 7. To our knowledge, no litigation, investigation or proceeding of or before any court, arbitrator or other governmental authority is pending or threatened against the Company or any Subsidiary of the Company or any of the properties or revenues of the Company or any Subsidiary thereof with respect to the Agreement or any of the borrowings proposed to be made under the Agreement. Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 6 8. The Loans under the Agreement constitute "Senior Indebtedness" as such term is defined in the 1991 Indenture and the 1992 Indenture. The foregoing opinions are subject to the following exceptions, qualifications, limitations and assumptions: A. We are admitted to practice law only in the State of California. Except for the limited purpose of rendering the opinions set forth in clauses (c) and (d) of paragraph 4 in accordance with the assumption set forth in the next sentence, we express no opinion as to any matter relating to laws of any jurisdiction other than the laws of the State of California and the federal laws of the United States, as such are in effect on the date hereof. For purposes of our review of the Reviewed Agreements, except in the case of any such Reviewed Agreements, governed by the federal laws of the United States, where such Reviewed Agreements purport to be governed by laws other than those of the State of California, we have, with your consent, assumed that the laws governing such Reviewed Agreements (including the effect thereof and the appropriate interpretation thereof) are no different from the laws of the State of California. B. We express no opinion as to (i) the effect of any bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally including, without limitation, the effect of statutory or other laws regarding fraudulent transfers or conveyances or preferential transfers, or (ii) the effect of general principles of equity, including without limitation, concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance, injunctive relief or other equitable relief, whether considered in a proceeding in equity or at law. C. We express no opinion (i) regarding the enforceability of any provision which may be deemed to be "unconscionable" within the meaning of Section 1670.5 of the California Civil Code, or (ii) as to the effect of the exercise of judicial discretion, whether in a proceeding in equity or at law. Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 7 D. We express no opinion as to the legality, validity, binding nature or enforceability of (i) provisions in the Agreement providing for the payment or reimbursement of costs or expenses or indemnifying a party, to the extent such provisions may be held unenforceable as contrary to public policy, (ii) any provision of the Agreement insofar as it provides for the payment or reimbursement of costs and expenses or indemnification for claims, losses or liabilities in excess of a reasonable amount determined by any court or other tribunal, (iii) provisions regarding a Bank's or the Agent's ability to collect attorneys' fees and costs in an action involving the Agreement, if the Bank or Agent is not the prevailing party in such action (we call your attention to the effect of Section 1717 of the California Civil Code, which provides that, where a contract permits one party thereto to recover attorneys' fees, the prevailing party in any action to enforce any provision of the contract shall be entitled to recover its reasonable attorneys' fees), (iv) provisions of any Agreement imposing penalties or forfeitures, late payment charges or any increase in interest rate, upon delinquency in payment or the occurrence of a default to the extent they constitute a penalty or forfeiture or are otherwise contrary to public policy, or (v) any provision of the Agreement to the effect that a statement, certificate or determination shall be deemed conclusive absent manifest error. E. We express no opinion with respect to the legality, validity, binding nature or enforceability of (i) any vague or broadly stated waivers including, without limitation, the waivers of diligence, presentment, demand, protest or notice, (ii) any waivers or consents (whether or not characterized as a waiver or consent in the Agreement) relating to the rights of the Company or duties owing to it existing as a matter of law, including, without limitation, waivers of the benefits of statutory or constitutional provisions, to the extent such waivers or consents are found by California courts to be against public policy or which are ineffective pursuant to California statutes and judicial decisions, or (iii) any waivers of any statute of limitations to the extent such waivers are in excess of four years beyond the statutory period. Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 8 F. We express no opinion with respect to the legality, validity, binding nature or enforceability of any provision of the Agreement to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy or remedies does not preclude recourse to one or more other remedies or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy. G. We express no opinion as to any provision of the Agreement requiring written amendments or waivers of such documents insofar as it suggests that oral or other modifications, amendments or waivers could not be effectively agreed upon by the parties or that the doctrine of promissory estoppel might not apply. H. We have assumed that there are no agreements or understandings between or among the Company, a Bank, the Agent or third parties which would expand, modify or otherwise affect the terms of the Agreement or the respective rights or obligations of the parties thereunder and that the Agreement correctly and completely set forth the intent of all parties thereto. I. We have assumed that all parties to the Agreement other than the Company have filed all required franchise tax returns, if any, and paid all required taxes, if any, under the California Revenue & Taxation Code. J. We have assumed that the Agreement has been duly authorized, executed and delivered by the Agent and each of the Banks and that the Agent and each of the Banks have full power, authority and legal right to enter into and perform the terms and conditions of the Agreement on their parts to be performed and that the Agreement constitutes legal, valid and binding obligations of the Agent and each of the Banks, enforceable against them in accordance with its terms. K. We express no opinion as to the applicability or effect of compliance or non-compliance by the Agent or the Banks with any state, federal or other laws applicable to the Agent or the Banks or to the transactions contemplated by the Agreement because of the nature of Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 9 their business, including their legal or regulatory status. L. We have assumed that each Bank is either (i) a "Bank" as defined in and operating under that certain act known as the "Bank Act" approved March 1, 1909, as amended, (ii) a bank created and operating under and pursuant to the laws of the State of California or of the United States or (iii) a foreign bank complying with the criteria set forth in Section 1716 of the California Financial Code, as amended, and that the Banks are therefore exempt from the restrictions of Section 1 of Article XV of the California Constitution and related statutes relating to rates of interest upon the loan of money. M. We express no opinion regarding compliance or non-compliance (or the effect thereof) with anti-fraud provisions of federal or state securities laws, if any of such provisions were to be applicable, or with respect to the "Blue Sky" laws of any state other than the State of California. N. Our opinion in clause (e) of paragraph 4 above is based solely upon a review of statutes, rules and regulations which, in our experience, are normally applicable to transactions of the type contemplated by the Agreement. O. This opinion speaks only at and as of its date and is based solely on the facts and circumstances existing on such date. We express no opinion as to the effect on the Banks' or the Agent's rights under the Agreement of any statute, rule, regulation or other law which is enacted or becomes effective after, or of any court decision which changes the law relevant to such rights which is rendered after, the date of this opinion or the conduct of the parties following the closing of the contemplated transaction. In addition, in rendering this opinion, we assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions mentioned herein be changed by legislative action, judicial decision or otherwise. P. Our opinion set forth in paragraph 1 as to good standing in the State of California and as due qualification and good standing in other states is based solely on the certificates referenced in paragraph (g) above (copies of which have been furnished to you), and, to the extent Bank of America National Trust and Savings Association, as Agent December 23, 1993 Page 10 available, telephonic confirmation as of the date of this opinion of the legal existence and good standing of the Company in the State of California from the Office of the Secretary of State of the State of California and the due qualification and good standing as a foreign corporation qualified to do business from the Office of the Secretary of State of the States of Colorado, Massachusetts, Minnesota and Texas. This opinion is made with the knowledge and understanding that you (but no other person) may rely thereon in entering into the Agreement and is solely for your benefit. This opinion may not be quoted to or relied upon by any person other than you, except that (i) this opinion may be disclosed to bank regulatory and other governmental authorities having jurisdiction over you requesting (or requiring) such disclosure and (ii) this opinion may be disclosed to and relied upon by assignees of the Loans if such assignments are permitted under and made in accordance with the Agreement; provided that in no event does this opinion -------- extend to any issue or matter related to any such assignment or arising from or out of any such assignment (as distinct from the subject transaction). Very truly yours, WILSON, SONSINI, GOODRICH & ROSATI, Professional Corporation SCHEDULE 1 ---------- Bank of America National Trust and Savings Association 1850 Gateway Boulevard Concord, CA 94520 The First National Bank of Boston 100 Federal Street Boston, MA 02110 Barclays Bank PLC 75 Wall Street New York, NY 10265 SCHEDULE 2 ---------- [To be provided by the Company's counsel] EXHIBIT 6.1(b) Consolidating Statement Certificate ----------------------------------- Pursuant to that certain Credit Agreement dated as of December 23, 1993 (as amended from time to time, the "Credit Agreement") among Conner Peripherals ---------------- Inc., a California corporation (the "Company"), the several financial ------- institutions from time to time party thereto and Bank of America National Trust and Savings Association, as Agent, the undersigned ______________, certifies that he is the __________ of the Company, and that, as such, he is authorized to execute and deliver this Certificate in the name and on behalf of the Company, and that: 1. Attached hereto as Schedule 1 is a true, correct and complete copy of ---------- the unaudited consolidating balance sheets and related consolidating statements of operations, shareholders' equity and cash flow for the year ended _________, 199_ of the Company and each of its Subsidiaries. 2. Schedule 1 was used in connection with the preparation of the Company's ---------- audited consolidated balance sheet and related consolidated statements of operations, shareholders' equity and cash flows for such year. 3. Schedule 1 was derived from the financial records of the Company. ---------- IN WITNESS WHEREOF, the undersigned has executed this Certificate in the name and on behalf of the Company as of __________, 199_. CONNER PERIPHERALS, INC. By: _________________________ Title: ______________________ EXHIBIT 6.2(a) Compliance Certificate ---------------------- Pursuant to that certain Credit Agreement dated as of December 23, 1993 (as amended from time to time, the "Credit Agreement") among Conner Peripherals, ---------------- Inc., a California corporation (the "Company"), the several financial ------- institutions from time to time party thereto and Bank of America National Trust and Savings Associations, as Agent, the undersigned ________________, certifies that he is the ________________ of the Company, and that, as such, he is authorized to execute and deliver this Certificate in the name and on behalf of the Company, and that: 1. Attached as Schedule 1 hereto are true and correct copies of the ---------- Company's audited financial statements for the year ended ____________________, 199__. or 1. Attached as Schedule 1 hereto are true and correct copies of the ---------- Company's unaudited financial statements for the quarter ended _______________, 199__. 2. The attached financial statements accurately and fairly present in all material respects, in accordance with GAAP, the consolidated financial position and results of operations of the Company and the Company's Subsidiaries, subject only to normal year-end adjustments [and the absence of footnotes]. 3. The Company has reviewed the terms of the Credit Agreement and the undersigned has made, or has caused to be made under his supervision, a review of the transactions entered into by the Company and its Subsidiaries (as defined in the Credit Agreement) during the accounting period covered by the attached financial statements which could affect the Company's compliance with such terms. 4. To the best of the undersigned's knowledge, the Company, during such period, has observed, performed or satisfied all of the covenants and other agreements contained in the Credit Agreement to be observed, performed or satisfied by the Company. 5. The examinations described in paragraph 3 above did not disclose, and the undersigned has obtained no knowledge of any Default or Event of Default (both as defined in the Credit Agreement) and attached as Schedule 2 hereto are ---------- the calculations used to make such determination with respect to Sections 7.9 through 7.13 of the Credit Agreement as of the end of the accounting period covered by the financial statements attached as Schedule 1 hereto. ---------- IN WITNESS WHEREOF, the undersigned has executed this certificate in the name and on behalf of the Company as of ______________, 199_. CONNER PERIPHERALS, INC. By: ________________________ Title: _____________________ SCHEDULE 2 TO COMPLIANCE CERTIFICATE ------------------------- ($ in 000's) Date: ______________, 199__ For the fiscal [quarter/year] ended ______________, 199__
========================================================================================================= Actual Required/Permitted ------ ------------------ - --------------------------------------------------------------------------------------------------------- 1. Section 7.9 Modified Quick -------------------------- Ratio. ------ - --------------------------------------------------------------------------------------------------------- The ratio/1/ of: - --------------------------------------------------------------------------------------------------------- A. the sum of: (i) cash _______ (ii) Cash Equivalents/2/ _______ (iii) Eligible Receivables (net of allowance for doubtful accounts) _______ - ------------------------------------------------------------------------------- = (i) + (ii) + (iii) = _______ - ------------------------------------------------------------------------------- B. the sum/3/ of: (i) Consolidated Current Liabilities _______ (ii) Consolidated Senior Debt ------- (iii) Contingent Obli- gations in excess of $10,000,000 _______ = (i) + (ii) + (iii) = Test Period Ratio not A ----------- --------- - less than: --------- = B = ======= Closing Date - March 31, 1994 1.20:1.00 April 1, 1994 - and thereafter 1.25:1.00 - -------------------------------------------------------------------------------- 2. Section 7.10 Leverage Ratio. --------------------------- =========================================================================================================
------------------------ 1 Determined on a consolidated basis. 2 Valued in accordance with GAAP. 3 Without duplication.
========================================================================================================= Actual Required/Permitted ------ ------------------ - --------------------------------------------------------------------------------------------------------- The ratio of: A. the difference of: (i) Total Liabilities _______ minus ----- (ii) aggregate principal amount outstanding minus the 1991 Indenture and the _______ 1992 Indenture - --------------------------------------------------------------------------------------------------------- = (i) - (ii) = _______ - --------------------------------------------------------------------------------------------------------- B. the sum of: (i) Tangible Net Worth _______ plus ---- (ii) aggregate principal amount outstanding under the 1991 Indenture and the 1992 Indenture _______ = (i) + (ii) = _______ - --------------------------------------------------------------------------------------------------------- = A - = B ------- Ratio not greater than 1.10 to 1.00 - --------------------------------------------------------------------------------------------------------- 3. Section 7.11 Minimum Tangible Net Worth. - --------------------------------------------------------------------------------------------------------- Tangible Net Worth = ======== - --------------------------------------------------------------------------------------------------------- Not to be less than the sum of: - --------------------------------------------------------------------------------------------------------- A. $115,000,000 plus ---- - --------------------------------------------------------------------------------------------------------- B. 75% of Consolidated Net Income, commencing with the fiscal quarter beginning 10/1/93 and thereafter (not reduced by any quarterly loss) -------- plus ---- =========================================================================================================
========================================================================================================= Actual Required/Permitted ------ ------------------ - --------------------------------------------------------------------------------------------------------- C. 100% of Net Proceeds arising from the sale of capital stock occurring on or after 10/1/93 -------- plus ---- --------------------------------------------------------------------------------------------------------- D. any increase in consolidated Tangible Net Worth due to conversions of debt to equity occurring on or after 10/1/93/4/ --------------------------------------------------------------------------------------------------------- = A + B + C + D = ======== --------------------------------------------------------------------------------------------------------- 4. Section 7.12 Losses in One -------------------------- Quarter ------- --------------------------------------------------------------------------------------------------------- Aggregate operating loss for the fiscal quarter just ended Not to exceed $40,000,000 --------------------------------------------------------------------------------------------------------- Aggregate net loss for the fiscal quarter just ended --------- Not to exceed $40,000,000 --------------------------------------------------------------------------------------------------------- 5. Section 7.13 Losses in Two -------------------------- Consecutive Quarters -------------------- --------------------------------------------------------------------------------------------------------- Aggregate operating loss for the fiscal quarter just ended and the immediately preceding fiscal quarter --------- Not to exceed $25,000,000 --------------------------------------------------------------------------------------------------------- Aggregate net loss for the fiscal quarter just ended and the immediately preceding fiscal quarter --------- Not to exceed $25,000,000 =========================================================================================================
------------------------ /4/ Without duplication. EXHIBIT 6.13 Notice to Trustee ----------------- The First National Bank of Boston Blue Hill Office Park Mail Stop 45-02-15 150 Royall Street Canton, MA 02021 Attention: Corporate Trust Division Re: 1991 Conner Peripherals, Inc. Indenture Ladies and Gentlemen: Reference is made to that certain Indenture dated as of March 1, 1991 (as amended from time to time, the "Indenture") between Conner Peripherals, Inc. --------- (the "Company") and you, pursuant to irrevocable authorization granted to us by ------- the Company, we hereby notify you that [the Company has incurred Senior Indebtedness (as such term is defined in the Indenture) pursuant to that certain Credit Agreement dated as of December 23, 1993 among the Company, Bank of America National Trust and Savings Association, as Agent, and the several financial institutions from time to time party thereto.] or [(i) the Company has defaulted pursuant to that certain Credit Agreement dated as of December 23, 1993 (as amended from time to time, the Credit Agreement) among the Company, Bank of America National Trust and Savings Association, as Agent, and the several financial institutions from time to time party thereto; (ii) the Credit Agreement constitutes Senior Indebtedness (as defined in the Indenture); and (iii) the default has accelerated the maturity of such Indebtedness.] This notice is given pursuant to Section 4.05 of the Indenture. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: __________________________ Title: _______________________ cc: Conner Peripherals, Inc. 2 EXHIBIT 10.8(a) Assignment and Acceptance ------------------------- ASSIGNMENT AND ACCEPTANCE dated ______________, 199__ between ________________ (the "Assignor") and ___________________ (the "Assignee"). -------- -------- PRELIMINARY STATEMENTS A. Reference is made to the Credit Agreement dated as of December 23, 1993 (as amended from time to time, the "Credit Agreement"), among Conner ---------------- Peripherals, Inc. (the "Company"), the several financial institutions from time ------- to time party thereto (the "Banks") and Bank of America National Trust and ----- Savings Association as agent for the Banks (in such capacity, the "Agent"). ----- Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms as set forth in the Credit Agreement. B. The Assignor is a Bank under and as defined in the Credit Agreement and, as such, presently has outstanding the following Commitment and Loans under the Credit Agreement: Commitment $__________ Base Rate Loans $__________ Eurodollar Rate Loans $__________ C. On the terms and conditions set forth below, the Assignor desires to sell and assign to the Assignee, and the Assignee desires to purchase and assume from the Assignor, a ______ %/5/ interest (the "Assigned Percentage") in and to all ------------------- of the Assignor's rights and obligations as of the Effective Date (as defined below). D. After giving effect to such assignment, the respective Commitments and outstanding Loans of the Assignor and Assignee under the Credit Agreement will be: Assignor -------- Commitment $_________ Base Rate Loans $_________ Eurodollar Rate Loans $_________ - ---------------------- /5/ Specify percentage of Assignor's interest only in total facility in no more ------------------------ than 4 decimal points. Assignee -------- Commitment $_________ Base Rate Loans $_________ Eurodollar Rate Loans $_________ NOW, THEREFORE, the Assignor and the Assignee hereby agree as follows: 1. The Assignor hereby sells and assigns to the Assignee WITHOUT RECOURSE, and the Assignee hereby purchases and assumes from the Assignor, the Assigned Percentage of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date. 2. The Assignor (i) represents and warrants that as of the date hereof its Commitments and outstanding Loans (without giving effect to assignments thereof which have not yet become effective) are as follows: Commitment $_________ Base Rate Loans $_________ Eurodollar Rate Loans $_________ (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representations or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other Loan Document furnished pursuant thereto; and (iv) makes no representations or warranty and assumes no responsibility with respect to the financial condition of the Company or any of its Subsidiaries or the performance or observance by the Company or any of its Subsidiaries of any of their obligations under the Credit Agreement or any other Loan Document furnished pursuant thereto. 3. The Assignee (i) represents and warrants that it is an Eligible Transferee, (ii) confirms that it has received a copy of the Credit Agreement, together with copies of such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter this Assignment and Acceptance; (iii) agrees that it will, independently and without reliance upon Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and any other Loan 2 Documents; (iv) appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Loan Documents are required to be performed by a Bank thereunder. 4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to Agent for acceptance and recording by Agent and acceptance by the Company. The effective date for this Assignment and Acceptance shall be ____________ (the "Effective Date"), subject to acceptance -------------- by the Agent and the Company; provided, however, this Assignment and Acceptance shall not be effective until accepted by the Agent and the Company. 5. Subject to and upon such acceptance and recording as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and shall be entitled to the rights and benefits of the Loan Documents and, to the extent of the percentage assigned in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent of the percentage assigned in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement and the other Loan Documents. 6. Subject to and upon such acceptance and recording, from and after the Effective Date, Agent shall make all payments under the Credit Agreement which are payable to Agent for the account of the appropriate Bank to the appropriate Banks severally in proportion to their respective percentages determined after giving effect to this assignment, when payment is due. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the other Loan Documents for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of California. 3 8. The following administrative details apply to the Assignee: (A) Notice Address: Assignee name: ________________ Address: _____________________ _____________________ _____________________ Attention: ____________________ Telephone: ( ) ______________ Facsimile: ( ) ______________ (B) Address for Payments: Account No.: __________________ At: __________________ __________________ __________________ Reference: __________________ Attention: __________________ (C) Eurodollar Lending Office: Assignee name: __________________ Address: ______________________ ______________________ ______________________ Attention: ____________________ Telephone: ( ) ______________ Facsimile: ( ) ______________ (C) Domestic Lending Office: Assignee name: ________________ Address: ______________________ ________________________________ Attention: ____________________ Telephone: ( ) ______________ Facsimile: ( ) ______________ 9. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of California. 4 IN WITNESS WHEREOF, the undersigned as executed this Certificate as of the date first set forth above. [NAME OF ASSIGNOR] By: __________________________ Title: _______________________ [NAME OF ASSIGNEE] By: _________________________ Title: ______________________ ACCEPTED this ___ day of ___________, 199__ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ____________________________ Title: Vice President ACCEPTED this ___ day of ___________, 199__ CONNER PERIPHERALS, INC. By: ____________________________ Title: _________________________ 5 EX-11.1 7 COMPUTED EARNINGS PER SHARE CONNER PERIPHERALS, INC. EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)
Twelve months ended December 31, --------------------------------- 1993 1992 1991 ------ ------ ------ Primary: Weighted average shares outstanding 49,339 53,983 57,531 Net effect of dilutive stock options -- 1,259 1,332 -------- -------- ------- Total 49,339 55,242 58,863 -------- -------- ------- Net income (loss) ($445,314) $121,072 $92,492 ======== ======== ======= Earnings/(loss) per share ($9.03) $2.19 $1.57 ======== ======== ======= Fully diluted: Weighted average shares outstanding 49,339 53,983 57,531 Net effect of dilutive stock options -- 1,349 1,332 Assumed conversion of Subordinated Convertible Debentures -- 19,391 6,389 -------- -------- -------- Total 49,339 74,723 65,252 -------- -------- -------- Net income/(loss) ($445,314) $121,072 $92,492 Add Subordinated Convertible Debenture interest, net of income taxes -- 20,376 7,629 -------- -------- -------- Total ($445,314) $141,448 $100,121 ======== ======== ======== Earnings/(loss) per share ($9.03) $1.89 $1.54 ======== ======== ========
EX-13 8 ANNUAL REPORT Financial Contents Selected Financial Data 8 Management's Discussion and Analysis 9 Consolidated Balance Sheets 15 Consolidated Statements of Operations 16 Consolidated Statements of Cash Flows 17 Consolidated Statements of Stockholders' Equity 18 Notes to Consolidated Financial Statements 19 Report of Independent Accountants 29 Report of Management 30
CONNER PERIPHERALS, INC.7 Consolidated Statement of Operations Data
Year ended December 31, 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Net sales $ 2,151,672 $ 2,238,423 $ 1,598,984 $ 1,337,593 $ 704,908 Gross profit 237,954 458,464 316,257 328,211 148,814 Income/(loss) from operations/1/ (446,430) 153,530 130,211 172,732 63,159 Net income/(loss) (445,314) 121,072 92,492 130,052 41,449 Net income/(loss) per share: Primary $ (9.03) $ 2.19 $ 1.57 $ 2.51 $ 1.09 Fully diluted $ (9.03) $ 1.89 $ 1.54 $ 2.41 $ 1.00 Weighted average shares: Primary 49,339 55,242 58,863 51,727 37,949 Fully diluted 49,339 74,723 65,252 54,527 45,484
Consolidated Balance Sheet Data
December 31, 1993 1992 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------- (in thousands) Assets: Total current assets $ 1,167,115 $ 1,388,343 $ 1,123,665 $ 720,137 $ 366,114 Total assets 1,464,051 1,904,707 1,334,538 880,468 468,095 Liabilities and stockholders' equity: Current liabilities 489,893 435,581 168,887 183,022 123,621 Long-term debt 660,606 704,845 367,916 36,731 122,893 Stockholders' equity 208,851 626,036 712,825 603,862 200,836
Summary Quarterly Data
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Quarter ended 1993 1993 1993 1993 1992 1992 1992 1992 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) Net sales $574,449 $ 528,358 $ 490,575 $ 558,290 $ 620,466 $ 625,477 $551,347 $ 441,133 Gross profit 87,872 20,981 38,581 90,520 127,180 120,937 126,240 84,107 Income/(loss) from operations/2/ 15,510 (381,608) (51,765) (28,567) (765) 55,039 63,254 36,002 Net income/(loss) 8,455 (372,400) (58,825) (22,544) 8,490 41,905 46,024 24,653 Net income/(loss) per share: Primary $ 0.17 $ (7.54) $ (1.19) $ (0.46) $ 0.17 $ 0.79 $ 0.77 $ 0.42 Fully diluted $ 0.17 $ (7.54) $ (1.19) $ (0.46) $ 0.17 $ 0.64 $ 0.63 $ 0.40 Weighted average shares: Primary 50,733 49,410 49,303 48,554 48,928 52,800 59,885 59,261 Fully diluted 51,116 49,410 49,303 48,554 49,068 75,106 82,191 69,979
1 Income/(loss) from operations includes unusual charges (credits) of $378,702,000, $57,611,000 and ($3,389,000) in 1993, 1992 and 1991, respectively (see Note 3). 2 Income/(loss) from operations includes unusual charges of $330,019,000, $12,300,000, $36,383,000 and $57,611,000 for the quarters ended September 30, 1993, June 30, 1993, March 31, 1993 and December 31, 1992, respectively (see Note 3). 8 CONNER PERIPHERALS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth items in the Company's Consolidated Statements of Operations for each of the last three years ended December 31, 1993, as a percent of net sales.
Year ended December 31, 1993 1992 1991 - -------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of sales 88.9 79.5 80.2 --------------------------- Gross profit 11.1 20.5 19.8 Selling, general and administrative 8.7 6.8 6.5 Research and development 6.4 4.2 5.3 Amortization of goodwill and other intangibles 1.0 -- -- Unusual items 15.7 2.6 (0.2) -------------------------- Income/(loss) from operations (20.7) 6.9 8.2 Other income/(expense), net (1.2) 0.1 (0.3) -------------------------- Income/(loss) before income taxes (21.9) 7.0 7.9 Benefit/(provision) for income taxes 1.2 (1.6) (2.1) -------------------------- Net income/(loss) (20.7) 5.4 5.8
OVERVIEW The Company had a net loss of $445.3 million in 1993 due primarily to two principal causes. First, the margin the Company earned on sales of products, primarily disk drives, came under tremendous pressure during 1993 and fell to 11.1% from 20.5% in 1992. The Company believes this deterioration of margins resulted from pricing pressures caused by a combination of: (1) industry-wide overcapacity, particularly for drives under 200 megabytes, and a rapid shift in customer demand toward drives with capacities greater than 200 megabytes, and (2) cost pressures caused by aging inventories with higher unit costs resulting from distribution problems in Europe and delays in time-to-market (see discussion below). The second, and more significant cause, was the revaluation of goodwill and other intangibles necessitated by the occurrence in 1993 of fundamental changes in the storage business and the Company's decision to take various restructuring actions designed to put the Company on a more competitive footing and return it to profitability. The combination of these actions resulted in charges to income in 1993 of $378.7 million. Each of these charges is described in more detail below under Gross Profit and Unusual Items. SALES The Company's net sales totaled $2.2 billion in 1993, the same as 1992. Included in the 1993 results are the operations of Archive Corporation ("Archive"), which was acquired by the Company at the end of the fourth quarter of 1992. Operations of Archive, which include the sale of tape drive and data storage hardware and software related products, are not included in the 1992 results, although the results of the fourth quarter of 1992 include a charge of $57.6 million associated with the write-off of in-process research and development of Archive. Excluding Archive, net sales of disk drives in 1993 declined substantially as compared to 1992. This resulted from significant declines in average unit selling prices coupled with a decrease in the unit volume of shipments. The Company believes that severe price erosion was experienced throughout the disk drive industry, particularly for drives with capacities under 200 megabytes, due to industry-wide overcapacity exacerbated by an unexpected rapid shift in customer demand toward drives with capacities greater than 200 megabytes. This shift in demand toward higher capacity drives, which is expected to continue in the foreseeable future, is due to the higher storage capacity requirements of new and more sophisticated software products. Individual price declines of the Company's disk drives ranged from approximately 20% to 60% in 1993. These price declines were offset to some extent by a favorable shift in product mix towards the Company's newer, higher capacity disk drives. The unit volume of shipments declined by approximately 6% in 1993. This decline was due to a disruption in sales to European distributors resulting from the termination of the Company's exclusive distribution relationship with its European master CONNER PERIPHERALS, INC. 9 Management's Discussion and Analysis of Financial Condition and Results of Operations distributor, which adversely affected sales in the first and second quarters of 1993, and disruptions in sales associated with the timing of certain new product introductions during the first three quarters of 1993 which had a negative impact on sales to OEM customers. Similar to the disk drive product lines, tape product lines were negatively impacted by price competition, although to a lesser extent, which resulted in lower average unit selling prices. Revenue was also negatively impacted by product availability of certain newer DAT products. In 1993, international sales were approximately 54% of total sales compared to 61% in 1992 and 64% in 1991. Sales to distributors in 1993 were approximately 29% of total sales compared to 31% and 16% in 1992 and 1991, respectively. The decrease in international sales and distributor sales in 1993 is primarily due to the inclusion of Archive's tape operations, which carry a higher percentage of sales to domestic and OEM customers as compared to disk drive operations and the termination of the Company's exclusive distribution relationship with its European master distributor. In 1993, sales to Compaq Computer represented 13% of net sales as compared with 15% in 1992 and 12% in 1991. One other customer accounted for more than 10% of net sales in 1992, with 12%. In 1993 and 1991, no customer except for Compaq accounted for 10% or more of net sales. In 1992, the Company's net sales of disk drives totaled $2.2 billion, representing a 40% increase over 1991. The annual growth in net sales of disk drives was driven by a 62% increase in unit volume shipments and an improved product mix, offset somewhat by a decrease in average unit selling prices. Unit volumes increased due in large part to growth in unit shipments of 3.5-inch products and an expanded OEM customer base. As is common in the microcomputer industry, the Company's shipment patterns during a quarter are frequently characterized by a significantly higher shipment volume in the third month of the quarter than that experienced in the first two months of the quarter. This pattern often causes quarterly results to be difficult to predict. During the fourth quarter of 1993, demand for certain of the Company's disk drives exceeded the Company's product availability and, as such, were available to customers on an allocation basis. This trend appears to be continuing into the Company's first quarter of 1994. However, there can be no assurance that this trend will continue into future periods. In addition, certain of the Company's customers have reduced their order lead-times which has further reduced the Company's visibility to future orders. The Company's sales and results of operations in future quarters will continue to be difficult to predict as a result of these factors. Furthermore, the demand for the Company's products depends principally on demand for high performance microcomputers manufactured by its customers. A slowdown in demand for such computers or continued price erosion may have an exaggerated effect on the demand for the Company's products and/or profitability in any given period. In addition, the market for disk drive products is transitioning towards more of a commodity-type business with limited technological differentiation between the productsof the Company and its competitors. As a result, pricing on the Company's newer products is considerably more aggressive than in prior periods, as pricing has become the key competitive point of product differentiation in the disk drive industry. GROSS PROFIT The Company's gross margin decreased to 11.1% of net sales in 1993 from 20.5% in 1992. The lower gross margin was due to a significant decline in average unit selling prices, lower shipments into the distribution channel and special inventory related charges included in cost of sales, offset partially by lower average unit production costs and the inclusion in 1993 of sales of Archive's tape products which carry higher gross margins. The price declines experienced were driven by overcapacity in the disk drive industry, particularly for disk drives with capacities under 200 megabytes. The Company believes this resulted from increases in industry capacity during 1993 coupled with an unexpected rapid shift in customer demand for disk drives with storage capacities exceeding 200 megabytes. Cost reductions achieved in 1993 were not sufficient to offset the impact of declining selling prices. Shipments of disk drives into the distribution channel were adversely affected, during principally the first and second quarters, due to the Company's decision at the end of the first quarter of 1993 to terminate the Company's exclusive distribution relationship with its master European distributor. The Company believes that it has substantially recovered from this action and now directly controls its relationships with its distributors in Europe, Africa and the Middle East. 10 CONNER PERIPHERALS, INC During the first, second and third quarters, the Company recorded as cost of sales special charges totaling $40.3 million resulting from the Company's decisions to accelerate the end-of-life of certain products. Gross margins for tape products were adversely affected by a higher percentage of sales of lower margin products, particularly the minicartridge product line. The Company's gross margin increased to 20.5% of net sales in 1992, up from 19.8% in 1991. The increase in gross margin reflects improved product mix and reductions in unit product costs that more than offset decreases in average unit selling prices of disk drives. Unit product cost reductions were achieved primarily through greater utilization of production capacity in Asia and reduced component costs. Improved product mix resulted from a shift in customer demand toward higher capacity, higher performance products and away from older, lower capacity disk drives. The Company anticipates the introduction of several new products during 1994. The failure of the Company to successfully launch or achieve required production volumes at anticipated costs for one or more of the new products could have a material adverse effect on the Company's revenues and profitability. Costs and disruptions associated with the launch of two new disk drive products during 1993 did have a material negative impact on the Company's quarterly revenues and profitability. In addition, new products generally have lower initial manufacturing yields and higher component costs than more mature products which place additional pressure on gross margins. The Company believes it significantly improved the efficiency and effectiveness of its new product launch operations during 1993 as indicated by the successful launch of the Filepro 210 megabyte disk drive in the quarter ended December 31, 1993. However, there can be no assurance that the launch of new products in future periods will be successful. SELLING GENERAL AND ADMINISTRATIVE Selling, general and administrative ("SG&A") expenses increased to $186.3 million in 1993 from $152.7 million in 1992 and $104.4 million in 1991. These expenses represented 8.7%, 6.8% and 6.5% of net sales in 1993, 1992 and 1991, respectively. The increase in SG&A in absolute dollars and as a percentage of net sales in 1993 as compared to 1992 was primarily due to the inclusion of Archive tapeoperations during 1993. Archive operations were consolidated with the Company's disk drive operations commencing in the first quart er of 1993. SG&A expenses increased to a lesser extent due to higher advertising and legal costs. The increase in SG&A expenses was partially offset by lower profit sharing and provisions for bad debt . The increase in SG&A expenses in absolute dollars and as a percentage of net sales in 1992 as compared to 1991 is primarily a result of increases in bad debts expense and employee profit sharing. The increase in the Company's reserve for doubtful accounts was consistent with the Company's growth in sales volume and the additional credit risk associated with an expanded customer base. In 1994, the Company expects lower SG&A expenses as a percentage of net sales due to ongoing cost reduction programs and benefits received from its restructuring actions. During the fourth quarter of 1993, SG&A declined to approximately 7% of net sales from 9% in the third quarter as a result of such actions. RESEARCH AND DEVELOPMENT The Company's investment in research and development ("R&D") increased to $137.5 million in 1993 from $94.7 million in 1992 and $85.0 million in 1991. These expenses represented 6.4%, 4.2%and 5.3% of net sales in 1993, 1992 and 1991, respectively. The year-over-year increase in R&D expenses in absolute dollars and as a percentage of net sales in 1993 as compared to 1992 is primarily a result of the inclusion of the Archive tape operations in 1993. In addition, R&D expenses increased in 1993 as a result of the acceleration of new product introductions concurrent with the Company's decision to end-of-life certain older products. Due to the timing of new R&D programs and the release of new products to production, the level of R&D spending may vary from year to year in absolute dollars and as a percentage of sales. The increase in R&D expenses in absolute dollars in 1992 as compared to 1991 is primarily the result of the transitioning of new products from engineering to product launch and volume production. As product life cycles have shortened and the need to rapidly introduce new products has become essential, the Company has increased its focus on new productlaunch activities. The Company believes this investment has significantly improved the efficiency and effectiveness of its new product CONNER PERIPHERALS 11 Management's Discussion and Analysis of Financial Condition and Results of Operations launch operations. During 1994, this emphasis is planned to continue and R&D expenditures are expected to increase modestly in absolute dollars in support of new product introductions. The level of R&D spending reflects management's belief that such spending is essential for the Company to remain competitive by quickly and regularly introducing new products. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES Amortization of goodwill and other intangibles totaling $22.2 million consisted primarily of Archive related intangibles associated with the acquisition of Archive in the fourth quarter of fiscal 1992. Commencing in the first quarter of 1993, goodwill was being amortized on a straight-line basis over a period of 12 years, and other intangibles were being amortized on a straight-line basis over their estimated useful lives ranging from 3 to 10 years. At the end of the third quarter of 1993, the remaining goodwill balance was written-off and other intangibles were written-down to their estimated fair values. These special charges are more fully described under Unusual Items. The remaining balance of other intangibles is being amortized on a straight-line basis over their estimated useful lives ranging from 2 to 10 years. UNUSUAL ITEMS During 1993, the Company recorded unusual charges totaling $378.7 million, of which $40.3 million was included in cost of sales and $338.4 million was charged to unusual items. At the end of the third quarter of 1993, the Company recorded a charge of $330 million, of which $20 million was charged to cost of sales and $310 million was charged to unusual items. The $20 million charge to cost of sales reflected the cost of the Company's actions to accelerate the end-of-life of certain disk drive products. The $310 million charge included a write-down of goodwill and other intangibles of $213 million; a restructuring charge of $78 million for the reduction of excess manufacturing capacity and the streamlining of operations; and, a charge of $19 million for certain contingencies. The write-down of intangible assets totaling $213 million consisted of $180 million of goodwill and $33 million of identified intangibles. The write-off included all of the remaining goodwill associated with the Company's acquisition of Archive as of the end of the third quarter. Identified intangibles include certain patents, licenses, trademarks, technology and market data acquired either directly or in connection with the acquisition of Archive. The Company believes that the write-down of these assets was necessitated due to the emergence during 1993 of fundamental changes in the storage business, particularly the tape business. These changes had led to lower expectations for revenue growth and gross margins. Both these factors have a direct bearing on the value of intangibles and caused the value of these assets to be permanently impaired, based on the related discounted cash flows. The restructuring charge of $78 million resulted from the Company's decision to reduce excess manufacturing capacity to a level more consistent with sustainable demand and to streamline operations and administrative processes to reduce the Company's cost structure. This charge also included costs to further integrate and reduce SG&A and R&D activities of both the disk and tape drive operations. The $78 million was comprised of approximately $27.5 million for facilities related expenses, $17.5 million for write-off of certain assets and $33 million for employee headcount reductions and other miscellaneous items. As a result of the above actions and other cost saving programs, total operating expenses decreased by approximately $20 million to 12.6% of net sales for the fourth quarter of 1993 from 17.5% for the third quarter of 1993. During the first and second quarters of 1993, the Company recorded special charges totaling $48.7 million, of which $20.3 million was charged to cost of sales and $28.4 million was charged to unusual items. These charges reflected the cost of the Company's actions to accelerate the phase-out of certain disk drive products, consolidate headcount and facilities in response to increased productivity and lower short-term production levels and to further integrate the tape drive operations. The $28.4 million charge included in unusual items was comprised of approximately $17.4 million for property, plant and equipment related expenses and $11 million for employee headcount reductions and other miscellaneous items. In December 1992, in connection with the acquisition of Archive, the Company recorded a nonrecurring charge of $57.6 million ($35.7 million net of tax) representing the fair value of acquired R&D projects in-process at the date of the acquisition . 12 CONNER PERIPHERALS, INC. During 1991, the Company sold the head-stack portion of it's Malaysian operation to Read-Rite Corporation ("Read-Rite"). The net assets associated with this operation were sold in exchange for approximately 1.7 million shares of Read-Rite common stock that resulted in a gain of $11.3 million. The Company also reduced its world-wide work force by 8%, repositioned some of its manufacturing capacity from Singapore to Malaysia and relocated some of its new product engineering launch activities from San Jose, California to Longmont, Colorado. These actions resulted in charges to income that substantially offset the gain which resulted from the transaction with Read- Rite. Interest expense increased to $51.2 million in 1993 from $46.9 million in 1992 and $23.3 million in 1991. The increase in interest expense in 1993 and 1992 in relation to the preceding year results from the Company's 6.5% subordinated debentures totaling $345 million issued in March of 1992. Average outstanding long-term borrowings have remained relatively constant since March of 1992. Other income/expense reflects the net of, principally, interest income, realized gains on sale of investments, royalty income and minority interest associated with the Company's Italian subsidiary. In 1993, this resulted in net other income of $26.7 million compared to $49.1 million in 1992 and $18.9 million in 1991. Net other income in 1993 decreased as compared to 1992 primarily as a result of a nonrecurring gain of $22.5 million recorded in 1992 for the sale of the Company's equity interest in Read-Rite, and lower interest income resulting from lower invested funds and declining interest rates. The decrease was partially offset by royalty income. The year-over-year change in 1992 from 1991 resulted from the $22.5 million gain on the sale of the Company's equity interest in Read-Rite and increased interest income of approximately $7.5 million resulting from higher average balances of cash and short-term investments. TAXES The Company's effective tax rate was a benefit of 5.4% in 1993 as compared to provisions of 22.3% in 1992 and 26.5% in 1991. The decrease in the 1993 effective tax rate resulted primarily from the impact of goodwill and intangible asset amortization and write-offs during 1993 which are not deductible for income tax purposes. In addition, a significant amount of the Company's losses were generated by operations in foreign tax jurisdictions where the Company enjoys tax holidays or where losses can only be carried forward. As a result, there was less direct tax benefit to the Company in the current year for the foreign losses. The Company's effective tax rate differs from the federal statutory rate primarily as a result of differences between United States and foreign tax rates and the impact of goodwill. The Company enjoys tax holidays in Singapore and Malaysia with respect to disk drive operations which expire in 1997 and 1995, respectively, subject to certain extensions and post-holiday benefits. However, the Company provides for United States taxes on that portion of income from these jurisdictions that is not considered to be indefinitely reinvested. During 1993, the U.S. federal statutory tax rate increased from 34% to 35%. The effect of the increase in the tax rate was not material to the Company's financial position or results of operations. The decrease in the 1992 effective tax rate of 22.3% from 26.5% in 1991 resulted from the tax benefit recognized upon the write-off of in-process R&D in connection with the acquisition of Archive Corporation. Excluding this one- time charge, the Company's effective tax rate was 26.5%. During 1992, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" which superseded SFAS No. 96, "Accounting for Income Taxes", under which the Company previously reported. Both statements require the liability method for accounting for income taxes. The effect of adopting SFAS No. 109 was not material to the Company's financial position or results of operations. The Company anticipates that its effective income tax rate will be approximately 35% in fiscal 1994. The expected increase from the effective tax rates in prior years is primarily due to the anticipation of a higher percentage of total income being generated in taxable jurisdictions. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1993, the Company's principal sources of liquidity consisted of $517.5 million in cash and short-term investments and a combined $100 million revolving credit facility with several financial institutions. At December 31, 1993, the Company had no borrowings under the revolving credit facility. Availability of this line of credit is subject to the Company's continued maintenance of certain financial covenants. At December 31, 1993, the Company had outstanding letters of credit of approximately $40.3 million. CONNER PERIPHERALS, INC. 13 Management's Discussion and Analysis of Financial Condition and Results of Operations Cash generated from operating activities was approximately $20.2 million in 1993 compared with $269.8 million in 1992 and $83.7 million in 1991. The decrease in cash generated from operating activities in 1993 was primarily due to the Company's net loss of $445.3 million, offset to some extent by an increase in adjustments for non-cash items, including non-cash charges for unusual items totaling $230.4 million. This decrease was partially offset by reductions in accounts receivable and inventory levels and increases in accounts payable and accrued expenses. Accrued expenses at December 31, 1993 include accruals for potential future cash outlays primarily associated with the restructuring actions taken at the end of the third quarter. Other significant uses of cash in 1993 included $16 million for the purchase of the 49% minority interest in Conner Peripherals Europe S.p.A. held by the Company's joint venture partner. As of December 31, 1993, Conner Peripherals Europe S.p.A. is a wholly-owned subsidiary of the Company. The increase in operating cash flow in 1992 from 1991 was primarily due to an increase in net income adjusted for non-cash expenses and revenues, reduction in inventory levels and growth in accounts payable and accrued expenses, offset to some extent by an increase in accounts receivable. In December 1992, the Company acquired Archive, a manufacturer and supplier of removable tape back-up and data storage products, to complement the Company's existing products and markets. Total cash used in connection with the acquisition of Archive was approximately $288 million, net of cash acquired, including cash used to retire Archive debt of approximately $14 million and $90 million in 1993 and 1992, respectively. The Company's capital expenditures during 1993 were approximately $102 million compared with $70 million in 1992 and $88 million in 1991. The increase in capital expenditures in 1993 as compared to 1992 and 1991 reflects increased spending on manufacturing assets, in particular, the expansion of the Company's disk media manufacturing facility in California. The Company currently expects to make capital expenditures of approximately $75 million during 1994. These expenditures will be used primarily for manufacturing equipment in support of new product lines and realignment of manufacturing capacity between manufacturing locations. The Company believes that current capital resources and cash generated from operating activities will be sufficient to meet its liquidity and capital expenditure requirements for the foreseeable future. LITIGATION The Company and certain officers and directors are defendants in a securities class action lawsuit which purports to represent a class of investors who purchased or otherwise acquired the Company's common stock between January 1992 and May 1993. Certain officers and directors are also defendants in a related shareholders derivative suit. Both complaints seek unspecified damages and other relief. the Company believes there are meritorious defenses to the matters raised and intends to defend the actions vigorously. In August 1993, the Company was served with a patent infringement complaint filed by IBM in the United States District Court for the Northern District of California. The complaint alleges that products manufactured by the Company infringe nine patents owned by IBM. In addition, the complaint seeks declaratory relief to the effect that disk drives produced by IBM do not infringe five patents held by the Company and seeks to have such patents declared invalid. The Company answered the complaint, denying all material allegations and counter claiming that IBM disk drives infringesix patents owned by Conner, including the five contained in the IBM complaint. The Company expects that it may engage in cross-licensing negotiations with IBM with a view towards resolving this matter; however, the Company believes that it has meritorious defenses against these allegations and will defend this action vigorously. The Company is unable to predict the outcome of the litigation or ultimate effect, if any, on its operations or financial condition. 14 CONNER PERIPHERALS, INC. Consolidated Balance Sheets
December 31, 1993 1992 - -------------------------------------------------------------------------------------- (in thousands, except par value and share data) ASSETS Current assets: Cash, cash equivalents and short-term investments $ 517,547 $ 614,527 Accounts receivable, net 333,416 401,128 Inventory 173,860 264,995 Deferred income taxes 54,944 39,351 Other 87,348 68,342 ------------------------ Total current assets 1,167,115 1,388,343 Property, plant and equipment, net 231,337 231,396 Goodwill and other intangibles, net 42,944 259,843 Other 22,655 25,125 ------------------------ $ 1,464,051 $ 1,904,707 LIABILITIES And ------------------------ STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 229,721 $ 250,103 Accrued expenses 217,060 180,397 Current portion of long-term debt 43,112 5,081 ------------------------- Total current liabilities 489,893 435,581 Long-term debt, less current portion 660,606 704,845 Deferred income taxes 98,162 115,314 Other 4,009 5,861 Minority interest 2,530 17,070 Commitments and contingencies (Notes 9 and 13) Stockholders' equity: Preferred stock, $0.001 par value; 20,000,000 shares authorized, none outstanding -- -- Common stock and paid-in-capital in excess of $0.001 par value; 100,000,000 shares authorized, 50,565,083 and 48,317,172 shares issued and outstanding 242,454 214,325 Retained earnings/(accumulated deficit) (33,603) 411,711 ------------------------- Total stockholders' equity 208,851 626,036 ------------------------- $ 1,464,051 $ 1,904,707 -------------------------
The accompanying notes are an integral part of these financial statements. CONNER PERIPHERALS, INC. 15 Consolidated Statements of Operations
Year ended December 31, 1993 1992 1991 - -------------------------------------------------------------------------------------- (in thousands, except per share amounts) Net sales $ 2,151,672 $ 2,238,423 $ 1,598,984 Cost of sales 1,913,718 1,779,959 1,282,727 --------------------------------------- Gross profit 237,954 458,464 316,257 --------------------------------------- Selling, general and administrative 186,269 152,671 104,428 Research and development 137,465 94,652 85,007 Amortization of goodwill and other intangibles 22,248 -- -- Unusual items, (income)/expense, net 338,402 57,611 (3,389) --------------------------------------- Total operating expenses 684,384 304,934 186,046 --------------------------------------- Income/(loss) from operations (446,430) 153,530 130,211 Interest expense (51,213) (46,866) (23,290) Other income, net 26,667 49,056 18,920 --------------------------------------- Income/(loss) before income taxes (470,976) 155,720 125,841 Benefit/(provision) for income taxes 25,662 (34,648) (33,349) --------------------------------------- Net income/(loss) $ (445,314) $ 121,072 $ 92,492 --------------------------------------- Net income/(loss) per share: Primary $ (9.03) $ 2.19 $ 1.57 --------------------------------------- Fully diluted $ (9.03) $ 1.89 $ 1.54 --------------------------------------- Weighted average shares: Primary 49,339 55,242 58,863 --------------------------------------- Fully diluted 49,339 74,723 65,252 ---------------------------------------
The accompanying notes are an integral part of these financial statements. 16 CONNER PERIPHERALS, INC. Consolidated Statements of Cash Flows
Year ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income/(loss) $ (445,314) $ 121,072 $ 92,492 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization 104,747 77,463 51,138 Deferred income taxes (32,745) (13,067) 19,435 Non-cash unusual items 230,417 57,611 (11,283) Gain on sale of Read-Rite Corporation common stock -- (22,540) -- Loss on asset dispositions 11,468 5,595 5,238 Minority interest and other 720 9,330 7,687 Changes in assets and liabilities, net of effect of Archive Corporation acquisition: Accounts receivable, net 67,712 (132,401) 29,445 Inventory 91,135 39,362 (60,581) Other current assets (19,006) (19,193) (23,855) Other non-current assets (20,907) (18,108) 1,070 Accounts payable and accrued expenses 31,994 164,654 (27,049) ------------------------------------- Total cash provided by operating activities 20,221 269,778 83,737 Cash flows from investing activities: Capital expenditures (102,111) (69,744) (87,720) Purchases of short-term investments (1,429,492) (1,013,148) (552,932) Sales and maturities of short-term investments 1,464,986 795,839 414,699 Purchase of minority interest (16,000) -- -- Acquisition of Archive Corporation, net of cash acquired -- (181,537) -- Acquisition of technology rights (2,078) (28,061) (14,000) Proceeds from sale of Read-Rite Corporation common stock -- 39,189 -- Acquisition of equity interest, net -- -- (4,262) ------------------------------------- Cash used in investing activities (84,695) (457,462) (244,215) Cash flows from financing activities: Proceeds from long-term debt 2,782 345,672 348,335 Repayments of long-term debt (10,990) (24,752) (4,388) Repayments of Archive Corporation long-term debt (13,713) (90,239) -- Issuance of common stock 24,909 17,322 11,325 Repurchase of common stock -- (241,505) -- Contribution by minority stockholder -- 8,000 -- ------------------------------------- Cash provided by financing activities 2,988 14,498 355,272 Net increase (decrease) in cash and cash equivalents (61,486) (173,186) 194,794 Cash and cash equivalents at beginning of the year 258,985 432,171 237,377 ------------------------------------- Cash and cash equivalents at end of the year 197,499 258,985 432,171 Short-term investments 320,048 355,542 138,233 ------------------------------------- Total cash, cash equivalents and short-term investments $ 517,547 $ 614,527 $ 570,404 -------------------------------------
The accompanying notes are an integral part of these financial statements. CONNER PERIPHERALS, INC. 17 Consolidated Statements of Stockholders' Equity
Common Stock ---------------------------- Retained Total Par Value and Earnings Stock- Paid-in-Capital (Accumulated holders' Shares in excess of par Deficit) Equity - -------------------------------------------------------------------------------------------------------- (in thousands, except share data) Balance at December 31, 1990 56,773,669 $ 405,715 $ 198,147 $ 603,862 Issuance of common stock under various employee stock plans 1,315,628 11,325 -- 11,325 Income tax benefit of disqualifying dispositions of employee stock -- 5,146 -- 5,146 Net income -- -- 92,492 92,492 ------------------------------------------------------------------- Balance at December 31, 1991 58,089,297 422,186 290,639 712,825 Issuance of common stock under various employee stock plans 1,866,677 31,008 -- 31,008 Repurchase of common stock, at cost (11,638,802) (241,505) -- (241,505) Income tax benefit of disqualifying dispositions of employee stock -- 2,636 -- 2,636 Net income -- -- 121,072 121,072 ------------------------------------------------------------------- Balance at December 31, 1992 48,317,172 214,325 411,711 626,036 Issuance of common stock under various employee stock plans 2,247,911 24,909 -- 24,909 Income tax benefit of disqualifying dispositions of employee stock -- 3,220 -- 3,220 Net loss -- -- (445,314) (445,314) ------------------------------------------------------------------- Balance at December 31, 1993 50,565,083 $ 242,454 $ (33,603) $ 208,851 -------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 18 CONNER PERIPHERALS, INC. Notes to Consolidated Financial Statements NOTE 1 THE COMPANY Conner Peripherals, Inc. ("Company") was incorporated in California in June 1985, and reincorporated in Delaware in September 1992. The Company sells, designs and builds a comprehensive line of information storage solutions products, including disk drives, tape drives, storage management software and storage systems, for a wide range of computer applications. During 1993, sales to one customer accounted for approximately 13% of net sales. During 1992, sales to two customers accounted for approximately 15% and 12% of net sales, respectively. During 1991, sales to one customer accounted for approximately 12% of net sales. The Company's fiscal year ends on the Saturday nearest to December 31. Results of operations for the year ended in 1993 include 52 weeks. Results of operations for the years ended 1992 and 1991 include 53 weeks and 52 weeks, respectively. The Company reports quarterly results on thirteen-week quarterly periods each ending on the Saturday closest to month-end. For purposes of presentation, the Company has indicated its accounting year as ending on December 31 or the month- end for interim quarterly periods. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Conner Peripherals, Inc. and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition: Revenue from product sales to customers is recognized upon shipment. Revenue from sales to certain distributors is subject to agreements allowing certain rights of return and price protection on unsold merchandise held by those distributors. Accordingly, reserves for estimated future returns, exchanges and credits for price protection are also provided upon shipment. Warranty Expense: The Company provides for the estimated cost which may be incurred under its various product warranties upon product shipment. Cash, Cash Equivalents and Short-term Investments: The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Short-term investments consist primarily of certificates of deposit, bankers acceptances, commercial paper, corporate debt, municipal debt and U.S. Government agency debt securities. These investments generally mature within 12 months and are carried at cost, which approximates market. During May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"), which requires a change in the method used to account for certain investments. FAS 115 will be effective for the Company's fiscal year ending December 31, 1994. The Company has evaluated the implications of the Statement and does not expect it to have a material impact on the Company's financial condition or results of operations. Concentration of Credit Risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and short-term investments and trade accounts receivable. The Company places its cash, cash equivalents and short-term investments in a variety of financial instruments such as certificates of deposit, bankers acceptances, commercial paper, corporate debt, municipal debt and U.S. Government agency debt. The Company, by policy, limits the amount of credit exposure to any one financial institution or commercial issuer. The Company sells its products to original equipment manufacturers and distributors throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for uncollectible accounts receivable based upon the expected collectibility of all accounts receivable. Inventory: Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Equipment and furniture are depreciated using the straight-line method based upon the estimated useful lives of the related assets which range from 2 to 10 years. Leasehold improvements are amortized using the straight-line method based upon the shorter of the estimated useful lives or the lease term of the respective assets. Buildings are depreciated using the straight-line method over the estimated useful life of 25 years. CONNER PERIPHERALS, INC. 19 Notes to Consolidated Financial Statements Goodwill and Other Intangibles: Goodwill represents the excess of the purchase price over the fair market value of net assets acquired in connection with the 1992 acquisition of Archive Corporation (see Note 4). At the end of the quarter ended September 30, 1993, all remaining goodwill pertaining to the acquisition of Archive was written-off (see Note 3). Previous to the write-off, goodwill was being amortized on a straight-line basis over 12 years. Other intangibles primarily include patents and acquired technology, which are being amortized over their estimated useful lives ranging from 2 to 10 years. The Company evaluates the recoverability of intangible assets based on future discounted cash flows. Charges for impairment of intangible assets are recorded to the extent unamortized book value of such assets exceed the related future discounted cash flows. Income Taxes: Effective at the beginning of 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which superseded Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes," under which the Company previously reported. Both statements require the liability method for accounting for income taxes. The current and cumulative effect of adopting this statement were not material to the Company's financial position or results of operations. No U.S. federal income taxes are provided on the portion of unremitted earnings of the foreign subsidiaries which are intended to be indefinitely reinvested. Net Income (Loss) Per Share: Primary and fully diluted net loss per share is computed using the weighted average number of common shares outstanding. Primary net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding. Common equivalent shares consist of stock options (using the treasury stock method). Fully diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding and assuming the conversion, if dilutive, of all outstanding convertible subordinated debentures from the date of issuance for all periods in which they remained outstanding. For purposes of the fully diluted computation, net income is adjusted by the after tax interest expense applicable to the convertible subordinated debentures. Foreign Currency Translation and Transactions: The Company currently uses the U.S. dollar as the functional currency of its foreign operations. Gains or losses from foreign currency translation are included in the determination of net income. To date, such amounts have been immaterial. The Company enters into forward exchange contracts and foreign currency options to hedge certain foreign currency transactions for periods consistent with the terms of the underlying transactions. Gains and losses on these contracts are deferred and offset against losses and gains on the underlying transactions. At December 31, 1993, the Company had approximately $28,000,000 of forward exchanges contracts and $28,000,000 of foreign currency options outstanding. Presentation: Certain prior year financial statement balances have been reclassified to conform to the 1993 presentations. 20 CONNER PERIPHERALS, INC. Note 2 Balance Sheet and Statement of Operations Components
December 31, 1993 1992 - ------------------------------------------------------------------------------------- (in thousands) Accounts receivable: Gross receivables $ 372,846 $ 434,820 Less reserves and allowances 39,430 33,692 ---------------------------------- $ 333,416 $ 401,128 ================================== Inventories: Purchased components $ 81,620 $ 125,261 Work-in-process 37,939 85,887 Finished goods 54,301 53,847 ---------------------------------- $ 173,860 $ 264,995 ================================== Property, plant and equipment: Building $ 47,335 $ 47,959 Equipment and furniture 289,517 276,746 Leasehold improvements 60,762 41,390 Construction-in-progress 34,026 14,774 ---------------------------------- 431,640 380,869 Less accumulated depreciation and amortization 200,303 149,473 ---------------------------------- $ 231,337 $ 231,396 ================================== Goodwill and other intangibles: Goodwill $ -- $ 169,249 Intangibles 64,003 98,260 ---------------------------------- 64,003 267,509 Less accumulated amortization 21,059 7,666 ---------------------------------- $ 42,944 $ 259,843 ================================== Accrued expenses: Accrued employee compensation $ 33,041 $ 24,736 Accrued income taxes 14,298 26,320 Accrued warranty costs 38,299 36,738 Accrued restructuring costs 66,380 -- Other liabilities 65,042 92,603 ---------------------------------- $ 217,060 $ 180,397 ----------------------------------
Year ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------- (in thousands) Other income, net: Interest income $ 17,700 $ 35,050 $ 27,566 Minority interest in joint ventures 649 (6,457) (2,541) Gain on sale of Read-Rite Corporation stock -- 22,540 -- Other 8,318 (2,077) (6,105) ======================================== $ 26,667 $ 49,056 $ 18,920 ========================================
NOTE 3 UNUSUAL ITEMS During 1993, the Company recorded unusual charges totaling $378,702,000, of which $40,300,000 was included in cost of sales and $338,402,000 was charged to unusual items. At the end of the third quarter of 1993, the Company recorded a charge of $330,019,000, of which $20,000,000 was charged to cost of sales and $310,019,000 was charged to unusual items. The $20,000,000 charge to cost of sales reflected the cost of the Company's actions to accelerate the end-of-life of certain disk drive products. The $310,019,000 charge included a write-down of goodwill and other intangibles of $212,945,000; a restructuring charge of $78,074,000 for the reduction of excess manufacturing capacity and the streamlining of operations; and, a charge of $19,000,000 for certain contingencies. CONNOR PERIPHERALS, INC. 21 Notes to Consolidated Financial Statements The write-down of intangible assets totaling $212,945,000 consisted of $180,000,000 of goodwill and $32,945,000 of identified intangibles. The write- off included all of the remaining goodwill associated with the Company's acquisition of Archive Corporation ("Archive") (see Note 4) as of the end of the third quarter. Identified intangibles include certain patents, licenses, trademarks, technology and market data acquired either directly or in connection with the acquisition of Archive. The Company believes that the write-down of these assets was necessitated by the emergence during 1993 of fundamental changes in the storage business, particularly the tape business. These changes had led to lower expectations for revenue growth and gross margins. Both these factors have a direct bearing on the value of intangibles and caused the value of these assets to be permanently impaired based on the related discounted cash flows. The restructuring charge of $78,074,000 resulted from the Company's decision to reduce excess manufacturing capacity to a level more consistent with sustainable demand and to streamline operations and administrative processes to reduce the Company's cost structure. This charge also included costs to further integrate and reduce sales, general and administrative and research and development activities of both the disk and tape drive operations. The $78,074,000 was comprised of $27,496,000 for facilities related expenses, $17,472,000 for write-off of certain assets and $33,106,000 for employee headcount reductions and other miscellaneous items. During the first and second quarters of 1993, the Company recorded special charges totaling $48,683,000, of which $20,300,000 was charged to cost of sales and $28,383,000 was charged to unusual items. These charges reflected the cost of the Company's actions to accelerate the phase-out of certain disk drive products, consolidate headcount and facilities in response to increased productivity and lower short-term production levels and to further integrate the tape drive operations. The $28,383,000 charge included in unusual items was comprised of approximately $17,400,000 for property, plant and equipment related expenses and $10,983,000 for employee headcount reductions and other miscellaneous items. In December 1992, in connection with the acquisition of Archive, the Company recorded a nonrecurring charge of $57,611,000 representing the fair value of acquired research and development projects in-process at the date of acquisition. During the fourth quarter of 1991, the Company took several actions to streamline operations, contain costs and reposition manufacturing activities. These actions included a world-wide reduction in work force and the sale of the Company's headstack assembly operations in Malaysia to Read-Rite Corporation. These actions resulted in a net reduction to operating expenses of approximately $3,389,000. NOTE 4 ACQUISITION OF ARCHIVE CORPORATION In December 1992, the Company acquired all of the outstanding stock of Archive Corporation, a manufacturer and supplier of removable tape back-up and data storage products, for approximately $202,000,000, including cash of approximately $185,000,000, conversion of outstanding stock options and transaction costs. In addition, the Company assumed approximately $104,000,000 of Archive debt, all of which had been repaid as of December 31, 1993. The transaction has been accounted for as a purchase, and accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based upon their estimated fair market values at the date of acquisition. The excess of the purchase price over the fair market value of the net tangible assets acquired was initially estimated at approximately $287,860,000. During 1993, the Company revised the estimates of certain reserves and accruals established in connection with the purchase accounting which increased the excess of the purchase price over the fair market value of net tangible assets acquired to $303,893,000, of which $57,611,000 was allocated to in- process research and development, $55,000,000 was allocated to various intangibles including technology, software, patents and trademarks and the remaining $191,282,000 was allocated to goodwill. During the third quarter of 1993, the Company wrote-off the remaining unamortized goodwill and certain other intangibles due to impairment resulting from changes in the storage business (see Note 3). The consolidated statement of operations for the year ended December 31, 1992 includes a charge of $57,611,000 ($35,719,000 net of tax) for in-process research and development purchased in connection with the acquisition. Operations of Archive subsequent to the date of acquisition through December 31, 1992 were not material and have not been included in the consolidated statement of operations for the year ended December 31, 1992. 22 CONNOR PERIPHERALS, INC. The following unaudited pro forma information reflects the results of operations for the years ended December 31, 1992 and 1991 as if the acquisition of Archive had occurred as of the beginning of 1991, and after giving effect to certain adjustments, including amortization of goodwill and other intangibles, discontinuation of certain product lines, lost interest income, reduction of interest expense on retired debt, accounting conformance and related income tax effects. The pro forma information excludes the effects of the nonrecurring charge of $57,611,000 for in-process research and development. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place at the beginning of 1991 or of operating results which may occur in the future.
Year ended December 31, 1992 1991 - ------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) (Unaudited) Net sales $ 2,590,635 $ 1,910,483 Net income $ 157,804 $ 30,761 Earnings per share $ 2.36 $ 0.52
NOTE 5 SUPPLEMANTAL CASH FLOW INFORMATION
Year ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------------- (in thousands) Cash paid during the year for: Interest, net of $1,682 capitalized in 1991 $49,896 $ 40,506 $ 18,374 Income taxes, net of refunds amounting to $4,341 in 1993 15,846 17,218 23,546 Non-cash investing and financing activities: Capital lease obligations -- -- 742 Fair market value of common stock of Read-Rite Corporation acquired on sale of the Headstack operations -- -- 16,649 Fair market value of Archive assets acquired, including goodwill -- 306,485 -- Debt assumed -- (104,000) --
NOTE 6 INVESTMENT IN JOINT VENTURES In August 1993, the Company executed an agreement ("Agreement") with Olivetti, S.p.A. ("Olivetti") under which the Company purchased for $16,000,000 the 49% minority interest owned by Olivetti in Conner Peripherals Europe, S.p.A. ("CPE"), the Company's majority-owned subsidiary located in Italy. The Company is also obligated to make additional payments to Olivetti should earnings of CPE during the three years ending December 31, 1996 exceed certain amounts. Under the Agreement, Olivetti has agreed that if certain performance conditions are met, it will purchase at least 70% of its requirements for disk drives from the Company during the same three-year period. In September 1992, the Company entered into a contract with Shenzhen CPC, a subsidiary of China Electronics Corporation, to establish a joint venture in Shenzhen, People's Republic of China, for manufacture and distribution of disk drives. The Company holds a 60% interest in the joint venture. In January 1994, the Company agreed, subject to certain regulatory approvals, to increase its ownership in the joint venture to 90%. CONNOR PERIPHERALS, INC. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 INCOME TAXES Income (loss) before income taxes includes $(148,738,000), $185,708,000, and $118,065,00 of income (loss) relating to non-U.S. operations for 1993, 1992 and 1991, respectively. The provision (benefit) for income taxes includes:
Year ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------- (in thousands) Current: Federal $ 1,902 $ 24,607 $ 6,067 State 142 5,657 1,962 Foreign 5,039 17,451 5,885 ------------------------------------ 7,083 47,715 13,914 ------------------------------------ Deferred: Federal (27,848) (8,700) 14,385 State (4,897) (4,367) 5,050 ----------------------------------- (32,745) (13,067) 19,435 ------------------------------------ Total $ (25,662) $ 34,648 $ 33,349 ====================================
Deferred taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred tax liabilities (assets) are comprised of the following:
December 31, 1993 1992 - ------------------------------------------------------------------------- (in thousands) Inventory valuation $ (13,552) $ (14,137) Depreciation and amortization (9,781) (2,486) Accounts receivable reserves (15,030) (13,753) Accrued expenses and other (41,178) (17,543) Net operating loss and tax credit carryforwards (69,491) (56,151) --------------------------- (149,032) (104,070) --------------------------- Unremitted earnings of foreign subsidiaries 138,459 132,286 Technology and other intangibles 13,328 23,180 State income taxes 6,846 2,519 --------------------------- 158,633 157,985 --------------------------- Valuation reserves 33,617 22,048 --------------------------- Total $ 43,218 $ 75,963 ---------------------------
A reconciliation of the income tax provision (benefit) computed by applying the domestic federal statutory rate to pretax income, to the recorded provision (benefit) for income taxes follows:
Year ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------- (in thousands) Provision/(benefit) at statutory rate (35.0%) 34.0% 34.0% Differences between United States and foreign taxes and limitations on the benefits of foreign losses 12.6 (13.0) (9.3) State taxes, net of federal benefit (0.7) 0.6 3.7 Goodwill 13.7 _ _ Change in federal valuation reserve 1.9 _ _ Impact of rate change 0.3 _ _ Other 1.8 0.7 (1.9) --------------------------------------- (5.4%) 22.3% 26.5% =======================================
24 CONNER PERIPHERALS, INC. At December 31, 1993, the Company has net operating loss carryforwards of approximately $150,000,000, expiring 1995 through 2007, relating to preacquisition operations of Archive and its subsidiaries. The majority of these losses were generated in years that have not yet been examined by the Internal Revenue Service ("IRS"). These losses may be used to offset taxable income, subject to an annual maximum of approximately $12,000,000, in future years. For financial reporting purposes, at the time of acquisition, the Company recognized tax benefits relating to a portion of these losses to reduce goodwill and established valuation reserves of $22,048,000 relating to the remaining losses. Benefits of such remaining losses, if realized, would be used to reduce the remaining balance of other intangibles relating to the Archive acquisition. During 1993, the Company increased the valuation reserves relating to these losses to reflect changes in management's judgment regarding the realization of these losses. At December 31, 1993, the Company has alternative minimum tax credit carryforwards of approximately $6,000,000, which, subject to certain restrictions, are available to reduce taxes on future taxable income without any time limitations. The Company enjoys tax holidays in Singapore and Malaysia with respect to the manufacture of disk drives, which expire in 1997 and 1995, respectively, subject to certain extensions and post-holiday benefits. Tax holidays for the manufacture of tape drives in Singapore expired in June 1993. The net impact of these tax holidays was to reduce the net loss by approximately $3,000,000 ($0.06 per share fully diluted) in 1993, increase net income by approximately $27,800,000 ($0.37 per share fully diluted) in 1992, and increase net income by approximately $12,200,000 ($0.19 per share fully diluted) in 1991. At December 31, 1993, the Company had not provided U.S. federal and state income taxes of approximately $65,000,000 on cumulative unremitted earnings of its consolidated foreign subsidiaries and approximately $28,000,000 on cumulative preacquisition unremitted earnings of Archive's consolidated foreign subsidiaries, which are intended to be indefinitely reinvested. The IRS is currently reviewing Conner Peripherals' federal income tax returns for 1989 and 1990 and Archive and its subsidiaries' federal income tax returns for 1985 through 1989. Management believes that the ultimate outcome of these reviews will not have a material adverse impact on the Company's financial position or results of operations. NOTE 8 LONG-TERM DEBT AND LINES OF CREDIT
December 31, 1993 1992 - -------------------------------------------------------------------------------------------------- (in thousands) Convertible subordinated debentures, 6.75%, due 2001, convertible into 7,931,035 shares of common stock $ 230,000 $ 230,000 Convertible subordinated debentures, 6.5%, due 2002, convertible into 14,375,000 shares of common stock 345,000 345,000 Senior unsecured notes, 8.84%, and 9.08%, due through 1998 105,000 105,000 Senior unsecured note, 12%, due through 1994 9,000 10,500 Italian Lire debentures and notes, 7% to 7.38%, due through 2000 13,628 16,071 Capitalized lease obligations 1,090 3,355 ----------------------------- 703,718 709,926 Less current portion 43,112 5,081 ----------------------------- $ 660,606 $ 704,845 =============================
During 1993, the Company modified certain terms of the senior unsecured notes. Under the modified terms, in exchange for revising certain financial covenants, the Company agreed to increase the interest rates of the notes by half a percent for periods commencing from October 1, 1993 and ending the earlier of March 31, 1995 or the due dates of the notes. Based upon quoted market prices, the fair value of the convertible subordinated debentures was approximately $512,325,000 at December 31, 1993. The estimated fair value of the Company's other long-term debt was approximately $144,737,000 at December 31, 1993. The fair values of debt for which quoted prices were not available has been determined based upon interest rates available to the Company for issuance of debt with similar terms and remaining maturities. CONNER RERIPHERALS, INC. 25 Notes to Consolidated Financial Statements At December 31, 1993, future minimum principal payments on long-term debt and capitalized lease obligations were as follows:
Year ended December 31, - -------------------------------------------------- (in thousands) 1994 $ 43,112 1995 34,092 1996 33,778 1997 6,854 1998 6,987 Thereafter 578,895 -------------- $ 703,718 ==============
On December 23, 1993, the Company entered into a revolving credit facility agreement ("Agreement") with a group of banks allowing borrowings of up to $100,000,000 through December 31, 1995. Borrowings under the revolving credit facility carry interest at the banks' prime rate or, at the option of the Company, at an interbank offered rate (as defined in the Agreement). The Agreement provides for a commitment fee. As of December 31, 1993, the Company had no borrowings under the revolving credit facility. At December 31, 1993, the Company had outstanding letters of credit of approximately $40,300,000. The revolving credit facility and senior unsecured notes prohibit the payment of cash dividends and require the maintenance of various financial covenants. Without the prior consent of the lenders, the Company is also prohibited from incurring debt and lease commitments in excess of specified amounts or entering into acquisition, sale of business, merger or joint venture agreements in excess of certain amounts. At December 31, 1993, the Company was in full compliance with all covenants and conditions. NOTE 9 LEASE COMMITMENTS The Company leases certain property, facilities and equipment under non-cancelable operating leases and certain equipment under capitalized leases. The terms of the leases for property, facilities and equipment expire over the next 2 years with renewal options in certain instances. Future minimum lease payments under capitalized and non-cancelable operating leases as of December 31, 1993 are as follows:
Capital Operating Year ended December 31, leases leases - ---------------------------------------------------------------------- (in thousands) 1994 $ 821 $ 23,273 1995 283 12,266 1996 128 7,348 1997 12 6,347 1998 _ 5,996 Thereafter _ 21,595 ------------------------- Total minimum payments 1,244 $ 76,825 ---------- Less imputed interest 154 ------ Present value of payments under capital leases 1,090 Less current portion 744 ------ Long-term lease obligations $ 346 ======
Rent expense for all operating leases was approximately $24,446,000 in 1993, $15,958,000 in 1992, and $16,855,000 in 1991. 26 CONNER PERIPHERALS, INC NOTE 10 EMPLOYEE BENEFIT PLANE Incentive Stock Plans: In 1986, the Company adopted the 1986 Incentive Stock Plan ("Plan"). The Plan provides for the issuance of non-transferable stock options to employees of the Company and non-statutory stock options and stock purchase rights to directors, employees and consultants of the Company. The Company has never issued any stock purchase rights. A total of 18,500,000 shares of common stock have been reserved for issuance of options and stock purchase rights under the Plan. At December 31, 1993, 5,255,238 shares were available for future grants of options and stock purchase rights under the Plan. Stock options are granted at prices of not less than 100% of the fair market value of the common stock at the time of grant, except that stock options granted to any employee who owns stock representing more than 10% of total voting power must have an exercise price of not less than 110% of fair market value. Options granted under the Plan prior to July 1992 expire five years after the date of grant and vest over a period of four years. In July 1992, the Plan was amended to provide an expiration period for subsequent stock grants to 10 years from the date of grant. On December 29, 1992, upon completion of the acquisition of Archive, the Company assumed the obligations existing under Archive's Incentive Stock Option and Restricted Stock Purchase Plans ("Archive Plans"). Effective on that date, the Company converted existing options to purchase Archive common stock under the Archive Plans into an equivalent number of options to purchase the Company's common stock. A total of 1,125,000 shares of the Company's common stock were reserved for issuance of options of which 1,059,258 were issued upon the conversion. These options expire at various times through 2002. The following table summarizes stock option activity under the Plan and Archive Plans:
Year ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 8,592,493 5,510,468 4,666,995 Granted 3,292,099 3,213,825 2,073,763 Conversion of the Archive Plans _ 1,059,258 _ Exercised ($0.05 per share to $26.88 per share) (1,329,620) (868,619) (840,018) Canceled (2,025,205) (322,439) (390,272) --------------------------------------------------------- Options outstanding at end of the year 8,529,767 8,592,493 5,510,468 --------------------------------------------------------- Options exercisable at end of the year 3,547,071 2,871,736 1,820,837 Range of exercise price of outstanding options at end of the year $ 5.19 $ 5.00 $ 0.15 $ 26.88 $ 26.88 $ 26.88
A total of 3,572,286 non-statutory stock options were outstanding at December 31, 1993. Restricted Stock Plan: In 1992, the Company's stockholders approved the adoption of the 1992 Restricted Stock Plan ("Restricted Plan"). A total of 1,000,000 shares of common stock are reserved for issuance under the Restricted Plan. The aggregate fair value of the shares granted under the Restricted Plan is considered unearned compensation at the time of grant and compensation is earned ratably over the vesting period of seven years. Charges to income for the Restricted Plan during 1993 and 1992 were approximately $1,073,000 and $514,000, respectively. At December 31, 1993, 440,000 shares have been issued under the Restricted Plan. Employee Stock Purchase Plan: In 1988, the Company adopted an Employee Stock Purchase Plan ("Purchase Plan"). A total of 3,000,000 shares of common stock are reserved for issuance under the Purchase Plan. Shares may be purchased by participants at the lower of 85% of the fair market value of the common stock at the beginning or end of each six-month offering period. Shares are to be purchased from payroll deductions which are limited to 15% of an employee's compensation. At December 31, 1993, 2,601,175 shares have been issued under the Purchase Plan. Profit Sharing Plan: The Company has a profit sharing plan which provides for additional compensation to all employees of the Company with the exception of certain marketing and sales personnel who are compensated on a commission basis and certain non-U.S. employees. The additional compensation is determined on a quarterly basis, based upon a percentage of the amount of operating profit in excess CONNER PERIPHERALS, INC. 27 Notes to Consolidated Financial Statements of a stipulated return on equity. As a result of operating losses incurred in 1993, the Company did not distribute profit sharing or record charges to income relating to profit sharing. Charges to income for the profit sharing plan during 1992 and 1991 were approximately $14,686,000 and $2,225,000, respectively, which have been included in selling, general and administrative costs. 401(k) Savings Plan: In 1990, the Company adopted a 401(k) savings plan ("Savings Plan") covering substantially all of its U.S. employees. Under the Savings Plan, eligible employees may contribute up to 15% of their compensation to the Saving Plan with the Company matching participant's contributions up to $250 per employee per year at the rate of 50% of the employee contribution. Both the participant's and the Company's contributions are fully vested. To date, the Company's contributions have not been material. NOTE 11 REPURCHASE OF COMMON STOCK As of December 31, 1991, Compaq Computer Corporation ("Compaq") owned approximately 21% of the outstanding common stock of the Company. In August 1992, the Company repurchased 11,638,802 shares of the Company's common stock from Compaq representing substantially all of Compaq's equity interest in the Company. NOTE 12 FOREIGN OPERATIONS The Company operates in one industry segment (see Note 1). The following is a summary of the Company's operations:
1993 1992 1991 - --------------------------------------------------------------------------------------- (in thousands) Sales to third party customers: United States: Customers in United States $ 997,764 $ 867,916 $ 581,400 Customers in Europe & Asia 859,447 892,506 488,032 ----------------------------------------------- 1,857,211 1,760,422 1,069,432 ----------------------------------------------- Asia 193,257 326,502 436,276 Europe 101,204 151,499 93,276 ----------------------------------------------- 2,151,672 2,238,423 1,598,984 ----------------------------------------------- Intercompany sales between geographic areas: United States 285,250 74,579 85,327 Asia 1,426,370 1,388,617 1,046,122 Europe 98,007 106,037 80,931 ---------------------------------------------- 1,809,627 1,569,233 1,212,380 ---------------------------------------------- Consolidation eliminations (1,809,627) (1,569,233) (1,212,380) ---------------------------------------------- Net sales $ 2,151,672 $ 2,238,423 $ 1,598,984 ============================================== Operating income: United States $ (295,722) $ (3,287) $ 8,765 Asia (88,303) 119,348 108,279 Europe (62,405) 37,469 13,167 ---------------------------------------------- $ (446,430) $ 153,530 $ 130,211 ============================================== Identifiable assets: United States $ 577,962 $ 815,382 $ 306,257 Asia 313,319 404,506 390,613 Europe 55,223 70,292 67,264 ---------------------------------------------- 946,504 1,290,180 764,134 General corporate assets 517,547 614,527 570,404 ---------------------------------------------- Total assets $ 1,464,051 $ 1,904,707 $ 1,334,538 ==============================================
28 CONNER PERIPHERALS, INC Intercompany sales are accounted for at prices intended to approximate those that would be charged to unaffiliated customers. At December 31, 1993 and 1992, foreign liabilities (excluding intercompany balances) were $273,288,000 and $280,053,000, respectively. NOTE 13 LITIGATIOR The Company and certain officers and directors are defendants in a securities class action lawsuit which purports to represent a class of investors who purchased or otherwise acquired the Company's common stock between January 1992 and May 1993. Certain officers and directors are also defendants in a related shareholders derivative suit. Both complaints seek unspecified damages and other relief. the Company believes there are meritorious defenses to the matters raised and intends to defend the actions vigorously. In August 1993, the Company was served with a patent infringement complaint filed by IBM in the United States District Court for the Northern District of California. The complaint alleges that products manufactured by the Company infringe nine patents owned by IBM. In addition, the complaint seeks declaratory relief to the effect that drives produced by IBM do not infringe five patents held by the Company and seeks to have such patents declared invalid. The Company answered the complaint, denying all material allegations and counter claiming that IBM disk drives infringe six patents owned by Conner, including the five contained in the IBM complaint. The Company expects that it may engage in cross- licensing negotiations with IBM with a view towards resolving this matter; however, the Company believes that it has meritorious defenses against these allegations and will defend this action vigorously. The Company is unable to predict the outcome of the litigation or ultimate effect, if any, on its operations or financial condition. Report of Independent Accountents To the Board of Directors and Stockholders of Conner Peripherals, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Conner Peripherals, Inc. and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These consolidated financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 13, the Company is a defendant in a lawsuit alleging infringement of certain patents. The Company is unable to predict the outcome of the litigation or ultimate effect, if any, on its operations or financial condition. /s/ PRICE WATERHOUSE PRICE WATERHOUSE San Jose, California January 20, 1994 CONNER PERIPHERALS, INC. 29 Report of Management Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with Conner management. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. Conner maintains an effective internal control structure. It consists, in part, of organizational arrangements which clearly define lines of responsibility and comprehensive systems of review and control procedures. We believe this structure provides reasonable assurance that transactions are executed in accordance with management's authorization, that they are appropriately recorded, in conformity with generally accepted accounting principles and that they adequately safeguard, verify and maintain accountability of assets. In order to assure an effective internal control system, we carefully select and train our employees, develop and disseminate written policies and procedures and foster an environment conducive to the effective functioning of controls. We believe that it is essential for the Company to conduct its business affairs in accordance with the highest ethical standards. The Audit Committee of the Board of Directors is composed solely of outside directors, and is responsible for recommending to the Board, the independent accounting firm to be retained for the coming year, subject to stockholder approval. The Audit Committee meets periodically and privately with the independent accountants, with our internal auditors, as well as with Conner management, to review accounting, auditing, internal control structure and financial reporting matters. Price Waterhouse, independent accountants, are retained to examine Conner's financial statements. Their accompanying report is based on an examination conducted in accordance with generally accepted auditing standards, including a review of the internal control structure and tests of accounting procedures and records. /s/DAVID T. MITCHELL /s/P. JACKSON BELL David T. Mitchell P. Jackson Bell President and Executive Vice President Chief Operating Officer and Chief Financial Officer 30 CONNER PERIPHERALS, INC. Corporate Directory EXECUTIVE OFFICERS AND DIRECTORS Finis F. Conner Chairman of the Board of Directors and Chief Executive Officer William J. Schroeder Vice Chairman and Director David T. Mitchell President, Chief Operating Officer and Director John P. Squires Executive Vice President of Research and Development and Director P. Jackson Bell Executive Vice President and Chief Financial Officer William S. Anderson/1/,/2/ Director Roger S. Penske Director Mark Rossi/1/,/2/ Director Linda Wertheimer Hart/1/,/2/ Director Ambassador L. Paul Bremer, III/2/ Director /1/ Member of the Audit Committee /2/ Member of the Compensation Committee LEGAL COUNSEL Wilson, Sonsini, Goodrich & Rosati, P.C. Palo Alto, CA INDEPENDENT ACCOUNTANTS Price Waterhouse San Jose, CA REGISTRAR AND TRANSFER AGENT The First National Bank of Boston Boston, MA Bank of Boston stockholder services inquiry number 1-800-442-2001. ANNUAL MEETING The annual meeting of stockholders of Conner Peripherals, Inc. will be held at 10:00 a.m. on April 19, 1994, at the Fairmont Hotel at the Fairmont Plaza located at 170 S. Market Street, San Jose, California 95113. All Conner stockholders are encouraged to attend. For additional copies of this annual report, contact the Investor Relations Department, Conner Peripherals, Inc., 3081 Zanker Road, San Jose, California 95134-2128. FORM 10-K A copy of the Company's Form 10-K, filed with the Securities and Exchange Commission, is available without charge upon written request to the Investor Relations Department, Conner Peripherals, Inc., 3081 Zanker Road, San Jose, California 95134-2128. MARKET PRICE OF COMMON STOCK The Company's common stock is traded on the New York Stock Exchange under the symbol "CNR." The following table shows the high and low closing sales prices for the Common Stock of the Company for the periods indicated, as reported by the New York Stock Exchange Composite Tape.
1993 High Low - --------------------------------------------------- Quarter ended March 31, 1993 24 3/8 13 1/2 Quarter ended June 30, 1993 13 5/8 9 1/4 Quarter ended September 30, 1993 13 0/0 9 1/4 Quarter ended December 31, 1993 14 5/8 9 1/4 1992 High Low - --------------------------------------------------- Quarter ended March 31, 1992 21 3/8 15 5/8 Quarter ended June 30, 1992 23 1/2 17 1/2 Quarter ended September 30, 1992 22 0/0 16 7/8 Quarter ended December 31, 1992 22 5/8 18 1/2
The Company has not paid cash dividends on its common stock and does not plan to pay cash dividends to its stockholders in the near future. The Company presently intends to retain its earnings to finance further growth of its business. As of December 31, 1993, the Company had 2,713 stockholders of record. Conner Peripherals, Inc. 3081 Zanker Road San Jose, CA 95134-2128 408-456-4500 1994 Conner Peripherals, Inc. Printed in U.S.A. 63K EX-21.1 9 REGISTERED ENTITIES CONNER PERIPHERALS, INC. EXHIBIT 21.1 Registered Entities
CORPORATIONS REGISTERED OWNER(S) - ------------ ------------------- Conner Peripherals, Inc. (CPI) N/A Conner Peripherals (U.K.) Limited (CPUK) CPI Conner Peripherals GmbH (GMBH) CPI Conner Peripherals Singapore, Ltd. (in Cayman Islands) (CPS) CPI Conner Peripherals Pte. Ltd. (in Singapore) (CPPL) CPS Conner Peripherals Malaysia Sdn. Bhd. (CPM) CPPL Conner Finance Limited (in Cayman Islands) CPM Conner Peripherals K.K. (KK) CPI Conner Peripherals Europe S.p.A. (CPE) CPI Conner Peripherals France S.a.r.l. (CPF) CPI Conner Peripherals (U.K.) Sales Limited CPI Conner Peripherals Korea, Ltd. (CPK) CPI Conner Peripherals (Hong Kong) Limited (CPHK) CPI Conner Peripherals China Holding Company (CPCHC) CPS/CPHK Conner Shenzhen Peripherals Co. Ltd. CPCHC/Shenzhen CPC Conner Technology International Limited CPI Archive (Singapore) Pte. Ltd. (in Singapore) CPS Archive Europe Ltd. (AEL) CPI Archive U.K. Ltd. AEL Archive France S.a.r.l. CPI Optimem, Inc. CPI/Xerox* Archive Peripherals Asia Pacific Pte. Ltd. (APA) (in Singapore) CPI Arcada Holdings, Inc. (AHI) CPI* Arcada Software, Inc. AHI BRANCHES - -------- Conner Peripherals Pte. Ltd., Taiwan Branch (CPT) CPPL Archive Peripherals Asia Pacific Pte. Ltd., Taiwan Branch APA
* - Minority interest held by certain individuals. EX-23.1 10 CONSENT OF ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Forms S-8 (Nos. 33-46886 and 33-56878) of Conner Peripherals, Inc. of our report dated January 20, 1994, appearing on page 29 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page S-3 of this Form 10-K. /s/ PRICE WATERHOUSE Price Waterhouse San Jose, California March 31, 1994 -----END PRIVACY-ENHANCED MESSAGE-----